As filed with the Securities and Exchange Commission on March 12, 1997
Registration No. 33-_________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
BAYONNE BANCSHARES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CERTIFICATE OF INCORPORATION)
DELAWARE 6035 BEING APPLIED FOR
(state or other (Primary Standard (IRS Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or organization)
568 BROADWAY
BAYONNE, NEW JERSEY 07002
(201) 437-1000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
PATRICK F.X. NILAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
FIRST SAVINGS BANK OF NEW JERSEY, SLA
568 BROADWAY
BAYONNE, NEW JERSEY 07002
(201) 437-1000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
JOSEPH G. PASSAIC, JR., ESQUIRE
CHRISTINA M. GATTUSO, ESQUIRE
ANN E. COX, ESQUIRE
THOMAS W. FRANCE, 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 /
================================================================================
Title of each Aggregate
Class of Securities Amount to Purchase Price Offering Registration
to be Registered be Registered Per Share Price(1) Fee
- --------------------------------------------------------------------------------
Common Stock 8,853,600
$.01 par Value Shares $10.00 $88,536,000 $30,530
================================================================================
(1) Estimated solely for the purpose of calculating the registration fee.
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>
BAYONNE BANCSHARES, INC.
Cross Reference Sheet Showing Location in the Subscription and Community
Offering Prospectus ("Prospectus") of Information Required by Items of Form S-l:
Registration Statement Item and Caption Prospectus Headings
--------------------------------------- -------------------
l. Forepart of the Registration Statement Front Cover Page
and Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Page Inside Front and Outside Back
of Prospectus Cover Pages
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 and
Reorganization-- Stock Pricing
and Exchange Ratio
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Front Cover Page; The
Conversion and Reorganization
-- Subscription Offering and
Subscription Rights;
--Community Offering; --
Syndicated Community Offering
9. Description of Securities to be Registered The Conversion and
Reorganization -- Certain
Restrictions on Purchase or
Transfer of Shares After
Conversion; Restrictions on
Acquisition of the Company and
the Bank; Description of
Capital Stock of the Company;
Description of Capital Stock
of the Bank
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to the Registrant Front Cover Page; Bayonne
Bancshares, Inc.; First
Savings Bank of New Jersey,
SLA; Bayonne Bankshares,
M.H.C.; 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 and
Reorganization; Description of
Capital Stock of the Company;
Description of Capital Stock
of Bank; Financial Statements
12. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act
Liabilities
<PAGE>
[To be used in connection with the Syndicated Community Offering only]
SYNDICATED PROSPECTUS SUPPLEMENT
BAYONNE BANCSHARES, INC.
(PROPOSED HOLDING COMPANY FOR FIRST SAVINGS BANK OF NEW JERSEY, SLA)
__________ SHARES OF COMMON STOCK
Bayonne Bancshares, Inc. (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 $10.00, of its common
stock, par value $.01 per share (the "Common Stock"), to be issued in connection
with the reorganization of First Savings Bank of New Jersey, SLA, Bayonne, New
Jersey (the "Bank") and Bayonne Bankshares, M.H.C. (the "Mutual Holding
Company") into the stock holding company structure pursuant to the Mutual
Holding Company's Plan of Conversion and Agreement and Plan of Reorganization
(the "Plan"). 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 December 31, 1994, by the First Savings Bank
of New Jersey, SLA 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 ______________, 1997, by certain other
members of the Bank, consisting of holders of deposit accounts of the Bank as of
____________, 1997 (the "Voting Record Date") and borrowers with loans
outstanding as of January 6, 1995, which continue to be outstanding as of the
Voting Record Date and then by certain members of the general public. See "The
Conversion and Reorganization - 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 $10.00 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 _______________, 1997, 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 _______________, 1999. 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,
<PAGE>
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 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 3.0% of the total number of shares issued in the
Conversion. See "The Conversion and Reorganization - Subscription Offerings and
Subscription Rights," and " - Limitations on Conversion 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 ____% 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 to have its Common Stock
traded on the Nasdaq National Market under the symbol "FSNJ." 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, 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.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER
GOVERNMENT AGENCY, NOR ARE THEY INSURED OR GUARANTEED BY THE BANK OR THE
COMPANY.
2
<PAGE>
<TABLE>
<CAPTION>
Estimated Net
Estimated Proceeds of
Underwriting Estimated Net Subscription,
Commissions Proceeds of 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 $10.00 $ $ $
- ------------------------------------------------------------------------------------
Midpoint Per Share $10.00 $ $ $
- ------------------------------------------------------------------------------------
Maximum Per Share $10.00 $ $ $
- ------------------------------------------------------------------------------------
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 and
Reorganization - 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 $10.00 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 $10.00
per share (the "Estimated Price Range). The Total Minimum reflects the
sale of __________ shares at a per share price of $10.00, 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
and Reorganization - Subscription Offerings and Subscription Rights," and
" - Limitations on Conversion Stock Purchases."
SANDLER O'NEILL & PARTNERS, L.P.
---------------------------------
The date of this Prospectus Supplement is _______________, 1997.
3
<PAGE>
PROSPECTUS
BAYONNE BANCSHARES, INC.
(Proposed Holding Company for First Savings Bank of New Jersey, SLA)
7,306,000 Shares of Common Stock
Bayonne Bancshares, Inc. (the "Company" or "Bayonne Bancshares"), a
Delaware corporation, is offering up to 7,306,000 shares of its common stock,
par value $.01 per share (the "Common Stock"), in connection with the
reorganization of First Savings Bank of New Jersey, SLA ("First Savings" or the
"Bank") and Bayonne Bankshares, M.H.C., the mutual holding company of the Bank
(the "Mutual Holding Company" or "MHC") into the stock holding company structure
pursuant to the Mutual Holding Company's Plan of Conversion and Agreement and
Plan of Reorganization (the "Plan" or "Plan of Conversion"). In certain
circumstances, the Company may increase the amount of Common Stock offered
hereby to 8,402,000 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 __.
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.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND
OR ANY OTHER GOVERNMENT AGENCY, NOR ARE THEY INSURED OR GUARANTEED BY THE BANK
OR THE COMPANY.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ESTIMATED UNDERWRITING
SUBSCRIPTION PRICE(1) COMMISSIONS ESTIMATED NET PROCEEDS(3)
AND OTHER FEES AND EXPENSES(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum Per Share................... $10.00 $0.39 $9.61
- ------------------------------------------------------------------------------------------------------------------------------------
Midpoint Per Share.................. $10.00 $0.36 $9.64
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum Per Share................... $10.00 $0.33 $9.67
- ------------------------------------------------------------------------------------------------------------------------------------
Total Minimum(1).................... $29,318,000 $1,134,000 $28,185,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Midpoint(1)................... $34,493,000 $1,228,000 $33,264,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Maximum(1).................... $39,667,000 $1,323,000 $38,344,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Maximum, as adjusted(4)....... $45,617,000 $1,431,000 $44,186,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based upon the minimum, midpoint and maximum of the valuation price range,
which was determined in accordance with an independent appraisal prepared
by FinPro, Inc. ("FinPro") dated March 3, 1997. Does not include shares of
Common Stock issued to Public Stockholders in the Exchange or shares that
are proposed to be issued to the charitable foundation to be established
by the Company. See "The Conversion and Reorganization - Stock Pricing and
Exchange Ratio" and "- Number of Shares to be Issued."
(2) Consists of the estimated costs to the Bank and the Company arising from
the Conversion and Reorganization, including estimated fixed expenses of
$609,000 and marketing fees to be paid to Sandler O'Neill & Partners, L.P.
("Sandler O'Neill") estimated to be $525,000 and $714,000 at the minimum
and the maximum of the Estimated Price Range, respectively. See "The
Conversion and Reorganization - Marketing and Underwriting Arrangements."
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 and other
factors. Includes the purchase of shares of Common Stock by the First
Savings Bank of New Jersey, SLA Employee Stock Ownership Plan and related
trust (the "ESOP") which will be funded by a loan to the ESOP from the
Company or a third party and which will be deducted from the Company's
stockholders' equity. See "Use of Proceeds" and "Pro Forma Data."
(4) As adjusted to reflect the sale of up to an additional 15% of the Common
Stock which may be offered at the Purchase Price, without resolicitation
of subscribers or any right of cancellation, due to regulatory
considerations, changes in the market and general financial and economic
conditions. See "Pro Forma Data" and "The Conversion and Reorganization -
Stock Pricing and Exchange Ratio." For a discussion of the distribution
and allocation of the additional shares, if any, see "The Conversion and
Reorganization - Subscription Offering and Subscription Rights," "-
Community Offering" and "- Limitations on Conversion Stock Purchases."
------------------------------
SANDLER O'NEILL & PARTNERS, L.P.
THE DATE OF THIS PROSPECTUS IS _______________, 1997.
<PAGE>
Pursuant to the Plan adopted by the Bank and the Mutual Holding Company,
the Bank will become a subsidiary of the Company upon consummation of the
transactions described herein (collectively, with the Offerings, the "Conversion
and Reorganization"). As a result of the Conversion and Reorganization, each
share of common stock, par value $.10 per share, of the Bank ("Bank Common
Stock") held by the Mutual Holding Company, which currently holds 1,659,485
shares, or 54.2% of the outstanding Bank Common Stock, will be cancelled and
each share of Bank Common Stock held by the Bank's public stockholders (the
"Public Bank Shares"), which amounted to 1,404,646 shares, or 45.8% of the
outstanding Bank Common Stock at December 31, 1996, will be converted into
shares of the Company's Common Stock ("Exchange Shares") pursuant to a ratio
(the "Exchange Ratio") that will result in the holders of such shares (the
"Public Stockholders") owning in the aggregate approximately the same percentage
of the Company as they owned of the Bank, before giving effect to (a) the
payment of cash in lieu of fractional Exchange Shares, (b) any shares of Common
Stock purchased by such stockholders in the Offerings described herein or the
Bank's ESOP thereafter (the "Exchange") or (c) any shares proposed to be issued
to the charitable foundation to be established by the Company. See "Risk Factors
- - Establishment of the Charitable Foundation."
IN ADDITION TO THE EXCHANGE, NON-TRANSFERABLE SUBSCRIPTION RIGHTS TO
SUBSCRIBE FOR UP TO 3,966,700 SHARES (WHICH MAY BE INCREASED TO 4,561,700 SHARES
UNDER CERTAIN CIRCUMSTANCES DESCRIBED BELOW) OF COMMON STOCK (THE "CONVERSION
STOCK") HAVE BEEN GRANTED, IN ORDER OF PRIORITY, TO EACH OF THE BANK'S ELIGIBLE
ACCOUNT HOLDERS, TO THE ESOP, TO THE BANK'S SUPPLEMENTAL ELIGIBLE ACCOUNT
HOLDERS, AND TO CERTAIN OTHER MEMBERS (EACH AS DEFINED HEREIN) IN A SUBSCRIPTION
OFFERING (THE "SUBSCRIPTION OFFERING"). SUBSCRIPTION RIGHTS ARE NONTRANSFERABLE.
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 Conversion Stock not subscribed for in the Subscription Offering for
sale in a community offering to certain members of the general public, with a
first preference given to holders of the Public Bank Shares and a second
preference to natural persons residing in the City of Bayonne in the State of
New Jersey (the "Community Offering") (the Subscription Offering and Community
Offering are referred to collectively as the "Subscription and Community
Offerings"). 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").
Except for the ESOP, no Eligible Account Holder, Supplemental Eligible
Account Holder or Other Member may, in their respective capacities as such,
purchase in the Subscription Offering more than $200,000 of the total number of
shares of Conversion Stock offered for sale in the Conversion; no person,
together with associates of and persons acting in concert with such person, may
purchase in the Community Offering and the Syndicated Community Offering more
than $200,000 of the total number of shares offered for sale in the Conversion;
and no person, together with associates of and persons acting in concert with
such person, may purchase in the aggregate more than the number of shares of
Conversion Stock that when combined with Exchange Shares received by such person
would exceed the overall maximum purchase limitation of 3.0% of the total number
of shares of Conversion Stock offered for sale in the Conversion; provided,
however, that such purchase limitations and the amount that may be subscribed
for may be increased or decreased in the sole discretion of the Company, the
Mutual Holding Company and the Bank (the "Primary Parties") without further
approval of the Mutual Holding Company's members or the Public Stockholders. See
"The Conversion and Reorganization -- Subscription Offering and Subscription
Rights," "- Community Offering" and "- Limitations on Conversion Stock
Purchases." The minimum purchase is 25 shares.
Pursuant to the Plan, the Company intends to establish a charitable
foundation in connection with the Conversion and Reorganization. The Plan
provides that the Bank, the Mutual Holding Company and the Company will create
the Bayonne First Charitable Foundation (the "Foundation"), which will be
incorporated under Delaware law as a non-stock corporation, and will be funded
with shares of Common Stock contributed by the Company, in an amount equal to
9.9% of the number of shares of Conversion Stock sold in the Conversion and
Reorganization. The Foundation will be dedicated to charitable and educational
purposes within the City of Bayonne, New Jersey. The establishment of the
Foundation is subject to the approval of the Mutual Holding Company'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 and
Reorganization, including if members do not approve the establishment of the
Foundation, see "Risk Factors -- Establishment of the Charitable Foundation,"
"Pro Forma Data," and "The Conversion and Reorganization -- Establishment of the
Charitable Foundation."
THE SUBSCRIPTION AND COMMUNITY OFFERINGS WILL TERMINATE AT _____ _.M., NEW
JERSEY TIME, ON _________, 1997 (THE "EXPIRATION DATE"), UNLESS EXTENDED BY THE
PRIMARY PARTIES, WITH APPROVAL OF THE OTS, IF NECESSARY. 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
2
<PAGE>
may not go beyond ____________, 1999. See "The Conversion and Reorganization --
Subscription Offering and Subscription Rights" and "-- Procedure for Purchasing
Shares in Subscription and Community Offerings."
The Company has received conditional approval to have its Common Stock
traded on the Nasdaq National Market under the symbol "FSNJ" upon completion of
the Conversion. The Bank's Common Stock currently trades on the Nasdaq National
Market under the symbol "FSNJ." See "Market for the Common Stock."
3
<PAGE>
[MAP GOES HERE]
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT ACCOUNTS OR DEPOSITS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED.
4
<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.
BAYONNE BANCSHARES, INC.
Bayonne Bancshares, Inc. is a Delaware corporation recently organized by
the Bank for the purpose of holding all of the capital stock of the Bank and
facilitating the Conversion and Reorganization. Immediately following the
Conversion and Reorganization, the only significant assets of the Company will
be the capital stock of the Bank, a loan to the ESOP and the net proceeds of the
Offerings retained by the Company. The Company will transfer to the Bank 50% of
the net proceeds from the Offerings with the remaining net proceeds to be
retained by the Company. Funds retained by the Company will be used for general
business activities, including the loan to the ESOP to enable the ESOP to
purchase up to 8% of the aggregate of the Conversion Stock issued and the shares
issued to the Foundation. On an interim basis, the net proceeds are expected to
be deposited by the Company into a deposit account at the Bank. 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 568 Broadway, Bayonne, New Jersey 07002. The Company's telephone
number is (201) 437-1000.
FIRST SAVINGS BANK OF NEW JERSEY, SLA
First Savings is a New Jersey chartered stock savings association that
conducts its operations from its main office and three branch offices located in
Bayonne, New Jersey. The Bank was originally chartered in 1889, and has been a
member of the Federal Home Loan Bank ("FHLB") System since 1945. The Bank's
deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") under
the Savings Association Insurance Fund ("SAIF"). As a SAIF-insured,
state-chartered savings association, the Bank is also regulated by the New
Jersey Department of Banking ("Department") and the OTS. At December 31, 1996,
the Bank had total assets of $578.6 million, total deposits of $441.3 million,
and stockholders' equity of $49.6 million. On January 6, 1995, the Bank, in the
mutual form of organization, reorganized from a New Jersey-chartered savings
association into Bayonne Bankshares, M.H.C., a federal mutual holding company,
and concurrently formed the Bank, which succeeded to the name and operations of
the Bank's mutual savings association predecessor. In connection with the
organization of the Mutual Holding Company in 1995, (the "1995 MHC
Reorganization"), First Savings transferred substantially all of its assets and
liabilities to the Bank in exchange for 1,659,485 shares of Bank Common Stock
and converted its charter to that of a federal mutual holding company known as
Bayonne Bankshares, M.H.C. As part of the 1995 MHC Reorganization, the Bank also
sold an additional 1,404,646 shares of Bank Common Stock to certain members of
the general public. As of December 31, 1996, there were 3,064,131 shares of Bank
Common Stock issued and outstanding, of which 1,404,646 shares, or 45.8%
consisted of Public Bank Shares.
The Bank is a community oriented savings institution that is primarily
engaged in the business of attracting deposits from the general public in the
Bank's market area, and investing such deposits in one- to four-family
residential real estate mortgage loans, mortgage-backed securities and United
States Government and agency obligations. In more recent periods, the Bank's
investment in mortgage-backed securities has exceeded its investment in mortgage
loans due to a declining market for such loans. At December 31, 1996,
mortgage-backed securities totalled $217.9 million, or 37.7% of total assets,
while one- to four-family residential mortgage loans totalled $202.6 million,
comprising 35.0% of the Bank's
5
<PAGE>
total assets, and U.S. Government and agency obligations totalled $76.9 million,
or 13.3% of total assets. To a lesser extent, the Bank also invests in
multifamily and commercial real estate loans, home equity loans, and passbook
and other consumer loans. The Bank's principal sources of funds have been
deposits, principal and interest payments on loans and mortgage-backed
securities, funds from sales of investments and borrowings and reverse
repurchase agreements. Principal sources of income have been interest received
from loans, mortgage-backed securities and other investments. The Bank's
principal expense has been interest paid on deposits and borrowings,
compensation and employee benefits, and SAIF deposit insurance premiums.
In the past, the Bank invested a significant amount of its assets in
investment securities such as mutual funds that invest in mortgage-backed
securities and United States Government and agency obligations. In more recent
periods, the market prices of certain of the Bank's U.S. Government agency and
Treasury securities have decreased since the time of purchase, which has had an
adverse impact on the Bank's interest rate sensitivity position and
stockholders' equity. At December 31, 1996, March 31, 1996 and March 31, 1995,
gross unrealized losses on investment securities available for sale totalled
$5.2 million, $8.5 million and $12.1 million, respectively. Moreover, the Bank's
significant investment in fixed-rate investments adversely impacted its exposure
to interest rate risk. Therefore, beginning in 1995, the Bank implemented a
strategy to restructure its investment portfolio by liquidating certain
investment securities and reinvesting the proceeds in higher-yielding
interest-earning assets such as mortgage loans and mortgage-backed securities.
The Bank also borrowed funds to increase its investments in mortgage-backed
securities as part of this strategy.
In particular, the Bank sold $25.0 million of U.S. Government Agency
securities and U.S. Treasury notes in December, 1995, at a pre-tax loss of $2.5
million, which resulted in an after-tax loss of approximately $1.6 million. The
Bank sold these securities following a Financial Accounting Standards Board
("FASB") report which permitted a one-time reassessment of the classification of
securities. The Bank transferred $50.0 million of U.S. Government Agency
securities and U.S. Treasury notes from the held to maturity portfolio to the
available for sale portfolio. In addition, during the three months ended
December 31, 1995, the Bank borrowed funds for the purpose of purchasing $147.0
million of higher-yielding mortgage-backed securities, which were designated as
available for sale. The Bank funded these purchases with an $80 million
repurchase agreement and a $70 million Federal Home Loan Bank advance. However,
due to higher interest rates during this period, the Bank's interest rate risk
exposure increased during fiscal 1996.
The Bank has continued to restructure its investment portfolio throughout
fiscal 1997, placing emphasis on improving its interest rate risk position.
During the nine months ended December 31, 1996, the Bank sold intermediate- and
short-term mutual funds totalling $71.5 million and U.S. Treasury securities
totalling $25.0 million, at a pre-tax loss of $2.8 million. The Bank used the
proceeds from these sales to purchase $60.5 million of higher-yielding
mortgage-backed securities, and to repay $50.0 million of FHLB advances that
were outstanding as of March 31, 1996. The Bank believes that most of its
restructuring is complete and does not anticipate any further significant sales
of investment securities, since much of the remaining securities with unrealized
losses are due to mature by 1999. Another $51.0 million of U.S. Treasury
securities available for sale will mature by October 31, 1998, thereby affording
the Bank the opportunity to reinvest these additional funds or further reduce
borrowings. While the Bank has incurred losses in recent periods largely as a
result of these securities sales, such sales are consistent with the Bank's
overall objective of improving earnings and stockholders' equity and reducing
interest rate risk exposure over the long term. Largely as a result of these
efforts, the Bank has reduced its cumulative one year gap ratio from negative
25.36% at March 31, 1996 to negative 6.76% at December 31, 1996. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Business Strategy."
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Highlights of the Bank include the following:
o Capital Strength. At December 31, 1996, the Bank had stockholders'
equity of $49.6 million, or 8.6% of total assets, and exceeded all
of its regulatory capital requirements. The Bank's tangible capital,
core capital and risk-based capital ratios were 9.13%, 9.13% and
26.41%, 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
$70.0 million, or 11.75% of assets, and pro forma stockholders'
equity of $70.0 million, or 11.75% of assets as of December 31,
1996. See "Regulatory Capital Compliance."
o 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 the City of Bayonne and
Hudson County. At December 31, 1996, one- to four- family
residential mortgage loans comprised 83.0% of the Bank's total loans
receivable. An additional 11.5% of the Bank's total loans receivable
was comprised of home equity loans and lines of credit secured by
one-to four-family residential properties within the Bank's market
area. The Bank's total loan portfolio has declined in the 1990s,
however, from a high of $286.5 million at May 31, 1990, representing
53.8% of total assets, to a low of $193.9 million at May 31, 1994,
representing 35.4% of total assets. At December 31, 1996, total
loans receivable had increased to $244.1 million, equalling 42.2% of
total assets. This overall decline is primarily due to a declining
population and diminished loan demand in the Bayonne market area.
Although the Bank intends to maintain its primary emphasis on
traditional residential mortgage lending, the Bank is considering
expanding its lending program to include commercial loans in the
future in an effort to satisfy a perceived need within its market
area and increase its loan portfolio. In addition, the Bank also
intends to expand its market area to include the surrounding
communities in order to address the declining loan demand within the
Bayonne market area. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Business Strategy."
o Asset Quality. The Bank has reduced the level of its non-performing
loans and non- performing assets in recent periods. The Bank's ratio
of loans 90 days or more past due to net loans at December 31, 1996
was 2.52%, which was reduced from a high of 4.11% at May 31, 1992.
The Bank's loans 90 days or more past due and other non-performing
assets at December 31, 1996 represented 1.21% of total assets, which
was reduced from 2.42% at May 31, 1992. At December 31, 1996, the
Bank's allowance for loan losses totalled $3.0 million, which
equalled 1.22% of the Bank's net loan portfolio and 49.01% of loans
90 days past due and other non-performing assets. See "Business of
the Bank - Lending Activities."
o Operating Expenses. The Bank has sought to manage overhead costs in
all areas by controlling growth in personnel and managing other
operating expenses. At December 31, 1996, the Bank operated four
offices and had $578.6 million in assets with a total of 82
full-time employees and 54 part-time employees, resulting in an
average of $4.3 million in assets per employee, which management
believes to be better than industry average for institutions of
similar size. For the nine months ended December 31, 1996,
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<PAGE>
the year ended March 31, 1996, the ten months ended March 31, 1995,
and the years ended May 31, 1994, 1993, and 1992, the Bank's ratio
of operating expenses to average assets was 1.67%, 1.91%, 1.76%,
1.68%, 1.63% and 1.60%, respectively.
o Retail Deposit Base. The Bank has had a relatively strong retail
deposit base drawn from its offices located in Bayonne, New Jersey.
The Bank holds approximately 40% of all deposits held by branches of
commercial banks, credit unions, and savings associations located in
Bayonne, and approximately 6% of such deposits in Hudson County. At
December 31, 1996, 42.5% of the Bank's deposit base of $441.3
million consisted of core deposits, which included passbook
accounts, NOW accounts, money market deposit accounts, noninterest
demand accounts, and club accounts. Core deposits are considered to
be a more stable and lower cost source of funds than certificates of
deposit or outside borrowings. The Bank's total deposits, however,
have decreased 9.8% since May 31, 1992, from $489.3 million to
$441.3 million at December 31, 1996. This decline is reflective of
both the declining Bayonne population, as well as a shift of funds
generally from thrift institutions within Bayonne to mutual funds
and other types of financial investments as interest rates have
decreased over recent years. The Bank also expects to experience a
run-off of deposits when approximately $45 million of ten-year
certificates of deposit paying a rate of interest of 10% mature by
April 1998.
The Bank will continue to emphasize retail deposits by providing
quality customer service, offering competitive rates on deposit
accounts, and providing depositors with a full range of accounts.
The Bank also intends to expand commercial deposit accounts in an
effort to increase its deposit base. In addition, the Bank is
considering opening additional branch offices in its surrounding
communities to increase its deposit base. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Business Strategy."
o Interest Rate Risk Position. The Bank's profitability is largely
dependent upon its net interest income, which is largely dependent
upon market interest rates. Since 1994, the Bank's average cost of
interest-bearing liabilities has risen 91 basis points, while the
average yield on interest-earning assets has increased by only 27
basis points. This repricing has caused a compression in the Bank's
average interest rate spread, which was reduced to 1.88% for the
nine months ended December 31, 1996, from 2.52% for the year ended
May 31, 1994, and in its net interest margin, which was reduced to
2.15% for the nine months ended December 31, 1996, from 2.71% for
the year ended May 31, 1994. The Bank's net interest rate spread and
net interest margin was 1.87% and 2.20%, respectively, at December
31, 1996. The Bank's net interest rate spread and margin may
continue to decline in a rising interest rate environment as the
Bank's liabilities will reprice more quickly than its
interest-earning assets. See "Risk Factors - Sensitivity to Changes
in Interest Rates" and "- Restructuring of Investment Portfolio."
o Results of Operations. The Bank's net income has been adversely
affected in recent years due to a number of factors. Net income for
the year ended March 31, 1996, the ten months ended March 31, 1995,
and the years ended May 31, 1994, 1993 and 1992 was $615,000, $2.2
million, $4.0 million, $6.6 million and $4.3 million, respectively.
For the nine months ended December 31, 1996, the Bank experienced a
loss of $3.0 million. One reason for the decline in net income has
been the compression of the Bank's interest rate spread and net
interest margin, as discussed above. Another cause has been the
losses incurred on the sales of investment securities, as part of
the Bank's restructuring of its
8
<PAGE>
investment portfolio. Finally, the Bank's results of operations for
the nine months ended December 31, 1996 were adversely affected by
the one-time $2.9 million special assessment to recapitalize the
SAIF insurance fund as of September 30, 1996.
As part of the restructuring, the Bank has sought to shift its
investments into higher-yielding interest-earning assets in an
effort to improve earnings, which has contributed to the improvement
in the Bank's interest rate risk position. The Bank does not
anticipate further significant sales of securities at a loss since
its restructuring efforts are substantially complete. Assuming the
establishment of the Foundation, however, the Bank expects to incur
a one-time expense of between $1.8 million and $2.5 million in
connection with the funding of the Foundation, which is expected to
negatively impact earnings in the quarter in which the contribution
occurs. Operating results may also increase in future periods due to
the implementation of additional stock benefit plans in connection
with the Conversion and Reorganization, the payment of retirement
benefits to the Bank's President and the proposed expansion of the
Bank's branch network. See "Risk Factors - Restructuring of
Investment Portfolio," "- Sensitivity to Changes in Interest Rates,"
"- Recent Decline in Operating Results," and " - Establishment of
the Charitable Foundation."
o Change in Management. Patrick F.X. Nilan, the President, Chief
Executive Officer and Chairman of the Board, has announced his plans
to retire from active service as President and Chief Executive
Officer as of June 30, 1997, having completed 43 years of service
with the Bank. Mr. Nilan will remain as Chairman of the Board of
Directors of both the Company and the Bank. He will be succeeded by
his son, Michael Nilan, who is currently a Vice President and Chief
Operating Officer of the Bank. Michael Nilan has been employed by
the Bank since 1986. In addition, Eugene V. Malinowski, Vice
President and Chief Financial Officer of the Company and the Bank,
joined the Bank in November 1996. The future success of the Bank and
the Company depends to a significant degree on the skills and
competence of these two officers. For further information regarding
the experience of Messrs. Nilan and Malinowski, see "Management of
the Bank."
THE BAYONNE FIRST CHARITABLE FOUNDATION
In furtherance of the Bank's long-standing commitment to its local
community, the Plan of Conversion provides for the establishment of a charitable
foundation in connection with the Conversion and Reorganization. The Plan
provides that the Bank and the Company will create the Foundation, which will be
incorporated under Delaware law as a non-stock corporation, and will fund the
Foundation with shares of common stock contributed by the Company, as further
described below. The Primary Parties 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 the communities it serves thereby enabling such communities
to share in the potential growth and success of the Company over the long-term.
See "The Conversion and Reorganization -- Establishment of the Charitable
Foundation -- Structure of the Foundation."
The Foundation will be dedicated to the promotion of charitable purposes
within the City of Bayonne 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 be a private
foundation under the Internal Revenue Code of 1986, as amended (the "Code"). The
authority for the affairs of the Foundation will be vested in the Board of
Directors of the Foundation, which will be comprised of the existing members of
9
<PAGE>
the Company's Board of Directors. The Board of Directors will direct the assets
of the Foundation, including the Common Stock held by the Foundation. However,
the establishment of the Foundation is subject to certain requirements including
a requirement that the Common Stock of the Company held by the Foundation be
voted in the same ratio as all other shares of Company Common Stock on all
proposals considered by stockholders of the Company. See "The Conversion and
Reorganization -- Establishment of the Charitable Foundation -- Regulatory
Conditions Imposed on the Foundation."
The Company proposes to fund the Foundation by contributing to the
Foundation immediately following the Conversion and Reorganization a number of
shares of authorized but unissued Common Stock equal to 9.9% of the Conversion
Stock sold in the Offerings, or 290,200, 341,500 and 392,700 shares at the
minimum, midpoint and maximum, respectively, of the Estimated Price Range. Such
contribution, once made, will not be recoverable by the Company or the Bank.
Assuming the sale of shares at the maximum of the Estimated Price Range, the
Company will have 7,698,700 shares issued and outstanding, of which the
Foundation will own 392,700 shares or 5.1%. DUE TO THE ADDITIONAL ISSUANCE OF
SHARES OF COMMON STOCK TO THE FOUNDATION, PERSONS PURCHASING SHARES IN THE
CONVERSION AND REORGANIZATION, INCLUDING THE PUBLIC STOCKHOLDERS, WILL HAVE
THEIR OWNERSHIP AND VOTING INTERESTS IN THE COMPANY DILUTED BY 5.1%. IN
ADDITION, HOLDERS OF THE PUBLIC BANK SHARES WILL HAVE THEIR CURRENT VOTING
OWNERSHIP INTERESTS DILUTED BY 5.1% IF THE FOUNDATION IS ESTABLISHED IN
CONNECTION WITH THE CONVERSION AND REORGANIZATION. ESTABLISHMENT OF THE
FOUNDATION WILL ALSO RESULT IN A 6.6% DILUTION IN THE NUMBER OF EXCHANGE SHARES
RECEIVED BY THE PUBLIC STOCKHOLDERS FROM THE NUMBER OF EXCHANGE SHARES THAT
WOULD BE RECEIVED IF THE FOUNDATION WAS NOT ESTABLISHED. NOTWITHSTANDING SUCH
DILUTION, THE CONVERSION AND REORGANIZATION, WHICH INCLUDES THE ESTABLISHMENT OF
THE FOUNDATION, IS SUBSTANTIALLY ACCRETIVE TO THE PUBLIC STOCKHOLDERS AND
RESULTS IN, ON AN AGGREGATE BASIS, AN INCREASE ON A PRO FORMA BASIS OF $9.34 AND
$0.16, RESPECTIVELY, FROM CURRENT STOCKHOLDERS' EQUITY PER SHARE AND NET INCOME
PER SHARE, RESPECTIVELY, AS ADJUSTED, OR 55.9% AND 29.6%, RESPECTIVELY, ON A PRO
FORMA BASIS AT THE MAXIMUM OF THE ESTIMATED PRICE RANGE. FOR PURPOSES OF THIS
COMPARISON, EARNINGS PER SHARE AND STOCKHOLDERS' EQUITY PER SHARE FOR THE NINE
MONTHS ENDED DECEMBER 31, 1996 WERE ADJUSTED FOR THE ONE-TIME SAIF ASSESSMENT
AND THE NONRECURRING LOSS ON THE SALE OF MUTUAL FUNDS. SEE "SUMMARY - EFFECT OF
THE REORGANIZATION ON PUBLIC STOCKHOLDERS," "RISK FACTORS - ESTABLISHMENT OF
CHARITABLE FOUNDATION" AND "PRO FORMA DATA" AND FOOTNOTES THERETO.
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 first quarter of fiscal 1998. Such expense would have a
material impact on the Company's earnings for the year. Assuming a contribution
of $3.9 million in Common Stock, based on the maximum of the Estimated Price
Range, the Company estimates a net tax effected expense of $2.6 million. If the
Foundation had been established at March 31, 1996, the Bank would have incurred
a net loss of $2.0 million rather than reporting net income of $615,000.
Management cannot predict earnings for fiscal 1998, but expects that the
establishment and funding of the Foundation will have an adverse impact on the
Company's earnings for the fiscal year. For further discussion of the Foundation
and its impact on the Public Stockholders and purchasers in the Conversion and
Reorganization, see "Summary - Effect of the Reorganization on Public
Stockholders," "Risk Factors - Establishment of the Charitable Foundation," "Pro
Forma Data," and "The Conversion and Reorganization -- Establishment of the
Charitable Foundation."
The establishment of the Foundation is subject to the approval of a
majority of the total outstanding votes of the Mutual Holding Company members
eligible to be cast at the special meeting being held to consider the Conversion
and Reorganization. The establishment of the Foundation will be considered as a
separate matter from approval of the Plan of Conversion. If the Mutual Holding
Company
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<PAGE>
members approve the Plan of Conversion, but not the establishment of the
Foundation, the Primary Parties intend to complete the Conversion and
Reorganization without the Foundation. The Reorganization is also subject to
approval of the Public Stockholders. Failure to approve the Foundation may
materially increase the pro forma market value of the Conversion 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 Primary Parties 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 and Reorganization -- Stock Pricing and Exchange Ratio."
THE CONVERSION AND REORGANIZATION
On December 19, 1996, the Boards of Directors of the Bank and the Mutual
Holding Company adopted the Plan, and in February 1997, the Bank incorporated
the Company under Delaware law as a first-tier wholly owned subsidiary of the
Bank. Pursuant to the Plan, (i) the Mutual Holding Company will convert to an
interim federal stock savings institution and simultaneously merge with and into
the Bank, pursuant to which the Mutual Holding Company will cease to exist and
the 1,659,485 shares, or 54.2% of the outstanding Bank Common Stock held by the
Mutual Holding Company will be cancelled, and (ii) an interim savings
association ("Interim") to be formed as a wholly owned subsidiary of the Company
solely for purposes of the Reorganization will then merge with and into the
Bank. As a result of the merger of Interim with and into the Bank, the Bank will
become a wholly owned subsidiary of the Company and the outstanding Public Bank
Shares, which amounted to 1,404,646 shares, or 45.8% of the outstanding Bank
Common Stock at December 31, 1996, will be converted into the Exchange Shares
pursuant to the Exchange Ratio, which will result in the holders of such shares
owning in the aggregate approximately the same percentage of the Common Stock to
be outstanding upon completion of the Conversion and Reorganization (i.e., the
Conversion Stock) as the percentage of Bank Common Stock owned by them in the
aggregate immediately prior to consummation of the Conversion and
Reorganization, before giving effect to (a) the payment of cash in lieu of
issuing fractional Exchange Shares, (b) any shares of Conversion Stock purchased
by the Bank's Stockholders or the ESOP in the Offerings or thereafter, or (c)
any shares proposed to be issued to the Foundation.
In addition to shares of Common Stock to be issued pursuant to the
Exchange, pursuant to the Plan, the Company is offering shares of Conversion
Stock in the Offerings as part of the Conversion and Reorganization. See "-- The
Offerings" below and "The Conversion and Reorganization."
Under New Jersey law, Public Stockholders of the Bank will not have
dissenters' rights or appraisal rights in connection with the Conversion and the
Reorganization. See "The Conversion and Reorganization -- Effects of the
Conversion and Reorganization -- Effect on Public Bank Shares."
Pursuant to OTS regulations, consummation of the Conversion and
Reorganization is conditioned upon the approval of the Plan by the OTS, as well
as (1) the approval of the holders of at least a majority of the total number of
votes eligible to be cast by the members of the Mutual Holding Company
("Members") as of the close of business on ______, 1997 (the "Voting Record
Date") at a special meeting of Members called for the purpose of submitting the
Plan for approval (the "Members' Meeting"), and (2) the approval of the holders
of at least two-thirds of the shares of the outstanding Bank Common Stock held
by the Mutual Holding Company and the Public Stockholders (collectively, the
"Stockholders"), as of the Voting Record Date at a special meeting of
Stockholders called for the purpose of considering the Plan (the "Stockholders'
Meeting"). The Mutual Holding Company intends to vote its shares of Bank Common
Stock, which amount to 54.2% of the outstanding shares, in favor of the Plan at
the Stockholders' Meeting.
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<PAGE>
PURPOSES OF THE CONVERSION AND REORGANIZATION
The Boards of Directors of the Bank and the Mutual Holding Company believe
that the Reorganization is in the best interests of their respective
stockholders and members. A principal purpose of the Conversion and
Reorganization is to structure the Mutual Holding Company and the Bank in a form
used by most other holding companies of savings institutions and commercial
banks and most other business entities, which, with the increased capital
resulting from the Offerings, will enhance the prospects for growth and
performance of the Bank. The Conversion and Reorganization will also support the
future expansion of operations of the Bank, as well as possible diversification
into other banking-related businesses. Although there are no current
arrangements, understandings or agreements regarding such opportunities, the
Company will be in a position after the Conversion and Reorganization, subject
to regulatory limitations and the Company's financial position, to take
advantage of any additional opportunities for such expansion that may arise.
In addition, the Mutual Holding Company and the Bank considered various
regulatory uncertainties associated with the mutual holding company structure,
including the ability to waive dividends from the Bank in the future, the tax
limitation on the Bank to repurchase its Common Stock as well as the general
uncertainty regarding a possible elimination of the thrift charter. See "Risk
Factors -- Financial Institution Regulation and Possible Legislation,""Use of
Proceeds" and "Dividend Policy." The Offerings will also result in more shares
of stock outstanding, which should result in a more active and liquid market for
the Common Stock than currently exists for the Bank Common Stock, although there
can be no assurances that this will be the case. See "Market for the Common
Stock."
In light of the foregoing, the Boards of Directors of the Bank and the
Mutual Holding Company believe that the Conversion and Reorganization is in the
best interests of such companies and their respective Stockholders and Members.
See "The Conversion and Reorganization."
EFFECTS OF THE REORGANIZATION ON PUBLIC STOCKHOLDERS
The following are effects of the Reorganization on Public Stockholders,
assuming that at the minimum, midpoint, maximum and 15% above the maximum
Estimated Price Range, as defined herein, one Public Bank Share will be
exchanged for 1.757, 2.067, 2.377 and 2.734 shares of Company Common Stock. See
"Pro Forma Data."
Effect on Stockholders' Equity Per Share of the Exchange. The Conversion
and Reorganization will significantly increase the stockholders' equity of the
Public Stockholders. At December 31, 1996, stockholders' equity per share was
$16.19 for each share of the Bank Common Stock outstanding, including shares
held by the Mutual Holding Company. Based on the pro forma information set forth
in "Pro Forma Data" assuming the sale of 3,449,300 shares of Conversion Stock at
the midpoint of the Estimated Price Range, at December 31, 1996, the pro forma
shareholders' equity per share of Common Stock was $11.91, and the pro forma
shareholders' equity for the aggregate number of Exchange Shares to be received
for each Public Bank Share was $24.63. The pro forma stockholders' equity for
the aggregate number of Exchange Shares to be received for each Public Bank
Share was $23.21, $26.04 and $27.68 at the minimum, maximum and adjusted maximum
of the Estimated Price Range.
Effect on Earnings Per Share of the Exchange. The Conversion and
Reorganization will also affect Public Stockholders' pro forma earnings per
share. For the nine months ended December 31, 1996, the earnings per share was
$(0.98) for each share of the Bank Common Stock outstanding, including shares
held by the Mutual Holding Company. Based on the pro forma information set forth
in "Pro Forma Data," assuming the sale of 3,449,300 shares of Common Stock at
the midpoint of the Estimated Price
12
<PAGE>
Range, the pro forma earnings per share of Common Stock was $0.32 for such
period, and the pro forma earnings for the aggregate number of Exchange Shares
to be received for each Public Bank Share was $0.68. For the nine months ended
December 31, 1996, the pro forma earnings per share for the aggregate number of
Exchange Shares to be received for each Public Bank Share was $0.65, $0.70 and
$0.73 at the minimum, maximum and adjusted maximum of the Estimated Price Range.
Effect on Dividends Per Share of the Exchange. Although the Company
expects to pay a dividend on the Common Stock, it is unlikely that the dividends
that may be paid per share will be as high as the dividends that have been paid
per share on the Public Bank Shares. The Bank paid cash dividends totalling
$0.50 per share to Public Stockholders for the year ended March 31, 1996, and
has paid regular cash dividends totalling $0.125 per share per quarter, for the
nine months ended December 31, 1996. The Company expects to pay an annual
dividend of $0.285, $0.242, $0.210 and $0.183 per share on the Common Stock at
the minimum, midpoint, maximum and adjusted maximum of the Estimated Price Range
or an aggregate annual dividend of approximately $0.50 on the total Exchange
Shares received by Public Stockholders for each Public Bank Share. However, no
assurance can be given as to the amount of any dividend or that a dividend will
be paid, or if paid, that it will not be reduced or eliminated in future
periods. See "Dividend Policy."
Effect on the Market Value of the Exchange. The aggregate number of
Exchange Shares to be received for each Public Bank Share will have a calculated
estimated value of $17.57, $20.67, $23.77 and $27.34 at the minimum, midpoint,
maximum and adjusted maximum of the Estimated Price Range based on the $10.00
Purchase Price of Conversion Stock. The price of a share of Public Bank Shares
was $____ on ____________, 1997, the most recent day on which trading of the
Bank Common Stock occurred preceding the date of this Prospectus. ASSUMING THE
SALE OF CONVERSION STOCK AT LESS THAN THE MIDPOINT OF THE ESTIMATED PRICE RANGE,
THE VALUE OF THE EXCHANGE SHARES TO BE RECEIVED FOR EACH PUBLIC BANK SHARE MAY
BE LESS THAN THE MARKET PRICE OF THE PUBLIC BANK SHARES AT THE TIME OF THE
EXCHANGE, BASED ON THE FINAL EXCHANGE RATIO AND THE MARKET PRICE AT THE TIME OF
THE EXCHANGE. SEE "SUMMARY -- STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED IN
THE CONVERSION."
Effect of the Charitable Foundation on the Exchange. The establishment and
funding of the Foundation as part of the Conversion and Reorganization results
in a decrease in the Exchange Ratio from the Exchange Ratio that would result if
the Foundation was not established as part of the Conversion and Reorganization.
Assuming the Foundation is established as part of the Conversion and
Reorganization, at the midpoint of the Estimated Price Range the Public
Stockholders would receive 2.067 shares of Common Stock of the Company for each
share of Bank Common Stock held by a Public Stockholder, versus 2.213 shares of
Company Common Stock for each share of Bank Common Stock, or a 6.6% decrease, if
the Foundation was not established as part of the Conversion. In addition,
establishment of the Foundation would result in approximately 6.6% dilution in
the pro forma stockholders' equity and pro forma earnings per share for the
aggregate number of Exchange Shares to be received for each Public Bank Share.
Notwithstanding such dilution, the Boards of Directors of the Primary Parties
determined that the Conversion and Reorganization, including the establishment
of the Foundation, is substantially accretive on a pro forma basis to the Public
Stockholders. In this regard, pro forma stockholders' equity for the aggregate
number of Exchange Shares to be received for each Public Bank Share increases
from $16.70 per share, as adjusted for nonrecurring losses, to $26.04 per share,
or 55.9% per share, and pro forma earnings per share for the aggregate number of
Exchange Shares to be received increases from $0.54 per share, as adjusted for
nonrecurring losses, to $0.70 per share, or 29.6% per share at the maximum of
the Estimated Price Range. See "Pro Forma Data" and footnotes thereto.
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<PAGE>
THE OFFERINGS
Pursuant to the Plan and in connection with the Conversion and
Reorganization, the Company is offering up to 3,966,700 shares of Conversion
Stock in the Offerings. Conversion Stock will be offered in the Subscription and
Community Offerings and, to the extent shares are available, in the Syndicated
Community Offering. Conversion Stock offered in the Subscription Offering will
be offered in the following order of priority: (1) depositors whose accounts in
the Bank totalled $50 or more on December 31, 1994 ("Eligible Account Holders");
(2) the ESOP; (3) depositors whose accounts in the Bank totalled $50 or more on
________________, 1997 ("Supplemental Eligible Account Holders"); and (4) other
members of the Bank, consisting of depositors of the Bank as of ____________,
1997, the voting record date ("Voting Record Date") for the special meeting of
members to vote on the Conversion, and borrowers with loans outstanding as of
January 6, 1995, which continue to be outstanding as of the Voting Record Date,
other than those members who otherwise qualify as Eligible Account Holders or
Supplemental Eligible Account Holders ("Other Members"). Subject to the prior
rights of holders of subscription rights, Conversion Stock not subscribed for in
the Subscription Offering is being concurrently offered in the Community
Offering to certain members of the general public, with a first preference given
to the Public Stockholders and a second preference given to natural persons
residing in the City of Bayonne in the State of New Jersey. The Primary Parties
reserve the absolute right to reject or accept any orders in the Community
Offering, in whole or in part, either at the time of receipt of an order or as
soon as practicable following the Expiration Date.
All shares of Conversion 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 co-managed by Sandler O'Neill, acting as agent of the Company
to assist the Company and the Bank in the sale of the Conversion Stock. The
Primary Parties reserve the absolute right to reject orders, in whole or part,
in their sole discretion, in the Syndicated Community Offering.
PROSPECTUS DELIVERY AND PROCEDURE FOR PURCHASING SHARES
To ensure that each purchaser receives a prospectus at least 48 hours
prior to the Expiration Date in accordance with Rule 15c2-8 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), no prospectus will be
mailed any later than five days prior to the Expiration Date or hand delivered
any later than two days prior to such date. Stock order forms will only be
distributed with a prospectus. The Bank is not obligated to accept for
processing orders not submitted on original stock order forms. Stock 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 stock 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 Conversion Stock in
the Conversion. See "The Conversion and Reorganization -- 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. 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 and Reorganization -- Certain
Restrictions on Purchase or Transfer of Shares After Conversion."
14
<PAGE>
PURCHASE LIMITATIONS
The minimum purchase in the Subscription and Community Offerings is 25
shares. With the exception of the ESOP, 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 Conversion
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 Conversion
Stock offered; and no person, together with associates of or persons acting in
concert with such person, may purchase in the Offerings the number of shares of
Conversion Stock that, when combined with any Exchange Shares received by such
person, aggregates to more than the overall maximum purchase limitation of 3.0%
of the total number of shares of Conversion Stock offered in the Conversion,
exclusive of any shares issued pursuant to an increase in the Estimated Price
Range of up to 15%. See "Risk Factors - Effect of Purchase Limitations on
Ability of Public Stockholders to Purchase Conversion Shares." For purposes of
the purchase limitations set forth in the Plan of Conversion, Exchange Shares
will be valued at the $10.00 per share price at which shares of Conversion Stock
are issued in the Offerings. At any time during the Conversion and without
further approval by the Mutual Holding Company's members, the Primary Parties
may in their sole discretion decrease the maximum purchase limitation to 1% of
the number of shares of Conversion Stock to be issued in the Subscription and
Community Offerings, and/or may decrease the amount that may be subscribed for
in the Subscription and Community Offerings. Additionally, at any time during
the Conversion and without further approval by the Mutual Holding Company's
members, the Primary Parties may in their sole discretion increase the overall
maximum purchase limitation and/or increase the amount that may be subscribed
for in the Subscription and Community Offerings, up to 5% of the Conversion
Stock to be offered in the Conversion. Prior to consummation of the Conversion,
if the maximum purchase limitation is increased, subscribers for the maximum
amount will be, and certain other large subscribers in the sole discretion of
the Primary Parties may be, given the opportunity to increase their
subscriptions up to the then applicable limit. 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 and Reorganization -- Subscription Offering and
Subscription Rights," "-Community Offering" and "-- Limitations on Conversion
Stock Purchases." Because the overall maximum purchase limitation contained in
the Plan of Conversion includes Exchange Shares to be issued to Public
Stockholders for their Public Bank Shares, certain holders of Public Bank Shares
may be limited in their ability to purchase Conversion Stock in the Offerings.
See "Risk Factors - Possible Dilution to Public Stockholders as a Result of
Purchase Limitations."
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED IN THE CONVERSION
Federal regulations require that the aggregate purchase price of the
Conversion Stock to be offered in the Conversion be consistent with an
independent appraisal of the estimated pro forma market value of the Bank and
the Mutual Holding Company. FinPro, Inc. ("FinPro") an independent appraiser,
has advised the Primary Parties that in its opinion, dated March 3, 1997, the
estimated aggregate pro forma market value of the Bank and the Mutual Holding
Company was $66.95 million. Because the holders of the Public Bank Shares will
continue to hold approximately the same aggregate percentage ownership interest
in the Company as they held in the Bank (before giving effect to any shares of
Conversion Stock purchased by the Bank's stockholders in the Offerings or the
ESOP thereafter, the payment of cash in lieu of issuing fractional Exchange
Shares or shares proposed to be issued to the Foundation), the Appraisal was
multiplied by the Mutual Holding Company's percentage interest in the Bank,
taking into account the proposed issuance of shares to the Foundation, which
corresponds with the amount of Conversion Stock to be sold in the Offerings
(i.e., 54.2%), to determine the midpoint of the Price Range, which was $34.5
15
<PAGE>
million. In accordance with OTS regulations, the minimum and maximum of the
offering range were set at 15% below and above the midpoint, respectively,
resulting in an offering range of $29.3 million to $39.7 million (the "Estimated
Price Range"). The full text of the appraisal report of FinPro describes the
procedures followed, the assumptions made, limitations on the review undertaken
and matters considered, which included the trading market for the Bank Common
Stock (see "Market for the Common Stock") but was not solely dependent thereon.
(Based on the $17.385 and $____ closing prices of the Bank Common Stock on
December 26, 1996, the day preceding the Bank's announcement of the Conversion
and the Reorganization and _____, 1997, respectively, the estimated market value
of all outstanding shares of Bank Common Stock (including shares held by the
Mutual Holding Company) was $53.2 million and $_____ million, respectively.) For
further information, see "The Conversion and Reorganization -- Stock Pricing and
Exchange Ratio." 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.
All shares of Conversion Stock issued in the Conversion will be sold at
the Purchase Price of $10.00 per share, as determined by the Primary Parties.
The actual number of shares to be issued in the Offerings will be determined by
the Primary Parties based upon the final updated estimate of the aggregate pro
forma market value of the Conversion 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 Conversion Stock to be issued
in the Conversion may be increased to 4,544,000 shares due to regulatory
considerations or 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 Conversion Stock are less than the minimum or more
than 15% above the maximum of the current Estimated Price Range. Any increase or
decrease in the number of shares of Conversion Stock will result in a
corresponding change in the number of Exchange Shares, so that upon consummation
of the Conversion and Reorganization, the Conversion Stock and the Exchange
Shares will represent approximately 54.2% and 45.8%, respectively, of the
Company's total outstanding shares without consideration of the dilutive effect
of shares issued to the Foundation. Assuming 392,700 shares are issued to the
Foundation, based on the sale of Conversion Stock at the maximum of the
Estimated Price Range, the Exchange Shares received by Public Stockholders will
represent approximately 43.4% of the Company's total outstanding shares upon
consummation of the Conversion and Reorganization, representing a dilution of
the Public Stockholders' ownership interest of approximately 5.1%. See "Risk
Factors -- Establishment of the Charitable Foundation." Furthermore, Exchange
Shares may represent less than 43.4% of the Company's total outstanding shares
(assuming the establishment of the Foundation) if there are insufficient shares
for the ESOP to purchase 8.0% of the Conversion Stock and, consequently, the
Company has to issue authorized but unissued shares to the ESOP in order to
satisfy its order to purchase such amount of Conversion Stock in the Offerings.
See "Risk Factors -- Possible Increase in Estimated Price Range and Number of
Shares Issued," "-- Possible Dilutive Effect of Issuance of Additional Shares,"
"Pro Forma Data," and "The Conversion and Reorganization -- Stock Pricing" and
"-- Number of Shares to be Issued."
Based on the 1,404,646 Public Bank Shares outstanding at December 31,
1996, and assuming a minimum of 2,931,800 and a maximum of 3,966,700 shares of
Conversion Stock are issued in the Offerings, the Exchange Ratio is expected to
range from approximately 1.757 Exchange Shares to 2.377 Exchange Shares for each
Public Bank Share outstanding immediately prior to the consummation of the
Conversion and Reorganization. The Exchange Ratio will be affected if any stock
options to purchase shares of Bank Common Stock are exercised after December 31,
1996 and prior to consummation of the Conversion and Reorganization. If any of
such stock options are outstanding immediately prior to consummation of the
Conversion and Reorganization, they will be converted into options to purchase
16
<PAGE>
shares of Common Stock, with the number of shares subject to the option and the
exercise price per share to be adjusted based upon the Exchange Ratio so that
the aggregate exercise price remains unchanged, and with the duration of the
option remaining unchanged. At December 31, 1996, there were options to purchase
128,110 shares of Bank Common Stock outstanding, which have an exercise price of
$13.00 per share. The Bank has no plans to grant additional stock options prior
to the consummation of the Conversion and Reorganization.
The following table sets forth, based upon the minimum, midpoint, maximum
and 15% above the maximum of the Estimated Price Range: (i) the total number of
shares of Conversion Stock and Exchange Shares to be issued in the Conversion
and Reorganization, (ii) the total number of shares proposed to be issued to the
Foundation, (iii) the percentage of the total Common Stock represented by the
Conversion Stock, the Exchange Shares and the Foundation shares, and (iv) the
Exchange Ratio. The table assumes that there is no cash paid in lieu of issuing
fractional Exchange Shares.
<TABLE>
<CAPTION>
CONVERSION STOCK EXCHANGE SHARES SHARES TO BE ISSUED TO TOTAL SHARES
TO BE OFFERED(1) TO BE ISSUED(1) THE FOUNDATION OF COMMON
-------------------- -------------------- ----------------------- STOCK TO BE EXCHANGE
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT OUTSTANDING(1) RATIO(1)
--------- --------- --------- --------- --------- --------- -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Minimum.............. 2,931,800 51.5% 2,468,000 43.4% 290,200 5.1% 5,690,000 1.757
Midpoint............. 3,449,300 51.5 2,903,400 43.4 341,500 5.1 6,694,200 2.067
Maximum.............. 3,966,700 51.5 3,338,800 43.4 392,700 5.1 7,698,200 2.377
15% above maximum.... 4,561,700 51.5 3,840,300 43.4 451,600 5.1 8,853,600 2.734
</TABLE>
- ----------
(1) Assumes that outstanding options to purchase 128,110 shares of Bank Common
Stock at December 31, 1996 are not exercised prior to consummation of the
Conversion and Reorganization.
The final Exchange Ratio will be determined based upon the number of
shares issued in the Offerings in order to maintain the Public Stockholders'
approximately 45.8% ownership interest in the Bank, before taking into account
the effect of the contribution of Common Stock to the Foundation on the
Conversion and Reorganization. The final Exchange Ratio will not be based upon
the market value of the Public Bank Shares. At the minimum, mid-point and
maximum of the Estimated Price Range, one Public Bank Share will be exchanged
for 1.757, 2.067 and 2.377 shares of Common Stock, respectively (which have a
calculated equivalent estimated value of $17.57, $20.67 and $23.77 based on the
$10.00 Purchase Price of a share of Common Stock in the Offerings and the
aforementioned Exchange Ratios). ASSUMING THE SALE OF CONVERSION STOCK AT LESS
THAN THE MIDPOINT OF THE ESTIMATED PRICE RANGE, THE VALUE OF THE EXCHANGE SHARES
TO BE RECEIVED FOR EACH PUBLIC BANK SHARE MAY BE LESS THAN THE MARKET PRICE OF
THE PUBLIC BANK SHARES AT THE TIME OF THE EXCHANGE, BASED ON THE FINAL EXCHANGE
RATIO AND THE MARKET PRICE AT THE TIME OF THE EXCHANGE. Further there can be no
assurance as to the actual market value of a share of Common Stock after the
Conversion and Reorganization or that such shares could be sold at or above the
$10.00 Purchase Price.
USE OF PROCEEDS
Net proceeds from the sale of the Conversion Stock are estimated to be
between $28.2 million and $38.3 million (or $44.2 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 plans to
contribute to the Bank 50% of the net proceeds from the Offerings, with the
remaining net proceeds to be retained by the Company. Net proceeds to be
retained by the Company after the contribution to the Bank are estimated to be
between $14.1 million and $19.2 million (or $22.1 million if the Estimated Price
17
<PAGE>
Range is increased by 15%). The Company will be unable 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 the extension of credit to the ESOP to purchase Conversion
Stock in the Offerings (to the extent such loan is not funded by a third party),
and, subject to applicable limitations, the possible payment of dividends and
repurchases of Common Stock. The Company intends to initially deposit net
proceeds not used to fund the ESOP in an account at the Bank. Assuming the
acquisition by the ESOP of 8% of the aggregate of the number of shares of
Conversion Stock to be issued in the Conversion and the shares issued to the
Foundation, the amount of the loan to the ESOP is estimated to be between $2.6
million and $3.5 million (or $4.0 million if the Estimated Price Range is
increased by 15%) to be repaid over a fifteen year period at the prevailing
prime rate, which is currently 8.25%. See "Management of the Bank -- Benefit
Plans - Employee Stock Ownership Plan and Trust." Funds received by the Bank
from the Company's purchase of its capital stock will be used for other general
business purposes. The Company and the Bank may also use such funds to expand
operations through the acquisition or establishment of branch offices and the
acquisition of smaller financial institutions or assets of other financial
institutions. Neither the Bank nor the Company has any pending agreements or
understandings regarding acquisitions of any specific financial institutions,
branch offices or assets of other financial institutions. See "Use of Proceeds"
and "Business of the Bank." To the extent that the stock-based benefit programs
which the Company or Bank intend to adopt subsequent to the Conversion are not
funded with authorized but unissued common stock of the Company, the Company or
Bank may use net proceeds from the Conversion to fund the purchase of stock to
be awarded under such stock benefit programs. See "Management of the Bank -- New
Benefits -- Stock Options Plans" and "-- Stock Programs."
DIVIDENDS
Since the reorganization of the Bank and the formation of the MHC on
January 6, 1995, the Bank has paid, in the aggregate, annual cash dividends on
the Bank Common Stock of $.50 (50 cents) per share, which amounts to a quarterly
dividend of $.125 per share. The Bank intends to continue to pay regular
quarterly dividends through either the date of consummation of the Conversion
and Reorganization (on a pro rata basis) or the end of the fiscal quarter during
which the consummation of the Conversion and Reorganization occurs.
Commencing with the first full quarter following consummation of the
Conversion and Reorganization, the Board of Directors of the Company intends to
declare cash dividends on the Common Stock at an initial quarterly rate equal to
the amount of the existing quarterly dividend on the Bank Common Stock divided
by the Exchange Ratio. Based upon the Estimated Price Range, the Exchange Ratio
is expected to be 1.757, 2.067, 2.377 and 2.734 at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Price Range, respectively.
Based upon the Exchange Ratio and the sale of Conversion Stock at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Price Range, the
Company expects to pay an initial quarterly dividend of $.071, $.061, $.053 and
$.046 per share, respectively, following consummation of the Conversion and
Reorganization. Declarations of dividends by the Company's Board of Directors
will depend upon a number of factors, including the amount of the net proceeds
from the Offerings retained by the Company, 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. Consequently, there can be no
assurance that dividends will in fact be paid on the Common Stock or that, if
paid, such dividends will not be reduced or eliminated in future periods. See
"Dividend Policy" and "Market for the Common Stock."
18
<PAGE>
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective investors.
19
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
Set forth below are selected financial and other data of the Bank. This
information is derived in part from and should be read in conjunction with the
Consolidated Financial Statements of the Bank and the Notes thereto presented
elsewhere in this Prospectus. The Selected Financial and Other Data at or for
the nine month periods ended December 31, 1996 and December 31, 1995 are
unaudited. However, in the opinion of management, all adjustments (consisting
only of normal recurring accruals) necessary for a fair presentation at such
dates and for such periods have been made. The results of operations for the
nine-month period ended December 31, 1996, are not necessarily indicative of
results that may be expected for the full fiscal year.
<TABLE>
<CAPTION>
AT MARCH 31,(4) AT MAY 31,
AT DECEMBER 31, ------------------ ----------------------------
1996 1996 1995 1994 1993 1992
--------------- -------- -------- -------- -------- --------
SELECTED CONSOLIDATED FINANCIAL (UNAUDITED) (IN THOUSANDS)
CONDITION DATA:
<S> <C> <C> <C> <C> <C> <C>
Total assets ....................... $578,574 $651,945 $512,126 $547,550 $572,509 $522,879
Cash and cash equivalents .......... 19,380 11,790 6,111 47,839 45,247 17,161
Loans receivable, net:
Real estate ..................... 209,197 198,658 197,240 172,552 206,573 243,737
Consumer ........................ 29,997 25,370 21,314 16,428 16,160 18,492
-------- -------- -------- -------- -------- --------
Total loans receivable, net(1) 239,194 224,028 218,554 188,980 222,733 262,229
United States Government and agency
obligations,net of valuation
allowance(2) ....................... 76,948 101,729 148,062 146,806 64,006 47,138
Mortgage securities, net(3) ........ 217,859 289,848 117,205 141,271 223,401 175,648
Deposits ........................... 441,289 445,424 444,380 471,681 481,704 489,300
Borrowed funds ..................... 80,652 151,334 15,032 -- 50,000 --
Stockholders' equity ............... 49,585 49,519 46,625 34,066 38,642 31,911
</TABLE>
- ----------
(1) Excludes loans to joint ventures of the Bank's subsidiaries. See "Business
of the Bank -- Subsidiary Activities."
(2) At December 31, 1996, March 31, 1996 and 1995, and May 31, 1994, $68.1
million, $92.9 million, $64.3 million and $64.1 million of such
securities, respectively, net of valuation allowance, were classified as
available for sale, and $8.9 million, $8.7 million, $83.8 million and
$82.7 million, respectively, of such securities were classified as held to
maturity. At May 31, 1993 and 1992, all such securities were classified as
held to maturity.
(3) Includes mortgage-backed securities and mutual funds that invest primarily
in mortgage-backed securities, net of valuation allowance. At December 31,
1996, March 31, 1996 and 1995, and May 31, 1994 and 1993, all such
securities were available for sale.
(4) At the time of the Bank's 1995 MHC Reorganization, the Bank changed its
fiscal year end from May 31 to March 31.
20
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR TEN MONTHS
DECEMBER 31, ENDED ENDED YEARS ENDED MAY 31,
---------------------- MARCH 31, MARCH 31, ------------------------------
1996(1) 1995(1) 1996 1995(1) 1994 1993 1992
-------- -------- --------- ----------- -------- -------- --------
SELECTED CONSOLIDATED OPERATING DATA: (UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest and dividend income ........... $ 31,210 $ 26,397 $ 37,309 $ 28,431 $ 35,616 $ 37,417 $ 43,301
Total interest expense ....................... 21,300 16,359 23,842 15,831 20,795 22,933 30,905
-------- -------- -------- -------- -------- -------- --------
Net interest income ....................... 9,910 10,038 13,467 12,600 14,821 14,484 12,396
Provisions for loan losses ................... 90 300 450 350 500 871 1,231
-------- -------- -------- -------- -------- -------- --------
Net interest income after
provision for loan losses .............. 9,820 9,738 13,017 12,250 14,321 13,613 11,165
-------- -------- -------- -------- -------- -------- --------
Other income (loss):
Loan fees and service charges ............. 235 206 307 285 428 384 554
Gain (loss) on sale of securities
available for sale, net ................. (2,812)(2) (2,514)(2) (2,217)(2) (547) 262 2,938 3,243
Gain (loss) on sale of real estate
acquired in settlement of loans ......... (52) (52) (7) -- 62 2,144 --
Gain (loss) from real estate
operations, net ......................... -- -- (25) (62) 172 (184) (373)
Other ..................................... 690 489 729 452 856 338 404
-------- -------- -------- -------- -------- -------- --------
Total other income (loss) .............. (1,939) (1,871) (1,213) 128 1,780 5,620 3,828
-------- -------- -------- -------- -------- -------- --------
Operating expenses:
Compensation and employee benefits ........ 4,256 4,417 5,821 4,674 4,735 4,110 3,726
Occupancy ................................. 574 595 802 630 648 646 580
Equipment ................................. 831 839 1,092 858 972 931 915
Advertising and promotion ................. 46 146 176 123 91 96 74
Federal insurance premiums ................ 883 873 1,163 990 1,210 1,093 1,237
Other ..................................... 3,965(3) 1,320 1,761 1,676 1,860 1,917 1,932
-------- -------- -------- -------- -------- -------- --------
Total operating expenses ............... 10,555 8,190 10,815 8,951 9,516 8,793 8,464
-------- -------- -------- -------- -------- -------- --------
(Loss)/Income before income tax expense
and cumulative effect of accounting
changes ................................... (2,674) (323) 989 3,427 6,585 10,440 6,529
Income tax expense (benefit) ................. 297 (112) 374 1,236 2,247 3,885 2,190
-------- -------- -------- -------- -------- -------- --------
(Loss)/Income before cumulative effect
of accounting changes ..................... (2,971) (211) 615 2,191 4,338 6,585 4,339
Cumulative effect of accounting changes:
Income taxes .............................. -- -- -- -- 400 -- --
Postretirement benefits ................... -- -- -- -- (1,216) -- --
Investments ............................... -- -- -- -- 471 -- --
-------- -------- -------- -------- -------- -------- --------
Net (loss)/income ...................... $ (2,971) $ (211) $ 615 $ 2,191 $ 3,993 $ 6,585 $ 4,339
======== ======== ======== ======== ======== ======== ========
</TABLE>
(continued on next page)
21
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR TEN MONTHS
DECEMBER 31, ENDED ENDED YEARS ENDED MAY 31,
------------------- MARCH 31, MARCH 31, ------------------------------
1996(1) 1995(1) 1996 1995(1) 1994 1993 1992
-------- --------- --------- ----------- -------- -------- --------
SELECTED FINANCIAL RATIOS AND OTHER DATA: (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS:
Equity to assets at period end ................ 8.57% 8.13% 7.60% 9.10% 6.22% 6.75% 6.10%
Net interest rate spread (difference between
average yield on interest-earning assets and
average cost of interest-bearing liabilities 1.88 2.28 2.16 2.92 2.52 2.56 2.25
Net interest margin (net interest income as a
percentage of average interest-earning assets) 2.15 2.60 2.48 3.12 2.71 2.76 2.42
Return on average assets (net income
divided by average total assets) ............ (0.68) (0.05) 0.11 0.52 0.71 1.22 .82
Return on average equity (net income divided by
average equity) ............................. (8.11) (0.55) 1.20 7.06 10.22 18.95 14.63
Stockholders' equity to average assets ratio
(average stockholders' equity divided by
average total assets) 7.71 9.55 9.08 7.30 6.92 6.43 5.62
Total other income to average assets .......... (0.31) (0.35) (.21) 0.03 0.31 1.04 .72
Total operating expenses to average assets(4) . 1.59 2.04 1.91 1.76 1.68 1.63 1.60
ASSET QUALITY RATIOS:
Loans 90 days or more past due to net loans ... 2.52 2.62 2.66 2.56 3.63 3.55 4.11
Loans 90 days past due and other
nonperforming assets to total assets ........ 1.21 0.92 .92 1.14 1.53 1.55 2.42
Allowance for loan losses to loans 90 days past
due and other nonperforming assets .......... 49.01 52.72 49.73 46.02 34.74 29.31 20.36
Allowance for loan losses as a percent of net
loans receivable at end of period ........... 1.22 1.19 1.33 1.22 1.54 1.17 .98
Net interest income to total operating
expense (4) 0.94 1.23 1.25x 1.41x 1.56x 1.65x 1.46x
Net interest income after provision for loan
losses, to total operating expense(4) ....... 0.93 1.19 1.20x 1.37x 1.51x 1.55x 1.32x
Average interest-earning assets to
average interest-bearing liabilities ........ 1.06 1.08 1.07x 1.05x 1.05x 1.05x 1.03x
REGULATORY CAPITAL RATIOS:
Tangible(5) ................................... 9.13 8.40 8.56% 10.83% 6.22% 6.75% 6.03%
Core(5) ....................................... 9.13 8.40 8.56% 10.83% 6.22% 6.75% 6.03%
Risk-based(5) ................................. 26.41 27.55 27.04% 32.21% 20.61% 21.27% 16.38%
NUMBER OF FULL-SERVICE OFFICES ................... 4 4 4 4 4 4 4
</TABLE>
- ----------
(1) At the time of the Bank's 1995 MHC Reorganization, the Bank changed its
fiscal year end from May 31 to March 31.
(2) The loss on securities available for sale resulted from the sale of
investment securities as part of the Bank's restructuring of its
investment portfolio. See "Risk Factors -- Restructuring of Investment
Portfolio" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(3) Includes the SAIF insurance fund special assessment of $2.9 million as of
September 30, 1996.
(4) Total operating expense does not include income tax expense or the
provision for loan losses.
(5) Excludes unrealized losses on available for sale securities. If such
unrealized losses were included at December 31 and March 31, 1996, then
both tangible and core capital would have been 8.57% and 7.60%,
respectively, and risk-based capital would have been 23.62% and 25.79%,
respectively.
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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.
RESTRUCTURING OF INVESTMENT PORTFOLIO
In the past, the Bank invested a significant amount of its assets in
investment securities such as mutual funds that invest in mortgage-backed
securities and United States Government and agency obligations. In recent years,
the market prices of certain of the Bank's U.S. Government agency and Treasury
securities have decreased since the time of purchase, which has had an adverse
impact on the Bank's stockholders' equity and interest rate sensitivity
position. Moreover, the Bank's significant investment in fixed-rate investments
adversely impacted its exposure to interest rate risk. Therefore, beginning in
1995, the Bank implemented a strategy to restructure its investment portfolio by
liquidating certain investment securities and reinvesting the proceeds in
higher-yielding interest-earning assets such as mortgage loans and
mortgage-backed securities. The Bank also borrowed funds to increase its
investments in mortgage-backed securities as part of this strategy. However, due
to higher interest rates during this period, the Bank's interest rate risk
exposure increased during fiscal 1996.
The Bank has continued to restructure its investment portfolio throughout
fiscal 1996 placing emphasis on improving its interest rate risk position.
During the nine months ended December 31, 1996, the Bank sold intermediate- and
short-term mutual funds totalling $71.5 million and U.S. Treasury securities
totalling $25.0 million, at a pre-tax loss of $2.8 million. The Bank used the
proceeds from these sales to purchase $60.5 million of higher-yielding
mortgage-backed securities, and to repay $50.0 million of FHLB advances that
were outstanding as of March 31, 1996.
The Bank continues to maintain substantial investments in securities
available for sale. The market value of total investments available for sale at
December 31, 1996 and March 31, 1996 was $286.0 million and $382.7 million,
respectively, which comprised 49.4% and 58.7% of total assets, respectively. The
Bank believes that most of its restructuring is complete, and does not
anticipate any further significant sales of investment securities, since much of
the remaining securities with unrealized losses are due to mature by 1999.
Another $51.0 million of U.S. Treasury securities available for sale will mature
by October 31, 1998, thereby affording the Bank the opportunity to reinvest
these additional funds or further reduce borrowings.
Largely as a result of its restructuring, the Bank has reduced its
cumulative one-year gap ratio from negative 25.36% at March 31, 1996 to negative
6.76% at December 31, 1996. However, at December 31, 1996, $60.6 million, or
27.4% of the Bank's mortgage-backed securities had adjustable rates of interest
with the remaining mortgage-backed securities carrying fixed rates of interest.
In addition, because of the Bank's continued substantial investment in
securities available for sale, and because securities available for sale are
carried at market value, with unrealized gains and losses, net of income tax
benefit, recorded as a separate component of stockholders' equity, the Bank's
stockholders' equity is still subject to volatility during periods of changing
interest rates as a consequence of the fluctuations in the market value of
securities. Therefore, although the Bank does not anticipate further significant
losses in the securities portfolio, there can be no assurance that the Bank's
stockholders' equity would not be adversely affected in the future by
substantial fluctuations in market interest rates.
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SENSITIVITY TO 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. 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. An
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, 1996, the most recent date for
which information is available, the Bank's sensitivity measure, as measured by
the OTS, indicated that a 2% increase in interest rates would cause a 298 basis
point decline in the Bank's NPV Ratio. This NPV Ratio sensitivity measure
exceeds 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" and "Regulation -- Federal Regulation
of Savings Institutions -- Capital Requirements".
The Bank's recent results of operations were adversely affected by the
increase in interest rates experienced during 1995 and 1996. Specifically, the
increase in general interest rates and a decline in the difference between
long-term and short-term interest rates during 1995 and 1996 resulted in the
Bank's deposit liabilities repricing from an average cost of 4.06% for the year
ended May 31, 1994 to 4.65% for the year ended March 31, 1996 and 4.72% for the
nine months ended December 31, 1996, on an annualized basis. This upward
repricing of liabilities contributed to the compression in the Bank's average
interest rate spread, which was reduced to 1.88% for the nine months ended
December 31, 1996, from 2.52% for the year ended May 31, 1994, and in its net
interest margin, which was reduced to 2.15% from 2.71% for the same periods. The
Bank's net interest rate spread and net interest margin was 1.87% and 2.20%,
respectively, at December 31, 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Management of Interest Rate
Risk."
The Bank's results of operations may continue to be adversely affected in
a rising interest rate environment. At December 31, 1996, the Bank's total
interest-bearing liabilities maturing or repricing within one year exceeded its
total interest-earning assets maturing or repricing within one year by $39.1
million, representing a cumulative one-year gap ratio of negative 6.76%. While
the Bank has lessened its interest rate risk exposure, the gap measure indicates
that net interest income is exposed to increases in interest rates. In a rising
interest rate environment, the Bank's net interest income would be adversely
affected as liabilities would reprice to higher market rates more quickly than
assets. This effect would be compounded because the prepayment speeds of the
Bank's long-term fixed-rate assets would decrease in a rising interest rate
environment. At December 31, 1996, $160.5 million, or 72.6% of the Bank's $221.1
million of mortgage-backed securities had fixed-rates of interest. In addition,
$160.4 million, or 78.1%, of the Bank's one- to four- family mortgage loans had
fixed-rates of interest. To reduce the Bank's exposure to interest rate risk in
a changing interest rate environment, the Bank seeks to invest in mortgage
securities that have adjustable rates and/or relatively short expected terms.
The Bank also seeks to reduce the term of its interest-earning assets by
offering fixed-rate one- to four-family mortgage loans with terms of 15 years or
less. Such loans constituted $9.0 million, or 30.3%, of the Bank's total
originations of one- to four-family mortgage loans during the nine months ended
December 31, 1996. In addition, the Bank originates adjustable-rate one- to
four-family mortgage loans. Of the Bank's oneto four-family mortgage loans
originated during the nine months ended December 31, 1996, $12.3 million
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or 41.6% had adjustable rates of interest. There can be no assurance, however,
that the Bank will be able to maintain the same level of originations of
adjustable-rate loans in future periods.
COMPETITION AND LIMITED LOAN DEMAND IN MARKET AREA
The Bank is headquartered in the City of Bayonne, which is located in
Hudson County in northeastern New Jersey. The Bank currently conducts its
business from its main office and three branch offices, all of which are located
in Bayonne. The Bank faces significant competition both in making loans and in
attracting deposits. While its lending area extends throughout New Jersey, most
of the Bank's mortgage loans are secured by properties located in Hudson County,
with a predominance of such properties located in the City of Bayonne. 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. Such competition may limit the
growth and profitability of the Bank in the future. See "Business of the Bank --
Market Area and Competition."
In the late 1980s and early 1990s 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.
Nevertheless, despite the modest economic improvement, certain demographics of
the Bank's primary market area have continued to adversely affect its ability to
generate loans. This market area primarily consists of mature, fully developed
communities. The population growth rate is declining and new housing starts in
the Bank's primary market area are lower than those in the state of New Jersey
generally. These factors, along with the highly competitive market in which the
Bank operates, has caused originations of new mortgage loans to decline in
recent periods. For the nine months ended December 31, 1996, the year ended
March 31, 1996, and the ten months ended March 31, 1995, the Bank originated
$26.3 million, $18.2 million and $42.8 million of one- to four-family
residential loans, respectively. Repayments were $23.3 million, $26.2 million
and $24.0 million, respectively, for the same periods. The Bank's total loan
portfolio has also declined in the 1990s, from a high of $286.5 million at May
31, 1990, representing 53.8% of total assets, to a low of $193.9 million at May
31, 1994, representing 35.4% of total assets. At December 31, 1996, total loans
receivable had increased to $244.1 million, equalling 42.2% of total assets. To
the extent the Bank continues to emphasize real estate loan originations within
the Bayonne market area, it may be unable to significantly increase its loan
portfolio.
In addition, the Bank's total deposits have decreased 9.8% since May 31,
1992, from $489.3 million to $441.3 million at December 31, 1996. This decline
is reflective of both the declining Bayonne population as well as a shift of
funds generally from thrift institutions within Bayonne to credit markets and
mutual funds whose interest rates have increased over recent years. The Bank
also expects to experience a run-off of deposits when approximately $45 million
of ten-year certificates of deposit paying a rate of interest of 10% mature by
April 1998.
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Diminished mortgage lending and deposit opportunities in the Bank's
primary market area may exist for the foreseeable future, preventing the Bank
from achieving significant growth. In an effort to address diminished mortgage
loan demand and a reduced deposit base, the Bank is seeking to expand its market
area and the loan and deposit products it offers. With regard to expanding the
Bank's geographic market area, the Bank intends to seek expansion opportunities
through either the establishment or acquisition of new branch offices in
communities surrounding Bayonne within the next two years. The Bank also plans
to expand commercial deposit accounts, including business checking. With regard
to its loan products, the Bank is seeking to moderately increase its commercial
real estate lending. Although there can be no assurances that such new lending
will be successful, an enhanced emphasis on commercial real estate lending may
entail certain credit risks not present in the Bank's traditional one- to
four-family residential mortgage lending activities. The higher degree of credit
risk involved in these products may result in the Bank experiencing both an
increased provision for possible loan losses as well as an increased provision
for losses on real estate owned over that experienced in the Bank's recent
fiscal years.
RECENT DECLINE IN OPERATING RESULTS
Over the past two fiscal years and during the nine months ended December
31, 1996, the Bank has experienced a decline in its operating results and
earnings performance ratios. For the nine months ended December 31, 1996, the
year ended March 31, 1996 and the ten months ended March 31, 1995, the Bank's
net income/(loss) totalled ($3.0 million), $615,000 and $2.2 million,
respectively, resulting in a return on average assets of (0.47%), 0.11% and
0.52%, respectively, and a return on average equity of (6.08%), 1.2% and 7.09%,
respectively. The decline in net income has primarily been attributable to the
losses incurred on the sale of investment securities in fiscal 1996 and 1997 as
part of the Bank's restructuring. Losses on the sale of securities for the nine
months ended December 31, 1996, the year ended March 31, 1996 and the ten months
ended March 31, 1995 totalled ($2.8 million), ($2.2 million) and ($547,000),
respectively. Interest expense also has increased over the same periods as the
Bank increased borrowings from $14.0 million at March 31, 1995, to $150.5
million at March 31, 1996, to fund the purchase of mortgage-backed securities as
part of its restructuring of its investment portfolio. Operating results for the
nine months ended December 31, 1996 were also adversely impacted by the one-time
special assessment of $2.9 million to recapitalize the SAIF insurance fund. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Comparison of Financial Condition at December 31, 1996 and March
31, 1996." The Bank believes that its restructuring is nearly complete, and it
does not anticipate any additional significant losses on the sale of securities,
or additional significant increases in borrowings. There can be no assurances,
however, that significant fluctuations in market interest rates or other factors
will not cause additional losses or increased expenses. See " Sensitivity to
Changes in Interest Rates."
Other operating expenses have also increased in recent years. Between May
31, 1992 and March 31, 1996, compensation and employee benefits expense
increased 56.2%, to $5.8 million for the year ended March 31, 1996, from $3.7
million for the year ended May 31, 1992. For the nine months ended December 31,
1996, compensation and employee benefits expense was $4.3 million. For the nine
months ended December 31, 1996, and the year ended March 31, 1996, compensation
and employee benefits expense comprised 56.2% and 53.8%, respectively, of total
operating expenses (excluding the impact of the special SAIF assessment of $2.9
million during the nine month period). A significant portion of this increase in
expense resulted from the implementation of employee stock benefit plans in
connection with the Bank's 1995 MHC Reorganization and retirement plan payments
to a senior officer of the Bank beginning in 1996. The Bank expects that
compensation expense will increase in future periods due to the implementation
of additional stock benefit plans in connection with the Conversion and
Reorganization and the payment of certain retirement benefits upon the announced
retirement of Mr. Patrick F.X. Nilan, the Bank's long-time President and Chief
Executive Officer. See "Management of the Bank."
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There can be no assurances as to the earnings performance of the Bank in
the near future. The effects of the Bank's restructuring of its investment
portfolio have not yet been fully realized. In addition, the Bank's significant
investment securities portfolio and fixed-rate loan portfolio exposes it to
interest rate risk in a rising interest rate environment. Furthermore, the
increase in stockholders' equity resulting from the Conversion and
Reorganization is likely to have a negative impact on the return on
stockholders' equity until such time as the Bank can effectively deploy all of
the proceeds of the Offerings. The Bank also expects to incur a significant
one-time expense upon the establishment and funding of the Foundation in the
quarter in which it is established. See " -Establishment of the Charitable
Foundation." Finally, proposed plans of the Bank to expand its market through
its branch franchise and its loan and deposit products will increase operating
expenses. Such increases cannot be estimated at this time.
ESTABLISHMENT OF THE CHARITABLE FOUNDATION
Pursuant to the Plan, the Company intends to establish a charitable
foundation in connection with the Conversion and Reorganization. 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 will be funded
with shares of Common Stock contributed by the Company. Establishment of the
Foundation is subject to the approval of the Mutual Holding Company's members at
the special meeting being held to vote upon the Conversion and Reorganization.
If approved by members, the establishment of the Foundation will be dilutive to
the interests of stockholders and will have an adverse impact on the operating
results of the Company in fiscal 1998, possibly resulting in an operating loss
in fiscal 1998, the fiscal year in which the Foundation is established.
Dilution of Existing and Potential Stockholders' Interests. The Company
proposes to establish the Foundation with Company Common Stock in an amount
equal to 9.9% of the Conversion Stock sold in the Conversion and Reorganization.
At the minimum, midpoint and maximum of the Estimated Price Range, the
contribution to the Foundation would equal 290,200, 341,500 and 392,700 shares,
with a value of $2.9 million, $3.4 million and $3.9 million, respectively, based
on the Purchase Price of $10.00 per share. Upon completion of the Conversion and
Reorganization and establishment of the Foundation, the Company will have
7,698,700 shares issued and outstanding at the maximum of the Estimated Price
Range, of which the Foundation will own 392,700 shares, or 5.1%. AS A RESULT,
PERSONS PURCHASING SHARES IN THE CONVERSION AND REORGANIZATION, INCLUDING PUBLIC
STOCKHOLDERS, WILL HAVE THEIR OWNERSHIP AND VOTING INTERESTS IN THE COMPANY
DILUTED BY 5.1%. IN ADDITION, HOLDERS OF THE PUBLIC BANK SHARES WILL HAVE THEIR
CURRENT VOTING AND OWNERSHIP INTERESTS DILUTED BY 5.1% IF THE FOUNDATION IS
ESTABLISHED IN CONNECTION WITH THE CONVERSION AND REORGANIZATION. SEE "PRO FORMA
DATA."
The establishment of the Foundation will also result in a 6.6% decrease in
the number of Exchange Shares received by the Public Stockholders for the Public
Bank Shares held by such stockholders. In this regard, at the midpoint of the
Estimated Price Range, the Public Stockholders would receive 2.067 shares of
Common Stock of the Company for each share of Bank Common Stock held by a Public
Stockholder assuming the Foundation is established as part of the Conversion and
Reorganization, versus 2.213 shares of Company Common Stock for each share of
Bank Common Stock in the event the Foundation was not established as part of the
Conversion and Reorganization. Further, pro forma stockholders' equity and pro
forma earnings per share for the aggregate number of Exchange Shares received by
a Public Stockholder will be diluted by approximately 6.6% as a result of the
Foundation. Notwithstanding such dilution, the Boards of Directors of the
Primary Parties determined that the Conversion and Reorganization, including the
establishment of the Foundation, is substantially accretive to the Public
Stockholders. Specifically, pro forma stockholders' equity for the aggregate
number of Exchange Shares received increases from $16.70 per share to $26.04, or
55.9% per share, and pro forma
27
<PAGE>
earnings per share for the aggregate number of Exchange Shares to be received
increases from $0.54 per share as adjusted for nonrecurring losses, to $0.70 per
share, or 29.6% per share at the maximum of the Estimated Price Range. For
purposes of comparison, earnings per share and stockholders' equity per share
for the nine months ended December 31, 1996 were adjusted for the one-time SAIF
assessment and the nonrecurring loss on the sale of mutual funds.
Impact on Earnings. Assuming receipt of approval of the Mutual Holding
Company's members, the contribution of Common Stock to 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 first quarter of fiscal 1998. The amount of the contribution
will range from $2.9 million to $3.9 million, depending on the amount of
Conversion Stock sold in the Conversion. The contribution expense will be
partially offset by the tax benefit related to 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 $3.9 million in
Common Stock, based on the maximum of the Estimated Price Range, the Company
estimates a net tax effected expense of $2.6 million. If the Foundation had been
established at March 31, 1996, the Bank would have reported a net loss of $2.0
million rather than reporting net income of $615,000 for the year ended March
31, 1996. Management cannot predict earnings for fiscal 1998, but expects that
the establishment and funding of the Foundation will have an adverse impact on
the Company's earnings for the 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. The Foundation will submit a
request to the Internal Revenue Service ("IRS") to be recognized as an exempt
organization. The Company and the Bank have received an opinion of their
independent accountants that the Foundation should qualify as a Section
501(c)(3) exempt organization under the Code, except that such opinion does not
consider the impact of the regulatory condition on the gift imposed by the OTS
which requires the shares of Common Stock of the Company held by the Foundation
to be voted in the same ratio as all other shares of the Company's Common Stock
on all proposals considered by stockholders of the Company. See "The Conversion
and Reorganization -- Establishment of the Charitable Foundation - Regulatory
Conditions Imposed on the Foundation." In the event that the Company or the
Foundation receives an opinion of their tax counsel satisfactory to OTS that
compliance with the voting restriction would have the effect of causing the
Foundation to lose its tax exempt status, otherwise have material adverse tax
consequences on the Foundation or subject the Foundation to an excise tax under
Section 4941 of the Code, the OTS will waive such voting restriction upon
submission of such opinion(s) by the Company or the Foundation. The independent
accountants' opinion further provides that the Company's contribution of its own
stock to the Foundation would not constitute an act of self-dealing, and that
the Company will be entitled to a deduction in the amount of the fair market
value of the stock at the time of the contribution less the nominal par value
that the Foundation is required to pay to the Company for such stock, subject to
an annual 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 five years following the contribution for tax purposes. Thus,
while the Company expects to receive a charitable contribution deduction of
approximately $460,000 in fiscal year 1998, the Company is permitted under the
Code to carryover the excess contribution over a five-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 for tax
purposes over the combined six-year period. However, no assurances can be made
that the Company will have sufficient pre-tax income over the five-year period
to fully utilize the carryover related to the excess contribution. Although the
Company and the Bank have
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received an opinion of their independent accountants that the Company would 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 tax benefit related to the Foundation would have to 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 and Reorganization. The establishment of
the Foundation was taken into account by FinPro 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 FinPro of the estimated pro forma market
value of the Company. The pro forma aggregate price of the Conversion Stock
being offered for sale in the Conversion is currently estimated to be between
$29.3 million and $39.7 million, with a midpoint of $34.5 million. Based on the
appraisal, the pro forma market capitalization of the Company at the midpoint,
including shares contributed to the Foundation, is $67.0 million. The pro forma
price to book ratio and the pro forma price to earnings ratio are 83.96% and
23.44x, respectively, at the midpoint of the Estimated Price Range. In the event
that the Conversion did not include the Foundation, FinPro has estimated that
the estimated pro forma market capitalization of the Company would be
approximately $68.0 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 83.96% and 22.06x, respectively. If the
Foundation was not part of the Conversion, the pro forma market value of the
Conversion Stock being offered is estimated to be between $31.4 million and
$42.5 million. See "Comparison of Valuation and Pro Forma Information with No
Foundation." The establishment of the Foundation also impacts on the Public
Stockholders. See "Effect of the Reorganization on Public Stockholders - Effect
of the Charitable Foundation on the Exchange." This estimate by FinPro was
prepared at the request of the OTS and is solely for purposes of providing
depositors and the Public Stockholders with sufficient information with which to
make an informed decision on the Foundation. There is no assurance that if the
Foundation is not approved by the members, 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 and economic conditions.
The decrease in the amount of Conversion 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, 1996
were 9.13%, 9.13% and 26.41%, 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, 1996 would be 11.41%, 11.41% and
32.39%, respectively. On a consolidated basis, the Company's pro forma
stockholders' equity would be $79.8 million, or approximately 13.1% 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 $11.91 and $0.32, respectively. If the
Foundation was not being established in the Conversion, based on the FinPro
estimate, the Company's pro forma stockholders' equity would be approximately
$81.0, million or approximately 13.3% of pro forma consolidated assets at the
midpoint of the estimate and pro forma stockholders' equity per share and pro
forma net earnings per share would be $11.91 and $0.34, respectively without the
establishment of the Foundation. See "Comparison of Valuation and Pro Forma
Information with No Foundation."
Potential Anti-Takeover Effect. If approved by the Mutual Holding
Company's members, upon completion of the Conversion, the Foundation will own
5.1% of the total shares of the Company's
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Common Stock outstanding. Such shares will be owned solely by the Foundation;
however, pursuant to the terms of the contribution as mandated by the OTS, the
shares of Common Stock held by the Foundation must be voted in the same ratio as
all other shares of the Company's Common Stock on all proposals considered by
the stockholders of the Company. See "The Conversion and Reorganization
- -Establishment of the Charitable Foundation -- Regulatory Conditions Imposed on
the Foundation." The Company and the Foundation will take the necessary steps to
provide such requirement in the Foundation's corporate governance documents. As
such, the Company does not believe the Foundation will have an anti-takeover
effect on the Company. In the event that the OTS were to waive this voting
restriction, the Foundation's board of directors would exercise sole voting
power over such shares and would no longer be subject to the restriction.
However, the OTS could impose additional conditions at that time on the
composition of the board of directors of the Foundation or which otherwise
relate to the control of the Common Stock of the Company held by the Foundation.
See "The Conversion and Reorganization -- Establishment of the Charitable
Foundation - Regulatory Conditions Imposed on the Foundation." If a waiver of
the voting restrictions were granted by the OTS and no further conditions were
imposed on the Foundation at that time, management of the Company and the Bank
may benefit to the extent that the board of directors of the Foundation
determines to vote the shares of Common Stock held by the Foundation 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 existing stock benefit plans and
proposed stock benefit plans, if approved by stockholders, 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,
assuming the Foundation voted in favor of management's position. 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. However, because any proposed stock benefit plans must first be
approved by stockholders no sooner than six months following completion of the
Conversion and Reorganization, 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
stock benefit plans. See, " - Certain Anti-Takeover Provisions Which May
Discourage Takeover Attempts - Voting Control of Officers and Directors."
Moreover, as the Foundation sells its shares of Common Stock over time to fund
its grant making operations, its ownership interest and voting power in the
Company is expected to decrease.
Potential Challenges. The establishment and funding of a charitable
foundation as part of a conversion is innovative and has been done only on four
other occasions in connection with a conversion. As such, the Foundation may be
subject to potential challenges notwithstanding that the Boards of Directors of
the Primary Parties have carefully considered the various factors involved in
the establishment of the Foundation in reaching their determinations to
establish the Foundation as part of the Conversion. See "The Conversion and
Reorganization -- Establishment of the Charitable Foundation -- Purpose of the
Foundation." In conjunction with its approval of the Conversion, the Primary
Parties 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. If certain parties were to institute an action
seeking to require the Primary Parties to eliminate establishment of the
Foundation in connection with the Conversion, no assurances can be made that the
resolution of such action would not result in a delay in the consummation of the
Conversion or that any objecting persons would not be ultimately successful in
obtaining such removal or other equitable relief or monetary damages against the
Company or the Bank. Additionally, if the Primary Parties are forced to
eliminate the Foundation, the Company may be required to resolicit subscribers
in the Offerings.
Approval of Members. Establishment of the Foundation is subject to the
approval of a majority of the total outstanding votes of the Mutual Holding
Company's members eligible to be cast at the special
30
<PAGE>
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 Mutual
Holding Company's members approve the Plan of Conversion, but not the
establishment of the Foundation, the Primary Parties intend 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 Conversion
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 $57.0 million or less than $77.0 million, the
Primary Parties 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 and Reorganization -- Stock Pricing and Exchange
Ratio." 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 _______________, 1999.
FINANCIAL INSTITUTION REGULATION AND POSSIBLE LEGISLATION
The Bank is subject to extensive regulation and supervision as a savings
institution. In addition, the Company, as a savings and loan holding company,
will be subject to extensive regulation and supervision. Such regulations, which
affect the Bank on a daily basis, may be changed at any time, and the
interpretation of the relevant law and regulations is also subject to change by
the authorities who examine the Bank and interpret those laws and regulations.
Any change in the regulatory structure or the applicable statutes or
regulations, whether by the New Jersey Department of Banking (the "Department"),
the OTS, the FDIC or the Congress, could have a material impact on the Company,
the Bank, its operations or the Conversion and Reorganization. See "Regulation."
Recently enacted legislation provides that the Bank Insurance Fund ("BIF")
and SAIF will merge on January 1, 1999 if there are no more savings associations
as of that date. Several bills have been introduced in the current Congress that
would eliminate the federal thrift charter and the OTS. The bills would require
that all federal savings associations convert to national banks or state
depository institutions by no later than January 1, 1998 in one bill and June
30, 1998 in the other, and would treat all state savings associations as state
banks for purposes of federal banking laws. Subject to a narrow grandfathering,
all savings and loan holding companies would become subject to the same
regulation as bank holding companies under the pending legislative proposals.
Under such proposals, any lawful activity in which a savings association was
engaged would be permitted for up to two years following the effective date of
its conversion to the new charter, with two additional one-year extensions which
could be granted at the discretion of the regulator. Additionally, such
proposals would grandfather existing thrift intrastate and interstate branches
which were operated as branches or in the process of being established on
January 1, 1997 or January 7, 1997, respectively. The legislative proposals
would also abolish the OTS and transfer its functions to the federal bank
regulators with respect to the institutions and to the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") with respect to the
regulation of holding companies. The Bank is unable to predict whether the
legislation will be enacted or, given such uncertainty, determine the extent to
which the legislation, if enacted, would affect its business. The Bank is also
unable to predict whether the SAIF and BIF funds will eventually be merged.
31
<PAGE>
STOCK-BASED BENEFITS TO MANAGEMENT AND DIRECTORS, EMPLOYMENT CONTRACTS AND
CHANGE IN CONTROL PAYMENTS
Stock Programs. The Company intends to seek stockholder approval of
certain stock programs (the "Stock Programs") which 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 Conversion Stock sold in the Conversion, including shares issued to the
Foundation, or 128,882 shares and 174,376 shares at the minimum and maximum of
the Estimated Price Range, respectively. These shares will be acquired either
through open market purchases or from authorized but unissued Common Stock.
Based on a market value of $10.00 per share and the minimum and maximum of the
Estimated Price Range, the aggregate market value of Common Stock intended to be
distributed under the Stock Programs would be $1.3 million to $1.7 million. See
"- Possible Dilutive Effect of Stock Programs and Stock Options." Although no
specific award determinations have been made, the Company anticipates that it
will provide awards to its directors and employees to the extent permitted by
applicable regulations. Current OTS regulations provide that no individual may
receive more than 25% of the shares of any plan and non-employee directors may
not receive more than 5% individually, or 30% in the aggregate, of the shares
awarded under any plan. These shares will be awarded at no cost to the
recipients. See "Management of the Bank - New Benefits - Stock Programs."
Stock Option Plans. The Company also intends to seek stockholder approval
of a benefit plan or plans which would provide options to purchase Common Stock
to officers, employees and non-employee 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 executive 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 Conversion
Stock issued in the Conversion, including shares issued to the Foundation, or
322,200 shares and 435,940 shares at the minimum and maximum of the Estimated
Price Range. 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 - New
Benefits - Stock Option Plans."
The foregoing plans are in addition to a 1995 Stock Option Plan and a 1995
Recognition Plan which were adopted by the Bank in connection with the MHC
Reorganization and subsequently approved by the stockholders of the Bank. These
plans will continue in existence after the Conversion and Reorganization as
plans of the Company. See "Management of the Bank - Stock Benefit Plans" and
"The Conversion and Reorganization - Effect on Existing Compensation Plans."
Employee Stock Ownership Plan. In addition, the Bank's existing ESOP,
which was adopted in connection with the MHC Reorganization and which has
previously purchased 108,641 Public Bank Shares, intends to purchase 8.0% of the
Conversion Stock to be issued in the Offerings, including shares issued to the
Foundation (348,752 shares or $3.5 million of Conversion Stock at the maximum of
the Valuation Price Range) with a loan funded by the Company, if such loan is
not made by a third party. See "Use of Proceeds" and "Management of the Bank -
Benefit Plans - Employee Stock Ownership Plan."
32
<PAGE>
Employment Contracts, Change In Control Provisions and Employee Severance
Compensation. The Bank and the Company intend to enter into employment or
severance agreements with certain executive officers of the Company and the
Bank, which agreements provide for severance payments if their respective
employment is terminated in connection with a change in control of the Bank or
the Company. In addition, the Bank intends to adopt a severance plan for
employees that would provide for severance payments for employees that are
terminated in connection with a 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," 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 Conversion Stock issued in the Conversion, including shares issued to
the Foundation, 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 then-existing shareholders will be diluted by 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 Conversion Stock
issued in the Conversion, including shares issued to the Foundation. 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 exercised using authorized but unissued Common Stock and the
Stock Programs were funded with authorized but unissued shares, the voting
interests of existing stockholders would be diluted by 12.3%.
The Bank also has adopted and maintains the 1995 Stock Option Plan, which
reserves for issuance 135,802 shares of Bank Common Stock. As of December 31,
1996, 7,692 shares had been issued as a result of the exercise of options
granted under such option plan. Upon consummation of the Conversion and
Reorganization, these plans will become plans of the Company and Common Stock
will be issued in lieu of Bank Common Stock pursuant to the terms of such plans,
as adjusted to reflect the exchange of options in connection with the Conversion
and Reorganization. See "Management of the Bank - Benefit Plans."
EFFECT OF PURCHASE LIMITATIONS ON ABILITY OF PUBLIC STOCKHOLDERS TO PURCHASE
CONVERSION SHARES
The OTS has required that the overall maximum purchase limitation
contained in the Plan of Conversion include Exchange Shares to be issued to
Public Stockholders for their Public Bank Shares. As a result, certain holders
of Public Bank Shares may be limited in their ability to purchase Conversion
Stock in the Offerings. For example, a Public Stockholder who acquires Exchange
Shares in an amount equal to or exceeding 3.0% of the Conversion Stock offered
will not be able to purchase shares of Conversion Stock in the Offerings.
Similarly, a Public Stockholder who qualifies as an Eligible Account Holder and
acquires 103,479 Exchange Shares, assuming the midpoint of the Estimated Price
Range, will not be able to participate as a first priority purchaser in the
Subscription Offering. See "The Conversion and Reorganization -- Limitations on
Conversion Stock Purchases."
33
<PAGE>
CERTAIN ANTI-TAKEOVER PROVISIONS WHICH MAY DISCOURAGE TAKEOVER ATTEMPTS
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
Certificate of Incorporation 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 Certificate of
Incorporation 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."
Voting Control of Officers and Directors. Directors and executive officers
of the Bank and the Company expect to hold approximately 6.1% or 7.8% of the
shares of Common Stock to be outstanding upon completion of the Conversion and
Reorganization, based upon the minimum and the maximum of the Estimated Price
Range, respectively, exclusive of shares that may be attributable to directors
and officers through the existing and future Stock Programs, the Stock Options
Plans and the ESOP. 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 "Restrictions on
Acquisition of the Company and the Bank Restrictions in the Company's
Certificate of Incorporation and Bylaws."
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
4,561,700 shares of Conversion Stock at the Purchase Price for an aggregate
purchase price of up to $45,617,000. 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 an opinion of FinPro that subscription rights
granted to Eligible Account Holders, Supplemental Eligible Account Holders and
Other Members have no value. However, this opinion is not binding on the IRS. If
the subscription rights granted to Eligible Account Holders, Supplemental
Eligible Account Holders 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
34
<PAGE>
determination. See "The Conversion and Reorganization -- Effects of the
Conversion and Reorganization" and "- Tax Aspects."
BAYONNE BANCSHARES, INC.
The Company was organized in February 1997 at the direction of the Boards
of Directors of the Mutual Holding Company and the Bank for the purpose of
holding all of the capital stock of 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 and Reorganization -- General." After
completion of the Conversion and Reorganization, the Company will conduct
business initially as a unitary savings and loan holding company. See
"Regulation - Holding Company Regulation." Upon consummation of the Conversion
and Reorganization, 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
Reorganization 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
loan funds to the ESOP to enable the ESOP to purchase 8% of the aggregate of the
Conversion Stock issued and shares issued to the Foundation, and initially
deposit the remaining proceeds with the Bank. See "Use of Proceeds." The Company
and Bank may, however, alternatively choose to fund the ESOP through a loan to
the ESOP trust by a third party financial institution.
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 the officers
set forth under "Management of the Company," 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. The initial
business activities of the Company will consist of investment in the Bank. The
Company may in the future expand its business activities or services which it
provides through existing or newly-formed subsidiaries or through acquisitions
of other financial services providers. 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.
BAYONNE BANKSHARES M.H.C.
The Mutual Holding Company is a federally-chartered mutual holding company
which was chartered on January 6, 1995 in connection with the MHC
Reorganization. The Mutual Holding Company's primary asset is 1,659,485 shares
of Bank Common Stock, which represent 54.2% of the shares of Bank Common Stock
outstanding as of the date of this Prospectus. The Mutual Holding Company's only
other asset consists of a deposit account in the amount of $200,000 as of
December 31, 1996 (which will become an asset of the Bank upon consummation of
the Conversion and Reorganization). As part of the Conversion and
Reorganization, the Mutual Holding Company will convert from mutual form to a
federal interim stock savings institution and simultaneously merge with and into
the Bank, with the Bank being the surviving entity.
FIRST SAVINGS BANK OF NEW JERSEY, SLA
First Savings is a New Jersey chartered stock savings association that
conducts its operations from its main office and three branch offices located in
Bayonne, New Jersey. The Bank was originally chartered in 1889 and has been a
member of the FHLB System since 1945. The Bank's deposits are insured by the
FDIC under the SAIF. As a SAIF-insured, state-chartered savings association, the
Bank is also regulated by the New Jersey Department of Banking and the OTS. At
December 31, 1996, the Bank had total assets of $578.6 million, total deposits
of $441.3 million, and stockholders' equity of $49.6
35
<PAGE>
million. On January 6, 1995, the Bank, in the mutual form, reorganized from a
New Jersey-chartered mutual savings association into Bayonne Bankshares, M.H.C.,
a federal mutual holding company, and concurrently formed the Bank, which
succeeded to the name and operations of the Bank's mutual savings and loan
association predecessor. In connection with the 1995 MHC Reorganization, First
Savings transferred substantially all of its assets and liabilities to the Bank
in exchange for 1,659,485 shares of Bank Common Stock and also sold an
additional 1,404,646 shares of Bank Common Stock to certain members of the
general public. As of December 31, 1996, there were 3,064,131 shares of Bank
Common Stock issued and outstanding, of which 1,404,646 shares consisted of
Public Bank Shares.
The Bank is a community oriented savings institution that is primarily
engaged in the business of attracting deposits from the general public in the
Bank's market area, and investing such deposits in one- to four-family
residential real estate mortgage loans, mortgage-backed securities and United
States Government and agency obligations. At December 31, 1996, one- to
four-family residential mortgage loans totalled $202.6 million, comprising 35.0%
of the Bank's total assets, while mortgage-backed securities totalled $217.9
million, or 37.7% of total assets, and U.S. Government and agency obligations
totalled $76.9 million, or 13.3 % of total assets. To a lesser extent, the Bank
also invests in multifamily and commercial real estate loans, home equity loans,
and passbook and other consumer loans. The Bank's principal sources of funds
have been deposits, principal and interest payments on loans and mortgage-backed
securities, funds from sales of investments and borrowings and reverse
repurchase agreements. Principal sources of income have been interest received
from loans, mortgage-backed securities and other investments. The Bank's
principal expense has been interest paid on deposits, borrowings compensation
and employee benefits, and SAIF deposit insurance premiums.
The Bank's executive offices are located at 568 Broadway, Bayonne, New
Jersey, and its telephone number at that location is (201) 437-1000.
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<PAGE>
REGULATORY CAPITAL COMPLIANCE
At December 31, 1996, 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, 1996, on a historical and pro
forma basis assuming that the indicated number of shares were sold as of such
date, the issuance of Exchange Shares 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>
FIRST SAVINGS BANK OF NEW JERSEY, SLA
PRO FORMA AT DECEMBER 31, 1996 BASED UPON SALE AT $10.00 PER SHARE
----------------------------------------------------------------------------
4,548,000 SHARES
2,923,000 SHARES 3,439,000 SHARES 3,955,000 SHARES (15% ABOVE
(MINIMUM OF (MIDPOINT OF (MAXIMUM OF MAXIMUM
HISTORICAL AT ESTIMATED ESTIMATED ESTIMATED OF ESTIMATED
DECEMBER 31, 1996 PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE)(1)
----------------- ------------------ ------------------ ----------------- ------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2)
------ --------- ------ --------- ------ --------- ------ --------- ------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital(3) .............. $52,816 9.13% $65,370 11.06% $67,682 11.41% $69,994 11.75% $72,654 12.14%
======= ===== ======= ===== ======= ===== ======= ===== ------- =====
Tangible Capital:
Capital Level ......... $52,816 9.13% $65,370 11.06% $67,682 11.41% $69,994 11.75% $72,654 12.14%
Requirement ........... 8,679 1.50 8,867 1.50 8,902 1.50 8,936 1.50 8,976 1.50
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess ................ $44,137 7.63% $56,503 9.56% $58,780 9.91% $61,058 10.25% $63,678 10.64%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Core Capital:
Capital Level ......... $52,816 9.13% $65,370 11.06% $67,682 11.41% $69,994 11.75% $72,654 12.14%
Requirement(4) ........ 17,357 3.00 17,734 3.00 17,803 3.00 17,873 3.00 17,952 3.00
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess ................ $35,459 6.13% $47,636 8.06% $49,879 8.41% $52,121 8.75% $54,702 9.14%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Risk-Based Capital(5):
Capital Level(5) ...... $55,440 26.41% $68,072 31.49% $70,399 32.39% $72,725 33.28% $75,402 34.30%
Requirement ........... 16,928 8.00 17,295 8.00 17,387 8.00 17,480 8.00 17,586 8.00
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess ................ $38,512 18.41% $50,777 23.49% $53,012 24.39% $55,245 25.28% $57,816 26.30%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</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 adjusted
assets. Core capital levels are shown as a percentage of total adjusted
assets. Risk-based capital levels are shown as a percentage of
risk-weighted assets.
(3) Excludes the unrealized loss on securities available for sale, net of
taxes.
(4) 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 Regulation of Savings Institutions -
Capital Requirements."
(5) Assumes net proceeds are invested in assets that carry a 50%
risk-weighting.
37
<PAGE>
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Conversion Stock
cannot be determined until the Conversion and Reorganization is completed, it is
presently anticipated that the net proceeds from the sale of the Conversion
Stock will be between $28.2 million and $38.3 million (or $44.2 million if the
Estimated Price Range is increased by 15%). See "Pro Forma Data" and "The
Conversion and Reorganization -- Stock Pricing and Exchange Ratio" 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 and Reorganization.
The Company will contribute to the Bank 50% of the net proceeds of the
Offerings. Such portion of net proceeds will be added to the Bank's general
funds which the Bank currently intends to utilize for 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. The Bank may also use such funds to expand operations through
acquisitions of branch offices, other financial institutions or other financial
services companies, including those located within the Bank's market area. To
the extent the Stock Programs are not funded with authorized but unissued common
stock of the Company, the Company or Bank may use net proceeds from the
Conversion and Reorganization to fund the purchase of stock to be awarded under
such Stock Programs. See "Risk Factors - Stock Based Benefits to Management and
Directors, Employment Contracts and Change in Control Payments" and "Management
of the Bank - New Benefits - Stock Options Plans" and "- Stock Programs."
The Company intends to use a portion of the net proceeds to assume the
existing loan to the ESOP and to loan additional funds to the ESOP to enable the
ESOP to purchase 8% of the Conversion Stock issued in the Conversion, including
shares issued to the Foundation. The Company and Bank may alternatively choose
to fund the ESOP's stock purchases through a loan by a third party financial
institution. The remaining net proceeds retained by the Company will initially
be invested in a deposit account at the Bank. Based upon the issuance of
2,931,800 shares or 3,966,700 shares at the minimum and maximum of the Estimated
Price Range, and the issuance of shares to the Foundation, the amount of the
loan to the ESOP would be $2.6 million or $3.5 million, respectively (or $4.0
million if the Estimated Price Range is increased by 15%) to be repaid over a
fifteen year period at the prevailing prime rate of interest, which currently is
8.25%. See "Management of the Bank - Benefit Plans - 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 branch acquisitions, the establishment of
branch offices and the acquisition of smaller savings associations and
commercial banks or their assets, including those located within the Bank's
market area or diversification into other banking related businesses. The
Company has no current arrangements, understandings or agreements regarding any
such transactions. The Company, upon the Conversion and Reorganization, 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 "Risk Factors - Financial Institution Regulation and Possible
Legislation," for a discussion of certain proposed changes to the activities
restrictions applicable to the Company and "Regulation - Holding Company
Regulation" for a description of certain regulations currently applicable to the
Company.
Upon completion of the Conversion and Reorganization, 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
38
<PAGE>
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 ten 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." Notwithstanding the regulatory restriction, under current OTS policies,
repurchases may be allowed in the first year following Conversion of up to 10%
of outstanding capital stock 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 the 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. To the extent that the Company repurchases stock at market prices in
excess of the per share book value, such repurchases may have a dilutive effect
upon the interests of existing stockholders.
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
nonperforming and other risk assets, the Company's and the Bank's current and
projected results of operations and asset/liability structure, the economic
environment, tax and other considerations. See "The Conversion and
Reorganization -- Certain Restrictions on Purchase or Transfer of Shares After
Conversion."
DIVIDEND POLICY
Since the reorganization of the Bank and the formation of the MHC on
January 6, 1995, the Bank has paid, in the aggregate, annual cash dividends on
the Bank Common Stock of $.50 (50 cents) per share, which amounts to a quarterly
dividend of $.125 per share. The Bank intends to continue to pay regular
quarterly dividends through either the date of consummation of the Conversion
and Reorganization (on a pro rata basis) or the end of the fiscal quarter during
which the consummation of the Conversion and Reorganization occurs.
Commencing with the first full quarter following consummation of the
Conversion and Reorganization, the Board of Directors of the Company intends to
declare cash dividends on the Common Stock at an initial quarterly rate equal to
the amount of the existing quarterly dividend on the Bank Common Stock divided
by the Exchange Ratio. Based upon the Estimated Price Range, the Exchange
39
<PAGE>
Ratio is expected to be 1.757, 2.067, 2.377 and 2.7324 at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Price Range, respectively.
Based upon the Exchange Ratio and the sale of Conversion Stock at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Price Range, the
Company expects to pay an initial quarterly dividend of $.071, $.061, $.053 and
$.046 per share, respectively, following consummation of the Conversion and
Reorganization. Declarations of dividends by the Company's Board of Directors
will depend upon a number of factors, including the amount of the net proceeds
from the Offerings retained by the Company, 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. Consequently, there can be no
assurance that dividends will in fact be paid on the Common Stock or that, if
paid, such dividends will not be reduced or eliminated in future periods. See
"Dividend Policy" and "Market for the Common Stock."
The Bank will not be permitted to pay dividends to the Company on its
capital stock if its stockholders' equity would be reduced below the amount
required for the liquidation account. See "The Conversion and Reorganization --
Liquidation Rights." For information concerning federal and state law and
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 Regulation of Savings Institutions -- Limitation on
Capital Distributions."
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 (generally defined as the aggregate par value of the
outstanding shares of the Company's capital stock having a par value plus the
amount of the consideration paid for shares of the Company's capital stock
without par value) 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
Although the Bank Common Stock is traded on the Nasdaq National Market,
there is no established market for the Common Stock of the Company at this time.
The Company has received conditional approval to have its Common Stock quoted on
the Nasdaq National Market under the symbol "FSNJ." 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.
Although under no obligation to do so, Sandler O'Neill has informed the Company
that it intends, upon the completion of the Conversion and Reorganization, to
make a market in the Common Stock by maintaining bid and ask quotations and
trading in the Common Stock so long as the volume of trading activity and
certain other market making considerations justify it doing 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 a 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
40
<PAGE>
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.
Accordingly, 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. The
absence of an active and liquid trading market for the Common Stock could affect
the price and liquidity of the Common Stock. At December 31, 1996, there were
3,064,131 shares of Bank Common Stock outstanding, including 1,404,646 Public
Bank Shares, which were held of record by 1,371 shareholders. Since January 6,
1995, the Bank Common Stock has traded on the Nasdaq National Market under the
symbol "FSNJ." Upon consummation of the Conversion and Reorganization,
outstanding shares of Bank Common Stock will no longer be traded and will be
exchanged for shares of Company Common Stock pursuant to the Exchange Ratio.
The following table sets forth the high and low trading prices of the
Bank's Common Stock subsequent to the completion of the 1995 MHC Reorganization,
together with the cash dividends declared during the periods indicated.
FISCAL YEAR ENDED CASH DIVIDENDS
MARCH 31, 1995 HIGH LOW DECLARED(1)
- ----------------- -------- -------- --------------
Fourth Quarter $11.38 $10.00(2) $.125
FISCAL YEAR ENDED
MARCH 31, 1996
- -----------------
First Quarter $13.75 $11.00 $.125
Second Quarter 16.75 13.00 .125
Third Quarter 19.50 16.75 .125
Fourth Quarter 17.00 14.25 .125
FISCAL YEAR ENDING
MARCH 31, 1997
- ------------------
First Quarter $15.25 $13.75 $.125
Second Quarter 16.00 14.00 .125
Third Quarter 23.00 15.25 .125
- ----------
(1) The Mutual Holding Company waived receipt of all dividends declared by the
Bank.
(2) Represents the initial offering price in the Bank's 1995 MHC
Reorganization.
41
<PAGE>
CAPITALIZATION
The following table presents the unaudited historical consolidated
capitalization of the Bank at December 31, 1996, and the pro forma consolidated
capitalization of the Company after giving effect to the Conversion and
Reorganization, based upon the sale of the number of shares indicated in the
table and the other assumptions set forth under "Pro Forma Data."
<TABLE>
<CAPTION>
COMPANY PRO FORMA BASED UPON SALE AT $10.00 PER SHARE
-------------------------------------------------------------
4,561,700
2,931,800 3,449,300 3,966,700 SHARES
SHARES SHARES SHARES (15% ABOVE
(MINIMUM (MIDPOINT (MAXIMUM MAXIMUM OF
OF OF OF ESTIMATED
BANK ESTIMATED ESTIMATED ESTIMATED PRICE
HISTORICAL RICE RANGE) PRICE RANGE) PRICE RANGE) RANGE)(1)
---------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deposit accounts(2) ........................... $ 441,289 $ 441,289 $ 441,289 $ 441,289 $ 441,289
Borrowed funds ................................ 80,000 80,000 80,000 80,000 80,000
Debt in connection with acquisition
of shares of Common Stock by
ESOP(3) ................................... 651 651 651 651 651
--------- --------- --------- --------- ---------
Total deposit accounts and
borrowed funds ............................ $ 521,940 $ 521,940 $ 521,940 $ 521,940 $ 521,940
========= ========= ========= ========= =========
Stockholders' equity:
Preferred Stock, $.01 par value,
2,000,000 shares
authorized; none to be issued ............. $ -- $ -- $ -- $ -- $ --
Common Stock, $.01 par
value, 22,000,000 shares
authorized; shares to be
issued as reflected(4) .............. 306 57 67 77 89
Less:
Expense of contribution to the
Foundation, net of taxes(5) ............... -- (1,829) (2,151) (2,474) (2,845)
Plus:
Shares issued to the Foundation ........... -- 2,902 3,415 3,927 4,516
Additional paid-in capital(6)(7) .......... 12,316 40,749 45,820 50,889 56,719
Retained earnings(7) ...................... 38,022 38,222 38,222 38,222 38,222
Less:
Unearned Common Stock
acquired by the 1995 ESOP(3) .............. (651) (651) (651) (651) (651)
Unearned Common Stock held
by the 1995 Recognition and
Retention Plan ............................ (408) (408) (408) (408) (408)
Common Stock to be acquired
by the ESOP(8) ............................ -- (2,578) (3,033) (3,488) (4,011)
Common Stock to be acquired
by the Stock Programs(9) .................. -- (1,289) (1,516) (1,744) (2,005)
--------- --------- --------- --------- ---------
Total stockholders' equity .................... $ 49,585 $ 75,175 $ 79,765 $ 84,350 $ 89,626
========= ========= ========= ========= =========
</TABLE>
(footnotes continued on next page)
42
<PAGE>
- ----------
(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) Assumes that the existing loan to the ESOP remains outstanding.
(4) Assumes (i) that the 1,404,646 Public Bank Shares outstanding at December
31, 1996 are converted into 2,467,963, 2,903,403, 3,338,844 and 3,840,302
Exchange Shares at the minimum, midpoint, maximum and 15% above the
maximum of the Valuation Price Range, respectively, and (ii) that no
fractional shares of Exchange Shares will be issued by the Company. No
effect has been given to the issuance of additional shares of Common Stock
pursuant to existing and proposed stock option plans. See "Pro Forma
Data," "Management of the Bank -- Benefits" and "Management of the Bank --
Stock Benefit Plans." Reflects par value of $.10 per share for the Bank's
common stock, and par value of $.01 per share for the Company's Common
Stock.
(5) Represents the value of the contribution of Common Stock to the Foundation
at $10.00 per share reduced by the associated tax benefit of $1,073,740,
$1,263,550, $1,452,990 and $1,670,920 at the minimum, midpoint, maximum
and 15% above the maximum of the range, respectively. The realization of
the tax benefit is limited annually 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 five years following the year in which the
contribution is made.
(6) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Company's 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 Conversion Stock
issued in the Conversion, including shares issued to the Foundation, 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 3 to the tables under "Pro
Forma Data" and "Management of the Bank -- New Benefits -- Stock Option
Plans."
(7) The pro forma retained earnings include $200,000 of assets from the Mutual
Holding Company. The pro forma additional paid-in capital and retained
earnings reflect a restriction of the original retained earnings of the
Bank prior to the MHC Reorganization. The retained earnings of the Bank
will be substantially restricted after the Conversion and Reorganization
by virtue of the liquidation account to be established in connection with
the Conversion and Reorganization. See "The Conversion and Reorganization
-- Liquidation Rights" and "Regulation - Federal Regulation of Savings
Institutions -- Limitations on Capital Distributions."
(8) Assumes that 8% of the aggregate of the Conversion Stock issued in the
Conversion, including the shares issued to the Foundation, 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 - Benefit Plans - Employee Stock Ownership Plan and Trust."
(9) Assumes that, subsequent to the Conversion, an amount equal to 4% of the
shares of Conversion Stock issued in the Conversion, including shares
issued to the Foundation, is purchased by the Stock Programs through open
market purchases. The Common Stock purchased by the Stock Programs is
reflected as a reduction of stockholder's equity. Implementation of the
Stock Programs is subject to the approval of the Company's stockholders at
a meeting following the Conversion and Reorganization. See "Risk Factors -
Possible Dilutive Effect of Stock Programs and Stock Options," Footnote 2
to the tables under "Pro Forma Data" and "Management of the Bank - New
Benefits -- Stock Programs."
43
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Conversion Stock cannot be
determined until the Conversion is completed. However, net proceeds are
currently estimated to be between $28.2 million and $38.3 million (or $44.2
million in the event the Estimated Price Range is increased by 15.0%) based upon
the following assumptions: (i) 100% of the shares of Conversion Stock will be
sold in the Subscription Offering to Eligible Account Holders; (ii) directors,
officers and employees of the Bank and members of their immediate families
(collectively, "Insiders") will purchase an aggregate of $1.1 million of Common
Stock; (iii) Sandler O'Neill will receive a fee equal to 2.0% of the aggregate
Purchase Price of shares sold in the Subscription Offering and in the Community
Offering, excluding shares purchased by directors, officers, employees and any
immediate family member thereof and the ESOP for which Sandler O'Neill will not
receive a fee; and (iv) Conversion expenses, excluding the marketing fees paid
to Sandler O'Neill, will be approximately $609,000. Actual Conversion expenses
may vary from those estimated.
Pro forma consolidated net income of the Company for the nine months ended
December 31, 1996, and for the year ended March 31, 1996, have been calculated
as if the Conversion Stock had been sold (and the Exchange Shares issued) at the
beginning of the respective periods and the net proceeds had been invested at
5.51%, the one-year Treasury note rate at December 31, 1996. The tables below do
not reflect the effect of withdrawals from deposit accounts for the purchase of
Conversion Stock or the effect of any possible use of the net Conversion
proceeds. The pro forma after-tax yields for the Company and the Bank are
assumed to be 3.47% for the nine months ended December 31, 1996, and for the
year ended March 31, 1996 based on an effective tax rate of 37.0%. 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.
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. 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 tables summarize historical data of the Bank and pro forma
data of the Company at or for the nine months ended December 31, 1996, and at or
for the year ended March 31, 1996 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 and Reorganization. The tables
below give effect to the Stock Programs, which are expected to be adopted by the
Company following the Conversion and Reorganization and presented to
stockholders for approval at a meeting of stockholders. See Footnote 2 to the
tables and "Management of the Bank - New Benefits - Stock Programs." No effect
has been given in the tables 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, in the event of
liquidation of the Bank, to the tax effect of the bad debt reserve and other
factors. See Footnote 3 to the tables below, "The Conversion and Reorganization
- -- Liquidation Rights" and "Management of the Bank - New Benefits - Stock Option
Plans." THE FOLLOWING TABLE ASSUMES THAT THE FOUNDATION IS APPROVED AS PART OF
THE CONVERSION AND REORGANIZATION AND THEREFORE GIVES EFFECT TO THE ISSUANCE OF
AUTHORIZED BUT UNISSUED SHARES OF THE COMPANY'S COMMON
44
<PAGE>
STOCK TO THE FOUNDATION CONCURRENTLY WITH THE COMPLETION OF THE CONVERSION AND
REORGANIZATION. 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.
45
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE NINE MONTHS ENDED DECEMBER 31, 1996
------------------------------------------------------------
2,931,800 3,449,300 3,966,700 4,561,700
SHARES SOLD SHARES SOLD SHARES SOLD SHARES SOLD
AT $10.00 AT $10.00 AT $10.00 AT $10.00 PER
PER SHARE PER SHARE PER SHARE SHARE (15%
(MINIMUM (MIDPOINT (MAXIMUM ABOVE MAXIMUM
OF ESTIMATED OF ESTIMATED OF ESTIMATED OF ESTIMATED
PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE)(5)
------------ ------------ ------------ ---------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross proceeds ..................................................... $ 29,318 $ 34,493 $ 39,667 $ 45,617
Plus: Shares issued to the Foundation (equal to 9.9% of
the stock sold in the Conversion) ............................ 2,902 3,415 3,927 4,516
-------- -------- -------- --------
Pro forma market capitalization .................................... $ 32,220 $ 37,908 $ 43,594 $ 50,133
======== ======== ======== ========
Gross proceeds ..................................................... $ 29,318 $ 34,493 $ 39,667 $ 45,617
Less: Offering expenses and commission ............................. (1,134) (1,228) (1,323) (1,431)
-------- -------- -------- --------
Estimated net proceeds ............................................. 28,184 33,265 38,344 44,186
Less: Common Stock purchased by ESOP ............................... (2,578) (3,033) (3,488) (4,011)
Common Stock purchased by
Stock Programs ........................................ (1,289) (1,516) (1,744) (2,005)
-------- -------- -------- --------
Estimated net proceeds, as adjusted ............................ $ 24,317 $ 28,716 $ 33,112 $ 38,170
======== ======== ======== ========
Consolidated net earnings:
Historical ..................................................... (2,971) (2,971) (2,971) (2,971)
Earnings adjustment(1) ......................................... 4,503 4,503 4,503 4,503
Historical earnings as adjusted ................................ 1,532 1,532 1,532 1,532
Pro forma earnings on net
proceeds, as adjusted ..................................... 633 748 862 994
Less: Pro forma ESOP adjustment(2) ............................. (81) (96) (110) (126)
Pro forma Stock Programs adjustment(3) ................... (122) (143) (165) (190)
-------- -------- -------- --------
Pro forma net earnings .................................... $ 1,962 $ 2,041 $ 2,119 $ 2,210
======== ======== ======== ========
Per share net earnings:
Historical ..................................................... $ (0.56) $ (0.48) $ (0.41) $ (0.36)
Earnings adjustment ............................................ 0.86 0.72 0.63 0.55
-------- -------- -------- --------
Historical earnings as adjusted ................................ 0.29 0.24 0.22 0.19
Pro forma earnings on net
proceeds, as adjusted ..................................... 0.12 0.12 0.12 0.12
Less: Pro forma ESOP adjustment(2) ............................. (0.02) (0.02) (0.02) (0.02)
Pro forma Stock Programs adjustment(3) ................... (0.02) (0.02) (0.02) (0.02)
-------- -------- -------- --------
Pro forma net earnings per share .......................... $ 0.37 $ 0.32 $ 0.30 $ 0.27
======== ======== ======== ========
Stockholders' equity:
Historical ..................................................... $ 49,585 $ 49,585 $ 49,585 $ 49,585
Estimated net proceeds ......................................... 28,184 33,265 38,344 44,186
Plus: Assets consolidated from the MHC ......................... 200 200 200 200
Shares issued to the Foundation .......................... 2,902 3,415 3,927 4,516
Less: After tax cost of Foundation ............................. (1,829) (2,151) (2,474) (2,845)
Common Stock acquired by ESOP(2) ......................... (2,578) (3,033) (3,488) (4,011)
Common Stock acquired
by Stock Programs(3) .................................... (1,289) (1,516) (1,744) (2,005)
-------- -------- -------- --------
Pro forma stockholders'
equity(2)(3)(4) ....................................... $ 75,175 $ 79,765 $ 84,350 $ 89,626
======== ======== ======== ========
Stockholders' equity per share:
Historical ..................................................... $ 8.71 $ 7.41 $ 6.44 $ 5.60
Estimated net proceeds ......................................... 4.95 4.97 4.98 4.99
Plus: Assets consolidated from the MHC ......................... 0.02 0.02 0.02 0.02
Shares issued to the Foundation .......................... 0.51 0.51 0.51 0.51
Less: After tax cost of the Foundation ......................... (0.32) (0.32) (0.32) (0.32)
Common Stock acquired by ESOP(2) ......................... (0.45) (0.45) (0.45) (0.45)
Common Stock acquired
by Stock Programs(3) .................................... (0.23) (0.23) (0.23) (0.23)
-------- -------- -------- --------
Pro forma stockholders' equity
per share(2)(3)(4) .................................. $ 13.19 $ 11.91 $ 10.96 $ 10.12
======== ======== ======== ========
Offering price as a percentage of pro forma
stockholders' equity per share ................................. 75.70% 83.96% 91.24% 98.81%
Offering price to pro forma net
earnings per share ............................................. 20.27x 23.44x 25.00x 27.78x
</TABLE>
(footnotes on next page)
46
<PAGE>
- ----------
(1) Historical earnings have been adjusted for the one-time payment of the
SAIF assessment and a nonrecurring loss on the sale of mutual funds from
the available for sale portfolio. Does not give effect to the
non-recurring expense that will be recognized in the first quarter of
fiscal 1998 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 is expected to be $1.8 million,
$2.2 million, $2.5 million, and $2.8 million at the minimum, midpoint,
maximum, and maximum as adjusted, of the Estimated Price Range,
respectively.
(2) It is assumed that 8% of the shares of Conversion Stock issued in the
Conversion, including shares issued to the Foundation, 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 to be 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 fifteen equal
annual installments of principal, with an assumed interest rate at 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 nine months
ended December 31, 1996, and was made at the end of the period; (ii) that
20,000, 25,000, 28,000 and 32,000 shares at the minimum, midpoint, maximum
and 15% above the maximum of the range, respectively, were committed to be
released during the nine months ended December 31, 1996, at an average
fair value of $10.00 per share in accordance with the AICPA 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 - Benefit Plans - Employee Stock Ownership Plan
and Trust."
(3) 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 Conversion Stock equal to 4%
of the shares of Common Stock issued in the Conversion, including shares
issued to the Foundation, or 128,882, 151,631, 174,376 and 200,532 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 15% (the portion of shares awarded which would be vested
during the period presented based upon a vesting schedule of 20% per year)
of the amount contributed was an amortized expense during the nine months
ended December 31, 1996. 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 4.0% and pro forma net earnings per share would be $0.35,
$0.31, $0.28, and $0.25 at the minimum, midpoint, maximum and 15% above
the maximum of the range, respectively, and pro forma stockholders' equity
per share would be $12.92, $11.67, $10.75, and $9.95 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 - New Benefits
Stock Programs."
(4) 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
Conversion Stock issued in the Conversion, including shares issued to the
Foundation, or 322,205, 379,078, 435,940 and 501,331 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
$10.00 per share, the pro forma net earnings per share would be $0.33,
$0.29, $0.26 and $0.24, respectively, and the pro forma stockholders'
equity per share would be $12.12, $10.92, $10.05 and $9.29, respectively.
See "Management of the Bank - New Benefits - Stock Option Plans."
(5) The retained earnings of the Bank will continue to be substantially
restricted after the Conversion. See "Dividend Policy," "The Conversion
and Reorganization -- Liquidation Rights" and "Regulation - Federal
Regulation of Savings Institutions - Limitation on Capital Distributions."
(6) 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.
47
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED MARCH 31, 1996
------------------------------------------------------------
2,931,800 3,449,300 3,966,700 4,561,700
SHARES SOLD SHARES SOLD SHARES SOLD SHARES SOLD
AT $10.00 AT $10.00 AT $10.00 AT $10.00 PER
PER SHARE PER SHARE PER SHARE SHARE (15%
(MINIMUM (MIDPOINT (MAXIMUM ABOVE MAXIMUM
OF ESTIMATED OF ESTIMATED OF ESTIMATED OF ESTIMATED
PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE)(5)
------------ ------------ ------------ ---------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross proceeds ..................................................... $ 29,318 $ 34,493 $ 39,667 $ 45,617
Plus: Shares issued to the Foundation (equal to 9.9% of the
stock sold in the Conversion) ............................. 2,902 3,415 3,927 4,516
-------- -------- -------- --------
Pro forma market capitalization .................................... $ 32,220 $ 37,908 $ 43,594 $ 50,133
======== ======== ======== ========
Gross proceeds ..................................................... $ 29,318 $ 34,493 $ 39,667 $ 45,617
Less: Offering expenses and commissions ............................ (1,134) (1,228) (1,323) (1,431)
-------- -------- -------- --------
Estimated net proceeds ............................................. 28,184 33,265 38,344 44,186
Less: Common Stock purchased by ESOP ............................... (2,578) (3,033) (3,488) (4,011)
Common Stock purchased by Stock Programs ..................... (1,289) (1,516) (1,744) (2,006)
-------- -------- -------- --------
Estimated net proceeds, as adjusted .............................. $ 24,317 $ 28,716 $ 33,112 $ 38,170
======== ======== ======== ========
Consolidated net earnings:
Historical ....................................................... $ 615 $ 615 $ 615 $ 615
Earnings adjustment .............................................. 2,343 2,343 2,343 2,343
Historical earnings as adjusted .................................. 2,958 2,958 2,958 2,958
Pro forma earnings on net proceeds, as adjusted .................. 844 997 1,150 1,325
Less: Pro forma ESOP adjustment(2) ............................... 108 127 146 168
Pro forma Stock Programs adjustment(3) .................... 162 191 220 253
-------- -------- -------- --------
Pro forma net earnings ....................................... $ 3,532 $ 3,637 $ 3,742 $ 3,862
======== ======== ======== ========
Per share net earnings:
Historical ....................................................... $ 0.12 $ 0.10 $ 0.09 $ 0.07
Earnings adjustment .............................................. 0.44 0.38 0.33 0.29
-------- -------- -------- --------
Historical earnings as adjusted .................................. 0.56 0.48 0.42 0.36
Pro forma earnings on net proceeds, as adjusted .................. 0.16 0.16 0.16 0.16
Less: Pro forma ESOP adjustment(2) ............................... (0.02) (0.02) (0.02) (0.02)
Pro forma Stock Programs adjustment(3) .................... (0.03) (0.03) (0.03) (0.03)
-------- -------- -------- --------
Pro forma net earnings per share ............................. $ 0.67 $ 0.59 $ 0.53 $ 0.47
======== ======== ======== ========
Stockholders' equity:
Historical ....................................................... $ 49,519 $ 49,519 $ 49,519 $ 49,519
Estimated net proceeds ........................................... 28,184 33,265 38,349 44,192
Plus: Assets consolidated from MHC ............................... 200 200 200 200
Shares issued to the Foundation ............................ 2,902 3,415 3,927 4,516
Less: After tax cost of Foundation ............................... (1,829) (2,151) (2,474) (2,845)
Common Stock acquired by ESOP(2) ........................... (2,578) (3,033) (3,488) (4,011)
Common Stock acquired by
Stock Programs(3) .................................... (1,289) (1,516) (1,744) (2,006)
-------- -------- -------- --------
Pro forma stockholders' equity(2)(3)(4) ...................... $ 75,109 $ 79,699 $ 84,289 $ 89,565
======== ======== ======== ========
Stockholders' equity per share:
Historical ....................................................... $ 8.70 $ 7.40 $ 6.43 $ 5.59
Estimated net proceeds ........................................... 4.95 4.97 4.98 4.99
Plus: Assets consolidated from MHC ............................... 0.02 0.02 0.02 0.01
Shares issued to the Foundation ............................ 0.51 0.51 0.51 0.51
Less: After tax cost of the Foundation ........................... (0.32) (0.32) (0.32) (0.32)
Common Stock acquired by ESOP(2) ........................... (0.45) (0.45) (0.45) (0.45)
Common Stock acquired by
Stock Programs(3) .................................... (0.23) (0.23) (0.23) (0.23)
-------- -------- -------- --------
Pro forma stockholders' equity
per share(2)(3)(4) ........................................ $ 13.18 $ 11.90 $ 10.94 $ 10.10
======== ======== ======== ========
Offering price as a percentage of pro forma
stockholders' equity per share .................................. 75.76% 83.96% 91.32% 98.91%
Offering price to pro forma net earnings per share ................. 14.93x 16.95x 18.87x 21.28x
</TABLE>
(footnotes continued on next page)
48
<PAGE>
- ----------
(1) Historical earnings have been adjusted for the one-time payment of the
SAIF assessment and a nonrecurring loss on the sale of mutual funds from
the available for sale portfolio. Does not give effect to the
non-recurring expense that will be recognized in the first quarter of
fiscal 1998 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 is expected to be $1.8 million,
$2.2 million, $2.5 million, and $2.8 million at the minimum, midpoint,
maximum, and maximum as adjusted, of the Estimated Price Range,
respectively.
(2) It is assumed that 8% of the shares of Conversion Stock issued in the
Conversion, including shares issued to the Foundation, 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 to be 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 the equal
annual installments of principal, with an assumed interest rate at 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
March 31, 1996, and was made at the end of the period; (ii) that 28,000,
32,000, 38,000 and 43,000 shares at the minimum, midpoint, maximum and 15%
above the maximum of the range, respectively, were committed to be
released during the nine months ended December 31, 1996, at an average
fair value of $10.00 per share in accordance with the AICPA 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 - Benefit Plans - Employee Stock Ownership Plan
and Trust."
(3) 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 Conversion Stock equal to 4%
of the shares of Common Stock issued in the Conversion, including shares
issued to the Foundation, or 128,882, 151,631, 174,376 and 200,532 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 4.0% and pro forma net earnings per share would be $0.64,
$0.56, $0.50, and $0.45 at the minimum, midpoint, maximum and 15% above
the maximum of the range, respectively, and pro forma stockholders' equity
per share would be $12.69, $11.45, $10.53, and $9.73 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 - New Benefits -
Stock Programs."
(4) 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
Conversion Stock issued in the Conversion, including shares issued to the
Foundation, or 322,205, 379,078, 435,940 and 501,331 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
$10.00 per share, the pro forma net earnings per share would be $0.59,
$0.52, $0.46 and $0.42, respectively, and the pro forma stockholders'
equity per share would be $12.00, $10.82, $9.95 and $9.57, respectively.
See "Management of the Bank - New Benefits - Stock Option Plans."
(5) The retained earnings of the Bank will continue to be substantially
restricted after the Conversion. See "Dividend Policy," "The Conversion
and Reorganization -- Liquidation Rights" and "Regulation - Federal
Regulation of Savings Institutions - Limitation on Capital Distributions."
(6) 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.
49
<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 and Reorganization, FinPro has estimated that the pro forma market
capitalization of the Company would be approximately $68.0 million, at the
midpoint, which is approximately $4.4 million greater than the pro forma market
capitalization of the Company if the Foundation is approved by the members of
the Mutual Holding Company and would result in approximately an $2.4 million
increase, in the amount of Conversion Stock offered for sale in the Conversion
and Reorganization and an increase in the Exchange Ratio from 2.067 to 2.213.
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 virtually 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 $11.91 and $0.34, respectively, at the
midpoint of the estimate, assuming no Foundation, and $11.91 and $0.32,
respectively, with the Foundation. The pro forma price to book ratio and the pro
forma price to earnings ratio are 83.96% and 22.06x, respectively, at the
midpoint of the estimate, assuming no Foundation and are 83.96% and 23.44x,
respectively, with the Foundation. See "Effect of the Reorganization on Public
Stockholders -Effect of Charitable Foundation on the Exchange." This estimate by
FinPro, Inc. was prepared at the request of the OTS and is solely for purposes
of providing depositors with sufficient information with which to make an
informed decision on the Foundation and the Public Stockholders with sufficient
information to make a decision on the Reorganization. There is no assurance that
in the event the Foundation is not approved at the Special Meeting of members
that the appraisal prepared at that time would conclude that the pro forma
market value of the Company would be the same as that estimated herein. Any
appraisal prepared at that time would be based on the facts and circumstances
existing at that time, including, among other things, market and economic
conditions.
For comparative purposes only, set forth below are certain pricing ratios
and financial data and ratios, at the minimum, midpoint, maximum and maximum, as
adjusted, of the Estimated Price Range, assuming the Conversion and
Reorganization were completed at December 31, 1996.
<TABLE>
<CAPTION>
AT THE MAXIMUM,
AT THE MINIMUM AT THE MIDPOINT AT THE MAXIMUM AS ADJUSTED
------------------------------------------------------------------------------------------
WITH NO WITH NO WITH NO WITH NO
FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Estimated offering amount .................$ 29,318 $ 31,381 $ 34,493 $ 36,919 $ 39,667 $ 42,457 $ 45,617 $ 48,826
Pro forma market capitalization ........... 54,000 57,800 63,530 68,000 73,060 78,200 84,020 89,930
Total assets .............................. 604,166 605,213 608,753 609,984 613,340 614,756 618,615 620,244
Total liabilities ......................... 528,989 528,989 528,989 528,989 528,989 528,989 528,989 528,989
Pro forma stockholders' equity ............ 75,177 76,224 79,764 80,995 84,351 85,767 89,626 91,255
Pro forma consolidated net earnings ....... 1,962 2,002 2,041 2,111 2,119 2,201 2,210 2,303
Pro forma stockholders' equity per share .. 13.21 13.19 11.91 11.91 10.96 10.97 10.12 10.14
Pro forma consolidated net earnings per
share ................................ 0.36 0.38 0.32 0.34 0.29 0.30 0.27 0.27
Exchange Ratio ............................ 1.757 1.881 2.067 2.213 2.377 2.545 2.734 2.926
Pro Forma Pricing Ratios:
Offering price as a percentage of
pro forma stockholders' equity
per share .......................... 75.70% 75.82% 83.96% 83.96% 91.24% 91.16% 98.81% 98.62%
Offering price to pro forma
net earnings per share ............. 20.27x 19.74x 23.44x 22.06x 25.00x 24.19x 25.86x 25.86x
Offering price to assets .............. 9.42% 9.55% 11.00% 11.15% 12.55% 12.72% 14.32% 14.50%
Pro Forma Financial Ratios:
Return on assets ...................... 0.43% 0.45% 0.45% 0.46% 0.46% 0.48% 0.48% 0.50%
Return on stockholders' equity ........ 3.48% 3.54% 3.41% 3.47% 3.35% 3.42% 3.29% 3.36%
Stockholders' equity to assets ........ 12.44% 12.59% 13.10% 13.28% 13.75% 13.95% 14.49% 14.71%
</TABLE>
50
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY, SLA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
The following Consolidated Statements of Operations of the Bank and
subsidiaries for the year ended March 31, 1996, the ten months ended March 31,
1995 and the year ended May 31, 1994 have been audited by KPMG Peat Marwick LLP
("Peat Marwick"), independent certified public accountants, whose report thereon
is included elsewhere in this Prospectus. With respect to the information for
the nine months ended December 31, 1996 and 1995, which is unaudited, in the
opinion of management, all adjustments necessary for a fair presentation of such
interim periods have been included and are of a normal recurring nature. Results
for the nine months ended December 31, 1996 are not necessarily indicative of
the results that may be expected for the year ended March 31, 1997. These
Consolidated Statements of Operations should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and Management's Discussion
and Analysis of Financial Condition and Results of Operations included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
TEN
MONTHS
NINE MONTHS ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, MARCH 31, MARCH 31, MAY 31,
1996 1995 1996 1995 1994
-------- -------- -------- -------- --------
(Unaudited) (In thousands)
<S> <C> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME:
Loans .............................................................. $ 14,933 $ 14,342 $ 19,196 $ 14,935 $ 19,487
Securities available for sale ...................................... 14,813 8,457 14,032 8,998 12,777
Securities held to maturity ........................................ 934 3,447 3,827 4,133 2,382
Deposits with financial institutions ............................... 530 151 254 365 970
-------- -------- -------- -------- --------
Total interest and dividend income ............................. 31,210 26,397 37,309 28,431 35,616
-------- -------- -------- -------- --------
INTEREST EXPENSE:
Interest on deposits (note 10) ..................................... 15,719 15,543 20,760 15,628 19,267
Interest on borrowings ............................................. 5,581 816 3,082 203 1,528
-------- -------- -------- -------- --------
Total interest expense ......................................... 21,300 16,359 23,842 15,831 20,795
-------- -------- -------- -------- --------
Net interest income ............................................ 9,910 10,038 13,467 12,600 14,821
Provision for loan losses (note 6) ..................................... 90 300 450 350 500
-------- -------- -------- -------- --------
Net interest income after provision for loan losses ............ 9,820 9,738 13,017 12,250 14,321
-------- -------- -------- -------- --------
NON-INTEREST INCOME (LOSS):
Loan fees and service charges ...................................... 235 206 307 285 428
(Loss) gain on sale of securities available for sale, net
(note 4) ....................................................... (2,812) (2,514) (2,217) (547) 262
(Loss) gain on sales of real estate acquired in settlement
of loans ....................................................... (52) (52) (7) -- 62
(Loss) gain from real estate operations, net (note 8) .............. -- (25) (25) (62) 172
Other .............................................................. 690 514 729 452 856
-------- -------- -------- -------- --------
Total non-interest income (loss) ............................... (1,939) (1,871) (1,213) 128 1,780
-------- -------- -------- -------- --------
OPERATING EXPENSES:
Compensation and employee benefits (note 14) ....................... 4,256 4,417 5,821 4,674 4,735
Occupancy .......................................................... 574 595 802 630 648
Equipment .......................................................... 831 839 1,092 858 972
Advertising and promotion .......................................... 46 146 176 123 91
Federal insurance premiums ......................................... 883 873 1,163 990 1,210
SAIF assessment .................................................... 2,985 -- -- -- --
Other .............................................................. 1,070 1,320 1,761 1,676 1,860
-------- -------- -------- -------- --------
Total operating expenses ....................................... 10,555 8,190 10,815 8,951 9,516
-------- -------- -------- -------- --------
Income (loss) before income tax expense and cumulative
effect of accounting changes ................................... (2,674) (323) 989 3,427 6,585
Income tax expense (benefit) (note 12) ............................. 297 (112) 374 1,236 2,247
-------- -------- -------- -------- --------
Income (loss) before cumulative effect of accounting
changes ........................................................ (2,971) (211) 615 2,191 4,338
-------- -------- -------- -------- --------
CUMULATIVE EFFECT OF ACCOUNTING CHANGES: ............................... 400
Income taxes (note 12) ............................................. -- -- -- -- (1,216)
Postretirement benefits, net of tax benefit (note 14) .............. -- -- -- -- 471
-------- -------- -------- -------- --------
Investments net of tax expense (note 4)
Net Income (loss), net of tax expense (note 4) ..................... $ (2,971) $ (211) $ 615 $ 2,191 $ 3,993
======== ======== ======== ======== ========
Earnings (loss) per share .......................................... $ (0.98) $ (0.07) $ 0.21 $ -- $ --
======== ======== ======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
51
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The earnings of the Bank depend primarily on its level of net interest and
dividend income, which is the difference between interest earned on the Bank's
interest-earning assets, consisting primarily of mortgage and consumer loans,
mortgage securities, and United States Government and agency obligations, and
the interest paid on interest-bearing liabilities, which consist of savings
deposits and borrowings from the FHLB. Net interest income is a function of the
Bank's interest rate spread, which is the difference between the average yield
on interest-earning assets and the average rate paid on interest-bearing
liabilities, as well as a function of the average balance of interest-earning
assets as compared to interest-bearing liabilities. The Bank's earnings are also
affected by its level of noninterest income, including primarily loan fees and
service charges, and gains (losses) on sales of securities available for sale,
sales of real estate acquired in settlement of loans, and income from real
estate operations and by its level of noninterest expense, including primarily
compensation and employee benefits, occupancy, equipment, SAIF deposit premiums,
and other operating expenses. Earnings of the Bank are also affected
significantly by general economic and competitive conditions, particularly
changes in market interest rates, government policies and actions of regulatory
authorities, which events are beyond the control of the Bank.
Following the Bank's initial public offering in January 1995, the Board of
Directors determined to change the Bank's fiscal year from May 31 to March 31
commencing with the ten month transition period ended March 31, 1995. Therefore,
for comparative purposes, the information presented for the period ended March
31, 1995, is based upon a ten-month period unless otherwise noted.
BUSINESS STRATEGY
The Bank's business strategy has been to operate as a well-capitalized and
independent community-oriented savings institution dedicated to providing
quality customer service. Generally, the Bank has sought to implement this
strategy by maintaining a substantial part of its assets in loans secured by
one- to four-family residential real estate located in the Bank's market area,
home equity loans, mortgage securities, and United States Government and agency
obligations. Specifically, the Bank's business strategy has incorporated the
following elements: (1) operating as a community-oriented financial institution,
maintaining a strong core customer base by providing quality service and
offering customers the access to senior management and services that a
community-based institution can offer; (2) emphasizing investment in residential
mortgage loans, mortgage securities and other securities issued or guaranteed by
the United States Government or agencies thereof; (3) maintaining capital in
excess of regulatory requirements and growing only to the extent that adequate
capital levels can be maintained; and (4) striving to increase its retail
deposit base.
While management intends to continue emphasizing these objectives, it also
plans to modify the existing operating strategy in order to achieve greater
growth and profitability. Specifically, the Bank intends to: (i) diversify the
products and services offered to customers to possibly include commercial loans
and commercial deposit accounts, among other products; and (ii) expand the
Bank's market area through its branch network and through its lending and
investment services. By seeking to broaden the range of its products and
services offered, the Bank believes it will offset the declining margins in the
market for one- to four-family loans and the reduced deposit base that it has
experienced in recent years.
Management believes that the diversification of the Bank's loan products
may expose it to a higher degree of credit risk than is involved in the Bank's
one- to four-family residential mortgage lending
52
<PAGE>
activity. As a consequence of management's lending strategy, the Bank may, in
future periods, depending upon conditions at that time, increase the level of
its provision for loan losses as well as its provision for losses on real estate
owned over the provisions taken in the Bank's recent fiscal years.
Highlights of the Bank's business strategy are as follows:
Community-Oriented Institution. The Bank is the largest savings
institution headquartered in Bayonne. The Bank is committed to meeting the
financial needs of the community in which it operates. Management believes that
the Bank is large enough to provide a full range of personal and business
financial services, and yet is small enough to be able to provide such services
in a personalized and efficient manner. Management believes that the Bank can be
more effective in servicing its customers than many of its nonlocal competitors
because of the Bank's ability to quickly and effectively provide senior
management responses to customer needs and inquiries. The Bank intends to
maintain its community orientation by continuing to emphasize traditional
deposit and loan products, primarily single-family residential mortgages. The
Bank also intends to enhance its community involvement through the establishment
of the Foundation. See "The Conversion and Reorganization -- Establishment of a
Charitable Foundation."
Emphasis on Residential Mortgage Lending. Since inception, the Bank has
been a portfolio lender, and has not sold loans in the secondary market in the
1990s. The Bank has emphasized and will continue to emphasize the origination of
mortgage loans secured by one- to four-family residential properties located in
Bayonne and the rest of Hudson County. Such mortgage loans generally have less
credit risk than loans collateralized by multifamily or commercial real estate.
At December 31, 1996, oneto four-family residential mortgage loans totalled
$202.6 million, or 83.0%, of the Bank's loan portfolio. Generally, the yield on
mortgage loans originated by the Bank is greater than that of mortgage
securities purchased by the Bank. In the future, the Bank is considering
expanding its lending program to include commercial loans in an effort to
satisfy a perceived need within its market area and increase its loan portfolio.
To accomplish this, the Bank may hire additional personnel experienced in
commercial lending and may focus marketing efforts on smaller businesses
operating in the Bank's market areas.
Liquid Investments. Where available funds exceed mortgage loan demand, the
Bank maintains a substantial portfolio of liquid investments with low credit
risk. At December 31, 1996, $297.2 million, or 51.4%, of the Bank's total assets
consisted of securities issued or guaranteed by the United States Government or
an agency or sponsored-corporation of the United States Government or mortgage
securities collateralized by such United States Government-related instruments.
Retail Deposit Base. The Bank has had a relatively strong retail deposit
base drawn from its offices located in Bayonne, New Jersey. The Bank holds
approximately 40% of all deposits held by branches of commercial banks, credit
unions, and savings associations located in Bayonne, and approximately 6% of
such deposits in Hudson County. At December 31, 1996, 42.5% of the Bank's
deposit base of $441.3 million consisted of core deposits, which included
passbook accounts, NOW accounts, money market deposit accounts, noninterest
demand accounts, and club accounts. Core deposits are considered to be a more
stable and lower cost source of funds than certificates of deposit or outside
borrowings. The Bank has experienced a 9.8% decrease in deposits over the last
five years due to a declining population in Bayonne and a shift of funds into
mutual funds and other markets as a result of relatively lower interest rates.
The Bank will continue to emphasize retail deposits by providing quality
customer service, offering competitive rates on deposit accounts, and providing
depositors with a full range of accounts. The Bank also plans to introduce
commercial deposit accounts, including business checking, in an effort to
increase its customer base.
53
<PAGE>
Expanding Market Area. Management is also seeking to expand the Bank's
market area . Presently, a significant portion of the Bank's lending and deposit
activities are concentrated within the City of Bayonne. While management will
continue to emphasize the delivery of products and services to Bayonne
residents, it will seek to broaden its lending area into surrounding
communities. The Bank may hire additional loan personnel to increase its lending
activities outside of Bayonne. In addition, the Bank intends to explore
expanding its branch network into surrounding communities within the next few
years in an effort to increase its retail deposit base and to facilitate
increased lending. The Bank does not intend to expand its market outside the
State of New Jersey.
MANAGEMENT OF INTEREST RATE RISK
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.
The Bank's deposit accounts typically react more quickly to changes in
market interest rates than interest-earning assets such as mortgage loans,
because of the relatively shorter maturities of deposits. When interest rates
are rising, interest expense will increase more rapidly than interest income if
a higher volume of interest-bearing liabilities than interest-earning assets
reprice to higher interest rates. In a falling interest rate environment,
interest income will increase more rapidly than interest expense if a higher
volume of interest-bearing liabilities than interest-earning assets reprice to
lower interest rates.
Management seeks to manage the Bank's interest rate risk exposure by
monitoring the levels of interest rate sensitive assets and liabilities, and has
sought to improve its interest rate spread. To reduce the potential volatility
of the Bank's earnings in a changing interest rate environment, the Bank has
invested in mortgage securities that have adjustable rates and/or relatively
short expected terms. At December 31, 1996, $60.6 million, or 18.9%, of the
Bank's $319.6 million of investments consisted of mortgage securities with
adjustable interest rates. The Bank has also sought to reduce the term of its
interest-earning assets by offering fixed-rate one- to four-family mortgage
loans with terms of 15 years or less. Such loans constituted $9.0 million, or
30.3%, of the Bank's total originations of one- to four-family mortgage loans
during the nine months ended December 31, 1996. The Bank also originates
adjustable-rate one- to four-family mortgage loans. Of the Bank's one- to
four-family mortgage loans originated during the nine months ended December 31,
1996, $12.3 million, or 41.6% had adjustable rates of interest. The Bank also
maintains relatively high levels of liquidity, which assets may be reinvested
more quickly in response to changes in market interest rates. In addition, the
Bank manages its interest-bearing liabilities by offering competitive interest
rates on deposit accounts and pricing certificates of deposit to provide
customers with incentives to choose certificates of deposit with longer terms.
In the current interest rate environment, however, longer-term certificates of
deposit tend to be less attractive to depositors.
At December 31, 1996, the Bank's total interest-bearing liabilities
maturing or repricing within one year exceeded its total interest-earning assets
maturing or repricing within one year by $39.1 million, representing a
cumulative one-year gap ratio of negative 6.76%. The Bank's gap position
indicates that in a rising interest rate environment the Bank's net interest
income would be adversely affected as
54
<PAGE>
liabilities would reprice to higher market rates more quickly than assets. This
effect would be compounded because the prepayment speeds of the Bank's long-term
fixed-rate assets would decrease in a rising interest rate environment. Although
the Bank could reduce its exposure to interest rate risk by investing a larger
portion of its assets in short-term securities and adjustable-rate mortgage
securities and by pursuing other strategies such as hedging and interest rate
swap programs, management believes that the benefits of such a strategy would be
outweighed by the cost of such programs, as well as by the loss of earnings from
concentrating on short-term and adjustable-rate investments, which typically
offer lower yields.
The Bank has an Asset-Liability Management Committee which meets and
reports monthly to the Board of Directors. The primary responsibility of the
Asset-Liability Committee is to determine and monitor the level of interest rate
risk that the Bank determines to be acceptable, and establish strategies and
procedures to keep that risk within its specified limits. To that end, the
Committee reviews and approves pricing and fee structures for all asset and
liability products, and analyzes cash flow projections to calculate their
collective impact on growth, capital, net interest income and market value of
portfolio equity. The Committee regularly reviews the results of operations and
makes recommendations to the Board, based on such analyses, to enhance both the
Bank's interest rate risk position as well as its profitability.
55
<PAGE>
Net Portfolio Value. The OTS has adopted a rule that incorporates an
interest rate risk ("IRR") component into the risk-based capital rules. The
effective date of the new rule has been delayed, but is expected to occur
shortly. The IRR component is a dollar amount that will be deducted from total
capital for the purpose of calculating an institution's risk-based capital
requirement and is measured in terms of the sensitivity of its net portfolio
value ("NPV") to changes in interest rates. NPV is the difference between
incoming and outgoing discounted cash flows from assets, liabilities and
off-balance sheet contracts. An institution's IRR is measured as the change to
its NPV as a result of a hypothetical 200 basis point change in market interest
rates. A resulting change in NPV of more than 2% of the estimated market value
of its assets will require the institution to deduct from its capital 50% of
that excess change.
The following table presents the Bank's NPV as of December 31, 1996, as
calculated by the OTS, based on information provided to the OTS by the Bank.
NPV AS % OF PORTFOLIO
CHANGE IN NET PORTFOLIO VALUE VALUE OF ASSETS
INTEREST RATES ------------------------------------- ---------------------
IN BASIS POINTS % NPV %
(RATE SHOCK) AMOUNT $ CHANGE CHANGE RATIO CHANGE (1)
- --------------- ------- --------- ------- ------- ------------
(DOLLARS IN THOUSANDS)
400 $18,157 $(40,463) (69.0)% 3.37% (6.56)%
300 28,548 (30,072) (51.0) 5.17 (4.75)
200 39,256 (19,364) (33.0) 6.94 (2.98)
100 49,424 (9,197) (16.0) 8.55 (1.38)
Static 58,621 -- -- 9.93 --
(100) 65,133 6,512 11.0 10.85 0.93
(200) 70,247 11,626 20.0 11.54 1.61
(300) 75,525 16,904 29.0 12.23 2.31
(400) 81,847 23,226 40.0 13.05 3.12
- ----------
(1) Expressed in basis points.
Based upon the above calculations, the Bank believes that it would have
been in compliance with the risk-based capital requirements of the new
regulations, as of December 31, 1996, if such regulation had been effective as
of such date. Based upon such calculations, the Bank would have been required to
deduct $19.4 million from total capital for purposes of calculating the Bank's
risk-based capital. As of December 31, 1996, without taking into effect the IRR
component, the Bank had $55.5 million of riskbased capital, which exceeded the
OTS minimum requirements by $38.5 million. However, the calculations indicate
that as of December 31, 1996, a 200 basis point increase in interest rates would
result in a 33.0% reduction in the value of the Bank's discounted cash flows.
Management believes that its exposure to a decline in the value of its
discounted cash flows is reasonable in view of the Bank's relatively high levels
of liquidity and capital.
56
<PAGE>
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 on the relative amounts of interest-earning assets
and interest-bearing liabilities and the interest rate earned or paid on them.
57
<PAGE>
AVERAGE BALANCE SHEET
The following table sets forth certain information relating to the Bank's
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated and the average yields earned and rates
paid. Such yields and costs are derived by dividing income or expense by the
average balance of assets or liabilities, respectively, for the periods
presented. Average balances are derived from month-end balances.
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
AT DECEMBER 31, -------------------------------------
1996 1996
----------------------- -------------------------------------
AVERAGE
AVERAGE ANNUALIZED
ACTUAL YIELD/ AVERAGE YIELD/
BALANCE COST BALANCE INTEREST COST
--------- --------- --------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans(1).................................. $208,707 8.46% $205,417 $13,116 8.51%
Consumer loans..................................... 30,487 7.54 28,873 1,817 8.39
Mortgage-backed securities available for sale...... 217,859 5.37 211,697 8,989 5.66
Mutual funds available for sale.................... -- -- 47,524 2,350 6.59
Other investments available for sale(2)............ 68,093 5.33 87,927 3,474 5.27
Investment securities and overnight
deposits with financial institutions(3).......... 33,586 8.28 31,725 1,464 6.15
-------- ----- -------- ------- -----
Total interest-earning assets................. 558,732 6.81 613,163 31,210 6.79
Noninterest-earning assets.......................... 19,842 20,341
-------- --------
Total assets.................................. $578,574 $633,504
======== ========
Interest-bearing liabilities:
Savings deposits(4)................................ $441,289 4.80% $444,042 15,719 4.72%
Advances from FHLB and other borrowings............ 80,651 5.73 134,034 5,581 5.55
-------- ----- -------- ------- -----
Total interest-bearing liabilities............ 521,940 4.94 578,076 21,300 4.91
----- -----
Noninterest-bearing liabilities..................... 7,049 6,573
-------- --------
Total liabilities............................. 528,989 584,649
Stockholders' equity................................ 49,585 48,855
-------- --------
Total liabilities and stockholders' equity.... $578,574 $633,504
======== ========
Net interest income................................. $ 9,910
=======
Net interest rate spread(5)......................... 1.87% 1.88%
====== ======
Net interest margin(6).............................. 2.20% 2.15%
====== ======
Ratio of average interest-earning assets to average
interest-bearing liabilities....................... 1.07x 1.06x
====== ======
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
----------------------------------------
1995
----------------------------------------
AVERAGE
ANNUALIZED
AVERAGE YIELD/
BALANCE INTEREST COST
--------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest-earning assets:
Mortgage loans(1).................................. $196,796 $12,887 8.73%
Consumer loans..................................... 22,977 1,455 8.44
Mortgage-backed securities available for sale...... 68,510 2,406 4.68
Mutual funds available for sale.................... 67,172 3,274 6.50
Other investments available for sale(2)............ 69,312 2,777 5.34
Investment securities and overnight
deposits with financial institutions(3).......... 89,927 3,598 5.33
-------- ------- -----
Total interest-earning assets................. 514,694 26,397 6.84
Noninterest-earning assets.......................... 20,585
--------
Total assets.................................. $535,279
========
Interest-bearing liabilities:
Savings deposits(4)................................ $446,671 15,543 4.64%
Advances from FHLB and other borrowings............ 31,686 816 3.43
-------- ------- -----
Total interest-bearing liabilities............ 478,357 16,359 4.56
-----
Noninterest-bearing liabilities..................... 5,828
--------
Total liabilities............................. 484,185
Stockholders' equity................................ 51,094
--------
Total liabilities and stockholders' equity.... $535,279
========
Net interest income................................. $10,038
=======
Net interest rate spread(5)......................... 2.28%
======
Net interest margin(6).............................. 2.60%
======
Ratio of average interest-earning assets to average
interest-bearing liabilities....................... 1.08x
======
</TABLE>
(footnotes on following page)
58
<PAGE>
<TABLE>
<CAPTION>
AT MARCH 31, YEAR ENDED MARCH 31,
1996 1996
---------------------- -------------------------------------
AVERAGE
AVERAGE ANNUALIZED
ACTUAL YIELD/ AVERAGE YIELD/
BALANCE COST BALANCE INTEREST COST
--------- ---------- --------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans(1).................................. $198,658 8.81% $197,206 $17,203 8.72%
Consumer loans..................................... 25,370 8.40 23,614 1,993 8.44
Mortgage-backed securities
available for sale............................... 220,682 5.82 104,186 5,674 5.45
Mutual funds available for sale.................... 69,166 6.34 67,775 4,351 6.42
Other investments available for sale(2)............ 92,874 5.33 75,180 4,007 5.33
Investment securities and overnight
deposits with financial institutions(3).......... 25,215 5.72 75,889 4,082 5.38
-------- ---- -------- ------- ----
Total interest-earning assets................. 631,965 6.84 543,850 37,310 6.86
Noninterest-earning assets.......................... 19,980 21,031
-------- --------
Total assets.................................. $651,945 $564,881
======== ========
Interest-bearing liabilities:
Savings deposits(4)................................ $445,424 4.72% $446,300 20,761 4.65%
Advances from FHLB and other borrowings............ 151,334 5.64 61,410 3,082 5.02
-------- ---- -------- ------- ----
Total interest-bearing liabilities............ 596,758 4.95 507,710 23,843 4.70
---- ----
Noninterest-bearing liabilities..................... 5,668 5,861
-------- --------
Total liabilities............................. 602,426 513,571
Stockholders' equity................................ 49,519 51,310
-------- --------
Total liabilities and
stockholders' equity........................ $651,945 $564,881
======== ========
Net interest income................................. $13,467
=======
Net interest rate spread(5)......................... 1.89% 2.16%
==== ====
Net interest margin(6).............................. 2.16% 2.48%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities............... 1.06x 1.07x
==== ====
<CAPTION>
TEN MONTHS ENDED MARCH 31, YEAR ENDED MAY 31,
1995 1994
----------------------------------- -------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
---------- --------- --------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans(1).................................. $181,717 $13,498 8.91% $187,435 $17,986 9.60%
Consumer loans..................................... 20,370 1,437 8.47 15,886 1,501 9.45
Mortgage-backed securities
available for sale............................... 52,997 2,427 5.50 75,538 3,387 4.48
Mutual funds available for sale.................... 71,694 3,625 6.07 147,610 6,811 4.61
Other investments available for sale(2)............ 63,129 2,946 5.60 52,166 2,579 4.94
Investment securities and overnight
deposits with financial institutions(3).......... 95,269 4,498 5.67 67,826 3,352 4.94
-------- ------- ---- -------- ------- ----
Total interest-earning assets................. 485,176 28,431 7.03 546,461 35,616 6.52
Noninterest-earning assets.......................... 24,507 18,728
-------- --------
Total assets.................................. $509,683 $565,189
======== ========
Interest-bearing liabilities:
Savings deposits(4)................................ $456,899 15,628 4.10% $474,693 19,267 4.06%
Advances from FHLB and other borrowings............ 5,170 202 4.69 45,433 1,528 3.36
-------- ------- ---- -------- ------- ----
Total interest-bearing liabilities............ 462,069 15,830 4.11 520,126 20,795 4.00
---- ----
Noninterest-bearing liabilities..................... 10,389 5,974
-------- --------
Total liabilities............................. 472,458 526,100
Stockholders' equity................................ 37,225 39,089
-------- --------
Total liabilities and
stockholders' equity........................ $509,683 $565,189
======== ========
Net interest income................................. $12,601 $14,821
======= =======
Net interest rate spread(5)......................... 2.92% 2.52%
==== ====
Net interest margin(6).............................. 3.12% 2.71%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities............... 1.05x 1.05x
==== ====
</TABLE>
- ----------
(1) Includes one- to four-family residential real estate loans and commercial
real estate loans.
(2) Includes United States Government and agency obligations.
(3) Includes primarily short-term mutual funds, interest-earning deposits in
other institutions, FHLB stock, and municipal and other agency
obligations.
(4) At December 31, 1996, March 31, 1996 and 1995, and May 31, 1994, included
noninterest-bearing demand accounts of $10.7 million, $8.3 million, $5.2
million, and $4.9 million, respectively.
(5) Net interest rate spread represents the difference between the average
yield on interest-earning assets and the average cost of interest-bearing
liabilities.
(6) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
59
<PAGE>
RATE VOLUME ANALYSIS
Net interest income can also be analyzed in terms of the impact of
changing interest rates on interest-earning assets and interest-bearing
liabilities and changing the volume or amount of these assets and liabilities.
The following table represents 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 (change 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. 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. Changes for the ten
months ended March 31, 1995 have been calculated based on annualized interest
income and expenses.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, 1996 VS. YEAR ENDED MARCH 31, TEN MONTHS ENDED MARCH 31,
NINE MONTHS ENDED 1996 VS. TEN MONTHS ENDED 1995 VS. YEAR ENDED
DECEMBER 31, 1995 MARCH 31,1995 MAY 31, 1994
--------------------------- --------------------------- ---------------------------
INCREASE (DECREASE) INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO DUE TO
------------------ ------------------ ------------------
VOLUME RATE NET VOLUME RATE NET VOLUME RATE NET
------- -------- ------- ------- -------- ------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans ....................... $ 692 $ (463) $ 229 $ 1,356 $ (351) $ 1,005 $ (533) $(1,256) $(1,789)
Consumer and other loans ............. 377 (15) 362 275 (6) 269 391 (167) 224
Mortgage-backed securities
available for sale ................. 5,984 599 6,583 2,789 (27) 2,762 (1,576) 1,102 (474)
Mutual funds available for sale ...... (1,001) 77 (924) (245) 246 1 (4,192) 1,731 (2,461)
Other investments available for sale.. 760 (63) 697 649 (177) 472 892 64 956
Investment securities and overnight
deposits with financial
institutions and other ............. (2,915) 781 (2,134) (1,050) (266) (1,316) 1,498 548 2,046
------- ------- ------- ------- ------- ------- ------- ------- -------
Total ............................. 3,897 916 4,813 3,774 (581) 3,193 (3,520) 2,022 (1,498)
------- ------- ------- ------- ------- ------- ------- ------- -------
Interest-bearing liabilities:
Deposits ............................. (137) 313 176 (446) 2,453 2,007 (707) 193 (514)
Advances from FHLB
and other borrowings ............... 4,001 764 4,765 2,823 17 2,840 (1,447) 163 (1,284)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total ............................. 3,864 1,077 4,941 2,377 2,470 4,847 (2,154) 356 (1,798)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net change in net interest income ...... $ 33 $ (161) $ (128) $ 1,397 $(3,051) $(1,654) $(1,366) $ 1,666 $ 300
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
60
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1996 AND MARCH 31, 1996
Stockholders' equity increased slightly to $49.6 million at December 31,
1996, from $49.5 million at March 31, 1996. The increase in stockholders' equity
was primarily attributed to a $3.1 million decrease in net unrealized losses on
securities available for sale, offset by the loss from operations resulting from
the $2.9 million SAIF insurance fund assessment ($1.9 million after tax) and the
$2.8 million loss on the sale of securities available for sale. The decrease in
net unrealized holding losses on securities available for sale resulted from a
decrease in market interest rates and the holding loss of $2.3 million related
to the sale of intermediate and adjustable rate mutual funds during the nine
months ended December 31, 1996. At December 31, 1996, the Bank's tangible, core
and risk-based capital ratios (excluding the allowance for marketable debt and
equity securities) were 9.13%, 9.13% and 26.41%, respectively.
Total assets decreased by $73.3 million, or 11.2%, to $578.6 million at
December 31, 1996, from $651.9 million at March 31, 1996. Securities available
for sale at market value decreased by $96.7 million, or 25.3%, to $286.0 million
at December 31, 1996, from $382.7 million at March 31, 1996. This decrease was
primarily attributable to the sale of intermediate and adjustable rate mutual
funds totalling $71.5 million and U.S. Treasury securities totalling $25.0
million, as part of the Bank's restructuring of its investment portfolio. Loans
receivable, net increased by $15.2 million, or 6.8%, to $239.2 million, compared
to $224.0 million at March 31, 1996. The increase was due primarily to the Bank
actively marketing adjustable rate mortgages and equity line of credit products.
Total deposits decreased by $4.1 million, or 0.9%, to $441.3 million at
December 31, 1996, from $445.4 million at March 31, 1996, due primarily to
attrition caused by depositors seeking higher yields on certificate of deposit
rates. Total borrowings decreased by $70.5 million to $80.0 million at December
31, 1996. The decrease was primarily attributable to the use of a portion of the
proceeds from the sale of available for sale securities to repay $50.0 million
of FHLB advances that were outstanding at March 31, 1996.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND
THE FISCAL YEARS ENDED MARCH 31, 1996, MARCH 31, 1995 AND MAY 31, 1994
Net loss from operations increased by $2.8 million, to $3.0 million for
the nine months ended December 31, 1996, compared to a loss of $211,000 for the
nine months ended December 31, 1995. The loss from operations for the nine
months ended December 31, 1996 resulted primarily from the one-time SAIF
insurance fund assessment of $2.9 million ($1.9 million after tax) and the loss
of $2.8 million on the sale of the mutual funds from the available for sale
securities portfolio. Such securities were sold as part of the Bank's
restructuring of its investment portfolio. See "Risk Factors -- Restructuring of
Investment Portfolio."
In February 1995, the Bank changed its fiscal year end to March 31 from
May 31. As a result of the change, certain of the results of operations herein
compare a ten month transition period ended March 31, 1995, with 12 month fiscal
years ended March 31, 1996 and May 31, 1994. The Bank had net income of $615,000
for the year ended March 31, 1996. Net income totalled $2.2 million and $4.0
million for the ten months ended March 31, 1995 and the fiscal year ended May
31, 1994, respectively.
Interest and Dividend Income. Total interest and dividend income increased
by $4.8 million, or 18.2%, to $31.2 million for the nine months ended December
31, 1996, from $26.4 million for the nine months ended December 31, 1995. The
increase in interest income was principally attributable to an
61
<PAGE>
increase in the average balance of interest earning assets to $613.2 million for
the nine months ended December 31, 1996, from $514.7 million for the nine months
ended December 31, 1995.
Interest income on loans increased by $600,000, or 4.2%, to $14.9 million
for the nine months ended December 31, 1996, from $14.3 million for the
comparable period in 1995. The lower yield on mortgage loans which resulted from
the decrease in market rates of interest during the nine months ended December
31, 1996, was more than offset by the increase of $10.1 million in the average
balance of fixed- and adjustable-rate mortgages and of $3.1 million in primarily
fixed rate home equity loans. This increase was due to a $10.3 million, or 6.3%,
increase in first mortgage loans to $213.8 million as of December 31, 1996,
compared to $203.0 million at March 31, 1996. The average yield on mortgage
loans decreased to 8.51% from 8.73% at March 31, 1996. The lower yield on
mortgage loans resulted from the effect of the decrease of market rates of
interest during the last nine months of 1996 and the Bank's offering of
adjustable-rate products compared to fixed-rate mortgage loans. Interest income
on consumer loans increased to $1.8 million, from $1.5 million, primarily as a
result of an increase of $5.9 million in the average balance of consumer loans
to $28.9 million for the nine months ended December 31, 1996, compared to $23.0
million for the comparable period in 1995. The increase in loan volume was
partially offset by a decrease in the average yield on consumer loans to 8.39%,
from 8.44%, in a generally lower interest rate environment.
Interest and dividend income on securities available for sale increased by
$6.3 million, to $14.8 million for the nine months ended December 31, 1996, from
$8.5 million for the comparable period in 1995. In December 1995, the Bank
purchased $147.0 million of mortgage-backed securities to increase its level of
interest-earning assets, as part of the restructuring of the investment
portfolio. As a result, average mortgage-backed securities were $211.7 million
for the nine months ended December 31, 1996, compared to $68.5 million for the
comparable 1995 period, and the average yield increased to 5.66%, from 4.68%.
The full impact of the purchases are reflected in the increase in interest
income for the nine months ended December 31, 1996. Interest income on
securities held for investment decreased by $2.1 million, to $1.5 million for
the nine months ended December 31, 1996. This decrease represents the impact of
the interest on the $50.0 million of U.S. Treasury and Agency securities
transferred from held for investment to the securities available for sale
portfolio in December 1995.
Total interest and dividend income increased by $8.9 million, or 31.3%, to
$37.3 million for the 12 months ended March 31, 1996, from $28.4 million for the
ten months ended March 31, 1995. The increase was primarily attributable to the
comparison of a 12 month fiscal year ended March 31, 1996 to the ten month
transitional period ended March 31, 1995, and a $58.7 million, or 12.1%,
increase in the average balance of interest-earning assets to $543.9 million for
the 12 months ended March 31, 1996, from $485.2 million for the ten months ended
March 31, 1995, partially offset by a decrease in the average yield on the
Bank's average interest-earning assets to 6.86%, from 7.03%. The decrease in
average yield was due to somewhat generally lower market rates of interest
during the period.
Interest income on loans increased by $4.3 million, or 28.9%, to $19.2
million for the 12 months ended March 31, 1996, from $14.9 million for the ten
months ended March 31, 1995. Interest income on mortgage loans increased by $3.7
million, or 27.4%, to $17.2 million for the 12 months ended March 31, 1996, from
$13.5 million for the ten months ended March 31, 1995. The increase in interest
income on mortgage loans was primarily because of the effect of a 12 month to
ten month period comparison, and a $15.5 million, or 8.5%, increase in the
average balance of mortgage loans to $197.2 million for the 12 months ended
March 31, 1996, from $181.7 million for the ten months ended March 31, 1995,
partially offset by a decrease in the average yield on mortgage loans to 8.72%
from 8.91%. The increase in average mortgage loans resulted from the Bank
utilizing local mortgage brokers to facilitate an increase in origination
activity which more than offset normal amortization and pay-off activity.
Interest income
62
<PAGE>
on consumer loans increased to $2.0 million, from $1.4 million as a result of
the effect of the longer fiscal year, and a $3.2 million increase in average
consumer loans, partially offset by a decrease in the average yield to 8.44%,
from 8.47%.
Interest and dividend income on securities available for sale increased by
$5.0 million, or 55.6%, to $14.0 million for the 12 months ended March 31, 1996,
from $9.0 million for the ten months ended March 31, 1995. The increase was
principally attributable to the longer fiscal year and a substantial increase in
the average balance of securities available for sale, partially offset by a
decrease in the average yield on securities available for sale. Interest income
on mortgage-backed securities increased to $5.7 million from $2.4 million. This
increase resulted from the effect of the longer fiscal year and a $51.2 million
increase in average mortgage-backed securities to $104.2 million for the 12
months ended March 31, 1996, from $53.0 million for the ten months ended March
31, 1995, partially offset by a decrease in the average yield to 5.45%, from
5.50%. The increase in the average balance of mortgage-backed securities
resulted from several purchases during the 12 months ended March 31, 1996 in
order to increase assets as part of the restructuring of the Bank's investment
portfolio. Dividend income on mutual funds available for sale increased by
$726,000 to $4.4 million, from $3.6 million. This increase resulted from the
effect of the longer fiscal year and an increase in the average yield to 6.42%
from 6.07%, partially offset by a decrease in the average balance to $67.8
million for the 12 months ended March 31, 1996, from $71.7 million for the ten
months ended March 31, 1995. Interest income on other investments available for
sale increased by $1.1 million, or 37.9%, to $4.0 million, from $2.9 million as
a result of the longer fiscal year and an increase in the average balance to
$75.2 million, from $63.1 million, partially offset by a decrease in the average
yield of other investments available for sale to 5.33% from 5.60%. Interest
income on investment securities and overnight deposits decreased by $416,000, or
9.2%, to $4.1 million, from $4.5 million, as a result of a $19.4 million
decrease in the average balance to $75.9 million, from $95.3 million, along with
a decrease in the average yield to 5.38%, from 5.67%, partially offset by the
longer fiscal year.
Total interest and dividend income decreased by $7.2 million, or 20.2%, to
$28.4 million for the ten months ended March 31, 1995 from $35.6 million for the
12 months ended May 31, 1994. The decrease in interest income was principally
attributable to the effect of the shorter 1995 transitional period and a $61.3
million, or 11.2%, decrease in the average balance of interest-earning assets to
$485.2 million for the ten months ended March 31, 1995, from $546.5 million for
the 12 months ended May 31, 1994, partially offset by an increase in the average
yield on the Bank's average interest-earning assets to 7.03%, from 6.52%. The
decrease in the average balance of interest-earning assets was primarily
attributable to decreases in securities available for sale. The increase in
average yield was due to generally higher market rates of interest during the
period.
Interest on loans decreased by $4.6 million, or 23.6%, to $14.9 million
for the ten months ended March 31, 1995, from $19.5 million for the 12 months
ended May 31, 1994. Interest income on mortgage loans decreased by $4.5 million,
or 25.0%, to $13.5 million for the ten months ended March 31, 1995, from $18.0
million for the 12 months ended May 31, 1994. The decrease in interest income on
mortgage loans was primarily due to the effect of the shorter 1995 transition
period, a $5.7 million, or 3.0%, decrease in average mortgage loans to $181.7
million for the ten months ended March 31, 1995, from $187.4 million for the
year ended May 31, 1994, and a decrease in the average yield on mortgage loans
to 8.91%, from 9.60%. The lower yield on mortgage loans resulted from
originations in the relatively low interest rate environment that existed in the
early part of the ten months ended March 31, 1995, and the originations of
adjustable-rate loans and mortgage loans with lower initial rates of interest.
The decrease in average mortgage loans resulted from loan prepayments exceeding
local demand for mortgage loans through approximately September and October 1994
when the Bank began to emphasize increasing its loan portfolio. Interest income
on consumer loans decreased to $1.4 million, from $1.5 million, as a
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result of the effect of the shorter 1995 transition period. The $4.5 million
increase in average balance of consumer loans, although partially offset by a
decrease in the average yield on consumer loans to 8.47%, from 9.45%, would have
resulted in higher interest income from consumer loans if a similar balance and
yield were maintained for two additional months.
Interest and dividend income on securities available for sale decreased by
$3.8 million, to $9.0 million for the ten months ended March 31, 1995, from
$12.8 million for the 12 months ended May 31, 1994. The decrease was
attributable primarily to the effects of the shorter 1995 transition period and
a substantial decrease in the average balance of securities available for sale,
partially offset by an increase in the average yield on securities available for
sale. Interest income on mortgage-backed securities decreased to $2.4 million,
from $3.4 million. This decrease resulted from the effect of the shorter
transition period and a $22.5 million decrease in average mortgage-backed
securities to $53.0 million for the ten months ended March 31, 1995, from $75.5
million for the 12 months ended May 31, 1994, partially offset by an increase in
average yield to 5.50%, from 4.48%, in the generally high interest rate
environment that existed during the ten months ended March 31, 1995. The
decrease in the average balance of mortgage securities resulted from
amortization and sales of such securities and use of the proceeds to fund
deposit outflows. Dividend income on mutual funds available for sale decreased
by $3.2 million, to $3.6 million, from $6.8 million. This decrease resulted from
the effect of the shorter 1995 transition period and a $75.9 million decrease in
average balance of mutual funds available for sale, partially offset by an
increase in average yield to 6.07%, from 4.61%, in the generally higher interest
rate environment. The decrease in average balance of mutual funds available for
sale resulted primarily from the sale of mutual fund shares to fund savings
outflow. Interest income on other investments available for sale increased by
$367,000, or 14.1%, to $2.9 million, from $2.6 million as a result of an
increase in the average yield on other investments available for sale to 5.60%,
from 4.94%, and a $10.9 million increase in average other investments available
for sale to $63.1 million, from $52.2 million, partially offset by the effect of
the shorter transition period. Interest income on investment securities and
overnight deposits with financial institutions increased by $1.1 million,
primarily as a result of a $27.5 million increase in the average balance to
$95.3 million during the ten months ended March 31, 1995, from $67.8 million
during the 12 months ended May 31, 1994, along with an increase in average yield
to 5.67% from 4.94%, partially offset by the shorter transition period.
Interest Expense. Total interest expense on deposits increased by $200,000
to $15.7 million for the nine months ended December 31, 1996. This increase was
primarily attributable to the increase in rates paid on three-month and two- and
three-year certificates of deposit, partially offset by a decrease of $2.7
million in the average balance of savings deposits to $444.0 million for the
nine months ended December 31, 1996, from $446.7 million for the nine months
ended December 31, 1995. Average interest-bearing liabilities increased to
$578.1 million for the nine months ended December 31, 1996, compared to $478.4
million, due to increased FHLB borrowings and reverse repurchase agreements used
to fund the purchases of mortgage-backed securities in December 1995.
Total interest expense increased by $8.0 million, to $23.8 million for the
12 months ended March 31, 1996, from $15.8 million for the ten months ended
March 31, 1995. This increase was primarily attributable to the longer fiscal
year in the prior period, a $45.6 million, or 9.9%, increase in the average
balance of interest-bearing liabilities to $507.7 million for the 12 months
ended March 31, 1996, from $462.1 million for the ten months ended March 31,
1995, and an increase in the average yield on the cost of interest-bearing
liabilities to 4.70%, from 4.11%. The increase in average interest-bearing
liabilities resulted primarily from a $56.2 million increase in average FHLB
advances and other borrowings to $61.4 million, from $5.2 million, which was
used to fund the previously mentioned mortgage-backed securities purchase,
partially offset by a $10.6 million, or 2.3%, decrease in average savings
deposits to $446.3
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million for the 12 months ended March 31, 1996, from $456.9 million for the ten
months ended March 31, 1995.
Total interest expense decreased by $5.0 million, to $15.8 million for the
ten months ended March 31, 1995, from $20.8 million for the year ended May 31,
1994. The decrease was attributable to the shorter 1995 transitional period and
a $58.0 million decrease in average interest-bearing liabilities to $462.1
million for the ten months ended March 31, 1995, from $520.1 million for the 12
months ended May 31, 1994, partially offset by an increase in the average cost
of funds to 4.11%, from 4.00%. The decrease in average interest-bearing
liabilities resulted from the repayment of FHLB advances in the latter part of
the fiscal year ended May 31, 1994, and deposit outflows resulting from
depositors seeking higher yields at other financial investments. The increase in
the average cost of funds generally reflected higher market interest rates.
Net Interest Income. Net interest income decreased by $128,000, or 1.3%,
to $9.9 million for the nine months ended December 31, 1996. The primary reason
for the decrease in net interest income was the increased cost of borrowings to
purchase mortgage-backed securities and interest on deposits, which was
partially offset by the increased income from mortgage-backed securities.
Net interest income increased by $867,000, or 6.9%, to $13.5 million for
the 12 months ended March 31, 1996, from $12.6 million for the ten months ended
March 31, 1995. The primary reason for the increase in net interest income was
the effect of the longer fiscal year and a $58.7 million increase in average
interest-earning assets, partially offset by a $45.6 million increase in average
interest-bearing liabilities and a decrease in the Bank's interest rate spread
to 2.16% from 2.92%.
Net interest income decreased by $2.2 million, or 14.9%, to $12.6 million
for the ten months ended March 31, 1995, from $14.8 million for the year ended
May 31, 1994. The principal reason for the decrease in net interest income was
the effect of the shorter transitional period and a $61.3 million decrease in
interest-earning assets, partially offset by an increase in the Bank's interest
rate spread to 2.92% from 2.52%.
Provision for Loan Losses. The Bank maintains an allowance for loan losses
based on management's periodic evaluation of known and inherent risks in the
loan portfolio, the Bank's past loan loss experience, adverse situations that
may affect the borrower's ability to repay loans, estimated value of the
underlying loan collateral, and current and expected economic conditions. The
Bank periodically reviews the loan portfolio and maintains the allowance for
loan losses at a balance considered adequate to provide for losses in the loan
portfolio.
During the nine months ended December 31, 1996, the Bank provided $90,000
for loan losses, compared to $300,000 provided during the nine months ended
December 31, 1995. The Bank's allowance for loan losses increased during the
year ended March 31, 1996, the ten months ended March 31, 1995 and the year
ended May 31, 1994. During the fiscal year ended March 31, 1996, the ten months
ended March 31, 1995 and the fiscal year ended May 31, 1994, the Bank provided
$450,000, $350,000, and $500,000, respectively, for loan losses. Based upon
management's evaluation of the factors listed in the preceding paragraph,
management believes that through its provisions for loan losses, the Bank has
maintained the allowance for loan losses at a level that is adequate to provide
for loan losses, although there can be no assurance that such losses will not
exceed estimated amounts. See Notes 1 and 6 of Notes to the Consolidated
Financial Statements for additional information on the allowance for loan
losses.
Non-Interest Income. Non-interest income items for the nine months ended
December 31, 1996 resulted in a loss of $1.9 million, which was $68,000 greater
than the loss of $1.8 million reported for
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the nine months ended December 31, 1995. The loss for the 1996 period was
primarily due to a loss on the sale of mutual funds; the loss for the 1995
period was primarily the result of the loss on the sale of FHLB dual index
notes. Other income increased to $690,000 for the 1996 nine-month period, versus
$514,000 for the comparable period in 1995. This increase was primarily
attributable to increased fee income generated on NOW accounts.
Non-interest income items resulted in a loss of $1.2 million for the 12
months ended March 31, 1996, a decline of $1.3 million from the $128,000 of
income reported for the ten month period ended March 31, 1995. This change in
non-interest income resulted primarily from losses on the sale of securities
available for sale, partially offset by increases in loan fees and service
charges and other income. The Bank's loss on securities available for sale
increased by $1.7 million to $2.2 million for the 12 months ended March 31,
1996, from $547,000 for the ten months ended March 31, 1995. This loss was the
result of the sale of $25.0 million of FHLB dual index notes, previously
categorized as held to maturity. Changes in accounting standards permitted the
Bank to change the designation on securities held in its investment portfolio
from held to maturity to available for sale. Subsequent to the redesignation,
the Bank liquidated the FHLB dual index notes at a pre-tax loss of $2.5 million.
The Bank recorded a $22,000 increase in loan fees and service charges primarily
due to the longer fiscal year and the Bank's ability to increase its loan
originations. Other income increased to $729,000 for the 12 months ended March
31, 1996, from $452,000 for the ten months ended March 31, 1995. This increase
was primarily attributable to the longer reporting period and an increase in fee
income generated by the Bank's financial instrument sales subsidiary.
Non-interest income decreased by $1.7 million, to $128,000 for the ten
months ended March 31, 1995, from $1.8 million for the year ended May 31, 1994.
The decrease in non-interest income resulted primarily from the Bank's losses on
sales of securities available for sale and real estate operations for the ten
months ended March 31, 1995, as compared to gains during fiscal 1994, and
deceases in loan fees and service changes, gain on sale of real estate acquired
in settlement of loans, and other income. The decrease in loan fees and service
charges resulted from the increase in loan volume with the Bank's correspondent
relationships, and fee waivers for consumer loan and first-time home buyers loan
program originations. As a reflection of higher interest rates during the
period, the Bank recorded a loss of $547,000 from ongoing securities purchase
and sale activity during the ten months ended March 31, 1995, a decline of
$809,000 from the $262,000 gain reported for the 12 months ended May 31, 1994.
The Bank had no gains on real estate acquired in settlement of loans during the
ten months ended March 31, 1995, as compared to a gain of $62,000 during the
fiscal year ended May 31, 1994. The Bank recorded a $62,000 loss from real
estate operations during the ten months ended March 31, 1995, compared to a gain
of $172,000 during the 12 months ended May 31, 1994, which related to a gain on
the sale of a joint venture investment. Finally, other income totalled $452,000
for the ten months ended March 31, 1995, compared to $856,000 during the 12
months ended May 31, 1994. The decrease in other income related primarily to
decreases in fee income generated by the Bank's annuity sales subsidiary, which
began during 1993.
Operating Expenses. Total operating expenses increased by $2.4 million, or
29.3%, to $10.6 million for the nine months ended December 31, 1996, compared to
the $8.2 million for the nine months ended December 31, 1995, primarily as a
result of a one-time SAIF insurance assessment of $2.9 million. Excluding the
SAIF assessment, operating expenses were $7.7 million for the nine months ended
December 31, 1996, compared to $8.2 million for the comparable prior period. A
decrease in total operating expenses of $531,000 resulted from lower
compensation and employee benefits expenses of $161,000 due to fewer personnel,
decreased advertising and promotion expenses of $100,000 due to reduced
marketing and advertising programs in 1996, and lower audit and examination
assessments totalling $180,000.
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Total operating expenses increased by $1.8 million, to $10.8 million for
the 12 months ended March 31, 1996, from $9.0 million for the ten months ended
March 31, 1995, primarily as a result of the longer reporting period.
Compensation and employee benefits expense increased by $1.1 million, to $5.8
million for the 12 months ended March 31, 1996, from $4.7 million for the ten
months ended March 31, 1995. The increase was a result of the longer reporting
period and the implementation of the various stock plans associated with the
public offering. Equipment expense increased by $234,000 as a result of the
longer reporting period and the installation of new computer equipment.
Total operating expenses decreased by $565,000 to $9.0 million during the
ten months ended March 31, 1995, from $9.5 million during the 12 months ended
May 31, 1994, primarily as a result of the shorter transition period.
Income Taxes. Effective June 1, 1993, the Bank adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") 109 "Accounting for Income
Taxes" which require, among other things, a change from the deferred method to
the asset and liability method of accounting for deferred taxes. The cumulative
effect of this change had no effect on net income for the year ended March 31,
1996. See Notes 1 and 11 to the Notes to the Consolidated Financial Statements
for additional information on income taxes.
The changes in the amounts and effective rates of the Bank's income tax
provision reflect the timing of realization of the provision for loan losses on
loans and foreclosed real estate. Prior to the adoption of SFAS 109, the Bank
could only recognize the tax effect of such provisions when the related losses
were realized. The adoption of SFAS 109 should result in a more consistent
effective tax rate in future years. Income tax provisions for the fiscal year
ended March 31, 1996, the ten months ended March 31, 1995 and the fiscal year
ended May 31, 1994 generally reflect the Bank's pre-tax income at rates then in
effect.
Cumulative Effect of Accounting Changes. The Bank adopted SFAS 106
"Employers' Accounting for Post-Retirement Benefits Other than Pensions" as of
June 1, 1993. The adoption of SFAS 106 changed the Bank's method of accounting
for post-retirement benefits from the cash basis to the accrual method.
As of June 1, 1993, the Bank adopted SFAS 115 "Accounting for Certain
Investments in Debt and Equity Securities." During the year ended March 31,
1996, the Bank was not required to record an entry relating to the adoption of
SFAS 115. See "- Impact of New Accounting Standards - Accounting for Certain
Investments in Debt and Equity Securities."
LIQUIDITY AND CAPITAL RESOURCES
The Bank is required to maintain minimum levels of liquid assets as
defined by OTS regulations. This requirement, which varies from time to time
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short-term borrowings. The required ratio currently is 5.0%. The
Bank's liquidity averaged 38.0% during the month of December 1996. Liquidity
ratios averaged 33.3% for the nine months ended December 31, 1996 and 29.2% for
the year ended March 31, 1996. The Bank adjusts its liquidity levels in order to
meet funding needs of deposit outflows, payment of real estate taxes on mortgage
loans, repayment of borrowings and loan commitments. The Bank also adjusts
liquidity as appropriate to meet its asset and liability management objectives.
The Bank's primary sources of funds are deposits, amortization and
prepayment of loans and mortgage-backed securities, maturities of investment
securities and other investments, funds from sales
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of securities, and earnings and funds provided from operations. While scheduled
principal repayments on loans and mortgage-backed securities are a relatively
predictable source of funds, deposit flows and loan prepayments are greatly
influenced by general interest rates, economic conditions, and competition. In
addition, the Bank from time to time borrows funds from the FHLB pursuant to
repurchase agreements or advances from the FHLB. During the nine months ended
December 31, 1996 and the year ended March 31, 1996, the Bank increased its
advances from the FHLB to take advantage of the relatively low cost of such
borrowings and to fund loan originations and the purchase of mortgage-backed
securities in the latter part of the period. The Bank manages the pricing of its
deposits to maintain a desired deposit balance. In addition, the Bank invests in
short-term interest- and dividend-earning assets, which provide liquidity to
meet lending requirements. Assets qualifying for liquidity outstanding at
December 31, 1996, March 31, 1996 and 1995 amounted to $219.9 million, $204.3
million and $127.8 million, respectively. The Bank experienced a decrease in
deposits recently as depositors have sought higher yields on investment products
not offered by the Bank. For additional information about cash flows from the
Bank's operating, financing and investing activities, see Statements of Cash
Flows included in the Consolidated Financial Statements.
At December 31, 1996, the Bank had outstanding loan commitments of $4.2
million. This amount does not include $4.0 million of undisbursed lines of
credit on home equity loans, and the unfunded portion of loans in process. At
December 31, 1996, the Bank also had an outstanding commitment to purchase $5.1
million of a mortgage-backed security, due to settle on January 21, 1997.
Certificates of deposit scheduled to mature in less than one year at December
31, 1996, totalled $69.0 million. Based on prior experience, management believes
that a significant portion of such deposits will remain with the Bank. An
additional $45.0 million of ten-year certificates of deposit paying a rate of
interest of 10% are scheduled to mature by April 1998. Management does not
expect to retain a significant portion of these deposits since the Bank no
longer offers comparable interest rate accounts. Based on the Bank's high level
of liquid assets and its borrowing capacity, management believes it has
sufficient liquid funds to fund significant withdrawals from among these
accounts.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements of the Bank and notes thereto, presented
elsewhere herein, have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering the change
in the relative purchasing power of money over time and due to inflation. The
impact of inflation is reflected in the increased cost of the Bank's operations.
Unlike most industrial companies, nearly all of the assets and liabilities of
the Bank are monetary. As a result, interest rates have a greater impact on the
Bank's performance than does the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services.
IMPACT OF NEW ACCOUNTING STANDARDS
Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of. In March 1995, the FASB issued 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 SFAS No. 121 will not have a material impact on the earnings or the financial
statements of the Bank.
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Accounting for Stock-Based Compensation. In November 1995, the FASB issued
SFAS No. 123, "Accounting for Stock-Based Compensation." This statement
establishes financial accounting standards for stock-based employee compensation
plans. SFAS No. 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 No. 123 requires pro forma
disclosures of net earnings and earnings per share computed as if the fair value
based method has been applied in financial statements of companies that continue
to follow current practice in accounting for such arrangements under APB opinion
25. SFAS No. 123 applies to all stock-based employee compensation plans in which
any employer grants shares of its stock or other equity instruments to
employees, except for employee stock ownership plans. SFAS No. 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 No. 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 No.
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 has been elected, is
required for all awards granted in fiscal years beginning after December 31,
1994.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. In September 1996, the FASB issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("SFAS No. 125"). This Statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings. Under the financial-components approach, after a transfer of
financial assets, an entity recognizes all financial and servicing assets it
controls and liabilities it has incurred and derecognizes financial assets it no
longer controls and liabilities that have been extinguished. The
financial-components approach focuses on the assets and liabilities that exist
after the transfer. Many of these assets and liabilities are components of
financial assets that existed prior to the transfer. If a transfer does not meet
the criteria for a sale, the transfer is accounted for as a secured borrowing
with a pledge of collateral. The Statement is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
December 31, 1996, and should be applied prospectively. Earlier or retroactive
application of this Statement is not permitted. The Bank has not yet determined
the impact that this Statement will have on the Bank's consolidated financial
statements.
BUSINESS OF THE BANK
GENERAL
The Bank has been, and intends to continues to be, a community-oriented
financial institution offering a variety of financial services to meet the needs
of the community it serves. The Bank's principal business is to operate a
customer oriented savings bank. The Bank attracts retail deposits from the
general public in its primary market area and invests those funds primarily in
fixed-rate one- to four-family, owner-occupied mortgage loans, consumer loans
and investment and mortgage-backed securities. To a lesser extent, the Bank
invests in multifamily and commercial real estate loans. The Bank's principal
sources of funds have been deposits, principal and interest payments on loans
and mortgage-backed
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securities, funds from sales of investments and borrowings and reverse
repurchase agreements. Principal sources of income have been interest received
from loans, mortgage-backed securities and other investments. The Bank's
principal expense has been interest paid on deposits, borrowings, compensation
and employee benefits, and SAIF insurance premiums.
MARKET AREA AND COMPETITION
The Bank is headquartered in the City of Bayonne, which is located in
northeastern New Jersey. The Bank currently conducts business from its main
office and three branch offices, all of which are located in Bayonne. The Bank's
deposit gathering base is concentrated in Bayonne, although the Bank also
receives deposits from residents of contiguous communities in Hudson County. A
significant portion of the Bank's mortgage loans are collateralized by
properties located in Bayonne, although the Bank also originates loans
collateralized by real estate located in other parts of Hudson County, and, to a
much lesser extent, other parts of New Jersey. Bayonne is a mature, densely
populated city that has experienced a declining population and diminished loan
demand in recent years. To the extent the Bank's lending and deposit activities
are concentrated in Bayonne, it may be unable to experience any significant
growth.The Bank's business strategy includes expansion of both deposit and
lending activities into communities surrounding Bayonne in an effort to increase
the Bank's customer base. See "Management Discussion and Analysis of Financial
Condition and Results of Operations - Business Strategy."
The City of Bayonne had a population of approximately 60,000 as of March
31, 1996, and is located at the tip of Hudson County, which is surrounded by the
Newark Bay, the Kill Van Kull, and the Lower New York Bay. Bayonne is a short
distance from New York City, the Newark International Airport, major rail
transportation lines, and New Jersey's major highways. A significant number of
Bayonne residents work in and commute to New York City. The Military Ocean
Terminal is a substantial employer, and Maidenform Corporation is headquartered
in Bayonne. Bayonne's economy also includes small business and industrial plants
owned and operated by, among others, Best Foods, ICI, Global Terminal, and
Bayonne Nipple.
As of December 31, 1996, the Bank was the largest savings institution
headquartered in Bayonne. The Bank encounters strong competition both in
attracting deposits and in originating real estate and other loans. Its most
direct competition for deposits has historically come from commercial and
savings banks, other savings associations and credit unions in its market area.
Competition for loans comes principally from such financial institutions, as
well as mortgage banking companies. The Bank expects continued strong
competition in the foreseeable future, including increased competition from
"super-regional" banks entering the market by purchasing large banks and savings
banks. Many such institutions have greater financial and marketing resources
available to them than does the Bank. The Bank currently holds approximately 40%
of all deposits held by branches of commercial banks, credit union, and savings
associations located in Bayonne, and approximately 6% of such deposits held in
Hudson County. The Bank competes for savings deposits by offering depositors a
high level of personal service and a wide range of competitively priced
financial services. In recent years, additional strong competition has come from
stock brokers, securities firms and mutual funds. The Bank competes for real
estate loans primarily through the interest rates and loan fees it charges and
through advertising.
LENDING ACTIVITIES
Loan Portfolio. The principal components of the Bank's loan portfolio are
first mortgage loans secured by one- to four- family residential real estate
and, to a much lesser extent, home equity loans, multifamily real estate loans,
and passbook and other consumer loans. At December 31, 1996, the Bank's total
loans receivable totalled $244.1 million, of which $202.6 million, or 83.0%,
were one- to four-
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family residential real estate mortgage loans, $28.0 million, or 11.5%, were
home equity loans, and $12.7 million, or 5.2%, were multifamily and commercial
real estate loans. Consumer loans, other than home equity loans, totalled
$763,000, or 0.3%, of the Bank's loan portfolio.
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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, AT MARCH 31,(4)
-------------------- -----------------------------------------
1996 1996 1995
-------------------- -------------------- -------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
-------- --------- --------- --------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:(1)
One- to four-family
residential............... $202,595 83.0% $189,283 82.7% $190,685 85.4%
Multifamily and commercial.. 12,664 5.2 14,253 6.2 11,239 5.0
-------- ----- -------- ----- -------- -----
Total real estate loans... 215,259 88.2 203,536 88.9 201,924 90.4
Consumer loans:
Home equity(2).............. 28,029 11.5 24,851 10.9 20,677 9.2
Passbook.................... 294 0.1 322 0.1 382 0.2
Other(3).................... 469 0.2 341 0.1 355 0.2
-------- ----- -------- ----- -------- -----
Total consumer loans........ 28,791 11.8 25,514 11.1 21,414 9.6
-------- ----- -------- ----- -------- -----
Total loans receivable...... 244,050 100.0% 229,050 100.0% 223,338 100.0%
-------- ===== -------- ===== -------- =====
Less:
Unamortized discount and net
deferred loan fees........ (1,927) (2,043) (2,108)
Allowance for loan losses... (2,929) (2,979) (2,677)
-------- -------- --------
Total loans receivable, net $239,194 $224,028 $218,553
======== ======== ========
<CAPTION>
AT MAY 31,
------------------------------------------------------------------
1994 1993 1992
------------------- --------------------- ----------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
-------- -------- --------- ---------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:(1)
One- to four-family
residential............... $167,633 86.4% $201,044 88.3% $236,965 88.7%
Multifamily and commercial.. 9,803 5.1 10,388 4.6 11,751 4.4
-------- ----- -------- ----- -------- -----
Total real estate loans... 177,436 91.5 211,432 92.9 248,716 93.1
Consumer loans:
Home equity(2).............. 15,754 8.1 15,230 6.7 17,507 6.5
Passbook.................... 289 0.2 457 0.2 565 0.2
Other(3).................... 468 0.2 540 0.2 499 0.2
-------- ----- -------- ----- -------- -----
Total consumer loans........ 16,511 8.5 16,227 7.1 18,571 6.9
-------- ----- -------- ----- -------- -----
Total loans receivable...... 193,947 100.0% 227,659 100.0% 267,287 100.0%
-------- ===== -------- ===== -------- =====
Less:
Unamortized discount and net
deferred loan fees........ (1,904) (2,328) (2,480)
Allowance for loan losses... (2,918) (2,598) (2,578)
-------- -------- --------
Total loans receivable, net $188,980 $222,733 $262,229
======== ======== ========
</TABLE>
- ----------
(1) Excludes loans to joint ventures of the Bank's subsidiaries. See
"-Subsidiary Activities."
(2) Includes home equity lines of credit.
(3) Includes home improvement loans, student loans and automobile loans.
(4) At the time of the Bank's 1995 MHC Reorganization, it changed its fiscal
year end from May 31 to March 31.
72
<PAGE>
Loan Maturity. The following table sets forth the maturity or period of
repricing of the Bank's loan portfolio at December 31, 1996. Demand loans, loans
having no stated schedule of repayments and no stated maturity, and overdrafts
are reported as due within one year. Adjustable and floating rate loans are
included in the period in which interest rates are next scheduled to adjust
rather than in which they contractually mature, and fixed rate loans are
included in the period in which the final contractual repayment is due. The
table does not include the effect of future principal prepayments. Principal
prepayments and scheduled principal amortization on loans totalled $23.3 million
for the nine months ended December 31, 1996 and $26.2 million, $24.0 million and
$68.9 million for the year ended March 31, 1996, the ten months ended March 31,
1995 and the year ended May 31, 1994, respectively.
<TABLE>
<CAPTION>
BEYOND
WITHIN 1-3 3-5 5-10 10-20 20
1 YEAR YEARS YEARS YEARS YEARS YEARS TOTAL
------- ------ ------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family residential....... $20,404 $3,429 $10,885 $25,226 $75,971 $66,680 $202,595
Multifamily and commercial............ 34 153 304 4,241 6,379 1,553 12,664
Consumer loans............................ 4,617 1,956 3,590 7,542 11,086 -- 28,791
------- ------ ------- ------- ------- ------- --------
Total loans........................ $25,055 $5,538 $14,779 $37,009 $93,436 $68,233 $244,050
======= ====== ======= ======= ======= ======= ========
</TABLE>
73
<PAGE>
The following table sets forth at December 31, 1996 the dollar amount of
loans contractually due after December 31, 1997, and whether such loans have
fixed interest rates or adjustable interest rates.
DUE AFTER DECEMBER 31, 1997
----------------------------------
FIXED ADJUSTABLE TOTAL
-------- ---------- --------
(IN THOUSANDS)
Real estate loans:
One- to four-family residential ....... $157,497 $ 24,694 $182,191
Multi-family and commercial ........... 12,521 109 12,630
Consumer loans .......................... 23,802 372 24,174
-------- -------- --------
Total loans receivable .................. $193,820 $ 25,175 $218,995
======== ======== ========
One- to Four-Family Residential Mortgage Lending. The Bank's primary
lending activity consists of the origination of one- to four- family residential
mortgage loans collateralized by owner-occupied properties located in the Bank's
market area. The Bank generally does not originate one- to four- family
residential loans collateralized by properties outside of the State of New
Jersey, and in recent years has not purchased mortgage loans collateralized by
out-of-state property. At December 31, 1996, the Bank had $202.6 million, or
83.0%, of its total loan portfolio invested in one- to four- family residential
mortgage loans, $25.2 million, or 39.1%, of which were collateralized by
properties located in Bayonne. Beginning in the latter part of the 1994 calendar
year, the Bank began to emphasize growth of its one-to four- family residential
mortgage loan portfolio, which had declined in previous years. The Bank achieved
this growth through originations and correspondent lending in which the Bank
agrees to purchase loans from mortgage companies at the time such loans are
closed. The Bank may receive lower origination fees on loans purchased through
the Bank's correspondent relationships.
The Bank's one- to four- family residential real estate loans generally
are originated and underwritten according to standards that qualify such loans
to be included in Federal Home Loan Mortgage Corporation ("FHLMC") and Federal
National Mortgage Association ("FNMA") purchase and guaranty programs and that
otherwise permit resale in the secondary mortgage market. The Bank has not sold
any mortgage loans since 1989. However, the Bank periodically evaluates whether
to sell loans, and in the past it has sold in the aggregate approximately $129.0
million of mortgage loans. The Bank has generally retained the servicing rights
on loans it has sold and contracts with sub-servicers to perform the servicing
activities, which include collecting and remitting loan payments, inspecting the
properties and making certain insurance and tax payments on behalf of the
borrowers. As of December 31, 1996, the Bank retained servicing rights to 1,040
loans sold, with an aggregate principal amount of $15.5 million.
The Bank currently offers one- to four-family mortgage loans with terms
typically ranging from 10 to 30 years, and with adjustable or fixed interest
rates. One- to four-family residential real estate loans often remain
outstanding for significantly shorter periods than their contractual terms
because borrowers may refinance or prepay loans at their option. The average
length of time that the Bank's one- to four-family residential mortgage loans
remain outstanding varies significantly depending upon trends in market interest
rates and other factors. In recent years, the average maturity of the Bank's
mortgage loans has decreased significantly due to the unprecedented volume of
refinancing activity. Accordingly, estimates of the average length of time that
one- to four- family loans may remain outstanding cannot be made with any degree
of accuracy.
74
<PAGE>
Originations of fixed-rate mortgage loans versus ARM loans are monitored
on an ongoing basis and are affected significantly by the level of market
interest rates, customer preference, the Bank's interest rate gap position, and
loan products offered by the Bank's competitors. Although management's strategy
is to promote the origination of ARM loans, market conditions may be such that
there is greater demand for fixed-rate mortgage loans. The Bank's fixed-rate
mortgage loans amortized on a monthly basis with principal and interest due each
month. The Bank's fixed-rate loans are generally originated with terms ranging
from 10 to 30 years.
The Bank's ARM loans are generally originated with terms of 30 years. The
Bank offers ARM loans with interest rates that adjust annually after a period of
one, three, five, seven or ten years. Interest rate adjustments on ARM loans are
limited to 2% per year and 6% over the life of the loan. The Bank's current
index on its ARM loans is the one-year Treasury Bill rate, plus a margin of 275
basis points. The Bank occasionally will originate ARM loans with initially
discounted rates, often known as "teaser rates." The Bank determines whether a
borrower qualifies for an ARM loan based on the first full interest rate
adjustment on one- and three-year ARMs and on the initial rate of five-, seven-
or ten-year ARMs with a minimum rate of 7%. One- to four- family residential ARM
loans totalled $46.6 million, or 19.1% of the Bank's total loan portfolio at
December 31, 1996.
The primary purpose of offering ARM loans is to make the Bank's loan
portfolio less interest rate sensitive. ARM loans carry increased credit risk
associated with potentially higher monthly payments by borrowers as general
market interest rates increase. It is possible, therefore, that during periods
of rising interest rates, the risk of default on ARM loans may increase due to
the upward adjustment of interest costs to the borrower. Management believes
that the Bank's credit risk associated with its ARM loans is reduced because of
the annual and lifetime interest rate adjustment limitations on such loans.
The Bank's one- to four-family residential first mortgage loans
customarily include due-on-sale clauses, which are provisions giving the Bank
the right to declare a loan immediately due and payable in the event, among
other things, that the borrower sells or otherwise disposes of the underlying
real property serving as security for the loan. 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.
Regulations limit the amount that a savings association may lend relative
to the appraised value of the real estate securing the loan, as determined by an
appraisal at the time of loan origination. Such regulations permit a maximum
loan-to-value ratio of 100% for residential property and 90% for all other real
estate loans. The Bank makes one- to four-family real estate loans with
loan-to-value ratios of up to 90%. The Bank's lending policies generally limit
the maximum loan-to-value ratio on fixed-rate and ARM loans without private
mortgage insurance, and construction loans, to 80% of the lesser of the
appraised value or the purchase price of the property which collateralizes the
loan. For one- to four-family real estate loans with loan-to-value ratios of
between 80% and 90%, the Bank requires the first 25% of the appraised value of
the underlying collateral to be covered by private mortgage insurance. The Bank
requires fire and casualty insurance, and flood insurance in certain cases, as
well as a title guaranty regarding good title on all properties securing real
estate loans made by the Bank.
Multifamily Residential Real Estate and Commercial Real Estate Lending.
The Bank originates multifamily residential and commercial real estate loans on
a limited basis. The Bank's multifamily loans are typically secured by
residential properties located in its market area. At December 31, 1996, such
loans totalled $12.7 million, or 5.2%, of the Bank's total loan portfolio. The
Bank originates commercial real estate loans selectively and on a case-by-case
basis, and, at December 31, 1996, such loans constituted only $620,000 of the
Bank's total loan portfolio. In the future, the Bank intends to increase its
efforts
75
<PAGE>
to originate commercial real estate loans within its delineated lending area.
The Bank's multifamily loans include loans collateralized by mixed-use
properties that are primarily residential, but have some commercial use as well.
Because of the increased credit risk associated with such loans and the low
level of demand for such loans in the Bank's primary market area, the Bank does
not expect multifamily and commercial lending to constitute a significant part
of loan originations in the foreseeable future. The largest multifamily real
estate loan at December 31, 1996, had an aggregate principal balance of $804,000
and was secured by a first mortgage in an apartment complex located in Jersey
City, New Jersey.
The Bank makes such loans in amounts up to 80% of the appraised value of
the property if owner-occupied and up to 75% if nonowner-occupied. The Bank
generally requires a positive cash flow on all multifamily properties.
Multifamily loans are offered with fixed or adjustable interest rates.
Loans collateralized by multifamily and commercial real estate generally
involve a greater degree of credit risk than one- to four- family residential
mortgage loans and carry larger loan balances. This increased credit risk is a
result of several factors, including the concentration of principal in a limited
number of loans and borrowers, the effects of general economic conditions on
income producing properties, and the increased difficulty of evaluating and
monitoring these types of loans. Furthermore, the repayment of loans secured by
commercial real estate and multifamily real estate is typically dependent upon
the successful operation of the related property. If the cash flow from the
project is reduced, the borrower's ability to repay the loan can become
impaired.
Consumer Loans. The Bank also originates consumer loans consisting
principally of home equity loans, and to a lesser extent, loans secured by
deposit accounts, and home improvement, student and automobile loans. As of
December 31, 1996, consumer loans totalled $28.8 million, or 11.8%, of the
Bank's net loan portfolio. Home equity loans, which totalled $28.0 million, or
11.5%, of the Bank's total loan portfolio, and 97.4% of the Bank's consumer loan
portfolio, consisted primarily of fixed-rate, fixed-term home equity loans for a
specified amount, and to a lesser extent, adjustable-rate, fixed-term home
equity lines of credit. The Bank offers consumer loans other than home equity
loans, primarily as a service to its customers. Consumer loans, other than home
equity loans, are offered primarily on a fixed-rate basis with maturities
generally of less than four years. The Bank's home equity and residential second
mortgage loans are secured by the borrower's principal residence with a maximum
loan-to-value ratio, including the principal balances of both the first and
second mortgage loans, of 75% or less. Consumer loans entail greater credit risk
than do residential mortgage loans but have smaller balances and tend to have
higher interest rates. See "- Lending Activities - Delinquencies and Classified
Assets" and "- Delinquent Loans and Nonperforming Assets" for information
regarding the Bank's loan loss experience and reserve policy.
Loan Originations, Solicitation, Processing and Commitments. Loan
originations are derived from a number of sources such as real estate agent
referrals, existing customers, borrowers, builders, attorneys, walk-in customers
and correspondent lenders. Upon receiving a loan application, the Bank obtains a
credit report and employment verification to verify specific information
relating to the applicant's employment, income and credit standing. In the case
of a real estate loan, an appraiser approved by the Bank appraises the real
estate intended to collateralize the proposed loan. An underwriter in the Bank's
loan department checks the loan application file for accuracy and completeness,
and verifies the information provided. A senior loan officer then reviews the
application and requests the appraisal. The loan application is then submitted
to, and must be approved by, the Board of Directors. For multifamily residential
and commercial real estate loans, the Bank requires that the borrower provide
operating statements, pro forma cash flow statements and, if applicable, rent
rolls. In addition, the Bank reviews the borrower's credit standing and
expertise in owning and managing the type of property that will collateralize
the loan. For one- to four- family construction loans, the Bank requires that
the borrower provide detailed construction
76
<PAGE>
plans and specifications. Fire and casualty insurance, and in certain cases,
flood insurance, is required at the time the loan is made and throughout the
term of the loan.
If the loan is approved, the commitment letter specifies the terms and
conditions of the proposed loan including the amount of the loan, interest rate,
amortization term, a brief description of the required collateral, and required
insurance coverage. Commitments are typically issued for 90-day periods. The
borrower must provide proof of fire and casualty insurance on the property
serving as collateral, which insurance must be maintained during the full term
of the loan. A title guaranty, based on a title search of the property, is
required on all loans secured by real property. At December 31, 1996, the Bank
had commitments to originate $4.2 million of mortgage loans. From time to time,
the Bank has purchased mortgage loans and participation interests in loans
originated by others, although the Bank has not purchased mortgage loans since
1989 (other than loans closed by and purchased from correspondent lenders), and
has not purchased participation interests since the 1970s. As of December 31,
1996, the Bank had $8.7 million of mortgage loans secured by properties located
outside of New Jersey.
The Bank has also entered into commitments to extend credit. At December
31, 1996, the Bank had contractual commitments to extend credit (exclusive of
undisbursed loans in process) for irrevocable letters of credit of $184,000. The
Bank's irrevocable letters of credit expire annually, with automatic renewal
clauses. The Bank's irrevocable letters of credit were issued to the Township of
Wall located in the State of New Jersey and may be drawn upon by such township
in the event certain improvements are not completed on land previously owned by
joint ventures of the Bank's subsidiaries. The primary obligors are the entities
that were formerly joint venture partners with the Bank's subsidiaries. See
"- Subsidiary Activity." Because certain of the commitments may expire without
being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements.
77
<PAGE>
The following table sets forth the Bank's loan originations and principal
repayments for the periods indicated. The Bank has not purchased or sold loans
within the nine months ended December 31, 1996 or the last three fiscal years.
<TABLE>
<CAPTION>
TEN
YEAR MONTHS YEAR
NINE MONTHS ENDED ENDED ENDED
ENDED DECEMBER 31, MARCH 31, MARCH 31, MAY 31,
-------------------- --------- --------- ---------
1996 1995 1996 1995(2) 1994
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans receivable at beginning of period ... $ 229,050 $ 223,338 $ 223,338 $ 193,947 $ 227,659
Originations:(1)
Real estate:
One- to four-family residential ....... 26,308 16,047 18,248 42,783 28,232
Multifamily and commercial ............ 4,297 592 1,326 1,718 260
Consumer loans:
Home equity ........................... 7,932 9,226 11,472 8,873 7,297
Passbook .............................. 232 186 244 322 260
Other ................................. 272 166 827 129 218
--------- --------- --------- --------- ---------
Total originations .................. 39,041 26,217 32,117 53,825 36,267
Transfer of mortgage loans to foreclosed
real estate .............................. 778 61 169 415 1,088
Repayments ................................ 23,263 20,507 26,236 24,019 68,891
--------- --------- --------- --------- ---------
Net loan activity ......................... 15,000 5,649 5,712 29,391 (33,712)
--------- --------- --------- --------- ---------
Total loans receivable at end of period $ 244,050 $ 228,987 $ 229,050 $ 223,338 $ 193,947
========= ========= ========= ========= =========
</TABLE>
- ----------
(1) Includes loans purchased from correspondent lenders at the time of
closing.
(2) At the time of its 1995 MHC Reorganization, the Bank changed its fiscal
year end from May 31 to March 31; accordingly, certain comparative
information is for the ten month period ending March 31, 1995.
Loan Origination Fees and Other Income. In addition to interest earned on
loans, the Bank generally receives fees in connection with loan originations.
Such loan origination fees, net of costs to originate, are deferred and
amortized using the interest method over the contractual life of the loan. Fees
deferred are recognized into income immediately upon prepayment of the related
loan. At December 31, 1996, the Bank had $1.9 million of deferred loan
origination fees. Such fees vary with the volume and type of loans and
commitments made and purchased, principal repayments, and competitive conditions
in the mortgage markets, which in turn respond to the demand and availability of
money. In addition to loan origination fees, the Bank also receives loan fees
and service charges, that consist primarily of deposit transaction account
service charges and late charges. The Bank recognized loan fees and service
charges of $235,000, $307,000, $285,000 and $428,000 for the nine months ended
December 31, 1996, the fiscal year ended March 31, 1996, the ten months ended
March 31, 1995 and the fiscal year ended May 31, 1994, respectively.
Loans to One Borrower. Savings associations are subject to the same limits
as those applicable to national banks, which under current regulations restrict
loans to one borrower to an amount equal to 15% of unimpaired capital and
unimpaired surplus on an unsecured basis, and an additional amount equal to 10%
of unimpaired capital and unimpaired surplus if the loan is secured by readily
marketable collateral (generally, financial instruments and bullion, but not
real estate). The Bank's maximum loans to one
78
<PAGE>
borrower limit was $5.0 million at December 31, 1996. At such date, the Bank's
largest borrower had an aggregate principal outstanding balance of $1.6 million.
Delinquencies and Classified Assets. The Bank's collection procedures
provide that when a loan is 15 days and 25 days past due, a computer generated
late charge notice is sent to the borrower requesting payment, plus a late
charge. If delinquency continues, on the first day of the second month, a
delinquent notice is mailed along with a letter advising that the mortgagors are
in violation of the terms of their mortgage contract. A representative of the
Bank attempts to contact borrowers whose loans are more than 60 days past due.
If such attempts are unsuccessful, a Bank representative personally visits the
property and attempts to contact the borrower and inspect the property. A
delinquent loan report is presented to the Board of Directors, which must
authorize any legal action. To the extent required by the Department of Housing
and Urban Development ("HUD"), notice is given to the borrower which provides
access to consumer counseling services. It is sometimes necessary and desirable
to arrange special repayment schedules with mortgagors to prevent foreclosure or
filing for bankruptcy. The schedule is prepared by the Bank pursuant to
discussions with the borrower.
Nonperforming Assets. Loans are reviewed on a regular basis. Real estate
loans are placed on a nonaccrual status when either principal or interest is 120
days or more past due. Delinquent consumer loans generally are not placed on
nonaccrual status, but continue to accrue until charged-off. Delinquent consumer
loans are charged-off when it appears no longer reasonable or probable that the
loan will be collected. Interest accrued and unpaid at the time a loan is placed
on nonaccrual status is charged against interest income.
Real estate acquired by the Bank as a result of foreclosure or by deed in
lieu of foreclosure is deemed real estate owned ("REO") until such time as it is
sold. When REO is acquired, it is recorded at the lower of the unpaid principal
balance of the related loan or its estimated fair value, less estimated selling
expenses. Valuations are periodically performed, or obtained, by management and
any subsequent decline in fair market value is charged to operations. REO
totalled $981,000, $575,000, $1.0 million and $1.5 million as of December 31,
1996, March 31, 1996, March 31, 1995 and May 31, 1994, respectively.
79
<PAGE>
Delinquent Loans and Nonperforming Assets. The following table sets forth
information regarding loans delinquent 30 days to 89 days, 90 days to 119 days,
and 120 days or more, and REO. At December 31, 1996, REO totalled $981,000 and
consisted of nine properties. It is the policy of the Bank to cease accruing
interest on loans 120 days or more past due and charge off all accrued interest.
For the nine months ended December 31, 1996 and the year ended March 31, 1996,
the amount of additional interest income that would have been recognized on
nonaccrual loans if such loans had continued to perform in accordance with their
contractual terms was $510,000 and $468,000, respectively.
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31, AT MAY 31,
----------------- ----------------- ---------------------------
1996 1995 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Loans past due 30 days to 89 days:
One- to four-family residential ............. $ 4,424 $ 3,876 $ 5,634 $ 5,743 $ 5,530 $ 7,734 $ 9,122
Multifamily and commercial .................. 213 711 338 344 331 445 543
Consumer loans .............................. 920 167 614 644 815 231 1,424
------- ------- ------- ------- ------- ------- -------
Total loans past due 30 days to 89 days ... $ 5,557 $ 4,754 $ 6,586 $ 6,731 $ 6,676 $ 8,410 $11,089
======= ======= ======= ======= ======= ======= =======
Loans past due 90 days to 119 days:
One- to four-family residential ............. $ 1,261 $ 418 $ 492 $ 1,678 $ 958 $ 2,146 $ 3,230
Multifamily and commercial .................. 61 90 48 163 114 63 67
Consumer loans .............................. 422 80 158 53 179 122 161
------- ------- ------- ------- ------- ------- -------
Total loans past due 90 days to 119 days .. 1,744 588 698 1,894 1,251 2,331 3,458
------- ------- ------- ------- ------- ------- -------
Loans past due 120 days or more(1):
One- to four-family residential ............. 3,645 3,461 4,606 3,346 5,208 5,106 6,750
Multifamily and commercial .................. 176 635 207 150 214 263 333
Consumer loans .............................. 450 311 456 194 204 217 230
------- ------- ------- ------- ------- ------- -------
Total loans past due 120 days or more ..... 4,271 4,407 5,269 3,690 5,626 5,586 7,313
------- ------- ------- ------- ------- ------- -------
Other nonperforming assets:
REO ......................................... 981 1,020 575 1,006 1,522 945 1,448
Investments in and loans to joint ventures .. -- -- -- -- -- -- 441
------- ------- ------- ------- ------- ------- -------
Total other nonperforming assets .......... 981 1,020 575 1,006 1,522 945 1,889
------- ------- ------- ------- ------- ------- -------
Total loans delinquent 90 days or more and
other nonperforming assets .................. $ 6,996 $ 6,015 $ 6,542 $ 6,590 $ 8,399 $ 8,862 $12,660
======= ======= ======= ======= ======= ======= =======
Total loans delinquent 90 days or more to net
loans receivable ............................ 2.52% 2.23% 2.92% 3.02% 3.64% 3.55% 4.11%
Total loans delinquent 90 days or more to total
assets ...................................... 1.04% 0.76% 0.92% 1.09% 1.26% 1.38% 2.06%
Total loans delinquent 90 days or more and
other nonperforming assets to total assets .. 1.21% 0.92% 1.00% 1.29% 1.53% 1.55% 2.42%
</TABLE>
- ----------
(1) The Bank classifies as nonperforming only real estate loans 120 days or
more delinquent.
80
<PAGE>
The following table sets forth information with respect to the Bank's
delinquent loans and other problem assets at December 31, 1996.
AT DECEMBER 31, 1996
---------------------
BALANCE NUMBER
--------- --------
(DOLLARS IN THOUSANDS)
One- to four-family residential real estate:
Loans 30 to 89 days delinquent ........................ $4,424 50
Loans 90 to 119 days delinquent ....................... 1,261 12
Loans 120 days or more delinquent ..................... 3,645 38
Multifamily residential and commercial real estate:
Loans 30 to 89 days delinquent ........................ 213 8
Loans 90 to 119 days delinquent ....................... 61 2
Loans 120 days or more delinquent ..................... 176 7
Consumer loans 30 to 89 days delinquent ................. 920 33
Consumer loans 90 to 119 days delinquent ................ 422 10
Consumer loans 120 days or more delinquent .............. 450 19
Foreclosed real estate and repossessions ................ 981 9
Classification of Assets. Federal regulations provide for the
classification of loans and other assets such as debt and equity securities
considered by the OTS to be of lesser quality 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 savings 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
that do not expose the savings institution to risk sufficient to warrant
classification in one of the aforementioned categories, but which possess some
weaknesses, are required to be designated "special mention" by management. Loans
designated as special mention are generally loans that, while current in
required payment, have exhibited some potential weaknesses that, if not
corrected, could increase the level of risk in the future. Pursuant to the
Bank's internal guidelines, all loans 90 to 119 days past due are considered
special mention, and all loans 120 days or more past due are classified
substandard, doubtful, or loss.
81
<PAGE>
The following table sets forth the aggregate amount of the Bank's special
mention and classified assets at the dates indicated.
AT JUNE
AT DECEMBER 31, AT MARCH 31, 30,(1)
------ ------ ------ ------ -------
1996 1995 1996 1995 1994
------ ------ ------ ------ -------
(IN THOUSANDS)
Special mention ................... $1,867 $ 657 $ 746 $1,671 $1,162
Substandard assets ................ 5,210 5,276 5,439 4,498 6,491
Doubtful assets ................... -- 326 326 323 --
Loss assets ....................... 339 223 226 404 1,056
------ ------ ------ ------ ------
Total special mention and
classified assets(2) .......... $7,416 $6,482 $6,737 $7,096 $8,709
====== ====== ====== ====== ======
- ----------
(1) Information as of May 31, 1994 is unavailable.
(2) Includes REO.
As of December 31, 1996, the Bank had no single special mention or
classified asset with a balance of greater than $250,000.
Allowance for Loan Losses. Management's policy is to provide for estimated
losses on the Bank's loan portfolio based on management's evaluation of the
potential losses that may be incurred. The Bank regularly reviews its loan
portfolio, including problem loans, to determine whether any loans require the
establishment of appropriate reserves or allowances for losses. Such evaluation,
which includes a review of all loans of which full collectability of interest
and principal may not be reasonably assured, considers, among other matters, the
estimated fair value of the underlying collateral. Other factors considered by
management include the site and risk exposure of each segment of the loan
portfolio, present indicators such as delinquency rates and the borrower's
current financial condition, and the potential for losses in future periods.
Management calculates the general allowance for loan losses in part based on
past experience, and in part based on specified loan balances. Both general and
specific loan loss allowances are charged against earnings; however, general
loss allowances are added back to capital in computing total risk-based capital
under OTS regulations, subject to certain limitations.
82
<PAGE>
Management will continue to review the entire loan portfolio to determine
the extent, if any, to which further additional loan loss provisions may be
deemed necessary. Management believes that the Bank's current allowance for loan
losses is adequate; however, there can be no assurance that the allowance for
loan losses will be adequate to cover losses that may in fact be realized in the
future or that additional provisions for loan losses will not be required.
The following table sets forth activity in the Bank's allowance for loan
losses for the periods set forth in the following table.
<TABLE>
<CAPTION>
TEN
NINE MONTHS YEAR MONTHS
ENDED ENDED ENDED
DECEMBER 31, MARCH 31, MARCH 31, YEARS ENDED MAY 31,
---------------------- --------- --------- ----------------------------------
1996 1995 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Total loans outstanding ..................... $ 244,050 $ 228,987 $ 229,050 $ 223,338 $ 193,947 $ 227,659 $ 267,287
Average loans outstanding ................... 239,458 224,841 220,820 202,087 203,321 240,850 273,982
Allowance balances (at beginning of period) . 2,979 2,677 2,677 2,918 2,597 2,578 1,460
Provision for losses:
Real estate ............................. 90 300 405 350 483 871 1,204
Consumer ................................ -- -- 45 -- 17 -- 27
Charge-offs:
Real estate ............................. (140) (306) (148) (591) (179) (840) (113)
Consumer ................................ -- -- -- -- -- (12) --
--------- --------- --------- --------- --------- --------- ---------
Allowance balance (at end of period) ........ $ 2,929 $ 2,671 $ 2,979 $ 2,677 $ 2,918 $ 2,597 2,578
========= ========= ========= ========= ========= ========= =========
Allowance for loan losses as a percent of net
loans receivable at end of period ......... 1.22% 1.19% 1.33% 1.22% 1.54% 1.17% 0.98%
Net loans charged off as a percent of average
loans outstanding ......................... .06% .14% .07% .29% .09% .35% .04%
Ratio of allowance for loan losses to total
loans delinquent 90 days or more at end of
period .................................... 48.69% 53.47% 49.92% 47.94% 42.43% 32.80% 23.93%
Ratio of allowance for loan losses to total
loans delinquent 90 days or more and other
nonperforming assets at end of period ..... 41.87% 44.41% 45.54% 40.62% 34.74% 29.30% 20.36%
</TABLE>
83
<PAGE>
The following tables set forth the Bank's percent of allowance for loan
losses to total allowance for loan losses and the percent of loans to total
loans in each of the categories listed at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------------------------------
1996 1995
--------------------------------------- ---------------------------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
ALLOWANCE LOANS IN ALLOWANCE LOANS IN
TO TOTAL EACH CATEGORY TO TOTAL EACH CATEGORY
AMOUNT ALLOWANCE TO TOTAL LOANS AMOUNT ALLOWANCE T O TOTAL LOANS
------ --------- -------------- ------ ---------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at end of period applicable to:
One- to four-family ................. $2,723 93.00% 83.0% $2,484 93.00% 83.4%
Multifamily residential ............. 59 2.00 4.5 53 2.00 5.6
Commercial .......................... -- -- .7 -- -- .1
Consumer loans ...................... 147 5.00 11.8 134 5.00 10.9
------ ------ ------ ------ ------ ------
Total allowance for loan losses ... $2,929 100.00% 100.0% $2,671 100.00% 100.0%
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31,
--------------------------------------------------------------------------------
1996 1995
--------------------------------------- ---------------------------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
ALLOWANCE LOANS IN ALLOWANCE LOANS IN
TO TOTAL EACH CATEGORY TO TOTAL EACH CATEGORY
AMOUNT ALLOWANCE TO TOTAL LOANS AMOUNT ALLOWANCE TO TOTAL LOANS
------ --------- -------------- ------ ---------- --------------
(DOLLARS IN THOUSANDS)
Balance at end of period applicable to:
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C>
One- to four-family............ $2,770 93.0% 82.6% $2,521 94.2% 85.4%
Multifamily residential........ 59 2.0 6.0 56 2.1 5.0
Commercial..................... 6 0.2 .3 1 -- --
Consumer....................... 144 4.8 11.1 99 3.7 9.6
------ ------ ----- ------ ----- -----
Total allowance for loan losses $2,979 100.00% 100.0% $2,677 100.0% 100.0%
====== ====== ===== ====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
AT MAY 31,
----------------------------------------------------------------------------------
1994 1993
---------------------------------------- -------------------------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
ALLOWANCE LOANS IN ALLOWANCE LOANS IN
TO TOTAL EACH CATEGORY TO TOTAL EACH CATEGORY
AMOUNT ALLOWANCE TO TOTAL LOANS AMOUNT ALLOWANCE TO TOTAL LOANS
------ --------- -------------- ------ ---------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at end of period applicable to:
Mortgage loans:
One- to four-family............ $2,784 95.4% 86.5% $2,477 95.4% 88.3%
Multifamily residential........ 49 1.7 5.0 52 2.0 4.6
Commercial..................... 1 -- -- 1 -- --
Consumer....................... 84 2.9 8.5 67 2.6 7.1
------ ----- ----- ------ ----- -----
Total valuation allowance.... $2,918 100.0% 100.0% $2,597 100.0% 100.0%
====== ===== ===== ====== ===== =====
<CAPTION>
AT MAY 31,
----------------------------------------
1992
----------------------------------------
PERCENT OF PERCENT OF
ALLOWANCE LOANS IN
TO TOTAL EACH CATEGORY
AMOUNT ALLOWANCE TO TOTAL LOANS
------ --------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at end of period applicable to:
Mortgage loans:
One- to four-family............ $2,437 94.5% 88.7%
Multifamily residential........ 61 2.4 4.4
Commercial..................... 1 -- --
Consumer....................... 79 3.1 6.9
------ ----- -----
Total valuation allowance.... $2,578 100.0% 100.0%
====== ===== =====
</TABLE>
84
<PAGE>
INVESTMENT ACTIVITIES
General. The Bank maintains a substantial portfolio of investment-grade,
liquid investments with low credit risk. These investments are composed
primarily of mortgage-backed securities, United States Government and agency
obligations and municipal and agency obligations. At December 31, 1996, $297.3
million, or 51.4%, of the Bank's total assets consisted of securities issued or
guaranteed by the United States Government or an agency or sponsored corporation
of the United States Government, or of mortgage securities collateralized by
such United States Government-related instruments. By investing in these types
of assets, the Bank's strategy has been to significantly reduce the credit risk
of its asset base in exchange for lower yields than would typically be available
on loans.
The Bank's investments include substantial investments in mortgage-backed
securities. The Bank's mortgage-backed securities represent an interest in, or
are collateralized by, pools of mortgage loans originated by private lenders
that have been grouped by various governmental, government-related, or private
organizations. The Bank attempts to manage its interest rate risk, in part, by
maintaining adjustable-rate, mortgage-backed securities in its investment
portfolio. At December 31, 1996, $60.6 million, or 18.9%, of the Bank's $319.6
million of investments consisted of mortgage-backed securities with adjustable
interest rates.
At December 31, 1996, mortgage-backed securities totalled $217.8 million,
or 37.6% of the Bank's total assets, United States Government and agency
obligations totalled $68.1 million, or 11.8% of the Bank's total assets, and
other investments held to maturity, including primarily interest-earning
deposits, FHLB stock and municipal and other agency obligations, totalled $33.7
million, or 5.8% of the Bank's total assets.
The Bank is required under federal regulations to maintain a minimum
amount of liquid assets that may be invested in specified short-term securities
and certain other investments. The Bank has generally maintained a portfolio of
liquid assets that exceeds regulatory requirements. The Bank's Investment
Committee meets on a regular basis to decide, based on market levels and
conditions, current economic data, political and regulatory information, and
internal needs, whether any alterations need to be made to the Bank's investment
portfolio. Based on the parameters of the investment policy, the Bank endeavors
to diversify its holdings through the purchase of short- and medium-term and
fixed- and variable-rate instruments, which provide both an adequate return as
well as some protection from interest rate risk. All investment decisions are
made by the Committee after analysis and market price cross-checks have been
completed. Since December 1995, the Bank has significantly restructured its
investment portfolio. See "Risk Factors - Restructuring of Investment
Portfolio."
Effective April 1992, the OTS adopted Thrift Bulletin 52 ("TB 52"). Among
other things, TB 52 sets forth certain guidelines with respect to depository
institutions' investment in certain "high risk mortgage securities." "High-risk
mortgage securities" are defined as any mortgage derivative product that at the
time of purchase, or at any subsequent date, meets any of the three tests that
are set forth in TB 52. High-risk mortgage securities may be purchased only in
limited circumstances, and if held in portfolio, must be reported as trading
assets at market value, or as available-for-sale assets at the lower of cost or
market value. In certain circumstances, OTS examiners may seek the orderly
divestiture of high-risk mortgage securities. As of December 31, 1996, the Bank
held one "high-risk mortgage security" subject to TB 52 in its portfolio, with a
balance of $340,000. All securities subject to the provisions of TB 52 were
designated as available-for-sale at December 31, 1996.
On June 1, 1993, the Bank adopted SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS 115). In accordance with this
Statement, investment and mortgage-backed
85
<PAGE>
securities that are not categorized as either held to maturity or trading
account securities are classified as securities available for sale. Securities
available for sale include debt and mortgage-backed securities that are held for
an indefinite period of time and are not intended to be held to maturity, as
well as shares of mortgage-backed mutual funds. Securities available for sale
include securities that management intends to use as part of its overall
asset/liability management strategy and that my be sold in response to changes
in interest rate and resultant prepayment risk and other factors related
thereto. Securities available for sale are carried at fair value, and unrealized
gains and losses (net of related tax effects) on such securities are excluded
from earnings but are included in stockholders' equity. Upon realization, such
gains and losses will be included in earnings. Management determines the
appropriate classification of investment and mortgage-backed securities as
either available for sale or held to maturity at the purchase date. Investment
securities and mortgage-backed securities, other than those designated as
available for sale or trading, are comprised of debt securities that the Bank
has the positive intent and ability to hold to maturity. Securities held to
maturity are carried at cost, adjusted for amortization of premiums and
accretion of discounts over the estimated lives of the securities.
Mortgage-Backed Securities. The Bank's mortgage-backed securities are
primarily pass-through securities, which means that they provide the Bank with
payments consisting of both principal and interest as mortgages in the
underlying mortgage pool are paid off by the borrowers. The average maturity of
pass-through mortgage-backed securities varies with the maturities of the
underlying mortgage instruments and with the occurrence of unscheduled
prepayments of those mortgage instruments. Mortgage-backed securities also
include collateralized mortgage obligations ("CMOs"), which are debt obligations
collateralized by the cash flows from mortgage loans or pools of mortgage loans.
Mortgage-backed securities may be classified into the following principal
categories, according to the issuer or guarantor:
(i) Securities that are backed by the full faith and credit of the
United States Government. The GNMA, the principal United States
Government guarantor of such securities, is a wholly owned United
States Government corporation within the Department of Housing and
Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the United States, the timely payment of
principal and interest, but not of market value, on securities
issued by approved institutions and backed by pools of FHA-insured
or VA-guaranteed mortgages.
(ii) Securities that are issued by a government agency but that are not
backed by the full faith and credit of the United States Government.
The primary issuers of these securities include FNMA and FHLMC. FNMA
is a United States Government-sponsored corporation owned entirely
by private stockholders. Pass-through securities issued by FNMA are
guaranteed as to timely payment of principal and interest by FNMA.
FHLMC issues securities representing interests in residential
mortgage loans that it pools. FHLMC is a United States
Government-sponsored corporation that guarantees the timely payment
of interest and ultimate collection of principal, and its stock is
publicly traded.
(iii) Securities that represent interests in, or are collateralized by,
pools consisting principally of residential mortgage loans created
by non-governmental issuers. These securities generally offer a
higher rate of interest than the other two types of mortgage-backed
securities because there are no direct or implied government
guarantees of payment as in the former securities, although certain
credit enhancements may exist. Securities issued by certain private
organizations may not be readily marketable. Private mortgage-backed
86
<PAGE>
securities purchased by the Bank must be rated in one of the two
highest rating categories by at least one nationally recognized
statistical rating organization.
The Bank's mortgage-backed securities are both fixed-rate and
adjustable-rate ("ARM Securities"). Unlike fixed-rate mortgage-backed
securities, ARM Securities have periodic adjustments in the coupons on the
underlying mortgages. Management believes that the adjustable-rate feature of
the mortgages underlying the ARM Securities generally will help to reduce sharp
changes in the value of the ARM Securities in response to normal interest rate
fluctuations. As the interest rates on the mortgages underlying the ARM
Securities are reset periodically (generally one to 12 months, but as long as
five years), the yields of such securities will gradually align themselves to
reflect changes in the market rates so that the market value of such securities
will remain relatively constant as compared to fixed-rate instruments.
Management believes that this, in turn, should cause the value of the ARM
Securities to fluctuate less than fixed-rate mortgage-backed securities.
In contrast to fixed-rate mortgages, which generally decline in value
during periods of rising interest rates, ARM Securities permit the Bank to
participate in increases in interest rates through periodic adjustments in the
coupons of the mortgages that underlie the ARM Securities. Management believes
that ARM Securities should produce both higher current yields and lower price
fluctuations than fixed-rate mortgage-backed securities during such periods.
Furthermore, if prepayments of principal are made on the underlying mortgages
during periods of rising interest rates, the Bank generally will be able to
reinvest such amounts in assets with a higher yield. For certain types of ARM
Securities, the rate of amortization of principal, as well as interest payments,
can and does change in accordance with movements in a particular, pre-specified,
published interest rate index. The amount of interest due to an ARM Securities
holder is calculated by adding a specified additional amount, the "margin," to
the index, subject to limitations or "caps" on the maximum or minimum interest
that is charged to the mortgagor during the life of the mortgage or to maximum
and minimum changes in the interest during a given period. As a result, the Bank
will not benefit from increases in interest rates to the extent that interest
rates rise to the point where they cause the current coupon of adjustable rate
mortgages held as investments to exceed the maximum allowable annual (usually
100 to 200 basis points) or lifetime limits (or "cap rates") for a particular
mortgage. Fluctuations in interest rates above these levels could cause such
mortgage securities to behave more like long-term, fixed-rate debt securities.
Moreover, the value of the Bank's ARM Securities could vary to the extent that
current yields on such securities are different than market yields during
interim periods between coupon reset dates. Thus, the Bank could suffer some
principal loss if it sold such securities before the interest rates on the
underlying mortgages are adjusted to reflect current market rates.
During periods of declining interest rates, the coupon rates on the
mortgages that underlie the Bank's ARM Securities may readjust downward,
resulting in lower yields or such securities. Further, because of this feature,
ARM Securities may have less potential for capital appreciation than fixed-rate
instruments of comparable maturities during periods of declining interest rates.
As with other mortgage-backed securities, interest rate declines may result in
accelerated prepayment of mortgages and the proceeds from such prepayment of
mortgages may be reinvested at lower prevailing interest rates. For this reason,
ARM Securities may be less effective than other fixed-rate securities as a means
of "locking in" long-term interest rates.
If the Bank purchases mortgage-backed securities at a premium, mortgage
foreclosures and unscheduled principal prepayments may result in some loss of
the principal investment to the extent of the premium paid. On the other hand,
if mortgage-backed securities are purchased at a discount, both a scheduled
payment of principal and an unscheduled repayment of principal will increase
current and total returns.
87
<PAGE>
CMOs are securities created by segregating or partitioning 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 flow from the underlying
securities and thereby create multiple classes of securities with different
maturity and risk characteristics. The CMOs and other mortgage-backed securities
in which the Bank invests may have a multi-class structure ("Multi-Class
Mortgage Securities"). Multi-Class Mortgage Securities issued by private issuers
may be collateralized by whole loans or pass-through mortgage-backed securities
of private issuers. Each class has a specified maturity or final distribution
date. In one structure, payments of principal, including any principal
prepayments, on the collateral are applied to the classes in the order of their
respective stated maturities or final distribution dates, so that no payment of
principal will be made on any class until all classes have an earlier stated
maturity or final distribution date have been paid in full. In other structures,
certain classes may pay concurrently, or one or more classes may have a priority
with respect to payments on the underlying collateral up to a specified amount.
The Bank has not and will not invest in any class with residual characteristics.
Additionally, the Bank will not invest in any subordinated debt class that is
not rated in one of the two highest rating categories by at least one nationally
recognized statistical rating organization.
88
<PAGE>
Fixed- and Adjustable-Rate Mortgage Securities. The following table sets
forth selected data relating to the composition of the Bank's mortgage
securities portfolio as of the dates indicated.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED DECEMBER 31, AT MARCH 31,
------------------------------------------ ----------------------------------------
1996 1995 1996 1995
------------------- ------------------- -------------------- -----------------
PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------ -------- ------ -------- ------ -------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pass-through certificates:
Adjustable............................ $ 60,571 27.4% $ 55,670 27.7% $ 54,503 24.2% $31,753 56.1%
Fixed................................. 121,828 55.1 131,194 65.3 129,311 57.5 24,162 42.7
-------- ----- -------- ----- -------- ----- ------- -----
Total pass-through certificates..... 182,399 82.5 186,864 93.0 183,814 81.7 55,915 98.8
-------- ----- -------- ----- -------- ----- ------- -----
CMOs:
Fixed ................................ 12,779 5.8 13,666 6.8 13,664 6.1 714 1.2
-------- ----- -------- ----- -------- ----- ------- -----
Total CMOs.......................... 12,779 5.8 13,666 6.8 13,664 6.1 714 1.2
-------- ----- -------- ----- -------- ----- ------- -----
Private Issues........................... 25,881 11.7 510 0.2 27,448 12.2 -- --
-------- ----- -------- ----- -------- ----- ------- -----
Amortized cost of mortgage-backed
securities ............................ 221,059 100.0% 201,040 100.0% 224,926 100.0% 56,629 100.0%
===== ===== ===== =====
Valuation allowance...................... (3,200) (1,240) (4,244) (3,493)
-------- -------- -------- -------
Carrying value of mortgage-backed
securities at end of period........... $217,859 $199,800 $220,682 $53,136
======== ======== ======== =======
Mortgage related mutual funds(1):
AMF Adjustable Rate Mortgage
Portfolio........................... $ -- -- % $ 2,514 3.6% $ 2,551 3.6% $2,399 3.6%
AMF Intermediate Mortgage Securities
Portfolio........................... -- -- 67,849 96.4 68,889 96.4 64,690 96.4
-------- ----- -------- ----- ------- -----
Amortized cost of mutual funds........ -- -- 70,363 100.0% 71,440 100.0% 67,089 100.0%
===== ===== =====
Valuation allowance................... -- -- (185) (2,274) (3,020)
-------- ----- -------- -------- -------
Carrying value of mortgage related
mutual funds at end of period....... $ -- -- % $ 70,178 $69,166 $64,069
======== ===== ======== ======== =======
<CAPTION>
AT MAY 31,
----------------------
1994
----------------------
PERCENT
AMOUNT OF TOTAL
------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Pass-through certificates:
Adjustable............................ $32,104 55.3%
Fixed................................. 24,847 42.8
------- -----
Total pass-through certificates..... 56,951 98.1
------- -----
CMOs:
Fixed ................................ 1,065 1.9
------- -----
Total CMOs.......................... 1,065 1.9
------- -----
Private Issues........................... -- --
------- -----
Amortized cost of mortgage-backed
securities ............................ 58,016 100.0%
=====
Valuation allowance...................... (2,550)
-------
Carrying value of mortgage-backed
securities at end of period........... $55,466
=======
Mortgage related mutual funds(1):
AMF Adjustable Rate Mortgage
Portfolio........................... $27,413 30.8%
AMF Intermediate Mortgage Securities
Portfolio........................... 61,599 69.2
------- -----
Amortized cost of mutual funds........ (89,012) 100.0%
=====
Valuation allowance................... (3,208)
-------
Carrying value of mortgage related
mutual funds at end of period....... $85,804
=======
</TABLE>
- ----------
(1) As part of the Bank's restructuring of its investment portfolio, during
the nine months ended December 31, 1996, the Bank sold intermediate and
adjustable-rate mutual funds totalling $71.5 million, for a loss of $2.7
million.
89
<PAGE>
Purchases, Sales and Repayments of Mortgage Securities. The following
table sets forth the Bank's investment, mortgage-backed and mortgage-related
securities activities for the periods indicated:
<TABLE>
<CAPTION>
TEN
YEAR MONTHS YEAR
NINE MONTHS ENDED ENDED ENDED
ENDED DECEMBER 31, MARCH 31, MARCH 31, MAY 31,
--------------------- --------- --------- ---------
1996 1995 1996 1995 1994
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Mortgage-backed securities at beginning
of period ........................... $ 224,296 $ 56,629 $ 56,629 $ 58,016 $ 73,462
Purchases ........................... 60,470 146,989 174,784 -- 63,545
Sales ............................... (48,622) -- -- -- (51,556)
Repayments .......................... (17,519) (1,601) (5,855) (1,339) (27,746)
Discount (premium) amortization ..... 1,804 (875) (632) (48) 311
--------- --------- --------- --------- ---------
Amortized cost of mortgage-backed
securities at end of period ......... 221,059 201,142 224,926 56,629 58,016
--------- --------- --------- --------- ---------
Valuation allowance ................... (3,200) (1,240) (4,244) (3,493) (2,550)
--------- --------- --------- --------- ---------
Carrying value of mortgage-backed
securities at end of period ........... $ 217,859 $ 199,902 $ 220,682 $ 53,136 $ 55,466
========= ========= ========= ========= =========
Mortgage related mutual funds at
beginning of period ................. 71,440 67,089 67,089 89,012 149,728
Purchases ........................... -- -- -- -- 54,100
Redemptions ......................... (71,088) -- -- (25,000) (121,100)
Dividend credited ................... 2,350 3,274 4,351 3,624 6,811
Profit (loss) on redemption ......... (2,702) -- -- (547) (527)
Mortgage related mutual funds at end of
period ................................ -- 70,363 71,440 67,089 89,012
--------- --------- ---------
Valuation allowance ................... -- (185) (2,274) (3,020) (3,208)
--------- --------- --------- --------- ---------
Carrying value of mortgage related
mutual funds at end of period ......... $ -- $ 70,178 $ 69,166 $ 64,069 $ 85,804
========= ========= ========= ========= =========
</TABLE>
90
<PAGE>
Investment Portfolio. The following table sets forth certain information
regarding the carrying and market values of the Bank's investment portfolio at
the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31, AT MAY 31,
--------------------- -------------------------------------------- ---------------------
1996 1996 1995 1994
--------------------- --------------------- --------------------- ---------------------
CARRYING MARKET CARRYING MARKET CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE VALUE VALUE VALUE VALUE
--------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investments available for sale:
Mortgage-backed securities ....... $ 221,059 $ 217,859 $ 224,926 $ 220,682 $ 56,629 $ 53,136 $ 58,016 $ 55,467
Mortgage related mutual funds .... -- -- 71,440 69,166 67,089 64,069 89,012 85,803
U.S. Government and agency
obligations .................... 69,940 68,093 94,868 92,873 69,908 64,338 69,892 64,069
--------- --------- --------- --------- --------- --------- --------- ---------
Total amortized cost ........... 290,999 285,952 391,234 382,721 193,626 181,543 216,920 205,339
Valuation allowance .............. (5,047) -- (8,513) -- (12,083) -- (11,581) --
--------- --------- --------- --------- --------- --------- --------- ---------
Total investments held for sale 285,952 285,952 382,721 382,721 181,543 181,543 205,339 205,339
--------- --------- --------- --------- --------- --------- --------- ---------
Investments held to maturity:
Short-term mutual funds .......... 1,849 1,849 6,009 6,009 760 760 4,792 4,792
Interest-earning deposits in other
institutions ................... 13,000 13,000 325 325 323 323 36,002 36,002
FHLB stock ....................... 7,460 7,460 7,526 7,526 1,914 1,914 2,500 2,500
United States Government and
agency obligations ............. 8,855 8,855 8,855 9,104 83,725 75,789 82,737 75,021
Municipal and other agency
obligations .................... 2,422 2,529 2,500 2,570 3,974 4,001 2,999 2,968
--------- --------- --------- --------- --------- --------- --------- ---------
Total investments held to
maturity ....................... 33,586 33,693 25,215 25,534 90,696 82,787 129,030 121,283
--------- --------- --------- --------- --------- --------- --------- ---------
Total investments ................... $ 319,538 $ 319,645 $ 407,936 $ 408,255 $ 272,239 $ 264,330 $ 334,369 $ 326,622
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
91
<PAGE>
The table below sets forth certain information regarding the scheduled
maturities, carrying value, amortized cost, market values and weighted average
yields for the Bank's investment portfolio at December 31, 1996.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
-----------------------------------------------------------------------------------------
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>
Investments available for sale:
Mortgage-backed securities ........... $ -- -- % $ 86,897 5.39% $ -- --% $ 134,162 6.87%
U.S. Government and
agency obligations ................. -- -- 51,981 4.88 14,967 5.79 2,992 7.04
--------- ----- --------- ----- --------- ----- --------- -----
Total .............................. -- -- 138,878 5.20 14,967 5.79 137,154 6.87
Valuation allowance ..................
Total investments available
for sale..........................
Investments held to maturity:
Short-term mutual funds .............. 1,849 4.94 -- -- -- -- -- --
Interest-earning deposits
in other institutions .............. 13,000 6.38 -- -- -- -- -- --
FHLB stock ........................... -- -- -- -- -- -- 7,460 6.61
U.S. Government, municipal and other
agency obligations ................. 50 5.34 8,955 6.83 982 5.48 1,290 7.00
--------- ----- --------- ----- --------- ----- --------- -----
Total .............................. 14,899 6.20 8,955 6.83 982 5.48 8,750 6.67
Valuation allowance ..................
Total investments held to maturity..
<CAPTION>
AT DECEMBER 31, 1996
-------------------------------
TOTAL
-------------------------------
WEIGHTED
AMORTIZED MARKET AVERAGE
COST VALUE YIELD
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Investments available for sale:
Mortgage-backed securities ........... $ 221,059 $ 217,859 6.29%
U.S. Government and
agency obligations ................. 69,940 68,093 5.17
--------- --------- -----
Total .............................. 290,999 285,952 6.02
Valuation allowance .................. (5,047)
---------
Total investments available
for sale.......................... $ 285,952
=========
Investments held to maturity:
Short-term mutual funds .............. $ 1,849 1,849 4.94
Interest-earning deposits
in other institutions .............. 13,000 13,000 6.38
FHLB stock ........................... 7,460 7,460 6.61
U.S. Government, municipal and other
agency obligations ................. 11,277 11,384 6.73
--------- --------- -----
Total .............................. 33,586 33,693 6.47
Valuation allowance .................. 107
---------
Total investments held to maturity.. $ 33,693
=========
</TABLE>
92
<PAGE>
SOURCES OF FUNDS
General. Deposits are the major source of the Bank's funds for lending and
other investment purposes. In addition to deposits, the Bank derives funds from
the amortization and prepayment of loans and mortgage-backed securities, the
maturity of investment securities, sales of mortgage securities, and operations.
Scheduled loan principal repayments are a relatively stable source of funds,
while deposit inflows and outflows and loan prepayments are influenced
significantly by general interest rates and market conditions. Borrowings may be
used on a short-term basis to compensate for reductions in the availability of
funds from other sources or on a longer term basis for general business
purposes.
Deposits. Consumer and commercial deposits are attracted principally from
within the Bank's market area through the offering of a broad selection of
deposit instruments including noninterest-bearing demand accounts, NOW accounts,
passbook savings, money market accounts, term certificate accounts and
individual retirement accounts. Deposit account terms vary according to the
minimum balance required, the period of time during which the funds must remain
on deposit, and the interest rate, among other factors. Deposits have decreased
9.8% since 1992, from $489.3 million at May 31, 1992 to $441.3 million at
December 31, 1996. This decrease has primarily been attributable to a declining
population in Bayonne and to attrition as depositors sought higher yields in
mutual funds and other markets. In addition the Bank expects approximately $45
million of ten-year certificates of deposit paying a rate of interest of 10% to
mature by April 1998. The Bank does not expect to retain a significant portion
of such deposits. Management, however, believes that based on the Bank's level
of liquid assets and its borrowing capacity, it will have sufficient liquid
funds to finance any significant withdrawals on such accounts. The Bank
regularly evaluates its internal cost of funds, surveys rates offered by
competing institutions, reviews the Bank's cash flow requirements for lending
and liquidity, and executes rate changes when deemed appropriate. Furthermore,
the Bank plans to introduce new deposit products, such as commercial deposit
accounts, and is considering expansion of its retail branch network into
surrounding communities as a means of increasing its deposit base. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Business Strategy." The Bank does not obtain funds through
solicitation of brokers' funds from outside its market area, nor by offering
negotiated rates on certificates of deposit in excess of $100,000.
The following table presents the deposit activity of the Bank for the
periods indicated:
<TABLE>
<CAPTION>
TEN
YEAR MONTHS YEAR
NINE MONTHS ENDED ENDED ENDED
ENDED DECEMBER 31, MARCH 31, MARCH 31, MAY 31,
--------------------- -------- -------- --------
1996 1995 1996 1995 1994
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net increase (decrease) before
interest credited..................... $(19,958) $(12,140) $(19,716) $(42,924) $(29,290)
Interest credited....................... 15,719 15,543 20,760 15,628 19,267
-------- -------- -------- -------- --------
Net increase (decrease) in deposits..... $ (4,239) $ 3,403 $ 1,044 $(27,296) $ 10,023
======== ======== ======== ======== ========
</TABLE>
93
<PAGE>
At December 31, 1996, the Bank had $45.5 million in certificate accounts
in amounts of $100,000 or more maturing as follows:
MATURITY PERIOD AMOUNT
------------------------------------------------------ -------------
(DOLLARS IN
THOUSANDS)
Six months or less ................................... $ 9,102
Over six through 12 months ........................... 15,284
Over 12 months ....................................... 21,112
-------
Total ................................................ $45,498
=======
94
<PAGE>
The following table sets forth the distribution of the Bank's average
deposit accounts for the periods indicated and the weighted average nominal
interest rates on each category of deposits presented. Averages for the periods
presented utilize average month-end balances.
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED TEN MONTHS
ENDED DECEMBER 31, MARCH 31, ENDED MARCH 31,
1996 1996 1995
---------------------------- --------------------------- ----------------------------
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>
Club accounts ............... $ 604 0.14% -- $ 671 0.15% -- $ 707 0.16% --
Noninterest-bearing demand .. 6,372 1.43 -- 8,332 1.87 -- 5,185 1.17 --
NOW accounts ................ 33,882 7.60 2.44 30,288 6.80 2.44 27,772 6.25 2.44
Passbooks ................... 135,548 30.41 2.92 134,940 30.29 2.92 142,837 32.14 2.92
Money market deposit accounts 13,924 3.12 2.44 14,279 3.21 2.44 16,095 3.62 2.44
Time deposits that mature:
Within 12 months ......... 117,335 26.33 5.45 155,224 34.85 3.88 160,292 36.07 4.17
Within 13 to 36 months ... 60,060 13.47 7.85 90,747 20.37 4.79 63,023 14.18 4.79
Beyond 36 months ......... 77,997 17.50 5.32 10,943 2.46 8.72 28,469 6.41 8.58
-------- ------ -------- ------ -------- ------
Total deposits ....... $445,722 100.00% 4.57 $445,424 100.00% 3.67 $444,380 100.00% 3.91
======== ====== ======== ====== ======== ======
<CAPTION>
YEAR ENDED MAY 31,
1994
----------------------------
PERCENT
OF TOTAL WEIGHTED
AVERAGE AVERAGE AVERAGE
BALANCE DEPOSITS YIELD
------- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Club accounts ............... 847 0.20% --
Noninterest-bearing demand .. 4,864 1.00 --
NOW accounts ................ 24,854 6.30 2.44
Passbooks ................... 167,661 35.60 2.92
Money market deposit accounts 18,052 3.80 2.44
Time deposits that mature:
Within 12 months ......... 188,434 40.0 3.08
Within 13 to 36 months ... 20,962 4.40 4.59
Beyond 36 months ......... 41,007 8.70 8.13
-------- ------
Total deposits ....... $466,681 100.00% 3.40
======== ======
</TABLE>
95
<PAGE>
The following table presents, by various rate categories, the amount of
certificate accounts outstanding at the dates indicated and the periods to
maturity of the certificate accounts outstanding at December 31, 1996.
<TABLE>
<CAPTION>
PERIOD TO MATURITY FROM
DECEMBER 31, 1996 AT MARCH 31, AT MAY 31,
---------------------------------- -------------- ----------
LESS THAN ONE TO OVER AT
ONE YEAR THREE YEARS THREE YEARS DECEMBER 31, 1996 1996 1995 1994
-------- ----------- ----------- ----------------- ------ ------ --------
(IN THOUSANDS)
<C> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts:
0 to 3.99% $ 808 $ -- $ 214 $ 1,022 $ 8,805 $ 62,344 $154,318
4.00 to 5.99% ....... 144,268 24,086 2,452 170,806 164,385 118,843 27,200
6.00 to 7.99% ....... 17,427 -- 143 17,570 20,310 9,638 13,312
Over 8.00% .......... 21,088 43,399 -- 64,487 63,414 60,959 55,573
-------- -------- -------- -------- -------- -------- --------
Total ............ $183,591 $ 67,485 $ 2,809 $253,885 $256,914 $251,784 $250,403
======== ======== ======== ======== ======== ======== ========
</TABLE>
96
<PAGE>
Borrowings. Savings deposits are the primary source of funds of the Bank's
lending and investment activities and for its general business purposes. If the
need arises, however, the Bank may rely upon advances from the FHLB and the
Federal Reserve Bank discount window to supplement its supply of lendable funds
and to meet deposit withdrawal requirements. Advances from the FHLB typically
are collateralized by the Bank's stock in the FHLB and a portion of the Bank's
first mortgage loans. At December 31, 1996, the Bank had $80.0 million in FHLB
advances and reverse repurchase agreements outstanding.
The FHLB functions as a central reserve bank providing credit for the Bank
and other member savings institutions and financial institutions. As a member,
the Bank is required to own capital stock in the FHLB and is authorized to apply
for advances on the security of such stock and certain of its home mortgages and
other assets (principally, securities that are obligations of, or guaranteed by,
the United States) provided certain standards related to creditworthiness have
been met. Advances are made pursuant to several different programs. Each credit
program has its own interest rate and range of maturities. Depending on the
program, limitations on the amount of advances are based either on a fixed
percentage of a member institution's net worth or on the FHLB's assessment of
the institution's creditworthiness. Although advances may be used on a
short-term basis for cash management needs, FHLB advances have not been, nor are
they expected to be, a significant long-term funding source for the Bank. At
December 31, 1996, the Bank had entered into repurchase agreements with the
FHLB. These agreements, which totalled $30.0 million, are scheduled to mature in
November 1997 and November 1998.
The following table sets forth certain information regarding the Bank's
borrowed funds at or for the periods ended on the dates indicated:
<TABLE>
<CAPTION>
TEN
YEAR MONTHS YEAR
NINE MONTHS ENDED ENDED ENDED ENDED
DECEMBER 31, MARCH 31, MARCH 31, MAY 31,
----------------- --------- --------- -------
1996 1995 1996 1995 1994
-------- ------- --------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FHLB advances and line of credit:
Maximum month-end balance ..... $59,600 $70,000 $99,000 $16,000 $50,000
Balance at end of period ...... 50,000 70,000 59,600 14,000 --
Average balance ............... 55,120 18,700 30,401 3,124 45,433
Weighted average interest rate on:
Balance at end of period ...... 5.55% 5.65% 5.55% 6.56% --%
Average balance for period(1) . 5.45% 3.63% 6.73% 5.78% 3.33%
</TABLE>
- ----------
(1) Computed on the basis of month-end balances.
97
<PAGE>
SUBSIDIARY ACTIVITIES
As of December 31, 1996, the Bank had one subsidiary, Bayonne Service
Corporation ("BSC"). BSC is currently engaged in the sale of non-deposit
investment products primarily to the Bank's customers and members of the local
community. As of December 31, 1996, BSC had $140,000 in assets, and for the nine
months ended December 31, 1996, had $127,000 of income attributable to the sale
of such annuity products.
PROPERTIES
The Bank conducts its business through its main office and three full
service branch offices, all located in Bayonne, New Jersey. The following table
sets forth certain information concerning the main office and each branch office
of the Bank at December 31, 1996. The aggregate net book value of the Bank's
premises and equipment was $5.3 million at December 31, 1996. The Bank owns all
of its properties.
NET BOOK VALUE
OF PROPERTY OR
LEASEHOLD
YEAR IMPROVEMENTS AT
LOCATION ACQUIRED DECEMBER 31, 1996
- -------------------------- ------------------- ------------------------
EXECUTIVE/MAIN OFFICE:
568 Broadway 1945 $ 623,000
Bayonne, New Jersey 07002
BRANCH OFFICES:
171 Broadway
Bayonne, New Jersey 07002 1987 1,212,200
441-447 Broadway(1)
Bayonne, New Jersey 07002 1973/1994 1,241,100
949 Broadway
Bayonne, New Jersey 07002 1990 1,305,800
- ----------
(1) Includes Financial Center building acquired in 1994 with a net book value
of $711,700 at December 31, 1996.
In addition to the properties described above and the Bank's REO, the Bank
owns a 12-lot parcel of undeveloped land in Bayonne. The property was acquired
in 1987 for possible construction of executive offices. As of December 31, 1996,
the property was carried at $611,000.
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
routine legal proceedings, in the aggregate, are believed by management to be
immaterial to the Company's financial condition or results of operations.
98
<PAGE>
PERSONNEL
As of December 31, 1996, the Bank had 82 full-time employees and 54
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 - Benefit Plans" for a description of certain
compensation and benefit programs offered to the Bank's employees.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
General. The Bank and the Holding Company 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 Holding Company. The Bank was last audited by the IRS in 1991
and has not been audited by the New Jersey Division of Taxation ("DOT") in the
past five years.
Bad Debt Reserve. Historically, savings institutions such as the Bank
which met certain definitional tests primarily related to their assets and the
nature of their business ("qualifying thrifts") were permitted to establish a
reserve for bad debts and to make annual additions thereto, which may have been
deducted in arriving at their taxable income. The Bank's deductions with respect
to "qualifying real property loans," which are generally loans secured by
certain interest in real property, were computed using an amount based on the
Bank's actual loss experience.
In August, 1996, the provisions repealing the current thrift bad debt
rules were passed by Congress as part of "The Small Business Job Protection Act
of 1996." The new rules eliminate the 8% of taxable income method for deducting
additions to the tax bad debt reserves for all thrifts for tax years beginning
after December 31, 1995. These rules also require that all thrift institutions
recapture all or a portion of their bad debt reserves added since the base year
(last taxable year beginning before January 1, 1988). The Bank has previously
recorded a deferred tax liability equal to the bad debt recapture and as such,
the new rules will have no effect on net income or federal income tax expense.
For the tax years beginning after December 31, 1995, the Bank is not
permitted to maintain a tax reserve for bad debts. As of December 31, 1996, the
Bank had an excess amount subject to recapture equal to $2.6 million. The new
rules allow an institution to suspend the bad debt reserve recapture for the
1996 and 1997 tax years if the institution's lending activity for those years is
equal to or greater than the institution's average mortgage lending activity for
the six taxable years preceding 1996. For this purpose, only home purchase and
home improvement loans are included and the institution can elect to have the
tax years with the highest and lowest lending activity removed from the average
calculation. If an institution is permitted to postpone the reserve recapture,
it must begin its six year recapture no later than the 1998 tax year. The
unrecaptured base year reserves will not be subject to recapture as long as the
institution continues to carry on the business of banking. In addition, the
balance of the pre-1988 bad debt reserves continue to be subject to provisions
of present law referred to below that require recapture in the case of certain
excess distributions to shareholders.
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
99
<PAGE>
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 34% 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
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 was imposed
on corporations, including the Bank, whether or not an Alternative Minimum Tax
("AMT") was paid. The Bank does not expect to be subject to the AMT.
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,
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
State of New Jersey. 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 the
addition of net interest income on state and municipal obligations). The Bank is
not currently under audit with respect to its New Jersey income tax returns.
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.
100
<PAGE>
Delaware Taxation. As a Delaware holding company not earning income in
Delaware, the Company is exempt 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 Department, as its chartering agency, the OTS, as its federal banking
regulator, and the FDIC, as the deposit insurer. The Bank is a member of the
FHLB System. The Bank's deposit accounts are insured up to applicable limits by
the SAIF managed by the FDIC. The Bank must file reports with the Commissioner
of the Department (the "Commissioner"), 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 Department, 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 Department, the OTS, the FDIC or the
Congress, could have a material adverse impact on the Company, the Bank and
their operations. The Company, as a savings and loan holding company, will also
be required to file certain reports with, and 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 Department, the OTS, the FDIC or the Congress, could
have a material impact on the Company, the Bank, their operations or the
Conversion and Reorganization. Congress currently has under consideration
various proposals to eliminate the federal thrift charter and abolish the OTS.
The outcome of such legislation 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 and the Company and is qualified in
its entirety by reference to such statutes and regulations.
FEDERAL REGULATION OF SAVINGS INSTITUTIONS
Business Activities. The activities of 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 savings associations may engage.
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, 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
101
<PAGE>
December 31, 1996, the Bank's general limit on loans-to-one borrower was $5.0
million. At December 31, 1996, the Bank's largest aggregate amount of
loans-to-one borrower consisted of $1.6 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 nine 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,
1996, the Bank maintained 88.4% of its portfolio assets in qualified thrift
investments and, therefore, met the QTL test. Recent legislation has expanded
the extent to which education loans, credit card loans and small business loans
may be considered as "qualified thrift investments."
Limitation on Capital Distributions. OTS regulations impose limitations
upon all capital distributions by a savings institution, 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 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 average liquidity
ratio for December 31, 1996 was 38.0%, which exceeded the applicable
requirements. The Bank has never been subject to monetary penalties for failure
to meet its liquidity requirements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
Assessments. Savings institutions are required by regulation to pay
assessments to the FDIC, the OTS and the New Jersey Department of Banking to
fund the various agency's operations. The assessments paid by the Bank to these
agencies for the nine months ended December 31, 1996 and the year ended March
31, 1996 totalled $763,000 and $1.0 million, respectively.
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 any non-savings institution subsidiaries that the Company may establish) is
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limited by Sections 23A and 23B of the Federal Reserve Act ("FRA"). Section 23A
restricts 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.
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 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 and state 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 have adopted final regulations and Interagency
Guidelines Establishing 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; asset quality; earnings; and compensation, fees and
benefits. 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
regulations establish deadlines for the submission and review of such safety and
soundness compliance plans.
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 mortgage servicing rights ("MSRs") and credit card relationships.
The OTS regulations 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."
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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 associations 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 association'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 association's assets, as
calculated in accordance with guidelines set forth by the OTS. A savings
association 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 association's assets. That
dollar amount is deducted from an association'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 association 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 association's interest rate risk component on a
case-by-case basis. The OTS has postponed the date that the component will first
be deducted from an institution's total capital to provide it with an
opportunity to review the interest rate risk approaches taken by the other
federal banking agencies.
At December 31, 1996, 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, 1996, 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 3.0% 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 2.0% is deemed to be "critically
undercapitalized." Subject to a narrow exception, the
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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 association 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. 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 the nine months ended December 31, 1996, the year ended
March 31, 1996, the ten months ended March 31, 1995 and the year ended May 31,
1994 was .23% of assessable deposits. The Bank's assessment rate for the year
ended March 31, 1997 is .0648% of assessable deposits.
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.
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, 1996 of $7.5
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. At December 31, 1996, the Bank had $80.0 million in
FHLB advances and repurchase agreements.
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 nine months ended December 31, 1996 and for
the year ended March 31, 1996, the ten months ended March 31, 1995 and the year
ended May 31, 1994, dividends from
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the FHLB to the Bank amounted to approximately $361,000, $186,000, $138,000 and
$327,000, respectively. If dividends were reduced, the Bank's net interest
income would likely also be reduced. Further, there can be no assurance that the
impact of recent or future 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 noninterest-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 $49.3 million or less
(subject to adjustment by the Federal Reserve Board) the reserve requirement is
3%; and for accounts greater than $49.3 million, the reserve requirement is
$1.479 million (subject to adjustment by the Federal Reserve Board between 8%
and 14%) against that portion of total transaction accounts in excess of $49.3
million. The first $4.4 million of otherwise reservable balances (subject to
adjustment 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
noninterest-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.
NEW JERSEY LAW
The Commissioner regulates, among other things, the Bank's internal
business procedures as well as its deposits, lending and investment activities.
The Commissioner must approve changes to the Bank's Certificate of
Incorporation, establishment or relocation of branch offices, mergers and the
issuance of additional stock. In addition, the Commissioner conducts periodic
examinations of the Bank. Certain of the areas regulated by the Commissioner are
not subject to similar regulation by the FDIC.
Recent federal and state legislative developments have reduced
distinctions between commercial banks and SAIF-insured savings institutions in
New Jersey with respect to lending and investment authority, as well as interest
rate limitations. As federal law has expanded the authority of federally
chartered savings institutions to engage in activities previously reserved for
commercial banks, New Jersey legislation and regulations ("parity legislation")
have given New Jersey chartered savings institutions, such as the Bank, the
powers of federally chartered savings institutions.
New Jersey law provides that, upon satisfaction of certain triggering
conditions, as determined by the Commissioner, insured institutions or savings
and loan holding companies located in a state which has reciprocal legislation
in effect on substantially the same terms and conditions as stated under New
Jersey law may acquire, or be acquired by, New Jersey insured institutions or
holding companies on either a regional or national basis. New Jersey law
explicitly prohibits interstate branching.
HOLDING COMPANY REGULATION
The Company 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
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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 Regulation of Savings Institutions - 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
subsidiaries primarily to activities permissible for bank holding companies
under Section 4(c)(8) of the Bank Holding Company ("BHC") Act, subject to the
prior approval of the OTS, and to other activities authorized by OTS regulation.
Recently proposed legislation would treat all savings and loan holding companies
as bank holding companies and limit the activities of such companies to those
permissible for bank 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; from acquiring or retaining, with
certain exceptions, more than 5% of a non-subsidiary holding company or savings
association. The HOLA also prohibits a savings and loan holding company from
acquiring more than 5% of a company engaged in activities other than those
authorized for savings and loan holding companies 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 of 1933, as amended ("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
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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 contains 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. Lamparello and Sisk has a term of office expiring at the
first annual meeting of stockholders, a second class, consisting of Messrs.
Patrick F.X. Nilan and Wisniewski, has a term of office expiring at the second
annual meeting of stockholders, and a third class, consisting of Messrs.
Conaghan, Michael Nilan and Whelply 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."
The following individuals are the executive officers of the Company and
hold the offices set forth below opposite their names.
NAME POSITIONS HELD WITH COMPANY
- ------------------------- --------------------------------------
Patrick F.X. Nilan Chairman of the Board
Michael Nilan President and Chief Executive Officer
Eugene V. Malinowski, CPA Vice President/Chief Financial Officer
Thomas M. Coughlin, CPA Secretary/Treasurer
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 at the discretion of the Board of Directors.
Since the formation of the Company, none of the executive officers,
directors or other personnel of the Company has received remuneration from the
Company. Information concerning the principal occupations, employment and other
information concerning the directors and officers of the Company during the past
five years is set forth under "Management of the Bank - Biographical
Information."
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MANAGEMENT OF THE BANK
DIRECTORS
The following table sets forth certain information regarding the Board of
Directors of the Bank.
<TABLE>
<CAPTION>
POSITION(S) HELD WITH THE DIRECTOR TERM
NAME AGE(1) BANK(2) SINCE(3) EXPIRES
- ---------------------- -------- -------------------------------------- --------- -------
<S> <C> <C> <C> <C>
Patrick F.X. Nilan(4) 66 President, Chief Executive Officer and 1963 1998
Chairman
Patrick D. Conaghan 59 Director 1986 1999
Sam P. Lamparello 74 Director 1983 1997
James F. Sisk 58 Director 1983 1997
Frederick G. Whelply 75 Director 1973 1999
Joseph L. Wisniewski 65 Director 1967 1998
Michael Nilan(4) 32 Vice President/Chief Operating Officer 1997 1999
and Director
</TABLE>
- ----------
(1) As of December 31, 1996.
(2) All directors of the Bank are also directors of the Company.
(3) Reflects initial appointment to the Board of Directors of the Bank's
mutual predecessor.
(4) Mr. Patrick F.X. Nilan has announced his retirement as Chief Executive
Officer and President of the Bank, effective June 30, 1997. He will remain
as Chairman of the Board of Directors of the Bank. Mr. Michael Nilan has
been elected to succeed Patrick F.X. Nilan as Chief Executive Officer and
President of the Bank effective June 30, 1997.
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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.
NAME AGE(1) POSITION(S) HELD WITH THE BANK
- -------------------- ------ --------------------------------------
Eugene V. Malinowski 57 Vice President/Chief Financial Officer
Eugene J. Harz 59 Vice President/Shareholder Relations
James E. Collins 47 Vice President/Loan Officer
Donald Mindiak 38 Controller
Thomas Coughlin 37 Corporate Secretary
- ----------
(1) As of December 31, 1996.
Each of the executive officers of the Bank will retain his office in the
Bank until their re-election at the annual meeting of the Board of Directors of
the Bank, held immediately after the first annual meeting of stockholders
subsequent to the Conversion, and until their successors are elected and
qualified or until they are removed or replaced. Officers are subject to
re-election by the Board of Directors annually.
BIOGRAPHICAL INFORMATION
DIRECTORS
Patrick F.X. Nilan has been employed by the Bank in various capacities
since 1954. Mr. Nilan was elected to the Board of Directors in 1963, and was
elected Chairman of the Board in 1991. Patrick F.X. Nilan is the father of
Michael Nilan. Mr. Nilan plans to retire from active service as President and
Chief Executive Officer of the Bank at June 30, 1997, having completed 43 years
of service for the Bank. Mr. Nilan will remain as Chairman of the Board of
Directors of the Company and the Bank.
Patrick D. Conaghan is a partner in the law firm of Conaghan & Conaghan in
Bayonne.
Sam P. Lamparello was elected to the Board of Directors in 1983. Mr.
Lamparello is the President and founder of Beacon Oil Company located in
Bayonne.
James F. Sisk was the Chief of Police of the City of Bayonne until 1996.
He is now the Public Safety Director of the City of Bayonne. Mr. Sisk was
elected to the Board of Directors in 1983.
Frederick G. Whelply was elected to the Board of Directors in 1973. Mr.
Whelply is retired. Prior to his retirement, he was Executive Vice President of
Bayonne Hospital.
Joseph L. Wisniewski was employed by the Bank in various capacities from
1956 until his retirement from his position as Senior Vice President in August,
1996. He remains a director of the Bank.
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Michael Nilan has been Chief Operating Officer of the Bank since 1996.
Prior thereto, Mr. Nilan served as Vice President of Operations from 1995 to
1996 and Assistant Vice President from July 1993 until 1995. Effective July 1,
1997, Mr. Nilan will become President and Chief Executive Officer of the Bank
upon the retirement of Patrick F.X. Nilan from those positions. Mr. Nilan is the
head of the Bayonne Service Corporation annuity program and is a member of the
Budget Committee and Asset and Liability Committee. Mr. Nilan has been employed
by the Bank since 1986. He was appointed to the Board in February 1997. Michael
Nilan is the son of Patrick F.X. Nilan.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Eugene V. Malinowski is a Certified Public Accountant and has been
employed as Vice President and Chief Financial Officer since November 1996.
Prior thereto, Mr. Malinowski was Executive Vice President and Chief Financial
Officer of a $2.5 billion commercial bank and was a partner for fifteen years
with KPMG Peat Marwick LLP. Mr. Malinowski is a member of the Investment, Budget
and Asset and Liability Committees.
Eugene J. Harz has been the Vice President of Marketing, Investment and
Shareholder Services since 1995. Prior thereto, Mr. Harz was the Vice President
of Operations since 1990, and was Controller from 1970 through 1990. Mr. Harz is
a member of the Budget Committee and the Asset Classification Committee. Mr.
Harz has been employed by the Bank in various capacities since 1959.
James E. Collins has been the Vice President/Loan Officer since 1990, and
was a Loan Officer from 1987 through 1990. Mr. Collins oversees all activity in
the Loan Department. In addition, Mr. Collins is the Bank's Community
Reinvestment Act officer, and is a member of the Bank's Budget Committee. Mr.
Collins has been employed by the Bank since 1972.
Donald Mindiak has been Controller since 1990. Mr. Mindiak oversees the
Bank's financial reporting and is Chairman of the Asset Classification
Committee, Secretary of the Asset Liability Committee and the Investment
Committee, and a member of the Budget Committee. Mr. Mindiak has been employed
by the Bank since 1977.
Thomas M. Coughlin is a Certified Public Accountant, and has been
Corporate Secretary since 1991. Mr. Coughlin has been employed by the Bank since
1986. Prior to his appointment as Corporate Secretary, Mr. Coughlin served as a
part-time financial consultant and internal auditor, and was a self-employed
certified public accountant.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS OF THE BANK AND COMPANY
The business of the Bank's Board of Directors is conducted through
meetings and activities of the Board and its committees. During the year ended
March 31, 1996, the Board of Directors held 26 regular meetings and nine special
meetings. During the year ended March 31, 1996, no director attended fewer than
75% of the total meetings of the Board of Directors of the Bank and committees
on which such director served.
The Audit Committee consists of Directors Sisk, Whelply, Conaghan and
Lamparello, as well as the Bank's internal auditor. The Audit Committee met 12
times during the year ended March 31, 1996. The Audit Committee reviews audit
programs and results of audits of specific areas, compliance departmental
internal controls and operating procedures.
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The Bank has no standing nominating committee. The entire Board of
Directors acts as a Nominating Committee. The Board of Directors met once in its
capacity as a nominating committee during the year ended March 31, 1996.
The Bank has no standing Compensation Committee. The entire Board of
Directors acts as the compensation committee. The Board of Directors met twice
in its capacity as a compensation committee during the year ended March 31,
1996.
DIRECTOR COMPENSATION
Nonemployee directors received $750 for each Board of Directors meeting
attended, plus a $6,000 retainer each quarter. Nonemployee directors serving on
the Asset/Liability Committee and the Audit Committee are paid $250 for each
meeting attended. Nonemployee directors of the Security and Investment Committee
receive $500 monthly. During the nine months ended December 31, 1996, each
director received additional compensation of $22,500. In 1987, the Bank entered
into an annuity compensation agreement with each of the Bank's current
directors, pursuant to which the Bank currently pays each director an annual
benefit of $16,000. The payments will continue to be made over the lifetime of
each directors with no fewer than 120 payments to be made to each director or
his beneficiary, and are in addition to other fees received by directors.
1995 Stock Option Plan. During the fiscal year ending March 31, 1996, the
stockholders of the Bank approved the First Savings Bank of New Jersey, S.L.A.
and Bayonne Bankshares, M.H.C. 1995 Stock Option Plan ("1995 Stock Option Plan")
which authorizes the grant of stock options and limited rights equal to 135,802
shares of Common Stock. Pursuant to the Stock Option Plan, nonemployee directors
Conaghan, Lamparello, Sisk and Whelply have each been granted options to
purchase 6,790 shares of Common Stock at an exercise price of $13.00 per share.
All options granted under the Stock Option Plan are exercisable in five equal
installments of 20% commencing on August 9, 1996.
1995 Recognition and Retention Plan. During the fiscal year ending March
31, 1996, the Bank's stockholders approved the First Savings Bank of New Jersey,
S.L.A. and Bayonne Bankshares, M.H.C. 1995 Recognition and Retention Plan ("1995
Recognition Plan") which authorized the issuance of 54,321 shares of Common
Stock. Under the Recognition Plan, nonemployee directors Conaghan, Lamparello,
Sisk and Whelply each have been awarded 2,716 shares of Common Stock, subject to
restrictions set forth in the Recognition Plan ("Restricted Stock"). The
Restricted Stock vests in five equal annual installments of 20% commencing on
July 28, 1996.
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EXECUTIVE COMPENSATION
Cash Compensation. The following table sets forth certain information as
to the total remuneration paid by the Bank to executive officers who received
salary and bonuses in excess of $100,000 during the fiscal year ended March 31,
1996 ("Named Executive Officers"). In addition, the table sets forth information
regarding total remuneration for the ten months ended March 31, 1995 and the
fiscal year ended May 31, 1994.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION(1) AWARDS PAYOUTS
----------------------------------- -------------------------- ------- (i)
OTHER SECURITIES
FISCAL ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL YEARS COMPENSATION STOCK AWARDS OPTIONS/SARS PAYOUTS COMPENSATION
POSITIONS ENDED SALARY($)(1) BONUS($) ($) ($)(2) (#)(3) ($) ($)(5)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Patrick F.X. Nilan(6) March 31, 1996 $432,597 $75,000 $ -- $176,540 33,950 -- $38,203
Chairman, President and March 31, 1995(4) 341,667 75,000 -- -- -- -- 16,000
Chief Executive Officer May 31, 1994 385,000 75,000 -- -- -- -- 16,000
Joseph L. Wisniewski(7) March 31, 1996 $266,178 $45,000 $-- $ 70,616 13,580 -- $38,203
Senior Vice President, March 31, 1995(4) 210,000 45,000 -- -- -- -- 16,000
Senior Loan Officer May 31, 1994 236,500 45,000 -- -- -- -- 16,000
Eugene J. Harz March 31, 1996 $120,356 $ 5,000 $-- $ 37,076 3,449 -- $20,226
Vice President March 31, 1995(4) 100,000 10,000 -- -- -- -- --
May 31, 1994 115,000 10,000 -- -- -- -- --
</TABLE>
- ----------
(1) Includes compensation deferred at the election of the officer pursuant to
the Bank's Financial Institution's Thrift Plan (the "401(k) Plan").
(2) Represents awards granted pursuant to the Recognition Plan. The awards
were granted on July 28, 1995, and had a fair market value of $13.00,
based upon the closing price, per share on the date of grant. The value of
such shares was determined by multiplying the number of shares awarded by
the fair market value of the shares on the date of award. Such awards vest
in equal installments at a rate of 20% per year beginning one year
following the date of grant, unless otherwise determined by the Board.
Awards will be 100% vested upon termination of employment due to death,
disability or following a change in control. Pursuant to these Plans,
Messrs. Nilan, Wisniewski and Harz were awarded 13,580, 5,432 and 2,852
restricted shares, respectively, all of which were unvested as of March
31, 1996. At March 31, 1996, based upon the closing price of the Bank's
Common Stock, such awards had market values of $179,935, $71,974 and
$37,789, respectively.
(3) Includes options awarded pursuant to the Stock Option Plan. The options
vest in five equal annual installments commencing on August 9, 1996, and
the exercise price of such options is $13.00.
(4) Reflects total remuneration for the ten months ended March 31, 1995.
(5) Includes amounts received by officers Nilan and Wisniewski pursuant to the
Bank's Annuity Compensation Agreements. Includes the value of shares
awarded under the Bank's ESOP. Does not include amounts contributed by the
Bank pursuant to the Bank's noncontributory defined benefit plan (the
"Retirement Plan"), the Bank's nonqualified supplemental executive
retirement income-deferred compensation agreements ("Executive
Agreements"), automobile insurance on personal vehicles used in lieu of
Bank supplied automobiles, nor reimbursement of mileage while on company
business.
(6) Mr. Nilan will retire from the positions of President and Chief Executive
Officer of the Bank effective June 30, 1997.
(7) Mr. Wisniewski retired from his position of Senior Vice President, Senior
Loan Officer in August 1996. Mr. Wisniewski continues to serve as a member
of the board of directors of the Bank and the Company.
113
<PAGE>
EMPLOYMENT AGREEMENTS
In July 1993, the Bank entered into an employment agreement with Patrick
F.X. Nilan which agreement will expire effective June 30, 1997 upon his
resignation from the positions of Chief Executive Officer and President of the
Bank. Effective upon the Conversion, the Bank and the Company intend to enter
into employment agreements (collectively, the "Employment Agreements") with Mr.
Michael Nilan (the "Executive"). The Employment Agreements are subject to the
review and approval of the Company, the Bank and the review of the OTS and may
be amended as a result of such review. Review of the compensation arrangements
by the OTS does not indicate, and should not be construed to indicate that the
OTS has passed upon the merits thereof. 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 Mr. Michael Nilan.
The proposed Employment Agreements are expected to provide for a
three-year term for the Executive. It is expected that the Bank's Employment
Agreement 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 Company Employment Agreement 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. The base
salary which will be effective for the Employment Agreement for Mr. Michael
Nilan will be $150,000. In addition to the base salary, the proposed Employment
Agreements would provide for, among other things, participation in stock benefit
plans and other fringe benefits applicable to executive personnel. The
Employment 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
Employment Agreements.
Under the proposed Employment 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.
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<PAGE>
Payments to the Executive under the Bank's proposed Employment 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 Employment
Agreement 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 Employment 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 Employment Agreements,
based solely on cash compensation paid to Mr. Michael Nilan over the past three
fiscal years and excluding any benefits under any employee benefit plan which
may be payable, would be approximately $__________.
CHANGE IN CONTROL AGREEMENTS
In January 1995, the Bank entered into Severance Agreements (the
"Severance Agreements") with Messrs. Michael Nilan, Harz, Collins, Mindiak and
Coughlin which provide such officers with certain benefits in the event of a
change in control of the Bank or the Company. Effective upon the Conversion and
Reorganization, the Bank intends to replace the existing Severance Agreements
with new Change in Control Agreements for Messrs. _____________________ and the
Bank and the Company intend to enter into three-year Change in Control
Agreements ("CIC Agreement") with Messrs. _________ and _________. Such
agreements will have terms ranging from one to three years. 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 one to three times the officer's average annual compensation
for the five years preceding termination, depending on the term of the officer's
CIC Agreement. 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 12 to 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 officers
covered by the CIC Agreements over the past three fiscal years and excluding any
benefits under any employee benefit plan which may be payable, would be
approximately $___________.
EMPLOYEE SEVERANCE COMPENSATION PLAN
It is anticipated that the Bank's Board of Directors will, subsequent to
the Conversion and Reorganization, establish the First Savings Bank of New
Jersey, SLA 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 and Reorganization.
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
115
<PAGE>
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. 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, 1996, would be approximately $1.5 million.
BENEFIT PLANS
Insurance Plans. All full-time employees of the Bank, upon completion of
the applicable probation period, are covered as a group for comprehensive
hospitalization, including major medical, dental, long-term disability,
accidental death and dismemberment insurance and group term life insurance.
Officers of the Bank are also provided with life insurance policies which
provide such officers the option of receiving the cash value of such policies
upon retirement or, in certain instances, upon termination of employment.
Financial Institutions Thrift Plan. The Bank maintains the Financial
Institutions Thrift Plan, which is a qualified tax-exempt profit sharing plan
with a cash-or-deferred feature under Section 401(k) of the Code (the 401(k)
Plan). All employees who have completed six months of service with the Bank
during which they had at least 500 hours of service may participate in the Plan.
A participant may, with certain limitations, elect to contribute to the 401(k)
Plan, in the form of deferrals of between 1% and 15% of the total compensation
that would otherwise be payable to the employee, not to exceed $9,500 per year
(adjusted for cost of living). Employee contributions are fully-vested and
nonforfeitable at all times. The 401(k) Plan permits contribution by the Bank,
although the Bank has not made contributions in the past.
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 and Reorganization --
Limitations on Conversion Stock Purchases." As of December 31, 1996, the 401(k)
Plan had approximately $___________ in assets.
Annuity Compensation Agreements. The Annuity Compensation Agreements
provide that Mr. Patrick F.X. Nilan receives an annual payment of $16,000 over
his lifetime, with no fewer than 10 such annual payments to be made to such
person or his beneficiaries. Payments under the Annuity Compensation Agreements
commenced in December 1992.
First Savings Bank of New Jersey Pension Plan. The Bank maintains a
Retirement Plan. All employees age 21 or older who have worked at the Bank for a
period of six months are eligible to accrue benefits under the Retirement Plan.
The Bank annually contributes an amount to the Retirement Plan necessary to
satisfy the actuarially determined minimum funding requirements in accordance
with the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
The Retirement Plan operates on a plan year beginning December 15 each year.
116
<PAGE>
At the normal retirement age of 65 (or the fifth anniversary of plan
participation, if later), the plan is designed to provide a life annuity
guaranteed for 10 years. The retirement benefit provided is an amount equal to
2% of a participant's average monthly salary, multiplied by the total number of
years of service from the date of employment to normal retirement date. This
amount is reduced by approximately .63% of average monthly salary up to the
covered compensation wage base (as defined in the Retirement Plan) multiplied by
the total number of years of service (up to a maximum of 35 years).
Notwithstanding the above formula, the Retirement Plan will pay a minimum
monthly benefit equal to 2% of monthly salary, times years of service up to ten
years of service. Retirement benefits are also payable upon retirement due to
early and late retirement, disability or death. A reduced benefit is payable
upon early retirement at or after age 55 and the completion of ten years of
service with the Bank. Upon termination of employment other than as specified
above, a participant is eligible to receive his vested accrued benefit as a
retirement annuity commencing on such participant's normal date. Benefits are
payable in various annuity forms with the normal form being an annuity for the
participant's life, with a minimum guarantee of payments for five years. For the
plan year ended December 14, 1996, the Bank made an estimated contribution to
the Retirement Plan of $200,000. About the time of the Conversion and
Reorganization, the Board intends to freeze the future accrual of benefits under
the Retirement Plan in connection with the adoption or amendment of another
qualified employee benefit plan.
The following table indicates the annual retirement benefit that would be
payable under the Retirement Plan upon retirement at age 65 in calendar year
1995, expressed in the form of a life annuity with a five year guaranteed
payment for the final average salary and benefit service classification
specified below. Benefits payable under the Retirement Plan are not subject to a
deduction for Social Security or other amounts.
<TABLE>
<CAPTION>
YEARS OF BENEFIT SERVICE
-----------------------------------------------------------------------
HIGH 5 YEAR
FINAL AVERAGE
EARNINGS(1) 5 10 15 20 30 35
- ------------- --------- --------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$20,000 $ 1,375 $ 2,750 $ 4,125 $ 5,500 $ 8,250 $ 9,625
$40,000 2,750 5,500 8,250 11,000 16,500 19,250
$60,000 5,156 10,312 15,468 20,624 30,936 36,092
$80,000 7,156 14,312 21,468 28,624 42,936 50,092
$100,000 9,156 18,312 27,468 36,624 54,936 64,092
$150,000 14,156 28,312 42,468 56,624 84,936 99,092
$175,000 16,656 33,312 49,468 66,624 99,936 116,592
$200,000 19,156 38,312 57,968 76,624 114,936 118,800(2)
$235,840 22,736 45,472 68,209 90,945 118,800(2) 118,800(2)
and above
</TABLE>
- ----------
(1) High five-year average monthly earnings means the average of a
participant's monthly earnings in the five consecutive years yielding the
highest such average while a participant in the Retirement Plan. For
participants with less than five years of service, it is the average of
monthly earnings for all complete calendar years of participation.
(2) The maximum benefit that can be funded under Section 415(b)(1)(A) of the
Code for 1996 is $125,000.
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<PAGE>
As of December 14, 1996, officers Nilan, Wisniewski and Harz had 37, 36
and 30 years of credit service, respectively, and accrued benefits under the
Retirement Plan equal to annual retirement benefits of $149,433, $117,084 and
$83,088, respectively. Mr. Wisniewski retired in August 1996, and receives
$9,757 per month under the Retirement Plan. Mr. Patrick F.X. Nilan will retire
from the Bank effective June 30, 1997 and will receive $12,453 per month under
the Retirement Plan.
Supplemental Executive Retirement Income-Deferred Compensation Agreements.
The Bank maintains Executive Agreements for certain executives of the Bank and
their beneficiaries whose benefit from the tax-qualified defined benefit plan
maintained by the Bank are reduced by reason of (i) the annual limitation on
benefits and contributions imposed by Section 415 of the Code and (ii) the
limitation imposed by Section 401(a)(17) of the Code with respect to
compensation that can be taken into consideration in the determination of
benefits ($150,000 for 1995). As of December 14, 1996, there were two executive
employees (Messrs. Patrick F.X. Nilan and Harz) participating in the Executive
Agreements. If a covered executive dies while employed by the Bank but before
his normal retirement date, the executive's designated beneficiary will receive
a payment equal to 100 times the monthly benefit that would have been available
to the executive. The Executive Agreements are considered unfunded plans for tax
and ERISA purposes. All obligations arising under the Executive Agreements are
payable from the general assets of the Bank, however, the Bank has purchased
life insurance polices on the lives of the covered executives to provide the
assets to meet its obligations under the Executive Agreements.
The benefits paid under the Executive Agreements supplement the benefits
paid by the Retirement Plan. The following table indicates the expected
aggregate annual retirement benefit payable from the Retirement Plan and
Executive Agreements to participants in the Executive Agreements. Benefits under
the Executive Agreements are payable for the life of the participant or 120
months, whichever is longer.
<TABLE>
<CAPTION>
YEARS OF BENEFIT SERVICE AT RETIREMENT
HIGH FIVE-YEAR
AVERAGE
EARNINGS(1) 25 30 35
- ------------------ ---------------- ---------------- ----------------
<S> <C> <C> <C>
$ 60,000 $ 25,780 $ 30,936 $ 36,092
80,000 35,780 42,936 50,092
100,000 45,780 54,936 64,092
150,000 70,780 84,936 99,092
175,000 83,280 99,936 116,592
200,000 95,780 114,936 134,092
250,000 120,781 144,938 169,094
300,000 145,781 174,938 204,094
350,000 170,781 204,938 239,094
400,000 195,781 234,938 274,094
450,000 220,781 264,938 309,094
</TABLE>
- ----------
(1) The two persons, officers Nilan and Harz, who are eligible to participate
in the Executive Agreements have 36 and 29 years of credited service under
the Executive Agreements, respectively. Mr. Wisniewski had 35 years of
credited service at the time of his retirement in August 1996. Upon Mr.
Patrick F.X. Nilan's retirement from the Bank on June 30, 1997, he will
have 37 years of credited service.
As of March 31, 1996, the combined accrued benefit of officer Nilan under
the Retirement Plan and Executive Agreements was $315,600. As of March 31, 1996,
Mr. Harz' combined benefit under the
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<PAGE>
Retirement Plan and Executive Agreement does not exceed the benefit provided
under the Retirement Plan because Mr. Harz' compensation and accrued benefits do
not exceed the amounts permitted by the applicable Code sections to be taken
into consideration under the Retirement Plan.
1995 Stock Option Plan. During the fiscal year ended March 31, 1996, the
Bank adopted the 1995 Stock Option Plan. The 1995 Stock Option Plan was approved
at the 1995 Annual Meeting by a majority of stockholders, excluding the Holding
Company, present at such meeting in person or by proxy. The 1995 Stock Option
Plan authorizes the grant of stock options and limited rights equal to 10%, or
135,802 shares, of the Common Stock sold in the Offering. Of this amount, 17,160
options were awarded to nonemployee directors, 85,556 were awarded to employees
and 23,086 were reserved for future issuance under the plan.
Set forth below is information relating to options granted to Named
Executive Officers under the 1995 Stock Option Plan during the fiscal year ended
March 31, 1996.
<TABLE>
<CAPTION>
============================================================================================================
OPTION GRANTS IN LAST FISCAL YEAR
- ------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------------------------------------
PERCENT OF TOTAL
OPTIONS GRANTED TO EXERCISE OR BASE
NAME OPTIONS GRANTED(1) EMPLOYEES IN FY 1995 PRICE EXPIRATION DATE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Patrick F.X. Nilan(2) 33,950 30.1% $13.00 7/25/05
- ------------------------------------------------------------------------------------------------------------
Joseph L. Wisniewski(3) 13,580 12.0% $13.00 8/09/97
- ------------------------------------------------------------------------------------------------------------
Eugene J. Harz 3,449 3.1% $13.00 7/25/05
============================================================================================================
</TABLE>
- ----------
(1) These options become exercisable in five equal installments commencing
August 9, 1996.
(2) Will retire effective June 30, 1997.
(3) Retired effective August 1996.
Set forth below is certain information concerning exercised and
unexercisable options during the fiscal year ended March 31, 1996, for Named
Executive Officers.
<TABLE>
<CAPTION>
==================================================================================================================
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
- ------------------------------------------------------------------------------------------------------------------
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-
SHARES ACQUIRED VALUE OPTIONS AT FISCAL YEAR- THE-MONTH OPTIONS AT
NAME UPON EXERCISE REALIZED END FISCAL YEAR-END(1)
----------------------------------------------------------
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Patrick F.X. Nilan -- -- 0/33,950 0/$76,388
- ------------------------------------------------------------------------------------------------------------------
Joseph L. Wisniewski -- -- 5,888/0 $13,248/0
- ------------------------------------------------------------------------------------------------------------------
Eugene J. Harz -- -- 0/3,449 0/$7,760
==================================================================================================================
</TABLE>
- ----------
(1) Equals the difference between the aggregate exercise price of such options
and the aggregate fair market value of the shares of Common Stock that
would be received upon exercise, assuming such exercise occurred on March
31, 1996, at which date the last sale of the Common Stock as quoted on the
Nasdaq National Market was at $15.25.
1995 Recognition and Retention Plan. In 1995, the 1995 Recognition Plan
was implemented by the Bank and the Company as a means of providing officers and
outside directors, respectively, of the Bank and the Company with a proprietary
interest in the Bank in a manner designed to encourage such
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<PAGE>
persons to remain with the Bank and the Company. In July 1995, the 1995
Recognition Plan acquired 54,321 shares of Bank Common Stock from authorized but
unissued shares.
A Committee of the Board of Directors of the Bank and the Company
comprised of nonemployee directors administers the Recognition Plan, and makes
awards to executive officers pursuant to the Plan. Awards under the Recognition
Plan become immediately vested in the event of death, disability, retirement or
a change in control of the Bank or its successors; provided, however, in the
event of retirement, if the participant continues to perform services as a
Director or consultant on behalf of the Bank, the Company, or an affiliate or,
in the case of a retiring Director, as a consulting director, unvested awards
continue to vest in accordance with their original vesting schedule until the
recipient ceases to perform such services at which time any unvested awards
would lapse.
Officers, directors and employees of the Bank were awarded a total of
44,821 shares of Bank Common Stock during the fiscal year ended March 31, 1996.
Of the total 54,321 shares of Bank Common Stock acquired by the 1995 Recognition
Plan, 9,500 shares are presently unallocated. At the completion of the
Conversion and Reorganization, the unallocated shares will be converted into
shares of Company Common Stock in accordance with the applicable Exchange Ratio
and will be available for grants to participants in the 1995 Recognition Plan.
Employee Stock Ownership Plan and Trust. The Bank established an ESOP and
related trust for eligible employees in connection with the MHC Reorganization.
Employees employed with the Bank as of January 1, 1995 and employees of the
Company or the Bank employed after such date, who have been credited with at
least 1,000 hours during a 12 month period and who have attained the age of 21
will become participants.
In January 1995, the ESOP borrowed $1.1 million from an unaffiliated
lender to purchase 108,641 shares of Bank Common Stock issued in the 1995 MHC
Reorganization ("1995 ESOP Loan"). Upon consummation of the Conversion and
Reorganization, the Public Bank Shares held by the ESOP will convert into Common
Stock based upon the Exchange Ratio. See "The Conversion and Reorganization -
Effect on Existing Compensation Plans" and "Use of Proceeds."
In connection with the establishment of the ESOP, a Committee of the Board
of Directors was appointed to administer the ESOP (the "ESOP Committee"). An
unrelated corporate trustee for the ESOP was appointed prior to the MHC
Reorganization and continuing thereafter. The ESOP 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 and allocated shares for which no instructions are
given will be voted by the trustee in a manner calculated to most accurately
reflect the instructions it has received from participants regarding the
allocated stock provided that such vote is in accordance with the provisions of
ERISA.
The ESOP intends to purchase 8% of the Conversion Stock issued in the
Conversion, including shares issued to the Foundation. As part of the Conversion
and in order to fund the ESOP's purchase of the Conversion Stock to be issued in
the Conversion, the ESOP intends to borrow funds either from the Company or a
third party lender, equal to 100% of the aggregate purchase price of the
Conversion Stock. In either case, the loan will be repaid principally from the
Company's or the Bank's contribution's to the ESOP over a period of fifteen
years and the collateral for the loan will be the Common Stock purchased by the
ESOP. This loan will be in addition to the 1995 ESOP Loan, which will continue
to be repaid over its original term of five years. 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
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<PAGE>
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 expected to be the prime rate.
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 will vest in their ESOP account after five
years of credited service. Participants vest completely if their service was
terminated due to death, early retirement, permanent disability or a change in
control. 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.
Adoption of Existing Bank Plans by Company. The Company has approved
adoption of the Bank's existing 1995 Stock Option Plan and 1995 Recognition Plan
(collectively the "Plans") as plans of the Company upon consummation of the
Conversion and Reorganization and will issue Common Stock in lieu of Bank Common
Stock to such Plans pursuant to the terms of such Plans. As of the effective
date of the Conversion and Reorganization, rights outstanding under the Plans
shall be assumed by the Company and thereafter shall be rights only for shares
of Company Common Stock, with each such right being for a number of shares of
Common Stock equal to the number of shares of Bank Common Stock that were
available thereunder immediately prior to such effective date times the Exchange
Ratio, and the price of each such right shall be adjusted to reflect the
Exchange Ratio and so that the aggregate purchase price of the right is
unaffected, but with no change in other terms or conditions of such right. The
Company shall make appropriate amendments to the Plans to reflect the adoption
of the Plans by the Company without adverse effect upon the rights outstanding
thereunder.
NEW BENEFITS
The Company intends to adopt certain stock benefit plans in connection
with the Conversion and Reorganization.
Stock Option Plans. Following the Conversion and Reorganization, 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 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 and Directors' Option Plan. 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% of the shares of Conversion Stock issued in the
Conversion, including shares issued to the Foundation, or 384,200 shares (based
upon the issuance of 3,449,300 shares of Conversion Stock), for issuance under
the Option Plans or 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.
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<PAGE>
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 the
Incentive Option Plan. 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. It is anticipated that all options
granted contemporaneously with stockholder approval of the Incentive Option Plan
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 Board of Directors 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 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. However, the exercise of such options may create a preference for
purposes of the alternative minimum tax under the Code. 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, the
option holder would have to include the amount paid to him 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,
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<PAGE>
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 could 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 would be treated as a
Non-Statutory Stock Option as described above. In the event of retirement, if
the optionee continues to perform services as a director or consultant on behalf
of the Bank, the Company or an affiliate, unvested options would continue to
vest in accordance with their original vesting schedule until the optionee
ceases to serve as a consultant or director. If the Incentive Stock 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 may 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 or Master Stock-Based Benefit 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 or Master Stock-Based Benefit 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. Subject to any applicable regulatory
requirements, the Incentive Option Plan and the Directors Option Plan or Master
Stock-Based Benefit Plan, and any awards made thereunder, described above may be
amended subsequent to the expiration of the one-year period following the
Conversion and Reorganization to provide for accelerated vesting of previously
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 StockBased 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 resulted 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 and Reorganization, the Bank
intends to establish 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. 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. The Company intends to present the Stock Programs or Master StockBased
Benefit Plan for stockholder approval at a meeting of stockholders, which
pursuant to applicable
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<PAGE>
OTS regulations, may be held no earlier than six months after the completion of
the Conversion and Reorganization.
The Bank expects to contribute funds to the Stock Programs or Master
Stock-Based Benefit Plan to enable the plans to acquire, in the aggregate, an
amount equal to 4% of the shares of Conversion Stock issued in the Conversion,
including shares issued to the Foundation, or 151,631 shares (based upon the
issuance of 3,449,300 shares of Conversion Stock). 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 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 the 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 Board. In establishing such goals,
the Board may utilize the annual financial results of the Bank, actual
performance of the Bank as compared to targeted goals such as the ratio of the
Bank's net worth to total assets, the Bank's return on average assets, or such
other performance standards as determined by 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 Board of Directors. 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, if the participant continues to perform services as a Director or
consultant 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.
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. Subject to any applicable
regulatory requirements, the Stock Programs and any awards thereunder may be
amended subsequent to the expiration of the one year period following the
Conversion and Reorganization to provide for accelerated vesting in the event of
a change in control of the Company or the Bank . 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.
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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. 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
and Reorganization, the interests of existing shareholders would be diluted. See
"Pro Forma Data."
TRANSACTIONS WITH CERTAIN RELATED PERSONS
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") required that all loans or extensions of credit to executive officers
and directors 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 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 have been 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 may, in the
future, determine to offer loans to executive officers and directors on terms
not available to the public, but available to other employees, in accordance
with recently modified regulations.
Prior to the enactment of FIRREA, the Bank provided loans to Directors and
executive officers at reduced rates and/or with points waived or reduced. The
only such loans to the Bank's current executive officers and directors that
exceeded $60,000 as of March 31, 1996, was a first mortgage loan to executive
officer Collins. The largest principal amount outstanding on such loan during
the year ended March 31, 1996 was $89,776, and the amount outstanding and the
interest rate on such loan on such date were $84,453 and 6.5%, respectively. All
other loans that exceeded $60,000 at any time during fiscal year 1996 to
executive officers, directors, immediate family members of executive officers
and directors, or organizations with which executive officers and directors are
affiliated, were made in the ordinary course of business, on substantially the
same terms including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons.
Director Conaghan is currently general counsel to the Bank, and acted as
general counsel during the year ended March 31, 1996 and the nine months ended
December 31, 1996. Mr. Conaghan received fees from the Bank and fees from
persons who filed loan applications with the Bank, which totalled approximately
$26,600 for the nine months ended December 31, 1996 and $70,000 during the year
ended
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<PAGE>
March 31, 1996. Director Sisk is employed, part-time, by the Bank to perform
real estate inspections, and received $20,000 in compensation for such services
during the fiscal year ended March 31, 1996.
BENEFICIAL OWNERSHIP OF CAPITAL STOCK
BENEFICIAL OWNERSHIP OF BANK COMMON STOCK
The following table includes, as of December 31, 1996, certain information
as to the Bank Common Stock beneficially owned by (i) the only persons or
entities, including any "group" as that term issued in Section 13(d)(3) of the
Exchange Act, who or which was known to the Bank to be the beneficial owner of
more than 5% of the issued and outstanding Bank Common Stock, (ii) the directors
of the Bank, (iii) certain executive officers of the Bank, and (iv) all
directors and executive officers of the Bank as a group. For information
concerning proposed subscriptions by directors and executive officers and the
anticipated ownership of Common Stock by such persons upon consummation of the
Conversion and Reorganization, see "- Proposed Subscriptions by Executive
Officers and Directors."
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL BENEFICIAL PERCENT OF
OWNER OR NUMBER OF OWNERSHIP AS OF BANK
PERSONS IN GROUP(1) DECEMBER 31, 1996(3)(4)(5) COMMON STOCK
- ------------------------------------ -------------------------- ------------
<S> <C> <C>
Bayonne Bankshares, M.H.C.(2)
568 Broadway
Bayonne, New Jersey 07002-3896 1,659,485 54.1%
Patrick F. X. Nilan 50,370 *
Patrick D. Conaghan 19,074 *
Sam P. Lamparello 34,074 *
James F. Sisk 14,374 *
Fredrick G. Whelply 24,074 *
Joseph L. Wisniewski 29,012 *
Eugene J. Harz 6,555 *
James E. Collins 6,542 *
Donald Mindiak 4,542 *
Thomas Coughlin 1,881 *
Michael Nilan 7,042 *
All Directors and Executive Officers
as a Group (12 persons) 197,540 6.3%
</TABLE>
- ----------
* Less than 1%
(1) In accordance with Rule 13d-3 under the Securities Exchange, a person is
deemed to be the beneficial owner for purposes of this table, of any
shares of Common Stock if he has shared voting or investment power with
respect to such security, or has a right to acquire beneficial ownership
at any time within 60 days from the date as to which beneficial ownership
is being determined. As used herein, "voting power" is the power to vote
or direct the voting of shares and "investment power" is the power to
dispose or direct the disposition of shares. Includes all shares held
directly as well as by spouses and minor children, in trust and other
indirect ownership, over which shares the named individuals effectively
exercise sole or shared voting and investment power.
(2) The Bank's executive officers and directors are also executive officers
and directors of Bayonne Bankshares, M.H.C.
(3) Based upon filings made pursuant to the Exchange Act and information
furnished by the respective individuals. Under regulations promulgated
pursuant to the Exchange Act, shares of Bank Common Stock are deemed to be
beneficially owned by a person if he directly or indirectly has or shares
(i) voting power, which includes the power to vote or to direct the voting
of the shares, or (ii) investment power, which includes
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<PAGE>
the power to dispose or to direct the disposition of the shares. Unless
otherwise indicated, the named beneficial owner has sole voting and
dispositive power with respect to the shares.
(4) Under applicable regulations, a person is deemed to have beneficial
ownership of any shares of Bank Common Stock which may be acquired within
60 days of December 31, 1996 pursuant to the exercise of outstanding stock
options. Shares of Bank Common Stock which are subject to stock options
are deemed to be outstanding for the purpose of computing the percentage
of outstanding Bank Common Stock owned by such person or group or group
but not deemed outstanding for the purpose of computing the percentage of
Bank Common Stock owned by any other person or group.
(5) See definition of "beneficial ownership" in the table in "Voting
Securities and Principal Holders Thereof." Includes the following amount
of unvested shares of restricted stock awarded under the 1995 Recognition
Plan which may be voted by the recipient pending vesting and distribution;
2,173 shares to each of Messrs. Conaghan, Whelply, Sisk and Lamparello;
10,864 shares to Mr. Patrick F.X. Nilan; 2,282 shares to each of Messrs.
Harz, Collins, Mindiak and Michael Nilan; and 654 shares to Mr. Coughlin.
Includes options to purchase stock pursuant to the Bank's Stock Option
Plan which were vested as of December 31, 1996 in the following amounts:
Patrick F.X. Nilan, 6,790 shares; Messrs. Conaghan, Sisk, Lamparello and
Whelply, 1,358 shares each; Mr. Wisniewski, 5,888 shares; Mr. Harz, 690
shares; Mr. Collins, 690 shares; Mr. Mindiak, 690 shares; Mr. Coughlin,
564 shares; and Michael Nilan, 690 shares.
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<PAGE>
SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth, for each of the Company's directors and
for all of the directors and executive officers as a group, (i) the number of
Exchange Shares to be held upon consummation of the Conversion and
Reorganization, based upon their beneficial ownership of the Bank Common Stock
as of December 31, 1996, (2) the proposed purchases of Conversion stock,
assuming sufficient shares are available to satisfy their subscriptions, and (3)
the total amount of Common Stock to be held upon consummation of the Conversion
and Reorganization, in each case assuming that 3,449,300 shares of Conversion
Stock are sold, which is the midpoint of the Valuation Price Range.
<TABLE>
<CAPTION>
PROPOSED PURCHASES OF TOTAL COMMON STOCK
CONVERSION STOCK(1) TO BE HELD
NUMBER OF ---------------------------- ----------------------------
EXCHANGE SHARES TO NUMBER NUMBER PERCENTAGE
BE HELD (2)(3)(4) AMOUNT OF SHARES OF SHARES OF TOTAL
----------------------- -------------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Patrick F. X. Nilan 67,624 $400,000 40,000 103,479(5) 1.55%
Patrick D. Conaghan 32,127 200,000 20,000 52,127 0.78
Sam P. Lamparello 63,132 50,000 5,000 68,132 1.02
James F. Sisk 22,412 30,000 3,000 25,412 0.38
Fredrick G. Whelply 42,462 50,000 5,000 47,462 0.71
Joseph L. Wisniewski 31,898 100,000 10,000 41,898 0.63
Eugene J. Harz 7,406 10,000 1,000 8,406 0.13
James E. Collins 7,379 25,000 2,500 9,879 0.15
Donald Mindiak 3,245 25,000 2,500 5,745 0.09
Thomas Coughlin 1,370 5,000 500 1,870 0.03
Michael Nilan 8,413 50,000 5,000 13,413 0.20
Eugene Malinowski -- 200,000 20,000 20,000 0.30
All Directors and
Executive Officers
as a Group (11 persons) 287,470 $1,145,000 114,500 397,825 6.00%
</TABLE>
- ----------
(1) Includes proposed subscriptions, if any, by associates. Does not include
subscription orders by the ESOP. Intended purchases by the ESOP are
expected to be 8% of the shares issued in the Conversion, including shares
to the Foundation.
(2) Excludes shares which may be received upon the exercise of outstanding
stock options. Based upon the Exchange Ratio of 2.067 Exchange Shares for
each Public Bank Share at the midpoint of the Valuation Price Range, the
persons named in the table would have options to purchase Common Stock as
follows: Mr. Patrick F.X. Nilan, 70,175 shares; Mr. Conaghan, 14,035
shares; Mr. Wisniewski, 12,170 shares; Mr. Lamparello, 14,035 shares; Mr.
Sisk, 14,035 shares; Mr. Whelply, 14,035 shares; Mr. Harz, 7,129 shares;
Mr. Collins, 7,129 shares; Mr. Mindiak, 7,129 shares; Mr. Michael Nilan,
7,129 shares; Mr. Coughlin, 5,823 shares; and all directors and executive
officers as a group, 172,823 shares.
(3) Includes the following amount of shares awarded under the 1995 Recognition
Plan, based upon the above Exchange Ratio, in the following amounts: Mr.
Patrick F.X. Nilan, 5,614 shares; Mr. Conaghan, 1,112 shares; Mr.
Lamparello, 1,112 shares; Mr. Sisk, 1,112 shares; Mr. Whelply, 1,112
shares; Mr. Harz, 1,178 shares; Mr. Collins, 1,178 shares; Mr. Mindiak,
1,178 shares; Mr. Michael Nilan, 1,178 shares; Mr. Coughlin, 337 shares;
and all directors and executive officers as a group, 26,381 shares.
(4) Excludes stock options and awards to be granted under the Company's 1997
Stock Option Plan and 1997 Stock Program if such plans are approved by
stockholders at an annual or special meeting of shareholders at least six
months following the Conversion and Reorganization. See "Management of the
Bank - New Benefits."
(5) Due to the purchase limitation, Mr. Nilan may only purchase 35,855 shares
at the midpoint of the Estimated Price Range.
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<PAGE>
THE CONVERSION AND REORGANIZATION
THE BOARDS OF DIRECTORS OF THE MUTUAL HOLDING COMPANY, THE BANK AND THE
COMPANY HAVE APPROVED THE PLAN OF CONVERSION, AS HAS THE OTS, SUBJECT TO
APPROVAL BY THE MEMBERS OF THE MUTUAL HOLDING COMPANY AND THE STOCKHOLDERS 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.
GENERAL
On December 19, 1996 the Boards of Directors of the Mutual Holding Company
and the Bank unanimously adopted, subject to approval by the OTS, the Plan
pursuant to which the Mutual Holding Company will convert to a stock form of
organization; the Company will offer and sell the Conversion Stock; and the
Company will issue Common Stock in exchange for the Public Bank Shares. It is
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 the Plan by the Members of
the Mutual Holding Company and the stockholders of the Bank. A special meeting
of members has been called for this purpose to be held on _____________, 1997
and a special meeting of the Public Stockholders has been called for this
purpose to be held on ______________, 1997.
The Company filed an application with the OTS to become a savings and loan
holding company and to acquire all of the Common Stock of the Bank to be issued
in the Conversion and Reorganization. The Company plans to retain 50% of the net
proceeds from the sale of the Conversion Stock, with all the remaining proceeds
contributed to the Bank. The Conversion will be effected only upon completion of
the sale of all of the shares of Conversion Stock of the Company to be issued
pursuant to the Plan.
The Plan provides generally that (i) the Mutual Holding Company will
convert to the stock form of organization and (ii) the Company will offer shares
of Conversion Stock for sale in the Subscription Offering to the Bank's Eligible
Account Holders, the ESOP, Supplemental Eligible Account Holders, and Other
Members. Concurrently, shares will be offered in a Community Offering with a
first preference given to the holders of the Public Bank Shares and a second
preference given to natural persons residing in the City of Bayonne in the State
of New Jersey. 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 in a Syndicated Community Offering. The Primary Parties have
the right to accept or reject, in whole or in part, any orders to purchase
shares of the Conversion 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 Conversion Stock to be issued in the
Conversion within the Estimated Price Range, currently estimated to be between
$29.3 million and $39.7 million, will be determined based upon an independent
appraisal, prepared by FinPro of the estimated pro forma market value of the
Conversion Stock of the Company. All shares of Conversion 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
FinPro, a consulting firm experienced in the valuation and appraisal of savings
institutions. See "- Stock Pricing and Exchange Ratio" for additional
information as to the determination of the estimated pro forma market value of
the Conversion Stock.
129
<PAGE>
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 THE CHARITABLE FOUNDATION
General. In furtherance of the Bank's long-standing commitment to its
local community, the Plan of Conversion provides for the establishment of a
charitable foundation in connection with the Conversion and Reorganization. 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 will be
funded with Common Stock of the Company, as further described below. The Primary
Parties 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 potential
growth and success of the Company over the long term.
The Foundation would be dedicated to the promotion of charitable purposes
within the City of Bayonne, New Jersey, 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. Establishment of the Foundation
is subject to the approval of a majority of the total outstanding votes of the
Mutual Holding Company's members eligible to be cast at the special meeting
being held to consider the Conversion and Reorganization. The Foundation will be
considered as a separate matter from approval of the Plan of Conversion. If the
Mutual Holding Company's members approve the Plan of Conversion, but not the
Foundation, the Primary Parties intend 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 Conversion
Stock. In such an event, the Primary Parties 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 and Exchange Ratio."
Purpose of the Foundation. The purpose of the Foundation is to provide
funding to support charitable causes within the City of Bayonne, New Jersey. The
Bank has long emphasized community lending and community development activities
and currently has a "satisfactory" Community Reinvestment Act ("CRA") rating.
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 and Reorganization. However, such activities are not
the Bank's sole corporate purpose. 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 a satisfactory record of
serving its community under the CRA and already engages in community development
activities, the Primary Parties believe 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 Primary Parties also believe 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 potential growth and success of
the Company long after completion of the Conversion and Reorganization. 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
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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.
Structure of the Foundation. The Foundation will be incorporated under
Delaware law as a non-stock corporation. Pursuant to the Foundation's bylaws,
the Foundation's board of directors will be comprised of seven members, all of
whom must be members of the boards of directors or officers of the Company or
the Bank or an affiliate or subsidiary of the Company or the Bank. It is
currently anticipated that the initial board of directors of the Foundation will
consist of the same individuals who are Directors of the Company. On an on-going
basis, 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. 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 of the
Foundation. 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. Although no formal policy governing
Foundation grants exists at this time, the Foundation's board of directors will
adopt such a policy upon establishment of the Foundation. The directors will
also be responsible for directing the assets of the Foundation. Pursuant to the
terms of the contribution as mandated by the OTS, all shares of Common Stock
held by the Foundation must be voted in the same ratio as all other shares of
the Company's Common Stock on all proposals considered by stockholders of the
Company; provided, however, that the OTS will waive this voting restriction
under certain circumstances if compliance with the restriction would: (i) cause
a violation of the law of the State of Delaware and the OTS determines that
federal law would not preempt the application of the laws of the State of
Delaware to the Foundation; (ii) would cause the Foundation to lose its
tax-exempt status or otherwise have a material and adverse tax consequence on
the Foundation; or (iii) would cause the Foundation to be subject to an excise
tax under Section 4941 of the Code. In order for the OTS to waive such voting
restriction, the Company's or the Foundation's legal counsel must render an
opinion satisfactory to OTS that compliance with the voting restriction would
have the effect described in clauses (i), (ii) or (iii) above. Under those
circumstances, the OTS will grant a waiver of the voting restriction upon
submission of such legal opinion(s) by the Company or the Foundation. In the
event that the OTS waived the voting restriction, the directors would direct the
voting of the Common Stock held by the Foundation. However, a condition to the
OTS approval of the Conversion provides that in the event such voting
restriction is waived or becomes unenforceable, the Director of the OTS or his
designees, at that time may impose conditions on the composition of the board of
directors of the Foundation or such conditions or restrictions relating to the
control of Common Stock held by the Foundation, any of which could limit the
ability of the board of directors of the Foundation to control the voting of the
Common Stock held by the Foundation. 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 stock. 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 Company will provide office space and administrative support
services to the Foundation. Initially, the Foundation is expected to have no
employees. The board of directors of the Foundation will appoint such officers
as may be necessary to manage the operations of the Foundation. It is
anticipated
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that initially such officers will be selected from the board of directors of the
Foundation. Any transaction between the Bank and the Foundation will comply with
the affiliate transaction restrictions set forth in Sections 23A and 23B of the
Federal Reserve Act and will not violate self-dealing rules of the Code.
The Company proposes to donate to the Foundation Company Common Stock in
an amount equal to 9.9% of the total amount of Conversion Stock to be sold in
connection with the Conversion and Reorganization. At the minimum, midpoint and
maximum of the Estimated Price Range, the contribution to the Foundation would
equal 290,200, 341,500 and 392,700 shares, which would have a market value of
$2.9 million, $3.4 million and $3.9 million, respectively, assuming the Purchase
Price of $10.00 per share. Such contribution, once made, will not be recoverable
by the Company or the Bank. The Primary Parties 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 three-fourths 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 Reorganization and the contribution of shares to the Foundation
immediately following the Conversion and Reorganization, the Company would have
5,690,300, 6,694,500 and 7,698,700 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 5.1%, 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
should qualify as a 501(c)(3) exempt organization under the Code, and should be
classified as a private foundation rather than a public charity. A private
foundation typically receives its support from one person or one corporation
whereas a public charity receives its support from the public. The Foundation
will submit a request to the IRS to be recognized as an exempt organization
after approval of the Foundation by the Mutual Holding Company's members at the
Special Meeting being held to consider the Conversion and Reorganization. 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. The Company's
independent
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accountants, however, have not rendered any advice on the condition of the gift
which requires that all shares of Common Stock of the Company held by the
Foundation must be voted in the same ratio as all other outstanding shares of
the Company's Common Stock, on all proposals considered by stockholders of the
Company. In the event that the Company or the Foundation receives an opinion of
their tax counsel satisfactory to the OTS that compliance with the voting
restriction would cause the Foundation to lose its tax-exempt status, otherwise
have a material adverse tax consequence on the Foundation or subject the
Foundation to an excise tax under Section 4941 of the Code, the OTS will waive
such condition upon submission of such opinion(s) by the Company or the
Foundation. See "Establishment of the Charitable Foundation - Regulatory
Conditions Imposed on the Foundation."
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.
In addition, under Delaware law, the Company is authorized by statute to make
charitable contributions and case law has recognized the benefits of such
contributions to a Delaware corporation. In this regard, Delaware case law
provides that a charitable gift must merely be within reasonable limits as to
amount and purpose to be valid. 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 Primary Parties believe that the Conversion and
Reorganization presents a unique opportunity to establish and fund a charitable
foundation given the substantial amount of additional capital being raised in
the Conversion and Reorganization. In making such a determination, the Primary
Parties considered the dilutive impact of the Foundation on the amount of Common
Stock available to be offered for sale in the Conversion and Reorganization. See
"Comparison of Valuation and Pro Forma Information with No Foundation." Based on
such consideration, the Primary Parties believe that the contribution to the
Foundation in excess of the 10% annual limitation is justified given the Bank's
capital position and its earnings, the substantial additional capital being
raised in the Conversion and Reorganization and the potential benefits of the
Foundation to the Bank's community. In this regard, assuming the sale of the
Conversion Stock at the midpoint of the Estimated Price Range, the Company would
have pro forma consolidated capital of $79.8 million, or 13.11% of consolidated
assets and the Bank's pro forma tangible, core and risk-based capital ratios
would be 11.41%, 11.41% and 32.39%, respectively. See "Regulatory Capital
Compliance," "Capitalization," and "Comparison of Valuation and Pro Forma
Information with No Foundation." Thus, the amount of the contribution will not
adversely impact the financial condition of the Company and the Bank and the
Primary Parties therefore believe that the amount of the charitable contribution
is reasonable given the Company and the Bank's pro forma capital positions. As
such, the Primary Parties believe that the contribution does not raise safety
and soundness concerns.
The Primary Parties 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 should be
entitled to a deduction in the amount of the fair market value of the stock at
the time of the contribution less the nominal par value that the Foundation is
required to pay to the Company for such stock, 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
year in which the contribution is made. Thus, while the Company expects to
receive a charitable contribution deduction of approximately $460,000 in fiscal
year 1998, the Company is permitted under the Code to carryover the excess
contribution over a five-year period for income tax purposes. Assuming the close
of the Offerings at the maximum of the Estimated Price Range, the Company
estimates that substantially all of the deduction should be deductible over the
combined six-year period. However, no assurances can be made that the Company
will have sufficient pre-tax income over the five year period to fully utilize
the carryover related to the excess contribution. Neither the Company nor the
Bank expect to make any further contributions to the Foundation within the first
five years following the initial
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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 Primary Parties have received an opinion of their independent
accountants that the Company would be 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 the 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 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.
Regulatory Conditions Imposed on the Foundation. 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 the Foundation's 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; (v) the Foundation will not engage in self-dealing and will
comply with all laws necessary to maintain its tax-exempt status; and (vi) any
shares of Common Stock of the Company held by the Foundation must be voted in
the same ratio as all other outstanding shares of Common Stock on all proposals
considered by stockholders of the Company; provided, however, that the OTS will
waive this voting restriction under certain circumstances if compliance with the
voting restriction would: (a) cause a violation of the law of the State of
Delaware and the OTS determines the federal law does not preempt the application
of the laws of the State of Delaware to the Foundation; (b) cause the Foundation
to lose its tax-exempt status or otherwise have a material and adverse tax
consequence on the Foundation; or (c) cause the Foundation to be subject to an
excise tax under Section 4941 of the Code. In order for the OTS to waive such
voting restriction, the Company's or the Foundation's legal counsel must render
an opinion satisfactory to OTS that compliance with the voting restriction would
have the effect described in clauses (a), (b) or (c) above. Under those
circumstances, the OTS will grant a waiver of the voting restriction upon
submission of such opinion(s) by the Company or the Foundation. There can be no
assurances that either a legal or tax opinion addressing these issues
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will be rendered, or if rendered, that the OTS will grant an unconditional
waiver of the voting restriction. In this regard, a condition to the OTS
approval of the Conversion provides that in the event such voting restriction is
waived or becomes unenforceable, the Director of the OTS or his designees, at
that time may impose conditions on the composition of the board of directors of
the Foundation, or such other conditions or restrictions relating to the control
of the Common Stock held by the Foundation, any of which could limit the ability
of the board of directors of the Foundation to control the voting of the Common
Stock held by the Foundation. In no event will the voting restriction survive
the sale of shares of the Common Stock held by the Foundation.
In addition, establishment of the Foundation is subject to the approval of
a majority of the total outstanding votes of the Mutual Holding Company's
members eligible to be cast at the special meeting being held to consider the
Conversion and Reorganization. The Foundation will be considered as a separate
matter from approval of the Plan of Conversion. If the Mutual Holding Company's
members approve the Plan of Conversion, but not the Foundation, the Primary
Parties intend to complete the Conversion and Reorganization without the
establishment of the Foundation. Failure to approve the Foundation may
materially increase the pro forma market value of the Conversion 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. See "Comparison of Valuation and Pro Forma Information with No
Foundation."
PURPOSES OF THE CONVERSION AND REORGANIZATION
The Mutual Holding Company, as a federally-chartered mutual holding
company, does not have stockholders and has no authority to issue capital stock.
As a result of the Conversion and Reorganization, the Mutual Holding Company
will be restructured into the form used by holding companies of commercial
banks, other business entities and a growing number of savings institutions. The
Conversion and Reorganization will enhance the ability of the Company and the
Bank to access capital markets, expand current operations, acquire other
financial institutions or branch offices, provide affordable home financing
opportunities to the communities the Bank serves or diversify into other
financial services to the extent allowable by applicable law and regulation.
The stock holding company form of organization would 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 and
Reorganization, subject to regulatory limitations and the Company's financial
position, to take advantage of any such opportunities that may arise. See "Use
of Proceeds."
While the Bank prior to the consummation of the Conversion and
Reorganization has the ability to raise additional capital through the sale of
additional shares of its common stock, that ability is limited by the mutual
holding company structure which, among other things, requires that the Mutual
Holding Company own a majority of the outstanding shares of its savings
institution subsidiary's common stock. The Conversion will significantly
increase the Bank's capital position to a level whereby the Bank will be better
positioned to take advantage of business opportunities as they arise. At
December 31, 1996, the Bank had stockholders' equity, determined in accordance
with GAAP, of $49.6 million, or 8.6% of total assets. Assuming that the Company
contributes 50% of net proceeds of the Offerings to the Bank, the Bank's GAAP
capital will increase to $67.7 million or a ratio of GAAP capital to adjusted
assets, on a pro forma basis, of 11.41% after the Conversion and Reorganization.
The investment of the net proceeds from the sale of the Conversion Stock is
expected to provide the Bank with additional income to increase further its
capital position. The additional capital may also assist the Bank in offering
new programs and expanded services to its customers. See "Use of Proceeds."
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If the Bank had undertaken a standard conversion involving the formation
of a stock holding company in 1995 when it reorganized into mutual holding
company form, applicable OTS regulations would have required a greater amount of
common stock to be sold than the $12.5 million raised in the MHC Reorganization,
and in light of then prevailing market conditions there was uncertainty as to
whether the greater amount of common stock could have been sold. A standard
conversion in 1995 also would have immediately eliminated all aspects of the
mutual form of organization. In light of current market conditions for the
stocks of savings institutions and their holding companies and the Bank's
financial condition, the Boards of Directors of the Bank and the Mutual Holding
Company believe that it is in the best interests of such companies and their
respective stockholders and members to raise additional capital at this time,
and that the most feasible way to do so is through the Conversion.
After completion of the Conversion and Reorganization, 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 under the Stock Option Plans or Master Stock-Based Benefit Plan or
the possible issuance of authorized but unissued shares to the Stock Programs
under the Stock Option Plans or Master Stock-Based Benefit Plan. Following the
Conversion and Reorganization, 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."
DESCRIPTION OF THE CONVERSION
The Boards of Directors of the Bank and the Mutual Holding Company adopted
the Plan on December 19, 1996. Thereafter, the Bank caused the Company to be
incorporated under Delaware law as a first-tier, wholly owned subsidiary of the
Bank, and the Board of Directors of the Company adopted the Plan on February 6,
1997. After receipt of all requisite regulatory approvals, the Company will form
Interim B as a first-tier, wholly owned subsidiary of the Company, and the Board
of Directors of Interim B shall adopt the Plan by at least a two-thirds vote. In
addition, the Bank and the Company shall approve the Plan in their capacities as
the sole shareholders of the Company and Interim B, respectively.
Promptly following approval of the Conversion by the OTS, the Plan will be
submitted to the members for their consideration and approval at the Special
Meeting and to the Public Stockholders for their consideration and approval at
the Stockholders' Meeting. Pursuant to OTS regulations, the Plan must be
approved by the affirmative vote of at least a majority of the total number of
votes eligible to be cast by Members at the Special Meeting and by holders of at
least two-thirds of the outstanding common stock of the Bank at the
Stockholders' Meeting.
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The following diagram outlines the current organizational structure of the
parties' ownership interests:
BAYONNE BANKSHARES, M.H.C. HOLDERS OF PUBLIC BANK SHARES
54.2% 45.8%
FIRST SAVINGS BANK OF NEW JERSEY, SLA
100%
BAYONNE BANCSHARES, INC.
100%
INTERIM (TO BE FORMED)
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The following diagram reflects the resulting structure of the parties upon
consummation of the Conversion and Reorganization, including (i) the merger of
the Mutual Holding Company (following its conversion into an interim federal
stock savings institution) with and into the Bank, (ii) the merger of Interim
with and into the Bank, pursuant to which the Public Bank Shares will be
converted into Exchange Shares, (iii) the offering of Conversion Stock, and (iv)
the issuance of shares of Common Stock to the Charitable Foundation. The diagram
assumes that there are no fractional shares and does not give effect to purchase
of Conversion Stock by holders of Public Bank Shares or the exercise of
outstanding stock options.
BAYONNE CHARITABLE HOLDERS OF
BANKSHARES, M.H.C. FOUNDATION PUBLIC BANK SHARES
51.55% 5.10% 43.35%
BAYONNE BANCSHARES, INC.
100%
FIRST SAVINGS BANK OF NEW JERSEY, SLA
EFFECTS OF THE CONVERSION AND REORGANIZATION
General. Each depositor in the Bank 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 Mutual Holding Company. 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
Mutual Holding Company 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 Mutual Holding Company, which is lost to the extent that the
balance in the account is reduced.
Consequently, the depositors of the Bank normally have no way to realize
the value of their ownership interest, which has realizable value only in the
unlikely event that the Mutual Holding Company 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.
Upon consummation of the Conversion and Reorganization, permanent
nonwithdrawable capital stock is created to represent the ownership of the net
worth of the Company. THE COMMON STOCK OF THE COMPANY IS SEPARATE AND APART FROM
DEPOSIT ACCOUNTS AND CANNOT BE AND IS NOT INSURED BY THE FDIC OR ANY OTHER
GOVERNMENTAL AGENCY. Certificates are issued to evidence ownership of the
capital
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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 Bank.
Continuity. While the Conversion and Reorganization 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 and Reorganization, 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 and
Reorganization will serve initially as Directors of the Bank after the
Conversion and Reorganization. The Directors of the Company will consist
initially of individuals currently serving on the Board of Directors of the
Mutual Holding Company. All officers of the Bank at the time of Conversion and
Reorganization will retain their positions immediately after Conversion and
Reorganization.
Effect on Public Bank Shares. Under the Plan, upon consummation of the
Conversion and Reorganization, the Public Bank Shares shall be converted into
Common Stock based upon the Exchange Ratio without any further action on the
part of the holder thereof. Upon surrender of the Public Bank Shares, Common
Stock will be issued in exchange for such shares.
Upon consummation of the Conversion and Reorganization, the Public
Stockholders of the Bank, a New Jersey chartered savings association, will
become stockholders of the Company, a Delaware corporation. For a description of
certain changes in the rights of stockholders as a result of the Conversion and
Reorganization, see "Comparison of Stockholders' Rights" below.
Under New Jersey law, Public Stockholders of the Bank will not have
dissenters' rights or appraisal rights in connection with the Conversion and
Reorganization. See "Comparison of Stockholders' Rights - Dissenters' Rights of
Appraisal."
Effect on Deposit Accounts. Under the Plan, each depositor in the Bank at
the time of Conversion and Reorganization will automatically continue as a
depositor after the Conversion and Reorganization, 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.
Effect on Loans. No loan outstanding from the Bank will be affected by the
Conversion and Reorganization, and the amount, interest rate, maturity and
security for each loan will remain as they were contractually fixed prior to the
Conversion and Reorganization.
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 Mutual
Holding Company as to all matters requiring membership action. Upon Conversion
and Reorganization, depositors and borrowers will cease to be members and will
no longer be entitled to vote at meetings of the Mutual Holding Company. Upon
Conversion and Reorganization, 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
and borrowers of the Bank will not have voting rights in the Company after the
Conversion and Reorganization except to the extent that they become stockholders
of the Company.
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Tax Effects. The Primary Parties have received an opinion from KPMG Peat
Marwick LLP with regard to federal income taxation and New Jersey taxation which
provides that the adoption and implementation of the Plan of Conversion and
Agreement and Plan of Reorganization set forth herein will not be taxable for
federal or New Jersey tax purposes to the Primary Parties or the Bank's Eligible
Account Holders, Supplemental Eligible Account Holders or Other Members, except
as discussed below. See "- Tax Aspects."
Effect on Liquidation Rights. If the Mutual Holding Company 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.
EFFECT ON EXISTING COMPENSATION PLANS
Under the Plan, the Bank's 1995 Stock Option Plan and 1995 Recognition
Plan will become stock benefit plans of the Company and the Bank's 1995 ESOP
will continue as a benefit plan of the Bank and shares of Common Stock will be
issued (or reserved for issuance) pursuant to such benefit plans. See
"Management of the Bank - Benefit Plans."
STOCK PRICING AND EXCHANGE RATIO
The Plan of Conversion requires that the Aggregate Purchase Price of the
Conversion Stock must be based on the appraised pro forma market value of the
Conversion Stock, as determined on the basis of an independent valuation. The
Primary Parties have retained FinPro to make such valuation. For its services in
making such appraisal, FinPro will receive a fee of $20,000, plus reasonable
expenses. The Primary Parties have agreed to indemnify FinPro 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 FinPro liability results from its negligence, willful
misconduct or bad faith.
An appraisal has been made by FinPro in reliance upon the information
contained in this Prospectus, including the Consolidated Financial Statements.
FinPro also considered the following factors, among others: the present and
projected operating results and financial condition of the Primary Parties and
the economic and demographic conditions in the Mutual Holding Company's and the
Bank's existing marketing area; certain historical, financial and other
information relating to the Mutual Holding Company and 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 Mutual Holding Company's and the Bank's primary market area and
northeastern United States; the aggregate size of the offering of the Conversion
Stock; the impact of Conversion and Reorganization on the Mutual Holding
Company's and the Bank's net worth and earnings potential; the proposed dividend
policy of the Company and the Bank; and the trading market for the Bank Common
Stock and securities of comparable institutions and general conditions in the
market for such securities.
On the basis of the foregoing, FinPro has advised the Primary Parties in
its opinion the estimated pro forma market value of the Bank and the Mutual
Holding Company on a combined basis was $66,950,000 as of March 3, 1997. Because
the holders of the Public Bank Shares will continue to hold
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approximately the same aggregate percentage ownership interest in the Company as
they currently hold in the Bank (before giving effect to the payment of cash in
lieu of issuing fractional Exchange Shares, and any shares of Conversion Stock
purchased by the Bank's stockholders in the Offerings or by the ESOP
thereafter), the Appraisal was multiplied by the Mutual Holding Company's
percentage interest in the Bank which corresponds with the amount of Conversion
Stock to be sold in the Offerings (i.e., 51.6%), to determine the midpoint of
the valuation ($34,493,000), and the minimum and maximum of the valuation were
set at 15% below and above the midpoint, respectively, resulting in a range of
$29,318,000 to $39,667,000. The Boards of Directors of the Primary Parties
determined that the Conversion Stock would be sold at $10.00 per share,
resulting in a range of 2,931,800 to 3,966,700 shares of Conversion Stock being
offered. Upon consummation of the Conversion and Reorganization, the Conversion
Stock and the Exchange Shares will represent approximately 51.6% and 43.3%,
respectively, of the Company's total outstanding shares and shares issued to the
Foundation will represent approximately 5.1% of the Company's total outstanding
shares. The Boards of Directors of the Primary Parties reviewed FinPro's
appraisal report, including the methodology and the assumptions used by FinPro,
and determined that the Valuation Price Range was reasonable and adequate. The
Boards of Directors of the Primary Parties also established the formula for
determining the Exchange Ratio. Based upon such formula and the Valuation Price
Range, the Exchange Ratio ranged from a minimum of 1.757 to a maximum of 2.377
Exchange Shares for each Public Bank Shares, with a midpoint of 2.067. Based
upon these Exchange Ratios, the Company expects to issue between 2,468,200 and
3,339,300 shares of Exchange Shares to the holders of Public Bank Shares
outstanding immediately prior to the consummation of the Conversion and
Reorganization. The Valuation Price Range and the Exchange Ratio may be amended
with the approval of the OTS, if required, or if necessitated by subsequent
developments in the financial condition of any of the Primary Parties or market
conditions generally. In the event the Appraisal is updated to below $29,318,000
or above $39,667,000 (the maximum of the Valuation Price Range, as adjusted by
15%), such Appraisal will be filed with the SEC by post-effective amendment.
Based upon current market and financial conditions and recent practices
and policies of the OTS, in the event the Company receives orders for Conversion
Stock in excess of $39,667,000 (the maximum of the Valuation Price Range) and up
to $45,617,000 (the maximum of the Valuation Price Range, as adjusted by 15%),
the Company may be required by the OTS to accept all such orders. No assurances,
however, can be made that the Company will receive orders for Conversion Stock
in excess of the maximum of the Valuation Price Range or that, if such orders
are received, that all such orders will be accepted because the Company's final
valuation and number of shares to be issued are subject to the receipt of an
updated appraisal from FinPro which reflects such an increase in the valuation
and the approval of such increase by the OTS. There is no obligation or
understanding on the part of management to take and/or pay for any shares of
Conversion Stock in order to complete the Offerings.
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The following table sets forth, based upon the minimum, midpoint, maximum
and 15% above the maximum of the Valuation Price Range, the following: (i) the
total number of shares of Conversion Stock, Exchange Shares and the shares
issued to the Foundation to be issued in the Conversion and Reorganization; (ii)
the percentage of the total Common Stock represented by the Conversion Stock,
the Exchange Shares and the shares issued to the Foundation; and (iii) the
Exchange Ratio. The table assumes that there is no cash paid in lieu of issuing
fractional Exchange Shares.
<TABLE>
<CAPTION>
CONVERSION STOCK TO BE EXCHANGE SHARES TO BE SHARES TO BE ISSUED
ISSUED ISSUED TO THE FOUNDATION TOTAL SHARES OF
---------------------- --------------------- -------------------- COMMON STOCK TO EXCHANGE
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT BE OUTSTANDING RATIO
--------- ---------- -------- --------- --------- -------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Minimum............. 2,931,800 51.5% 2,468,200 43.4% 290,200 5.1% 5,690,000 1.757
Midpoint............ 3,449,300 51.5 2,903,400 43.4 341,500 5.1 6,694,200 2.067
Maximum............. 3,966,700 51.5 3,338,800 43.4 392,700 5.1 7,698,200 2.377
15% above maximum... 4,561,700 51.5 3,840,300 43.4 451,600 5.1 8,853,600 2.734
</TABLE>
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.
FINPRO DID NOT INDEPENDENTLY VERIFY THE CONSOLIDATED FINANCIAL STATEMENTS AND
OTHER INFORMATION PROVIDED BY THE BANK AND THE MUTUAL HOLDING COMPANY, NOR DID
FINPRO VALUE INDEPENDENTLY THE ASSETS OR LIABILITIES OF THE BANK AND THE MUTUAL
HOLDING COMPANY. THE VALUATION CONSIDERS THE BANK AND THE MUTUAL HOLDING COMPANY
AS GOING CONCERNS AND SHOULD NOT BE CONSIDERED AS AN INDICATION OF THE
LIQUIDATION VALUE OF THE BANK AND THE MUTUAL HOLDING COMPANY. 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 CONVERSION STOCK OR RECEIVING EXCHANGE
STOCK IN THE CONVERSION AND REORGANIZATION 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 "MARKET FOR THE 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 Conversion Stock to be issued in the Conversion may be increased to
4,561,700 shares due to regulatory considerations, changes in the market and
general financial and economic conditions, without the resolicitation of
subscribers. See "- Limitations on Conversion 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 Conversion Stock may be consummated unless, prior to
such consummation, FinPro confirms to the Primary Parties and the OTS that, to
the best of its knowledge, nothing of a material nature has occurred which,
taking into account all relevant factors, would cause FinPro to conclude that
the value of the Conversion Stock at the price so determined is incompatible
with its estimate of the pro forma market value of the Conversion Stock at the
conclusion of the Subscription and Community Offerings.
If the pro forma market value of the Conversion 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
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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 ____________________, 1999.
If all shares of Conversion Stock are not sold through the Subscription
and Community Offerings, then the Bank and the Company expect to 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 Offerings subject to prior
rights of subscribers. All shares of Conversion 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 Conversion Stock may be consummated unless, prior to
such consummation, FinPro 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
FinPro to conclude that the aggregate value of the Conversion 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 Primary Parties 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 ____________, 1999. 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 FinPro 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."
INTERPRETATION, AMENDMENT AND TERMINATION
All interpretations of the Plan by the Boards of Directors of the Primary
Parties will be final, subject to the authority of the OTS, including but not
limited to interpretations relating to residence requirements applicable to
subscribers and purchase limitations. The Plan provides that, if deemed
necessary or desirable by the Boards of Directors of the Primary Parties, the
Plan may be substantively amended prior to the solicitation of proxies from
members entitled to vote on the Plan by a two-thirds vote of the Boards of
Directors; amendment of the Plan thereafter requires the approval of the OTS.
The
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Plan will terminate if the sale of all shares of stock being offered pursuant to
the Plan is not completed prior to 24 months after the date of the Special
Meeting. The Plan may be terminated by a two-thirds vote of the Boards of
Directors of the Primary Parties at any time prior to the Special Meeting, and
thereafter by such a vote with the approval of the OTS.
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 of
Conversion Stock to be issued in the Conversion and Reorganization may be
increased or decreased without a resolicitation of subscribers, provided that
the product of the total number of shares times the price per share is not below
the minimum of the Estimated Price Range or more than 15% above the maximum of
the Estimated Price Range. Based on a fixed purchase price of $10.00 per share
and the FinPro estimate of the pro forma market value of the Conversion Stock
ranging from a minimum of $29,318,000 to a maximum, as increased by 15%, of
$45,617,000 the number of shares of Conversion Stock expected to be issued is
between a minimum of 2,931,800 shares and a maximum, as adjusted by 15%, of
4,561,700 shares. The actual number of shares issued between this range will
depend on a number of factors and shall be determined by the Primary Parties
subject to OTS approval, if necessary.
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 the Estimated Price Range and,
if the Plan is not terminated by the Primary Parties 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 Conversion Stock Purchases." Any increase or
decrease in the number of shares of Common Stock will result in a corresponding
change in the number of Exchange Shares, so that upon consummation of the
Conversion and Reorganization, the Conversion Stock and the Exchange Shares will
represent approximately 54.2% and 45.8%, respectively, of the Company's total
outstanding shares of Common Stock, prior to giving effect to the dilutive
effect of the establishment of the Foundation. If the Foundation is established,
the Conversion Stock and the Exchange Shares will represent approximately 51.5%
and 43.4%, respectively, of the Company's total outstanding shares of Common
Stock.
An increase in the number of shares of Conversion Stock 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 of Conversion Stock 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 Conversion Stock have been granted under the Plan of Conversion to
the following persons in the following order of descending priority: (1) holders
of deposit accounts with a balance of $50 or more as of December 31,
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1994 ("Eligible Account Holders"); (2) the ESOP; (3) holders of deposit accounts
with a balance of $50 or more as of December 31, 1996 ("Supplemental Eligible
Account Holders")); and (4) members of the Bank, consisting of depositors of the
Bank as of _____________, 1997, the Voting Record Date, and borrowers with loans
outstanding as of January 6, 1995, 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 Conversion 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 Conversion Stock Purchases."
Priority 1: Eligible Account Holders. Each Eligible Account Holder will
receive, without payment therefor, first priority, nontransferable 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 Conversion Stock offered, one-tenth of one percent (.10%) of the total
offering of shares of Conversion Stock or fifteen times the product (rounded
down to the next whole number) obtained by multiplying the total number of
shares of Conversion Stock to be issued by a fraction of which the numerator is
the amount of the Eligible Account Holder's Qualifying Deposit (defined by the
Plan as any deposit account in the Bank with a balance of $50 or more as of
December 31, 1994) 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 Conversion Stock Purchases."
In the event that Eligible Account Holders exercise subscription rights
for a number of shares in excess of the total number of shares eligible for
subscription, the shares will be allocated so as to permit each subscribing
Eligible Account Holder to purchase a number of shares sufficient to make his
total allocation equal to the lesser of 100 shares or the number of shares
subscribed for. Thereafter, unallocated shares will be allocated among the
remaining subscribing Eligible Account Holders whose subscriptions remain
unfilled in the proportion that the amounts of their respective eligible
deposits bear to the total amount of eligible deposits of all remaining Eligible
Account Holders whose subscriptions remain unfilled, 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 December 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, nontransferable subscription rights to purchase, in the aggregate, up
to 10% of Conversion Stock issued in the Conversion, including any increase in
the number of shares of Conversion 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, including shares issued to the Foundation, or 257,760
shares and 348,752 shares, based on the issuance of 2,931,800 shares and
3,966,700 shares, respectively. Subscriptions by the ESOP will not be aggregated
with shares of Conversion 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 - Benefit Plans -
Employee Stock Ownership Plan and Trust."
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Priority 3: Supplemental Eligible Account Holders. Each Supplemental
Eligible Account Holder will receive, without payment therefor, third priority,
nontransferable 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 Conversion Stock offered, one-tenth of
one percent (.10%) of the total offering of shares of Conversion Stock or
fifteen times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Conversion 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
Conversion Stock Purchases."
In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares in excess of the total number of
shares eligible for subscription, the shares will be allocated so as to permit
each subscribing Supplemental Eligible Account Holder, to the extent possible,
to purchase a number of shares sufficient to make his total allocation equal to
the lesser of 100 shares or the number of shares subscribed for. Thereafter,
unallocated shares will be allocated among the remaining subscribing
Supplemental Eligible Account Holders whose subscriptions remain unfilled in the
proportion that the amounts of their respective eligible deposits bear to the
total amount of eligible deposits of all remaining Supplemental Eligible Account
Holders whose subscriptions remain unfilled, 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 nontransferable subscription
rights to subscribe for Conversion Stock in the Subscription Offering up to the
greater of the amount permitted to be purchased in the Community Offering,
currently $200,000 of Conversion Stock offered, or one-tenth of one percent
(.10%) of the total offering of shares of Conversion 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%. See "-
Limitations on Conversion Stock Purchases."
In the event that Other Members exercise subscription rights for a number
of shares in excess of the total number of shares eligible for subscription, the
shares will be allocated so as to permit each subscribing Other Member, to the
extent possible, to purchase a number of shares sufficient to make his total
allocation equal to the lesser of 100 shares or the number of shares subscribed
for. Thereafter, unallocated shares will be allocated among the remaining
subscribing Other Members whose subscriptions remain unfilled on a pro rata
basis in the same proportion as a subscribing Other Member's total votes on the
Voting Record Date for the Special Meeting bears to the total votes of all
subscribing Other Members on such date.
Expiration Date for the Subscription Offering. The Subscription Offering
will expire at ______ _.m., New Jersey time, on ___________, 1997, unless
extended for up to 45 days by the Primary Parties or such additional periods
with the approval of the OTS. Subscription rights which have not been exercised
prior to the Expiration Date will become void.
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The Primary Parties will not execute orders until all shares of Conversion
Stock have been subscribed for or otherwise sold. If all shares have not been
subscribed for or sold within 45 days after the 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 Expiration Date is
granted, the Primary Parties will notify subscribers of the extension of time
and of any rights of subscribers to modify or rescind their subscriptions and
have their funds returned promptly with interest, and of the time period within
which subscribers must affirmatively notify the Primary Parties of their
intention to confirm, modify, or rescind their subscription. If an affirmative
response to any resolicitation is not received by the Company from a subscriber,
such order will be rescinded and all subscription funds will be promptly
returned with interest. Such extensions may not go beyond __________, 1999.
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 Primary Parties have determined
to offer shares pursuant to the Plan to certain members of the general public,
with a first preference given to holders of Public Bank Shares and a second
preference given to natural persons residing in the county in which the Bank
maintains an office in the State of New Jersey (such natural persons referred to
as "Preferred Subscribers"), 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 $200,000 of Conversion Stock offered subject to the
maximum overall purchase limitation and exclusive of shares issued pursuant to
an increase in the Estimated Price Range by up to 15%. See "- Limitations on
Conversion Stock Purchases." This amount may be increased to up to a maximum of
5% of the Conversion Stock offered or decreased to less than $200,000 of
Conversion Stock at the sole discretion of the Primary Parties. THE OPPORTUNITY
TO SUBSCRIBE FOR SHARES OF CONVERSION STOCK IN THE COMMUNITY OFFERING CATEGORY
IS SUBJECT TO THE RIGHT OF THE PRIMARY PARTIES, IN THEIR 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 the Public Stockholders after completion of the
Subscription and Community Offerings, such stock will be allocated first to each
holder of Public Bank Shares 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 Public Stockholder, if possible. Thereafter, unallocated shares will be
allocated among the Public Stockholders whose order remains 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 Public Stockholders have been filed, shares will be
allocated, applying the same allocation formula described above, to Preferred
Subscribers. 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 Public Stockholders and
Preferred Subscribers.
Persons in Nonqualified States or Foreign Countries. The Primary Parties
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 Plan provides that the Primary Parties 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 both of the following apply: (i) a small number of persons otherwise
eligible to subscribe for shares of Conversion Stock reside in such state; and
(ii) the Primary Parties 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 Primary
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Parties 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 Conversion 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 Primary
Parties will base their decision as to whether or not to offer the Conversion
Stock in such state on a number of factors, including the 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 has engaged Sandler O'Neill as a consultant and financial advisor
in connection with the offering of the Conversion Stock, and Sandler O'Neill has
agreed to use its best efforts to solicit subscriptions and purchase orders for
shares of Conversion Stock in the Offerings. Based upon negotiations between the
Primary Parties concerning fee structure, Sandler O'Neill will receive a fee
equal to 2.0% of the aggregate Purchase Price of all shares sold in the
Subscription Offering and Community Offering, excluding shares purchased by
directors, officers, employees and any immediate family member thereof and the
ESOP for which Sandler O'Neill will not receive a fee. 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 be negotiated at such time under
such agreement) to such selected dealers, any sponsoring dealers fees, and a
management fee to Sandler O'Neill of 2.0% for shares sold by a National Bank of
Securities Dealers, Inc. ("NASD") member firms pursuant to a selected dealers
agreement; provided, however, that any fees payable to Sandler O'Neill for
Conversion Stock sold by them pursuant to such a selected dealers agreement
shall not exceed 2.0% of the Purchase Price and provided, further, however, that
the aggregate fees payable to Sandler O'Neill and the selected dealers will not
exceed 7.0% of the aggregate purchase price of the Conversion Stock sold by
selected dealers. Fees 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 $50,000. 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
Primary Parties have agreed to indemnify Sandler O'Neill for reasonable costs
and expenses in connection with claims or liabilities under applicable federal
or state law, or otherwise, related to or arising out of the Conversion to the
extent that such claim or liability arose out of or was based upon any untrue
statement of material fact, omission of a material fact related to or made in
reliance upon and in conformity with written information furnished to the
Primary Parties by Sandler O'Neill or such claim or liability was primarily
attributable to the gross negligence, willful misconduct or bad faith of Sandler
O'Neill. Such claims and liabilities could include claims under the federal and
state securities laws. Sandler O'Neill has received advances towards its fees
totalling $50,000. Total marketing fees to Sandler O'Neill are expected to be
$525,000 and $714,000 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 also will perform proxy solicitation services, conversion
agent services and records management services for the Primary Parties in the
Conversion and is expected to receive a fee for these services of approximately
$22,500, plus reimbursement of reasonable out-of-pocket expenses. Sandler
O'Neill has received advances toward its fees totalling $5,000.
Directors and executive officers of the Primary Parties 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
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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 Primary Parties 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
Conversion 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.
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, New Jersey 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 Primary Parties are 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 Conversion Stock for which they subscribe in the Community
Offering at any time prior to 48 hours before the completion of the Conversion.
The Primary Parties 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 Primary Parties 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.
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 (December 31,
1994) and/or the Supplemental Eligibility Record Date (December 31, 1996) and/or
the Voting Record Date (__________________, 1997) must list all accounts on the
stock order form giving all names in each account and the account number.
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
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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
Bank's passbook rate.
If the ESOP subscribes for shares during the Subscription Offering, the
ESOP will not be required to pay for the shares subscribed for at the time it
subscribes, but rather, may pay for such shares of Conversion Stock subscribed
for at the Purchase Price upon consummation of the Subscription and Community
Offering, if all shares are sold, or upon consummation of the Syndicated
Community Offering if shares remain to be sold in such offering; provided, that
there is in force from the time of its subscription until such time, a loan
commitment from an unrelated financial institution or the Company to lend to the
ESOP, at such time, the aggregate Purchase Price of the shares for which it
subscribed.
Owners of self-directed Individual Retirement Accounts ("IRAs") may use
the assets of such IRAs to purchase shares of Conversion 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
Conversion Stock in the Subscription and Community Offerings, make such
purchases for the exclusive benefit of the IRAs.
Certificates representing shares of Conversion Stock purchased will be
mailed to purchasers at the address specified in properly completed stock order
forms, as soon as practicable following consummation of the sale of all shares
of Conversion Stock. Any certificates returned as undeliverable will be disposed
of in accordance with applicable law.
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 Conversion 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 Conversion Stock prior to the completion
of the Conversion.
THE PRIMARY PARTIES 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 Conversion 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 Conversion Stock. The Company
and the Bank have the right to reject orders in whole
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or in 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 Conversion Stock in the
Syndicated Community Offering, however, Sandler O'Neill have agreed to use their
best efforts in the sale of shares in the Syndicated Community Offering.
The price at which Conversion Stock is sold in the Syndicated Community
Offering will be determined as described above under "- Stock Pricing and
Exchange Ratio." 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 $200,000 of the
total number of shares offered in the Conversion, 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 Conversion 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 the overall maximum purchase limitation,
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 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 third
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 Conversion 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
Conversion 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 ____________, 1999.
See "- Stock Pricing and Exchange Ratio" above for a discussion of rights of
subscribers, if any, in the event an extension is granted.
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LIMITATIONS ON CONVERSION STOCK PURCHASES
The Plan includes the following limitations on the number of shares of
Conversion 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 $200,000 of
Conversion Stock offered, one-tenth of one percent (.10%) of the
total offering of shares of Conversion Stock or fifteen times the
product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Conversion 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 purchase 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 Conversion 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 Conversion
Stock issued in the Conversion, including shares issued to the
Foundation;
(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 $200,000 of Conversion Stock offered, one-tenth of one
percent (.10%) of the total offering of shares of Conversion Stock
or fifteen times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of Conversion
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
maximum purchase 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%;
(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 $200,000 of Conversion Stock
offered, or one-tenth of one percent (.10%) of the total offering of
shares of Conversion Stock subject to the overall maximum purchase
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 Conversion 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 $200,000 of Conversion Stock offered in the Conversion subject
to the overall maximum purchase 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 Conversion 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 $200,000 of shares of Conversion Stock offered in the
Conversion subject to the overall maximum purchase limitation in (8)
below and exclusive
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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 Conversion 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 overall maximum number of shares of Conversion 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 when combined with any Exchange Shares received by
such persons, shall not exceed 3.0% of the shares of Conversion
Stock offered in the Conversion and Reorganization 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
(9) No more than 25.00% of the total number of shares of Conversion
Stock offered for sale in the Conversion may be purchased by
directors and officers of the Bank and the Mutual Holding Company
and their associates in the aggregate, when combined with any
Exchange Shares received and 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 Mutual Holding Company or the Public Stockholders 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 Primary Parties. 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 Primary Parties may, in their sole discretion, increase the
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 Conversion Stock under this provision will be determined by
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%
but the individual amount permitted to be subscribed for may be reduced by the
Primary Parties to less than 1%, subject to paragraphs (2), (4), and above
without the further approval of members or Public Stockholders 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 3.0% of the shares of Conversion
Stock 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 overall maximum 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
unsatisfied 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 unsatisfied subscriptions of Supplemental
Eligible Account Holders,
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exclusive of the Adjusted Maximum; (iv) in the event that there is an
oversubscription by Other Members, to fill unsatisfied subscriptions of Other
Members exclusive of the Adjusted Maximums; and (v) to fill unsatisfied
subscriptions in the Community Offering to the extent possible, exclusive of the
Adjusted Maximum and with a first preference to Public Stockholders and a second
preference to Preferred Subscribers.
The term "associate" of a person is defined to mean: (i) any corporation
(other than the Primary Parties 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 "Beneficial Ownership of Capital
Stock - 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 Mutual Holding
Company in its present mutual form, each depositor would receive his pro rata
share of any assets of the Mutual Holding Company 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 and Reorganization, 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 or the Company 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 greater of (1) the Bank's retained earnings at August 31, 1994, the date of
the latest statement of financial condition contained in the final offering
circular utilized in the 1995 MHC Reorganization or (2) 54.2% of the Bank's
shareholders' equity as of the date of its latest balance sheet contained in the
final Prospectus used in connection with the Conversion and Reorganization. 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 and Reorganization, to an
interest in the liquidation account prior to any 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 December 31, 1994 and December 31, 1996,
respectively. Each Eligible Account Holder and Supplemental Eligible Account
Holder will have a pro rata interest in the total liquidation account based on
the proportion that the balance of his Qualifying Deposits on the Eligibility
Record Date or Supplemental Eligibility Record Date, respectively, bore to the
total amount of all Qualifying Deposits 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 respective record
dates.
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If, however, on any annual closing date subsequent to the Eligibility
Record Date or Supplemental Eligibility Record Date, the amount of the
Qualifying Deposit of an Eligible Account Holder or Supplemental Eligible
Account Holder is less than the amount of the Qualifying Deposit of such
Eligible Account Holder or Supplemental Eligible Account Holder as of the
Eligibility Record Date or Supplemental Eligibility Record Date, respectively,
or less than the amount of the Qualifying Deposits 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
accounts are 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 and Reorganization is expressly conditioned
upon the receipt by the Primary Parties of either a favorable ruling from the
IRS or an opinion of counsel with respect to federal income taxation, and an
opinion of an independent accountant with respect to New Jersey, to the effect
that the Conversion and Reorganization will not be a taxable transaction to the
Mutual Holding Company, the Company, the Bank, Eligible Account Holders, or
Supplemental Eligible Account Holders except as noted below.
No private ruling will be received from the IRS with respect to the
proposed Conversion. Instead, the Bank has received an opinion of KPMG Peat
Marwick LLP, to the effect that for federal income tax purposes, among other
matters: (1) the conversion of the Mutual Holding Company from mutual form to a
federal interim stock savings institution and its simultaneous merger with and
into the Bank, with the Bank being the surviving institution, will qualify as a
reorganization within the meaning of Section 368(a)(1)(A) of the Code, (2) no
gain or loss will be recognized by the Bank upon the receipt of the assets of
the Mutual Holding Company in such merger, (3) the merger of the Interim with
and into the Bank, with the Bank being the surviving institution, will qualify
as a reorganization within the meaning of Section 368(a)(1)(A) of the Code, (4)
no gain or loss will be recognized by Interim upon the transfer of its assets to
the Bank, (5) no gain or loss will be recognized by the Bank upon the receipt of
the assets of Interim, (6) no gain or loss will be recognized by the Company
upon the receipt of Bank Common Stock solely in exchange for Common Stock, (7)
no gain or loss will be recognized by the Public Stockholders upon the receipt
of Common Stock solely in exchange for their Public Bank Shares, (8) the basis
of the Common Stock to be received by the Public Stockholders will be the same
as the basis of the Public Bank Shares surrendered in exchange therefore, before
giving effect to any payment of cash in lieu of fractional shares, (9) the
holding period of the Common Stock to be received by the Public Stockholders
will include the holding period of the Public Bank Shares, provided that the
Public Bank Shares were held as a capital asset on the date of the exchange,
(10) no gain or loss will be recognized by the Company upon the sale of shares
of Conversion Stock in the Offering, (11) the Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members will recognize gain, if
any, upon the issuance to them of withdrawable savings accounts in the Bank
following the Conversion and Reorganization, interests in the liquidation
account and nontransferable subscription rights to purchase Conversion Stock,
but only to the extent of the value, if any, of the subscription rights, and
(12) the tax basis to the holders of Conversion Stock purchased in the Offerings
will be the amount paid therefore, and the holding period for the shares of
Conversion Stock will begin on the date of consummation of the Offerings if
purchased through the exercise of subscription rights and on the day after the
date of purchase if purchased in the Community Offering or Syndicated Community
Offering. Peat Marwick 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.
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Certain portions of both the federal and the state and local tax opinions are
based upon the that the subscription rights issued in connection with the
Conversion will have no value.
Unlike private rulings, an opinion of counsel or an opinion of an
independent accountant 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.
In the opinion of FinPro, the subscription rights do not have any value,
based on the fact that such rights are acquired by the recipients without cost,
are nontransferable and of short duration, and afford the recipients the right
only to purchase the Conversion 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 Conversion Stock. Such valuation is not binding on 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 be taxable 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.
CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF SHARES AFTER CONVERSION
All shares of Conversion Stock purchased in connection with the Conversion
by a director or an executive officer of the Primary Parties 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 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 Company and
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 Conversion Stock of the Company by
directors, executive officers (or any person who was an executive officer or
director of the Primary Parties 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 1.0% of the Company's outstanding
Common Stock or to the purchase of stock pursuant to any Stock Option Plan 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, 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 ten 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
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years following the Conversion, provided there are valid and compelling business
reasons for such repurchases and the OTS does not object to such repurchases.
COMPARISON OF STOCKHOLDERS' RIGHTS
GENERAL
As a result of the Conversion and Reorganization, holders of the Bank
Common Stock will become stockholders of the Company. There are certain
differences in stockholder rights arising from distinctions between the Bank's
certificate of incorporation and bylaws and the Company's Certificate of
Incorporation and Bylaws and from distinctions between laws with respect to New
Jersey chartered savings associations and Delaware law.
The discussion herein is not intended to be a complete statement of the
differences affecting the rights of stockholders, but rather summarizes the more
significant differences and certain important similarities. The discussion
herein is qualified in its entirety by reference to the Certificate of
Incorporation and Bylaws of the Company and Delaware General Corporation law.
Authorized Capital Stock. The Company's authorized capital stock consists
of 22,000,000 shares of Common Stock and 2,000,000 shares of Preferred Stock,
par value $.01 per share, whereas the Bank's authorized capital stock consists
of 20,000,000 shares of Bank Common Stock and 10,000,000 shares of serial
preferred stock, par value $.10 per share (the "Bank Preferred Stock"). The
increased authorized capitalization will provide the Company's Board of
Directors with additional flexibility to effect, among other transactions,
acquisitions, financings, stock dividends, stock splits and stock benefit plans.
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 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 Stock Option Plans or Master StockBased Benefit Plan all of which are to
be established and presented to stockholders at a meeting after the Conversion.
The Company will be subject to annual franchise taxes under Delaware law
based on its authorized capitalization. As a New Jersey chartered institution,
the Bank is not subject to franchise taxes, regardless of the amount of its
authorized capitalization.
Issuance of Capital Stock. Pursuant to applicable laws and regulations,
the Mutual Holding Company is required to own not less than a majority of the
outstanding Bank Common Stock. There will be no such restriction applicable to
the Company following consummation of the Conversion and Reorganization.
Neither the Certificate of Incorporation of the Bank nor the Certificate
of Incorporation of the Company contains a restriction on the issuance of shares
of capital stock to directors, officers or controlling persons of the Company
and the Bank, respectively. Thus, stock-related compensation plans such as stock
option plans could be adopted by the Company and the Bank without stockholder
approval and shares of Company capital stock and Bank capital stock could be
issued directly to directors, officers or controlling persons without
stockholder approval. The Bylaws of the NASD, however, generally
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require corporations with securities which are quoted on the Nasdaq National
Market to obtain stockholder approval of most stock compensation plans for
directors, officers and key employees of the corporation. Moreover, although
generally not required, stockholder approval of stock-related compensation plans
may be sought in certain instances in order to qualify such plans for favorable
federal income tax and securities law treatment under current laws and
regulations.
Voting Rights. Both the Bank's Bylaws and the Certificate of Incorporation
and Bylaws of the Company prohibit cumulative voting in elections of directors.
The prohibition on cumulative voting will help to ensure continuity and
stability of the Company's Board of Directors and the policies adopted by it by
making it more difficult for the holders of a relatively small amount of the
Common Stock to elect their nominees to the Board of Directors and possibly by
delaying, deterring or discouraging proxy contests.
Neither the Certificate of Incorporation of the Bank nor the Certificate
of Incorporation and Bylaws of the Company provide for pre-emptive rights to
stockholders in connection with the issuance of capital stock.
For additional information relating to voting rights, see "- General -
Limitation on Acquisitions of Voting Stock and Voting Rights" below.
Payment of Dividends. The ability of the Bank to pay dividends on its
capital stock is restricted by federal regulations and New Jersey law and
regulations and by tax considerations related to savings associations such as
the Bank. See "Regulation - Federal Regulation of Savings Institutions --
Capital Distributions" and "Federal and State Taxation - Federal Taxation."
Although the Company is not subject to these restrictions as a Delaware
corporation, such restrictions will indirectly affect the Company because
dividends from the Bank will be a primary source of funds of the Company for the
payment of dividends to stockholders of the Company.
The Delaware General Corporation Law generally provides that, subject to
any restrictions in the corporation's Certificate of Incorporation, dividends
may be declared from the corporation's surplus or, if there is no surplus, from
its net profits for the fiscal year in which the dividend is declared and the
preceding fiscal year. However, if the corporation's capital (generally defined
in the Delaware General Corporation Law as the sum of the aggregate par value of
all shares of the corporation's capital stock, where all such shares have a par
value and the board of directors has not established a higher level of capital)
has been diminished to an amount less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets, dividends may not be declared and
paid out of such net profits until the deficiency in such capital has been
repaired.
Board of Directors. The Bank's Certificate of Incorporation and the
Certificate of Incorporation and Bylaws of the Company, respectively, require
the Board of Directors of the Bank and the Company to be divided into three
classes as nearly equal in number as possible and that the members of each class
shall be elected for a term of three years and until their successors are
elected and qualified, with one class being elected annually.
Under the Bank's Bylaws, any vacancies in the Board of Directors of the
Bank may be filled by the affirmative vote of a majority of the remaining
directors although less than a quorum of the board of directors. Persons elected
by the directors of the Bank to fill vacancies may only serve until the next
annual meeting of stockholders. However, under the Company's Certificate of
Incorporation, any vacancy occurring in the Board of Directors of the Company,
including any vacancy created by reason of an increase in the number of
directors, may be filled by the remaining directors, and any director so chosen
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shall hold office for the remainder of the term to which the director has been
elected and until his successor is elected and qualified.
Under the Bank's Bylaws, any director may be removed for cause by a
two-thirds vote of the Board of Directors or by the affirmative vote of at least
80% of the voting power of the then outstanding shares of capital stock of the
Bank entitled to vote in an election of directors. Under the Company's
Certificate of Incorporation, a director or the entire board of directors may be
removed only for cause and only by the affirmative vote of the holders of at
least 80% of the outstanding voting shares of the Company.
Limitations on Liability. The Company's Certificate of Incorporation
provides that the personal liability of the directors and officers of the
Company for monetary damages shall be eliminated to the fullest extent permitted
by the Delaware General Corporation Law as it exists on the effective date of
the Certificate of Incorporation or as such law may be thereafter in effect.
Section 102(b)(7) of the Delaware General Corporation Law currently provides
that directors (but not officers) of corporations that have adopted such a
provision will not be so liable, except (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 that involve intentional misconduct or a knowing
violation of law, (iii) for the payment of certain unlawful dividends and the
making of certain stock purchases or redemptions, or (iv) for any transaction
from which the director derived an improper personal benefit.
If Delaware law was amended in the future to provide for greater
limitations on the personal liability of directors or to permit corporations to
limit the personal liability of officers, the provision in the Company's
Certificate of Incorporation limiting the personal liability of directors and
officers would automatically incorporate such authorities without further action
by stockholders. Similarly, if Delaware law was amended in the future to
restrict the ability of a corporation to limit the personal liability of
directors, the Company's Certificate of Incorporation would automatically
incorporate such restrictions without further action by stockholders.
The Bank's current Certificate of Incorporation contains similar
provisions regarding the elimination of director liability consistent with New
Jersey law.
Indemnification of Directors, Officers and Employees. The Bank's
Certificate of Incorporation provides that the Bank shall indemnify its
directors, officers and employees for any costs incurred in connection with any
litigation involving any such person's activities as a director, officer or
employee. In addition, indemnification is permitted in the case of a settlement,
a final judgment against such person or final judgment other than on the merits,
if it is determined by the board of directors and the Commission that such
person was acting in good faith within the scope of his or her employment as he
or she could reasonably have perceived it under the circumstances and for a
purpose he or she could have reasonably believed under the circumstances was in
the best interest of the Bank or its stockholders.
The Company's Certificate of Incorporation provide that the Company shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suite or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
such person is or was a director, officer or employee of the Company or any
predecessor of the Company, or is or was serving at the request of the Company
or any predecessor of the Company as a director, officer or employee of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses, liability and loss reasonably incurred or suffered by such indemnitee
in connection therewith to the fullest extent authorized by the Delaware General
Corporation Law of the State of Delaware against expenses, liability and loss
reasonably incurred or suffered by such indemnitee in connection therewith.
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The Company's Certificate of Incorporation also provide that reasonable
expenses (including attorneys' fees) incurred by a director, officer or employee
of the Company in defending any civil, criminal, administrative or investigative
action, suit or proceeding described above shall be paid by the Company in
advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors upon receipt of an undertaking by or on
behalf of such person to repay such amount if it shall ultimately be determined
that the person is not entitled to be indemnified by the Company.
Special Meetings of Stockholders. The Bank's Bylaws provide that special
meetings of the stockholders of the Bank may be called by the Chairman,
President, a majority of the Board of Directors or the holders of not less than
ten percent of the outstanding capital stock of the Bank entitled to vote at the
meeting. The Certificate of Incorporation and Bylaws of the Bank provide,
however, that until the fifth anniversary of the MHC Reorganization, special
meetings of stockholders relating to changes in control of the Bank or
amendments to its Certificate of Incorporation may only be called upon direction
of the Board of Directors of the Bank. The Company's Certificate of
Incorporation contains a provision pursuant to which special meetings of
stockholders of the Company only may be called by the Board of Directors of the
Company.
Stockholder Nominations and Proposals. The Bank's Bylaws generally provide
that stockholders may submit nominations for election as director at an annual
meeting of stockholders 60 days prior to the annual meeting and any new business
to be taken up at such a meeting at least 60 days before the date of any such
meeting.
The Company's Bylaws 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.
Inspectors of Election. The Bank's Bylaws provide that the Board of
Directors may appoint one or more persons other than nominees for office as
inspectors of election at a meeting of stockholders and that if inspectors of
election are not so appointed, the Chairman of the Board or the President may,
and on the request of not less than 10% of the votes represented at the meeting
shall, make such appointment at the meeting. The Company's Bylaws provide that
the Board of Directors of the Company shall appoint one or more persons as
inspectors of election, and that the chairman of any meeting of stockholders
shall make such an appointment in the event that the inspector(s) appointed by
the Board of Directors shall be unable to act or the board shall fail to appoint
any inspector. The Bylaws of the Bank and the Company also specify the duties of
inspectors of election.
Stockholder Action Without a Meeting. The Bylaws of the Bank provide that
any action to be taken or which may be taken at any annual or special meeting of
stockholders must be taken at such annual or special meeting and may not be
taken without a meeting. The Certificate of Incorporation of the Company
provides that no action required by Delaware law to be taken at any annual or
special meetings of stockholders, nor any action which may be taken at any
annual or special meeting of stockholders, may be taken without a meeting,
without prior notice and without a vote of such stockholders.
Limitations on Acquisitions of Voting Stock and Voting Rights. The
Company's Certificate of Incorporation provides that no person shall directly or
indirectly offer to acquire or acquire the beneficial ownership of (i) more than
10% of the issued and outstanding shares of any class of an equity security
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of the Company, or (ii) any securities convertible into, or exercisable for, any
equity securities of the Company if, assuming conversion or exercise by such
person of all securities of which such person is the beneficial owner which are
convertible into, or exercisable for, such equity securities (but if no
securities convertible into, or exercisable for, such equity securities of which
such person is not the beneficial owner), such person would be the beneficial
owner of more than 10% of any class of any equity security of the Company. The
term "beneficial ownership" is defined in the Certificate of Incorporation to
include any shares of stock (whether or not owned of record) with respect to
which a person has (i) investment power, including the power to dispose of or to
direct the disposition of such shares of stock, and/or (ii) voting power,
including the power to vote or direct the voting of such shares of stock (which
would include the power to vote pursuant to revocable proxies and thus prevent
any person from acquiring such amount of Common Stock and/or proxies related
thereto). The term "person" is broadly defined in the Certificate of
Incorporation to prevent circumvention of the foregoing restriction.
The foregoing restrictions do not apply to (i) any offer with a view
toward public resale made exclusively to the Company by underwriters or a
selling group acting on its behalf; (ii) any tax-qualified employee benefit plan
or arrangement established by the Company or the Bank and any trustee of such a
plan or arrangement, and (iii) any other offer or acquisition approved in
advance by the affirmative vote of two-thirds of the Company's Board of
Directors. In the event that shares are acquired in violation of this
restriction, all shares beneficially owned by any person in excess of 10% shall
be considered "Excess Shares" and 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 stockholders for a voted, and the Board
of Directors may cause such Excess Shares to be transferred to an independent
trustee for sale on the open market or otherwise, with the expenses of such
trustee to be paid out of the proceeds of the sale.
The Certificate of Incorporation of the Bank contains a provision which
imposes the same restrictions with respect to the acquisition and voting of Bank
Common Stock during the five year period following consummation of the MHC
Reorganization.
Mergers, Consolidations and Sales of Assets. The Bank's Certificate of
Incorporation and Bylaws do not impose any specific vote requirement for
stockholder approval of mergers and certain business transactions.
The Delaware General Corporation Law requires the approval of the Board of
Directors and the holders of a majority of the outstanding stock of the Company
entitled to vote thereon for mergers or consolidations, and for sale, leases or
exchanges of all or substantially all of the Company's assets, unless a higher
requirement is specified in the Company's Certificate of Incorporation.
As holder of all of the outstanding Bank Common Stock after consummation
of the Conversion and Reorganization, the Company generally will be able to
authorize a merger, consolidation or other business combination involving the
Bank without the approval of the stockholders of the Company. In addition, the
Company's 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. See "Restrictions on
Acquisition of the Company and the Bank - Restrictions in the Company's
Certificate of Incorporation and Bylaws."
Dissenters' Rights of Appraisal. Under New Jersey corporate law, which is
applicable to the Bank generally, a stockholder of a New Jersey corporation
which engages in a merger, consolidation or sale of all or substantially all of
its assets shall have the right to demand from such corporation payment of the
fair or appraised value of his stock in the New Jersey corporation, subject to
specified procedural requirements. This law also provides, however, that the
stockholders of a New Jersey chartered corporation with stock which is listed on
a national securities exchange or which has more than 1,000 shareholders are not
entitled to dissenters' rights in connection with a merger involving such
corporation
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if the stockholder is required to accept only "qualified consideration" for his
stock, which is defined to include cash, shares of stock of any corporation
which at the effective date of the merger will be listed on a national
securities exchange or quoted on the Nasdaq System or any combination of such
shares of stock and cash.
After the Conversion and Reorganization, the rights of appraisal of
dissenting stockholders of the Company will be governed by the Delaware General
Corporation Law. Pursuant thereto, a stockholder of a Delaware corporation
generally has the right to dissent from any merger or consolidation involving
the corporation or sale of all or substantially all of the corporation's assets,
subject to specified procedural requirements. However, no such appraisal rights
are available for the shares of any class or series of a corporation's capital
stock if (i) as of the record date fixed to determine the stockholders entitled
to receive notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, such shares were either listed on a
national securities exchange or held of record by more than 2,000 stockholders,
or (ii) the corporation is the surviving corporation of a merger and the merger
did not require the approval of the corporation's stockholders, unless in either
case, the holders of such stock are required by an agreement of merger or
consolidation to accept for that stock something other than: (a) shares of stock
of the corporation surviving or resulting from the merger or consolidation; (b)
shares of stock of any other corporation that, at the effective date of the
merger, will be listed on a national securities exchange or held of record by
more than 2,000 stockholders; (c) cash in lieu of fractional shares of a
corporation described in clause (a) or (b) above; or (d) any combination of the
shares of stock and cash in lieu of fractional shares described in clauses (a)
through (c) above.
Amendment of Governing Instruments. No amendment of the Bank's Certificate
of Incorporation may be made unless it is first proposed by the Board of
Directors of the Bank, thereafter approved by the holders of a majority of the
total votes eligible to be cast at a legal meeting and submitted to the
Commissioner for action as specified by law or regulation. The Company's
Certificate of Incorporation similarly provides that no amendment of the
Company's Certificate of Incorporation may be made unless it is first approved
by the Board of Directors of the Company and thereafter is approved by the
holders of a majority of the shares of the Company entitled to vote generally in
an election of directors, voting together in a single class; provided, however,
that the affirmative vote of at least 80% of the outstanding voting stock
entitled to vote is needed for certain amendments.
The Bylaws of the Bank may be amended by a majority of the full Board of
Directors of the Bank or by a majority vote of the votes cast by the
stockholders of the Bank at any legal meeting. The Bylaws of the Company may be
amended by a majority vote of the Board of Directors of the Company or by the
affirmative vote of the holders of 80% of the votes cast by stockholders of the
Company at a meeting of stockholders.
RESTRICTIONS ON ACQUISITION OF THE COMPANY
AND THE BANK
GENERAL
The Plan of Conversion provides for the Conversion of the Mutual Holding
Company from the mutual to the stock form of organization. See "The Conversion
and Reorganization -- General." 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 addition, regulatory restrictions may
make it difficult for persons or companies to acquire control of either the
Company or the Bank.
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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 stockholders may receive a 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.
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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 22,000,000 shares of Common Stock and 2,000,000 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 and Reorganization 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 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 Stock Option Plans or
Master StockBased Benefit Plan 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 stockholders 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 stockholders 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, pledge, 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,
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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 2.0% 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 aggregate of the Conversion
Stock sold in the Conversion and the shares issued to the Foundation.
Additionally, if at a meeting of stockholders following the Conversion
stockholder approval of the proposed Stock Programs and Stock Option Plans or
Master Stock-Based Benefit Plan is received, the Company expects to acquire 4%
of the aggregate of the Conversion Stock issued in the Conversion and the shares
issued to the Foundation on behalf of the Stock Programs and expects to issue an
amount equal to 10% of the aggregate of the Conversion Stock issued in the
Conversion and the shares issued to the Foundation 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
24% of the Company's Common Stock, 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 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 association 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.
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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, CIC Agreements, Severance Plan, Stock
Programs, Stock Option Plans and Master Stock-Based Benefit Plan 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 "- New 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.
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.
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RESTRICTIONS IN THE BANK'S 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 and
Reorganization, the Board of Directors believes that it is appropriate to retain
certain provisions permitted by New Jersey law and to adopt certain new
provisions to protect the interests of the 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 Which May Discourage Takeover Attempts."
The Bank's Certificate of Incorporation will continue to 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 and Reorganization. Any stock in excess of 10% acquired in violation
of the Certificate of Incorporation 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 Certificate of
Incorporation 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 Certificate of Incorporation, 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 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, 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 of the
Company - Preferred Stock," for the issuance or use of the shares of Bank
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 Bank Preferred Stock with rights and
preferences which could impede the completion of such a transaction. An effect
of the possible issuance of such Bank Preferred Stock, therefore, may be to
deter a future takeover attempt. The Board of Directors does not intend to issue
any Bank Preferred Stock except on terms which the Board deems to be in the best
interest of the Bank and its then existing stockholders.
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REGULATORY RESTRICTIONS
The Plan of Conversion prohibits any person, prior to the completion of
the Conversion and Reorganization, 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
Conversion 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 Conversion Stock.
For three years following the Conversion and Reorganization, 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," 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.
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DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
GENERAL
The Company is authorized to issue 22,000,000 shares of Common Stock
having a par value of $.01 per share and 2,000,000 shares of preferred stock
having a par value of $.01 per share (the "Preferred Stock"). The Company
currently expects to issue up to 7,698,700 shares of Common Stock (or 8,853,600
in the event of an increase of 15% in the Estimated Price Range) and no shares
of Preferred Stock in the Conversion. Except as discussed above in "Restriction
on Acquisition of the Company and the Bank." 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% stockholder vote. See
"Restrictions on Acquisition of the Company and the Bank."
Subsequent to Conversion, voting rights will be vested exclusively in the
owners of the shares 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
and Reorganization -- 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.
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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 Certificate of Incorporation of the Bank authorizes the issuance of
capital stock consisting of 20,000,000 shares of common stock, par value $.10
per share, and 10,000,000 shares of preferred stock, par value $.10 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 has the same relative rights
as, and will be identical in all respects with, each other share of common
stock. After the Conversion and Reorganization, the Board of Directors will be
authorized to approve the issuance of Common Stock up to the amount authorized
by the Certificate of Incorporation without the approval of the Bank's
stockholders. Following the Conversion and Reorganization, 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 and Reorganization, 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, provided that cumulation of votes will not be permitted. See
"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 additional preferred stock is issued subsequent to the Conversion and
Reorganization, 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
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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 Chase Mellon
Shareholder Services, Ridgefield Park, New Jersey.
EXPERTS
The consolidated financial statements of the Bank and its subsidiaries as
of March 31, 1996 and 1995 and for the year ended March 31, 1996, ten month
period ended March 31, 1995 and the year ended May 31, 1994 have been included
herein, 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.
The report of KPMG Peat Marwick LLP for the year ended May 31, 1994 refers
to changes in the methods of accounting for income taxes, postemployment
benefits other than pensions and securities.
FinPro, 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 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. Muldoon, Murphy & Faucette will rely as to certain matters
of Delaware law on the opinion of Morris, Nichols, Arsht & Tunnell. The federal
income and New Jersey tax consequences of the Conversion and Reorganization will
be passed upon for the Bank and the Company by KPMG Peat Marwick LLP. Certain
legal matters will be passed upon for Sandler O'Neill by Breyer & Aguggia,
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. In
addition, the SEC maintains a web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC, including the Company. This
Prospectus contains a description of the material terms and features of all
material contracts, reports or exhibits to the Registration Statement required
to be described, however, 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.
The Mutual Holding Company 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.
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In connection with the Conversion, the Company will register its Common
Stock with the SEC under Section 12(b) 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.
A copy of the Certificate of Incorporation and the Bylaws of the Company
and the Stock Charter and Bylaws of the Bank are available without charge from
the Bank.
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
First Savings Bank of New Jersey:
We have audited the accompanying consolidated statements of financial condition
of First Savings Bank of New Jersey and subsidiaries as of March 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the year ended March 31, 1996, the ten-month period
ended March 31, 1995 and the year ended May 31, 1994. 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 First Savings Bank
of New Jersey and subsidiaries as of March 31, 1996 and 1995, and the results of
their operations and their cash flows for the year ended March 31, 1996, the
ten-month period ended March 31, 1995 and the year ended May 31, 1994 in
conformity with generally accepted accounting principles.
As discussed in notes 1, 4, 12 and 14 to the consolidated financial statements,
as of June 1, 1993, the Bank adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", Statement of Financial Accounting Standards No.
106, "Accounting for Postretirement Benefits Other Than Pensions," and Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities".
KPMG Peat Marwick LLP
Short Hills, New Jersey
April 30, 1996
F-1
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
December 31, 1996 and
March 31, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
March 31,
Dec. 31, ---------------------
Assets 1996 1996 1995
------ -------- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash and cash equivalents:
Cash on hand and in banks ............................ $ 4,531 5,782 5,029
Deposits with financial institutions ................. 13,000 -- 323
AMF short-term fund .................................. 1,849 6,009 760
Total cash and cash equivalents ................. 11,791 6,112
Securities available for sale at market value
(note 4) .............................................. 285,952 382,721 181,542
Securities held to maturity, estimated market
value of $11,384, $11,674 and $79,790 at
December 31, 1996, March 31, 1996 and
1995, respectively (note 5) ........................... 11,277 11,355 87,699
Loans receivable, net (note 6) ......................... 239,194 224,028 218,554
Accrued interest receivable, net (note 7) .............. 3,629 3,744 3,205
Federal Home Loan Bank stock, at cost .................. 7,460 7,526 1,914
Real estate acquired in settlement of loans ............ 481 24 233
Office properties and equipment, net (note 9) .......... 5,946 6,000 6,387
Prepaid expenses ....................................... 191 463 827
Other assets ........................................... 5,064 4,293 5,654
--------- --------- ---------
Total assets .................................... $ 578,574 651,945 512,127
========= ========= =========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits (note 10) .................................... 441,289 445,424 444,380
Borrowings (note 11) .................................. 80,000 150,519 14,000
Employee Stock Ownership Plan (ESOP) debt
(note 13) ............................................ 651 815 1,032
Advance payment by borrowers for taxes and
insurance ........................................... 1,441 1,093 1,292
Accrued expenses and other liabilities ................ 5,608 4,575 4,798
--------- --------- ---------
Total liabilities ............................... 528,989 602,426 465,502
--------- --------- ---------
Stockholders' equity (notes 2, 3 and 12):
Common stock, $0.10 par value. Authorized
20,000,000 shares; issued and outstanding
3,064,131 shares at December 31, 1996 and 3,062,321
shares at March 31, 1996 and
March 31, 1995, respectively ........................ 306 306 302
Additional paid-in capital ............................. 12,316 12,216 11,508
Unallocated ESOP shares ................................ (651) (815) (1,032)
Unamortized MRP shares ................................. (408) (495) --
Retained earnings - substantially restricted ........... 41,253 44,575 44,669
Net unrealized loss on securities available for
sale, net of tax ...................................... (3,231) (6,268) (8,822)
--------- --------- ---------
Total stockholders' equity ...................... 49,585 49,519 46,625
Commitments and contingencies (notes 8 and 15)
Total liabilities and stockholders' equity ...... $ 578,574 651,945 512,127
========= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Consolidated Statements of Operations
For the nine-month periods ended December 31, 1996 and
1995, the year ended March 31, 1996, the
ten-month period ended March 31, 1995
and the year ended May 31, 1994
(in thousands, except per share amount)
<TABLE>
<CAPTION>
Ten
Nine-months ended Year months Year
December 31, ended ended ended
------------------- March 31, March 31, May 31,
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Interest and dividend income:
Loans $14,933 14,342 19,196 14,935 19,487
Securities available for sale 14,813 8,457 14,032 8,998 12,777
Securities held to maturity 934 3,447 3,827 4,133 2,382
Deposits with financial institutions 530 151 254 365 970
------ ------ ------ ------ ------
Total interest and dividend income 31,210 26,397 37,309 28,431 35,616
------ ------ ------ ------ ------
Interest expense:
Interest on deposits (note 10) 15,719 15,543 20,760 15,628 19,267
Interest on borrowings 5,581 816 3,082 203 1,528
------ ------ ------ ------ ------
Total interest expense 21,300 16,359 23,842 15,831 20,795
------ ------ ------ ------ ------
Net interest income 9,910 10,038 13,467 12,600 14,821
Provision for loan losses (note 6) 90 300 450 350 500
------ ------ ------ ------ ------
Net interest income after provision
for loan losses 9,820 9,738 13,017 12,250 14,321
----- ----- ------ ------ ------
Noninterest (loss) income:
Loan fees and service charges 235 206 307 285 428
(Loss) gain on securities available for
sale, net (note 4) (2,812) (2,514) (2,217) (547) 262
(Loss) gain on sales of real estate
acquired in settlement of loans (52) (52) (7) - 62
(Loss) gain from real estate operations,
net (note 8) (25) (25) (62) 172
Other 690 514 729 452 856
------ ------ ------ ------ ------
Total noninterest (loss) income (1,939) (1,871) (1,213) 128 1,780
------ ------ ------ --- -----
Operating expenses:
Compensation and employee benefits (note 14) 4,256 4,417 5,821 4,674 4,735
Occupancy 574 595 802 630 648
Equipment 831 839 1,092 858 972
Advertising and promotion 46 146 176 123 91
Federal insurance premiums 883 873 1,163 990 1,210
SAIF assessment 2,985 - - - -
Other 1,070 1,320 1,761 1,676 1,860
------ ------ ------ ------ ------
Total operating expenses 10,555 8,190 10,815 8,951 9,516
------ ----- ------ ----- -----
Income (loss) before income tax
expense and cumulative effect of
accounting changes (2,674) (323) 989 3,427 6,586
Income tax expense (benefit) (note 12) 297 (112) 374 1,236 2,247
------ ------- ------ ------ ------
Income (loss) before cumulative effect
of accounting changes (2,971) (211) 615 2,191 4,338
Cumulative effect of accounting changes:
Income taxes (note 12) - - - - 400
Postretirement benefits, net of tax benefit (note 14) - - - - (1,216)
Investments, net of tax expense (note 4) - - - - 471
------ ------ ------ ------ ------
Net income (loss) $(2,971) (211) 615 2,191 3,993
======= ====== ====== ====== ======
Earnings (loss) per share (0.98) (0.07) 0.21 - -
======= ====== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the nine-month period ended December 31,
1996, the year ended March 31, 1996, the
ten-month period ended March 31, 1995
and the year ended May 31, 1994
(in thousands)
<TABLE>
<CAPTION>
Net
unrealized
loss on Unallo-
Additional securities cated
Common paid-in available ESOP
stock capital for sale shares
------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at May 31, 1993 $ - - - -
Net income for the year - - - -
Cumulative effect of accounting change - investments,
net of income tax benefit of $265 - - (471) -
Net unrealized loss on securities available for sale,
net of income tax benefit of $2,748 - - (8,097) -
--- ------ ----- -----
Balance at May 31, 1994 - - (8,568) -
Net income for the ten-month period - - - -
Net proceeds of stock offering 302 11,702 - -
Capitalization of mutual holding company - (200) - -
Common stock acquired by ESOP - - - (1,086)
Amortization of ESOP shares - 6 - 54
Net change in net unrealized losses on securities
available for sale, net of income tax benefit
of $248 - - (254) -
Dividends declared at $0.125 per share - - - -
--- ------ ----- -----
Balance at March 31, 1995 302 11,508 (8,822) (1,032)
Net income for the year - - - -
Amortization of ESOP - 110 - 217
Common stock issued to MRP 4 578 - -
Amortization of MRP - 20 - -
Dividends declared at $0.5 per share - - - -
Net change in unrealized losses on securities available
for sale, net of income tax expense of $1,016 - - 2,554 -
--- ------ ----- -----
Balance at March 31, 1996 306 12,216 (6,268) (815)
Net loss for the period - - - -
Amortization of ESOP - 85 - 164
Common stock issued to MRP - -
Amortization of MRP - 15 - -
Dividends declared at $.125 per share - - - -
Net change in unrealized losses on securities available
for sale, net of income tax expense of $428 - - 3,037 -
------- ------ ----- -----
Balance at December 31, 1996 (unaudited) $ 306 12,316 (3,231) (651)
======= ====== ====== ====
Retained
Unamor- earnings- Total
tized substan- stock-
MRP tially holders'
shares restricted equity
-------- ---------- --------
<S> <C> <C> <C>
Balance at May 31, 1993 - 38,642 38,642
Net income for the year - 3,993 3,993
Cumulative effect of accounting change - investments,
net of income tax benefit of $265 - - (471)
Net unrealized loss on securities available for sale,
net of income tax benefit of $2,748 - - (8,097)
--- ------ ------
Balance at May 31, 1994 - 42,635 34,067
Net income for the ten-month period - 2,191 2,191
Net proceeds of stock offering - - 12,004
Capitalization of mutual holding company - - (200)
Common stock acquired by ESOP - - (1,086)
Amortization of ESOP shares - - 60
Net change in net unrealized losses on securities
available for sale, net of income tax benefit
of $248 - - (254)
Dividends declared at $0.125 per share - (157) (157)
--- ------ ------
Balance at March 31, 1995 - 44,669 46,625
Net income for the year - 615 615
Amortization of ESOP - - 327
Common stock issued to MRP (582) - -
Amortization of MRP 87 - 107
Dividends declared at $0.5 per share - (709) (709)
Net change in unrealized losses on securities available
for sale, net of income tax expense of $1,016 - - 2,554
--- ------ ------
Balance at March 31, 1996 (495) 44,575 49,519
Net loss for the period - (2,971) (2,971)
Amortization of ESOP - - 249
Common stock issued to MRP - - -
Amortization of MRP 88 - 103
Dividends declared at $.125 per share - (352) (352)
Net change in unrealized losses on securities available
for sale, net of income tax expense of $428 - - 3,037
---- ------ ------
Balance at December 31, 1996 (unaudited) (407) 41,252 49,585
==== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the nine-month periods ended December 31, 1996 and
1995, the year ended March 31, 1996, the
ten-month period ended March 31, 1995
and the year ended May 31, 1994
(in thousands)
<TABLE>
<CAPTION>
Nine-months ended Year
December 31, ended
-------------------- March 31,
1996 1995 1996
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,971) (211) 615
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation of office properties and equipment 425 460 528
Loss (gain) on securities available for sale, net (373) 2,514 2,217
Loss (gain) on sales of real estate acquired in
settlement of loans (11) 52 7
Provision for loan losses 90 300 450
Proceeds from sales of real estate acquired in settlement
of loans 207 224 296
Provision for loss on property - - -
Amortization of ESOP and MRP shares 352 221 435
Amortization (accretion) of premiums and discounts on
investment securities and mortgage-backed securities (1,803) (11) 15
Net (decrease) increase in deferred loan fees (116) 2 (65)
Net (increase) decrease in accrued interest receivable,
net 115 (920) (540)
Net decrease (increase) in prepaid expenses 272 627 363
Net decrease (increase) in other assets (1,202) (885) 345
Net (decrease) increase in accrued expenses and other
liabilities 1,031 (810) (241)
Fair value adjustment of ESOP and MRP - 94 -
------- ------- -------
Total adjustments (1,013) 1,868 3,810
------- ------- -------
Net cash (used in) provided by operating activities (3,984) 1,657 4,425
------- ------- -------
Cash flows from investing activities:
(Increase) decrease in loans receivable (15,792) (10,000) (5,953)
(Purchase) sale of investments - 11,395 (10,000)
Principal payments and maturities of investments held to
maturity 78 (5,653) 42,853
Proceeds from maturities of securities available for sale 21,061 2,631 5,000
Proceeds from sales of securities available for sale 142,227 22,486 25,871
Purchases of securities available for sale (60,877) (150,399) (187,221)
(Purchase) sale of Federal Home Loan Bank stock 66 (1,586) (5,612)
Purchases of premises and equipment (371) (192) (141)
Net increase in investments and loans to joint ventures - - -
------- ------- -------
Net cash provided by (used in) investing activities 86,392 (131,318) (135,203)
====== ======== ========
Ten-
months Year
ended ended
March 31, May 31,
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) 2,191 3,993
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation of office properties and equipment 427 471
Loss (gain) on securities available for sale, net 547 (262)
Loss (gain) on sales of real estate acquired in
settlement of loans - (62)
Provision for loan losses 350 500
Proceeds from sales of real estate acquired in settlement
of loans 1,704 573
Provision for loss on property - 100
Amortization of ESOP and MRP shares 54 -
Amortization (accretion) of premiums and discounts on
investment securities and mortgage-backed securities (22) (343)
Net (decrease) increase in deferred loan fees 204 (425)
Net (increase) decrease in accrued interest receivable,
net 360 (927)
Net decrease (increase) in prepaid expenses 174 (486)
Net decrease (increase) in other assets (334) (1,400)
Net (decrease) increase in accrued expenses and other
liabilities 1,124 2,215
Fair value adjustment of ESOP and MRP - -
------ -------
Total adjustments 4,588 (47)
------ -------
Net cash (used in) provided by operating activities 6,779 3,946
------ -------
Cash flows from investing activities:
(Increase) decrease in loans receivable (30,543) 32,590
(Purchase) sale of investments (5,534) (83,828)
Principal payments and maturities of investments held to
maturity 1,340 27,746
Proceeds from maturities of securities available for sale - 355
Proceeds from sales of securities available for sale 25,000 319,337
Purchases of securities available for sale - (276,012)
(Purchase) sale of Federal Home Loan Bank stock 586 1,680
Purchases of premises and equipment (816) (602)
Net increase in investments and loans to joint ventures - (21)
------ -------
Net cash provided by (used in) investing activities (9,967) 21,245
====== ======
(Continued)
</TABLE>
F-5
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
Nine-months ended Year
December 31, ended
----------------------- March 31,
1996 1995 1996
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits $ (4,134) 3,403 1,044
Net (decrease) increase in advance payments by borrowers
for taxes and insurance 348 (211) (199)
Increase (decrease) in borrowings (70,519) 135,944 136,519
Stock subscriptions (refunded) received - - -
Purchase of ESOP shares - - -
Payment on ESOP debt (163) (163) (217)
Proceeds from ESOP debt - - -
Net proceeds of stock offering - - -
Transfer of working capital to holding company - - -
Dividends paid (351) (358) (690)
------- ------- -------
Net cash provided by (used in) financing activities (74,819) 138,615 136,457
------- ------- -------
Net increase (decrease) in cash and cash equivalents 7,589 8,954 5,679
Cash and cash equivalents at beginning of year 11,791 6,112 6,112
--------- ------- -------
Cash and cash equivalents at end of year $ 19,380 15,066 11,791
========= ======= =======
Supplemental schedule of noncash investing and financing activities:
Real estate acquired in settlement of loans and transfer
from investments in and loans to joint ventures, net $ 653 61 94
========= == ==
Taxes (received) paid $ 1,100 1,379 (210)
========= ===== ====
Interest paid $ 21,252 16,266 23,780
========= ====== ======
Transfer from HTM to AFS $ - 50,000 -
========= ====== ======
Implementation of MRP $ - 682 -
========= === ======
Ten-
months Year
ended ended
March 31, May 31,
1995 1994
---- ----
<S> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits (27,301) (10,023)
Net (decrease) increase in advance payments by borrowers
for taxes and insurance 647 (60)
Increase (decrease) in borrowings 14,000 (50,000)
Stock subscriptions (refunded) received (37,485) 37,485
Purchase of ESOP shares (1,086) -
Payment on ESOP debt (54) -
Proceeds from ESOP debt 1,086 -
Net proceeds of stock offering 12,010 -
Transfer of working capital to holding company (200) -
Dividends paid (156) -
------- -------
Net cash provided by (used in) financing activities (38,539) (22,599)
------- -------
Net increase (decrease) in cash and cash equivalents (41,727) 2,592
Cash and cash equivalents at beginning of year 47,839 45,247
------- -------
Cash and cash equivalents at end of year 6,112 47,839
======= =======
Supplemental schedule of noncash investing and financing activities:
Real estate acquired in settlement of loans and transfer
from investments in and loans to joint ventures, net 415 1,088
=== =====
Taxes (received) paid 1,377 3,280
===== =====
Interest paid 15,831 20,951
====== ======
Transfer from HTM to AFS - -
====== ======
Implementation of MRP - -
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 (Unaudited) and
March 31, 1996 and 1995
(1) Summary of Significant Accounting Policies
Principles of consolidation:
The consolidated financial statements include the accounts of First Savings
Bank of New Jersey (the Bank) and its wholly-owned subsidiaries, Bayonne Old
Mill Service Corp., Bayonne Service Corp. and The Final Bayonne Service
Corp. All significant intercompany balances and transactions have been
eliminated in consolidation.
Business:
The Bank provides a full range of banking services to individual and
corporate customers in New Jersey. The Bank is subject to competition from
other financial institutions and to the regulations of certain Federal and
state agencies and undergoes periodic examinations by those regulatory
authorities.
As a result of the plan of reorganization and stock issuance (see note 2),
the Bank adopted a reporting date to coincide with the calendar quarter
ended March 31. These consolidated financial statements are presented for
the nine-month periods ended December 31, 1996 and 1995, the year ended
March 31, 1996, the ten-month period ended March 31, 1995 and the year ended
May 31, 1994.
In the opinion of management, the accompanying unaudited consolidated
financial statements as of December 31, 1996 and for the nine-month periods
ended December 31, 1996 and 1995, include all recurring adjustments
considered necessary for a fair presentation. Operating results for the
interim period ended December 31, 1996 are not necessarily indicative of
results that may be expected for the year ended March 31, 1997.
The following are the significant accounting policies which were followed in
preparing and presenting these consolidated financial statements.
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 dates of the consolidated statements of financial condition and income.
Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan losses,
the reserve for losses on investments in and loans to joint ventures, and
the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowance
for loan losses, the reserve for losses on investments in and loans to joint
ventures, and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans, management generally obtains
independent appraisals for significant properties.
(Continued)
F-7
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, cont.
A substantial portion of the Bank's loans are secured by real estate in the
New Jersey market. In addition, although not significant, real estate owned
is located in that same market. Accordingly, as with most financial
institutions in the market area, the ultimate collectibility of a
substantial portion of the Bank's loan portfolio and the recovery of the
carrying amount of real estate owned are susceptible to changes in market
conditions.
Investment and mortgage-backed securities:
On June 1, 1993, the Bank adopted Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
(SFAS 115). Accordingly, investment and mortgage-backed securities that are
not categorized as either held to maturity or trading account securities are
classified as securities available for sale. Securities available for sale
include debt and mortgage-backed securities that are held for an indefinite
period of time and are not intended to be held to maturity, as well as
shares of mortgage-backed mutual funds. Securities available for sale
include securities that management intends to use as part of its overall
asset/liability management strategy and that may be sold in response to
changes in interest rates and resultant prepayment risk and other factors
related thereto. Securities available for sale are carried at fair value,
and unrealized gains and losses (net of related tax effects) on such
securities are excluded from earnings but are included in stockholders'
equity. Upon realization, such gains and losses will be included in earnings
using the specific identification method. Gains and losses on sales of
mutual fund shares are based upon the weighted average cost method.
Management determines the appropriate classification of investment and
mortgage-backed securities as either available for sale or held to maturity
at the purchase date. Investment securities and mortgage-backed securities,
other than those designated as available for sale or trading, are comprised
of debt securities that the Bank has the positive intent and ability to hold
to maturity. These securities held to maturity are carried at cost, adjusted
for amortization of premiums and accretion of discounts using the
level-yield method over the estimated lives of the securities.
Loans receivable:
Loans are carried at their unpaid principal amount, less unearned discounts,
net of deferred loan origination fees and costs and commitment fees.
Unearned discounts are recognized over the contractual lives of the loans
using the level-yield method.
The accrual of interest income and amortization of deferred fee income on
loans is generally discontinued when a loan is past due 120 days or more, or
when certain factors indicate reasonable doubt as to the timely
collectibility of such income. Loans that are past due on which the
(Continued)
F-8
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, cont.
accrual of income has been discontinued are designated as nonaccrual and all
previously accrued interest income is reversed. Interest income is
recognized subsequently only in the period collected. Loans are returned to
an accrual status when factors indicating doubtful collectibility on a
timely basis no longer exist.
Allowance for loan losses
A provision for loan losses is charged to operations based on management's
evaluation of the credit risk in its portfolio. Such evaluation includes a
review of all loans for which full collectibility may not be reasonably
assured and considers, among other matters, the estimated net realizable
value of the underlying collateral, economic conditions and other matters
which warrant consideration.
Management believes that the allowance for losses on loans is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions in their market area. In addition, various regulatory agencies,
as an integral part of their examination process, periodically review the
Bank's allowance for losses on loans. Such agencies may require the Bank to
recognize additions to the allowance based on their judgments about
information available to them at the time of their examination.
Loan impairment:
Statement of Financial Accounting Standards SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" (SFAS 114) and SFAS 118, "Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosures," were
adopted prospectively on April 1, 1995. These statements address the
accounting for impaired loans and specify how allowances for loan losses
related to these impaired loans are calculated. The Bank defined the
population of impaired loans to include nonaccrual loans in excess of
$500,000. Smaller balance homogeneous loans that are collectively evaluated
for impairment such as residential mortgage loans are specifically excluded
from the impaired loan portfolio. Adoption of these new standards had no
effect on the level of the allowance for loan losses or operating results
for the year ended March 31, 1996. SFAS 114 also provides that in-substance
foreclosed loans should not be included in real estate owned for financial
reporting purposes, but rather should be included in the loan portfolio.
Loan origination fees and costs:
Loan origination fees, net of certain direct loan origination costs, are
deferred and amortized into income over the lives of the related loans as an
adjustment to the related loan yields.
(Continued)
F-9
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, cont.
Loan servicing
The Bank services real estate loans for investors which are not included in
the accompanying consolidated statements of financial condition. Net fees
earned for servicing loans are reported as income when the related mortgage
loan payments are collected and are not significant. Loan servicing costs
are charged to expense as incurred.
Real estate acquired in settlement of loans
When properties are acquired through foreclosure or by deed in lieu of
foreclosure, they are transferred at estimated fair value, and any required
write-downs are charged to the allowance for loan losses. Subsequently, such
properties are carried at the lower of the adjusted cost or fair value less
estimated selling costs. Estimated fair value of the property is generally
based on an appraisal. The Bank maintains an allowance for real estate
losses for subsequent declines in estimated fair value. Certain costs
incurred in preparing properties for sale are capitalized. Expenses of
holding foreclosed properties, net of other income, are charged to
operations as incurred. Gains and losses from sales of such properties are
recognized as incurred.
Office properties and equipment
Depreciation on office properties and equipment, exclusive of land, is
computed using the straight-line method over the estimated useful lives of
the assets. Maintenance and repairs are charged to expense, improvements are
capitalized and gains or losses on disposals are credited or charged to
operations.
Income taxes
Effective June 1, 1993, the Bank adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109). The adoption of
SFAS 109 changes the Bank's method of accounting for income taxes from the
deferred method required under Accounting Principles Board Opinion No. 11 to
the asset and liability method under SFAS 109. Under the asset and liability
method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying value amounts of existing assets and liabilities and their
respective tax bases.
Pension plans
The Bank maintains a noncontributory defined benefit pension plan for the
benefit of all eligible employees. It is the Bank's policy to fund the plan
in an amount equal to at least the minimum contribution required by the
Employee Retirement Income Security Act of 1974 (ERISA).
Other postretirement benefit plans:
In addition to the Bank's defined benefit plan, the Bank provides a retiree
medical insurance plan to its retirees. The plan is first available to
retirees at the age of 65 years and with 30 years of service to the Bank.
(Continued)
F-10
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, cont.
Effective June 1, 1993, the Bank adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions" (SFAS 106), and elected immediate recognition of the
transition obligation. The adoption of SFAS 106 changes the Bank's method of
accounting for postretirement benefits from the cash basis to the accrual
method under SFAS 106.
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. For purposes of
the consolidated statements of cash flows, cash equivalents consist of
deposits in other financial institutions and short-term mutual funds.
Earnings per share:
Earnings per common share is calculated by dividing net income by the
weighted average number of shares of common stock and common stock
equivalents outstanding during the period. Comparative income per share data
is not presented for 1995 as the Bank completed its initial public offering
on January 9, 1995, and shares were not outstanding for the entire ten-month
period ended March 31, 1995. The weighted average number of shares
outstanding during the nine-month periods ended December 31, 1996 and 1995
and the year ended March 31, 1996 used in the earnings per share calculation
was 2,989,356, 2,949,333 and 2,956,187, respectively.
Reclassifications:
Certain reclassifications have been made to the 1995 and 1994 amounts to
conform to the 1996 presentation.
(2) Plan of Reorganization and Stock Issuance
In December 1993, the Board of Directors of the Bank unanimously adopted the
Plan of Reorganization from a Mutual Savings and Loan Association to a
Mutual Holding Company and Stock Issuance Plan, which plan was subsequently
amended (as amended, the Plan). Pursuant to the Plan, the Bank reorganized
from a New Jersey chartered mutual savings and loan association into a
Federal mutual holding company and concurrently formed a New Jersey
chartered capital stock savings and loan association subsidiary.
Following the completion of the reorganization, all depositors who had
membership or liquidation rights with respect to the Bank as of the
effective date of the reorganization will continue to have such rights
solely with respect to the holding company so long as they continue to hold
deposit accounts with the Bank. In addition, all persons who become
depositors of the Bank subsequent to the reorganization will have such
membership and liquidation rights with respect to the holding company.
Borrower members of the Bank at the time of the reorganization will have the
same membership rights in the holding company that they had in the Bank
immediately prior to the reorganization so long as their existing borrowings
remain outstanding. Borrowers will not receive membership rights in
connection with any new borrowings made after the reorganization.
(Continued)
F-11
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Plan of Reorganization and Stock Issuance, cont.
As part of the reorganization, the Bank was authorized to offer stock in one
or more offerings, up to a maximum of 49.9% of the issued and outstanding
shares of its common stock.
On April 15, 1994, the Bank received initial approval from the Office of
Thrift Supervision (OTS) to solicit subscribers for stock. The initial
subscription period ended on May 25, 1994. The Bank received $37.5 million
in cash subscriptions and $9.0 million in subscriptions via withdrawal
authorization from deposit accounts at the Bank.
On July 15, 1994, the Bank terminated the initial subscription offering and
returned all cash subscriptions due to lack of final OTS approval of the
transaction.
On January 9, 1995, the Bank completed its minority stock offering whereby
the Bank issued 1,358,000 shares at $10 per share for a total of $13.6
million, which represents a minority ownership of 45% of the Bank based upon
its valuation by an independent appraiser. The net proceeds of the stock
offering, after reflecting offering expenses of $1.6 million, were $12.0
million. The proceeds were added to the Bank's general funds to be used for
general corporate purposes.
As part of the reorganization to the stock form of ownership, the First
Savings Bank of New Jersey Employee Stock Ownership Plan (ESOP) purchased
109,000 shares of the Bank's common stock at $10 per share, or $1.1 million,
which was funded by a loan from an unaffiliated lender. The Bank intends to
make discretionary cash contributions to the ESOP sufficient to service the
amount borrowed.
In December 1996, the Board of Directors of Bayonne Bankshares, M.H.C., the
mutual holding company of the Bank, adopted a proposed Plan of Conversion to
convert Bayonne Bankshares, M.H.C. to stock form and to reorganize Bayonne
Bancshares, M.H.C., and the Bank by forming a new stock Delaware corporation
to become the parent company of the Bank. The new Delaware corporation will
exchange certain shares of its common stock for the outstanding common stock
of the Bank and will issue and offer for sale certain additional shares of
its common stock. The additional shares of common stock of the new Delaware
corporation will be offered to eligible account holders of the Bank as of
December 31, 1994, who will receive nontransferable subscription rights to
purchase these shares, as well as certain other persons as provided for in
the Plan. The amount and pricing of the proposed stock opportunity will be
based on an independent appraisal of the Bank.
(Continued)
F-12
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Plan of Reorganization and Stock Issuance, cont.
In connection with the proposed transaction, Bayonne Bankshares, M.H.C. will
file applications with the Office of Thrift Supervision and a registration
statement with the U.S. Securities and Exchange Commission with respect to
the reorganization and common stock offering. After receipt of the required
regulatory approvals, the Plan of Conversion will be submitted to the
members of Bayonne Bancshares, M.H.C. for approval by at least a majority of
the votes eligible to be cast at a special meeting and will also be
submitted by the Bank's stockholders for approval at a special meeting. The
transaction is expected to be completed during the second quarter of 1997.
(3) Regulatory Matters
Capital distributions, in the form of any dividend paid or other distribution
in cash or in kind, are limited by the OTS. A Tier 1 association, which is
defined as an association that has capital immediately prior to a proposed
capital distribution that is equal to or greater than the amount of its
fully phased-in capital requirement, is authorized to make capital
distributions during a calendar year up to the higher of 100% of its net
income to date during the calendar year plus the amount that would reduce by
one-half its surplus capital ratio at the beginning of the calendar year, or
75% of its net income over the most recent four-quarter period. The Bank is
a Tier 1 association.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA) was signed into law on August 9, 1989 and the regulations for
savings institutions' minimum capital requirements went into effect on
December 7, 1989. In addition to its capital requirements, FIRREA includes
provisions for changes in the Federal regulatory structure for institutions,
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 institution.
The regulations require institutions to have a minimum regulatory tangible
capital ratio equal to 1.5% of adjusted tangible assets, a minimum 3% core
capital ratio and an 8% risk-based capital ratio.
In addition, the OTS issued a final regulation on September 8, 1993, adding
an interest rate risk (IRR) capital component to its risk-based capital
rule. The effective date of the new rule has been delayed, but is expected
to occur shortly. The OTS will measure an institution's IRR using the OTS
market value model. An institution's IRR will be expressed as a change in
its net portfolio value (NPV) resulting from a hypothetical 200 basis point
increase or decrease in interest rates (whichever leads to a lower NPV)
divided by the present value of its assets. Institutions whose measured IRR
is less than or equal to 2% will not be required to maintain additional
capital for IRR.
(Continued)
F-13
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) 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 defined 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 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 Federal Deposit
Insurance Corporation (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 risk-based capital ratio of at least
6%, and a total risk-based capital ratio of at least 10%.
New Jersey banking statutes further restrict the amounts of dividends paid by
the Bank on its common stock to an amount which, following the payments of
such dividends, will not reduce paid-in capital and retained earnings to an
amount less than 50% of common stock or the payment of such dividend will
not reduce the statutory surplus of the Bank.
During the year ended March 31, 1996, the Bank declared cash dividends to
holders of common stock of the Bank amounting to $.50 per share. The Bank's
mutual holding company, waived the receipt of the cash dividends paid by the
Bank, and it currently intends to continue this policy. There can be no
assurance that the Bank's regulators will permit future dividend waivers or
the terms of such waivers. Total waived dividends amount to $1.7 million and
$1.0 million at December 31, 1996 and March 31, 1996, respectively.
(Continued)
F-14
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) Securities Available for Sale
As discussed in note 1, the Bank adopted SFAS 115 as of June 1, 1993. The
cumulative effect of this change in accounting for investments of $471,000,
net of income tax expense of $265,000, is determined as of June 1, 1993 and
is reported separately in the consolidated statement of income for the year
ended May 31, 1994.
In November 1995, the Financial Accounting Standards Board issued a special
report on the implementation of SFAS No. 115. This special report provided
an opportunity for a one time reassessment of the classification of
securities as of a single measurement date between November 15, 1995 and
December 31, 1995. In December 1995, the Bank recorded a transfer of $50.0
million of U.S. Government Agency Securities and U.S. Treasury notes to
available for sale from the held to maturity portfolio and subsequently sold
$25.0 million of the securities prior to December 31, 1995
Securities available for sale at December 31, 1996 and March 31, 1996 and
1995 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
------------ ---------- ----------- --------
<S> <C> <C> <C> <C>
December 31, 1996 (unaudited):
U.S. Government and agency
obligations $ 69,940 - 1,847 68,093
Mortgage-backed securities:
GNMA 20,464 - 99 20,365
FNMA 21,788 62 119 21,731
FHLMC 130,076 43 2,201 127,918
CMOs 12,779 - 277 12,502
Private issue 35,952 - 609 35,343
-------- --- ------ -------
$290,999 105 5,152 285,952
======== === ===== =======
</TABLE>
(Continued)
F-15
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) Securities Available for Sale, cont.
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
----------- ----------- ----------- -------
<S> <C> <C> <C> <C>
March 31, 1996:
U.S. Government and agency
obligations $ 94,868 - 1,994 92,874
Mutual funds 71,440 - 2,274 69,166
Mortgage-backed securities:
GNMA 81 - - 81
FNMA 30,771 - 199 30,572
FHLMC 152,962 - 3,116 149,846
CMOs 13,664 - 363 13,301
Private issue 27,448 - 567 26,881
------- --- ------ -------
$391,234 - 8,513 382,721
======== === ===== =======
March 31, 1995:
U.S. Government and agency
obligations 69,908 - 5,570 64,338
Mutual funds 67,089 - 3,020 64,069
Mortgage-backed securities: -
GNMA 90 - - 90
FNMA 15,464 - 1,214 14,250
FHLMC 26,428 - 1,150 25,278
CMOs 14,647 - 1,130 13,517
-------- --- ------ -------
$193,626 - 12,084 181,542
======== ====== =======
</TABLE>
The amortized cost and market value of securities available for sale at
December 31, 1996 and March 31, 1996 by contractual maturity are shown below
(in thousands). Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without penalties.
Amortized Market
cost value
---------- -------
December 31, 1996 (unaudited):
Due with one year $ - -
Due after one year through five years 51,981 51,019
Due after five years through ten years 14,967 14,213
Due after ten years 2,992 2,861
------- -------
Mortgage-backed securities 221,059 217,859
------- -------
$290,999 285,952
======== =======
March 31, 1996:
Due with one year 24,943 24,828
Due after one year through five years 49,963 48,631
Due after five years through ten years 14,964 14,437
Due after ten years 4,998 4,977
------- -------
94,868 92,873
Mutual funds 71,440 69,166
Mortgage-backed securities 224,926 220,682
------- -------
$391,234 382,721
======== =======
F-16
(Continued)
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) Securities Available for Sale, cont.
During the nine-month periods ended December 31, 1996 and 1995 and for the
year ended March 31, 1996, the ten-month period ended March 31, 1995 and the
year ended May 31, 1994, proceeds from sales of securities available for
sale of $142.2 million, $22.5 million, $25.9 million, $25.0 million and
$319.3 million, respectively, were received, resulting in gross gains of
$464,000, $0, $296,000, $0 and $1.3 million, respectively, and gross losses
of $3.3 million, $3.7 million, $2.5 million, $547,000 and $1.0 million,
respectively.
Pledged securities, under reverse repurchase agreements included above,
amount to $38.0 million and $87.9 million as of December 31, 1996 and March
31, 1996, respectively, and had an estimated market value of $36.6 million
and $86.1 million, respectively. The securities are predominantly United
States Government agency securities and are under the joint control of the
Bank and the counter party to the agreements at year end.
(5) Securities Held to Maturity
Securities held to maturity at December 31, 1996 and March 31, 1996 and 1995
are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
--------- -------- ---------- ------
<S> <C> <C> <C> <C>
December 31, 1996 (unaudited):
Tax-exempt obligations $ 2,422 107 - 2,529
U.S. Government and agency
obligations 8,855 - - 8,855
------- --- ----- ------
$11,277 107 - 11,384
======= === ===== ======
March 31, 1996:
Tax-exempt obligations $ 2,500 71 - 2,571
U.S. Government and agency
obligations 8,855 248 - 9,103
------- --- ----- ------
$11,355 319 - 11,674
======= === ----- ======
March 31, 1995:
Tax-exempt obligations 3,974 32 5 4,001
U.S. Government and agency
obligations 83,725 - 7,936 75,789
------ --- ----- ------
$87,699 32 7,941 79,790
======= == ===== ======
</TABLE>
(Continued)
F-17
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) Securities Held to Maturity, cont.
The amortized cost and market value of securities held to maturity at
December 31, 1996 and March 31, 1996 by contractual maturity are shown below
(in thousands). Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without penalties.
Amortized Market
cost value
--------- ------
December 31, 1996 (unaudited):
Due in one year or less $ 50 50
Due after one year through five years 8,955 8,956
Due after five years through ten years 982 1,028
Due after ten years 1,290 1,350
------ ------
$11,277 11,384
======= ======
March 31, 1996:
Due in one year or less 50 50
Due after one year through five years 9,005 9,256
Due after five years through ten years 983 1,018
Due after ten years 1,317 1,350
------- ------
$11,355 11,674
======= ======
(6) Loans Receivable, Net
A summary of loans receivable at December 31, 1996, March 31, 1996 and 1995
is as follows (in thousands):
March 31,
December 31, ----------------------
1996 1996 1995
------------ -------- -------
(unaudited)
Real estate loans:
One- to four-family residential $205,343 189,283 190,685
Multifamily and commercial 9,916 14,253 11,239
------- ------- -------
Total real estate loans 215,259 203,536 201,924
------- ------- -------
Consumer loans:
Home equity loans 28,029 24,851 20,677
Passbook 294 322 382
Other 468 341 355
------- ------- -------
Total consumer loans 28,791 25,514 21,414
------ ------ ------
Total loans 244,050 229,050 223,338
Unearned discounts and deferred fees (1,927) (2,043) (2,108)
Allowance for loan losses (2,929) (2,979) (2,676)
-------- ------- -------
$239,194 224,028 218,554
======== ======= =======
(Continued)
F-18
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Loans Receivable, Net, cont.
A summary of the activity in the allowance for loan losses for the nine-month
periods ended December 31, 1996 and 1995, the year ended March 31, 1996, the
ten-month period ended March 31, 1995 and the year ended May 31, 1994 is as
follows (in thousands):
<TABLE>
<CAPTION>
Ten
Nine-months ended Year months Year
December 31, ended ended ended
------------------ March 31, March 31, May 31,
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses
at beginning of period $2,979 2,677 2,677 2,918 2,597
Provision for loan losses 90 300 450 350 500
Charge-offs, net (140) (306) (148) (591) (179)
----- ----- ----- ----- -----
Allowance for loan losses
at end of period $2,979 2,671 2,979 2,677 2,918
</TABLE>
At December 31, 1996 and 1995, March 31, 1996 and 1995 and May 31, 1994,
first mortgage loans serviced by the Bank for investors amounted to
approximately $15.5 million, $20.1 million, $18.1 million, $21.7 million and
$24.6 million, respectively.
Nonaccrual loans totaled $3.8 million, $4.1 million, $4.8 million, $3.5
million and $5.4 million at December 31, 1996 and 1995, March 31, 1996, 1995
and May 31, 1994, respectively. In addition, at December 31, 1996 and 1995,
March 31, 1996, 1995 and May 31, 1994, loans receivable 120-days delinquent
and accruing interest totaled $450,000, $311,000, $456,000, $194,000 and
$204,000, respectively. The amount of interest income on nonaccrual loans,
which would have been recorded had these loans continued to pay interest at
the original contract rate, was approximately $510,000, $200,000, $468,000,
$241,000 and $440,000 for the nine-month periods ended December 31, 1996 and
1995, for the year ended March 31, 1996, the ten-month period ended March
31, 1995 and the year ended May 31, 1994, respectively.
The recorded investment in loans receivable considered impaired under the
provisions of SFAS 114, as adopted was $0 at December 31, 1996 and March 31,
1996.
At December 31, 1996, March 31, 1996 and 1995, loans to officers and
directors amounted to approximately $1.4 million, $739,000 and $828,000,
respectively. All loans were performing according to their terms.
(Continued)
F-19
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) Accrued Interest Receivable
A summary of accrued interest receivable at December 31, 1996, March 31, 1996
and 1995 is as follows (in thousands):
March 31,
Dec. 31, -------------------
1996 1996 1995
---- ---- ----
(unaudited)
Loans $1,628 1,584 1,476
Mortgage-backed securities 1,099 1,065 258
Investment securities 902 1,095 1,471
----- ----- -----
$3,629 3,744 3,205
(8) Investments in and Loans to Joint Ventures, Net
The Bank, through its wholly-owned subsidiaries Bayonne Service Corp. and
Bayonne Old Mill Service Corp. (Service Corp.), had entered into joint
venture agreements with builders and developers whereby the Bank and its
subsidiaries have made equity investments in and loans to these joint
ventures. The Bank had 50% interests in two joint ventures, Old Mill Estates
and Turtle Creek Associates (Turtle Creek). Old Mill Estates was liquidated
during the year ended May 31, 1993.
The Bank placed the loan to Turtle Creek on nonaccrual status during 1991. If
this loan had continued to realize interest in accordance with contractual
terms, approximately $40,000 of additional interest income would have been
realized for the year ended May 31, 1994.
The Bank sold its interest in the Turtle Creek joint venture in November 1993
for $425,000 in cash and a $48,000 note receivable, and recorded a $210,000
gain from real estate operations. At March 31, 1996 and 1995 and May 31,
1994, the Bank has no investments in or loans to joint ventures. However,
the Bank remains contingently liable for irrevocable letters of credit
amounting to $165,000, $165,000 and $598,000 at December 31, 1996, March 31,
1996 and 1995, respectively. The Bank's irrevocable letters of credit expire
annually, with automatic renewal clauses until completion of the project.
The letters of credit were issued to the City of Medford, and may be drawn
upon by the city in the event certain improvements are not completed on land
previously owned by the joint venture of the Bank.
(Continued)
F-20
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8) Investments in and Loans to Joint Ventures, Net, cont.
(Loss) gain from real estate operations, net, for the nine-month periods
ended December 31, 1996 and 1995, the year ended March 31, 1996, the
ten-month period ended March 31, 1995 and the year ended May 31, 1994 is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
Nine- Ten
months ended Year months Year
December 31, ended ended ended
--------------- March 31, March 31, May 31,
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Gain on sale of Turtle
Creek investment $ - - - 210
Other - (25) (25) (62) (38)
----- --- --- --- ---
$ - (25) (25) (62) 172
---- --- --- --- ---
</TABLE>
(9) Office Properties and Equipment, Net
Office properties and equipment at December 31, 1996, March 31, 1996 and 1995
are summarized as follows (in thousands):
March 31,
Dec. 31, ---------------------
1996 1996 1995
-------- ---- ----
(unaudited)
Land $1,693 1,693 1,693
Building and improvements 5,247 5,237 5,215
Furniture, equipment and
automobiles 3,343 2,876 2,757
------ ----- -----
10,283 9,806 9,665
Less accumulated depreciation
and amortization 4,337 3,806 3,278
------ ----- -----
$5,946 6,000 6,387
====== ===== =====
(Continued)
F-21
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) Deposits
Deposits at December 31, 1996, March 31, 1996 and 1995 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
As of December 31, 1996 (Unaudited)
-----------------------------------
Interest Weighted
rate average
range rate Amount %
-------- -------- ------ -----
<S> <C> <C> <C> <C>
Types of deposits:
Passbooks 2.92 2.92 $132,370 30.00
NOW accounts 2.44 2.44 29,736 6.74
Money market deposit accounts 2.44 2.44 14,192 3.22
Noninterest-bearing demand - - 10,664 2.42
Club accounts - - 442 0.09
------- -----
187,404 42.47
Certificates of deposit 4.34-9.50 5.97 253,885 57.53
------- -----
Total deposits $441,289 100.00
======== ======
As of March 31, 1996
-----------------------------
Interest Weighted
rate average
range rate Amount %
-------- -------- ------ -----
<S> <C> <C> <C> <C>
Types of deposits:
Passbooks 2.92% 2.90% $134,939 30.29
NOW accounts 2.44 2.48 30,288 6.80
Money market deposit accounts 2.44 2.50 14,279 3.21
Noninterest-bearing demand - - 8,333 1.87
Club accounts - - 671 0.15
------- ------
188,510 42.32
Certificates of deposit 2.92-9.50 6.03% 256,914 57.68
-------- ------
Total deposits $445,424 100.00
======== ======
As of March 31, 1995
-----------------------------
Interest Weighted
rate average
range rate Amount %
-------- -------- ------ -----
<S> <C> <C> <C> <C>
Types of deposits:
Passbooks 2.92% 2.92% $142,837 32.14
NOW accounts 2.44 2.21 27,772 6.25
Money market deposit accounts 2.44 2.44 16,095 3.62
Noninterest-bearing demand - - 5,185 1.17
Club accounts - - 707 0.15
------- ------
192,596 43.33
Certificates of deposit 2.96-9.50 6.10 251,784 56.67
------- ------
Total deposits $444,380 100.00
======== ======
</TABLE>
(Continued)
F-22
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) Deposits, cont.
Certificates of deposit at December 31, 1996 and March 31, 1996 have
scheduled maturities as follows (in thousands):
December 31, 1996 (unaudited):
Within one year $ 68,969
One to three years 173,810
Three to five years 11,106
-------
$253,885
========
March 31, 1996:
Within one year 155,224
One to three years 90,747
Three to five years 10,538
Thereafter 405
--------
$256,914
========
Interest expense on deposits for the nine-month periods ended December 31,
1996 and 1995, the year ended March 31, 1996, the ten-month period ended
March 31, 1995 and the year ended May 31, 1994 is comprised of the following
(in thousands):
<TABLE>
<CAPTION>
Ten-
Nine-months ended Year months Year
December 31, ended ended ended
-------------------- March 31, March 31, May 31,
1996 1995 1996 1995 1994
---- ---- -------- --------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Regular, club and certificates
of deposit $14,860 14,705 19,611 14,633 18,093
NOW and money market checking 859 838 1,149 995 1,174
------ ------ ------ ------ ------
$15,719 15,543 20,760 15,628 19,267
======= ====== ====== ====== ======
Time deposits of $100,000 or more totaled approximately $45.5 million, $42.9
million and $30.5 million as of December 31, 1996, March 31, 1996 and 1995,
respectively.
(11) Borrowings
Borrowings are summarized as follows (in thousands):
March 31,
December 31, -----------------------
1996 1996 1995
------------ ---- ----
(unaudited)
<S> <C> <C> <C>
FHLB advances $ 50,000 59,600 14,000
Securities sold under agreements
to repurchase 30,000 90,919 -
------ ------- ------
Total borrowings $ 80,000 150,519 14,000
======== ======= ======
</TABLE>
(Continued)
F-23
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(11) Borrowings, cont.
The FHLB advances are as follows at December 31, 1996, March 31, 1996 and
1995(in thousands):
<TABLE>
<CAPTION>
Available Drawn Rate Maturity
----------- -------- ------ ----------
<S> <C> <C> <C> <C>
December 31, 1996 (unaudited):
Term loans: $10,000 10,000 5.59% Jan. 1999
10,000 10,000 5.51 Jan. 1998
5,000 5,000 5.47 Jan. 1997
25,000 25,000 5.57 Jan. 2001
------ ------
Total $50,000 50,000
======= ======
March 31, 1996:
Revolving line of credit $25,600 25,600 5.50% Daily
Companion line of credit 25,600 9,000 5.50 Daily
Term loans: 10,000 10,000 5.59 Jan. 1999
10,000 10,000 5.51 Jan. 1998
5,000 5,000 5.47 Jan. 1997
------ ------
Total $76,200 59,600
======= ======
March 31, 1995:
Revolving line of credit $14,000 14,000 5.88% Daily
======= ======
</TABLE>
The lines of credit and term loans are secured by certain mortgage loans
under a blanket collateral agreement.
The securities sold under agreements to repurchase at December 31, 1996 and
March 31, 1996, are as follows (in thousands):
Counter party Amount Rate Maturity
------------- ------ ---- --------
December 31, 1996:
FHLB of New York $15,000 5.72% Nov.1998
FHLB of New York 15,000 5.51 Nov.1997
------
Total $30,000
March 31, 1996:
FHLB of New York 36,400 5.42% Apr.1996
FHLB of New York 54,519 5.37 Apr.1996
------
Total $90,919
The maximum amount outstanding under such agreements during the nine-month
period ended December 31, 1996 and the year ended March 31, 1996 $91.0
million, $90.9 million, respectively and the average amount outstanding was
$78.2 million and $22.6 million, respectively.
(Continued)
F-24
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(12) Income Taxes
Under tax law that existed prior to 1996, the Bank was generally allowed a
special bad debt deduction in determining income for tax purposes. The
deduction was based on either specified experience formulas or a percentage
of taxable income before such deduction. Legislation was enacted in August
1996 which repealed for tax purposes the percentage of taxable income bad
debt reserve method. As a result, the Bank must use the direct charge-off
method to complete its bad debt deduction. The legislation also requires the
Bank to recapture its post-1987 net additions to the tax bad debt reserves,
the Bank has previously accrued for this liability in the consolidated
financial statements.
Retained earnings at December 31, 1996 includes approximately $11.5 million
for which no provision for income tax has been made. This amount represents
an allocation for income to bad debt deductions for tax purposes only.
Events that would result in taxation of these reserve include failure to
qualify as a bank for tax purposes, distributions in complete or partial
liquidation, stock redemptions and excess distributions to shareholders. At
December 31, 1996, the Bank had an unrecognized deferred tax liability of
$4.1 million with respect to this reserve.
As discussed in note 1, the Bank adopted SFAS 109 as of June 1, 1993. The
cumulative effect of this change in accounting for income taxes of $400,000
is determined as of June 1, 1993 and is reported separately in the
consolidated statement of income for the year ended May 31, 1994.
Income tax expense (benefit) for the nine-months ended December 31, 1996 and
1995, the year ended March 31, 1996, the ten-month period ended March 31,
1995 and the year ended May 31, 1994 is comprised of the following
components (in thousands):
<TABLE>
<CAPTION>
Nine-
months ended Year Ten-months Year
December 31, ended ended ended
---------------- March 31, March 31, May 31,
1996` 1995 1996 1995 1994
----- ---- ---------- ---------- -----
(unaudited)
<S> <C> <C> <C> <C> <C>
Current income tax expense:
Federal $ 509 169 87 1,351 2,424
State 166 26 15 80 87
--- --- --- ----- -----
675 195 102 1,431 2,511
--- --- --- ----- -----
Deferred income tax expense (benefit):
Federal (283) (281) 257 (183) (249)
State (95) (26) 15 (12) (15)
--- --- --- ----- -----
(378) (307) 272 195) (264)
- - - - -
Total income tax expense
(benefit) $(297) (112) 374 1,236 2,247
===== ==== === ===== =====
</TABLE>
Also, as described in notes 1 and 4, the Bank adopted SFAS 115 as of June 1,
1993. As a result of this standard, deferred tax of $428,000, $1.0 million
and $248,000 has been recorded directly through equity during the nine-month
period ended December 31, 1996, the year ended March 31, 1996 and the
ten-month period ended March 31, 1995, respectively.
(Continued)
F-25
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(12) Income Taxes, cont.
A reconciliation between the effective income tax expense and the expected
amount computed using the applicable statutory Federal income tax rate for
the nine-month periods ended December 31, 1996 and 1995, the year ended
March 31, 1996, the ten-month period ended March 31, 1995 and the year ended
May 31, 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
Nine- Ten-
months ended Year months Year
December 31, ended ended ended
------------------ Mar. 31, Mar. 31, May 31,
1996 1995 1996 1995 1994
---- ---- -------- -------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Income before income taxes $(2,674) (324) 989 3,427 6,586
Applicable statutory Federal
tax rate 34% 34% 34% 34% 34%
Expected Federal income tax
expense (909) (110) 336 1,165 2,239
State tax net of Federal benefit 47 - 19 53 48
Decrease in Federal income
tax benefit resulting from
- tax-exempt income (16) (18) (31) (51) (66)
Valuation allowance 972 - - 186 -
Other 203 16 49 (117) 26
----- ----- --- ----- -----
$ 297 (112) 373 1,236 2,247
======= ===== === ===== =====
Effective tax rate N/A 34.6% 37.8% 36.1% 34.1%
======= ===== === ===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset at December 31, 1996, March 31, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
Federal State Total
--------- ------- -------
<S> <C> <C> <C>
December 31, 1996 (unaudited):
Deferred tax assets:
Allowance for doubtful accounts $ 1,131 103 1,234
Loss carryforward 891 81 972
Loan fees 313 29 342
Deferred directors' compensation 105 9 114
Uncollected interest 168 15
Unrealized loss on securities
available for sale 1,665 151
Postretirement benefits 1,428 130 1,558
Other 89 8 97
Valuation allowance (891) (817) (972)
------ ---- -----
4,899 445 5,344
Deferred tax liabilities:
Tax reserve for loan losses 744 68 812
Depreciation 66 6 72
Other 4 - 4
------ --- -----
Net deferred tax asset $ 4,085 371 4,456
======= === =====
</TABLE>
(Continued)
F-26
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(12) Income Taxes, cont.
<TABLE>
<CAPTION>
Federal State Total
-------- ------- -------
<S> <C> <C> <C>
March 31, 1996:
Deferred tax assets:
Allowance for doubtful accounts $ 1,183 69 1,252
Loan fees 678 40 718
Deferred directors' compensation 120 7 127
Uncollected interest 333 19 352
Unrealized loss on securities
available for sale 2,894 169 3,063
Postretirement benefits 797 46 843
Other 373 22 395
Valuation allowance (773) (45) (818)
----- --- -----
5,605 327 5,932
Deferred tax liabilities:
Tax reserve for loan losses 1,156 67 1,223
Depreciation 184 11 195
Other 7 - 7
------- --- -----
Net deferred tax asset $ 4,258 249 4,507
======= === =====
Federal State Total
-------- ------- -------
March 31, 1995:
Deferred tax assets:
Allowance for doubtful accounts $ 132 8 140
Loan fees 691 40 731
Deferred directors' compensation 141 8 149
Uncollected interest 119 7 126
Unrealized loss on securities
available for sale 4,109 239 4,348
Postretirement benefits 731 43 774
Other 745 43 788
Valuation allowance (1,027) (60) (1,087)
----- --- -----
5,641 328 5,969
Deferred tax liabilities:
Depreciation 153 9 162
Other 7 1 8
------- --- -----
Net deferred tax asset $ 5,481 318 5,799
======= === =====
</TABLE>
(Continued)
F-27
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(12) Income Taxes, cont.
The valuation allowance decreased from $1.1 million at March 31, 1995 to
$818,000 at March 31, 1996 and increased to $972,000 at December 31, 1996.
The valuation allowance relates to temporary differences in the unrealized
loss on certain securities available for sale, as these losses, if realized,
may not be available to offset ordinary income.
Management has determined that it is more likely than not that it will
realized the deferred tax assets based upon the nature and timing of the
items listed above. There can be no assurances, however, that there will be
no significant differences in the future between taxable income and pre-tax
book income if circumstances change. In order to fully realize the net
deferred tax asset, the Bank will need to generate future taxable income.
Management has projected that the Bank will generate sufficient taxable
income to utilize the net deferred tax asset; however, there can be no
assurance as to such levels of taxable income generated.
(13) Benefit Plans
(a)Pension Plan
The Bank has a qualified, noncontributory defined benefit pension plan
covering all eligible employees. Retirement benefits are based upon a
formula utilizing years of service and average monthly compensation, as
defined. It is the Bank's policy to fund the maximum amount that can be
deducted for Federal income tax purposes.
The following table sets forth the plan's funded status and amounts
recognized as of March 31, 1996 and 1995:
1996 1995
---- ----
Actuarial present value of benefit
obligations accumulated benefit obligations:
Vested $4,500 4,000
Nonvested 8 8
----- -----
$4,508 4,008
====== =====
Projected benefit obligation for
service rendered to date 5,743 5,162
Plan assets at fair value 5,704 5,438
----- -----
(Deficit)/excess of plan assets over
projected benefit obligation (39) 276
Unrecognized net gain deferred - (8)
Unrecognized net transition liability 29 35
----- -----
(Accrued) prepaid pension cost $ (10) 303
====== ===
(Continued)
F-28
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(13) Benefit Plans, cont.
The components of net pension expense for the year ended March 31, 1996, the
ten-month period ended March 31, 1995 and the year ended May 31, 1994 are as
follows:
1996 1995 1994
---- ---- ----
Service cost - benefits
earned during the period $ 219 221 204
Interest cost on projected
benefit obligation 361 343 309
Actual return on plan assets (365) (332) (299)
Net amortization and deferral (6) 17 13
--- --- ---
Net pension expense $ 209 249 227
===== === ===
Assumptions used to develop the net periodic pension cost for the year ended
March 31, 1996, the ten-month period ended March 31, 1995 and the year ended
May 31, 1994 are as follows:
1996 1995 1994
---- ---- ----
Discount rate 7% 7% 7%
Expected long-term rate of
return on assets 7 7 7
Rate of increase in
compensation levels 5 5 5
= = =
The Bank maintains nonqualified supplemental executive retirement
income-deferred compensation agreements (Executive Agreements) for certain
executives of the Bank and their beneficiaries. At December 31, 1996, there
were two executive employees participating in the Executive Agreements. The
Executive Agreements are considered unfunded plans for tax and ERISA
purposes. All obligations arising under the Executive Agreements are payable
from the general assets of the Bank.
(Continued)
F-29
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(13) Benefit Plans, cont.
(b) Employee Stock Ownership Plan
The Bank has an ESOP for the benefit of employees who meet the eligibility
requirements which include having completed five years of service with the
Bank. The ESOP Trust purchased 109,000 shares of common stock in the Bank's
initial public offering with proceeds from a loan from an unaffiliated
lender. The Bank makes cash contributions to the ESOP on an annual basis
sufficient to enable the ESOP to make the required loan payments to the
unaffiliated lender.
The note payable referred to above bears interest at the lender's prime rate
which was 8.25% at December 31, 1996 and March 31, 1996, with interest and
principal payable quarterly in installments over five years. During the
nine-month period ended December 31, 1996 and the year ended March 31, 1996,
$41,000 and $34,000, respectively, of dividends paid on ESOP shares were
used to pay down the ESOP debt. The loan is secured by the shares of the
stock purchased and by compensating balances of $300,000 in Federal funds at
the unaffiliated lending institution.
As the debt is repaid, shares are released from collateral and allocated to
qualified employees based on the proportion of debt service paid in the year
although rights to the shares do not vest until the fifth year. Shares
pledged as collateral are reported as deferred ESOP shares in the
consolidated statements of financial position. As shares are released from
collateral, the Bank reports compensation expense equal to the current
market price of the shares, and the shares become outstanding for earnings
per share computations.
Accordingly, during the nine-months ended December 31, 1996 and the year
ended March 31, 1996, the unearned ESOP shares were amortized by $164,000
and $217,000, respectively. At December 31, 1996, 81,000 shares were
unallocated and had a fair value of $1.2 million.
(c) Management Recognition Plan
During July 1995, subsequent to stockholders' approval, the Bank transferred
45,000 shares of authorized but unissued common stock to the management
recognition plan. The Bank has approval for a total of 54,000 shares that
may be transferred before further stockholders' approval is required. In
July 1996, 8,975 shares were awarded under the plan to current employees and
4,345 shares on September 1996 to a retired employee.
(d) Stock Option Plans
At the 1995 annual meeting of the Bank's stockholders a stock option plan was
approved, authorizing 136,000 shares available to be granted to certain
directors, officers and employees of the Bank. Options granted under the
plan at December 31, 1996 and March 31, 1996 amount to 113,000 shares and
are exercisable at $13.00 per share. The options vest over a five-year term,
and expire after ten years from the date of grant. For the nine-months ended
December 31, 1996, 7,692 shares were exercised at a price of $13.00 per
share.
(Continued)
F-30
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(14) Postretirement Benefits
As discussed in note 1, the Bank adopted SFAS 106 as of June 1, 1993 and
elected immediate recognition of the transition obligation. The cumulative
effect of this accounting change is $1.2 million (net of a $684,000 tax
benefit) and is reported separately in the consolidated statement of income
for the year ended May 31, 1994.
Netpostretirement benefit costs for the year ended March 31, 1996, the
ten-month period ended March 31, 1995 and the year ended May 31, 1994 are as
follows:
Ten-
Year months Year
ended ended ended
Mar. 31, Mar. 31, May 31,
1996 1995 1994
------- -------- -------
Service cost $ 65 48 70
Interest cost on accumulated
postretirement benefit
obligation 114 120 132
Amortization of unrecognized
net gain (14) - -
---- --- ---
$165 168 202
==== === ===
For measurement purposes, the cost of medical benefits was projected to
increase at a rate of 13% in 1994, thereafter decreasing 1% per year until a
stable 5% medical inflation rate is reached. The present value of the
accumulated benefit obligation assumed a 7% discount rate compounded
annually. The plan is unfunded as of March 31, 1996, as the Bank funds the
plan on a cash basis.
(15) Commitments and Contingencies
The Bank is a party to commitments to extend credit in the normal course of
business to meet the financial needs of its customers. Commitments to extend
credit are agreements to lend money to a customer as long as there is no
violation of any condition established in the contract. Commitments to fund
mortgage loans generally have fixed expiration dates or other termination
clauses, whereas home equity lines of credit have no expiration date. Since
some commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
The Bank evaluates each customer's creditworthiness on a case-by-case basis.
Collateral is not required by the Bank for loan commitments. The Bank's
loans are located primarily in the State of New Jersey.
(Continued)
F-31
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(15) Commitments and Contingencies, cont.
At December 31, 1996, March 31, 1996 and 1995, the Bank had loan commitments
of $4.2 million, $11.5 million and $6.4 million, respectively, consisting
primarily of fixed rate loans which are not included in the accompanying
consolidated financial statements. The commitments at December 31, 1996 have
commitment periods that range from 90 to 120 days and interest rates that
range from 6.625% to 15.50%. There is no exposure to credit loss in the
event the other party to commitments to extend credit does not exercise its
right to borrow under the commitment.
In the normal course of business, the Bank may be a party to various
outstanding legal proceedings and claims. In the opinion of management, the
financial position of the Bank will not be materially affected by the
outcome of such legal proceedings and claims.
(16) Fair Value of Financial Instruments
In December 1991, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 107, "Disclosure about Fair Value of
Financial Instruments" (SFAS 107). SFAS 107 requires disclosures of
information about the fair value of all financial instruments. The fair
value of a financial instrument is the amount at which the asset or
obligation could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. Fair value estimates
are made at a specific point in time based on relevant market information
and information about the financial instrument. Such estimates do not
include 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 value exists for a significant portion of the financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics
of various financial instruments, and other assumptions, many of which
involve circumstances outside the control of management. Because of the
uncertainties surrounding these factors and assumptions, the reported fair
values represent estimates only and, therefore, cannot be compared to the
historical accounting model. Changes in assumptions or methodologies could
significantly affect the estimates of fair value.
Fair value estimates presented are based on financial instruments both on-
and off-balance-sheet, and no attempt has been made to estimate the value of
anticipated future business and the value of assets and liabilities that are
not considered financial instruments. In addition, the tax consequences
related to the realization of the unrealized gains and losses can have a
potential effect on fair value estimates and have not been considered in any
of the estimates. The fair value information supplements the basic
consolidated financial statements and other traditional financial data
presented throughout the consolidated financial statements, and the
aggregate fair value of financial instruments presented does not represent
the underlying value of the Bank taken as a whole and should not be compared
with the fair value of other financial institutions, which may differ
depending on the assumptions used and the valuation techniques employed.
(Continued)
F-32
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(16) Fair Value of Financial Instruments, cont.
The following methods and assumptions were used to estimate the fair value of
significant financial instruments at March 31, 1996 and 1995:
Financial Assets:
The carrying amount of cash and cash equivalents is considered to approximate
fair value. The fair values of securities available for sale and investment
securities are based on quoted market prices. The fair value of loans
represents the present value of the estimated future cash flows discounted
at estimates of market interest rates adjusted for criteria discussed above.
Fair value of significant nonperforming loans is generally based on
appraisals of collateral securing such loans. If such appraisals are not
available, estimated cash flows are discounted employing a rate that
incorporates the risk associated with such cash flows. The fair value of the
FHLB and FHLMC stock is the same as its carrying value.
Financial Liabilities:
The carrying amounts of deposit liabilities payable on demand are considered
to approximate fair value. The fair value of fixed maturity deposits was
estimated by discounting estimated future cash flows using rates currently
offered for deposit products with similar maturities. Long-term borrowing
fair values are discounted using rates available on borrowings with similar
terms and maturities.
Off-balance-sheet Financial Instruments:
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar arrangements. The fair value of
letters of credit is based on the estimated costs to terminate them or
otherwise settle the obligations with the counterparts.
The carrying amounts and related fair values at March 31, 1996 and
1995 are as follows:
1996
-------------------------
Carrying Fair
amount value
-------- -----
Financial assets:
Cash and cash equivalents $ 11,791 11,791
Securities available for sale 382,721 382,721
Securities held to maturity 11,355 11,674
Net loans 224,028 228,469
FHLB stock 7,526 7,526
Financial liabilities - deposits 445,424 451,167
======= =======
(Continued)
F-33
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(16) Fair Value of Financial Instruments, cont.
1995
------------------------
Carrying Fair
amount value
--------- -------
Financial assets:
Cash and cash equivalents $ 6,112 6,112
Securities available for sale 181,542 181,542
Securities held to maturity 87,699 79,790
Net loans 218,534 221,666
FHLB stock 3,205 3,205
Financial liabilities - deposits 444,380 446,037
Off-balance-sheet instruments -
letters of credit - unrealized
loss - 50
======== =======
(17) Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123). This statement establishes financial
accounting and reporting standards for stock-based employee compensation
plans. SFAS 123 encourages all entities to adopt the "fair value based
method" of accounting for employee stock compensation plans. However, SFAS
123 also allows an entity to continue to measure compensation cost under
such plans using the "intrinsic value based method." Under the fair value
based method, compensation cost is measured at the grant date based on the
value of the award and is recognized over the service period, usually the
vesting period. Fair value is determined using an option pricing model that
takes into account the stock price at the grant date, the exercise price,
the expected life of the option, the volatility of the underlying stock and
the expected dividends on it, and the risk-free interest rate over the
expected life of the option. Under the intrinsic value based method,
compensation cost is the excess, if any, of the quoted market price of the
stock at grant date or other measurement date over the amount an employee
must pay to acquire the stock. Most stock plans have no intrinsic value at
date of grant, and under previous accounting guidance, no compensation cost
was to be recognized.
The accounting requirements of this statement are effective for transactions
entered into in fiscal years that begin after December 15, 1995. The Bank
intends to continue accounting for compensation cost under the intrinsic
value based method and will provide pro forma disclosures for all awards
granted after March 31, 1995 in the Bank's consolidated financial statements
as of March 31, 1997. Such disclosures include net income and earnings per
share as if the fair value based method of accounting had been applied.
(Continued)
F-34
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(17) Recent Accounting Pronouncements, cont.
In June 1996, the Financial Accounting Standards Board (FASB) issued SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". SFAS 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishment
of liabilities. These standards are based on consistent application of a
financial-component approach that focuses on control. Under this approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. SFAS 125 provides consistent
standards for distinguishing transfers of financial assets that are sales
from transfers that are secured borrowings. SFAS 125 is effective for
transfers occurring after December 31, 1996 and has been applied
prospectively.
In December 1996, the FASB issued SFAS No. 127, "Deferral of the Effective
Date of Certain Provisions of FASB Statement No. 125", an amendment of SFAS
125. SFAS 127 defers for one year the effective date of portions of SFAS 125
that address secured borrowings and collateral for all transactions.
Additionally, SFAS 127 defers for one year the effective date of transfers
of financial assets that are part of repurchase agreements, securities
lending and similar transactions. The adoption of SFAS 125 and SFAS 127 is
not expected to have a material effect on the Bank's future financial
position or results of operations.
(18) Related-party Transactions
The Bank has paid amounts of $27,000, $16,000, $23,000 and $31,000 for the
nine-months ended December 31, 1996, the year ended March 31, 1996, the
ten-month period ended March 31, 1995 and the year ended May 31, 1994,
respectively, to a director of the Bank for legal services in connection
with the acquisition of real estate on foreclosed loans. The Bank has also
paid amounts of $15,000, $20,000, $20,000 and $24,000 for the nine-months
ended December 31, 1996, the year ended March 31, 1996, the ten-month period
ended March 31, 1995 and the year ended May 31, 1994, respectively, to a
director for inspection fees of properties maintained by the Bank in the
real estate portfolio.
F-35
<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 Bayonne Bancshares, Inc., 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 Bayonne Bancshares, Inc. or the Bank since any of the
dates as of which information is furnished herein or since the date hereof.
-----------------------------
TABLE OF CONTENTS
Page
----
Summary....................................................................
Selected Financial and Other Data..........................................
Risk Factors .............................................................
Bayonne Bancshares, Inc....................................................
Bayonne Bankshares, M.H.C..................................................
First Savings Bank of New Jersey, SLA......................................
Regulatory Capital Compliance..............................................
Use of Proceeds............................................................
Dividend Policy............................................................
Market for the Common Stock................................................
Capitalization.............................................................
Pro Forma Data.............................................................
Comparison of Valuation and Pro Forma
Information with No Foundation........................................
First Savings Bank of New Jersey, SLA
and Subsidiaries Consolidated Statements
of Income.............................................................
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.....................................................
Beneficial Ownership of Capital Stock......................................
The Conversion and Reorganization..........................................
Comparison of Stockholders' Rights.........................................
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.................................
-----------------------------
UNTIL _________, 1997 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 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.
================================================================================
7,306,000 Shares
BAYONNE BANCSHARES, INC.
(Proposed Holding Company for
First Savings Bank of New Jersey, SLA)
COMMON STOCK
__________
PROSPECTUS
__________
________, 1997
Sandler O'Neill & Partners, L.P.
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.(1)
OTS filing fee...................................................... $ 14,400
SEC filing fee(1)................................................... 30,530
NASD filing fee(1).................................................. 9,354
Exchange listing fee(1)............................................. 39,634
Printing, postage and mailing....................................... 44,000
Legal fees and expenses ............................................ 250,000
Accounting fees and expenses........................................ 100,000
Appraiser's fees and expenses (including
business plan).................................................... 50,000
Marketing fees and selling commissions (1).......................... 714,000
Underwriter's expenses (including underwriters
counsel fees)(1)................................................. 50,000
Proxy solicitation and record management
fees and expenses................................................ 22,500
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....................................................... 582
TOTAL ............................................................ $1,400,000
==========
- ----------
(1) Actual expenses based upon the registration of 8,853,600 shares at $10.00
per share, including shares issued to the Bayonne First Charitable
Foundation. 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
II-1
<PAGE>
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.
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.
II-2
<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.
II-3
<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)
1.1 Engagement Letter between First Savings Bank of New Jersey, SLA and
Sandler O'Neill & Partners, L.P.
1.2 Draft Form of Agency Agreement*
2.1 Amended Plan of Conversion and Agreement and Plan of Reorganization
3.1 Certificate of Incorporation of Bayonne Bancshares, Inc.
3.2 Bylaws of Bayonne Bancshares, Inc.
3.3 Certificate of Incorporation and Bylaws of First Savings Bank of New
Jersey, SLA
4.0 Draft Stock Certificate of Bayonne Bancshares, Inc.
5.0 Draft Opinion of Muldoon, Murphy & Faucette re: legality
5.1 Draft Opinion of Morris, Nichols, Arsht & Tunnell re: legality
8.0 Draft Opinion of KPMG Peat Marwick LLP re: Federal and State Tax Matters
10.1 Form of First Savings Bank of New Jersey, SLA and Bayonne Bankshares,
M.H.C. 1995 Stock Option Plan.
10.2 Form of First Savings Bank of New Jersey, SLA and Bayonne Bankshares,
M.H.C. 1995 Recognition and Retention Plan.
10.3 Form of First Savings Bank of New Jersey, SLA 1995 Employee Stock
Ownership Plan and Trust.
10.4 Draft ESOP Loan Commitment Letter and ESOP Loan Documents.*
10.5 Form of Supplemental Executive Retirement Income-Deferred Compensation
Agreement between First Savings Bank of New Jersey, SLA and certain
executive officers.
10.6 Form of Employment Agreement between First Savings Bank of New Jersey, SLA
and certain executive officers.
10.7 Form of Employment Agreement between Bayonne Bancshares, Inc. and certain
executive officers.
10.8 Form of Change in Control Agreement between First Savings Bank of New
Jersey, SLA and certain executive officers.
10.9 Form of Change in Control Agreement between Bayonne Bancshares, Inc. and
certain executive officers.
10.10 Form of First Savings Bank of New Jersey, SLA Employee Severance
Compensation Plan.
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Muldoon, Murphy & Faucette
23.3 Consent of Morris, Nichols, Arsht & Tunnell
23.4 Consent and Subscription Rights Opinion of FinPro, Inc.
24.1 Powers of Attorney
27.0 Financial Data Schedule
99.1 Form of Bayonne First Charitable Foundation Gift Instrument*
99.2 Agreement Regarding Listing on a Securities Exchange*
99.3 Proxy Materials and Form of Revocable Proxy for First Savings Bank of New
Jersey, SLA Stockholders
- ----------
*To be filed by amendment
II-4
<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 and will be governed by the final adjudication of
such issue.
II-5
<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 City of Bayonne, State of New
Jersey, on March 12, 1997.
BAYONNE BANCSHARES, INC.
By: /s/ Michael Nilan
-------------------------------------
Michael Nilan
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.
Name Date
---- ----
/s/ Patrick F.X. Nilan March 12, 1997
- -------------------------------------------
Patrick F.X. Nilan
Chairman of the Board
/s/ Michael Nilan March 12, 1997
- -------------------------------------------
Michael Nilan
President and Chief Executive Officer
/s/ Eugene V. Malinowski March 12, 1997
- -------------------------------------------
Eugene V. Malinowski
Vice President and Chief Financial Officer
(principal accounting and financial officer)
/s/ Patrick D. Conaghan March 12, 1997
- -------------------------------------------
Patrick D. Conaghan
Director
/s/ Sam P. Lamparello March 12, 1997
- -------------------------------------------
Sam P. Lamparello
Director
/s/ James F. Sisk March 12, 1997
- -------------------------------------------
James F. Sisk
Director
/s/ Frederick G. Whelply March 12, 1997
- -------------------------------------------
Frederick G. Whelply
Director
/s/ Joseph L. Wisniewski March 12, 1997
- -------------------------------------------
Joseph L. Wisniewski
Director
II-6
<PAGE>
EXHIBIT INDEX
Exhibit Description
- ------- -----------
1.1 Engagement Letter between First Savings Bank of New Jersey, SLA and
Sandler O'Neill & Partners, L.P.
1.2 Draft Form of Agency Agreement*
2.1 Amended Plan of Conversion and Agreement and Plan of Reorganization
3.1 Certificate of Incorporation of Bayonne Bancshares, Inc.
3.2 Bylaws of Bayonne Bancshares, Inc.
3.3 Certificate of Incorporation and Bylaws of First Savings Bank of New
Jersey, SLA
4.0 Draft Stock Certificate of Bayonne Bancshares, Inc.
5.0 Draft Opinion of Muldoon, Murphy & Faucette re: legality
5.1 Draft Opinion of Morris, Nichols, Arsht & Tunnell re: legality
8.0 Draft Opinion of KPMG Peat Marwick LLP re: Federal and State Tax Matters
10.1 Form of First Savings Bank of New Jersey, SLA and Bayonne Bankshares,
M.H.C. 1995 Stock Option Plan.
10.2 Form of First Savings Bank of New Jersey, SLA and Bayonne Bankshares,
M.H.C. 1995 Recognition and Retention Plan.
10.3 Form of First Savings Bank of New Jersey, SLA 1995 Employee Stock
Ownership Plan and Trust.
10.4 Draft ESOP Loan Commitment Letter and ESOP Loan Documents.*
10.5 Form of Supplemental Executive Retirement Income-Deferred Compensation
Agreement between First Savings Bank of New Jersey, SLA and certain
executive officers.
10.6 Form of Employment Agreement between First Savings Bank of New Jersey, SLA
and certain executive officers.
10.7 Form of Employment Agreement between Bayonne Bancshares, Inc. and certain
executive officers.
10.8 Form of Change in Control Agreement between First Savings Bank of New
Jersey, SLA and certain executive officers.
10.9 Form of Change in Control Agreement between Bayonne Bancshares, Inc. and
certain executive officers.
10.10 Form of First Savings Bank of New Jersey, SLA Employee Severance
Compensation Plan.
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Muldoon, Murphy & Faucette
23.3 Consent of Morris, Nichols, Arsht & Tunnell
23.4 Consent and Subscription Rights Opinion of FinPro, Inc.
24.1 Powers of Attorney
27.0 Financial Data Schedule
99.1 Form of Bayonne First Charitable Foundation Gift Instrument*
99.2 Agreement Regarding Listing on a Securities Exchange*
99.3 Proxy Materials and Form of Revocable Proxy for First Savings Bank of New
Jersey, SLA Stockholders
- ----------
*To be filed by amendment
[Letterhead of Sandler O'Neill & Partners, L.P.]
December 12, 1996
Mr. Patrick F. X. Nilan
Chairman, President
and Chief Executive Officer
First Savings Bank of New Jersey, S.L.A.
568 Broadway
Bayonne, New Jersey 07002
Dear Mr. Nilan:
Sandler O'Neill Corporate Strategies, a division of Sandler O'Neill &
Partners, L.P. ("Sandler O'Neill"), is pleased to act as an independent
financial advisor to First Savings Bank of New Jersey, S.L.A. (the "Bank") in
connection with the Bank's proposed conversion from mutual holding company
status to full stock form (the "Conversion"), including the offer and sale of
certain shares of the common stock of the proposed new holding company for the
Bank (the "Holding Company") to the Bank's eligible account holders in a
Subscription Offering, to members of the Bank's community in a Direct Community
Offering and, under certain circumstances, to the general public in a Syndicated
Community Offering (collectively, the "Offerings"). For purposes of this letter,
the term "Actual Purchase Price" shall mean the price at which the shares of the
Holding Company's common stock are sold in the Conversion. This letter is to
confirm the terms and conditions of our engagement.
ADVISORY SERVICES
Sandler O'Neill will act as a consultant and advisor to the Bank and the
Holding Company and will work with the Bank's management, counsel, accountants
and other advisors in connection with the Conversion and the Offerings. We
anticipate that our services will include the following, each as may be
necessary and as the Bank may reasonably request:
1. Consulting as to the securities marketing implications of any aspect
of the Plan of Conversion or related corporate documents;
2. Reviewing with the Board of Directors the independent appraiser's
appraisal of the common stock, particularly with regard to aspects
of the appraisal involving the methodology employed;
<PAGE>
First Savings Bank of New Jersey, S.L.A.
December 12, 1996
Page 2
3. Reviewing all offering documents, including the Prospectus, stock
order forms and related offering materials (it being understood that
preparation and filing of such documents will be the responsibility
of the Bank and the Holding Company and their counsel);
4. Assisting in the design and implementation of a marketing strategy
for the Offerings;
5. Assisting in obtaining all requisite regulatory approvals;
6. Assisting Bank management in scheduling and preparing for meetings
with potential investors and broker-dealers; and
7. Providing such other general advice and assistance as may be
requested to promote the successful completion of the Conversion.
SYNDICATED COMMUNITY OFFERING
If any shares of the Holding Company's common stock remain available after
the expiration of the Subscription Offering and the Direct Community Offering,
at the request of the Bank and subject to the continued satisfaction of the
conditions set forth in the second paragraph under the caption "Definitive
Agreement" below, Sandler O'Neill will seek to form a syndicate of registered
dealers to assist in the sale of such common stock in a Syndicated Community
Offering on a best efforts basis, subject to the terms and conditions set forth
in a selected dealers agreement. Sandler O'Neill will endeavor to limit the
aggregate fees to be paid by 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, which shall not exceed 7% of the
aggregate Actual Purchase Price of the shares sold under such agreements.
Sandler O'Neill will endeavor to distribute the common stock among dealers in a
fashion which best meets the distribution objectives of the Bank and the
requirements of the Plan of Conversion, which may result in limiting the
allocation of stock to certain selected dealers. It is understood that in no
event shall Sandler O'Neill be obligated to act as a selected dealer or to take
or purchase any shares of the Holding Company's common stock.
<PAGE>
First Savings Bank of New Jersey, S.L.A.
December 12, 1996
Page 3
FEES
If the Conversion is consummated, the Bank agrees to pay Sandler O'Neill
for its services hereunder the fees set forth below:
1. a fee of two percent (2%) of the aggregate Actual Purchase Price of
the shares of common stock sold in the Subscription Offering to
eligible account holders, current depositors and in the Direct
Community Offering, excluding in each case shares purchased by (i)
any employee benefit plan of the Holding Company or the Bank
established for the benefit of their respective directors, officers
and employees, and (ii) any director, officer or employee of the
Holding Company or the Bank or members of their immediate families;
and
2. with respect to any shares of the Holding Company's common stock
sold by an NASD member firm (other than Sandler O'Neill) under any
selected dealers agreement in the Syndicated Community Offering, (a)
the sales commission payable to the selected dealer under such
agreement, (b) any sponsoring dealer's fees, and (c) a management
fee to Sandler O'Neill of two percent (2%). Any fees payable to
Sandler O'Neill for common stock sold by Sandler O'Neill under any
such agreement shall be limited to an aggregate of two percent (2%)
of the Actual Purchase Price of such shares.
If (i) Sandler O'Neill's engagement hereunder is terminated for any of the
reasons provided for under the second paragraph of the section of this letter
captioned "Definitive Agreement," or (ii) the Conversion is terminated by the
Bank, no fees shall be payable by the Bank to Sandler O'Neill hereunder;
however, the Bank shall reimburse Sandler O'Neill for its reasonable
out-of-pocket expenses incurred in connection with its engagement hereunder.
All fees payable to Sandler O'Neill hereunder shall be payable in cash at
the time of the closing of the Conversion. 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 shall be
payable upon execution of this letter and the remaining $25,000 of which shall
be payable upon commencement of the Subscription Offering, which shall be
credited against any fees or reimbursement of expenses payable hereunder.
<PAGE>
First Savings Bank of New Jersey, S.L.A.
December 12, 1996
Page 4
COSTS AND EXPENSES
In addition to any fees that may be payable to Sandler O'Neill hereunder
and the expenses to be borne by the Bank pursuant to the following paragraph,
the Bank agrees to reimburse Sandler O'Neill, upon request made from time to
time, for its reasonable out-of-pocket expenses to a maximum of $50,000 incurred
in connection with its engagement hereunder, regardless of whether the
Conversion is consummated, including, without limitation, legal fees,
advertising, promotional, syndication, and travel expenses; provided, however,
that Sandler O'Neill shall document such expenses to the reasonable satisfaction
of the Bank. The provisions of this paragraph are not intended to apply to or in
any way impair the indemnification provisions of this letter.
As is customary, the Bank will bear all other expenses incurred in
connection with the Conversion and the Offerings, including, without limitation,
(i) the cost of obtaining all securities and bank regulatory approvals,
including any required NASD filing fees; (ii) the cost of printing and
distributing the offering materials; (iii) the costs of blue sky qualification
(including fees and expenses of blue sky counsel) of the shares in the various
states; (iv) listing fees; and (v) all fees and disbursements of the Bank's and
the Holding Company's counsel, accountants, conversion agent and other advisors.
In the event Sandler O'Neill incurs any such fees and expenses on behalf of the
Bank or the Holding Company, the Bank will reimburse Sandler O'Neill for such
fees and expenses whether or not the Conversion is consummated; provided,
however, that Sandler O'Neill shall not incur any substantial expenses on behalf
of the Bank or the Holding Company pursuant to this paragraph without the prior
approval of the Bank.
DUE DILIGENCE REVIEW
Sandler O'Neill's obligation to perform the services contemplated by this
letter shall be subject to the satisfactory completion of such investigation and
inquiries relating to the Bank and the Holding Company, and their respective
directors, officers, agents and employees, as Sandler O'Neill and its counsel in
their sole discretion may deem appropriate under the circumstances. In this
regard, the Bank agrees that, at its expense, it will make available to Sandler
O'Neill all information which Sandler O'Neill requests, and will allow Sandler
O'Neill the opportunity to discuss with the Bank's and the Holding Company's
management the financial condition, business and operations of the Bank and the
Holding Company. The Bank and the Holding Company acknowledge that Sandler
O'Neill will rely upon the accuracy and completeness of all information received
from the Bank and the Holding Company and their directors, trustees, officers,
employees, agents, independent accountants and counsel.
<PAGE>
First Savings Bank of New Jersey, S.L.A.
December 12, 1996
Page 5
BLUE SKY MATTERS
The Bank agrees that if Sandler O'Neill's counsel does not serve as
counsel with respect to blue sky matters in connection with the Offerings, the
Bank will cause the counsel performing such services to prepare a Blue Sky
Memorandum related to the Offerings including Sandler O'Neill's participation
therein and shall furnish Sandler O'Neill a copy thereof addressed to Sandler
O'Neill or upon which such counsel shall state Sandler O'Neill may rely.
CONFIDENTIALITY
Other than disclosure to other firms made part of any syndicate of
selected dealers or as required by law or regulation, Sandler O'Neill agrees
that it will not disclose any Confidential Information relating to the Bank
obtained in connection with its engagement hereunder (whether or not the
Conversion is consummated). As used in this paragraph, the term "Confidential
Information" shall not include information which (i) is or becomes generally
available to the public other than as a result of a disclosure by Sandler
O'Neill, (ii) was available to Sandler O'Neill on a non-confidential basis prior
to its disclosure to Sandler O'Neill by the Bank, or (iii) becomes available to
Sandler O'Neill on a non-confidential basis from a person other than the Bank
who is not otherwise known to Sandler O'Neill to be bound not to disclose such
information pursuant to a contractual, legal or fiduciary obligation.
INDEMNIFICATION
Since Sandler O'Neill will be acting on behalf of the Bank and the Holding
Company in connection with the Conversion, the Holding Company and the Bank
agree to indemnify and hold Sandler O'Neill and its affiliates and their
respective partners, directors, officers, employees, agents and controlling
persons within the meaning of Section 15 of the Securities Act of 1933 or
Section 20 of the Securities Exchange Act (Sandler O'Neill and each such person
being an "Indemnified Party") harmless from and against any and all losses,
claims, damages and liabilities, joint or several, to which such Indemnified
Party may become subject under applicable federal or state law, or otherwise,
related to or arising out of the Conversion or the engagement of Sandler O'Neill
pursuant to, or the performance by Sandler O'Neill of the services contemplated
by, this letter, and will reimburse any Indemnified Party for all expenses
(including reasonable legal fees and expenses) as they are incurred, including
expenses incurred in connection with the investigation of, preparation for or
defense of any pending or threatened claim or any action or proceeding arising
therefrom, whether or not such Indemnified Party is a party; provided, however,
that the Bank and the Holding Company will not be liable in any such case to the
extent
<PAGE>
First Savings Bank of New Jersey, S.L.A.
December 12, 1996
Page 6
that any such loss, claim, damage, liability or expense (i) arises out of or is
based upon any untrue statement of a material fact or the omission of a material
fact required to be stated therein or necessary to make not misleading any
statements contained in any proxy statement or prospectus (preliminary or
final), or any amendment or supplement thereto, or any of the applications,
notices, filings or documents related thereto made in reliance on and in
conformity with written information furnished to the Bank by Sandler O'Neill
expressly for use therein, or (ii) is primarily attributable to the gross
negligence, willful misconduct or bad faith of Sandler O'Neill. If the foregoing
indemnification is unavailable for any reason, the Bank and the Holding Company
agree to contribute to such losses, claims, damages, liabilities and expenses in
the proportion that its financial interest in the Conversion bears to that of
Sandler O'Neill.
DEFINITIVE AGREEMENT
Sandler O'Neill and the Bank agree that (a) except as set forth in clause
(b), the foregoing represents the general intention of the Bank and Sandler
O'Neill with respect to the services to be provided by Sandler O'Neill in
connection with the Offerings, which will serve as a basis for Sandler O'Neill
commencing activities, and (b) the only legal and binding obligations of the
Bank, the Holding Company and Sandler O'Neill with respect to the subject matter
hereof shall be (1) the Bank's obligation to reimburse costs and expenses
pursuant to the section captioned "Costs and Expenses," (2) those set forth
under the captions "Confidentiality" and "Indemnification," and (3) as set forth
in a duly negotiated and executed definitive Agency Agreement to be entered into
prior to the commencement of the Subscription Offering relating to the services
of Sandler O'Neill in connection with the Offerings. Such Agency Agreement shall
be in form and content satisfactory to Sandler O'Neill, the Bank and the Holding
Company and their respective counsel and shall contain standard indemnification
provisions consistent herewith.
Sandler O'Neill's execution of such Agency Agreement shall also be subject
to (i) Sandler O'Neill's satisfaction with its investigation of the Bank's
business, financial condition and results of operations, (ii) preparation of
offering materials that are satisfactory to Sandler O'Neill and its counsel,
(iii) compliance with all relevant legal and regulatory requirements to the
reasonable satisfaction of Sandler O'Neill's counsel, (iv) agreement that the
price established by the independent appraiser is reasonable and (v) market
conditions at the time of the proposed offering. Sandler O'Neill may terminate
this agreement if such Agency Agreement is not entered into prior to September
30, 1997.
<PAGE>
First Savings Bank of New Jersey, S.L.A.
December 12, 1996
Page 7
ELIMINATION OF HOLDING COMPANY
If the Board of Directors of the Bank, for any reason, elects not to proceed
with the formation of the Holding Company but determines to proceed with the
Conversion and substitute the common stock of the Bank for the common stock of
the Holding Company, all of the provisions of this letter relating to the common
stock of the Holding Company will be deemed to pertain to the common stock of
the Bank on the same terms and conditions that such provisions pertain to the
common stock of the Holding Company and all of the references in this letter to
the Holding Company shall be deemed to refer to the Bank or shall have no
effect, as the context of the reference requires.
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: /s/ Mark B. Cohen
----------------------------------
Mark B. Cohen
Vice President
Accepted and agreed to as of
the date first above written:
First Savings Bank of New Jersey, S.L.A.
By: /s/ Patrick F. X. Nilan
-------------------------------------
Patrick F. X. Nilan
Chairman, President
and Chief Executive Officer
cc: Mr. Joseph G. Passaic, Esq.
Muldoon, Murphy & Faucette
John Beckelman
Sandler O'Neill & Partners, L.P.
[Letterhead of Sandler O'Neill & Partners, L.P.]
December 12, 1996
Mr. Patrick F. X. Nilan
Chairman, President
and Chief Executive Officer
First Savings Bank of New Jersey, S.L.A.
568 Broadway
Bayonne, New Jersey 07002
Dear Mr. Nilan:
Sandler O'Neill Corporate Strategies, a division of Sandler O'Neill &
Partners, L.P. ("Sandler O'Neill"), is pleased to act as conversion agent to
First Savings Bank of New Jersey, S.L.A. (the "Bank") in connection with the
Bank's proposed conversion from mutual to stock form (the "Conversion"). This
letter is to confirm the terms and conditions of our engagement.
SERVICES AND FEES
In our role as Conversion Agent, we anticipate that our services will
include the services outlined below, each as may be necessary and as the Bank
may reasonably request:
I. Consolidation of Accounts and Development of a Central File
II. Preparation of Proxy, Order and/or Request Forms
III. Organization and Supervision of the Conversion Center
IV. Proxy Solicitation and Special Meeting Services
V. Subscription Services
Each of these services is further described in Appendix A to this agreement.
For its services hereunder, the Bank agrees to pay Sandler O'Neill a fee
of $22,500. This fee is based upon a total number of unconsolidated accounts of
approximately 45,000. No change in fees will occur as long as the variance in
the number of accounts does not exceed 5%.
<PAGE>
Mr. Patrick F. X. Nilan
December 12, 1996
Page 2
In the event the actual number of accounts exceeds the number specified above by
more than 5%, the fee will be proportionately increased.
The fee set forth above is based upon the requirements of current
regulations and the Plan of Conversion as currently contemplated. Any unusual or
additional items or duplication of service required as a result of a material
change in the regulations or the Plan of Conversion or a material delay or other
similar events may result in extra charges which will be covered in a separate
agreement if and when they occur.
All fees under this agreement shall be payable in cash, as follows: (a)
$5,000 payable upon execution of this agreement by the Bank, which shall be
non-refundable; and (b) the balance upon the completion of the Conversion.
COSTS AND EXPENSES
In addition to any fees that may be payable to Sandler O'Neill hereunder,
the Bank agrees to reimburse Sandler O'Neill, upon request made from time to
time, for its reasonable out-of-pocket expenses incurred in connection with its
engagement hereunder regardless of whether the Conversion is consummated,
including, without limitation, travel, lodging, food, telephone, postage,
listings, forms and other similar expenses; provided, however, that Sandler
O'Neill shall document such expenses to the reasonable satisfaction of the Bank.
The provisions of this paragraph are not intended to apply to or in any way
impair the indemnification provisions of this agreement.
In addition, all taxes however designated, arising from or based upon this
agreement or the payments made to Sandler O'Neill pursuant hereto, including,
but not limited to, any applicable sales, use, excise and similar taxes, shall
be paid by the Bank as the same become due, and the Bank shall, upon request by
Sandler O'Neill, pay the same either to Sandler O'Neill or to the appropriate
taxing authority at any time during, or after the termination of, this
Agreement; provided, however, that the Bank shall not be responsible for the
payment of any state, federal, or local franchise or income taxes based upon the
net income of Sandler O'Neill.
RELIANCE ON INFORMATION PROVIDED
The Bank will provide Sandler O'Neill with such information as Sandler
O'Neill may reasonably require to carry out its duties. The Bank recognizes and
confirms that Sandler O'Neill
<PAGE>
Mr. Patrick F. X. Nilan
December 12, 1996
Page 3
(a) will use and rely on such information in performing the services
contemplated by this agreement without having independently verified the same,
and (b) does not assume responsibility for the accuracy or completeness of the
information. The Bank will also inform Sandler O'Neill within a reasonable
period of time of any changes in the Plan which require changes in Sandler
O'Neill's services. If a substantial expense results from any such change, the
parties shall negotiate an equitable adjustment in the fee.
LIMITATIONS
Sandler O'Neill, as Conversion Agent hereunder, (a) shall have no duties
or obligations other than those specifically set forth herein; (b) will be
regarded as making no representations and having no responsibilities as to the
validity, sufficiency, value or genuineness of any order form or any stock
certificates or the shares represented thereby, and will not be required to and
will make no representations as to the validity, value or genuineness of the
offer; (c) shall not be liable to any person, firm or corporation including the
Bank by reason of any error of judgment or for any act done by it in good faith,
or for any mistake of law or fact in connection with this agreement and the
performance hereof unless caused by or arising out of its own bad faith or gross
negligence; (d) will not be obliged to take any legal action hereunder which
might in its judgment involve any expense or liability, unless it shall have
been furnished with reasonable indemnity satisfactory to it; and (e) may rely on
and shall be protected in acting in reliance upon any certificate, instrument,
opinion, notice, letter, telex, telegram, or other document or security
delivered to it and in good faith believed by it to be genuine and to have been
signed by the proper party or parties.
Anything in this agreement to the contrary notwithstanding, in no event
shall Sandler O'Neill be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to lost profits), even
if Sandler O'Neill has been advised of the likelihood of such loss or damage and
regardless of form of action.
INDEMNIFICATION
The Bank agrees to indemnify and hold Sandler O'Neill and its affiliates
and their respective partners, directors, officers, employees, agents and
controlling persons (Sandler O'Neill and each such person being an "Indemnified
Party") harmless from and against any and all losses, claims, damages and
liabilities, joint or several, to which such Indemnified Party may become
subject under applicable federal or state law, or otherwise, related to or
arising out of the
<PAGE>
Mr. Patrick F. X. Nilan
December 12, 1996
Page 4
engagement of Sandler O'Neill pursuant to, and the performance by Sandler
O'Neill of the services contemplated by this letter, and will reimburse any
Indemnified Party for all expenses (including reasonable counsel fees and
expenses) as they are incurred, including expenses incurred in connection with
the investigation of, preparation for or defense of any pending or threatened
claim or any action or proceeding arising therefrom, whether or not such
Indemnified Party is a party. The Bank will not be liable under the foregoing
indemnification provision to the extent that any loss, claim, damage, liability
or expense is found in a final judgment by a court of competent jurisdiction to
have resulted primarily from Sandler O'Neill's bad faith or gross negligence.
MISCELLANEOUS
The following addresses shall be sufficient for written notices to each
other:
If to you: First Savings Bank of New Jersey, S.L.A.
568 Broadway
Bayonne, New Jersey 07002
Attention: Mr. Patrick F. X. Nilan
If to us: Sandler O'Neill & Partners, L.P.
747 Middle Neck Road
Great Neck, New York 11024
Attention: Mr. Mark B. Cohen
The Agreement and appendix hereto constitute the entire Agreement between
the parties with respect to the subject matter hereof and can be altered only by
written consent signed by the parties. This Agreement is governed by the laws of
the State of New York.
<PAGE>
Mr. Patrick F. X. Nilan
December 12, 1996
Page 5
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: /s/ Mark B. Cohen
-----------------------------------
Mark B. Cohen
Vice President
Accepted and agreed to as of
the date first above written:
First Savings Bank of New Jersey, S.L.A.
By: /s/ Patrick F. X. Nilan
-------------------------------------
Mr. Patrick F. X. Nilan
Chairman, President
and Chief Executive Officer
cc: Mr. Joseph G. Passaic, Esq.
Muldoon, Murphy & Faucette
John Beckelman
Sandler O'Neill & Partners, L.P.
<PAGE>
APPENDIX A
OUTLINE OF CONVERSION AGENT SERVICES
I. Consolidation of Accounts
1. Consolidate files in accordance with regulatory guidelines.
2. Accounts from various files are all linked together. The resulting
central file can then be maintained on a regular basis.
3. Our EDP format will be provided to your data processing people.
II. Proxy/Order Form/Request Card Preparation
1. Vote calculation.
2. Any combination of proxies, request cards and stock order forms for
voting and ordering stock.
3. Target group identification for subscription offering.
III. Organization and Supervision of Conversion Center
1. Advising on and supervising the physical organization of the Conversion
Center, including materials requirements.
2. Assist in the training of all Bank personnel who will be staffing the
conversion center.
3. Establish reporting procedures.
4. On-site supervision of the Conversion Center during the
solicitation/offering period.
IV. Special Meeting Services *
1. Direct proxy solicitation if independent solicitor not used.
2. Proxy and ballot tabulation.
3. Act as or support inspector of election.
4. Delete voting record date accounts closed prior to special meeting.
5. Produce final report of vote.
* To the extent independent third parties are required by any regulatory
agency to perform such services, it is understood and agreed that
Sandler O'Neill will subcontract for such services and that the Bank
will reimburse Sandler O'Neill for such reasonable fees and expenses
incurred as a result of such regulatory requirement. This reimbursement
shall not exceed $1,200 without approval from the Bank.
A - 1
<PAGE>
V. Subscription Services
1. Produce list of depositors by state (Blue Sky report).
2. Production of subscription rights and research books.
3. Stock order form processing.
4. Acknowledgement letter to confirm receipt of stock order.
5. Daily reports and analysis.
6. Proration calculation and share allocation in the event of an
oversubscription.
7. Produce charter shareholder list.
8. Interface with Transfer Agent for Stock Certificate issuance.
9. Refund and interest calculations.
10. Confirmation letter to confirm purchase of stock.
11. Notification of full/partial rejection of orders.
12. Production of 1099/Debit tape.
A - 2
AMENDED PLAN OF CONVERSION
AND
AGREEMENT AND PLAN OF REORGANIZATION
OF
BAYONNE BANKSHARES, M.H.C.
AND
FIRST SAVINGS BANK OF NEW JERSEY, SLA
BAYONNE, NEW JERSEY
AS ADOPTED ON:
DECEMBER 19, 1996
AND AMENDED ON:
FEBRUARY 20, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. Introduction............................................................ 1
2. Definitions............................................................. 4
3. General Procedure for Conversion and Reorganization..................... 12
4. Holding Company Applications and Approvals.............................. 15
5. Sale of Conversion Stock................................................ 16
6. Number of Shares and Purchase Price of Conversion Stock ................ 17
7. Retention of Proceeds by Holding Company................................ 20
8. Establishment and Funding of Charitable Foundation...................... 20
9. Subscription Rights of Eligible Account Holders......................... 22
10. Subscription Rights of Employee Plans................................... 23
11. Subscription Rights of Supplemental Eligible Account Holders............ 24
12. Subscription Rights of Other Members.................................... 26
13. Community Offering...................................................... 27
14. Syndicated Community Offering........................................... 28
15. Limitation on Purchases................................................. 30
16. Payment for Conversion Stock............................................ 34
17. Manner of Exercising Subscription Rights Through Order Forms............ 36
18. Undelivered, Defective or Late Order Forms; Insufficient Payment........ 38
19. Restrictions on Resale or Subsequent Disposition........................ 39
20. Voting Rights of Stockholders........................................... 40
21. Establishment of Liquidation Account.................................... 40
22. Transfer of Savings Accounts and Continuity of the Institution.......... 43
23. Restrictions on Acquisition of the Institution and Holding Company...... 43
24. Payment of Dividends and Repurchase of Stock............................ 45
25. Amendment of Plan....................................................... 45
26. Effective Date.......................................................... 46
27. Registration and Marketing.............................................. 46
28. Residents of Foreign Countries and Certain States....................... 47
29. Expenses................................................................ 47
30. Conditions to Conversion................................................ 48
31. Interpretation.......................................................... 48
Annex A Plan of Merger between the Mutual Holding Company and the Bank
Annex B Plan of Reorganization between the Bank, Interim B and the
Holding Company
<PAGE>
PLAN OF CONVERSION AND AGREEMENT
AND PLAN OF REORGANIZATION OF
BAYONNE BANKSHARES, M.H.C.
AND
FIRST SAVINGS BANK OF NEW JERSEY, SLA
1. INTRODUCTION
For purposes of this section, all capitalized terms have the meanings
ascribed to them in Section 2.
This Plan of Conversion and Agreement and Plan of Reorganization ("Plan")
provides for the conversion ("Conversion") of Bayonne Bankshares, M.H.C.,
Bayonne, New Jersey ("Mutual Holding Company") to the stock form of
organization. Mutual Holding Company was formed on January 9, 1995 and is
currently a mutual holding company duly organized and validly existing under the
laws of the United States, and as of November 14, 1996 owns beneficially and of
record 1,659,485 shares of common stock, par value $0.10 per share ("INSTITUTION
Common Stock") representing approximately fifty-four and two-tenths percent
(54.2%) of the voting stock of First Savings Bank of New Jersey, SLA (the
"INSTITUTION"), a New Jersey capital stock savings association. As of November
14, 1996, the remaining 1,402,836 shares of INSTITUTION Common Stock or
forty-five and eight tenths percent (45.8%) are owned by the Public
Stockholders. The principal office of the Mutual Holding Company is located at
568 Broadway, Bayonne, New Jersey.
The Boards of Directors of the Mutual Holding Company and the INSTITUTION
believe that a conversion of the Mutual Holding Company to stock form pursuant
to the Plan is in their best interests, as well as the best interests of their
respective Members and Stockholders. The Conversion will result in the
INSTITUTION being wholly owned by a stock holding company, which is a more
common structure and form of ownership than a
<PAGE>
mutual holding company. The Boards of Directors determined that the Plan
equitably provides for the interests of Members through the granting of
subscription rights and the establishment of a liquidation account and that
consummation of the Conversion would not adversely impact the net worth of the
INSTITUTION.
The Conversion will provide the INSTITUTION with a larger capital base
which will enhance the INSTITUTION's ability to pursue lending and investment
opportunities, as well as opportunities for growth and expansion. The Conversion
also will provide a more flexible operating structure and possible
diversification, which will enable the INSTITUTION to compete more effectively
with other financial institutions. In addition, the Conversion will result in
the raising of additional capital for the INSTITUTION and the Holding Company
and should result in a more active and liquid market for the Holding Company
Common Stock than currently exists for the INSTITUTION Common Stock, although
there can be no assurances that this will be the case. Finally, the Conversion
has been structured to reunite the accumulated earnings and profits tax
attribute retained by the Mutual Holding Company with the retained earnings of
the INSTITUTION through a tax-free reorganization.
In furtherance of the INSTITUTION's long term commitment to its community,
the Plan provides for the establishment of a charitable foundation as part of
the Conversion. The charitable foundation is intended to complement the
INSTITUTION's existing community reinvestment activities in a manner that will
allow the INSTITUTION's local community to share in the growth and profitability
of the Holding Company and the INSTITUTION over the long term. Consistent with
the INSTITUTION's goal, the Holding Company intends to donate up to 9.9% of the
number of shares of common stock sold in the Conversion. The establishment of
the charitable foundation is subject to the approval of the Voting Members of
2
<PAGE>
the Mutual Holding Company. In the event the charitable foundation is not
approved, the Mutual Holding Company may determine to complete the Conversion
without the charitable foundation.
In connection with the Conversion and Reorganization, the INSTITUTION will
form a new first-tier subsidiary which will be incorporated under Delaware law
as a stock corporation (the "Holding Company"). The Holding Company will in turn
form an interim capital stock savings association ("Interim B") as a wholly
owned subsidiary. As is described in more detail herein, simultaneously with the
conversion of Mutual Holding Company to an interim Federal stock savings bank
("Interim A"), the INSTITUTION, Mutual Holding Company and Holding Company will
undergo a reorganization in which Interim A will merge with the INSTITUTION,
Interim B will merge with and into the INSTITUTION, the Holding Company will
become the parent company of the INSTITUTION and the Holding Company will issue
and sell its capital stock pursuant to this Plan (the "Reorganization" and,
together with the conversion of Mutual Holding Company to stock form, the
"Conversion").
This Plan, which has been unanimously approved by the Boards of Directors
of the Mutual Holding Company and the INSTITUTION, must also be approved by the
affirmative vote of a majority of the total number of votes eligible to be cast
by Voting Members of the INSTITUTION at a special meeting to be called for that
purpose. Prior to the submission of this Plan to the Voting Members for
consideration, the Plan must be approved by the Office of Thrift Supervision
(the "OTS"). The Plan also must be approved by holders of at least two-thirds of
the shares of the INSTITUTION's outstanding common stock ("INSTITUTION Common
Stock") eligible to be voted,
3
<PAGE>
at the special meeting of the INSTITUTION's stockholders ("Public
Stockholders") called for the purpose of submitting the Plan for approval.
2. DEFINITIONS
For the purposes of this Plan, the following terms have the following
meanings:
Account Holder - The term Account Holder means any Person holding a
Savings Account in the INSTITUTION.
Acting in Concert - The term "Acting in Concert" means (i) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise; or
(iii) a person or company which acts in concert with another person or company
("other party") shall also be deemed to be acting in concert with any person or
company who is also acting in concert with that other party, except that any
tax-qualified employee stock benefit plan will not be deemed to be acting in
concert with its trustee or a person who serves in a similar capacity solely for
the purpose of determining whether stock held by the trustee and stock held by
the plan will be aggregated.
Actual Purchase Price - The term Actual Purchase Price means the per share
price at which the Conversion Stock is ultimately sold in accordance with the
terms hereof.
Affiliate - The term Affiliate means a Person who, directly or indirectly,
through one or more intermediaries, controls or is controlled by or is under
common control with the Person specified.
4
<PAGE>
Associate - The term Associate when used to indicate a relationship with
any person, means (i) any corporation or organization (other than the Mutual
Holding Company, INSTITUTION or a majority-owned subsidiary of the Mutual
Holding Company or INSTITUTION) 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 for the purposes of
Sections 10 and 15 hereof, 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 INSTITUTION, the Mutual Holding Company or the Holding Company, or any of
their parents or subsidiaries.
Community Offering - The term Community Offering means the offering for
sale to certain members of the general public directly by the Holding Company of
any shares of Conversion Stock not subscribed for in the Subscription Offering.
Conversion and Reorganization - The term Conversion and Reorganization
shall mean (a) the conversion of the Mutual Holding Company into a stock form
interim Federal savings bank ("Interim A") and its simultaneous merger with and
into the INSTITUTION, with the INSTITUTION being the surviving institution; (b)
the merger of an interim savings association subsidiary of the Holding Company
("Interim B") with and into the
5
<PAGE>
INSTITUTION, with the INSTITUTION being the surviving institution and becoming a
wholly owned subsidiary of the Holding Company; (c) the exchange of shares of
INSTITUTION Common Stock (other than those held by the Mutual Holding Company
which shall be extinguished) for shares of Holding Company Common Stock; and (d)
the issuance of Conversion Stock by the Holding Company in the Offerings as
provided in this Plan.
Conversion Stock - The term Conversion Stock means the $.01 par value
common stock offered and issued by the Holding Company in the Offerings pursuant
to this Plan.
Director - The term Director means a member of the Board of Directors of
the INSTITUTION and, where applicable, a member of the Board of Directors of the
Mutual Holding Company or the Holding Company.
Eligible Account Holder - The term Eligible Account Holder means any
person holding a Qualifying Deposit on the Eligibility Record Date.
Eligibility Record Date - The term Eligibility Record Date means the date
for determining Eligible Account Holders in the INSTITUTION and is December 31,
1994.
Employees - The term Employees means all Persons who are employed by the
Mutual Holding Company or the INSTITUTION, but does not include an Officer or
Director.
Employee Plans - The term Employee Plans means the Tax Qualified Employee
Stock Benefit Plans approved by the Board of Directors of the Mutual Holding
Company or INSTITUTION, including any plan adopted by the Holding Company.
Estimated Price Range - The term Estimated Price Range means the range of
minimum and maximum aggregate values determined by the Board of Directors of the
Mutual Holding Company and the INSTITUTION within which the aggregate amount of
Common Stock sold in the Conversion will fall. The Estimated Price Range will be
within the
6
<PAGE>
estimated pro forma market value of the Conversion Stock as determined by the
Independent Appraiser prior to the Subscription Offering and as it may be
amended from time to time thereafter.
Exchange Ratio - The term Exchange Ratio shall mean the rate at which
shares of Holding Company Common Stock will be exchanged for shares of
INSTITUTION Common Stock held by the Public Stockholders upon consummation of
the Conversion. The exact rate shall be determined by the Mutual Holding Company
and the INSTITUTION at the time the Actual Subscription Price is determined and
shall equal the rate that will result in the Public Stockholders owning in the
aggregate approximately the same percentage of shares of common stock of the
Holding Company to be outstanding upon completion of the Conversion as the
percentage of INSTITUTION Common Stock owned by them in the aggregate
immediately prior to consummation of the Conversion, before giving effect to (a)
the payment of cash in lieu of issuing fractional shares of Holding Company
Common Stock, (b) any shares of Conversion Stock purchased by Public
Stockholders in the Offerings or tax-qualified employee stock benefit plans of
the Holding Company or the INSTITUTION thereafter, and (c) the establishment of
the charitable foundation.
Exchange Stock - The term Exchange Stock shall mean Holding Company Common
Stock issued to the Public Stockholders in exchange for INSTITUTION Common
Stock.
FDIC - The term FDIC means the Federal Deposit Insurance Corporation.
Holding Company - The term Holding Company means the Delaware corporation
to be organized initially as a first tier, wholly owned subsidiary of the
INSTITUTION. Upon completion of the Conversion, the Holding Company shall hold
all of the outstanding capital stock of the INSTITUTION.
7
<PAGE>
Holding Company Common Stock - The term Holding Company Common Stock means
the common stock of the Holding Company, par value $.01 per share.
Independent Appraiser - The term Independent Appraiser means an appraiser
retained by the Mutual Holding Company and the INSTITUTION to prepare an
appraisal of the pro forma market value of the Conversion Stock.
Interim A - shall mean Bayonne Interim Savings Bank, which will be the
stock form interim Federal savings bank resulting from the conversion of Bayonne
Bankshares, M.H.C. to stock form immediately prior to the merger of Interim B
into the INSTITUTION.
Interim B - shall mean First Interim Bank of New Jersey, which will be
formed as a wholly owned stock form interim savings association subsidiary of
the Holding Company, which will merge with and into the INSTITUTION immediately
after the merger of Interim A into the INSTITUTION.
Institution - The term INSTITUTION means First Savings Bank of New Jersey,
SLA, Bayonne, New Jersey.
Institution Common Stock - The term Institution Common Stock means the
common stock of the INSTITUTION, par value $.10 per share.
Local Community - The term Local Community means the City of Bayonne in
the State of New Jersey.
Member - The term Member means any Person or entity who qualifies as a
member of the Mutual Holding Company pursuant to its charter and bylaws.
Mutual Holding Company - The term Mutual Holding Company means Bayonne
Bankshares, M.H.C.
NJDB - The term NJDB means the State of New Jersey Department of Banking.
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Offerings - The term Offerings means the Subscription Offering, the
Community Offering and the Syndicated Community Offering.
OTS - The term OTS means Office of Thrift Supervision of the Department of
the Treasury.
Officer - The term Officer means an executive officer of the Mutual
Holding Company or the INSTITUTION which includes the Chief Executive Officer,
President, Executive Vice President, Senior Vice Presidents, Vice Presidents in
charge of principal business functions, Secretary and Controller and any Person
performing functions similar to those performed by the foregoing persons.
Order Form - The term Order Form means any form together with attached
cover letter, sent by the Mutual Holding Company and the INSTITUTION to any
Participant or Person containing among other things a description of the
alternatives available to such Person under the Plan and by which any such
Person may make elections regarding subscriptions for Conversion Stock in the
Subscription and Community Offerings.
Other Member - The term Other Member means any person who is a Member of
the Mutual Holding Company (other than an Eligible Account Holder or
Supplemental Eligible Account Holder) at the close of business on the Voting
Record Date.
Participants - The term Participants means the Eligible Account Holders,
Employee Plans, Supplemental Eligible Account Holders and Other Members.
Person - The term Person means an individual, a corporation, a
partnership, an association, a joint-stock company, a trust (including
Individual Retirement Accounts and KEOGH Accounts), any unincorporated
organization, a government or political subdivision thereof or any other entity.
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Plan - The term Plan means this Plan of Conversion and Agreement and Plan
of Reorganization as it exists on the date hereof and as it may hereafter be
amended in accordance with its terms.
Preferred Subscribers - The term Preferred Subscribers means those members
of the general public which are natural persons residing in the INSTITUTION'S
Local Community.
Primary Parties - The term Primary Parties means the Mutual Holding
Company, the INSTITUTION and the Holding Company.
Public Stockholder - The term Public Stockholder shall mean any person who
owns INSTITUTION Common Stock, excluding the Mutual Holding Company, as of the
Voting Record Date.
Qualifying Deposit - The term Qualifying Deposit means the balance of each
Savings Account of $50 or more in the INSTITUTION at the close of business on
the Eligibility Record Date. Savings Accounts with total deposit balances of
less than $50 shall not constitute a Qualifying Deposit.
Reorganization - The term Reorganization shall mean the issuance and sale
of the Common Stock and the purchase by the Holding Company of all of the
capital stock of the INSTITUTION.
SEC - The term SEC refers to the U.S. Securities and Exchange Commission.
Savings Account - The term Savings Account has the same meaning as in
Section 561.42 of the Rules and Regulations of the OTS and includes certificates
of deposit.
Special Meeting of Members - The term Special Meeting of Members means the
special meeting and any adjournments thereof held to consider and vote upon this
Plan.
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Special Meeting of INSTITUTION Stockholders - The term Special Meeting of
INSTITUTION Stockholders shall mean the special meeting of INSTITUTION
Stockholders, and any adjournments thereof, to be called and held for the
purpose of submitting the Plan to the INSTITUTION Stockholders for their
approval.
Subscription Offering - The term Subscription Offering means the offering
of Conversion Stock for purchase through Order Forms to Participants.
Subscription Price - The term Subscription Price means the amount per
share of Conversion Stock to be paid initially by Participants in the
Subscription Offering and persons in the Community Offering.
Supplemental Eligibility Record Date - The term Supplemental Eligibility
Record Date means the supplemental record date for determining Supplemental
Eligible Account Holders of the Mutual Holding Company. The Supplemental
Eligibility Record Date shall be the last day of the calendar quarter preceding
the OTS' approval of the application for conversion.
Supplemental Eligible Account Holder - The term Supplemental Eligible
Account Holder means any person (other than an Eligible Account Holder) holding
a Qualifying Deposit, except officers, directors and their associates, as of the
Supplemental Eligibility Record Date.
Syndicated Community Offering - The term Syndicated Community Offering
means the offering of Conversion Stock following the Subscription and Community
Offerings through a syndicate of broker-dealers.
Tax-Qualified Employee Stock Benefit Plan - The term Tax-Qualified
Employee Stock Benefit Plan means any defined benefit plan or defined
contribution plan, including the INSTITUTION Employee Stock Ownership Plan,
stock bonus plan, profit-sharing plan or
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other plan, which, with its related trust, meets the requirements to be
"qualified" under Section 401 of the Internal Revenue Code. A "Non-Tax-Qualified
Employee Stock Benefit Plan" is any defined benefit plan or defined contribution
plan which is not so qualified.
Voting Members - The term Voting Members means those persons qualifying as
voting members of the Mutual Holding Company pursuant to its charter and bylaws.
Voting Record Date - The term Voting Record Date means the date fixed by
the Directors in accordance with OTS regulations and the laws of the State of
New Jersey, if applicable, for determining eligibility to vote at the Special
Meeting of Members and the Special Meeting of INSTITUTION Stockholders.
3. GENERAL PROCEDURE FOR CONVERSION AND REORGANIZATION
(A) CONVERSION OF MUTUAL HOLDING COMPANY TO STOCK FORM INTERIM AND MERGER
OF INTERIM INTO THE INSTITUTION. The Mutual Holding Company will convert into a
stock form interim Federal savings bank under the name Bayonne Interim Savings
Bank ("Interim A") and Interim A will simultaneously merge with and into the
INSTITUTION, with the INSTITUTION as the surviving entity ("Mutual Holding
Company Merger"). As a result of the Mutual Holding Company Merger, the
INSTITUTION Common Stock held by the Mutual Holding Company will be cancelled
and Eligible Account Holders and Supplemental Eligible Account Holders will be
granted ratable interests in a liquidation account, to be established in
accordance with the procedures set forth in this Plan.
(B) MERGER OF SECOND INTERIM INTO INSTITUTION AND EXCHANGE OF SHARES.
Immediately after the conversion of Mutual Holding Company into Interim A and
the merger of Interim A with and into the INSTITUTION pursuant to this Section
3, Interim B will merge with and into the INSTITUTION, and the separate
existence of Interim B will cease.
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As part of the Reorganization, the shares of the Holding Company Common Stock
held by the Bank will be cancelled. The Holding Company's shares of Interim B
will be converted, on a one-to-one basis, into shares of INSTITUTION Common
Stock, which will result in the INSTITUTION becoming a wholly-owned subsidiary
of the Holding Company. The Public Stockholders will exchange their shares of
INSTITUTION Common Stock for shares of Holding Company Common Stock based upon
the Exchange Ratio. In addition, options to purchase shares of INSTITUTION
Common Stock which are outstanding immediately prior to consummation of the
Conversion and Reorganization shall be converted to options to purchase shares
of Holding Company Common Stock, with the number of shares subject to the option
and the exercise price per share to be adjusted based upon the Exchange Ratio so
that the aggregate exercise price remains unchanged, and with the duration of
the option remaining unchanged. Upon consummation of the Conversion and
Reorganization, all of the INSTITUTION Common Stock will be owned by the Holding
Company and the Public Stockholders will own the same percentage of the Holding
Company Common Stock as the percentage of the INSTITUTION Common Stock owned by
them prior to the Conversion and Reorganization, before giving effect to cash
paid in lieu of any fractional interests of Common Stock and any shares of
Conversion Stock purchased by the Public Stockholders in the Offering or
tax-qualified employee stock benefit plans of the Holding Company or INSTITUTION
thereafter. The Holding Company will then sell the Conversion Stock in the
Offerings in accordance with this Plan.
Following consummation of the Conversion and Reorganization, voting rights
with respect to the INSTITUTION shall be held and exercised exclusively by the
Holding Company as holder of the INSTITUTION Common Stock. Voting rights with
respect to the
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Holding Company shall be held and exercised exclusively by holders of the
Holding Company Common Stock.
(C) REGULATORY APPLICATIONS AND NOTICE. After approval of the Plan by the
Boards of Directors of the Mutual Holding Company and the INSTITUTION, the Plan
shall be submitted together with all other requisite material to the OTS for its
approval. Notice of the adoption of the Plan by the Boards of Directors of the
Mutual Holding Company and the INSTITUTION and the submission of the Plan to the
OTS for its approval will be published in a newspaper having general circulation
in each community in which an office of the Mutual Holding Company and the
INSTITUTION is located and copies of the Plan will be made available at each
office of the Mutual Holding Company and the INSTITUTION for inspection by the
Members and INSTITUTION Stockholders. Immediately upon filing of an application
for conversion with the OTS, the Mutual Holding Company and the INSTITUTION also
will cause to be published a notice of the filing with the OTS of an application
to convert in accordance with the provisions of the Plan.
(D) APPROVAL OF PLAN BY MEMBERS AND INSTITUTION STOCKHOLDERS; THE SPECIAL
MEETINGS. Following approval by the OTS, the Plan will be submitted to a vote of
the Voting Members of the Mutual Holding Company at the Special Meeting of
Members called for that purpose. The INSTITUTION shall file preliminary proxy
materials with the OTS and if applicable, the NJDB, in order to seek the
approval of the Plan by the INSTITUTION Stockholders. Promptly following
clearance of such proxy materials (and of the Application of Conversion) by the
OTS and if applicable, the NJDB, this Plan will be submitted to the INSTITUTION
Stockholders for their consideration and approval at the Special Meeting of
INSTITUTION Stockholders. The Plan must be approved by the holders of at least
two-
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thirds of the outstanding INSTITUTION Common Stock.
Upon approval of the Plan by a majority of the total outstanding votes of
the Voting Members, the Mutual Holding Company will take all other necessary
steps pursuant to applicable laws and regulations to convert the Mutual Holding
Company to stock form. The conversion must be completed within 24 months of the
approval of the Plan by the Voting Members, unless a longer time period is
permitted by governing laws and regulations.
The Boards of Directors of the Mutual Holding Company and the INSTITUTION
intend to take all necessary steps to establish the charitable foundation and to
fund such charitable foundation in the manner set forth in Section 8 hereof,
subject to the approval of the Voting Members.
The Conversion Stock will not be insured by the FDIC. The INSTITUTION will
not knowingly lend funds or otherwise extend credit to any Person to purchase
shares of the Conversion Stock.
4. HOLDING COMPANY APPLICATIONS AND APPROVALS
The Holding Company shall make timely applications for any requisite
regulatory approvals, including an Application on Form H-(e)1 or H-(e)1-S, if
available to the Holding Company, to be filed with the OTS and the NJDB, if
required, and a Registration Statement on Form S-1 to be filed with the SEC. In
addition, an application to merge the Mutual Holding Company (following its
conversion into an interim federal stock savings bank) and the INSTITUTION and
an application to merge Interim B and the INSTITUTION shall be
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filed with the OTS, either as exhibits to the Application H-(e)1 or H-(e)1-S, or
separately and, if applicable, with the NJDB. Upon completion of the Conversion
and Reorganization, the INSTITUTION shall be a wholly-owned subsidiary of the
Holding Company.
5. SALE OF CONVERSION STOCK
The Conversion Stock will be offered simultaneously in the Subscription
Offering to the Eligible Account Holders, Employee Plans, Supplemental Eligible
Account Holders and Other Members in the respective priorities set forth in
Sections 8 through 11 of this Plan. The Subscription Offering may be commenced
as early as the mailing of the Proxy Statement for the Special Meeting of
Members and must be commenced in time to complete the Conversion within the time
period specified in Section 3.
Any shares of Conversion Stock not subscribed for in the Subscription
Offering will be offered for sale in the Community Offering as provided in
Section 12 of this Plan. The Subscription Offering may be commenced prior to the
Special Meeting of Members and, in that event, the Community Offering may also
be commenced prior to the Special Meeting of Members. The offer and sale of
Conversion Stock prior to the Special Meetings of Members and INSTITUTION
Stockholders shall, however, be conditioned upon approval of the Plan by the
Voting Members.
If feasible, any shares of Conversion Stock remaining after the
Subscription and Community Offerings may be sold in a Syndicated Community
Offering, as provided in Section 13 of this Plan in a manner that will achieve
the widest distribution of the Conversion Stock as determined by the Primary
Parties. The sale of all Conversion Stock subscribed for in the Subscription and
Community Offerings will be consummated simultaneously on the
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date the sale of Conversion Stock in the Syndicated Community Offering is
consummated and only if all unsubscribed for Conversion Stock is sold.
The Primary Parties may elect to offer to pay fees on a per share basis to
brokers who assist Persons in determining to purchase shares in the Subscription
and Community Offerings.
6. NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK
The total number of shares (or a range thereof) of Conversion Stock to be
issued and offered for sale will be determined by the Boards of Directors of the
Primary Parties immediately prior to the commencement of the Subscription and
Community Offerings, subject to adjustment thereafter if necessitated by market
or financial conditions, with the approval of the OTS, if necessary. In
particular, the total number of shares may be increased by up to 15% of the
number of shares offered in the Subscription and Community Offering if the
Estimated Price Range is increased subsequent to the commencement of the
Subscription and Community Offering to reflect changes in market and financial
conditions. The number of shares to be outstanding upon completion of the
Conversion may be increased if the Holding Company contributes authorized but
unissued shares of Common Stock to the charitable foundation which is proposed
to be established by the INSTITUTION and Holding Company in connection with the
Conversion. The establishment of the charitable foundation is subject to the
approval of the Voting Members, as set forth in Section 8.
All shares sold in the Conversion will be sold at a uniform price per
share referred to in this Plan as the Actual Purchase Price. The aggregate
purchase price for all shares of Conversion Stock will not be inconsistent with
the estimated consolidated pro forma market value of the Holding Company. The
Primary Parties shall cause the Independent Appraiser to
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<PAGE>
prepare a pro forma valuation of the aggregate market value of the Common Stock
and of the aggregate market value of the Conversion Stock. The valuation shall
be prepared in accordance with Section 563b.7 of the Conversion Regulations.
Prior to the commencement of the Subscription and Community Offerings, an
Estimated Price Range will be established, which range will vary within 15%
above to 15% below the midpoint of such range. The number of shares of
Conversion Stock to be issued and the purchase price per share may be increased
or decreased by the Primary Parties. In the event that the aggregate purchase
price of the Conversion Stock is below the minimum of the Estimated Price Range,
or materially above the maximum of the Estimated Price Range, resolicitation of
purchasers may be required, provided that up to a 15% increase above the maximum
of the Estimated Price Range will not be deemed material so as to require a
resolicitation. Any such resolicitation shall be effected in such manner and
within such time as the Primary Parties shall establish, with the approval of
the OTS, if required. Up to a 15% increase in the number of shares to be issued
which is supported by an appropriate change in the estimated pro forma market
value of the Holding Company will not be deemed to be material so as to require
a resolicitation of subscriptions.
Based upon the independent valuation as updated prior to the commencement
of the Subscription and Community Offerings, the Boards of Directors of the
Primary Parties will fix the Subscription Price and the range of the number of
shares to be offered. If upon completion of the Subscription and Community
Offerings all of the Conversion Stock is subscribed for, or if because of a
limited number of unsubscribed shares or otherwise a Syndicated Community
Offering cannot be effected, the total number of shares of Conversion Stock to
be issued and sold will be determined by the Primary Parties as follows: (a) the
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estimated aggregate pro forma market value of the Holding Company, immediately
after conversion as determined by the Independent Appraiser, expressed in terms
of a specific aggregate dollar amount rather than as a range, upon completion of
the Subscription and Community Offerings or other sale of all of the Conversion
Stock shall be divided by (b) the Actual Purchase Price.
If there is a Syndicated Community Offering of shares of Conversion Stock
not subscribed for in the Subscription and Community Offerings, the price per
share at which the Conversion Stock is sold in such Syndicated Community
Offering shall be the Subscription Price.
Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the Primary Parties and to the OTS that, to the best knowledge of
the Independent Appraiser, 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 the Independent
Appraiser to conclude that the aggregate value of the Conversion Stock at the
Actual Purchase Price is incompatible with its estimate of the aggregate
consolidated pro forma market value of the Holding Company. If such confirmation
is not received, the Primary Parties may cancel the Subscription and Community
Offerings and/or the Syndicated Community Offering, extend the Conversion,
establish a new Subscription Price Range and/or Estimated Price Range, extend,
reopen or hold new Subscription and Community Offerings and/or Syndicated
Community Offering or take such other action as the OTS may permit.
The Conversion Stock to be issued in the Conversion shall be fully paid
and nonassessable.
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7. RETENTION OF PROCEEDS BY THE HOLDING COMPANY
The Holding Company will apply to the OTS to retain up to 50% of the
proceeds of the Conversion. The Mutual Holding Company and the INSTITUTION
believe that the Conversion proceeds will provide economic strength to the
Holding Company and the INSTITUTION for the future in a highly competitive and
regulated environment and would facilitate expansion through acquisitions,
diversification into other related businesses and for other business and
investment purposes, including the payment of dividends and future repurchases
of Holding Company Common Stock as permitted by the OTS.
8. ESTABLISHMENT AND FUNDING OF CHARITABLE FOUNDATION
As part of the Conversion and Reorganization, the Holding Company and the
INSTITUTION 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 9.9% of the number of shares
of common stock sold in the Conversion. The Foundation is being formed in
connection with the Conversion in order to complement the INSTITUTION's existing
community reinvestment activities and to share with the INSTITUTION's local
community a part of the INSTITUTION's financial success as a locally
headquartered, community minded, financial services institution. The funding of
the Foundation with Common Stock of the Holding Company accomplishes this goal
as it enables the community to share in the growth and profitability of the
Holding Company and the INSTITUTION over the long-term.
The Foundation will be dedicated to the promotion of charitable purposes
within the City of Bayonne, New Jersey and its neighboring communities,
including, but not limited to, grants or donations to support housing
assistance, scholarships, local education, not-for-profit
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medical facilities, not-for-profit community groups and other types of
organizations or civic minded projects. The Foundation will annually distribute
total grants to assist charitable organizations or to fund projects within its
local community of not less than 5% of the average fair value of Foundation
assets each year. In order to serve the purposes for which it was formed and
maintain its 501(c)(3) qualification, the Foundation may sell, on an annual
basis, a limited portion of the Common Stock contributed to it by the Holding
Company.
The board of directors of the Foundation will be responsible for
establishing the polices of the Foundation with respect to grants or donation,
consistent with the stated purposes of the Foundation.
The establishment and funding of the Foundation as part of the Conversion
is subject to the approval of the Voting Members by an affirmative vote of a
majority of the votes eligible to be cast by Voting Members in person or by
proxy at the Special Meeting. In the event that the Mutual Holding Company's
Members approve this Plan, but not the charitable foundation, the Mutual Holding
Company may determine to complete the Conversion without the establishment of
the Foundation and may do so without amending this Plan or obtaining any further
vote of the Mutual Holding Company Members. Failure of the Voting Members to
approve the Foundation may materially affect the pro forma market value of the
Mutual Holding Company and the INSTITUTION. In such an event, the Mutual Holding
Company and the INSTITUTION may establish a new Estimated Price Range and
commence a resolicitation of subscribers. For comparison purposes, Voting
Members will be provided with a projection of the pro forma market value of the
Conversion Stock, an Estimated Price Range and certain selected pro forma
financial data that would result if the Conversion were consummated without
establishment of the charitable foundation.
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9. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS
(FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, as first priority and
without payment, nontransferable subscription rights to subscribe for shares of
Conversion Stock equal to an amount up to the greater of: the amount permitted
to be subscribed for in the Community Offering which amount, pursuant to Section
13, currently is $200,000 of the Conversion Stock offered, but which may be
increased to five percent (5%) of the total offering of shares of Conversion
Stock offered without the further approval of members; one-tenth of one percent
(.10%) of the total offering of shares of Conversion Stock; or fifteen times the
product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Conversion 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 maximum purchase limitation specified in Section 15A and the minimum
purchase limitation specified in Section 15C 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%.
B. In the event that Eligible Account Holders exercise subscription rights
for a number of shares of Conversion Stock in excess of the total number of
shares eligible for subscription, the shares of Conversion 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 Conversion
Stock equal to the lesser of 100 shares or the number of shares subscribed for
by
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the Eligible Account Holders. Any shares remaining after that allocation will be
allocated among the remaining subscribing Eligible Account Holders whose
subscriptions remain unsatisfied in the proportion that the amount of the
Qualifying Deposit of each remaining Eligible Account Holder whose subscription
remains unsatisfied bears to the total amount of the Qualifying Deposits of all
remaining Eligible Account Holders whose subscriptions remain unsatisfied. If
the amount so allocated exceeds the amount subscribed for by any one or more
remaining Eligible Account Holders, the excess shall be reallocated (one or more
times as necessary) among those remaining 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.
C. 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.
10. SUBSCRIPTION RIGHTS OF THE EMPLOYEE PLANS (SECOND PRIORITY)
The Employee Plans shall receive, without payment, as a second priority
after the filling of subscriptions of Eligible Account Holders, nontransferable
subscription rights to purchase in the Subscription Offering the number of
shares of Conversion Stock requested by such Plan, subject to the purchase
limitations set forth in Section 15. If, after the filling of subscriptions of
Eligible Account Holders, a sufficient number of shares is not available to fill
the subscriptions by such plan, the subscription by such plan shall be filled to
the maximum extent possible, provided however that in the event of an increase
in the total number of
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shares issued due to an increase in the Estimated Price Range of up to 15%, the
additional shares shall be sold to the Employee Plans, subject to the purchase
limitations set forth in Section 15.
The Employee Plans shall not be deemed to be an associate or affiliate of
or Person Acting in Concert with any Director or Officer of the Holding Company
or the INSTITUTION.
11. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD
PRIORITY)
A. Each Supplemental Eligible Account Holder shall receive, as third
priority and without payment, nontransferable subscription rights to subscribe
for shares of Conversion Stock equal to an amount up to the greater of: the
amount permitted to be subscribed for in the Community Offering which amount,
pursuant to Section 13, currently is $200,000 of the Conversion Stock offered,
but which may be increased to five percent (5%) of the total offering of shares
of Conversion Stock offered, without the further approval of members or
resolicitation of subscribers; one-tenth of one percent (.10%) of the total
offering of Conversion Stock; or fifteen times the product (rounded down to the
next whole number) obtained by multiplying the total number of shares of
Conversion 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 the Qualifying Deposits of all Supplemental
Eligible Account Holders in the INSTITUTION on the Supplemental Eligibility
Record Date, subject to the maximum purchase limitation specified in Section 15A
and the minimum purchase limitation specified in Section 15C and exclusive of an
increase in
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the total number of shares issued due to an increase in the Estimated Price
Range of up to 15%.
B. In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Conversion Stock in excess of the
total number of shares eligible for subscription, the shares of Conversion 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 Conversion 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 remaining
subscribing Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied in the proportion that the amount of the Qualifying Deposit of each
remaining Supplemental Eligible Account Holder whose subscription remains
unsatisfied bears to the total amount of the Qualifying Deposits of all
remaining Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied. If the amount so allocated exceeds the amount subscribed for by any
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.
C. Subscription rights received by an Eligible Account Holder pursuant to
Section 9 shall be applied in partial satisfaction of the subscription rights to
be received as a Supplemental Eligible Account Holder pursuant to this Section
11.
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12. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)
A. Each Other Member shall receive, without payment, as a fourth priority
after the filling of subscriptions of the Eligible Account Holders, the Employee
Plans, and the Supplemental Eligible Account Holders, nontransferable
subscription rights to subscribe for shares of Conversion Stock equal to an
amount up to the greater of: the amount permitted to be subscribed for in the
Community Offering which amount, pursuant to Section 13, currently is $200,000
of the Conversion Stock offered, but which may be increased to five percent (5%)
of the total offering of share of Conversion Stock offered without the further
approval of members; or one-tenth of one percent (.10%) of the total offering of
shares of Conversion Stock, subject to the maximum purchase limitation specified
in Section 15A and the minimum purchase limitation specified in Section 15C 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%.
B. In the event that Other Members exercise subscription rights for a
number of shares of Conversion Stock in excess of the total number of shares
eligible for subscription, the shares of Conversion 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 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. If the amount so allocated exceeds the amount subscribed for by any one
or more remaining Other Members, the excess shall be
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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.
13. COMMUNITY OFFERING (FIFTH PRIORITY)
If less than the total number of shares of Conversion Stock to be
subscribed for in the Conversion are sold in the Subscription Offering, it is
expected that shares remaining unsubscribed for will be made available for
purchase in the Community Offering to certain members of the general public,
with a first preference given to the Public Stockholders and a second preference
to natural persons whose primary residence is in the INSTITUTION's Local
Community (such natural persons are hereinafter referred to as "Preferred
Subscribers"), which may subscribe together with any Associate or group of
persons Acting in Concert for up to $200,000 of the Conversion Stock offered,
subject to the maximum purchase limitation specified in Section 15A and the
minimum purchase limitation specified in Section 15C 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 five percent (5%)
of the total offering of shares of Conversion Stock offered without the further
approval of members. 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. The Primary Parties shall make distribution of the Conversion Stock to
be sold in the Community Offering in such a manner as to promote a wide
distribution of
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Conversion Stock. The Primary Parties reserves the right to reject any or all
orders, in whole or in part, which are received in the Community Offering.
If the Public Stockholders 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 Public
Stockholders 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 Conversion Stock equal to the lesser of 100 shares or the number
of shares subscribed for by such persons with preference given to Public
Stockholders. Thereafter, unallocated shares will be allocated among the Public
Stockholders 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 Public Stockholders, any remaining shares will be allocated among Preferred
Subscribers using the foregoing allocation as applied to Public Stockholders.
The Primary Parties may establish all other terms and conditions of such offer.
It is expected that the Community Offering will 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.
14. SYNDICATED COMMUNITY OFFERING
If feasible, all shares of Conversion Stock 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 Primary Parties in a manner that will achieve the widest distribution of
the Conversion Stock subject to the right of the Primary Parties to accept or
reject in whole or in part all subscriptions in the Syndicated
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Community Offering. In the Syndicated Community Offering, any person together
with any Associate or group of persons Acting in Concert may purchase up to
$200,000 of the Conversion Stock offered subject to the maximum purchase
limitation specified in Section 15A and the minimum purchase limitation
specified in Section 15C 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 five percent (5%) of the
total offering of shares of Conversion 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 pursuant to Section 13 shall be
counted toward meeting the maximum percentage of shares permitted to be
purchased pursuant to this Section. Provided that the Subscription Offering has
commenced, the Primary Parties 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 Conversion Stock shall be conditioned upon the
approval of this Plan by the Voting 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 Primary
Parties shall have the right to sell any shares of Conversion Stock remaining
following the Subscription and Community Offerings in an underwritten firm
commitment public offering. The provisions of Section 15 hereof 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
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public. The price to be paid by the underwriters in such an offering shall be
equal to the Actual Purchase Price less an underwriting discount to be
negotiated among such underwriters, the Primary Parties, 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 Conversion Stock not sold in the
Subscription and Community Offerings can not be effected, or in the event that
any insignificant residue of shares of Conversion Stock is not sold in the
Subscription and Community Offerings or in the Syndicated Community Offering or
an underwritten firm commitment public offering, other purchase arrangements
will be made for the sale of unsubscribed shares by the Primary Parties, if
possible. Such other purchase arrangements will be subject to the approval of
the OTS.
15. LIMITATION ON PURCHASES
In addition to the maximum amount of Conversion Stock that may be
subscribed for as set forth in Sections 9, 11, 12 and 13 the following
limitations shall apply to all purchases of shares of Conversion Stock:
A. The maximum number of shares of Conversion 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 or persons Acting in Concert
when combined with any Exchange Stock received shall not exceed 3.0% of the
Conversion Stock offered, except for the Employee Plans which may subscribe for
up to 10% of the Conversion Stock issued in addition to any Exchange Stock to
which it may be entitled and except for certain Eligible
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Account Holders and Supplemental Eligible Account Holders which may subscribe
for or purchase shares in accordance with Sections 9 and 11 herein.
B. The maximum number of shares of Conversion Stock which may be purchased
in all categories in the Conversion by Officers and Directors of the INSTITUTION
and their Associates in the aggregate when combined with any Exchange Stock
received shall not exceed 25.0% of the total number of shares of Conversion
Stock issued.
C. A minimum of 25 shares of Conversion 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
Conversion Stock purchased times the price per share exceeds $500, then such
minimum purchase requirement shall be reduced to such number of shares of
Conversion Stock which when multiplied by the price per share shall not exceed
$500, as determined by the Boards of Directors of the Primary Parties.
If the number of shares of Conversion Stock otherwise allocable pursuant
to Sections 9 through 15, inclusive, 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 Conversion 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).
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Depending upon market or financial conditions, the Boards of Directors of
the Primary Parties, without further approval of the Members, may decrease or
increase the maximum purchase limitation in this Plan, provided that the maximum
purchase limitation 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 Conversion Stock exceeding
5% of the shares being offered shall not exceed, in the aggregate, 10% of the
total offering. If the Primary Parties increase the maximum purchase
limitations, the Primary Parties are only required to resolicit Persons who
subscribed for the maximum purchase amount and may, in the sole discretion of
the Primary Parties resolicit certain other large subscribers.
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 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 according to Section 9; (iii) in the
event 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 according to Section 11; (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 in
accordance with Section 12; and (v) to fill unfulfilled Subscriptions in the
Community Offering exclusive of the Adjusted Maximum in accordance with Section
13.
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For purposes of this Section 15, the Boards of Directors of the Primary
Parties 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 Primary Parties.
Notwithstanding anything to the contrary contained in this Plan, the
Public Stockholders will not have to sell any Holding Company Common Stock or be
limited in receiving Exchange Stock even if their ownership of INSTITUTION
Common Stock when converted into Exchange Stock pursuant to the Conversion would
exceed an applicable purchase limitation.
Each Person purchasing Conversion Stock in the Conversion shall be deemed
to confirm that such purchase does not conflict with the above purchase
limitations contained in this Plan.
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 of the Holding Company except from a
broker-dealer registered with the SEC. This provision shall not apply to
negotiated transactions involving more than one percent of the outstanding
shares of common stock of the Holding Company the exercise of any options
pursuant to a stock option plan or purchases of common stock of the Holding
Company made by or held by any Tax-Qualified Employee Stock Benefit Plan or
Non-Tax-Qualified Employee Stock Benefit Plan of the Primary Parties (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
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representative. The term "investment representative" shall 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.
16. PAYMENT FOR CONVERSION STOCK
All payments for Conversion Stock subscribed for in the Subscription,
Community and Syndicated Community Offerings must be delivered in full to the
INSTITUTION, together with a properly completed and executed Order Form, or
purchase order in the case of the Syndicated Community Offering, on or prior to
the expiration date specified on the Order Form or purchase order, as the case
may be, unless such date is extended by the Primary Parties; provided, however,
that if the Employee Plans subscribe for shares during the Subscription
Offering, such plans will not be required to pay for the shares at the time they
subscribe but rather may pay for such shares of Conversion Stock subscribed for
by such plans at the Actual Purchase Price upon consummation of the Conversion,
provided that, in the case of the employee stock ownership plan ("ESOP") there
is in force from the time of its subscription until the consummation of the
Conversion, a loan commitment from the Holding Company or an unrelated financial
institution to lend to the ESOP, at such time, the aggregated Subscription Price
of the shares for which it subscribed. The INSTITUTION may make scheduled
discretionary contributions to an Employee Plan provided such contributions do
not cause the INSTITUTION to fail to meet its regulatory capital requirement.
Notwithstanding the foregoing, the Primary Parties shall have the right,
in their sole discretion, to permit institutional investors to submit
contractually irrevocable orders in the Community Offering and to thereafter
submit payment for the Conversion Stock for which they are subscribing in the
Community Offering at any time prior to 48 hours before the
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completion of the Conversion, unless such 48 hour period is waived by the
Primary Parties, in their sole discretion.
Payment for Conversion Stock subscribed for shall be made either in cash
(if delivered in person), check or money order. Alternatively, subscribers in
the Subscription and Community Offerings may pay for the shares subscribed for
by authorizing the INSTITUTION on the Order Form to make a withdrawal from the
subscriber's Savings Account at the INSTITUTION in an amount equal to the
purchase price of such shares. Such authorized withdrawal, whether from a
savings passbook or certificate account, shall be without penalty as to
premature withdrawal. If the authorized withdrawal is from a certificate
account, and the remaining balance does not meet the applicable minimum balance
requirement, the certificate shall be cancelled at the time of withdrawal,
without penalty, and the remaining balance will earn interest at the passbook
rate. Funds for which a withdrawal is authorized will remain in the subscriber's
Savings Account but may not be used by the subscriber until the Conversion Stock
has been sold or the 45-day period (or such longer period as may be approved by
the OTS) following the Subscription and Community Offering has expired,
whichever occurs first. Thereafter, the withdrawal will be given effect only to
the extent necessary to satisfy the subscription (to the extent it can be
filled) at the purchase price per share. Interest will continue to be earned on
any amounts authorized for withdrawal until such withdrawal is given effect.
Interest will be paid by the INSTITUTION at not less than the passbook annual
rate on payments for Conversion Stock received in cash or by check or money
order. Such interest will be paid from the date payment is received by the
INSTITUTION until consummation or termination of the Conversion. If for any
reason the Conversion is not consummated, all payments made by subscribers in
the Subscription,
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Community and Syndicated Community Offerings will be refunded to them with
interest. In case of amounts authorized for withdrawal from Savings Accounts,
refunds will be made by cancelling the authorization for withdrawal. The
INSTITUTION is prohibited by regulation from knowingly making any loans or
granting any lines of credit for the purchase of stock in the Conversion, and
therefore, will not do so.
17. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
As soon as practicable after the Prospectus prepared by the Primary
Parties has been declared effective by the OTS and the SEC Order Forms will be
distributed to all Eligible Account Holders, the Employee Plans, the
Supplemental Eligible Account Holders and Other Members at their last known
addresses appearing on the records of the INSTITUTION for the purpose of
subscribing to shares of Conversion Stock in the Subscription Offering and will
be made available for use by those Persons entitled to purchase in the Community
Offering. Notwithstanding the foregoing, the Primary Parties may elect to send
Order Forms only to those Persons who request them after such notice as is
approved by the OTS and is adequate to apprise all Eligible Account Holders, the
Employee Plans, Supplemental Eligible Account Holders and Other Members of the
pendency of the Subscription Offering has been given. Such notice may be
included with the proxy statement for the Special Meeting of Members and may
also be included in a notice of the pendency of the Conversion and the Special
Meeting of Members sent to all Eligible Account Holders and Supplemental
Eligible Account Holders in accordance with regulations of the OTS.
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Each Order Form will be preceded or accompanied by the Prospectus
describing the Primary Parties, the Conversion Stock and the Subscription and
Community Offerings. Each Order Form will contain, among other things, the
following:
A. A specified date by which all Order Forms must be received by the
Primary Parties, which date shall be not less than twenty (20), nor more than
forty-five (45) days, following the date on which the Order Forms are mailed by
the Primary Parties, and which date will constitute the termination of the
Subscription Offering;
B. The Subscription Price per share for shares of Conversion Stock to be
sold in the Subscription and Community Offerings;
C. A description of the minimum and maximum number of shares of Conversion
Stock which may be subscribed for pursuant to the exercise of subscription
rights or otherwise purchased in the Community Offering;
D. Instructions as to how the recipient of the Order Form is to indicate
thereon the number of shares of Conversion Stock for which such person elects to
subscribe and the available alternative methods of payment therefor;
E. An acknowledgment that the recipient of the Order Form has received a
final copy of the Prospectus or Offering Circular, as the case may be, prior to
execution of the Order Form;
F. A statement to the effect that all subscription rights are
nontransferable, will be void at the end of the Subscription Offering, and can
only be exercised by delivering within the subscription period such properly
completed and executed Order Form, together with cash (if delivered in person),
check or money order in the full amount of the purchase price as specified in
the Order Form for the shares of Conversion Stock for which the recipient elects
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to subscribe in the Subscription Offering (or by authorizing on the Order Form
that the INSTITUTION withdraw said amount from the subscriber's Savings Account
at the INSTITUTION) to the INSTITUTION;
G. A statement to the effect that the executed Order Form, once received
by the INSTITUTION, may not be modified or amended by the subscriber without the
consent of the INSTITUTION; and
H. A statement with respect to the residence of the subscriber.
Notwithstanding the above, the Primary Parties will not accept orders
received on photocopied or facsimilied order forms.
18. UNDELIVERED, DEFECTIVE OR LATE ORDER FORMS: INSUFFICIENT PAYMENT
In the event Order Forms (a) are not delivered and are returned to the
Primary Parties by the United States Postal Service or the Primary Parties is
unable to locate the addressee, (b) are not received back by the Primary Parties
or are received by the Primary Parties after the expiration date specified
thereon, (c) are defectively filled out or executed, (d) are not accompanied by
the full required payment, or, in the case of institutional investors in the
Community Offering, by delivering irrevocable orders together with a legally
binding commitment to pay in cash, check, money order or wire transfer the full
amount of the purchase price prior to 48 hours before the completion of the
Conversion for the shares of Conversion Stock subscribed for (including cases in
which savings accounts from which withdrawals are authorized are insufficient to
cover the amount of the required payment), or (e) are not mailed pursuant to a
"no mail" order placed in effect by the account holder, the subscription rights
of the person to whom such rights have been granted will lapse as though
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such person failed to return the contemplated Order Form within the time period
specified thereon; provided, however, that the Primary Parties may, but will not
be required to, waive any immaterial irregularity on any Order Form or require
the submission of corrected Order Forms or the remittance of full payment for
subscribed shares by such date as the Primary Parties may specify. The
interpretation of the Primary Parties of terms and conditions of the Plan and of
the Order Forms will be final, subject to the authority of the OTS.
19. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION
A. All shares of Conversion Stock purchased by Directors or Officers of
the Primary Parties in the Conversion shall be subject to the restriction that,
except as provided in Section 19B, below, or as may be approved by the OTS, no
interest in such shares may be sold or otherwise disposed of for value for a
period of one (l) year following the date of purchase.
B. The restriction on disposition of shares of Conversion Stock set forth
in Section 19A above shall not apply to the following:
(i) Any exchange of such shares in connection with a merger or
acquisition involving the INSTITUTION or the Holding Company, as the case may
be, which has been approved by the OTS; and
(ii) Any disposition of such shares following the death of the
person to whom such shares were initially sold under the terms of the Plan; and
(iii) Any Exchange Stock received by any Officers or Directors.
C. With respect to all shares of Conversion Stock subject to restrictions
on resale or subsequent disposition, each of the following provisions shall
apply:
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(i) Each certificate representing shares restricted within the
meaning of Section 19A, above, shall bear a legend prominently stamped on its
face giving notice of the restriction;
(ii) Instructions shall be issued to the stock transfer agent for
the INSTITUTION or the Holding Company, as the case may be, not to recognize or
effect any transfer of any certificate or record of ownership of any such shares
in violation of the restriction on transfer; and
(iii) Any shares of capital stock of the INSTITUTION or the Holding
Company, as the case may be, issued with respect to a stock dividend, stock
split, or otherwise with respect to ownership of outstanding shares of
Conversion Stock subject to the restriction on transfer hereunder shall be
subject to the same restriction as is applicable to such Conversion Stock.
20. VOTING RIGHTS OF STOCKHOLDERS
Following consummation of the Conversion and the Reorganization, the
holders of the capital stock of the INSTITUTION shall have the exclusive voting
rights with respect to the INSTITUTION as specified in its charter. The holders
of the common stock of the Holding Company shall have the exclusive voting
rights with respect to the Holding Company.
21. ESTABLISHMENT OF LIQUIDATION ACCOUNT
The INSTITUTION 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 ("Liquidation Account"). The liquidation account will be
maintained by the INSTITUTION for the benefit of the Eligible Account Holders
and Supplemental Eligible Account Holders who continue to maintain their Savings
Accounts at the INSTITUTION. Each Eligible
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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 at the
Eligibility Record Date and/or Supplemental Eligibility Record Date or to such
balance as it may be subsequently reduced, as hereinafter provided.
The initial Liquidation Account balance shall be equal to the amount of
the dividends with respect to the INSTITUTION Common Stock waived by the Mutual
Holding Company plus the greater of (1) the Bank's net worth as of the latest
statement of financial condition contained in the final offering circular
utilized in the reorganization of the INSTITUTION into mutual holding company
form, or (2) 54.2% of the INSTITUTION's total stockholders' equity as reflected
in its latest statement of financial condition contained in the final offering
circular utilized in the Conversion and Reorganization. In the unlikely event of
a complete liquidation of the INSTITUTION (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 INSTITUTION's capital stock. No merger,
consolidation, bulk purchase of assets with assumption of Savings Accounts and
other liabilities, or similar transactions with an FDIC-issued institution, in
which the INSTITUTION 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.
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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 Qualifying Deposit and the denominator of
which is the total amount of all Qualifying Deposits of all Eligible Account
Holders and Supplemental Eligible Account Holders in the INSTITUTION. Such
initial subaccount balance shall not be increased, but shall be subject to
downward adjustment as described below. For Savings Accounts in existence at
both dates, separate subaccounts shall be determined on the basis of the
Qualifying Deposits in such Savings Account on such record dates. Such initial
subaccount balances 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 Eligibility Record Date and the Supplemental Eligibility Record Date,
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 Qualifying Deposit 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.
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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
INSTITUTION.
22. TRANSFER OF SAVINGS ACCOUNTS AND CONTINUITY OF THE INSTITUTION
Upon the Conversion and Reorganization, each Savings Account Holder having
a Savings Account at the INSTITUTION prior to the Conversion and Reorganization
will continue to have a Savings Account, without payment therefor, in the same
amount and subject to the same terms and conditions (except for voting and
liquidation rights) as in effect prior to the Conversion and Reorganization.
After the Conversion and Reorganization, the INSTITUTION will succeed to
all the rights, interests, duties and obligations of the INSTITUTION before the
Conversion and Reorganization, including but not limited to all rights and
interests of the INSTITUTION in and to its assets and properties, whether real,
personal or mixed. The INSTITUTION will continue to be a member of the Federal
Home Loan Bank System and all its insured savings deposits will continue to be
insured by the FDIC to the extent provided by applicable law.
23. RESTRICTIONS ON ACQUISITION OF THE INSTITUTION AND HOLDING COMPANY
A. In accordance with OTS regulations, for a period of not less than three
years from the date of consummation of the Conversion, no Person, other than the
Holding Company shall directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of any class of an equity security of the
INSTITUTION without the prior written consent of the OTS.
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B. 1. The charter of the INSTITUTION contains a provision stipulating that
no person, except the Holding Company shall directly or indirectly offer to
acquire or acquire the beneficial ownership of more than 10% of any class of an
equity security of the INSTITUTION, without the prior written approval of the
applicable federal or state regulatory agency. In addition, such charter may
also provide that shares beneficially owned in violation of the above-described
charter provision shall not be entitled to vote and shall not be voted by any
person or counted as voting stock in connection with any matter submitted to
stockholders for a vote. In addition, special meetings of the stockholders
relating to changes in control or amendment of the charter may only be called by
the Board of Directors, and shareholders shall not be permitted to cumulate
their votes for the election of directors.
B. 2. The Certificate of Incorporation of the Holding Company will contain
a provision stipulating that in no event shall any record owner of any
outstanding shares of the Holding Company's common stock who beneficially owns
in excess of 10% of such outstanding shares be entitled or permitted to any vote
in respect to any shares held in excess of 10%. In addition, the Certificate of
Incorporation and Bylaws of the Holding Company will provide for staggered terms
of the directors, noncumulative voting for directors, limitations on the calling
of special meetings, a fair price provision for certain business combinations
and certain notice requirements.
C. For the purposes of this Section 23:
(i) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock company, a
trust, an unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of
securities of an insured institution;
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(ii) The term "offer" includes every offer to buy or acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value;
(iii) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise; and
(iv) The term "security" includes non-transferable subscription
rights issued pursuant to a plan of conversion as well as a "security" as
defined in 15 U.S.C. ss. 78c(a)(10).
24. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK
The INSTITUTION shall not declare or pay a cash dividend on, or repurchase
any of, its capital stock if the effect thereof would cause its regulatory
capital to be reduced below (i) the amount required for the Liquidation Account
or (ii) the federal regulatory capital requirement set forth in Section 567.2 of
the Rules and Regulations of the OTS. Otherwise, the INSTITUTION may declare
dividends, make capital distributions or repurchase its capital stock in
accordance with applicable law and regulations.
25. AMENDMENT OF PLAN
If deemed necessary or desirable, the Plan may be substantively amended at
any time prior to solicitation of proxies from Members and Stockholders to vote
on the Plan by a two-thirds vote of the Boards of Directors of the Primary
Parties, and at any time thereafter by such vote of such Boards of Directors
with the concurrence of the OTS. Any amendment to the Plan made after approval
by the Members and INSTITUTION Stockholders with the approval of the OTS shall
not necessitate further approval by the Members and INSTITUTION Stockholders
unless otherwise required by the OTS. The Plan may be terminated by majority
vote of the Boards of Directors of the Primary Parties at any time
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prior to the Special Meeting of Members or the Special Meeting of Stockholders
to vote on the Plan, and at any time thereafter with the concurrence of the OTS.
By adoption of the Plan, the Members of the Mutual Holding Company and the
INSTITUTION Stockholders authorize the Boards of Directors of the Primary
Parties to amend or terminate the Plan under the circumstances set forth in this
Section.
26. EFFECTIVE DATE
The effective date of the Conversion and Reorganization shall be the date
upon which the last of the following actions occurs: (i) the filing of Articles
of Combination with the OTS with respect to the Mutual Holding Company Merger,
(ii) the filing of Articles of Combination with the OTS and NJDB with respect to
the INSTITUTION Merger and (iii) the closing of the issuance of the shares of
Conversion Stock in the Offerings. The filing of Articles of Combination
relating to the Mutual Holding Company Merger and the INSTITUTION Merger and the
closing of the issuance of shares of Conversion Stock in the Offerings shall not
occur until all requisite regulatory, Member and Stockholder approvals have been
obtained, all applicable waiting periods have expired and sufficient
subscriptions and orders for the Conversion Stock have been received. It is
intended that the closing of the Mutual Holding Company Merger, the INSTITUTION
Merger and the sale of shares of Conversion Stock in the Offerings shall occur
consecutively and substantially simultaneously.
27. REGISTRATION AND MARKETING
Within the time period required by applicable laws and regulations, the
Holding Company will register the securities issued in connection with the
Conversion pursuant to the Securities Exchange Act of 1934 and will not
deregister such securities for a period of at least three years thereafter,
except that the maintenance of registration for three years requirement
46
<PAGE>
may be fulfilled by any successor to the INSTITUTION or any holding company of
the INSTITUTION. In addition, the Holding Company will use its best efforts to
encourage and assist a market-maker to establish and maintain a market for the
Conversion Stock and to list those securities on a national or regional
securities exchange or the NASDAQ system.
28. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES
The Primary Parties will make reasonable efforts to comply with the
securities laws of all States in the United States in which Persons entitled to
subscribe for shares of Conversion Stock pursuant to the Plan reside. However,
no such Person will be issued subscription rights or be permitted to purchase
shares of Conversion Stock in the Subscription Offering if such Person resides
in a foreign country or in a state of the United States with respect to which
both of the following apply: A. a small number of Persons otherwise eligible to
subscribe for shares under the Plan reside in such state; and B. the issuance of
subscription rights or the offer or sale of shares of Conversion Stock to such
Persons would require the INSTITUTION or the Holding Company, as the case may
be, under the securities laws of such state, to register as a broker, dealer,
salesman or agent or to register or otherwise qualify its securities for sale in
such state and such registration or qualification would be impracticable for
reasons of cost or otherwise.
29. EXPENSES
The Primary Parties shall use their best efforts to assure that expenses
incurred by them in connection with the Conversion and Reorganization shall be
reasonable.
47
<PAGE>
30. CONDITIONS TO CONVERSION
The Conversion of the Mutual Holding Company pursuant to this Plan is
expressly conditioned upon the following:
(a) Prior receipt by the Primary Parties of rulings of the United States
Internal Revenue Service and the State of New Jersey taxing authorities, or
opinions of counsel, substantially to the effect that the Conversion will not
result in any adverse federal or state tax consequences to Eligible Account
Holders or to the Primary Parties before or after the Conversion;
(b) The sale of all of the Conversion Stock offered in the Conversion; and
(c) The completion of the Conversion within the time period specified in
Section 3 of this Plan.
31. INTERPRETATION
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Boards of Directors of the Primary
Parties shall be final, subject to the authority of the OTS.
48
<PAGE>
ANNEX A
PLAN OF MERGER
Plan of Merger, dated as of __________, 1997 between Bayonne Bankshares,
M.H.C. (the "Mutual Holding Company"), a federally-chartered mutual holding
company, and First Federal Savings Bank of New Jersey, SLA (the "Bank" or the
"Surviving Corporation"), a New Jersey-chartered savings association.
WITNESSETH:
WHEREAS, the Mutual Holding Company and the Bank have adopted a Plan of
Conversion of the Mutual Holding Company and Agreement and Plan of
Reorganization between a Delaware stock corporation to be organized by the Bank
(the "Holding Company") and the Bank (the "Plan of Conversion"), pursuant to
which (i) the Mutual Holding Company will convert to a federally-chartered
interim stock savings bank and simultaneously merge with and into the Bank, (ii)
the Bank and a newly-formed interim savings association will merge, pursuant to
which the Bank will become a wholly-owned subsidiary of the Holding Company (the
"Reorganization"), and (iii) the Holding Company will offer shares of its common
stock in the manner set forth in the Plan of Conversion and Agreement and Plan
of Reorganization ("Plan of Conversion"); and
WHEREAS, the Mutual Holding Company, which owns 54.2% of the outstanding
common stock of the Bank, par value $.10 per share ("Institution Common Stock"),
will convert to a federally-chartered interim stock savings bank pursuant to the
Plan of Conversion and merge with and into the Bank pursuant to this Plan of
Merger (the "Mutual Holding Company Merger"), pursuant to which, among other
things, all interests of members in the Mutual Holding Company and all shares of
Institution Common Stock held by the Mutual Holding Company will be cancelled;
and
WHEREAS, the Mutual Holding Company and the Bank (the "Constituent
Corporations") desire to provide for the terms and conditions of the Mutual
Holding Company merger;
NOW, THEREFORE, the Mutual Holding Company and the Bank hereby agree as
follows:
1. EFFECTIVE DATE. The Mutual Holding Company Merger shall become
effective on the date specified in the endorsement of the Articles of
Combination relating to the Mutual Holding Company Merger by the Secretary of
the Office of Thrift Supervision ("OTS") pursuant to 12 C.F.R. ss.552.13(k), or
any successor thereto (the "Effective Date").
<PAGE>
2. THE MUTUAL HOLDING COMPANY MERGER AND EFFECT THEREOF. Subject to the
terms and conditions set forth herein and the prior approval of the OTS of the
Conversion and Reorganization, as defined in the Plan of Conversion, and the
expiration of all applicable waiting periods, the Mutual Holding Company shall
convert from the mutual form to a federal interim stock savings bank and
simultaneously merge with and into the Bank, which shall be the Surviving
Corporation. Upon consummation of the Mutual Holding Company Merger, the
Surviving Corporation shall be considered the same business and corporate entity
as each of the Constituent Corporations shall vest in the Surviving Corporation
and the Surviving Corporation shall be subject to and be deemed to have assumed
all of the debts, liabilities, obligations and duties of each of the constituent
Corporations and shall have succeeded to all of each of their relationships,
fiduciary or otherwise, as fully and to the same extent as if such property,
rights, privileges, powers, franchises, debts, obligations, duties and
relationships had been originally acquired, incurred or entered into by the
Surviving Corporation. In addition, any reference to either of the Constituent
Corporations in any contract, will or document, whether executed or taking
effect before or after the Effective Date, shall be considered a reference to
the Surviving Corporation if not inconsistent with the other provisions of the
contract, will or document; and any pending action or other judicial proceeding
to which either of the Constituent Corporations is a party shall not be deemed
to have abated or to have been discontinued by reason of the Mutual Holding
Company Merger, but may be prosecuted to final judgment, order or decree in the
same manner as if the Mutual Holding Company Merger had not occurred or the
Surviving Corporation may be substituted as a party to such action or
proceeding, and any judgment, order or decree may be rendered for or against it
that might have been rendered for or against either of the Constituent
Corporations if the Mutual Holding Company Merger had not occurred.
3. CANCELLATION OF INSTITUTION COMMON STOCK HELD BY THE MUTUAL HOLDING
COMPANY AND MEMBER INTERESTS; LIQUIDATION ACCOUNT.
(a) On the Effective Date: (i) each share of Institution Common Stock
issued and outstanding immediately prior to the Effective Date and held by the
Mutual Holding Company shall, by virtue of the Mutual Holding Company merger and
without any action on the part of the holder thereof, be cancelled, (ii) the
interests in the Mutual Holding Company of any person, firm or entity who or
which qualified as a member of the Mutual Holding Company in accordance with its
mutual charter and bylaws and the laws of the United States prior to the Mutual
Holding Company's conversion from mutual to stock form (the "Members") shall, by
virtue of the Mutual Holding Company Merger and without any action on the part
of the holder thereof, be cancelled, and (iii) the Bank shall establish a
liquidation account on behalf of each depositor member of the Mutual Holding
Company, as defined in the Plan of Conversion, in accordance with Section 21 of
the Plan of Conversion.
(b) At or after the Effective Date and prior to the Bank Merger, each
certificate or certificates theretofore, evidencing issued and outstanding
shares of Institution Common Stock, other than any such certificate or
certificates held by the Mutual Holding Company,
2
<PAGE>
which shall be cancelled, shall continue to represent issued and outstanding
shares of Institution Common Stock.
4. DISSENTING SHARES. No Member of the Mutual Holding Company and, subject
to the laws of the State of New Jersey or any successor thereto, no holder of
shares of Institution Common Stock shall have any dissenter or appraisal rights
in connection with the Mutual Holding Company Merger.
5. NAME OF SURVIVING CORPORATION. The name of the Surviving Corporation
shall be "First Savings Bank of New Jersey, SLA."
6. DIRECTORS OF THE SURVIVING CORPORATION. Upon and after the Effective
Date, until changed in accordance with the Charter and Bylaws of the Surviving
Corporation and applicable law, the number of directors of the Surviving
Corporation shall be seven. The names of those persons who, upon and after the
Effective Date, shall be directors of the Surviving Corporation are set forth
below. Each such director shall serve for the term which expires at the annual
meeting of stockholders of the Surviving Corporation in the year set forth after
his respective name, and until a successor is elected and qualified.
Name Term Expires
- ------------------------------------------------- ------------------------
Patrick D. Conaghan 1999
Fredrick G. Whelply 1999
Sam P. Lamparello 1997
James F. Sisk 1997
Patrick F. X. Nilan 1998
Joseph L. Wisniewski 1998
Michael Nilan 1997
The address of each such director is c/o 568 Broadway, Bayonne, New Jersey
07002.
7. OFFICERS OF THE SURVIVING CORPORATION. Upon and after the Effective
Date, until changed in accordance with the Charter and Bylaws of the Surviving
Corporation and applicable law, the officers of the Bank immediately prior to
the Effective Date shall be the officers of the Surviving Corporation.
8. OFFICES. Upon the Effective Date, all offices of the Bank shall be
offices of the Surviving Corporation. As of the Effective Date, the home office
of the Surviving Corporation shall remain at 568 Broadway, Bayonne, New Jersey
and the location of the other deposit-taking offices of the Surviving
Corporation shall be as set forth in Exhibit 1 hereto, except for the addition
of deposit-taking offices authorized or the deletion of deposit-taking offices
closed subsequent to the date hereof and the Effective Date.
3
<PAGE>
9. CHARTER AND BYLAWS. On and after the Effective Date, the Charter of the
Bank as in effect immediately prior to the Effective Date shall be the Charter
of the Surviving Corporation until amended in accordance with the terms thereof
and applicable law, except that the Charter be amended to provide for the
establishment of a liquidation account in accordance with applicable law and
regulation.
On and after the Effective Date, the Bylaws of the Bank as in effect
immediately prior to the Effective Date shall be the Bylaws of the Surviving
Corporation until amended in accordance with the terms thereof and applicable
law.
10. STOCKHOLDER AND MEMBER APPROVALS. The affirmative votes of the holders
of Institution Common Stock set forth in Section 3 of the Plan of Conversion and
the Members set forth in Section 3 of the Plan of Conversion shall be required
to approve the Plan of Conversion and Agreement and Plan of Reorganization, of
which this Plan of Merger is a part, on behalf of the Bank and the Mutual
Holding Company, respectively.
11. ABANDONMENT OF PLAN. This Plan of Merger may be abandoned by either
the Mutual Holding Company or the Bank at any time before the Effective Date in
the manner set forth in Section 25 of the Plan of Conversion.
12. AMENDMENTS. This Plan of Merger may be amended in the manner set forth
in Section 25 of the Plan of Conversion by a subsequent writing signed by the
parties hereto upon the approval of the Board of Directors of each of the
parties hereto.
13. SUCCESSORS. This Agreement shall be binding on the successors of the
Mutual Holding Company and the Bank.
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the United States of America.
4
<PAGE>
IN WITNESS WHEREOF, the Mutual Holding Company and the Bank have caused
this Plan of Merger to be executed by their duly authorized officers as of the
day and year first above written.
BAYONNE BANKSHARES, M.H.C.
Attest:
____________________________ By: _____________________________
Thomas M. Coughlin Patrick F.X. Nilan
Corporate Secretary President and Chief Executive
Officer
FIRST SAVINGS BANK OF NEW
JERSEY, SLA
Attest:
____________________________ By: _____________________________
Thomas M. Coughlin Patrick F.X. Nilan
Corporate Secretary President and Chief Executive
Officer
5
<PAGE>
ANNEX B
PLAN OF REORGANIZATION
Plan of Reorganization, dated as of _____________, 1997, among First
Savings Bank of New Jersey, SLA (the "Bank" or the "Surviving Bank"), a New
Jersey-chartered savings association, Bayonne Bancshares, Inc., a Delaware stock
corporation organized by the Bank (the "Holding Company"), and First Interim
Savings Bank of New Jersey ("Interim B"), a to-be formed interim savings
association.
WITNESSETH:
WHEREAS, the Bank has organized the Holding Company as a first-tier,
wholly owned subsidiary for the purpose of becoming the stock holding company of
the Bank upon completion of the Conversion and Reorganization, as defined in the
Plan of Conversion and Agreement and Plan of Reorganization of Bayonne
Bankshares, M.H.C. (the "Mutual Holding Company") and the Bank (the "Plan of
Conversion"); and
WHEREAS, the Mutual Holding Company, a federally-chartered mutual holding
company which owns 54.2% of the common stock of the Bank, par value $.10 per
share ("Institution Common Stock), will convert to a federally-chartered interim
stock savings bank and simultaneously merge with and into the Bank pursuant to
the Plan of Conversion and the Plan of Merger included as Annex A thereto (the
"Mutual Holding Company Merger"), pursuant to which all shares of Institution
Common Stock held by the Mutual Holding Company will be cancelled; and
WHEREAS, the formation of a stock holding company by the Bank will be
facilitated by causing the Holding Company to become the sole stockholder of a
newly-formed interim stock savings association ("Interim B") and then merge
Interim B with and into the Bank (the "Reorganization"), pursuant to which the
Bank, will become a wholly-owned subsidiary of the Holding Company and, in
connection therewith, all outstanding shares of Institution Common Stock will be
converted automatically into and become shares of common stock of the Holding
Company, par value $.01 per share ('Holding Company Common Stock"); and
WHEREAS, Interim B is being organized by the officers of the Bank as an
interim stock savings bank with the Holding Company as its sole stockholder in
order to effect the Reorganization; and
WHEREAS, the Bank and Interim B (the "Constituent Banks") and the Holding
Company desire to provide for the terms and conditions of the Reorganization.
NOW, THEREFORE, the Bank, Interim B and the Holding Company hereby agree
as follows:
<PAGE>
1. EFFECTIVE DATE. The Reorganization shall become effective on the date
specified in the endorsement of the articles of combination relating to the
Reorganization by the Office of Thrift Supervision ("OTS") and the New Jersey
Department of Banking ("NJDB") ("Effective Date").
2. THE MERGER AND EFFECT THEREOF. Subject to the terms and conditions set
forth herein and the prior approval of the OTS and, if applicable, the NJDB of
the Conversion and the Reorganization, as defined in the Plan of Conversion, and
the expiration of all applicable waiting periods, Interim B shall merge with and
into the Bank, which shall be the Surviving Bank. Upon consummation of the
Reorganization, the Surviving Bank shall be considered the same business and
corporate entity as each of the Constituent Banks and thereupon and thereafter
all the property, rights, powers and franchises of each of the Constituent Banks
shall vest in the Surviving Bank and the Surviving Bank shall be subject to and
be deemed to have assumed all of the debts, liabilities, obligations and duties
of each of the Constituent Banks and shall have succeeded to all of each of
their relationships, fiduciary or otherwise, fully and to the same extent as if
such property, rights, privileges, powers, franchises, debts, obligations,
duties and relationships had been (originally acquired, incurred or entered into
by the Surviving Bank. In addition any reference to either of the Constituent
Banks in any contract, will or document, whether executed or taking effect
before or after the Effective Date, shall be considered a reference to the
Savings Bank if not inconsistent with the other provisions of the contract, will
or document; and any pending action or other judicial proceeding of which either
of the Constituent Banks is a party shall not be deemed to have abated or to
have been discontinued by reason of the Reorganization, but may be prosecuted to
final judgment, order or decree in the same manner as if the Reorganization had
not occurred or the Surviving Bank may be substituted as a party to such action
or proceeding, and any judgment, order or decree may be rendered for or against
it that might have been rendered for or against either of the Constituent Banks
if the Reorganization had not occurred.
3. CONVERSION OF STOCK.
(a) On the Effective Date, (i) each share of Institution Common Stock
issued and outstanding immediately prior to the Effective Date shall, by virtue
of the Reorganization and without any action on the part of the holder thereof,
be converted into the right to receive Holding Company Common Stock based on the
Exchange Ratio, as defined in the Plan of Conversion plus the right to receive
cash in lieu of any fractional share interest, as determined in accordance with
Section 3(c) hereof, (ii) each share of common stock, par value $.01 per share,
of Interim B ("Interim B Common Stock") issued and outstanding immediately prior
to the Effective Date shall, by virtue of the Reorganization and without any
action on the part of the holder thereof, be converted into one share of
Institution Common Stock, and (ii) each share of Holding Company Common Stock
issued and outstanding immediately prior to the Effective Date shall, by virtue
of the Reorganization and without any action on the part of the holder thereof,
be cancelled. By voting in favor of this Plan of Reorganization, the Holding
Company, as the sole stockholder of Interim B, shall have agreed (i) to issue
shares of Holding Company Common Stock in accordance with the terms hereof and
(ii) to cancel all
2
<PAGE>
previously issued and outstanding shares of Holding Company Common Stock upon
the effectiveness of the Reorganization.
(b) On and after the Effective Date, there shall be no registrations of
transfers on the stock transfer books of Interim B or the Bank of shares of
Interim B Common Stock or Institution Common Stock which were outstanding
immediately prior to the Effective Date.
(c) Notwithstanding any other provision hereof, no fractional shares of
Holding Company Common Stock shall be issued to holders of Institution Common
Stock. In lieu thereof, the holder of shares of Institution Common Stock
entitled to a fraction of a share of Holding Company Common Stock shall, at the
time of surrender of the certificate or certificates representing such holder
shares, receive an amount of cash equal to the product arrived at by multiplying
such fraction of a share of Holding Company Common Stock by the Actual Purchase
Price, as defined in the Plan of Conversion. No such holder shall be entitled to
dividends, voting rights or any other rights in respect of any fractional share.
4. EXCHANGE OF SHARES.
(a) At or after the Effective Date, each holder of a certificate or
certificates theretofore evidencing issued and outstanding shares of Institution
Common Stock, upon surrender of the same to an agent, duly appointed by the
Holding Company ("Exchange Agent"), shall be entitled to receive in exchange
therefor certificate or certificates representing the number full shares of
Holding Company Common Stock for which the shares of Institution Common Stock
theretofore represented by the certificate or certificates so surrendered shall
have been converted as provided in Section 3(a) hereof. The Exchange Agent shall
mail to each holder of record of an outstanding certificate which immediately
prior to the Effective Date evidenced shares of Institution Common Stock, and
which is to be exchanged for Holding Company Common Stock as provided in Section
3(a) hereof, a form of letter of transmittal which shall specify that delivery
shall be effected, and risk of loss and title to such certificate shall pass,
only upon delivery of such certificate to the Exchange Agent advising such
holder of the terms of the exchange effected by the Reorganization and of the
procedure for surrendering to the Exchange Agent such certificate in exchange
for certificate or certificates evidencing Holding Company Common Stock.
(b) No holder of a certificate theretofore represent shares of Institution
Common Stock shall be entitled to receive any dividends in respect of the
Holding Company Common Stock into which such shares shall have been converted by
virtue of the Bank Merger until the certificate representing such shares of
Institution Common Stock is surrendered in exchange for certificates
representing shares of Holding Company Common Stock. In the event that dividends
are declared and paid by the Holding Company in respect of Holding Company
Common Stock after the Effective Date but prior to surrender of certificates
representing shares of Institution Common Stock, dividends payable in respect of
shares of Holding Company Common Stock not then issued shall accrue (without
interest). Any such dividends shall be paid (without interest) upon surrender of
the certificates representing such
3
<PAGE>
shares of Institution Common Stock. The Holding Company shall be entitled, after
the Effective Date, to treat certificates representing shares of Institution
Common Stock as evidencing ownership of the number of full shares of Holding
Company Common Stock into which the shares of Institution Common Stock
represented by such certificates shall have been converted, notwithstanding the
failure on the part of the holder thereof to surrender such certificates.
(c) The Holding Company shall not be obligated to deliver a certificate or
certificates representing shares of Holding Company Common Stock to which a
holder of Institution Common Stock would otherwise be entitled as a result of
the Reorganization until such holder surrenders the certificate or certificates
representing the shares of Institution Common Stock for exchange as provided in
this Section 4, or, in default thereof, an appropriate Affidavit of Loss and
Index Agreement and/or a bond as may be required in each case by the Holding
Company. If any certificate evidencing shares of Holding Company Common Stock is
to be issued in a name other than that in which the Certificate evidencing
Institution Common Stock surrendered in exchanged therefor is registered, it
shall be a condition of the issuance thereof that the certificate so surrendered
shall be properly endorsed and otherwise in proper form for transfer and that
the person requesting such exchange pay to the Exchange Agent any transfer or
other tax required by reason of the issuance of a certificate for shares of
Holding Company Common Stock in any name other than that of the registered
holder of the certificate surrendered or otherwise establish to the satisfaction
of the Exchange Agent that such tax has been paid or is not payable.
(d) If, between the date hereof and the Effective Date, the shares of
Institution Common Stock shall be changed into a different number or class of
shares by reason of any reclassification, recapitalization, split-up,
combination, exchange of shares or readjustment or a stock dividend thereon
shall be declared with a record date within said period, the Exchange Ratio
specified in Section 3(a) hereof shall be adjusted accordingly.
5. DISSENTING SHARES. Subject to the provisions of the New Jersey Banking
Code, or any successor thereto, no holder of shares of Institution Common Stock
shall have any dissenter or appraisal rights in connection with the
Reorganization.
6. NAME OF SURVIVING BANK. The name of the Surviving Bank shall be "First
Savings Bank of New Jersey, SLA."
7. DIRECTORS OF THE SURVIVING BANK. Upon and after the Effective Date,
until changed in accordance with the Charter and Bylaws of the Surviving Bank
and applicable law, the number of directors of the Surviving Bank shall be
seven. The names of those persons who, upon and after the Effective Date, shall
be directors of the Surviving Bank are set forth below. Each such director shall
serve for the term which expires at the annual meeting of stockholders of the
Surviving Bank in the year set forth after his respective name, and until a
successor is elected and qualified.
4
<PAGE>
Name Term Expires
---- ------------
Patrick D. Conaghan 1999
Fredrick G. Whelply 1999
Sam P. Lamparello 1997
James F. Sisk 1997
Patrick F. X. Nilan 1998
Joseph L. Wisniewski 1998
Michael Nilan 1997
The address of each such director is c/o First Savings Bank of New Jersey,
SLA, 568 Broadway, Bayonne, New Jersey.
8. OFFICERS OF THE SURVIVING BANK. Upon and after the Effective Date,
until changed in accordance with the Charter and Bylaws of the Surviving Bank
and applicable law, the officers of the Bank immediately prior to the Effective
Date shall be the officers of the Surviving Bank.
9. OFFICES. Upon the Effective Date, all offices of the Bank shall be
offices of the Surviving Bank. As of the Effective Date, the home office of the
Surviving Bank shall remain at 568 Broadway, Bayonne, New Jersey and the
location of the other deposit-taking offices of the Surviving Bank shall be as
set forth in Exhibit 1 hereto.
10. CHARTER AND BYLAWS. On and after the Effective Date, the Charter and
Bylaws of the Bank as in effect immediately prior to the Effective Date shall be
the Charter and Bylaws of the Surviving Bank until amended in accordance with
the terms thereof and applicable law.
11. SAVINGS ACCOUNTS. Upon the Effective Date, any savings accounts of
Interim, without reissue, shall be and become savings accounts of the Surviving
Bank without change in their respective terms, including, without limitation,
maturity minimum required balances or withdrawal value.
12. STOCK COMPENSATION PLANS. By voting in favor of this Agreement, the
Holding Company shall have approved adoption of the existing 1995 Stock Option
Plan and 1995 Recognition and Retention Plan (collectively the "Plans") as plans
of the Holding Company and shall have agreed to issue Holding Company Common
Stock in lieu of Institution Common Stock pursuant to the terms of such Plans.
As of the Effective Date, rights outstanding under the Plans shall be assumed by
the Holding Company and thereafter shall be rights only for shares of Holding
Company Common Stock, with each such right being for a number of shares of
Holding Company Common Stock equal to the number of shares of Institution Common
Stack that were available thereunder immediately prior to the Effective Date
times the Exchange Ratio, as defined in the plan of conversion, and the price of
each such right shall be adjusted to reflect the Exchange Ratio and so that the
aggregate
5
<PAGE>
purchase price of the right is unaffected, but with no change in any other term
or condition of such right. The Holding Company shall make appropriate
amendments to the Plans to reflect the adoption of the Plans by the Holding
Company without adverse effect upon the rights outstanding thereunder.
13. STOCKHOLDER APPROVAL. The affirmative votes of the holders of
Institution Common Stock set forth in Section 3 of the Plan of Conversion shall
be required to approve the Plan of Conversion and Agreement and Plan of
Reorganization, of which this Plan of Reorganization is a part, on behalf of the
Bank. The approval of the Holding Company, as the sole holder of the Interim B
Common Stock, shall be required to approve the Plan of Conversion, of which this
Plan of Reorganization is a part, on behalf of Interim.
14. REGISTRATION; OTHER APPROVALS. In addition to the approvals set forth
in Sections 1 and 13 hereof and the Plan of Conversion, the parties' obligations
to consummate the Reorganization shall be subject to the Holding Company Common
Stock to be issued hereunder in exchange for Institution Common Stock being
registered under the Securities Act of 1933, as amended, and registered or
qualified under applicable state securities laws, as well as the receipt of all
other approvals, consents or waivers as the parties may deem necessary or
advisable.
15. ABANDONMENT OF PLAN. This Plan of Reorganization may be abandoned by
either the Bank or Interim B at any time before the Effective Date in the manner
set forth in Section 25 of the Plan of Conversion.
16. AMENDMENTS. This Plan of Reorganization may be amended in the manner
set forth in Section 25 of the Plan of Conversion by a subsequent writing signed
by the parties hereto upon the approval of the Board of Directors of each of the
parties hereto.
17. SUCCESSORS. This Plan of Reorganization shall be binding on the
successors of the Bank and Interim.
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the United States of America and, to the extent not
governed by such laws, the laws of the State of New Jersey.
19. EXECUTION BY HOLDING COMPANY AND INTERIM B. The Bank acknowledges that
as of the date hereof, Interim B is in organization and has not received its
charter from the Office of Thrift Supervision. Therefore, Interim B does not
have the legal capacity to execute this Plan of Reorganization as of the date
hereof. The Holding Company agrees to cause Interim B to execute this Plan
promptly following the organization of Interim B upon receipt of the OTS
approval for Interim B to be organized. The Bank and the Holding Company agree
to be bound by this Plan of Reorganization prior to and following such execution
by Interim B.
6
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have cause this Plan of
Reorganization to be duly executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
FIRST SAVINGS BANK OF NEW JERSEY, SLA
By: _________________________________
Patrick F.X. Nilan
President and Chief Executive Officer
Attest: _________________________________
Thomas M. Coughlin
Secretary
BAYONNE BANCSHARES, INC.
By: _________________________________
Michael Nilan
President and Chief Executive Officer
Attest: _________________________________
Thomas M. Coughlin
Secretary
FIRST INTERIM SAVINGS BANK OF NEW JERSEY
By: _________________________________
Patrick F.X. Nilan
President and Chief Executive Officer
Attest: _________________________________
Thomas M. Coughlin
Secretary
7
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
BAYONNE BANCSHARES, INC.
BEFORE RECEIPT OF PAYMENT FOR STOCK
Bayonne Bancshares, Inc., a Delaware corporation (the "Corporation"), does
hereby certify:
FIRST: The Corporation has not received any payment for any of its stock.
SECOND: The amendment set forth below to the Corporation's Certificate of
Incorporation was duly adopted by a majority of its directors in accordance with
the provisions of Section 241 of the General Corporation Laws of the State of
Delaware.
Paragraph A. to Article FOURTH is hereby amended to read in its entirety
as follows:
"A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is twenty-four million (24,000,000)
consisting of:
1. Two million (2,000,000) shares of Preferred Stock, par value
one cent ($.01) per share (the "Preferred Stock"); and
2. Twenty-two million (22,000,000) shares of Common Stock, par
value one cent ($.01) per share (the "Common Stock")."
IN WITNESS WHEREOF, Bayonne Bancshares, Inc. has caused this Certificate
of Amendment to be executed and attested by its duly authorized officers this
20th day of February, 1997.
BAYONNE BANCSHARES, INC.
By: /s/ MICHAEL NILAN
-----------------------------------
Michael Nilan
President and Chief Executive Officer
ATTEST:
/s/ THOMAS M. COUGHLIN
- -------------------------------
Thomas M. Coughlin
Secretary
<PAGE>
CERTIFICATE OF INCORPORATION
OF
BAYONNE BANCSHARES, INC.
FIRST: The name of the Corporation is Bayonne Bancshares, Inc.
(hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
FOURTH:
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 40 million (40,000,000)
consisting of:
1. 10 million (10,000,000) shares of Preferred Stock, par value
one cent ($.01) per share (the "Preferred Stock"); and
2. 30 million (30,000,000) shares of Common Stock, par value one
cent ($.01) per share (the "Common Stock").
B. The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred
Stock in series, and by filing a certificate pursuant to the applicable
law of the State of Delaware (such certificate being hereinafter referred
to as a "Preferred Stock Designation"), to establish from time to time the
number of shares to be included in each such series, and to fix the
designation, powers, preferences, and rights of the shares of each such
series and any qualifications, limitations or restrictions thereof. The
number of authorized shares of Preferred Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by
the affirmative vote of the holders of a majority of the Common Stock,
without a vote of the holders of the Preferred Stock, or of any series
thereof, unless a vote of any such holders is required pursuant to the
terms of any Preferred Stock Designation.
C. 1. Notwithstanding any other provision of this Certificate
of Incorporation, in no event shall any record owner of any
outstanding Common Stock which is beneficially owned,
directly or indirectly, by a person who, as of any record
date for the determination of stockholders entitled to vote
on any matter, 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
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held in excess of the Limit. The number of votes which may
be cast by any record owner by virtue of the provisions
hereof in respect of Common Stock beneficially owned by such
person beneficially owning shares in excess of the Limit
shall be a number equal to the total number of votes which a
single record owner of all Common Stock beneficially owned
by such person would be entitled to cast, (subject to the
provisions of this Article FOURTH) multiplied by a fraction,
the numerator of which is the number of shares of such class
or series which are both beneficially owned by such person
and owned of record by such record owner and the denominator
of which is the total number of shares of Common Stock
beneficially owned by such person owning shares in excess of
the Limit.
2. The following definitions shall apply to this Section C of
this Article FOURTH:
a. "Affiliate" shall have the meaning ascribed to it in
Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended, as in
effect on the date of filing of this Certificate of
Incorporation.
b. "Beneficial ownership" shall be determined pursuant to
Rule 13d-3 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended, (or any
successor rule or statutory provision), or, if said Rule
13d-3 shall be rescinded and there shall be no successor
rule or provision thereto, pursuant to said Rule 13d-3
as in effect on the date of filing of this Certificate
of Incorporation; provided, however, that a person
shall, in any event, also be deemed the "beneficial
owner" of any Common Stock:
(1) which such person or any of its affiliates
beneficially owns, directly or indirectly; or
(2) which such person or any of its affiliates has:
(i) the right to acquire (whether such right is
exercisable immediately or only after the passage
of time), pursuant to any agreement, arrangement
or understanding (but shall not be deemed to be
the beneficial owner of any voting shares solely
by reason of an agreement, contract, or other
arrangement with this Corporation to effect any
transaction which is described in any one or more
of clauses 1 through 5 of Section A of Article
EIGHTH of this Certificate of Incorporation
("Article EIGHTH")), or upon the exercise of
conversion rights, exchange rights, warrants, or
options or otherwise, or (ii) sole or shared
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voting or investment power with respect thereto
pursuant to any agreement, arrangement,
understanding, relationship or otherwise (but
shall not be deemed to be the beneficial owner of
any voting shares solely by reason of a revocable
proxy granted for a particular meeting of
stockholders, pursuant to a public solicitation of
proxies for such meeting, with respect to shares
of which neither such person nor any such
Affiliate is otherwise deemed the beneficial
owner); or
(3) which are beneficially owned, directly or
indirectly, by any other person with which such
first mentioned person or any of its Affiliates
acts as a partnership, limited partnership,
syndicate or other group pursuant to any
agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing
of any shares of capital stock of this
Corporation; and provided further, however, that:
(1) no Director or Officer of this Corporation (or
any Affiliate of any such Director or Officer)
shall, solely by reason of any or all of such
Directors or Officers acting in their capacities
as such, be deemed, for any purposes hereof, to
beneficially own any Common Stock beneficially
owned by any other such Director or Officer (or
any Affiliate thereof); and (2) neither any
employee stock ownership or similar plan of this
Corporation or any subsidiary of this Corporation,
nor any trustee with respect thereto or any
Affiliate of such trustee (solely by reason of
such capacity of such trustee), shall be deemed,
for any purposes hereof, to beneficially own any
Common Stock held under any such plan. For
purposes only of computing the percentage of
beneficial ownership of Common Stock of a person,
the outstanding Common Stock shall include shares
deemed owned by such person through application of
this subsection but shall not include any other
Common Stock which may be issuable by this
Corporation pursuant to any agreement, or upon
exercise of conversion rights, warrants or
options, or otherwise. For all other purposes, the
outstanding Common Stock shall include only Common
Stock then outstanding and shall not include any
Common Stock which may be issuable by this
Corporation pursuant to any agreement, or upon the
exercise of conversion rights, warrants or
options, or otherwise.
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c. The "Limit" shall mean 10% of the then-outstanding
shares of Common Stock.
d. A "person" shall include an individual, a firm, a group
acting in concert, a corporation, a partnership, an
association, a joint venture, a pool, a joint stock
company, a trust, an unincorporated organization or
similar company, a syndicate or any other group formed
for the purpose of acquiring, holding or disposing of
securities or any other entity.
3. The Board of Directors shall have the power to construe and
apply the provisions of this section and to make all
determinations necessary or desirable to implement such
provisions, including but not limited to matters with respect
to: (i) the number of shares of Common Stock beneficially
owned by any person; (ii) whether a person is an affiliate of
another; (iii) whether a person has an agreement, arrangement,
or understanding with another as to the matters referred to in
the definition of beneficial ownership; (iv) the application
of any other definition or operative provision of the section
to the given facts; or (v) any other matter relating to the
applicability or effect of this section.
4. The Board of Directors shall have the right to demand that any
person who is reasonably believed to beneficially own Common
Stock in excess of the Limit (or holds of record Common Stock
beneficially owned by any person in excess of the Limit)
supply the Corporation with complete information as to: (i)
the record owner(s) of all shares beneficially owned by such
person who is reasonably believed to own shares in excess of
the Limit; and (ii) any other factual matter relating to the
applicability or effect of this section as may reasonably be
requested of such person.
5. Except as otherwise provided by law or expressly provided in
this Section C, the presence, in person or by proxy, of the
holders of record of shares of capital stock of the
Corporation entitling the holders thereof to cast a majority
of the votes (after giving effect, if required, to the
provisions of this Section C) entitled to be cast by the
holders of shares of capital stock of the Corporation entitled
to vote shall constitute a quorum at all meetings of the
stockholders, and every reference in this Certificate of
Incorporation to a majority or other proportion of capital
stock (or the holders thereof) for purposes of determining any
quorum requirement or any requirement for stockholder consent
or approval shall be deemed to refer to such majority or other
proportion of the votes (or the holders thereof) then entitled
to be cast in respect of such capital stock.
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6. Any constructions, applications, or determinations made by the
Board of Directors pursuant to this section in good faith and
on the basis of such information and assistance as was then
reasonably available for such purpose shall be conclusive and
binding upon the Corporation and its stockholders.
7. In the event any provision (or portion thereof) of this
Section C shall be found to be invalid, prohibited or
unenforceable for any reason, the remaining provisions (or
portions thereof) of this Section shall remain in full force
and effect, and shall be construed as if such invalid,
prohibited or unenforceable provision had been stricken
herefrom or otherwise rendered inapplicable, it being the
intent of this Corporation and its stockholders that each such
remaining provision (or portion thereof) of this Section C
remain, to the fullest extent permitted by law, applicable and
enforceable as to all stockholders, including stockholders
owning an amount of stock over the Limit, notwithstanding any
such finding.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers
and authority expressly conferred upon them by statute or by this
Certificate of Incorporation or the Bylaws of the Corporation, the
Directors are hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation.
B. The Directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
C. Any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special
meeting of stockholders of the Corporation and may not be effected by any
consent in writing by such stockholders.
D. Special meetings of stockholders of the Corporation may be called
only by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board or as otherwise provided in the Bylaws. The
term "Whole Board" shall mean the total number of authorized directorships
(whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board
for adoption).
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SIXTH:
A. The number of Directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by
a majority of the Whole Board. The Directors shall be divided into three
classes, as nearly equal in number as reasonably possible, with the term
of office of the first class to expire at the first annual meeting of
stockholders, the term of office of the second class to expire at the
annual meeting of stockholders one year thereafter and the term of office
of the third class to expire at the annual meeting of stockholders two
years thereafter with each Director to hold office until his or her
successor shall have been duly elected and qualified. At each annual
meeting of stockholders following such initial classification and
election, Directors elected to succeed those Directors whose terms expire
shall be elected for a term of office to expire at the third succeeding
annual meeting of stockholders after their election with each Director to
hold office until his or her successor shall have been duly elected and
qualified.
B. Subject to the rights of holders of any series of Preferred Stock
outstanding, the newly created directorships resulting from any increase
in the authorized number of Directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled only by a majority vote
of the Directors then in office, though less than a quorum, and Directors
so chosen shall hold office for a term expiring at the annual meeting of
stockholders at which the term of office of the class to which they have
been chosen expires. No decrease in the number of Directors constituting
the Board of Directors shall shorten the term of any incumbent Director.
C. Advance notice of stockholder nominations for the election of
Directors and of business to be brought by stockholders before any meeting
of the stockholders of the Corporation shall be given in the manner
provided in the Bylaws of the Corporation.
D. Subject to the rights of holders of any series of Preferred Stock
then outstanding, any Director, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least 80 percent of the voting power
of all of the then-outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving
effect to the provisions of Article FOURTH of this Certificate of
Incorporation ("Article FOURTH")), voting together as a single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
repeal Bylaws of the Corporation. Any adoption, amendment or repeal of the
Bylaws of the Corporation by the Board of Directors shall require the approval
of a majority of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the Bylaws of the Corporation; provided, however, that,
in addition to any vote of the holders of any class or series of stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the
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then-outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of Directors (after giving effect to the provisions of
Article FOURTH), voting together as a single class, shall be required to adopt,
amend or repeal any provisions of the Bylaws of the Corporation.
EIGHTH:
A. In addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly provided
in this Article EIGHTH:
1. any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with: (i) any Interested
Stockholder (as hereinafter defined); or (ii) any other
corporation (whether or not itself an Interested Stockholder)
which is, or after such merger or consolidation would be, an
Affiliate (as hereinafter defined) of an Interested
Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions)
to or with any Interested Stockholder, or any Affiliate of any
Interested Stockholder, of any assets of the Corporation or
any Subsidiary having an aggregate Fair Market Value (as
hereinafter defined) equaling or exceeding 25% or more of the
combined assets of the Corporation and its Subsidiaries; or
3. the issuance or transfer by the Corporation or any Subsidiary
(in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any
Interested Stockholder or any Affiliate of any Interested
Stockholder in exchange for cash, securities or other property
(or a combination thereof) having an aggregate Fair Market
Value (as hereinafter defined) equaling or exceeding 25% of
the combined Fair Market Value of the outstanding common stock
of the Corporation and its Subsidiaries, except for any
issuance or transfer pursuant to an employee benefit plan of
the Corporation or any Subsidiary thereof; or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Stockholder or any Affiliate of any Interested
Stockholder; or
5. any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any
merger or consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with or
into or otherwise involving an Interested Stockholder) which
has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of
equity
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or convertible securities of the Corporation or any Subsidiary
which is directly or indirectly owned by any Interested
Stockholder or any Affiliate of any Interested Stockholder;
shall require the affirmative vote of the holders of at least 80% of the
voting power of the then-outstanding shares of stock of the Corporation
entitled to vote in the election of Directors (the "Voting Stock") (after
giving effect to the provisions of Article FOURTH), voting together as a
single class. Such affirmative vote shall be required notwithstanding the
fact that no vote may be required, or that a lesser percentage may be
specified, by law or by any other provisions of this Certificate of
Incorporation or any Preferred Stock Designation in any agreement with any
national securities exchange or otherwise.
The term "Business Combination" as used in this Article EIGHTH shall
mean any transaction which is referred to in any one or more of paragraphs
1 through 5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only the affirmative vote of the majority of the
outstanding shares of capital stock entitled to vote after giving effect
to the provisions of Article FOURTH, or such vote (if any), as is required
by law or by this Certificate of Incorporation, if, in the case of any
Business Combination that does not involve any cash or other consideration
being received by the stockholders of the Corporation solely in their
capacity as stockholders of the Corporation, the condition specified in
the following paragraph 1 is met or, in the case of any other Business
Combination, all of the conditions specified in either of the following
paragraphs 1 or 2 are met:
1. The Business Combination shall have been approved by a
majority of the Disinterested Directors (as hereinafter
defined).
2. All of the following conditions shall have been met:
a. The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business
Combination of consideration other than cash to be
received per share by the holders of Common Stock in
such Business Combination shall at least be equal to the
higher of the following:
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting
dealers' fees, paid by the Interested Stockholder
or any of its Affiliates for any shares of Common
Stock acquired by it: (i) within the two-year
period immediately prior to the first public
announcement of the proposal of the Business
Combination (the "Announcement Date"); or (ii) in
the
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transaction in which it became an Interested
Stockholder, whichever is higher; or
(2) the Fair Market Value per share of Common Stock on
the Announcement Date or on the date on which the
Interested Stockholder became an Interested
Stockholder (such latter date is referred to in
this Article EIGHTH as the "Determination Date"),
whichever is higher.
b. The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business
Combination of consideration other than cash to be
received per share by holders of shares of any class of
outstanding Voting Stock other than Common Stock shall
be at least equal to the highest of the following (it
being intended that the requirements of this
subparagraph (b) shall be required to be met with
respect to every such class of outstanding Voting Stock,
whether or not the Interested Stockholder has previously
acquired any shares of a particular class of Voting
Stock):
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting
dealers' fees, paid by the Interested Stockholder
for any shares of such class of Voting Stock
acquired by it: (i) within the two-year period
immediately prior to the Announcement Date; or
(ii) in the transaction in which it became an
Interested Stockholder, whichever is higher; or
(2) (if applicable) the highest preferential amount
per share to which the holders of shares of such
class of Voting Stock are entitled in the event of
any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; or
(3) the Fair Market Value per share of such class of
Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher.
c. The consideration to be received by holders of a
particular class of outstanding Voting Stock (including
Common Stock) shall be in cash or in the same form as
the Interested Stockholder has previously paid for
shares of such class of Voting Stock. If the Interested
Stockholder has paid for shares of any class of Voting
Stock with varying forms of consideration, the form of
consideration to be received per share by holders of
shares of such class of Voting Stock shall be either
cash or the form used to acquire the largest number of
shares of such class of Voting Stock previously acquired
by the Interested Stockholder. The price determined in
accordance with subparagraph B.2 of this Article
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EIGHTH shall be subject to appropriate adjustment in the
event of any stock dividend, stock split, combination of
shares or similar event.
d. After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of
such Business Combination: (1) except as approved by a
majority of the Disinterested Directors (as hereinafter
defined), there shall have been no failure to declare
and pay at the regular date therefor any full quarterly
dividends (whether or not cumulative) on any outstanding
stock having preference over the Common Stock as to
dividends or liquidation; (2) there shall have been: (i)
no reduction in the annual rate of dividends paid on the
Common Stock (except as necessary to reflect any
subdivision of the Common Stock), except as approved by
a majority of the Disinterested Directors; and (ii) an
increase in such annual rate of dividends as necessary
to reflect any reclassification (including any reverse
stock split), recapitalization, reorganization or any
similar transaction which has the effect of reducing the
number of outstanding shares of the Common Stock, unless
the failure to so increase such annual rate is approved
by a majority of the Disinterested Directors, and (3)
neither such Interested Stockholder or any of its
Affiliates shall have become the beneficial owner of any
additional shares of Voting Stock except as part of the
transaction which results in such Interested Stockholder
becoming an Interested Stockholder.
e. After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder
shall not have received the benefit, directly or
indirectly (except proportionately as a stockholder), of
any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax
advantages provided, directly or indirectly, by the
Corporation, whether in anticipation of or in connection
with such Business Combination or otherwise.
f. A proxy or information statement describing the proposed
Business Combination and complying with the requirements
of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder (or any subsequent
provisions replacing such Act, and the rules or
regulations thereunder) shall be mailed to stockholders
of the Corporation at least 30 days prior to the
consummation of such Business Combination (whether or
not such proxy or information statement is required to
be mailed pursuant to such Act or subsequent
provisions).
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C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a firm, a group
acting in concert, a corporation, a partnership, an
association, a joint venture, a pool, a joint stock
company, a trust, an unincorporated organization or
similar company, a syndicate or any other group formed
for the purpose of acquiring, holding or disposing of
securities or any other entity.
2. "Interested Stockholder" shall mean any person (other
than the Corporation or any Holding Company or
Subsidiary thereof) who or which:
a. is the beneficial owner, directly or indirectly,
of more than 10% of the voting power of the
outstanding Voting Stock; or
b. is an Affiliate of the Corporation and at any time
within the two-year period immediately prior to
the date in question was the beneficial owner,
directly or indirectly, of 10% or more of the
voting power of the then outstanding Voting Stock;
or
c. is an assignee of or has otherwise succeeded to
any shares of Voting Stock which were at any time
within the two-year period immediately prior to
the date in question beneficially owned by any
Interested Stockholder, if such assignment or
succession shall have occurred in the course of a
transaction or series of transactions not
involving a public offering within the meaning of
the Securities Act of 1933, as amended.
3. For purposes of this Article EIGHTH, "beneficial
ownership" shall be determined in the manner provided in
Section C of Article FOURTH hereof.
4. "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the
General Rules and Regulations under the Securities
Exchange Act of 1934, as in effect on the date of filing
of this Certificate of Incorporation.
5. "Subsidiary" means any corporation of which a majority
of any class of equity security is owned, directly or
indirectly, by the Corporation; provided, however, that
for the purposes of the definition of Interested
Stockholder set forth in Paragraph 2 of this Section C,
the term "Subsidiary" shall mean only a corporation of
which a majority of each class of equity security is
owned, directly or indirectly, by the Corporation.
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6. "Disinterested Director" means any member of the Board
of Directors who is unaffiliated with the Interested
Stockholder and was a member of the Board of Directors
prior to the time that the Interested Stockholder became
an Interested Stockholder, and any Director who is
thereafter chosen to fill any vacancy of the Board of
Directors or who is elected and who, in either event, is
unaffiliated with the Interested Stockholder and in
connection with his or her initial assumption of office
is recommended for appointment or election by a majority
of Disinterested Directors then on the Board of
Directors.
7. "Fair Market Value" means:
a. in the case of stock, the highest closing sales
price of the stock during the 30-day period
immediately preceding the date in question of a
share of such stock on the National Association of
Securities Dealers Automated Quotation System or
any system then in use, or, if such stock is
admitted to trading on a principal United States
securities exchange registered under the
Securities Exchange Act of 1934, as amended, Fair
Market Value shall be the highest sale price
reported during the 30-day period preceding the
date in question, or, if no such quotations are
available, the Fair Market Value on the date in
question of a share of such stock as determined by
the Board of Directors in good faith, in each case
with respect to any class of stock, appropriately
adjusted for any dividend or distribution in
shares of such stock or any stock split or
reclassification of outstanding shares of such
stock into a greater number of shares of such
stock or any combination or reclassification of
outstanding shares of such stock into a smaller
number of shares of such stock; and
b. in the case of property other than cash or stock,
the Fair Market Value of such property on the date
in question as determined by the Board of
Directors in good faith.
8. Reference to "Highest Per Share Price" shall in each
case with respect to any class of stock reflect an
appropriate adjustment for any dividend or distribution
in shares of such stock or any stock split or
reclassification of outstanding shares of such stock
into a greater number of shares of such stock or any
combination or reclassification of outstanding shares of
such stock into a smaller number of shares of such
stock.
9. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other
than cash to be received" as used in Subparagraphs (a)
and (b) of Paragraph 2 of Section B of this Article
EIGHTH shall include the shares of Common Stock and/or
the
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shares of any other class of outstanding Voting Stock
retained by the holders of such shares.
D. A majority of the Disinterested Directors of the Corporation
shall have the power and duty to determine for the purposes of this
Article EIGHTH, on the basis of information known to them after reasonable
inquiry: (a) whether a person is an Interested Stockholder; (b) the number
of shares of Voting Stock beneficially owned by any person; (c) whether a
person is an Affiliate or Associate of another; and (d) whether the assets
which are the subject of any Business Combination have, or the
consideration to be received for the issuance or transfer of securities by
the Corporation or any Subsidiary in any Business Combination has an
aggregate Fair Market Value equaling or exceeding 25% of the combined Fair
Market Value of the Common Stock of the Corporation and its Subsidiaries.
A majority of the Disinterested Directors shall have the further power to
interpret all of the terms and provisions of this Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed
by law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a
lesser vote or no vote, but in addition to any affirmative vote of the
holders of any particular class or series of the Voting Stock required by
law, this Certificate of Incorporation or any Preferred Stock Designation,
the affirmative vote of the holders of at least 80 percent of the voting
power of all of the then-outstanding shares of the Voting Stock (after
giving effect to the provisions of Article FOURTH), voting together as a
single class, shall be required to alter, amend or repeal this Article
EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any
offer of another Person (as defined in Article EIGHTH hereof) to: (A) make a
tender or exchange offer for any equity security of the Corporation; (B) merge
or consolidate the Corporation with another corporation or entity; or (C)
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, may, in connection with the exercise of its judgment
in determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, those factors that Directors of any subsidiary of the Corporation
may consider in evaluating any action that may result in a change or potential
change in the control of the subsidiary, and the social and economic effect of
acceptance of such offer: on the Corporation's present and future customers and
employees and those of its Subsidiaries (as defined in Article EIGHTH hereof);
on the communities in which the Corporation and its Subsidiaries operate or are
located; on the ability of the Corporation to fulfill its corporate objective as
a savings and loan holding company under applicable laws and regulations; and on
the ability of its subsidiary savings association to fulfill the objectives of a
New Jersey capital stock savings association under applicable statutes and
regulations.
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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.
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 and "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.
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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.
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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.
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.
TWELFTH: The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; provided, however, that,
notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to amend or repeal this Article TWELFTH, Section C of Article FOURTH,
Sections C or D of Article FIFTH, Article SIXTH, Article SEVENTH, Article EIGHTH
or Article TENTH.
THIRTEENTH: The name and mailing address of the sole incorporator are as
follows:
Name Mailing Address
---- --------------------------------
Karen A. Gimbutas Morris, Nichols, Arsht & Tunnell
1201 North Market Street
P.O. Box 1347
Wilmington, Delaware 19899-1347
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I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation and do certify that the facts herein stated
are true, and accordingly, have hereto set my hand this 4th day of February,
1997.
/s/ KAREN A. GIMBUTAS
-----------------------------------
Incorporator
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BAYONNE BANCSHARES, INC.
BYLAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
An annual meeting of the stockholders, for the election of Directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix, which date
shall be within thirteen (13) months subsequent to the later of the date of
incorporation or the last annual meeting of stockholders.
Section 2. Special Meetings.
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution adopted by
a majority of the total number of Directors which the Corporation would have if
there were no vacancies on the Board of Directors (hereinafter the "Whole
Board").
Section 3. Notice of Meetings.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
At any meeting of the stockholders, the holders of a majority of all of
the shares of the stock entitled to vote at the meeting, present in person or by
proxy (after giving effect to the provisions of Article FOURTH of the
Corporation's Certificate of Incorporation), shall constitute a quorum for all
purposes, unless or except to the extent that the presence of a
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larger number may be required by law. Where a separate vote by a class or
classes is required, a majority of the shares of such class or classes present
in person or represented by proxy (after giving effect to the provisions of
Article FOURTH of the Corporation's Certificate of Incorporation) shall
constitute a quorum entitled to take action with respect to that vote on that
matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present in person or by proxy constituting a quorum, then except as
otherwise required by law, those present in person or by proxy at such adjourned
meeting shall constitute a quorum, and all matters shall be determined by a
majority of the votes cast at such meeting.
Section 5. Organization.
Such person as the Board of Directors may have designated or, in the
absence of such a person, the Chairman of the Board of the Corporation or, in
his or her absence, such person as may be chosen by the holders of a majority of
the shares entitled to vote who are present, in person or by proxy, shall call
to order any meeting of the stockholders and act as chairman of the meeting. In
the absence of the Secretary of the Corporation, the secretary of the meeting
shall be such person as the chairman appoints.
Section 6. Conduct of Business.
(a) The chairman of any meeting of stockholders shall determine the
order of business and the procedures at the meeting, including such regulation
of the manner of voting and the conduct of discussion as seem to him or her in
order. The date and time of the opening and closing of the polls for each matter
upon which the stockholders will vote at the meeting shall be announced at the
meeting.
(b) At any annual meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or mailed to
and received at the principal executive offices of the Corporation not less than
ninety (90) days prior to the date of the annual meeting; provided, however,
that in the event that less than one hundred (100) days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be received not later than the close of
business on the 10th
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day following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made. A stockholder's notice to the
Secretary shall set forth as to each matter such stockholder proposes to bring
before the annual meeting: (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (iii) the class
and number of shares of the Corporation's capital stock that are beneficially
owned by such stockholder and, (iv) any material interest of such stockholder in
such business. Notwithstanding anything in these Bylaws to the contrary, no
business shall be brought before or conducted at an annual meeting except in
accordance with the provisions of this Section 6(b). The Officer of the
Corporation or other person presiding over the annual meeting shall, if the
facts so warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section 6(b) and, if he or she should so determine, he or she shall so declare
to the meeting and any such business so determined to be not properly brought
before the meeting shall not be transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(c) Only persons who are nominated in accordance with the procedures
set forth in these Bylaws shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders at which directors are to be elected
only: (i) by or at the direction of the Board of Directors or, (ii) by any
stockholder of the Corporation entitled to vote for the election of Directors at
the meeting who complies with the notice procedures set forth in this Section
6(c). Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made by timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered or
mailed to and received at the principal executive offices of the Corporation not
less than ninety (90) days prior to the date of the meeting; provided, however,
that in the event that less than one hundred (100) days' notice or prior
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth: (i) as to each person whom such stockholder proposes to
nominate for election or re-election as a Director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); and (ii) as to the stockholder giving
the notice (x) the name and address, as they appear on the Corporation's books,
of such stockholder and (y) the class and number of shares of the Corporation's
capital stock that are beneficially owned by such stockholder. At the request of
the Board of Directors any person nominated by the Board of Directors for
election as a Director shall furnish to the Secretary of the Corporation that
information required to be set forth in a stockholder's notice of nomination
which pertains to the nominee.
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No person shall be eligible for election as a Director of the Corporation unless
nominated in accordance with the provisions of this Section 6(c). The Officer of
the Corporation or other person presiding at the meeting shall, if the facts so
warrant, determine that a nomination was not made in accordance with such
provisions and, if he or she shall so determine, he or she shall so declare to
the meeting and the defective nomination shall be disregarded.
Section 7. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting. Any facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including on the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation, may
be made by a voice vote; provided, however, that upon demand therefor by a
stockholder entitled to vote or his or her proxy, a stock vote shall be taken.
Every stock vote shall be taken by ballot, each of which shall state the name of
the stockholder or proxy voting and such other information as may be required
under the procedures established for the meeting. The Corporation shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
the meeting and make a written report thereof. The Corporation may designate one
or more persons as alternate inspectors to replace any inspector who fails to
act. If no inspector or alternate is able to act at a meeting of stockholders,
the person presiding at the meeting shall appoint one or more inspectors to act
at the meeting. Each inspector, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the votes cast.
Section 8. Stock List.
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held.
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The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 9. Consent of Stockholders in Lieu of Meeting.
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers, Number and Term of Office.
The business and affairs of the Corporation shall be under the direction
of its Board of Directors. The number of Directors who shall constitute the
Whole Board shall be such number as the Board of Directors shall from time to
time have designated, except that in the absence of such designation the number
shall be seven. The Board of Directors shall annually elect a Chairman of the
Board from among its members who shall, when present, preside at its meetings.
The Directors, other than those who may be elected by the holders of any
class or series of Preferred Stock, shall be divided, with respect to the time
for which they severally hold office, into three classes, with the term of
office of the first class to expire at the first annual meeting of stockholders,
the term of office of the second class to expire at the annual meeting of
stockholders one year thereafter and the term of office of the third class to
expire at the annual meeting of stockholders two years thereafter, with each
Director to hold office until his or her successor shall have been duly elected
and qualified. At each annual meeting of stockholders, Directors elected to
succeed those Directors whose terms then expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders after
their election, with each Director to hold office until his or her successor
shall have been duly elected and qualified.
Section 2. Vacancies and Newly Created Directorships.
Subject to the rights of the holders of any class or series of Preferred
Stock, and unless the Board of Directors otherwise determines, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
only by a majority vote of the Directors then in office, though less than a
quorum, and Directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires and until such Director's successor shall have
been duly elected and qualified. No decrease in
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the number of authorized directors constituting the Board shall shorten the term
of any incumbent Director.
Section 3. Regular Meetings.
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all Directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by one-third
(1/3) of the Directors then in office (rounded up to the nearest whole number),
by the Chairman of the Board or the President and shall be held at such place,
on such date, and at such time as they, or he or she, shall fix. Notice of the
place, date, and time of each such special meeting shall be given each Director
by whom it is not waived by mailing written notice not less than five (5) days
before the meeting or by telegraphing or telexing or by facsimile transmission
of the same not less than twenty-four (24) hours before the meeting. Unless
otherwise indicated in the notice thereof, any and all business may be
transacted at a special meeting.
Section 5. Quorum.
At any meeting of the Board of Directors, a majority of the Whole Board
shall constitute a quorum for all purposes. If a quorum shall fail to attend any
meeting, a majority of those present may adjourn the meeting to another place,
date, or time, without further notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the Directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
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Section 8. Powers.
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, including, without limiting the generality of the foregoing,
the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as
it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any Officer of the Corporation with or without cause,
and from time to time to devolve the powers and duties of any Officer upon
any other person for the time being;
(5) To confer upon any Officer of the Corporation the power to
appoint, remove and suspend subordinate Officers, employees and agents;
(6) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for Directors, Officers, employees and
agents of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for Directors, Officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and,
(8) To adopt from time to time regulations, not inconsistent with
these Bylaws, for the management of the Corporation's business and
affairs.
Section 9. Compensation of Directors.
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as Directors,
including, without limitation, their services as members of committees of the
Board of Directors.
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
The Board of Directors, by a vote of a majority of the Board of Directors,
may from time to time designate committees of the Board, with such lawfully
delegable powers and
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duties as it thereby confers, to serve at the pleasure of the Board and shall,
for these committees and any others provided for herein, elect a Director or
Directors to serve as the member or members, designating, if it desires, other
Directors as alternate members who may replace any absent or disqualified member
at any meeting of the committee. Any committee so designated may exercise the
power and authority of the Board of Directors to declare a dividend, to
authorize the issuance of stock or to adopt a certificate of ownership and
merger pursuant to Section 253 of the Delaware General Corporation Law if the
resolution which designates the committee or a supplemental resolution of the
Board of Directors shall so provide. In the absence or disqualification of any
member of any committee and any alternate member in his or her place, the member
or members of the committee present at the meeting and not disqualified from
voting, whether or not he or she or they constitute a quorum, may by unanimous
vote appoint another member of the Board of Directors to act at the meeting in
the place of the absent or disqualified member.
Section 2. Conduct of Business.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third (1/3) of the members shall
constitute a quorum unless the committee shall consist of one (1) or two (2)
members, in which event one (1) member shall constitute a quorum; and all
matters shall be determined by a majority vote of the members present. Action
may be taken by any committee without a meeting if all members thereof consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of such committee.
Section 3. Nominating Committee.
The Board of Directors shall appoint a Nominating Committee of the Board,
consisting of not less than three (3) members. The Nominating Committee shall
have authority: (a) to review any nominations for election to the Board of
Directors made by a stockholder of the Corporation pursuant to Section 6(c)(ii)
of Article I of these Bylaws in order to determine compliance with such Bylaw,
and (b) to recommend to the Whole Board nominees for election to the Board of
Directors to replace those Directors whose terms expire at the annual meeting of
stockholders next ensuing.
ARTICLE IV - OFFICERS
Section 1. Generally.
(a) The Board of Directors as soon as may be practicable after the
annual meeting of stockholders shall choose a Chairman of the Board, a Chief
Executive Officer, a President, one or more Vice Presidents, a Secretary and a
Treasurer and from time to time may choose such other officers as it may deem
proper. The Chairman of the Board shall be chosen from among the Directors. Any
number of offices may be held by the same person.
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(b) The term of office of all Officers shall be until the next
annual election of Officers and until their respective successors are chosen but
any Officer may be removed from office at any time by the affirmative vote of a
majority of the authorized number of Directors then constituting the Board of
Directors.
(c) All Officers chosen by the Board of Directors shall have such
powers and duties as generally pertain to their respective Offices, subject to
the specific provisions of this ARTICLE IV. Such officers shall also have such
powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof.
Section 2. Chairman of the Board of Directors.
The Chairman of the Board, subject to the provisions of these Bylaws and
to the direction of the Board of Directors, unless the Board has designated
another person, when present, shall preside at all meetings of the stockholders
of the Corporation. The Chairman of the Board shall perform all duties and have
all powers which are commonly incident to the office of Chairman of the Board or
which are delegated to him or her by the Board of Directors. He or she shall
have power to sign all stock certificates, contracts and other instruments of
the Corporation which are authorized.
Section 3. President and Chief Executive Officer.
The President and Chief Executive Officer (the "President") shall have
general responsibility for the management and control of the business and
affairs of the Corporation and shall perform all duties and have all powers
which are commonly incident to the offices of President and Chief Executive
Officer or which are delegated to him or her by the Board of Directors. Subject
to the direction of the Board of Directors, the President and Chief Executive
Officer shall have power to sign all stock certificates, contracts and other
instruments of the Corporation which are authorized and shall have general
supervision of all of the other Officers (other than the Chairman of the Board),
employees and agents of the Corporation.
Section 4. Vice President.
The Vice President or Vice Presidents shall perform the duties of the
President in his absence or during his inability to act. In addition, the Vice
Presidents shall perform the duties and exercise the powers usually incident to
their respective offices and/or such other duties and powers as may be properly
assigned to them by the Board of Directors, the Chairman of the Board or the
President. A Vice President or Vice Presidents may be designated as Executive
Vice President or Senior Vice President.
9
<PAGE>
Section 5. Secretary.
The Secretary or Assistant Secretary shall issue notices of meetings,
shall keep their minutes, shall have charge of the seal and the corporate books,
shall perform such other duties and exercise such other powers as are usually
incident to such office and/or such other duties and powers as are properly
assigned thereto by the Board of Directors, the Chairman of the Board or the
President. Subject to the direction of the Board of Directors, the Secretary
shall have the power to sign all stock certificates.
Section 6. Treasurer.
The Treasurer shall be the Comptroller of the Corporation and shall have
the responsibility for maintaining the financial records of the Corporation. He
or she shall make such disbursements of the funds of the Corporation as are
authorized and shall render from time to time an account of all such
transactions and of the financial condition of the Corporation. The Treasurer
shall also perform such other duties as the Board of Directors may from time to
time prescribe. Subject to the direction of the Board of Directors, the
Treasurer shall have the power to sign all stock certificates.
Section 7. Assistant Secretaries and Other Officers.
The Board of Directors may appoint one or more Assistant Secretaries and
such other Officers who shall have such powers and shall perform such duties as
are provided in these Bylaws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
Section 8. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President or any
Officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
ARTICLE V - STOCK
Section 1. Certificates of Stock.
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the Chairman of the Board or the President, and by
the Secretary or an Assistant Secretary, or any Treasurer or Assistant
Treasurer, certifying the number of shares owned by him or her. Any or all of
the signatures on the certificate may be by facsimile.
10
<PAGE>
Section 2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these Bylaws,
an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the next day preceding the day
on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment or rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity.
Section 5. Regulations.
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
11
<PAGE>
ARTICLE VI - NOTICES
Section 1. Notices.
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, Director, Officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, or by sending such notice by prepaid telegram or mailgram or other
courier. Any such notice shall be addressed to such stockholder, Director,
Officer, employee or agent at his or her last known address as the same appears
on the books of the Corporation. The time when such notice is received, if hand
delivered, or dispatched, if delivered through the mails or by telegram or
mailgram or other courier, shall be the time of the giving of the notice.
Section 2. Waivers.
A written waiver of any notice, signed by a stockholder, Director,
Officer, employee or agent, whether before or after the time of the event for
which notice is to be given, shall be deemed equivalent to the notice required
to be given to such stockholder, Director, Officer, employee or agent. Neither
the business nor the purpose of any meeting need be specified in such a waiver.
ARTICLE VII - MISCELLANEOUS
Section 1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and when
so directed by the Board of Directors or a committee thereof, duplicates of the
seal may be kept and used by the Treasurer or by an Assistant Secretary or an
assistant to the Treasurer.
Section 3. Reliance Upon Books, Reports and Records.
Each Director, each member of any committee designated by the Board of
Directors, and each Officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its Officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such Director or committee member
12
<PAGE>
reasonably believes are within such other person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Corporation.
Section 4. Fiscal Year.
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
In applying any provision of these Bylaws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
ARTICLE VIII - AMENDMENTS
The Board of Directors may amend, alter or repeal these Bylaws at any
meeting of the Board, provided notice of the proposed change was given not less
than two days prior to the meeting. The stockholders shall also have power to
amend, alter or repeal these Bylaws at any meeting of stockholders provided
notice of the proposed change was given in the notice of the meeting; provided,
however, that, notwithstanding any other provisions of the Bylaws or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the voting stock required by law, the Certificate of Incorporation,
any Preferred Stock Designation or these Bylaws, the affirmative votes of the
holders of at least 80% of the voting power of all the then-outstanding shares
of the Voting Stock, voting together as a single class, shall be required to
alter, amend or repeal any provisions of these Bylaws.
The above Bylaws are effective as of February 4, 1997, the date of
incorporation of Bayonne Bancshares, Inc.
13
CERTIFICATE OF INCORPORATION
OF
FIRST SAVINGS BANK OF NEW JERSEY, SLA
SECTION 1. Corporate Title. The name of the proposed savings association
is First Savings Bank of New Jersey, SLA
SECTION 2. Office. The principal place of business of the association
shall be located at 568 Broadway, Bayonne, New Jersey.
SECTION 3. Purpose and Powers. The association is incorporated to operate
as a capital stock savings association pursuant to the New Jersey Savings and
Loan Act of 1963, as amended (N.J.S.A. 7:12B-l et seq.), for the purposes stated
in such Act. The association has and may exercise all express, implied and
incidental powers conferred thereby and by all acts amendatory thereof and
supplemental thereto, subject to the Constitutions and laws of the United States
and the State of New Jersey as they are now in effect, or as they may hereafter
be amended.
SECTION 4. Capital Stock. The total number of shares of all classes of
capital stock which the association has authority to issue is 30 million
(30,000,000), of which 20 million (20,000,000) shall be common stock, par value
$.10 per share, and of which 10 million (10,000,000) shall be preferred stock,
par value $.10 per share. The shares may be issued from time to time as
authorized by the Board of Directors without further approval of stockholders,
except as otherwise provided in this Section 4 or to the extent that such
approval is required by governing law, rule, or regulation. The consideration
for the issuance of the shares shall be paid in full before their issuance and
shall not be less than the par value. Neither promissory notes nor future
services shall constitute payment or part payment for the issuance of shares of
the association. The consideration for the shares shall be cash, tangible or
intangible property (to the extent direct investment in such property would be
permitted), labor or services actually performed for the association, or any
combination of the foregoing. In the absence of actual fraud in the transaction,
the value of such property, labor, or services, as determined by the Board of
Directors of the association, shall be conclusive. Upon payment of such
consideration, such shares shall be deemed to be fully paid and nonassessable.
In the case of a stock dividend, that part of the surplus of the association
which is transferred to stated capital upon the issuance of shares as a share
dividend shall be deemed to be the consideration for their issuance.
Nothing contained in this Section 4 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share. Provided,
that this restriction on voting separately by class or series shall not apply:
(i) To any provision which would authorize the holders of
preferred stock, voting as a class or series, to elect some
members of the Board of Directors, less than a majority
thereof, in the event of default in the payment of dividends
on any class or series of preferred stock;
(ii) To any provision which would require the holders of preferred
stock, voting as a class or series, to approve the merger or
consolidation of the association with another corporation, or
the sale, lease, or conveyance (other than by mortgage
<PAGE>
or pledge) of properties or business in exchange for
securities of a corporation other than the association if the
preferred stock is exchanged for securities of such other
corporation: Provided, that no provision may require such
approval for transactions undertaken with the assistance or
pursuant to the direction of the New Jersey Department of
Banking or the Office of Thrift Supervision;
(iii) To any amendment which would adversely change the specific
terms of any class or series of capital stock as set forth in
this Section 4 (or in any supplementary sections hereto),
including any amendment which would create or enlarge any
class or series ranking prior thereto in rights and
preferences. An amendment which increases the number of
authorized shares of any class or series of capital stock, or
substitutes the surviving association in a merger or
consolidation for the association, shall not be considered to
be such an adverse change.
A description of the different classes and series (if any) of the
association's capital stock and a statement of the designations, and the
relative rights, preferences, and limitations of the shares of each class of and
series (if any) of capital stock and a statement of the authority of the Board
of Directors to divide the preferred stock into classes or series or both and to
determine or change for any such class or series its designation, number of
shares, relative rights, preferences and limitations are as follows:
A. Common Stock. Except as provided in this Section 4 the holders of the
common stock shall exclusively possess all voting power. Each holder of shares
of common stock shall be entitled to one vote for each share held by such
holder.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock having
preference over the common stock as to the payment of dividends, the full amount
of dividends and of sinking fund, or retirement fund, or other retirement
payments, if any, to which such holders are respectively entitled in preference
to the common stock, then dividends may be paid on the common stock and on any
class or series of stock entitled to participate therewith as to dividends out
of any assets legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
association, the holders of the common stock (and the holders of any class or
series of stock entitled to participate with the common stock in the
distribution of assets) shall be entitled to receive, in cash or in kind, the
assets of the association available for distribution remaining after: (i)
payment or provision for payment of the association's debts and liabilities,
including the withdrawal of all accounts and deposits; (ii) distributions or
provision for distributions in settlement of its liquidation account; and (iii)
distributions or provision for distributions to holders of any class or series
of stock having preference over the common stock in the liquidation,
dissolution, or winding up of the association. Each share of common stock shall
have the same relative rights as and be identical in all respects with all the
other shares of common stock in the event of such liquidation, dissolution or
winding up of the association.
B. Preferred Stock. The association may provide for one or more classes of
preferred stock, which shall be separately identified. The shares of any class
may be divided into and issue in series, with each series separately designated
so as to distinguish the shares thereof from the shares of
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<PAGE>
all other series and classes. All shares of the same class shall be identical
except as to the following relative rights and preferences, as to which there
may be variations between different series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative
and, if so, from which date(s), the payment date(s) for
dividends, and the participating or other special rights, if
any, with respect to dividends;
(c) The voting powers, full or limited, if any, of the shares of
such series;
(d) Whether the shares of such series shall be redeemable and, if
so, the price(s) at which, and the terms and conditions on
which, such shares may be redeemed;
(e) The amount(s) payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution, or
winding up of the association;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the
purchase or redemption of such shares, and if so entitled, the
amount of such fund and the manner of its application,
including the price(s) at which such shares may be redeemed or
purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into,
or exchangeable for, shares of any other class or classes of
stock of the association and, if so, the conversion price(s)
or the rate(s) of exchange, and the adjustments thereof, if
any, at which such conversion or exchange may be made, and any
other terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued
shares of serial preferred stock and whether such shares may
be reissued as shares of the same or any other series of
serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The Board of Directors shall have authority to divide any authorized class
of preferred stock into classes, or into classes or series, within the
limitations set forth in this section, and to determine or change for any class
or series its designation, number of shares, relative rights, preferences and
limitations.
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<PAGE>
SECTION 5. Incorporation. The name, residence, post office address and
occupation of each incorporator of the association are as follows:
<TABLE>
<CAPTION>
NAME RESIDENCE AND ADDRESS OCCUPATION
- ---------------------- ------------------------------- ------------------------------------
<S> <C> <C>
James E. Collins 61 West 3rd Street Vice President
Bayonne, New Jersey 07002 First Savings Bank of New Jersey, SLA
Patrick D. Conaghan 23 West 8th Street Attorney
Bayonne, New Jersey 07002
Eugene J. Harz 86 West 28th Street Vice President and Treasurer
Bayonne, New Jersey 07002 First Savings Bank of New Jersey, SLA
Sam P. Lamparello 271 Danforth Avenue Owner of Beacon Oil Co., Inc.
Jersey City, New Jersey 07305
Donald Mindiak 83 Trask Avenue Controller
Bayonne, New Jersey 07002 First Savings Bank of New Jersey, SLA
Patrick F.X. Nilan 94 West 14th Street President and Chief Executive Officer
Bayonne, New Jersey 07002 First Savings Bank of New Jersey, SLA
James F. Sisk 39 East 42nd Street Chief of Police, City of Bayonne, NJ
Bayonne, New Jersey 07002
Frederick G. Whelply 78 Newman Avenue Retired
Bayonne, New Jersey 07002
Joseph L. Wisniewski 480 Thoreau Terrace Senior Vice President
Union, New Jersey 07083 First Savings Bank of New Jersey, SLA
</TABLE>
SECTION 6. Preemptive Rights. Holders of the capital stock of the
association shall not be entitled to preemptive rights with respect to any
shares of the association which may be issued.
SECTION 7. Certain Provisions Applicable for Five Years. Notwithstanding
anything contained in the association's certificate of incorporation or bylaws
to the contrary, for a period of five years from the date of completion of the
organization of the association, the following provisions shall apply:
A. Beneficial Ownership Limitation. No person other than Bayonne
Bankshares, M.H.C., the mutual holding company of the association, shall
directly or indirectly offer to acquire or acquire the beneficial ownership of
more than 10% of any class of any equity security of the association unless such
offer to acquire or acquisition is approved by a
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<PAGE>
majority of the Board of Directors. This limitation shall not apply to a
transaction in which the association forms a holding company without change in
the respective beneficial ownership interest of its stockholders other than
pursuant to the exercise of any dissenter and appraisal rights or the purchase
of shares by a tax-qualified employee stock benefit plan which is exempt from
the approval requirement under 12 CFR ss.574.3(c)(1)(vi).
In the event shares are acquired in violation of this Section 7, all
shares beneficially owned by person in excess of 10% shall be considered "excess
shares" and 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 the stockholders for a vote.
For purposes of this Section 7, the following definitions apply:
(1) The term "person" includes an individual, a group acting in concert, a
corporation, a partnership, a bank, a joint stock company, a trust, an
unincorporated organization or similar company, a syndicate or any other group
formed for the purpose of acquiring, holding or disposing of the equity
securities of the association.
(2) The term "offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value.
(3) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(4) The term "acting in concert" means (a) knowing participation in a
joint activity or conscious parallel action towards a common goal whether or not
pursuant to an express agreement, or (b) a combination or pooling of voting or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangements,
whether written or otherwise.
B. Call for Special Meetings. Special meetings of stockholders relating to
changes in control of the association or amendments to its certificate of
incorporation shall be called only upon direction of the Board of Directors.
SECTION 8. Directors. The association shall be under the direction of a
Board of Directors. The authorized number of directors, as stated in the
association's bylaws, shall not be less than six or more than fifteen except
when a greater number is approved by the Board.
The number of directors constituting the initial Board of Directors upon
organization of the association is six. The first Board of Directors, to serve
until the first annual meeting of the association, is comprised of the following
individuals:
-5-
<PAGE>
Name Address
- ---- -------
Patrick D. Conaghan 23 West 8th Street
Bayonne, New Jersey 07002
Sam P. Lamparello 271 Danforth Avenue
Jersey City, New Jersey 07305
Patrick F.X. Nilan 94 West 14th Street
Bayonne, New Jersey 07002
James F. Sisk 39 East 42nd Street
Bayonne, New Jersey 07002
Frederick G. Whelply 78 Newman Avenue
Bayonne, New Jersey 07002
Joseph L. Wisniewski 480 Thoreau Terrace
Union, New Jersey 07083
SECTION 9. Liability of Directors. No director or officer of the
association shall be personally liable to the association or its stockholders
for damages for breach of any duty owed to the association or its stockholders
except that this Section 9 shall not relieve any director from liability for any
breach of duty based upon an act or omission (a) in breach of such person's duty
of loyalty to the association or its stockholders, (b) not in good faith or
involving a knowing violation of law, or (c) resulting in receipt by such person
of an improper personal benefit. As used in this Section 9, an act or omission
in breach of a person's duty of loyalty means an act or omission which that
person knows or believes to be contrary to the best interests of the association
or its stockholders in connection with a matter in which he has a material
conflict of interest.
If the Savings and Loan Act of New Jersey (1963) as presently enacted is
amended after the date hereof to authorize further eliminating or limiting the
personal liability of directors or officers, then the liability of a director or
officer of the association shall be eliminated or limited to the fullest extent
permitted by the Savings and Loan Act of New Jersey (1963), as so amended. Any
repeal or modification of this Section 9 by the stockholders of the association
shall be prospective only and shall not adversely affect any right or protection
of a director or officer existing at the time of such repeal or modification.
SECTION 10. Indemnification of Officers, Directors and Employees. Any
person shall be indemnified or reimbursed by the association for reasonable
expenses, including, but not limited to, attorney fees, actually incurred by him
in connection with any action, suit or proceeding, instituted or threatened,
judicial or administrative, civil or criminal, to which he is
-6-
<PAGE>
made a party by reason of his being or having been a director, officer or
employee of the association; provided, however, that no person be so indemnified
or reimbursed, nor shall he retain any advancement or allowance for
indemnification which may have been made by the association in advance of final
disposition in relation to such action, suit or proceeding in which, and to the
extent that, he finally shall be adjudicated to have been guilty of a breach of
good faith, to have been negligent in the performance of his duties or to have
committed an action or failed to perform a duty for which there is a common law
or statutory liability; and, provided further, that a person may, with the
approval of the Commissioner of Banking of the State of New Jersey be so
indemnified or reimbursed for:
(1) Amounts paid in compromise or settlement of any action, suit or
proceeding, including reasonable expenses incurred in connection therewith; or
(2) Reasonable expenses, including fines and penalties, incurred in
connection with a criminal civil action, suit or proceeding in which such person
has been adjudicated guilty, negligent or liable, if it shall be determined by
the Board of Directors and by the Commissioner that such person was acting in
good faith and in what he believed to be the best interest of the association
and without knowledge that the action was illegal, and if such indemnification
or reimbursement is approved at an annual or special meeting of the members or
stockholders by a majority of the votes eligible to be cast. Amounts paid to the
association, whether pursuant to judgment or settlement, by any person within
the meaning of this section shall not be indemnified or reimbursed in any case.
SECTION 11. Perpetual Existence. The association shall have a perpetual
existence, subject to liquidation and dissolution as provided by law.
SECTION 12. Amendment of Certificate. Except as provided in Section 4, no
amendment, addition, alteration, change, or repeal of this certificate of
incorporation shall be made, unless such is first proposed by the Board of
Directors of the association, approved by the stockholders by a majority of the
total votes eligible to be cast and submitted to the Commissioner of Banking of
the State of New Jersey for action as specified by law or regulation.
SECTION 13. Subscribed Shares. The incorporators listed below intend to
subscribe for the following number of shares, respectively: 3,500, 10,000,
3,000, 30,000, 1,000, 30,000, 10,000, 20,000, and 10,000.
-7-
<PAGE>
IN WITNESS WHEREOF, this Certificate has been executed this 23rd day of
March, 1994.
Name Residence and Address Signature
- ---- --------------------- ---------
James E. Collins 61 West 3rd Street /s/ James E. Collins
Bayonne, New Jersey 07002 ------------------------
Patrick D. Conaghan 23 West 8th Street /s/ Patrick D. Conaghan
Bayonne, New Jersey 07002 ------------------------
Eugene J. Harz 86 West 28th Street /s/ Eugene J. Harz
Bayonne, New Jersey 07002 ------------------------
Sam P. Lamparello 271 Danforth Avenue /s/ Sam P. Lamparello
Jersey City, New Jersey 07305 ------------------------
Donald Mindiak 83 Trask Avenue /s/ Donald Mindiak
Bayonne, New Jersey 07002 ------------------------
Patrick F.X. Nilan 94 West 14th Street /s/ Patrick F.X. Nilan
Bayonne, New Jersey 07002 ------------------------
James F. Sisk 39 East 42nd Street /s/ James F. Sisk
Bayonne, New Jersey 07002 ------------------------
Frederick G. Whelply 78 Newman Avenue /s/ Frederick G. Whelply
Bayonne, New Jersey 07002 ------------------------
Joseph L. Wisniewski 480 Thoreau Terrace /s/ Joseph L. Wisniewski
Union, New Jersey 07083 ------------------------
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<PAGE>
BYLAWS OF
FIRST SAVINGS BANK OF NEW JERSEY, SLA
ARTICLE I. HOME OFFICE
The home office of First Savings Bank of New Jersey, SLA ("Association")
is 568 Broadway, Bayonne, New Jersey 07002.
ARTICLE II. SHAREHOLDERS
Section l. Place of Meetings. All annual and special meetings of
shareholders shall be held at the home office of the Association or at such
other place in the State as the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the
Association for the election of directors and for the transaction of any other
business of the Association shall be held annually within 120 days after the end
of the Association's fiscal year and at such time as the board of directors may
determine.
Section 3. Special Meetings. For a period of five years from the date of
the completion of the organization of the Association, special meetings of the
shareholders relating to a change in control of the Association or to an
amendment of the Certificate of Incorporation of the Association may be called
only by the board of directors. Thereafter, special meetings of the shareholders
for any purpose or purposes may be called at any time by the chairman of the
board, the president, or a majority of the board of directors, and shall be
called by the chairman of the board, the president or the secretary upon the
written request of the holders of not less than ten percent of all the
outstanding capital stock of the Association entitled to vote at the meeting.
Such written request shall state the purpose or purposes of the meeting and
shall be delivered at the home office of the Association addressed to the
chairman of the board, the president or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with the rules and procedures adopted by the board of
directors unless otherwise prescribed by these bylaws. The board of directors
shall designate, when present, either the chairman of the board or president to
preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, day and
hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 20 nor more than 60 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, the secretary, or the directors calling the meeting,
to each shareholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the mail, to the
address as it appears on the stock transfer books or records of the Association
as of the record date prescribed in Section 6 of this Article II, with postage
prepaid. When any shareholders' meeting, either annual or special, is adjourned
for 30 days or more, notice of the adjourned
<PAGE>
meeting shall be given as in the case of an original meeting. It shall not be
necessary to give any notice of the time and place of any meeting adjourned for
less than 30 days or of the business to be transacted at the meeting, other than
an announcement at the meeting at which such adjournment is taken.
Section 6. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to, or dissent from, any proposal
without a meeting, or for the purposes of determining shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the board of directors shall fix in
advance a date as the record date for any such determination of shareholders.
Such date in any case shall be not more than 60 days and, in case of a meeting
of shareholders, not fewer than 10 days prior to the date on which the
particular action, requiring such determination of shareholders, is to be taken.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment.
Section 7. Voting Lists. At least 10 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the Association shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment, arranged in alphabetical
order, with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the home office of the Association and
shall be subject to inspection by any shareholder at any time during usual
business hours, for a period of 10 days prior to such meeting. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to the inspection by any shareholder during the entire time of the
meeting. The original stock transfer book shall constitute prima facie evidence
of the shareholders entitled to examine such list or transfer books or to vote
at any meeting of shareholders.
Section 8. Quorum. A majority of the outstanding shares of the Association
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
is represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum.
Section 9. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid more
than eleven months from the date of its execution except for a proxy coupled
with an interest.
II-2
<PAGE>
Section 10. Voting of Shares in the Name of Two or More Persons. When
ownership stands in the name of two or more persons, in the absence of written
directions to the Association to the contrary, at any meeting of the
shareholders of the Association any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such and present in person or by proxy at such meeting, but no
votes shall be cast for such stock if a majority cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name. Shares standing in the name of a receiver
may be voted by such receiver, and shares held by or under the control of a
receiver may be voted by such receiver without the transfer into his name if
authority to do so is contained in an appropriate order of the court or other
public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee and
thereafter the pledgee, shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Association, nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the
Association, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
Section 12. Cumulative Voting. Shareholders shall not be entitled to
cumulate their votes for election of directors.
Section 13. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting, or at the meeting by the chairman of the
board or the president.
II-3
<PAGE>
The duties of such inspectors shall include: determining the number of
shares and the voting power of each share, the shares represented at the
meeting, the existence of a quorum, and the authenticity, validity and effect of
proxies; receiving votes, ballots, or consents; hearing and determining all
challenges and questions in any way arising in connection with the rights to
vote; counting and tabulating all votes or consents; determining the result; and
such acts as may be proper to conduct the election or vote with fairness to all
shareholders.
Section 14. Nominating Committee. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 15 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in the principal place of business of the Association. No
nominations for directors except those made by the nominating committee shall be
voted upon at the annual meeting unless other nominations by shareholders are
made in writing and delivered to the secretary of the Association at least 60
days prior to the date of the annual meeting. Upon delivery, such nominations
shall be posted in a conspicuous place in the principal place of business of the
Association. Ballots bearing the names of all persons nominated by the
nominating committee and by shareholders shall be provided for use at the annual
meeting. However, if the nominating committee shall fail or refuse to act at
least 15 days prior to the annual meeting, nominations for directors may be made
at the annual meeting by any shareholder entitled to vote and shall be voted
upon.
Section 15. New Business. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary of the
Association at least 15 days before the date of the annual meeting, and all
business so stated, proposed, and filed shall be considered at the annual
meeting, but no other proposal shall be acted upon at the annual meeting. Any
shareholder may make any other proposal at the annual meeting and the same may
be discussed and considered, but unless stated in writing and filed with the
secretary at least 60 days before the meeting, such proposal shall be laid over
for action at an adjourned, special, or annual meeting of the shareholders
taking place at least 60 days thereafter. This provision shall not prevent the
consideration and approval or disapproval at the annual meeting of reports of
officers, directors and committees; but in connection with such reports no new
business shall be acted upon at such annual meeting unless stated and filed as
herein provided.
Section 16. Action by Consent of Shareholders. Any action required to be
taken at a meeting of shareholders, or any other action which may be taken at a
meeting of the shareholders must be effected at an annual or special meeting of
shareholders of the Association and may not be affected by any consent in
writing by such shareholders.
ARTICLE III. BOARD OF DIRECTORS
Section l. General Powers. The business and affairs of the Association
shall be under the direction of its board of directors. The board of directors
shall annually elect a chairman of the board and a president from among its
members and shall designate, when present, either the chairman of the board or
the president to preside at its meetings.
II-4
<PAGE>
Section 2. Number and Term. The board of directors shall consist of seven
(7) members and shall be divided into three classes as nearly equal in number as
possible. The members of each class shall be elected for a term of three years
and until their successors are elected and qualified. One class shall be elected
by ballot annually.
Section 3. Regular Meetings. A regular meeting of the board of directors
shall be held without other notice than this bylaw immediately after, and at the
same place as, the annual meeting of shareholders. The board of directors may
provide, by resolution, the time and place, for the holding of additional
regular meetings without other notice than such resolution.
Section 4. Qualification. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the Association
unless the Association is a wholly owned subsidiary of a holding company.
Section 5. Special Meetings. Special meetings of the board of directors
may be called by or at the request of the chairman of the board, the president
or one-third of the directors. The persons authorized to call special meetings
of the board of directors may fix any place as the place for holding any special
meeting of the board of directors called by such persons.
Members of the board of directors may participate in special meetings by
means of conference telephone, or by means of similar communications equipment
by which all persons participating in the meeting can hear each other. Such
participation shall constitute attendance for the purpose of compensation
pursuant to Section 12 of this Article.
Section 6. Notice. Written notice of any special meeting shall be given to
each director at least 24 hours prior thereto when delivered personally or by
telegram, or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed, or when delivered to the telegraph company if sent by
telegram. Any director may waive notice of any meeting by a writing filed with
the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by Section
2 of this Article III shall constitute a quorum for the transaction of business
at any meeting of the board of directors, but if less than such majority is
present at a meeting, a majority of the directors present may adjourn the
meeting from time to time. Notice of any adjourned meeting shall be given in the
same manner as prescribed by Section 6 of this Article III.
Section 8. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by applicable regulation or
by these bylaws.
II-5
<PAGE>
Section 9. Action Without a Meeting. Any action required or permitted to
be taken by the board of directors at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the directors.
Section 10. Resignation. Any director may resign at any time by sending a
written notice of such resignation to the home office of the Association
addressed to the chairman of the board or president. Unless otherwise specified
such resignation shall take effect upon receipt by the chairman of the board or
president. The Board may, in its discretion by a majority vote, remove any
director who has absented without authority of the board from the consecutive
meetings of the board.
Section 11. Vacancies. Any vacancy occurring in the board of directors may
be filled by the affirmative vote of a majority of the remaining directors,
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve until the next election of directors by
the shareholders. Any directorship to be filled by reason of an increase in the
number of directors may be filled by election by the board of directors for a
term of office continuing only until the next election of directors by the
shareholders.
Section 12. Compensation. Directors, as such, may receive a stated
compensation for their services. By resolution of the board of directors, a
reasonable fixed sum or such other compensation, including reasonable expenses
of attendance, if any, may be allowed for actual attendance at each regular or
special meeting of the board of directors. Members of either standing or special
committees may be allowed such compensation for actual attendance at committee
meetings as the board of directors may determine.
Section 13. Presumption of Assent. A director of the Association who is
present at a meeting of the board of directors at which action on any
Association matter is taken shall be presumed to have assented to the action
taken unless his dissent or abstention shall be entered in the minutes of the
meeting or unless he shall file a written dissent to such action with the person
acting as the secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the secretary of the Association
within five days after the date a copy of the minutes of the meeting is
received. Such right to dissent shall not apply to a director who voted in favor
of such action.
Section 14. Removal of Directors. Any director may be removed for cause by
a two-thirds vote of the board. In addition to the foregoing, any director, or
the entire board of directors, may be removed from office at any time, but only
for cause and upon the affirmative vote of the holders of at least eighty
percent (80%) of the voting power of all the then outstanding shares of capital
stock of the Association entitled to vote generally in the election of
Directors.
ARTICLE IV. EXECUTIVE AND OTHER COMMITTEES
Section l. Appointment. The board of directors, by resolution adopted by a
majority of the full board, may designate the chairman of the board and two or
more of the other directors to constitute an executive committee. The
designation of any committee pursuant to
II-6
<PAGE>
this Article IV and the delegation of authority shall not operate to relieve the
board of directors, or any director, of any responsibility imposed by law or
regulation.
Section 2. Authority. The executive committee, when the board of directors
is not in session, shall have and may exercise all of the authority of the board
of directors except to the extent, if any, that such authority shall be limited
by the resolution appointing the executive committee; and except also that the
executive committee shall not have the authority of the board of directors with
reference to: the declaration of dividends; the amendment of the Certificate of
Incorporation or bylaws of the Association, or recommending to the shareholders
a plan of merger, consolidation, or conversion; the sale, lease or other
disposition of all or substantially all of the property and assets of the
Association otherwise than in the usual and regular course of its business; a
voluntary dissolution of the Association; a revocation of any of the foregoing;
or the approval of a transaction in which any member of the executive committee,
directly or indirectly, has any material beneficial interest.
Section 3. Tenure. Subject to the provisions of Section 8 of this Article
IV, each member of the executive committee shall hold office until the next
regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
Section 4. Meetings. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than 24 hours notice stating the
place, date and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted to
be taken by the executive committee at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be filled
by a resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive committee
may be removed at any time with or without cause by resolution adopted by a
majority of the full board of directors. Any member of the executive committee
may resign from the executive committee at any time by giving written notice to
the president or secretary of the
II-7
<PAGE>
Association. Unless otherwise specified, such resignation shall take effect upon
its receipt; the acceptance of such resignation shall not be necessary to make
it effective.
Section 9. Procedure. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
Section 10. Other Committees. The board of directors may by resolution
establish an audit, loan, or other committees composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
Association and may prescribe the duties, constitution and procedures thereof.
ARTICLE V. OFFICERS
Section l. Positions. The officers of the Association shall be a
president, one or more vice presidents, a secretary and a treasurer, each of
whom shall be elected by the board of directors. The board of directors may also
designate the chairman of the board as an officer. The president shall be the
chief executive officer, unless the board of directors designates the chairman
of the board as chief executive officer. The president shall be a director of
the Association. The offices of the secretary and treasurer may be held by the
same person and a vice president may also be either the secretary or the
treasurer. The board of directors may designate one or more vice presidents as
executive vice president or senior vice president. The board of directors may
also elect or authorize the appointment of such other officers as the business
of the Association may require. The officers shall have such authority and
perform such duties as the board of directors may from time to time authorize or
determine. In the absence of action by the board of directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
Section 2. Election and Term of Office. The officers of the Association
shall be elected annually at the first meeting of the board of directors held
after each annual meeting of the shareholders. If the election of officers is
not held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly elected
and qualified or until the officer's death, resignation or removal in the manner
hereinafter provided. Election or appointment of an officer, employee or agent
shall not of itself create contractual rights. The board of directors may
authorize the Association to enter into an employment contract with any officer
in accordance with regulations; but no such contract shall impair the right of
the board of directors to remove any officer at any time in accordance with
Section 3 of this Article V.
Section 3. Removal. Any officer may be removed by the board of directors
whenever in its judgment the best interests of the Association will be served
thereby, but such removal, other than for cause, shall be without prejudice to
the contractual rights, if any, of the person so removed.
II-8
<PAGE>
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be fixed
from time to time by the board of directors.
ARTICLE VI. CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section l. Contracts. Except as otherwise prescribed by these bylaws with
respect to certificates for shares, the board of directors may authorize any
officer, employee, or agent of the Association to enter into any contract or
execute and deliver any instrument in the name of and on behalf of the
Association. Such authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
Association and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or confined
to specific instances.
Section 3. Checks, Drafts, Etc. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Association shall be signed by one or more officers, employees or agents of
the Association in such manner as shall from time to time be determined by the
board of directors.
Section 4. Deposits. All funds of the Association not otherwise employed
shall be deposited from time to time to the credit of the Association in any
duly authorized depositories as the board of directors may select.
ARTICLE VII. CERTIFICATES FOR SHARES
AND THEIR TRANSFER
Section l. Certificates for Shares. Certificates representing shares of
capital stock of the Association shall be in such form as shall be determined by
the board of directors. Such certificates shall be signed by the chief executive
officer or by any other officer of the Association authorized by the board of
directors, attested by the secretary or an assistant secretary, and sealed with
the corporate seal or a facsimile thereof. The signatures of such officers upon
a certificate may be facsimiles if the certificate is manually signed on behalf
of a transfer agent or a registrar, other than the Association itself or one of
its employees. Each certificate for shares of capital stock shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the Association.
All certificates surrendered to the Association for transfer shall be
cancelled and no new certificate shall be issued until the former certificate
for a like number of shares has been surrendered and cancelled, except that in
case of a lost or destroyed certificate, a new certificate may be issued upon
such terms and indemnity to the Association as the board of directors may
prescribe.
II-9
<PAGE>
Section 2. Transfer of Shares. Transfer of shares of capital stock of the
Association shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney authorized by a duly executed power of attorney and filed with the
Association. Such transfer shall be made only on surrender for cancellation of
the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the Association shall be deemed by the Association
to be the owner for all purposes.
ARTICLE VIII. FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Association shall end on May 31 of each year. The
Association shall be subject to an annual audit as of the end of its fiscal year
by independent public accountants appointed by and responsible to the board of
directors. The appointment of such accountants shall be subject to annual
ratification by the shareholders.
ARTICLE IX. DIVIDENDS
Subject to the terms of the Association's Certificate of Incorporation,
the board of directors may, from time to time, declare, and the Association may
pay, dividends on its outstanding shares of capital stock.
ARTICLE X. CORPORATE SEAL
The board of directors shall provide an Association seal, which shall be
two concentric circles between which shall be the name of the Association. The
year of incorporation or an emblem may appear in the center.
ARTICLE XII. AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of the
New Jersey Department of Banking and at any time by a majority vote of the full
board of directors, or by a majority vote of the votes cast by the shareholders
of the Association at any legal meeting.
II-10
COMMON STOCK COMMON STOCK
PAR VALUE $.01 SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP
BAYONNE BANCSHARES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
S P E C I M E N
is the owner of:
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK $.01 PAR VALUE PER SHARE OF
----------------
The shares represented by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record thereof, or by his
duly authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation of the Corporation and any amendments thereto
(copies of which are on file with the Transfer Agent), to all of which
provisions the holder by acceptance hereof, assents.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar. The shares represented by this Certificate are not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
IN WITNESS THEREOF, Bayonne Bancshares, Inc. has caused this
certificate to be executed by the facsimile signatures of its duly authorized
officers and has caused a facsimile of its corporate seal to be hereunto
affixed.
Dated: [SEAL]
President Secretary
<PAGE>
----------------
The shares represented by this certificate are subject to a limitation
contained in the Certificate of Incorporation to the effect 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 outstanding shares of common stock (the "Limit") be entitled or
permitted to any vote in respect of shares held in excess of the Limit.
The Board of Directors of the Corporation is authorized by resolution(s),
from time to time adopted, to provide for the issuance of serial preferred stock
in series and to fix and state the voting powers, designations, preferences and
relative, participating, optional, or other special rights of the shares of each
such series and the qualifications, limitations and restrictions thereof. The
Corporation will furnish to any shareholder upon request and without charge a
full description of each class of stock and any series thereof.
The shares represented by this certificate may not be cumulatively voted
on any matter. The affirmative vote of the holders of at least 80% of the voting
stock of the Corporation, voting together as a single class, shall be required
to approve certain business combinations and other transactions, pursuant to the
Certificate of Incorporation or to amend certain provisions of the Certificate
of Incorporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFTS MIN ACT - __________ custodian __________
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act
--------------------
(State)
</TABLE>
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above list.
For value received, __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFICATION NUMBER OF TRANSFEREE
- -------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of assignee
_______________________________________________ shares of the common stock
represented by the within Certificate, and do hereby irrevocably constitute and
appoint ________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
DATED ________________________ _________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED: _________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15
DRAFT
March __, 1997
Board of Directors
Bayonne Bancshares, Inc.
568 Broadway
Bayonne, New Jersey 07002
Re: The offering of up to __________ shares of
Bayonne Bancshares, Inc. Common Stock
Gentlemen:
You have requested our opinion concerning certain matters of Delaware law
in connection with (i) the reorganization of Bayonne Bankshares, M.H.C. (the
"Mutual Holding Company"), a Federal mutual holding company that owns a majority
of the outstanding stock of First Savings Bank of New Jersey, SLA, a New Jersey
chartered stock savings association (the "Bank"), into stock forms of ownership
(the "Conversion"), (ii) the subscription and community offering (the
"Offering"), in connection with the Conversion by Bayonne Bankshares, Inc., a
Delaware Corporation (the "Company"), of up to ___________ shares of its common
stock, par value $0.01 per share (the "Common Stock"), and (iii) the sale of up
to ___________ of the Common Stock (the "Foundation Share") of Bayonne First
Charitable Foundation, a Delaware Corporation (the "Foundation"), pursuant to
the Charitable Gift to Bayonne First Charitable Foundation dated as of ________,
1997 by the Company (the "Gift Instrument").
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 February 4, 1997 and amended on February 20, 1997
(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 March _, 1997 and as amended on ____________, 1997 (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
<PAGE>
Board of Directors
March _, 1997
Page 2
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.
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 we are justified in relying.
We understand that the Company will contribute funds to a wholly-owned
subsidiary of the Company (the "Subsidiary") which Subsidiary will loan to the
trust for the Bank's Employee Stock Ownership Plan (the "ESOP") the funds 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 of Directors of
the Company has duly authorized the capital contribution to the Subsidiary for
purposes of making a loan to the ESOP Trust (the "Loan"); (b) the Board of
Directors of the Subsidiary has duly authorized the Loan to the ESOP Trust; (c)
the ESOP serves a valid corporate purpose for the Company; (d) the Loan will be
made at an interest rate and on other terms that are fair to the Subsidiary; (e)
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 Subsidiary as a result of the Loan; and (f) 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, the receipt by the Company of the proceeds thereof and the
contribution by the Company to the Subsidiary of the funds sufficient to make
the Loan.
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.
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:
<PAGE>
Board of Directors
March _, 1997
Page 3
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, 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 Prospectus.
Very truly yours,
MARCH 7, 1997 D R A F T
[Morris, Nichols, Arsht & Tunnell Letterhead]
[Date]
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 (i) the reorganization of Bayonne Bankshares, M.H.C. (the
"Mutual Holding Company"), a federal mutual holding company that owns a majority
of the outstanding stock of First Savings Bank of New Jersey, SLA, a New Jersey
chartered stock savings association (the "Bank"), into stock form of ownership
(the "Conversion"), (ii) the subscription and community offering (the
"Offering"), in connection with the Conversion, by Bayonne Bancshares, Inc., a
Delaware corporation (the "Company"), of up to _______________ shares of its
common stock, par value $0.01 per share (the "Common Stock"), and (iii) the sale
of _____________ shares of Common Stock (the "Foundation Shares") of Bayonne
First Charitable Foundation, a Delaware corporation (the "Foundation"), pursuant
to the Charitable Gift to Bayonne First Charitable
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 2
Foundation dated as of _____________ ___, 1997 by the Company (the "Gift
Instrument").
In connection with your request for our opinion, you have provided to
us, and we have reviewed, the Company's certificate of incorporation (the
"Company Certificate of Incorporation"), its by-laws, the Registration Statement
filed with the Securities and Exchange Commission in connection with the
Offering (the "Registration 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 Board fixing the number of shares of Common Stock to be sold
in the Offering and the price thereafter (the "Pricing Resolution"), the form of
stock certificate approved by the Board to represent shares of Common Stock, the
Foundation's certificate of incorporation (the "Foundation Certificate of
Incorporation"), its by-laws, a consent of the sole incorporator of the
Foundation, and the Gift Instrument. We have also obtained a certificate of the
Delaware Secretary of State as to the Company's and the Foundation's good
standing as a Delaware corporation. Capitalized terms used but not defined
herein shall have the meanings given them in the Company Certificate of
Incorporation.
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 3
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, 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 Mutual Holding Company, the Company, the
Offering, or the Conversion, including, without limitation, those applicable to
state chartered, federally insured savings associations or their holding
companies.
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 4
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, lease and operate 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) will be duly authorized and, when such shares are sold
and paid for in accordance with the terms set forth in the Prospectus and the
Pricing Resolution, and certificates representing such shares in the form
provided to us are duly and properly issued, will be duly and 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 Company Certificate of Incorporation.
3. The Foundation has been duly organized and is validly existing as a
non-stock corporation in good standing under the laws of the State of Delaware
with the corporate power and authority to own, lease, and operate its properties
and to conduct its business as described in the Prospectus.
4. No approvals of any Delaware governmental agency, bureau,
commission, department or other organization is required to
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 5
establish the Foundation and to issue and sell the Foundation Shares to the
Foundation as described in the Prospectus pursuant to the Gift Instrument;
provided, however, that we express no opinion with respect to the Delaware
Securities Act (6 Del. C. ss. 7301 et. seq.).
5. The Foundation Shares have been duly and validly authorized for
issuance and sale, and when issued and delivered by the Company as provided in
the Gift Instrument against payment therefor, and a certificate representing
such share in the form provided to us is duly and properly issued, such shares
will be duly and 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 Company
Certificate of Incorporation.
The following provisions of the Company 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
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 6
person to provide 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.
(b) Article NINTH of the Company 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,
March --, 1997
Board of Directors
Bayonne Bankshares, M.H.C.
First Savings Bank of New Jersey, S.L.A.
568 Broadway
Bayonne, NJ 07002
GENTLEMEN:
You have requested that we render to you our opinion as to certain Federal and
New Jersey income tax issues related to the proposed reorganization of Bayonne
Bankshares, M.H.C. (Mutual Holding Company) into the stock form of organization
(the Reorganization) by creating Bayonne Bancshares, Inc. (the Company). The
opinions contained herein are based solely on the facts as contained in the
section of this letter entitled "STATEMENT OF FACTS" and the representations
described in the section of the letter entitled "REPRESENTATIONS." All sectioned
references are to the Internal Revenue Code of 1986 as amended ("the Code") as
in effect as of date of this opinion. If any of the facts and or representations
are not correct or complete, it is imperative that we be informed in writing as
this could have a material adverse effect on our opinion.
STATEMENTS OF FACTS
The Mutual Holding Company is a Federally chartered mutual holding company and
owns 54.2% of the common stock of First Savings Bank of New Jersey, SLA (the
Bank). Prior to January 6, 1995, the Mutual Holding Company was a New Jersey
state chartered
1
<PAGE>
mutual savings and loan association. On January 6, 1995 the state chartered
mutual savings and loan association transferred virtually all of its assets to a
newly chartered New Jersey stock savings and loan association, the Bank, in
exchange for the Bank's common stock and assumption of all of the transferor's
liabilities. The state chartered mutual savings and loan association changed its
charter to a Federally chartered Mutual Holding Company. The Bank also sold its
common stock for cash in a public offering (the Public common stock). A ruling
was obtained from the Internal Revenue Service which among other things, held
that no gain or loss was recognized on the transfer, and no recapture of the
reserve for bad debts was required.
On December 19, 1996 the Board of Directors of the Mutual Holding Company and
the Bank adopted the Plan of Conversion and Agreement and Plan of Reorganization
of Bayonne Bankshares, M.H.C. and First Savings Bank of New Jersey S.L.A. (the
Plan), pursuant to which the Bank will cause the Company to be incorporated
under Delaware law as a first-tier, wholly owned subsidiary of the Bank, and the
Company will form Interim B after receipt of all requisite regulatory approvals,
as a first tier, wholly owned subsidiary of the Company. The Company adopted the
Plan on February 6, 1997 and the Board of Directors of Interim B will adopt the
Plan by at least a two-thirds vote. In addition, the Bank and the Company will
approve the Plan in their capacities as the sole shareholders of the Company and
Interim B, respectively.
2
<PAGE>
In accordance with the Plan adopted by the Bank and the Mutual Holding Company,
the Bank will become a subsidiary of the Company upon consummation of the
transactions described herein. As a result of the Conversion and Reorganization,
each share of common stock, par value $.10 per share of the Bank held by the
Mutual Holding Company, which currently holds 1,659,485 shares or 54.2% of the
outstanding Bank common stock, will be canceled and each share of Bank common
stock held by the Bank's public stockholders (the "Public Bank Shares"), which
amounted to 1,404,646 shares, or 45.8% of the outstanding Bank common stock at
December 31, 1996, will be converted into shares of the Company's common stock
pursuant to a ratio that will result in the holders of such shares (the "Public
Shareholder's") owning in the aggregate approximately the same percentage of the
Company as they previously owned in the Bank, before giving effect to (a) the
payment of cash in lieu of fractional Exchange Shares, (b) any shares of common
stock purchased by such stockholders in the Offerings described herein or the
Bank's ESOP thereafter or (c) any shares proposed to be issued to the charitable
foundation to be established by the Company.
In addition to the exchange of Company common stock for Public Bank
Shares, non-transferable subscription rights to subscribe for up to
3,966,700 shares (which may be increased to 4,561,700 shares) of common
stock (the "Conversion Stock") have been granted, in order of priority,
to each of the Bank's Eligible Account Holders, to the ESOP, to the
Bank's Supplemental Eligible Account Holders, and to certain Other
Members in a subscription offering. Subscription rights are
nontransferable.
3
<PAGE>
Concurrently, and subject to the prior rights of holders of subscription rights,
the Company is offering the shares of Conversion Stock not subscribed for in the
Subscription Offering for sale in a community offering to certain members of the
general public, with a first preference given to holders of the Public Bank
Shares and a second preference to natural persons residing in the City of
Bayonne in the State of New Jersey. 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 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 Bank and the Mutual Holding Company. The conversion and sale of
common stock will be accomplished in accordance with the rules and regulations
of the Office of Thrift Supervision (OTS) and will be subject to the approval of
the OTS.
Except for the ESOP, no Eligible Account Holder, Supplemental Eligible Account
Holder or Other Member may, in their respective capacities as such, purchase in
the Subscription Offering more than $200,000 of the total number of shares of
Conversion Stock offered for sale in the Conversion; no person, together with
associates of and persons acting in concert with such person, may purchase in
the Community Offering and the Syndicated Community Offering more than $200,000
of the total number of shares offered for sale in the Conversion; and no person,
together with associates of and persons acting in concert with such person, may
purchase in the aggregate more than the number of shares of
4
<PAGE>
Conversion Stock that when combined with Exchange Shares received by such person
would exceed the overall maximum purchase limitation of 3.0% of the total number
of shares of Conversion Stock offered for sale in the Conversion; provided,
however, that such purchase limitations and the amount that may be subscribed
for may be increased or decreased in the sole discretion of the Company, the
Mutual Holding Company and the Bank without further approval of the Mutual
Holding Company's members or the Public Shareholders. The minimum purchase is 25
shares.
Pursuant to the Plan, the Company intends to establish a charitable foundation
(the Foundation) in connection with the Conversion. The Plan provides that the
Bank, the Mutual Holding Company and the Company will create a foundation, which
will be incorporated under Delaware law as a non-stock corporation, and will be
funded with shares of common stock contributed by the Company, in an amount
equal to 9.9% of the number of shares of Conversion Stock sold in the
Conversion. The Foundation will be dedicated to charitable and educational
purposes within the City of Bayonne, New Jersey. The establishment of the
Foundation is subject to the approval of the Mutual Holding Company's members at
the special meeting being held to consider the Plan of Conversion.
The Company intends to seek stockholder approval of certain stock programs which
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 and
5
<PAGE>
Reorganization, 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 Conversion Stock sold in the
Conversion, including shares issued to the Foundation, or 128,900 shares and
174,400 shares at the minimum and maximum of the Estimated Price Range,
respectively. These shares will be acquired either through open market purchases
or from authorized but unissued common stock.
The reorganization will be structured as follows:
(i) The Bank will organize the Company which will issue to the Bank 10 shares of
common stock, consisting of all the issues of outstanding stock of the Company
for $.01 per share. The Company will thereby become a wholly owned subsidiary of
the Bank. The Company will then form Interim B, as a Federally-chartered stock
savings association, as a wholly owned subsidiary of the Company, solely to
facilitate the reorganization.
(ii) Pursuant to the Plan, the Mutual Holding Company which owns 54.2% of the
common stock ("Institution Common Stock") of the Bank will convert to a
Federally chartered interim stock savings bank (Interim A) and simultaneously
merge with and into the Bank pursuant to the Plan. All shares of the Institution
Common Stock held by the
6
<PAGE>
Mutual Holding Company will be canceled. The Bank will establish a liquidation
account on behalf of each depositor member of the Mutual Holding Company.
(iii) The Bank and Interim B will merge pursuant to which the Company's shares
of Interim B will be converted into shares of Bank common stock and the Bank
will become a wholly owned subsidiary of the Company.
(iv) The Public Shareholders of Bank common stock will exchange their shares of
Bank common stock for common stock of the Company.
(v) The Company will offer additional shares of its common stock for sale in
Subscription and Community Offering and possibly a Syndicated Community Offering
as set forth in the Plan.
The Company intends to adopt the stock option plan of the Bank. All unexercised
stock options to acquire Bank common stock existing prior to the merger shall,
upon the consummation of the merger, become stock options to acquire stock of
the Company.
As a result of the above transactions, all Public Shareholders of the Bank will
become the stockholders of the Company, and the Bank will become a wholly owned
subsidiary of the Company. After the reorganization is consummated, the Bank and
Interim B will constitute a single corporation and the separate existence of the
Interim B will cease by
7
<PAGE>
operation of law. All assets and liabilities of Interim B will be transferred to
and assumed by the Bank as of the date of reorganization. The Bank will continue
to operate as a savings association and retain its present state charter.
Directors of the Bank will continue as Directors of the Bank after the
reorganization is consummated.
In the unlikely event of a complete liquidation of the Mutual Holding Company in
its present mutual form, each depositor would receive his pro rata share of any
assets of the Mutual Holding Company 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 and Reorganization, 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
deposits account, plus accrued interest. He would not have an interest in the
value or assets of the Bank or the Company 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 greater of
(1) the Bank's retained earnings at August 31, 1994, the date of the latest
statement of financial
8
<PAGE>
condition contained in the final offering circular utilized in the MHC
Reorganization or (2) 54.2% of the Bank's shareholders' equity as of the date of
its latest balance sheet contained in the final Prospectus used in connection
with the Conversion and Reorganization. Each Eligible Account Holder and
Supplemental Eligible Account Holder, if he or she were to continue to maintain
his or her deposit account at the Bank, would be entitled, on a complete
liquidation of the Bank after the Conversion and Reorganization, to an interest
in the liquidation account prior to any 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 December 31, 1994 and March 31, 1997, respectively.
Each Eligible Account Holder and Supplemental Eligible Account Holder will have
a pro rata interest in the total liquidation account based on the proportion
that the balance of his Qualifying Deposits on the Eligibility Record Date or
Supplemental Eligibility Record Date, respectively, bore to the total amount of
all Qualifying Deposits 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 the respective record dates.
If, however, on any annual closing date subsequent to the Eligibility Record
Date or Supplemental Eligibility Record Date, the amount of the Qualifying
Deposit of an
9
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Eligible Account Holder or Supplemental Eligible Account Holder is less than the
amount of the Qualifying Deposit of such Eligible Account Holder or Supplemental
Eligible Account Holder as of the Eligibility Record Date or Supplemental
Eligibility Record Date, respectively, or less than the amount of the Qualifying
Deposits as of the previous annual closing date, then the interest in the
liquidation account relating to such Qualifying Deposits 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 accounts are 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.
REPRESENTATIONS
You have provided the following representations concerning this transaction:
(a) The fair market value of Company common stock to be received by each Public
Shareholder will be approximately equal to the fair market value of the Bank
common stock surrendered in exchange.
10
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(b) The management of the Bank has no knowledge of any plan or intention on the
part of its Public Shareholders who own 5% or more of the Bank common stock, and
to the best of the knowledge of management of the Bank, there is no plan or
intention on the part of the remaining shareholder of the Bank to sell,
exchange, or otherwise dispose of a number of shares of the Company stock to be
received in the reorganization that would reduce the Public Shareholders
ownership of Company common stock to a number of shares having a value, as of
the date of the reorganization, of less than 50% of the value of all of the
formerly outstanding Bank common stock as of the same date. For purposes of this
representation, shares of Bank common stocks exchanged for cash or other
property, or exchanged for cash in lieu of fractional shares of Company common
stock, will be treated as outstanding common stock on the date of the
transaction, but the shares of Bank common stock held by the Mutual Holding
Company prior to the consummation of the merger will be disregarded. Moreover,
shares of Bank common stock and shares of Company common stock held by the
Bank's shareholders and otherwise sold, redeemed or disposed of prior to or
subsequent to the transaction as part of the agreement will be considered in
making this representation.
(c) Following the reorganization, the Bank will hold at least 90% of the fair
market value of its net assets and at least 70% of the fair market value of its
gross assets and at least 90% of the fair market value of Interim B's net assets
and at least 70% of the fair market value of Interim B's gross assets held
immediately prior to the reorganization. For purposes of this representation,
amounts paid by the Bank or Interim B to
11
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shareholders who receive cash or other property, amounts used by the Bank or
Interim B to pay reorganization expenses and all redemptions and distributions
(except for regular, normal dividends) made by the Bank will be included as
assets of the Bank or Interim B respectively, immediately prior to the
reorganization.
(d) Prior to the transaction, the Company will be in control of Interim B within
the meaning of Section 368(c).
(e) As of the date of the execution of this agreement, the Bank has no plan or
intention to issue additional shares of its stock that would result in the
Company losing control of the Bank within the meaning of Section 368(c).
(f) As of the date of this agreement, the Company has no plan or intention to
acquire any of its stock issued in the transaction.
(g) The Company has no plan or intention to liquidate the Bank; to merge the
Bank with or into another corporation, or sell or otherwise dispose of the stock
of the Bank except for transfers of stock to corporations controlled by the
Company; to cause the Bank to sell or otherwise dispose of any of its assets or
any of the assets acquired from the Interim B, except for dispositions made in
the ordinary course of business or transfers of assets to a corporation
controlled by the Bank.
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(h) The liabilities of the Interim B, if any, assumed by the Bank and
the liabilities to which the transferred assets of Interim B are
subject to, were incurred by Interim B in the ordinary course of its
business.
(i) Following the transaction, the Bank will continue its historic business or
use a significant portion of its business assets in a business.
(j) The Company, Interim B, the Bank and the shareholders of the Bank will pay
their respective expenses, if any, incurred in the reorganization. The Bank will
pay or assume only those expenses of Interim B, if any, that are solely and
directly related to the transaction according to the guidelines established in
Revenue Ruling 73-54, 1973-1 C.B. 187.
(k) There is no intercorporate indebtedness existing between the Company and the
Bank or between the Interim B and the Bank that was issued, acquired, or would
be settled at a discount.
(l) In the Reorganization, shares of Bank stock representing control of the
Bank, as defined in Section 368(c), will be exchanged solely for voting stock of
the Company. For purposes of this representation, shares of Bank stock exchanged
for cash or other property originating with the Company will be treated as
outstanding Bank common stock on the date of the Reorganization.
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(m) At the time of the Reorganization, the Bank will not have outstanding any
warrants, options, convertible securities or any other type of right pursuant to
which any person could acquire stock in the Bank that, if exercised or
converted, would affect the Company's acquisition or retention of control of the
Bank, as defined in Section 368(c).
(n) The Company does not own, nor has it owned during the past five years, any
shares of the stock of the Bank, nor will the Company acquire any such stock
prior to the proposed transaction.
(o) No two parties to the transaction are investment companies as defined in
Section 368(a)(2)(F)(iii) and (iv).
(p) On the date of the Reorganization, the fair market value of the assets of
the Bank on a going concern basis will exceed the sum of its liabilities, plus
the amount of liabilities, if any, to which the assets are subject.
(q) The Bank is not under the jurisdiction of a court in a Title 11 or similar
case within the meaning of Section 368(a)(3)(A).
(r) None of the compensation received by any of the shareholder-employees of the
Bank will be separate consideration for, or allocable to, any of their shares of
Bank
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common stock; none of the shares of Company common stock received by any
shareholder-employees will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any shareholder-employees
will be for services actually rendered and will be commensurate with amounts
paid to third parties bargaining at arm's-length for similar services.
FEDERAL TAX OPINION
Based solely upon the terms of the proposed transaction described herein and the
representations set forth, it is our opinion that the following Federal income
tax consequences will result from the Reorganization.
(1) The conversion of the Mutual Holding Company from a Federally chartered
mutual holding company to a Federally chartered interim savings bank will
qualify as a tax-free reorganization since the conversion will constitute a mere
change in identity, form or place of organization within the meaning of Section
368(a)(1)(F). Provided that the merger of the Mutual Holding Company with and
into the Bank qualifies as a statutory merger under applicable law, and that
after the reorganization the Bank will hold substantially all of the assets of
the Mutual Holding Company, the merger will constitute a reorganization within
the meaning of Section 368(a)(1)(A). The exchange of the member's equity in
Mutual Holding Company for interests in a liquidation account established at the
Bank in the merger will satisfy the continuity of interest required by
15
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Section 1.368-1(b)(Rev. Rul. 69-3, 1968-1 C.B. 103 and Rev. Rul. 69-646, 1969-2
C.B. 54). The Bank and the Mutual Holding Company will each be a party to the
reorganization within the meaning of Section 368(b).
(2) The Bank will not recognize any gain or loss on the receipt of the assets of
the Mutual Holding Company in exchange for the liquidation accounts of the Bank
(Section 1032(a)).
(3) Provided that the merger of Interim B with and into the Bank qualifies as a
statutory merger under applicable law, and that after the reorganization the
Bank will hold substantially all of the assets of Interim B, and in the
reorganization, Bank Shareholders exchange solely for voting Company common
stock an amount of Bank common stock constituting "control" of the Bank within
the meaning of Section 368(c), the merger will constitute a reorganization
within the meaning of Section 368(a)(1)(A). The reorganization will not be
disqualified by reason of the fact that common stock of the Company is used in
the transaction (Section 368(a)(2)(E)). The Bank, the Company and Interim B will
each be a party to the reorganization within the meaning of Section 368(b).
(4) Interim B will not recognize any gain or loss on the transfer of its assets
to the Bank in exchange for Bank common stock and the assumption by the Bank of
the liabilities, if any, of Interim B (Sections 361(a) and 357(a)).
16
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(5) The Bank will not recognize any gain or loss on the receipt of the assets of
Interim B in exchange for Bank common stock (Section 1032(a)).
(6) The Company will not recognize any gain or loss upon its receipt of Bank
common stock solely in exchange for Interim B stock (Section 354(a)).
(7) Bank Public Shareholders will not recognize any gain or loss upon their
exchange of Bank Common Stock solely for shares of Company common stock (Section
354(a)).
(8) A Bank Public Shareholder's basis in his or her Company common stock
received in the exchange will be the same as the basis of the Bank common stock
surrendered in the exchange thereof (Section 358(a)).
(9) A Bank Public Shareholder's holding period in his or her Company common
stock received in the exchange will include the period during which the Bank
common stock surrendered was held, provided that the Bank common stock
surrendered is a capital asset in the hands of the Bank Public Shareholder on
the date of the exchange (Section 1223(1)).
(10) No gain or loss will be recognized by the Company on the receipt of money
in exchange for Company common stock in the offering (Section 1032(a)).
17
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(11) No gain or loss shall be recognized by the Eligible Account Holders,
Supplemental Eligible Account Holders, or Other Members on the issuance to them
of withdrawable deposit accounts in the Bank, in exchange for their deposit
accounts in the Bank or to the other depositors on the issuance to them of
withdrawable deposit accounts or to the issuance of interest in the liquidation
account for the Members' equity in the Mutual Holding Company (Section 354(a) of
the Code).
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 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 (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).
(12) The basis of the 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
subscriptions rights have no
18
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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 (11) 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 (11) and (12)
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 FinPro, Inc. which indicates 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 the Company and/or
the Bank may be taxable on the distribution of the subscription rights.
19
<PAGE>
NEW JERSEY STATE TAX OPINION
Based on and subject to the foregoing, it is our opinion that under New Jersey
State Tax Law:
(1) No gain or loss will be recognized by the Mutual Holding Company, the
Company or Interim B under the New Jersey Corporation Business Tax Act.
(2) No gain or loss will be recognized by the Mutual Holding Company, the Bank,
or Interim B 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 or the Public stockholders of the
Bank under the New Jersey Gross Income Tax Act.
SCOPE OF OPINION
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, as well as all the information and representations referred to herein. Any
change in the transaction could cause us to modify our opinion.
The opinions contained herein are rendered only with respect to the specific
matters discussed herein and we express no opinion with respect to any other
legal, Federal, state,
20
<PAGE>
local or foreign aspect of these transactions. If any of the information upon
which we have relied is incorrect, or if changes in the relevant facts occur
after the date hereof, our opinion could be affected thereby. Moreover, our
opinion is based on case law, the Code, Treasury Regulations thereunder, and
Internal Revenue Service rulings as they now exist, as well as the Revised
Statutes of New Jersey (1937) as amended, the regulations thereunder and
judicial and administrative interpretations thereof, as they now exist. These
authorities are all subject to change, and such change may be made with
retroactive effect. We can give no assurance that, after such change, our
opinion would not be different. We undertake no responsibility to update or
supplement our opinion. This opinion is not binding on the Internal Revenue
Service or the New Jersey Division of Taxation and there can be no assurance,
and none is hereby given, that the Internal Revenue Service or the New Jersey
Division of Taxation will not take a position contrary to one or more of the
positions reflected in the foregoing opinion, or that our opinion will be upheld
by the courts if challenged by the Internal Revenue Service or the New Jersey
Division of Taxation.
CONSENT
We consent to the inclusion of this opinion as an exhibit to the Form AC and
Form S-1 Registration Statement of Bayonne Bancshares, Inc. and the references
to and summary of this opinion in such Form AC and Form S-1 Registration
Statement.
Very truly yours,
KPMG Peat Marwick LLP
21
FIRST SAVINGS BANK OF NEW JERSEY, S.L.A.
AND BAYONNE BANKSHARES, M.H.C.
1995 STOCK OPTION PLAN, AS AMENDED
1. PURPOSE
The purpose of the First Savings Bank of New Jersey, S.L.A. and Bayonne
Bankshares, M.H.C. 1995 Stock Option Plan (the "Plan") is to advance the
interests of First Savings Bank of New Jersey, S.L.A. (the "Bank") and its
shareholders by providing Employees and Outside Directors of the Bank and its
affiliates, including Bayonne Bankshares, M.H.C. the mutual holding company of
the Bank (the "Company"), upon whose judgment, initiative and efforts the
successful conduct of the business of the Bank and its affiliates largely
depends, with an additional incentive to perform in a superior manner as well as
to attract people of experience and ability.
2. DEFINITIONS
"AFFILIATE" means any "parent corporation" or "subsidiary corporation" of
the Bank or the Company, as such terms are defined in Section 424(e) or 424(f),
respectively, of the Internal Revenue Code of 1986, as amended.
"AWARD" means an Award on Non-statutory Stock Options, Incentive Stock
Options, and/or Limited Rights granted under the provisions of the Plan.
"BENEFICIARY" means the person or persons designated by a Recipient to
receive any benefits payable under the Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose of the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or if none, his estate.
"BOARD OF DIRECTORS" means the Board of Directors of the Bank and the
Company, as applicable.
"CHANGE IN CONTROL" means:
(1) (i) a reorganization, merger, merger conversion, consolidation or sale
of all or substantially all of the assets of the Bank or the Company or a
similar transaction in which the Bank or Company is not the resulting entity or
the Stock Holding Company is not the resulting entity; (ii) individuals who
constitute the board of directors of the Bank or the board of trustees of the
Company as of 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-fourths of the directors composing the Incumbent Board or whose
nomination for election by the Bank's or Company's stockholders or members was
approved by the same Nominating Committee serving under an Incumbent Board shall
be for purposes of this section considered as though he were a member of the
Incumbent Board; or (iii) an acquisition of "control" of the Bank or the Company
as defined by the Bank Holding Company Act of 1956, as amended, and applicable
rules and regulations promulgated thereunder as in effect at the time of the
Change in Control (collectively, the "BHCA"), or (iv) an acquisition of the
Bank's stock requiring submission of notice under the Change in Bank Control
Act;
(2) In the event the Company converts from the mutual form or organization
to the stock form of organization (the "Stock Holding Company") at any time
subsequent to the effective date of this Plan, a "Change in Control" shall mean,
a change in control of the Bank or the Stock Holding Company of a nature that:
(i) would be required to be reported in response to Item 1a 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 Stock Holding Company within
the meaning of the BHCA; or (iii) without limitation, such a change in control
shall be deemed to have occurred at such time as (a) any "person" (as such term
is used in Section 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 Stock Holding Company
representing 25% or more of the Bank's or Stock Holding Company's outstanding
securities ordinarily having the
<PAGE>
right to vote at the election of directors, except for any securities of the
Bank issued to the Stock Holding Company in connection with the Reorganization
and Stock Offering pursuant to the Bank's Plan of Reorganization and Stock
Issuance and securities purchased by the Bank's or the Stock Holding Company's
employee stock benefit plans; or (b) the Incumbent Board ceases for any reason
to constitute at least a majority to the board of directors of the Bank or Stock
Holding Company; or (c) a reorganization, merger, consolidation, sale of all or
substantially all of the assets of the Bank or the Stock Holding Company or
similar transaction.
(3) Notwithstanding anything to the contrary, the conversion of the
Holding Company to stock form on a stand-alone basis, shall not be a Change in
Control.
(4) Notwithstanding the foregoing, a "Change in Control" of the Bank or
the Company shall not be deemed to have occurred if the Company ceases to own at
least 51% of all outstanding shares of stock of the Bank in connection with a
conversion of the Company from mutual to stock form.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Stock Benefits Committee of the Board of Directors
consisting of at least three Outside Directors of the Bank or the Company, and
all of whom are and must be "disinterested directors" as that term is defined
under Rule 16b-3 under the Securities Exchange Act of 1934, as amended.
"COMMON STOCK" means the common stock of the Bank, par value $0.10 per
share.
"COMPANY" means Bayonne Bankshares, M.H.C.
"CONVERSION TRANSACTION" means the conversion of the Company from the
mutual to stock form of organization either on a stand-alone basis or in the
context of a merger conversion, as contemplated by regulations of the Office of
Thrift Supervision ("OTS") or any successor thereof.
"DATE OF GRANT" means the actual date of which an Award is granted by the
Committee.
"DIRECTOR" means a member of the Board of Directors.
"DIRECTOR EMERITUS" means a former Director of the Bank, who in
recognition of his or her past contributions to the Bank, has been titled as a
director emeritus of the Bank.
"DISABILITY" means the permanent and total inability by reason of mental
or physical infirmity, or both, of an employee to perform the work customarily
assigned to him. Additionally, a medical doctor selected or approved by the
Board of Directors must advise the Committee that it is either not possible to
determine when such Disability will terminate or that it appears probable that
such Disability will be permanent during the remainder of such employee's
lifetime.
"EMPLOYEE" means any person who is currently employed by the Bank or the
Company or an Affiliate, including officers.
"FAIR MARKET VALUE" means, when used in connection with the Common Stock
on a certain date, the reported closing price of the Common Stock as reported by
the National Association of Securities Dealers Automated Quotation ("Nasdaq")
National Market (as published by The Wall Street Journal, if published) on the
date prior to such date, or if the Common Stock was not traded on such date, on
the next preceding day on which the Common Stock was traded thereon; provided,
however, that if the Common Stock is not reported on the Nasdaq National Market,
Fair Market Value shall mean the average sale price of all shares of Common
Stock sold during the 30-day period immediately preceding the date on which such
stock option was granted, and if no shares of stock have been sold within such
30-day period, the average sale price of the last three sales of Common Stock
sold during the 90-day period immediately preceding the date on which such stock
option was granted. In the event Fair Market Value cannot be determined in the
manner described above, then Fair Market Value shall be determined by the
Committee.
2
<PAGE>
The Committee shall be authorized to obtain an independent appraisal to
determine the Fair Market Value of the Common Stock.
"INCENTIVE STOCK OPTION" means an Option granted by the Committee to an
Employee Participant, which Option is designated as an Incentive Stock Option
pursuant to Section 8.
"INCUMBENT BOARD" means, the case of (i) the Company or the Stock Holding
Company, or (ii) the Bank, the Board of Directors of the Company or the Bank,
respectively, on the date hereof, 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 members or stockholders was approved by the same
nominating committee serving under an Incumbent Board, shall be considered as
though he were a member of the Incumbent Board.
"LIMITED RIGHT" means the right to receive an amount of cash based upon
the terms set forth in Section 9.
"NON-STATUTORY STOCK OPTION" means an Option granted by the Committee to
(i) an Outside Director or (ii) to any other Participant and such option is
either (A) not designated by the Committee as an Incentive Stock Option, or (B)
fails to satisfy the requirements of an Incentive Stock Option as set forth in
Section 422 of the Code and the regulations thereunder.
"NORMAL RETIREMENT" means, for an Employee, retirement at the normal or
early retirement date as set forth in the Bank's Employee Stock Ownership Plan,
or any successor plan. For an Outside Director, Normal Retirement means
retirement from service on the Board.
"OFFERING" means the initial public offering of the Common Stock of the
Bank.
"OPTION" means Award granted under Section 7 or Section 8.
"OUTSIDE DIRECTOR" means a Director who is not also an Employee.
"PARTICIPANT" means an Outside Director or an Employee of the Bank and the
Company or its Affiliates chosen by the Committee to participate in the Plan.
"REORGANIZATION" means the reorganization of First Savings Bank of New
Jersey, S.L.A. as a mutual holding company and the establishment of the Bank as
its wholly-owned subsidiary.
"STOCK HOLDING COMPANY" means the holding company resulting from a stock
conversion of the Company in a conversion transaction.
"TERMINATION FOR CAUSE" means the termination of employment caused by the
individual's personal dishonesty, willful misconduct, any breach of a fiduciary
duty involving personal profit or intentional failure to perform stated duties,
or willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, any of which
results in material loss to the Bank, the Company, or one of its Affiliates.
3. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee is
authorized, subject to the provisions of the Plan, to establish such rules and
regulations as it deems necessary for the proper administration of the Plan and
to make whatever determinations and interpretations in connection with the Plan
it deems necessary or advisable. All determinations and interpretations made by
the Committee shall be binding and conclusive on all Participants in the Plan
and on their legal representatives and beneficiaries.
3
<PAGE>
The Awards of Non-statutory Options to Outside Directors under Section 7
of the Plan are intended to comply with Rule 16b-3 under the Securities Exchange
Act of 1934. Notwithstanding any term to the contrary appearing herein, unless
permitted by Rule 16b-3(c)(2)(ii), neither the Committee nor the Board shall
have the authority to determine the amount and price of securities to be awarded
and/or timing of awards under Section 7 of the Plan to designated directors or
categories of directors, which terms shall be set forth herein. To the extent
any provision of the Plan or action by Plan administrators fails to comply with
this Subsection 3, such provision or actions shall be deemed null and void to
the extent permitted by law and deemed advisable by the Board.
4. TYPES OF AWARDS
Awards under the Plan may be granted in any one or a combination of (a)
Incentive Stock Options as defined in Section 7; (b) Non-statutory Stock Options
as defined in Section 8; and (c) Limited Rights as defined herein in Section 9.
5. STOCK SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 14, the maximum number of
shares reserved for issuance under the Plan is ten percent (10%) of the shares
of Common Stock of the Bank sold in connection with the Stock Offering (or
135,802 shares). The maximum number of shares reserved for issuance to Employees
is 92,346 shares, or approximately 6.8% of the shares of Common Stock issued in
connection with the Offering. The maximum number of shares reserved for issuance
to Outside Directors is 43,456 shares or approximately 3.2% of the shares of
Common Stock issued in connection with the Offering.
The shares of Common Stock represented by such options may be either
authorized but unissued shares or shares previously issued and reacquired by the
Bank or the Company. The Company may use dividends received from the Bank to
fund the purchase of shares necessary to satisfy the exercise of stock options.
To the extent that options together with any related rights granted under the
Plan terminate, expire or are cancelled without having been exercised or, in the
case of Limited Rights exercised for cash, new Awards may be made with respect
to these shares.
6. ELIGIBILITY
Officers and other employees of the Bank or the Company or its affiliates
shall be eligible to receive Incentive Stock Options, Non-statutory Stock
Options and/or Limited Rights under the Plan. Directors who are not employees or
officers of the Bank or the Company or its Affiliates shall not be eligible to
receive Incentive Stock Options under the Plan. Outside Directors shall be
eligible to receive only Non-statutory Stock Options.
7. NON-STATUTORY STOCK OPTIONS
7.1 GRANT OF NONSTATUTORY STOCK OPTIONS
(a) Grants to Outside Directors. Each Outside Director who is serving in
such capacity on the date of the Bank's Offering and at the Effective Date of
the Stock Option Plan, shall be granted Options to purchase 6,790 shares of
Common Stock of the Bank, subject to adjustment pursuant to Section 14. Each
person who becomes an Outside Director subsequent to the Effective Date of the
Stock Option Plan, shall be granted Non-statutory Stock Options to purchase
1,000 shares of the Common Stock, subject to adjustment pursuant to Section 14,
to the extent shares remain available under this Stock Option Plan.
Non-statutory Stock Options granted under this Plan are subject to the terms and
conditions set forth in this Section 7.
(b) Grants to Employees. The Committee may, from time to time, grant
Non-statutory Stock Options to eligible Employees and, upon such terms and
conditions as the Committee may determine, grant Non-statutory Stock Options in
exchange for and upon surrender of previously granted Awards under the Plan.
Non-statutory Stock Options granted under this Plan are subject to the terms and
conditions set forth in this Section 7.
4
<PAGE>
(c) Option Agreement. Each Option shall be evidenced by a written option
agreement between the Bank and the Employee specifying the number of shares of
Common Stock that may be acquired through its exercise and containing such other
terms and conditions that are not inconsistent with the terms of this grant. The
maximum number of shares subject to a Non-statutory Option that may be awarded
under the Plan to any Employee shall be 40,000.
(d) Price. The purchase price per share of Common Stock deliverable upon
the exercise of each Non-statutory Stock Option shall be determined by the
Committee on the date the Option is granted. Except as provided below, such
purchase price shall not be less than 100% of the Fair Market Value of the
Bank's Common Stock on the date the Option is granted. The purchase price per
share of Common Stock deliverable upon the exercise of each Non-statutory Stock
Option granted in exchange for and upon surrender of previously granted awards
shall be not less than 100% of the Fair Market Value of the Bank's Common Stock
on the date the Option is granted, but in no event may the purchase price of any
Non-statutory Stock Option be less than the par value of the Common Stock.
Shares may be purchased only upon full payment of the purchase price. Payment of
the purchase price may be made, in whole or in part, through the surrender of
shares of the Common Stock of the Bank at the Fair Market Value of such shares
determined in the manner described in Section 2.
(e) Manner of Exercise. Non-statutory Stock Options granted under the
Stock Option Plan shall vest in a Participant at the rate of twenty percent
(20%) per year commencing from the Date of Grant. The vested Option may be
exercised from time to time, in whole or in part, by delivering a written notice
of exercise to the President or Chief Executive Officer of the Bank. Such notice
is irrevocable and must be accompanied by full payment of the purchase price in
cash or shares of previously acquired Common Stock of the Bank at the Fair
Market Value of such shares determined on the exercise date by the manner
described in Section 2 hereof.
(f) Terms of Options. The term during which each Non-statutory Stock
Option may be exercised shall be determined by the Committee, but in no event
shall a Non-statutory Stock Option be exercisable in whole or in part more than
10 years and one day from the Date of Grant. The Non-statutory Options awarded
to Employees shall be exercisable in installments, as determined by the
Committee. The Committee shall determine the date on which each installment
shall become exercisable. The shares comprising each installment may be
purchased in whole or in part at any time after such installment becomes
exercisable. The Committee, in its sole discretion, may accelerate the time at
which any Non-statutory Stock Option awarded to Employees may be exercised in
whole or in part. Notwithstanding the above, in the event of a Change in Control
of the Bank or the Company, all Non-statutory Stock Options shall become
immediately exercisable.
(g) Termination of Employment or Service. Upon the termination of an
Employee's employment or upon termination of an Outside Director's service for
any reason other than Disability, death, Normal Retirement or Termination for
Cause, the Employee's or Outside Director's Non-statutory Stock Options shall be
exercisable only as to those shares that were immediately purchasable by the
Employee or Outside Directors at the date of termination and only for a period
of one year following termination. For purposes of determining the date of
termination of an Outside Director's service, service as a Director Emeritus of
the Bank following termination from the Board of Directors will not cause a
Participant to incur a termination of service and such Participant will continue
to vest in his or her award until termination of service as a Director Emeritus.
In the event of Termination for Cause, all rights under his Non-statutory Stock
Options shall expire upon termination. In the event of the death, Disability or
Normal Retirement of any Employee or Outside Director, all Non-statutory Stock
Options held by such Employee or Outside Director, whether or not exercisable at
such time, shall be exercisable by such person or his legal representatives or
beneficiaries for one year following the date of his death or cessation of
employment or service, as applicable, provided that in no event shall the period
extend beyond the expiration of the Non-statutory Stock Option term.
Notwithstanding the above, all Non-statutory Options held by a Participant whose
employment as an Employee or service as an Outside Director terminates following
a Change in Control of the Bank or the Company shall be deemed earned as of the
last day of employment or service with the Bank or an Affiliate and shall be
exercisable for one year following such termination of employment or service.
5
<PAGE>
8. INCENTIVE STOCK OPTIONS
8.1 GRANT OF INCENTIVE STOCK OPTIONS
The Committee, from time to time, may grant Incentive Stock Options to
eligible Employees. Incentive Stock Options granted pursuant to the Plan shall
be subject to the following terms and conditions:
(a) Option Agreement. Each Option shall be evidenced by a written option
agreement between the Bank and the Employee specifying the number of shares of
Common Stock that may be acquired through its exercise and containing such other
terms and conditions that are not inconsistent with the terms of this grant.
(b) Price. The purchase price per share of Common Stock deliverable upon
the exercise of each Incentive Stock Option shall be not less than 100% of the
Fair Market Value of the Bank's Common Stock on the date the Incentive Stock
Option is granted. However, if an Employee owns stock possessing more than 10%
of the total combined voting power of all classes of Common Stock of the Bank
(or under Section 424(d) of the Code, is deemed to own stock representing more
than 10% of the total combined voting power of all classes of stock of the Bank
or its Affiliates by reason of the ownership of such classes of common stock
directly or indirectly, by or for any brother, sister, spouse, ancestor or
lineal descendant of such Employee or by or for any corporation, partnership,
estate or trust or which such employee is a shareholder, partner or
beneficiary), the purchase price per share of Common Stock deliverable upon the
exercise of each Incentive Stock Option shall not be less than 110% of the Fair
Market Value of the Bank's Common Stock on the date the Incentive Stock Option
is granted. Shares may be purchased only upon payment of the full purchase
price. Payment of the purchase price may be made, in whole or in part, through
the surrender of shares of the Common Stock of the Bank. If previously acquired
shares of Common Stock are tendered in payment of all or part of the exercise
price, the value of such shares shall be determined as of the date of exercise
of the Incentive Stock Option.
(c) Manner of Exercise. Incentive Stock Options granted under the Stock
Option Plan shall vest in a Participant at the rate of twenty percent (20%) per
year commencing from the date of grant. The vested Option may be exercised from
time to time, in whole or in part, by delivering a written notice of exercise to
the President or Chief Executive Officer of the Bank, provided, however, that no
Options shall be exercisable prior to approval of the Plan by stockholders. Such
notice is irrevocable and must be accompanied by full payment of the purchase
price in cash or shares of previously acquired Common Stock of the Bank. If
previously acquired shares of Common Stock are tendered in payment of all or
part of the exercise price, the Fair Market Value of such shares shall be
determined as of the date of such exercise of the Incentive Stock Option.
(d) Amount of Options. Incentive Stock Options may be granted to any
eligible Employee in such amounts as determined by the Committee; provided that
the amount granted is consistent with the terms of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). Notwithstanding the above, the
maximum number of shares that may be subject to an Incentive Stock Option
awarded under the Plan to any Employee shall be 40,000. In granting Incentive
Stock Options, the Committee shall consider the position and responsibilities of
the eligible Employee, the length and value of his or her service to the Bank,
the compensation paid to the Employee and the Committee's evaluation of the
performance of the Bank according to measurements that include, among others,
key financial ratios, levels of classified assets, and independent audit
findings. In the case of an option intended to qualify as an Incentive Stock
Option, the aggregate Fair Market Value (determined as of the time the option is
granted) of the Common Stock with respect to which Incentive Stock Options
granted are exercisable for the first time by the Participant during any
calendar year (under all plans of the Participant's employer corporation and its
parent and subsidiary corporations) shall not exceed $100,000. The provisions of
this Section 8.1(d) shall be construed and applied in accordance with Section
422(d) of the Code and the regulations, if any, promulgated thereunder.
(e) Term of Options. The term during which each Incentive Stock Option may
be exercised shall be determined by the Committee, but in no event shall an
Incentive Stock option be exercisable in whole or in part more than 10 years
from the Date of Grant. If any Employee, at the time an Incentive Stock Option
is granted to him, owns Common Stock representing more than 10% of the total
combined voting power of the Bank or its Affiliates
6
<PAGE>
(or, under Section 424(d) of the Code, is deemed to own Common Stock
representing more than 10% of the total combined voting power of all such
classes of Common Stock, by reason of the ownership of such classes of Common
Stock, directly or indirectly, by or for any brother, sister, spouse, ancestor
or lineal descendent of such Employee, or by or for any corporation,
partnership, estate or trust of which such Employee is a shareholder, partner or
beneficiary), the Incentive Stock Option granted to him or her shall not be
exercisable after the expiration of five years from the Date of Grant. No
Incentive Stock Option granted under this Plan is transferable except by will or
the laws of descent and distribution and is exercisable during his lifetime only
by the Employee to which it is granted.
The Committee shall determine the date on which each Incentive Stock
Option shall become exercisable and may provide that an Incentive Stock Option
shall become exercisable in installments. The shares comprising each installment
may be purchased in whole or in part at any time after such installment becomes
purchasable, provided that the amount able to be first exercised in a given year
is consistent with the terms of Section 422 of the Code. To the extent required
by Section 422 of the Code, the aggregate fair market value (determined at the
time the Option is granted) of the Common Stock for which Incentive Stock
Options are exercisable for the first time by a Participant during any calendar
year (under all plans of the Bank and its Affiliates) shall not exceed $100,000.
The Committee, in its sole discretion, may accelerate the time at which any
Incentive Stock Option may be exercised in whole or in part; provided that it is
consistent with the terms of Section 422 of the Code. Notwithstanding the above,
in the event of a Change in Control of the Bank or Company, all Incentive Stock
Options shall become immediately exercisable unless the fair market value of the
amount exercisable as a result of a Change in Control shall exceed $100,000
(determined as of the date of grant). In such event, the first $100,000 of
Incentive Stock Options (determined as of the date of grant) shall be
exercisable as Incentive Stock Options and any excess shall be exercisable as
Non-statutory Stock Options.
(f) Termination of Employment. Upon the termination of an Employee's
employment for any reason other than Normal Retirement, Disability, Change in
Control, death or Termination for Cause, his or her Incentive Stock Options
shall be exercisable only as to those shares which were immediately purchasable
by him at the date of termination and only for a period of three months
following termination. In the event of Termination for Cause all rights under
his or her Incentive Stock Options shall expire upon termination.
In the event of death or Disability, termination in the event of a Change
in Control or Normal Retirement, all Incentive Stock Options held by an
Employee, whether or not exercisable at such time, shall be exercisable by such
Employee or his legal representatives or beneficiaries for one year following
the date of his death or cessation of employment; provided, however, that, in
the case of Normal Retirement or termination in the event of a Change in
Control, such Options shall not be eligible for treatment as Incentive Stock
Options in the event such Options are exercised more than three months following
the date of the Change in Control. In no event shall the exercise period extend
beyond the expiration of the Incentive Stock Option term.
(g) Compliance with Code. The Options granted under this Section 8 of the
Plan are intended to qualify as Incentive Stock Options within the meaning of
Section 422 of the Code, but the Bank makes no warranty as to the qualification
of any Option as an incentive stock option within the meaning of Section 422 of
the Code. If an Option granted hereunder fails for whatever reason to comply
with the provisions of Section 422 of the Code and such failure is not or cannot
be cured, such Option shall be a Non-statutory Stock Option.
9. LIMITED RIGHTS
9.1 GRANT OF LIMITED RIGHTS
The Committee may grant a Limited Right simultaneously with the grant of
any Option to any Employee of the Bank, with respect to all or some of the
shares covered by such Option. Limited Rights granted under this Plan are
subject to the following terms and conditions:
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(a) Terms of Rights. In no event shall a Limited Right be exercisable in
whole or in part before the expiration of six months from the date of grant of
the Limited Right. A Limited Right may be exercised only in the event of a
Change in Control of the Bank.
The Limited Right may be exercised only when the underlying Option is
eligible to be exercised, provided that the Fair Market Value of the underlying
shares on the day of exercise is greater than the exercise price of the related
Option.
Upon exercise of a Limited Right, the related Option shall cease to be
exercisable. Upon exercise or termination of an Option, any related Limited
Rights shall terminate. The Limited Rights may be for no more than 100% of the
difference between the exercise price and the Fair Market Value of the Common
Stock subject to the underlying Option. The Limited Right is transferable only
when the underlying Option is transferable and under the same conditions.
(b) Payment. Upon exercise of a Limited Right, the holder shall promptly
receive from the Bank an amount of cash equal to the difference between the Fair
Market Value on the Date of Grant of the related Option and the Fair Market
Value of the underlying shares on the date the Limited Right is exercised,
multiplied by the number of shares with respect to which such Limited Right is
being exercised. In the event of a Change in Control in which pooling accounting
treatment is a condition to the transaction, the Limited Right shall be
exercisable solely for shares of stock of the Bank, or in the event of a merger
transaction, for shares of the acquiring corporation, or its parent, as
applicable. The number of shares to be received on the exercise of such Limited
Right shall be determined by dividing the amount of cash that would have been
available under the first sentence above by the Fair Market Value at the time of
exercise of the shares underlying the Option subject to the Limited Right.
10. SURRENDER OF OPTION
In the event of a Participant's termination of employment or termination
of service as a result of death or Disability, the Participant (or his personal
representative(s), heir(s), or devisee(s)) may, in a form acceptable to the
Committee, make application to surrender all or part of the Options held by such
Participant in exchange for a cash payment from the Bank of an amount equal to
the difference between the Fair Market Value of the Common Stock on the date of
termination of employment and the exercise price per share of the Option on the
Date of Grant. Whether the Bank accepts such application or determines to make
payment, in whole or in part, is within its absolute and sole discretion, it
being expressly understood that the Bank is under no obligation to any
Participant whatsoever to make such payments. In the event that the Bank accepts
such application and determines to make payment, such payment shall be in lieu
of the exercise of the underlying Option and such Option shall cease to be
exercisable.
11. RIGHTS OF A SHAREHOLDER; NON-TRANSFERABILITY
An optionee shall have no rights as a shareholder with respect to any
shares covered by a Non-statutory and/or Incentive Stock Option until the date
of issuance of a stock certificate for such shares. Nothing in this Plan or in
any Award granted confers on any person any right to continue in the employ of
the Bank or its Affiliates or to continue to perform services for the Bank or
its Affiliates or interferes in any way with the right of the Bank or its
Affiliates to terminate his or her services as an officer or other employee at
any time.
No Award under the Plan shall be transferable by the optionee other than
by will or the laws or descent and distribution and may only be exercised during
his or her lifetime by the optionee, or by a guardian or legal representative.
12. AGREEMENT WITH GRANTEES
Each Award of Options, and/or Limited Rights will be evidenced by a
written agreement, executed by the Participant and the Bank or its Affiliates
that describes the conditions for receiving the Awards including the date of
Award, the purchase price if any, applicable periods, and any other terms and
conditions as may be required by the Board of Directors or applicable securities
law.
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13. DESIGNATION OF BENEFICIARY
A Participant, with the consent of the Committee, may designate a person
or persons to receive, in the event of death, any Option or Limited Rights Award
to which he or she would then be entitled. Such designation will be made upon
forms supplied by and delivered to the Bank and may be revoked in writing. If a
Participant fails effectively to designate a Beneficiary, then his estate will
be deemed to be the Beneficiary.
14. DILUTION AND OTHER ADJUSTMENTS
In the event of any change in the outstanding shares of Common Stock of
the Bank by reason of any stock dividend or split, recapitalization, merger,
consolidation, spin-off, reorganization, combination or exchange of shares, or
other similar corporate change, or other increase or decrease in such shares
without receipt or payment of consideration by the Bank, the Committee will make
such adjustments to previously granted Awards, to prevent dilution or
enlargement of the rights of the Participant, including any or all of the
following:
(a) adjustments in the aggregate number or kind of shares of Common Stock
which may be awarded under the Plan;
(b) adjustments in the aggregate number or kind of shares of Common Stock
covered by Awards already made under the Plan;
(c) subject to Section 8.1(b) hereof, adjustments in the purchase price of
outstanding Incentive and/or Non-statutory Stock Options, or any Limited
Rights attached to such options.
No such adjustments, however, may change materially the value of benefits
available to a Participant under a previously granted Award.
15. LIMITATIONS UPON EXERCISE OF OPTIONS
Notwithstanding any other provision of the Plan, so long as the Company
remains in the mutual form of organization and so long as any applicable statute
or regulation requires the Company to own at least a majority of the outstanding
Common Stock of the Bank, an Option granted under this Plan may not be exercised
if the exercise of such an Option would result in the Company owning less than a
majority of the Common Stock of the Bank. Nothing herein shall preclude the Bank
from issuing additional authorized but unissued shares of Common Stock to the
Company to allow for the exercise or options which would otherwise have resulted
in the Company owning less than a majority of the Common Stock of the Bank.
16. TREATMENT OF OPTIONS IN THE EVENT OF A CONVERSION TRANSACTION
In the event that the Company converts to stock form in a Conversion
Transaction ("Stock Holding Company"), any Options outstanding shall, at the
option of the holder, (i) be convertible into Options for Common Stock of the
Stock Holding Company, or (ii) if vested, be exercised by the holder prior to
the effective date of the Conversion Transaction and the holder shall be
entitled to exchange, in the same manner as other minority stockholders of the
Bank, the shares of Common Stock of the Bank received upon such exercise for
shares of Common Stock of the Stock Holding Company. If for any reason such
options are not to be converted or such shares are not exchanged, the holders of
Options under this Plan shall receive cash payment for the shares of stock
represented by the Options in an amount equal to the fair market value of the
underlying Options or the initial offering price of the Common Stock of the
Stock Holding Company for which the Common Stock underlying the Option would
otherwise be exchanged, less the original exercise price of such options and,
with respect to options that have been exercised, the Stock Holding Company
shall redeem such shares for cash in the same manner as such redemption would
occur for other minority stockholders of the Bank. Any exchange, conversion of
Options, or cash payment for shares shall be subject to applicable federal and
state regulations and, if necessary, subject to the approval of the appropriate
regulatory authorities.
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17. WITHHOLDING
There may be deducted from each distribution of cash and/or Common Stock
under the Plan the amount of tax required by any governmental authority to be
withheld.
18. AMENDMENT OF THE PLAN
The Board of Directors may at any time, and from time to time, modify or
amend the Plan in any respect; provided, however, that if necessary to continue
to qualify the Plan under the Securities and Exchange Commission Rule 16b-3, the
approval by a majority of the shares represented in person or by proxy at an
annual or special meeting of the Bank shall be required for any such
modification or amendment that:
(a) increases the maximum number of shares for which options may be
granted under the Plan (subject, however, to the provisions of Section 14
hereof);
(b) reduces the exercise price at which Awards may be granted (subject,
however, to the provisions of Sections 8.1(a) and 14 hereof);
(c) extends the period during which options may be granted or exercised
beyond the times originally prescribed (subject, however, to the
provisions of Section 8.1(a) hereof); or
(d) changes the persons eligible to participate in the Plan.
Failure to ratify or approve amendments or modifications to subsections
(a) through (d) of this Section 18 by shareholders shall be effective only as to
the specific amendment or modification requiring such ratification. Other
provisions, sections, and subsections of this Plan will remain in full force and
effect.
No such termination, modification or amendment may affect the rights of a
Participant under an outstanding Award.
19. APPROVAL BY STOCKHOLDERS
The Plan shall be approved by stockholders of the Bank. No Options shall
be granted pursuant to the Plan prior to such stockholder approval.
20. EFFECTIVE DATE OF PLAN
The Plan shall become effective upon the date adopted by the Board of
Directors, following the approval of stockholders (the "Effective Date").
21. TERMINATION OF THE PLAN
The right to grant Awards under the Plan will terminate upon the earlier
of ten (10) years after the Effective Date of the issuance of Common Stock or
the date on which the exercise of Options or related rights equaling the maximum
number of shares reserved under the Plan occurs as set forth in Section 5
hereof. The Board of Directors has the right to suspend or terminate the Plan at
any time; provided that no such action will, without the consent of a
Participant, affect adversely his rights under a previously granted Award.
22. APPLICABLE LAW
The Plan will be administered in accordance with the laws of the State of
New Jersey.
10
FIRST SAVINGS BANK OF NEW JERSEY, S.L.A.
AND BAYONNE BANKSHARES, M.H.C.
1995 RECOGNITION AND RETENTION PLAN, AS AMENDED
1. ESTABLISHMENT OF THE PLAN.
First Savings Bank of New Jersey, S.L.A. (the "Bank") and Bayonne
Bankshares, M.H.C. (the "Company") hereby establishes the 1995 Recognition and
Retention Plan (the "Plan") upon the terms and conditions herinafter stated in
this Recognition Plan.
2. PURPOSE OF THE PLAN.
The purpose of the Plan is to retain Employees and Outside Directors of
experience and ability by providing such persons with a proprietary interest in
the Bank as compensation for their contributions to the Bank and the Company and
its Affiliates and as an incentive to make such contribution and to promote the
Bank's growth and profitability in the future.
3. DEFINITIONS.
The following words and phrases when used in this Plan with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meanings set forth below. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural:
"AFFILIATE" means any "parent corporation" or "subsidiary corporation" of
the Bank or the Company, as such terms are defined in Section 424(e) and (f),
respectively, of the code.
"AWARD" means the grant by the Committee of Restricted Stock, as provided
in the Plan.
"BANK" means First Savings Bank of New Jersey, S.L.A.
"BENEFICIARY" means the person or persons designated by a Recipient to
receive any benefits payable under the Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or if none, his estate.
"BOARD" means the Board of Directors of the Bank and the Company, as
applicable.
"CAUSE" shall mean personal dishonesty, incompetence, willful misconduct,
any breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, the willful violation of any law, rule or regulation
(other than traffic violations or similar
<PAGE>
offenses) or a final cease-and-desist order. In the case of an Outside Director,
Cause means a removal for cause pursuant to the Bank's Bylaws.
"CHANGE IN CONTROL" means:
(1) (i) a reorganization, merger, merger conversion, consolidation or sale
of all or substantially all of the assets of the Bank or the Company or a
similar transaction in which the Bank or Company is not the resulting entity or
the Stock Holding Company is not the resulting entity; (ii) individuals who
constitute the board of directors of the Bank or the board of trustees of the
Company as of 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-fourths of the directors composing the Incumbent Board or whose
nomination for election by the Bank's or Company's stockholders or members was
approved by the same Nominating Committee serving under an Incumbent Board shall
be for purposes of this section considered as though he were a member of the
Incumbent Board; or (iii) an acquisition of "control" of the Bank or the Company
as defined by the Bank Holding Company Act of 1956, as amended, and applicable
rules and regulations promulgated thereunder as in effect at the time of the
Change in Control (collectively, the "BHCA"), or (iv) an acquisition of the
Bank's stock requiring submission of notice under the Change in Bank Control
Act;
(2) In the event the Company converts from the mutual form of organization
to the stock form of organization (the "Stock Holding Company") at any time
subsequent to the effective date of this Plan, a "Change in Control" shall mean,
a change in control of the Bank or the Stock Holding Company of a nature that:
(i) would be required to be reported in response to Item 1a 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 Stock Holding Company within
the meaning of the BHCA; or (iii) without limitation, such a change in control
shall be deemed to have occurred at such time as (a) any "person" (as such term
is used in Section 13(d) or 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 Stock Holding Company
representing 25% or more of the Bank's or Stock Holding Company's outstanding
securities ordinarily having the right to vote at the election of directors,
except for any securities of the Bank issued to the Stock Holding Company in
connection with the Reorganization and Stock Offering pursuant to the Bank's
Plan of Reorganization and Stock Issuance and securities purchased by the Bank's
or the Stock Holding Company's employee stock benefit plans; or (b) the
Incumbent Board ceases for any reason to constitute at least a majority of the
board of directors of the Bank or Stock Holding Company; or (c) a
reorganization, merger, consolidation, sale of all or substantially all of the
assets of the Bank or the Stock Holding Company or similar transaction.
(3) Notwithstanding anything to the contrary, the conversion of the
Holding Company to stock form on a stand-alone basis, shall not be a Change in
Control.
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<PAGE>
(4) Notwithstanding, the foregoing, a "Change in Control" of the Bank or
the Company shall not be deemed to have occurred if the Company ceases to own at
least 51% of all outstanding shares of stock of the Bank in connection with a
conversion of the Company from mutual to stock form.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Stock Benefits Committee of the Board which shall
consist of at least three Outside Directors of the Bank or the Company, all of
whom are and must be "disinterested directors," as that term is defined under
rule 16b-3 of the Securities Exchange Act of 1934.
"COMPANY" means Bayonne Bankshares, M.H.C., the mutual holding company of
the Bank.
"COMMON STOCK" means shares of the common stock, par value of $0.10 per
share, of the Bank.
"CONTINUOUS SERVICE" means the absence of any interruption or termination
of service as an Employee of the Bank, the Company or an Affiliate. Service
shall not be considered interrupted in the case of sick leave, military leave or
any other leave of absence approved by the Bank or in the case of transfers
between payroll locations of the Bank or between the Bank, its parent, its
subsidiaries or its successor. For the purposes of determining Continuous
Service, an Outside Director who terminates service on the Board of Directors
but who continues to serve the Bank or Company as a Director Emeritus will not
be deemed to have a termination of service under the Plan.
"CONVERSION TRANSACTION" means the conversion of the Company from the
mutual to stock form of organization either on a stand-alone basis or in the
context of a merger conversion, as provided by regulations of the Office of
Thrift Supervision ("OTS").
"DIRECTOR" means any director of the Bank, the Company or an Affiliate.
"DIRECTOR EMERITUS" means a former Director of the Bank, who in
recognition of his or her past contributions to the Bank, has been titled as a
director emeritus of the Bank.
"DISABILITY" means the permanent and total inability by reason of mental
or physical infirmity, or both, of an employee to perform the work customarily
assigned to him. Additionally, a medical doctor selected or approved by the
Board must advise the Committee that it is either not possible to determine when
such Disability will terminate or that it appears probable that such Disability
will be permanent during the remainder of said Participant's lifetime.
"EFFECTIVE DATE" shall be the date adopted by the Board of Directors,
following the approval of stockholders.
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"EMPLOYEE" means any person who is employed by the Bank or its Affiliates,
including officers.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"INCUMBENT BOARD" means, in the case of (i) the Company or the Stock
Holding Company, or (ii) the Bank, the Board of Directors of the Company or the
Bank, respectively, on the date hereof, 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 members or stockholders was approved by the
same nominating committee serving under an Incumbent Board, shall be considered
as though he were a member of the Incumbent board.
"NORMAL RETIREMENT" with respect to an Employee means retirement at the
normal or early retirement date as set forth in the Bank's Employee Stock
Ownership Plan, or any successor plan. However, "Normal Retirement" will not
have been deemed to have occurred for purposes of this Plan if a participant
continues to serve as a consultant to the Board of Directors of the Bank or its
Affiliates even if such participant is receiving retirement benefits under any
retirement plan of the Bank or its Affiliates. With respect to an Outside
Director, Normal Retirement means termination of service from the Board of
Directors of the Bank or its Affiliates following written notice to the Board of
Directors as a whole of such Outside Director's intention to retire, except that
an Outside Director shall not have been deemed to have "retired" for purposes of
the Plan in the event he or she continues to serve as a consultant to the Board
of Directors of the Bank or its Affiliates or as an advisory director or
director emeritus, including pursuant to any retirement plan of the Bank.
"OFFERING" means the initial public offering by the Bank of up to 49.9% of
the number of shares of Common Stock that will be outstanding after such
Offering.
"OUTSIDE DIRECTOR" means any non-employee director of the Bank, the
company or an Affiliate.
"PLAN" means the First Savings Bank of New Jersey, S.L.A. and Bayonne
Bankshares, M.H.C. 1995 Recognition and Retention Plan.
"RECIPIENT" means an Employee or Director of the Bank who receives a
Restricted Stock Award under the Plan.
"REORGANIZATION" means the reorganization of First Savings Bank of New
Jersey, S.L.A. as a mutual holding company and the establishment of the Bank as
a wholly-owned subsidiary.
"RESTRICTED PERIOD" means the period of time selected by the Committee for
the purpose of determining when restrictions are in effect under Section 6
hereof with respect to Restricted Stock awarded under the Plan.
4
<PAGE>
"RESTRICTED STOCK" means shares which have been contingently awarded to a
Recipient by the Committee subject to the restrictions referred to in Section 6
hereof, so long as such restrictions are in effect.
"STOCK HOLDING COMPANY" means the holding company resulting from a stock
conversion of the Company in a Conversion Transaction.
4. ADMINISTRATION OF THE PLAN.
4.01 ROLE OF THE COMMITTEE. The Plan shall be administered and interpreted
by the Committee, which shall have all of the powers allocated to it in this and
other Sections of the Plan. The interpretation and construction by the Committee
of any provisions of the Plan or of any Restricted Stock Award granted hereunder
shall be final and binding. The Committee shall act by vote or written consent
of a majority of its members. Subject to the express provisions and limitations
of the Plan, the Committee may adopt such rules, regulations and procedures as
it deems appropriate for the conduct of its affairs. The Committee shall report
its actions and decisions with respect to the Plan to the Board at appropriate
times, but in no event less than one time per calendar year.
4.02 ROLE OF THE BOARD. The members of the Committee shall be appointed or
approved by, and will serve at the pleasure of the Board. The board may in its
discretion from time to time remove members from, or add members to, the
Committee. The Board shall have all of the powers allocated to it in this and
other Sections of the Plan, may take any action under or with respect to the
Plan which the Committee is authorized to take, and may reverse or override any
action taken or decision made by the Committee under or with respect to the
Plan, provided, however, that except as provided in Section 6.05, the Board may
not revoke any Restricted Stock Award except in the event of Revocation for
Cause, or with respect to unearned Restricted Stock Awards in the event a
Recipient of a Restricted Stock Award voluntarily terminates employment.
4.03 PLAN ADMINISTRATION RESTRICTIONS. This plan is intended to comply
with Rule 16b-3 under the Securities Exchange Act of 1934. Notwithstanding any
term to the contrary appearing in this Plan, unless permitted by Rule
16b-3(c)(2)(ii), subsequent to the establishment of the Plan, the Committee, and
the Board of Directors shall not have the authority to determine the amount and
price of securities to be awarded and/or timing of awards to Outside Directors
which terms shall be set forth in the Plan. To the extent any provision of the
Plan or Action by Plan administrators fails to comply with this Section, such
provision or action shall be deemed null and void to the extent permitted by law
and deemed advisable by the Board of Directors.
4.04 LIMITATION ON LIABILITY. No member of the Board or the Committee
shall be liable for any determination made in good faith with respect to the
Plan or any Restricted Stock Awards granted under it. If a member of the board
or the Committee is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of anything done or not done
by him in such capacity under or with respect to the Plan, the Bank shall
5
<PAGE>
indemnify such member against expense (including attorney's fees), judgements,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in the best interests of the Bank, the
Company and its Affiliates and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
5. ELIGIBILITY; AWARDS
5.01 ELIGIBILITY. Employees and Outside Directors of the Bank, the Company
and its Affiliates are eligible to receive Restricted Stock Awards.
5.02 AWARDS TO EMPLOYEES. The Committee may determine which of the
Employees referenced in Section 5.01 will be granted Restricted Stock Awards and
the number of Shares covered by each Award; provided, however, the in no event
shall any Awards be made that will violate the Plan, the Charter, Bylaws or Plan
of Reorganization from Mutual Savings Bank to Mutual Holding Company and Stock
Issuance Plan of the Bank or any applicable federal or state law or regulation.
Shares of Restricted Stock which are awarded by the Committee shall, on the date
of the Award, be registered in the name of the Recipient and transferred to the
Recipient, in accordance with the terms and conditions established under this
Plan. The total number of shares that will be awarded or reserved for Employees
under this Plan shall be 36,941 shares, or approximately 2.7% of the number of
shares issued in the Offering.
In the event Restricted Stock is forfeited for any reason, the Committee,
from time to time, may determine which of the Employees referenced in Section
5.01 will be granted additional Restricted Stock Awards to be awarded from
forfeited Restricted Stock. In selecting those Employees to whom Restricted
Stock Awards will be granted and the number of Restricted Stock covered by such
Awards, the Committee shall consider the position and responsibilities of the
eligible Employees, the length and value of their services to the Bank and its
Affliates, the compensation paid to the Employees and any other factors the
Committee may deem relevant, and the Committee may request the written
recommendation of the Chief Executive Officer and other senior executive
officers of the Bank, the Company and its Affiliates. All allocations by the
Committee shall be subject to review, and approval or rejection, by the Board.
No restricted Stock shall be earned unless the Employee maintains
Continuous Service with the Bank, the Company or any Affiliate until the
restrictions lapse.
5.03 AWARDS TO OUTSIDE DIRECTORS. Each Outside Director serving on the
Board of Directors of the Bank, the Company or its Affiliate on the Effective
Date shall be issued a Restricted Stock Award equal to 2,716 shares of
Restricted Stock. The total number of shares that will be awarded or reserved
for Outside Directors under this Plan shall be 17,380 shares, or approximately
1.3% of the number of shares issued in the Offering.
6
<PAGE>
Any person who becomes an Outside Director of the Bank or Company or an
Affiliate subsequent to the date of approval of this Plan by stockholders shall
receive an Award of Restricted Stock equal to 1,000 shares, subject to
availability.
No Restricted Stock shall be earned by an Outside Director unless the
Outside Director maintains Continuous Service with the Bank, the Company or
Affiliate until the restrictions lapse.
5.04 MANNER OF AWARD. As promptly as practicable after a determination is
made pursuant to Sections 5.02 and 5.03 that a Restricted Stock Award has been
granted, the Committee shall notify the Recipient in writing of the grant of the
Award, the number of shares of Restricted Stock covered by the Award, and the
terms upon which the Restricted Stock subject to the Award may be earned. Upon
notification of an Award of Restricted Stock, the Recipient shall execute and
return to the Bank a restricted stock agreement setting forth the terms and
conditions under which the Recipient shall earn the Restricted Stock (the
"Restricted Stock Agreement"), together with a stock power endorsed in blank.
Thereafter, the Recipient's Restricted Stock and stock power shall be deposited
with an escrow agent specified by the Bank (the "Escrow Agent") who shall hold
such Restricted Stock under the terms and conditions set forth in the Restricted
Stock Agreement. Each certificate in respect of shares of Restricted Stock
awarded under the Plan shall be registered in the name of the Recipient.
5.05 TREATMENT OF FORFEITED SHARES. In the event shares of Restricted
Stock are forfeited by a Recipient hereunder, such shares shall be returned to
the Bank and shall be held and accounted for by the Bank pursuant to the terms
of the Plan until such time as the Committee re-awards such shares to another
Recipient, in accordance with the terms of the Plan and the applicable state and
federal laws, rules and regulations.
6. TERMS AND CONDITIONS OF RESTRICTED STOCK.
The Committee shall have full and complete authority, subject to the
limitations of the Plan, to grant awards of Restricted Stock and, in addition to
the terms and conditions contained in paragraphs 6.01 through 6.09 of this
Section 6, to provide such other terms and conditions (which need not be
identical among Recipients) in respect of such Awards, and the vesting thereof,
as the Committee shall determine.
6.01 GENERAL RULES. Unless the Committee shall specifically state to the
contrary at the time a Restricted Stock Award is granted, Restricted Stock shall
be earned by an Employee at the rate of twenty percent (20%) of the aggregate
number of shares covered by the Award at the end of each full twelve months of
consecutive employment with the Bank, the Company or Affiliate after the date of
grant of the Award; provided, however, that the Committee may provide for a less
or more rapid earnings rate than set forth herein for any or all Awards awarded
subsequent to the date of this Plan, subject to the prior written approval of
the OTS if required, and provided further, that no shares shall be earned for
any year in which the Bank is not meeting all of its fully phased-in capital
requirements. Restricted Stock Awards granted to Outside Directors shall be
earned by an Outside Director at the rate of
7
<PAGE>
twenty percent (20%) of the aggregate number of shares covered by the Award at
the end of each full twelve months of consecutive service with the Bank or an
Affiliate after the date of grant of the Award. Subject to any such other terms
and conditions as the Committee shall provide, shares of Restricted Stock may
not be sold, assigned, transferred, pledged or otherwise encumbered by the
Recipient, except as hereinafter provided, during the Restricted Period. The
Committee shall have the authority, in its discretion subject to the prior
approval of the OTS, if required, to accelerate the time at which any or all of
the restrictions shall lapse with respect to shares issued to Employees, or to
remove any or all of such restrictions, whenever it may determine that such
action is appropriate by reason of changes in applicable tax or other laws or
other changes in circumstances occurring after the commencement of such
Restricted Period.
6.02 CONTINUOUS SERVICE; FORFEITURE. Except as provided in Section 6.04
hereof, if a Recipient ceases to maintain Continuous Service for any reason
(other than death or Disability as provided in Section 6.03), unless the
Committee shall otherwise determine, all shares of Restricted Stock theretofore
awarded to such Recipient and which at the time of such termination of
Continuous Service are subject to the restrictions imposed by Section 6.01 shall
upon such termination of Continuous Service be forfeited and returned to Trust.
6.03 EXCEPTION FOR TERMINATION DUE TO DEATH, DISABILITY OR NORMAL
RETIREMENT. Notwithstanding the general rule contained in 6.01, Restricted
Shares awarded to a Recipient whose employment with the Bank or an Affiliate
terminates due to death, Disability or Normal Retirement, or any part of an
Award of Restricted Stock that has not theretofore been earned, shall be deemed
earned as of the Recipient's last day of employment with the Bank or an
Affiliate, or last day of service on the Board of the Bank or an Affiliate.
6.04 EXCEPTION FOR TERMINATIONS AFTER A CHANGE IN CONTROL. Notwithstanding
the general rule contained in Section 6.01, all Restricted Stock subject to a
Restricted Stock Award held by a Recipient whose employment as an Employee or
service as an Outside Director of the Bank, the Company or Affiliate terminates
following a Change in Control of the Bank or the Company shall be deemed earned
as of the Recipient's last day of employment or service with the Bank or an
Affiliate.
6.05 REVOCATION FOR CAUSE. Notwithstanding anything hereinafter to the
contrary, the Board may by resolution immediately revoke, rescind and terminate
any Restricted Stock Award, or portion thereof, previously awarded under this
Plan, to the extent Restricted Stock has not been redelivered by the Escrow
Agent to the Recipient, whether or not yet earned, in the case of an Employee
whose employment is terminated by the Bank, the Company or Affiliate for cause
(as hereinafter defined), or who is discovered after termination of employment
to have engaged in conduct that would have justified termination for Cause.
6.06 RESTRICTED STOCK LEGEND. Each certificate in respect of shares of
Restricted Stock awarded under the Plan shall be registered in the name of the
Recipient and deposited by the Recipient, together with a stock power endorsed
in blank, with the Escrow Agent and shall bear the following (or a similar)
legend:
8
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"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and conditions
(including forfeiture) contained in the First Savings Bank of New
Jersey, S.L.A. and Bayonne Bankshares, M.H.C. 1995
Recognition and Retention Plan. Copies of such Plan are on file
in the offices of the Secretary of First Savings Bank of New
Jersey, S.L.A., 568 Broadway, Bayonne, New Jersey 07002-
3896"
6.07 PAYMENT OF DIVIDENDS. After a Restricted Stock Award has been granted
but before such Award has been earned, the Recipient shall receive any cash
dividends or stock dividends paid with respect to such shares. Unless the
Recipient has made an election under Section 83(b) of the Internal Revenue Code,
any dividends so paid on shares which have not yet been earned by the Recipient
shall be treated as compensation income to the Recipient when paid.
6.08 VOTING OF RESTRICTED SHARES. After a Restricted Stock Award has been
granted, the Recipient as owner of such shares shall have the right to vote such
shares.
6.09 DELIVERY OF EARNED SHARES. At the expiration of the restrictions
imposed by Section 6.01, the Escrow Agent shall redeliver to the Recipient (or
where the relevant provision of Section 6.02 applies in the case of a deceased
Recipient, to his Beneficiary, the certificate(s) and stock power deposited with
it pursuant to Section 6.04 and the shares represented by such certificate(s)
shall be free of the restrictions referred to in Section 6.01.
6.10 STOCK SUBJECT TO THE PLAN. Shares necessary to satisfy awards of
Restricted Stock may be authorized but unissued shares of the Bank, or shares of
common stock purchased by the Bank or the Company on the open market. The
Company may use dividends received from the Bank to fund the purchase in the
open market of shares necessary to satisfy awards hereunder.
7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
In the event of any change in the outstanding shares subsequent to the
effective date of the Plan by reason of any reorganization (other than the
Reorganization), recapitalization, stock split, stock dividend, combination or
exchange of shares, merger, consolidation or any change in the corporate
structure or shares of the Bank, the maximum aggregate number and class of
shares as to which Awards may be granted under the Plan shall be appropriately
adjusted by the Committee, whose determination shall be conclusive. Any shares
of stock or other securities received, as a result of any of the foregoing, by a
Recipient with respect to Restricted Stock shall be subject to the same
restrictions and the certificate(s) or other instruments representing or
evidencing such shares or securities shall be legended and deposited with the
Bank in the manner provided in Section 6.06 hereof.
9
<PAGE>
8. ASSIGNMENTS AND TRANSFERS.
No Award nor any right or interest of a Recipient under the Plan in any
instrument evidencing any Award under the Plan may be assigned, encumbered or
transferred except, in the event of the death of a Recipient, by will or the
laws of descent and distribution.
9. EMPLOYEE RIGHTS UNDER THE PLAN.
No Employee shall have a right to be selected as a Recipient nor, having
been so selected, to be selected again as a Recipient and no Employee or other
person shall have any claim or right to be granted an Award under the Plan or
under any other incentive or similar plan of the Bank or any Affiliate. Neither
the Plan nor any action taken thereunder shall be construed as giving any
Employee any right to be retained in the employ of the Bank or any Affiliate.
10 WITHHOLDING TAX.
Upon the termination of the Restricted Period with respect to any shares
of Restricted Stock (or at any such earlier time, if any, that an election is
made by the Employee under Section 83(b) of the Code, or any successor provision
thereto, to include the value of such shares in taxable income), the Bank shall
have the right to require the Employee or other person receiving such shares to
pay the Bank the amount of any taxes which the Bank is required to withhold with
respect to such shares, or, in lieu thereof, to retain or sell without notice, a
sufficient number of shares held by it to cover the amount required to be
withheld. The Bank shall have the right to deduct from all dividends paid with
respect to shares of Restricted Stock the amount of any taxes which the Bank is
required to withhold with respect to such dividend payments.
11. TREATMENT OF RESTRICTED STOCK IN THE EVENT OF CONVERSION TRANSACTION.
In the event that the Company converts to stock form in a Conversion
Transaction, any Restricted Stock shall be exchanged into shares of Common Stock
of the Stock Holding Company, provided, however, that if for any reason such
shares are not to be exchanged, the Stock Holding Company shall, simultaneously
with the closing of the Conversion Transaction, purchase Restricted Stock for
cash equal to the fair market value of such Restricted Stock or Shares. Any
exchange of shares or cash payment for shares shall be subject to applicable
federal and state regulations and, if necessary, subject to the approval of the
appropriate Regulatory authorities.
12. AMENDMENT OR TERMINATION.
The Board of Directors of the Bank or the Company may amend, suspend or
terminate the Plan or any portion thereof at any time, but (except as provided
in Section 6 hereto) no amendment shall be made without approval of the
stockholders of the Bank which shall (i) materially increase the aggregate
number of shares with respect to which Awards may be made under the plan, (ii)
materially increase the aggregate number of shares which may be
10
<PAGE>
subject to Awards to Recipients who are not Employees or (iii) change the class
of persons eligible to participate in the Plan; provided, however, that no such
amendment, suspension or termination shall impair the rights of any Recipient,
without his consent, in any Award theretofore made pursuant to the Plan.
13. GOVERNING LAW.
The Plan shall be governed by federal law and the laws of the State of New
Jersey.
14. TERM OF PLAN.
The Plan shall become effective upon its adoption by the Board of
Directors of the Bank, following the approval of the Plan by stockholders. It
shall continue in effect for a term of fifteen years unless sooner terminated
under Section 12 hereof.
FIRST SAVINGS BANK OF NEW JERSEY, S.L.A.
EMPLOYEE STOCK OWNERSHIP PLAN
(adopted effective January 1, 1995)
<PAGE>
CONTENTS
Page No.
Section 1. Plan Identity.......................................... 1
1.1 Name................................................... 1
1.2 Purpose................................................ 1
1.3 Effective Date ........................................ 1
1.4 Fiscal Period ......................................... 1
1.5 Single Plan for All Employers.......................... 1
1.6 Interpretation of Provisions........................... 1
Section 2. Definitions............................................ 2
Section 3. Eligibility for Participation.......................... 11
3.1 Initial Eligibility.................................... 11
3.2 Definition of Eligibility Year......................... 11
3.3 Terminated Employees .................................. 11
3.4 Certain Employees Ineligible........................... 11
3.5 Participation and Reparticipation..................... 11
Section 4. Employer Contributions and Credits..................... 12
4.1 Discretionary Contributions............................ 12
4.2 Contributions for Stock Obligations.................... 12
4.3 Definitions Related to Contributions................... 13
4.4 Conditions as to Contributions......................... 14
Section 5. Limitations on Contributions and Allocations .......... 14
5.1 Limitation on Annual Additions ........................ 14
5.2 Coordinated Limitation With Other Plans................ 15
5.3 Effect of Limitations.................................. 16
5.4 Limitations as to Certain Participants................. 17
Section 6 Trust Fund and Its Investment.......................... 17
6.1 Creation of Trust Fund................................. 17
6.2 Stock Fund and Investment Fund........................ 18
6.3 Acquisition of Stock................................... 18
6.4 Participants' Option to Diversify ..................... 19
Section 7. Voting Rights and Dividends on Stock................... 20
7.1 Voting and Tendering of Stock.......................... 20
7.2 Dividends on Stock..................................... 21
<PAGE>
Page No.
Section 8. Adjustments to Accounts ............................... 22
8.1 Adjustments for Transactions.......................... 22
8.2 Valuation of Investment Fund........................... 22
8.3 Adjustments for Investment Experience.................. 23
Section 9. Vesting of Participants' Interests .................... 23
9.1 Deferred Vesting in Accounts........................... 23
9.2 Computation of Vesting Years........................... 23
9.3 Full Vesting Upon Certain Events....................... 24
9.4 Full Vesting Upon Plan Termination..................... 25
9.5 Forfeiture, Repayment, and Restoral.................... 25
9.6 Accounting for Forfeitures............................. 26
9.7 Vesting and Nonforfeitability.......................... 26
Section 10. Payment of Benefits.................................... 26
10.1 Benefits for Participants.............................. 26
10.2 Benefits on a Participant's Death...................... 27
10.3 Marital Status......................................... 28
10.4 Delay in Benefit Determination......................... 29
10.5 Accounting for Benefit Payments........................ 29
10.6 Options to Receive and Sell Stock...................... 29
10.7 Restrictions on Disposition of Stock................... 31
10.8 Continuing Loan Provisions; Creations of Protections
and Rights .......................................... 31
10.9 Direct Rollover of Eligible Distribution............... 31
Section 11. Rules Governing Benefit Claims and Review of Appeals .. 32
11.1 Claim for Benefits.................................... 32
11.2 Notification by Committee.............................. 32
11.3 Claims Review Procedure................................ 33
Section 12. The Committee and Its Functions........................ 33
12.1 Authority of Committee................................. 33
12.2 Identity of Committee.................................. 34
12.3 Duties of Committee.................................... 34
12.4 Valuation of Stock .................................... 35
12.5 Compliance with ERISA ................................. 35
12.6 Action by Committee.................................... 35
12.7 Execution of Documents................................. 35
12.8 Adoption of Rules...................................... 35
12.9 Responsibilities to Participants....................... 35
12.10 Alternative Payees in Event of Incapacity.............. 36
12.11 Indemnification by Employers........................... 36
12.12 Nonparticipation by Interested Member.................. 37
<PAGE>
Page No.
Section 13. Adoption Amendment or Termination of the Plan ......... 37
13.1 Adoption of Plan by Other Employers.................... 37
13.2 Adoption of Plan by Successor ......................... 37
13.3 Plan Adoption Subject to Qualification................. 37
13.4 Right to Amend or Terminate............................ 38
Section 14. Miscellaneous Provisions............................... 39
14.1 Plan Creates No Employment Rights...................... 39
14.2 Nonassignability of Benefits........................... 39
14.3 Limit of Employer Liability............................ 40
14.4 Treatment of Expenses.................................. 40
14.5 Number and Gender...................................... 40
14.6 Nondiversion of Assets................................. 40
14.7 Separability of Provisions ............................ 40
14.8 Service of Process .................................... 40
14.9 Governing State Law ................................... 40
14.10 Employer Contributions Conditioned on Deductibility ... 40
14.11 Unclaimed Accounts..................................... 41
14.12 Qualified Domestic Relations Order .................... 41
Section 15. Top-Heavy Provisions................................... 42
15.1 Top-Heavy Plan ........................................ 42
15.2 Super Top-Heavy Plan .................................. 43
15.3 Definitions ........................................... 43
15.4 Top-Heavy Rules of Application......................... 44
15.5 Top-Heavy Ratio........................................ 46
15.6 Minimum Contributions.................................. 46
15.7 Minimum Vesting........................................ 47
15.8 Maximum Compensation................................... 47
15.9 Top Heavy Provisions Control in Top-Heavy Plan......... 47
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY, S.L.A
EMPLOYEE STOCK OWNERSHIP PLAN
This Employee Stock Ownership Plan, executed on the 9th day of January,
1995, by First Savings Bank of New Jersey, S.L.A., a New Jersey chartered stock
savings and loan association (the "Bank"),
W I T N E S S E T H T H A T
WHEREAS, the board of directors of the Bank has resolved to adopt an
employee stock ownership plan for eligible employees in accordance with the
terms and conditions presented to the directors;
NOW, THEREFORE, the Bank hereby adopts the following Plan setting forth the
terms and conditions pertaining to contributions by the Employer and the payment
of benefits to Participants and Beneficiaries, effective January 1, 1995.
IN WITNESS WHEREOF, the Bank has adopted this Plan and caused this
instrument to be executed by its duly authorized officers as of the above date.
ATTEST:
/s/ Thomas Coughlin By: /s/ Patrick F.X. Nilan
- ------------------------ --------------------------------------
Secretary President and Chief Executive Officer
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY, S.L.A.
EMPLOYEE STOCK OWNERSHIP PLAN
SECTION 1. PLAN IDENTITY.
1.1 NAME. The name of this Plan is "First Savings Bank of New Jersey,
S.L.A. Employee Stock Ownership Plan."
1.2 PURPOSE. The purpose of this Plan is to describe the terms and
conditions under which contributions made pursuant to the Plan will be credited
and paid to the Participants and their Beneficiaries.
1.3 EFFECTIVE DATE. The Effective Date of this Plan is January 1, 1995.
1.4 FISCAL PERIOD. This Plan shall be operated on the basis of a January 1
to December 31 fiscal year for the purpose of keeping the Plan's books and
records and distributing or filing any reports or returns required by law.
1.5 SINGLE PLAN FOR ALL EMPLOYERS. This Plan shall be treated as a single
plan with respect to all participating Employers for the purpose of crediting
contributions and forfeitures and distributing benefits, determining whether
there has been any termination of Service, and applying the limitations set
forth in Section 5.
1.6 INTERPRETATION OF PROVISIONS. The Employers intend this Plan and the
Trust to be a qualified stock bonus plan under Section 401(a) of the Code and an
employee stock ownership plan within the meaning of Section 407(d)(6) of ERISA
and Section 4975(e)(7) of the Code. The Plan is intended to have its assets
invested primarily in qualifying employer securities of one or more Employers
within the meaning of Section 407(d)(3) of ERISA, and to satisfy any requirement
under ERISA or the Code applicable to such a plan.
Accordingly, the Plan and Trust Agreement shall be interpreted and applied
in a manner consistent with this intent and shall be administered at all times
and in all respects in a nondiscriminatory manner.
<PAGE>
SECTION 2. DEFINITIONS.
The following capitalized words and phrases shall have the meanings
specified when used in this Plan and in the Trust Agreement, unless the context
clearly indicates otherwise:
"ACCOUNT" means a Participant's interest in the assets accumulated under
this Plan as expressed in terms of a separate account balance which is
periodically adjusted to reflect his Employer's contributions, the Plan's
investment experience, and distributions and forfeitures.
"ACTIVE PARTICIPANT" means any Employee who has satisfied the eligibility
requirements of Section 3 and who qualifies as an Active Participant for a
particular Plan Year under Section 4.3.
"BANK" means First Savings Bank of New Jersey, S.L.A., and any entity which
succeeds to the business of First Savings Bank of New Jersey, S.L.A. and adopts
this Plan as its own pursuant to Section 14.2.
"BENEFICIARY" means the person or persons who are designated by a
Participant to receive benefits payable under the Plan on the Participant's
death. In the absence of any designation or if all the designated Beneficiaries
shall die before the Participant dies or shall die before all benefits have been
paid, the Participant's Beneficiary shall be his surviving spouse, if any, or
his estate if he is not survived by a spouse. The Committee may rely upon the
advice of the Participant's executor or administrator as to the identity of the
Participant's spouse.
"BREAK IN SERVICE" means any Vesting Year in which an Employee has 500 or
fewer Hours of Service. Solely for this purpose, an Employee shall be considered
employed for his normal hours of paid employment during a Recognized Absence,
unless he does not resume his Service at the end of the Recognized Absence.
Further, if an Employee is absent for any period beginning on or after January
1, 1985, (i) by reason of the Employee's pregnancy, (ii) by reason of the birth
of the Employee's child, (iii) by reason of the placement of a child with the
Employee in connection with the Employee's adoption of the child, or (iv) for
purposes of caring for such child for a period beginning immediately after such
birth
2
<PAGE>
or placement, the Employee shall be credited with the Hours of Service which
would normally have been credited but for such absence, up to a maximum of 501
Hours of Service.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee responsible for the administration of this
Plan in accordance with Section 12.
"DISABILITY" means only a disability which renders the Participant totally
unable, as a result of bodily or mental disease or injury, to perform any duties
for an Employer for which he is reasonably fitted, which disability is expected
to be permanent or of long and indefinite duration. However, this term shall not
include any disability directly or indirectly resulting from or related to
habitual drunkenness or addiction to narcotics, a criminal act or attempt,
service in the armed forces of any country, an act of war, declared or
undeclared, any injury or disease occurring while compensation to the
Participant is suspended, or any injury which is intentionally self-inflicted.
Further, this term shall apply only if (i) the Participant is sufficiently
disabled to qualify for the payment of disability benefits under the federal
Social Security Act or Veterans Disability Act, or (ii) the Participant's
disability is certified by a physician selected by the Committee. Unless the
Participant is sufficiently disabled to qualify for disability benefits under
the federal Social Security Act or Veterans Disability Act, the Committee may
require the Participant to be appropriately examined from time to time by one or
more physicians chosen by the Committee, and no Participant who refuses to be
examined shall be treated as having a Disability. In any event, the Committee's
good faith decision as to whether a Participant's Service has been terminated by
Disability shall be final and conclusive.
"EARLY RETIREMENT" means retirement on or after a Participant's attainment
of age 55 and the completion of ten years of Service for an Employer.
"EFFECTIVE DATE" means January 1, 1995.
"EMPLOYEE" means any individual who is or has been employed or
self-employed by an Employer. "Employee" also means an individual employed by a
leasing organization who, pursuant to an
3
<PAGE>
agreement between an Employer and the leasing organization, has performed
services for the Employer and any related persons (within the meaning of Section
414(n)(6) of the Code) on a substantially full-time basis for more than one
year, if such services are of a type historically performed by employees in the
Employer's business field. However, such a "leased employee" shall not be
considered an Employee if (i) he participates in a money purchase pension plan
sponsored by the leasing organization which provides for immediate
participation, immediate full vesting, and an annual contribution of at least 10
percent of the Employee's Total Compensation, and (ii) leased employees do not
constitute more than 20 percent of the Employer's total work force (including
leased employees, but excluding Highly Paid Employees and any other employees
who have not performed services for the Employer on a substantially full-time
basis for at least one year).
"EMPLOYER" means the Bank or any affiliate within the purview of section
414(b), (c) or (m) and 415(h) of the Code, any other corporation, partnership,
or proprietorship which adopts this Plan with the Bank's consent pursuant to
Section 13.1, and any entity which succeeds to the business of any Employer and
adopts the Plan pursuant to Section 13.2.
"ENTRY DATE" means the Effective Date of the Plan and each January 1 and
July 1 of each Plan Year.
"ERISA" means the Employee Retirement Income Security Act of 1974 (P.L.
93-406, as amended).
"HIGHLY PAID EMPLOYEE" for any Plan Year means an Employee who, during
either of that or the immediately preceding Plan Year, (i) owned more than five
percent of the outstanding equity interest or the outstanding voting interest in
any Employer, (ii) had Total Compensation exceeding $75,000 (as adjusted
pursuant to section 415(d) of the Code), (iii) had Total Compensation exceeding
$50,000 (as adjusted pursuant to section 415(d) of the Code) and was among the
most highly compensated one-fifth of all Employees, or (iv) was at any time an
officer of an Employer and had Total Compensation
4
<PAGE>
exceeding $45,000 (or 50 percent of the currently applicable dollar limit under
Section 415(b)(1)(A) of the Code). For this purpose:
(a) "Total Compensation" shall include any amount which is excludable
from the Employee's gross income for tax purposes pursuant to Sections 125,
402(a)(8), 402(h)(1)(B), or 403(b) of the Code.
(b) The number of Employees in "the most highly compensated one-fifth
of all Employees" shall be determined by taking into account all
individuals working for all related Employer entities described in the
definition of "Service", but excluding any individual who has not completed
six months of Service, who normally works fewer than 17-1/2 hours per week
or in fewer than six months per year, who has not reached age 21, whose
employment is covered by a collective bargaining agreement, or who is a
nonresident alien who receives no earned income from United States sources.
(c) The number of individuals counted as "officers" shall not be more
than the lesser of (i) 50 individuals and (ii) the greater of 3 individuals
or 10 percent of the total number of Employees. If no officer earns more
than $45,000 (or the adjusted limit), then the highest paid officer shall
be a Highly Paid Employee.
(d) A former employee shall be treated as a highly compensated
employee if such employee was a highly paid employee when such employee
separated from service, or if such employee was a highly paid employee at
any time after attaining age 55.
"HOURS OF SERVICE" means hours to be credited to an Employee under the
following rules:
(a) Each hour for which an Employee is paid or is entitled to be paid
for services to an Employer is an Hour of Service.
(b) Each hour for which an Employee is directly or indirectly paid or
is entitled to be paid for a period of vacation, holidays, illness,
disability, lay-off, jury duty, temporary military duty, or leave of
absence is an Hour of Service. However, except as otherwise specifically
provided, no more than 501 Hours of Service shall be credited for any
single continuous period which an Employee performs no duties. Further, no
Hours of Service shall be credited on account of payments made solely under
a plan maintained to comply with worker's compensation, unemployment
compensation, or disability insurance laws, or to reimburse an Employee for
medical expenses.
(c) Each hour for which back pay (ignoring any mitigation of damages)
is either awarded or agreed to by an Employer is an Hour of Service.
However, no more than 501 Hours of Service shall be credited for any single
continuous period during which an Employee would not have performed any
duties.
(d) Hours of Service shall be credited in any one period only under
one of the foregoing paragraphs (a), (b) and (c); an Employee may not get
double credit for the same period.
(e) If an Employer finds it impractical to count the actual Hours of
Service for any class or group of non-hourly Employees, each Employee in
that class or group shall be credited with 45 Hours of Service for each
weekly pay period in which he has at least one Hour of
5
<PAGE>
Service. However, an Employee shall be credited only for his normal working
hours during a paid absence.
(f) Hours of Service to be credited on account of a payment to an
Employee (including back pay) shall be recorded in the period of Service
for which the payment was made. If the period overlaps two or more Plan
Years, the Hours of Service credit shall be allocated in proportion to the
respective portions of the period included in the several Plan Years.
However, in the case of periods of 31 days or less, the Administrator may
apply a uniform policy of crediting the Hours of Service to either the
first Plan Year or the second.
(g) In all respects an Employee's Hours of Service shall be counted as
required by Section 2530.200b-2(b) and (c) of the Department of Labor's
regulations under Title I of ERISA.
"INVESTMENT FUND" means that portion of the Trust Fund consisting of assets
other than Stock.
"NORMAL RETIREMENT" means retirement on or after the later of a
Participant's 65th birthday or fifth year of Service for the Employer.
"PARTICIPANT" means any Employee who is participating in the Plan, or who
has previously participated in the Plan and still has a balance credited to his
Account.
"PLAN YEAR" means the plan year commencing January 1, 1995 and ending
December 31, 1995 and each period of 12 consecutive months beginning on January
1 of each succeeding year.
"RECOGNIZED ABSENCE" means a period for which --
(a) an Employer grants an Employee a leave of absence for a limited
period, but only if an Employer grants such leave on a nondiscriminatory
basis; or
(b) an Employee is temporarily laid off by an Employer because of a
change in business conditions; or
(c) an Employee is on active military duty, but only to the extent
that his employment rights are protected by the Military Selective Service
Act of 1967 (38 U.S.C. Sec. 2021).
"SERVICE" means an Employee's period(s) of employment or self-employment
with an Employer, excluding for initial eligibility purposes any period in which
the individual was a nonresident alien and did not receive from an Employer any
earned income which constituted income from sources within the United States. An
Employee's Service shall include any service which constitutes service with a
predecessor employer within the meaning of Section 414(a) of the Code. An
Employee's Service shall also include any service with an entity which is not an
Employer, but only either (i) for a period after 1975
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in which the other entity is a member of a controlled group of corporations or
is under common control with other trades and businesses within the meaning of
Section 414(b) or 414(c) of the Code, and a member of the controlled group or
one of the trades and businesses is an Employer, (ii) for a period after 1979 in
which the other entity is a member of an affiliated service group within the
meaning of Section 414(m) of the Code, and a member of the affiliated service
group is an Employer, or (iii) all employers aggregated with the Employer under
Section 414(o) of the Code (but not until the Proposed Regulations under Section
414(o) become effective).
"SPOUSE" means the individual, if any, to whom a Participant is lawfully
married on the date benefit payments to the Participant are to begin, or on the
date of the Participant's death, if earlier.
"STOCK" means shares of the Bank's voting common stock or preferred stock
meeting the requirements of Section 409(e)(3) of the Code issued by an Employer
or an affiliated corporation.
"STOCK FUND" means that portion of the Trust Fund consisting of Stock.
"STOCK OBLIGATION" means an indebtedness arising from any extension of
credit to the Plan or the Trust which was obtained for the purpose of buying
Stock and which satisfies the requirements set forth in Section 6.3.
"TOTAL COMPENSATION" (a) shall mean:
(i) A Participant's wages, salaries, fees for professional
services and other amounts received (without regard to whether an
amount is paid in cash) for personal services actually rendered
in the course of employment with the Employer while a Participant
in the Plan (including, but not limited to, commissions paid to
salesmen, compensation for services on the basis of a percentage
of profits, commissions on insurance premiums, tips, bonuses,
severance payments and amounts paid as a result of termination,
and any deferred compensation contributions made to this or any
other Section 401(k) Plan on behalf of the Participants), taxable
fringe benefits, reimbursements and expense
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allowances under a nonaccountable plan (as described in Section
1.62-2(c) of the Treasury Regulations).
(ii) Amounts described in sections 104(a)(3), 105(a), and
105(h), but only to the extent that these amounts are includable
in the gross income of the employee.
(iii) Amounts paid or reimbursed by the employer for moving
expenses incurred by an employee, but only to the extent that at
the time of payment it is reasonable to believe that these
amounts are not deductible by the employee under section 217.
(iv) The value of a non-qualified stock option granted to an
employee by the employer, but only to the extent that the value
of the option is includable in the gross income of the employee
for the taxable year in which granted.
(v) The amount includable in the gross income of an employee
upon making the election described in section 83(b).
(b) The term "Total Compensation" does not include items such as:
(i) Contributions made by the Employer to a Plan of deferred
compensation to the extent that before the application of Section
415 limitations to the Plan, the contributions are not includable
in the gross income of the Employee for the taxable year in which
contributed, except for deferred compensation contributions made
by the Employer to a Section 401(k) Plan on behalf of the
Participant. However, for purposes of computing Code Section 415
annual additions, deferred compensation contributions made by the
Employer to a Section 401(k) Plan on behalf of a Participant
shall be deducted from Total Compensation. In addition, Employer
contributions made on behalf of an Employee to a simplified
employee pension plan described in Code Section
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408(k) are not considered as compensation for the taxable year in
which contributed to the extent such contributions are deductible
by the Employee under Code Section 219(b)(7). Additionally, any
distributions from a Plan of deferred compensation are not
considered as compensation for Code Section 415 purposes,
regardless of whether such amounts are includable in the gross
income of the Employee when distributed. However, any amounts
received by an Employee pursuant to an unfunded non-qualified
Plan may be considered as compensation for Code Section 415
purposes in the year such amounts are includable in the gross
income of the Employee.
(ii) Amounts realized from the exercise of a non-qualified
stock option, or when restricted stock (or property) held by an
Employee either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture.
(iii) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option.
(iv) Other amounts which receive special tax benefits, such
as premiums for group term life insurance (but only to the extent
that the premiums are not includable in the gross income of the
Employee), or contributions made by the Employer (whether or not
under a salary reduction agreement) towards the purchase of an
annuity contract described in Code Section 403(b) (whether or not
the contributions are excludable from the gross income of the
Employee).
(c) For Plan years beginning after December 31, 1993, compensation in
excess of $150,000 (as indexed) shall be disregarded for all Participants.
Such amount shall be adjusted for increases in the cost of living in
accordance with Section 401(a)(17)(B) of the Code, effective for the Plan
Year which begins within the applicable calendar year. For purposes of the
$150,000
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limit, compensation shall be prorated over short plan years. In determining
the compensation of a Participant for purposes of this limitation, the
rules of Code Section 414(q)(6) shall apply, except as set forth in Section
4.3 hereof. If as a result of the application of such rules, the adjusted
$150,000 limitation is exceeded, then the limitation shall be prorated
among the affected individuals in proportion to each such individual's
compensation, as determined under this Section prior to the application of
this limitation.
"TRUST" or "TRUST FUND" means the trust fund created under this Plan.
"TRUST AGREEMENT" means the agreement between the Bank and the Trustee
concerning the Trust Fund. If any assets of the Trust Fund are held in a
co-mingled trust fund with assets of other qualified retirement plans, "Trust
Agreement" shall be deemed to include the trust agreement governing that
co-mingled trust fund. With respect to the allocation of investment
responsibility for the assets of the Trust Fund, the provisions of Section 2.4
of the Trust Agreement are incorporated herein by reference.
"TRUSTEE" means one or more corporate persons or individuals selected from
time to time by the Bank to serve as trustee or co-trustees of the Trust Fund.
"UNALLOCATED STOCK FUND" means that portion of the Stock Fund consisting of
the Plan's holding of stock which have been acquired in exchange for one or more
Stock obligations and which have not yet been allocated to the Participant's
Accounts in accordance with Section 4.2.
"VALUATION DATE" means the last day of the Plan Year and each other date as
of which the committee shall determine the investment experience of the
Investment Fund and adjust the Participants' accounts accordingly.
"VALUATION PERIOD" means the period following a Valuation Date and ending
with the next Valuation Date.
"VESTING YEAR" means a unit of Service credited to a Participant pursuant
to Section 9.2 for purposes of determining his vested interest in his Account.
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SECTION 3. ELIGIBILITY FOR PARTICIPATION.
3.1 INITIAL ELIGIBILITY. An Employee shall enter the Plan as of the Entry
Date coinciding with or next following the later of the following dates:
(a) the last day of the Employee's first Eligibility Year, and
(b) the Employee's 21st birthday. However, if an Employee is not in
active Service with an Employer on the date he would otherwise first enter
the Plan, his entry shall be deferred until the next day he is in Service.
3.2 DEFINITION OF ELIGIBILITY YEAR. An "Eligibility Year" means an
applicable eligibility period (as defined below) in which the Employee has
completed 1,000 Hours of Service for the Employer. For this purpose:
(a) an Employee's first "eligibility period" is the 12-consecutive
month period beginning on the first day on which he has an Hour of Service, and
(b) his subsequent eligibility periods will be 12-consecutive month
periods beginning on each January 1 after that first day of Service.
3.3 TERMINATED EMPLOYEES. No Employee shall have any interest or rights
under this Plan if he is never in active Service with an Employer on or after
the Effective Date.
3.4 CERTAIN EMPLOYEES INELIGIBLE. No Employee shall participate in the Plan
while his Service is covered by a collective bargaining agreement between an
Employer and the Employee's collective bargaining representative if (i)
retirement benefits have been the subject of good faith bargaining between the
Employer and the representative and (ii) the collective bargaining agreement
does not provide for the Employee's participation in the Plan. No Employee shall
participate in the Plan while he is actually employed by a leasing organization
rather than an Employer.
3.5 PARTICIPATION AND REPARTICIPATION. Subject to the satisfaction of the
foregoing requirements, an Employee shall participate in the Plan during each
period of his Service from the date on which he first becomes eligible until his
termination. For this purpose, an Employee returning within five years of his or
her termination who previously satisfied the initial eligibility requirements
shall re-enter the Plan as of the date of his return to Service with an
Employer.
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SECTION 4. EMPLOYER CONTRIBUTIONS AND CREDITS.
4.1 DISCRETIONARY CONTRIBUTIONS. The Employer shall from time to time
contribute, with respect to a Plan Year, such amounts as it may determine from
time to time. The Employer shall have no obligation to contribute any amount
under this Plan except as so determined in its sole discretion. The Employer's
contributions and available forfeitures for a Plan Year shall be credited as of
the last day of the year to the Accounts of the Active Participants in
proportion to their amounts of Cash Compensation.
4.2 CONTRIBUTIONS FOR STOCK OBLIGATIONS. If the Trustee, upon instructions
from the Committee, incurs any Stock Obligation upon the purchase of Stock, the
Employer shall contribute for each Plan Year an amount sufficient to cover all
payments of principal and interest as they come due under the terms of the Stock
Obligation. If there is more than one Stock Obligation, the Employer shall
designate the one to which any contribution is to be applied. The Employer's
obligation to make contributions under this Section 4.2 shall be reduced to the
extent of any investment earnings realized on such contributions and any
dividends paid by the Employer on Stock held in the Unallocated Stock Account,
which earnings and dividends shall be applied to the Stock Obligation related to
that Stock.
In each Plan Year in which Employer contributions, earnings on
contributions, or dividends on unallocated Stock are used as payments under a
Stock Obligation, a certain number of shares of the Stock acquired with that
Stock Obligation which is then held in the Unallocated Stock Fund shall be
released for allocation among the Participants. The number of shares released
shall bear the same ratio to the total number of those shares then held in the
Unallocated Stock Fund (prior to the release) as (i) the principal and interest
payments made on the Stock Obligation in the current Plan Year bears to (ii) the
sum of (i) above, and the remaining principal and interest payments required (or
projected to be required on the basis of the interest rate in effect at the end
of the Plan Year) to satisfy the Stock Obligation.
At the direction of the Committee, the current and projected payments of
interest under a Stock Obligation may be ignored in calculating the number of
shares to be released in each year if (i) the Stock Obligation provides for
annual payments of principal and interest at a cumulative rate that is not less
rapid
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at any time than level annual payments of such amounts for 10 years, (ii) the
interest included in any payment is ignored only to the extent that it would be
determined to be interest under standard loan amortization tables, and (iii) the
term of the Stock Obligation, by reason of renewal, extension, or refinancing,
has not exceeded 10 years from the original acquisition of the Stock.
For these purposes, each Stock Obligation, the Stock purchased with it, and
any dividends on such Stock, shall be considered separately. The Stock released
from the Unallocated Stock Fund in any Plan Year shall be credited as of the
last day of the year to the Accounts of the Active Participants in proportion to
their amounts of Cash Compensation.
4.3 DEFINITIONS RELATED TO CONTRIBUTIONS. For the purposes of this Plan,
the following terms have the meanings specified:
"ACTIVE PARTICIPANT" means a Participant who has satisfied the eligibility
requirements under Section 3. However, a Participant shall not qualify as an
Active Participant unless (i) he is in active Service with an Employer as of the
last day of the Plan Year and has completed 1,000 Hours of Service with the
Employer in the Plan Year, or (ii) he is on a Recognized Absence as of that
date, or (iii) his Service terminated during the Plan Year by reason of Normal
Retirement, Early Retirement, Disability or death.
"CASH COMPENSATION" A Participant's Cash Compensation shall mean a
participant's Total Compensation as defined in Section 2 of the Plan, and shall
also include amounts contributed under a salary reduction agreement pursuant to
Section 401(k) or Section 125 of the Code.
In determining the Cash Compensation of a Participant for purposes of this
limitation, the rules of Code Section 414(q)(6) shall apply, except in applying
such rules, the term "family" shall include only the spouse of the Participant
and any lineal descendants of the Participant who have not attained age 19 years
before the close of the year. If as a result of the application of such rules
the adjusted $150,000 limitation is exceeded, then the limitation shall be
prorated among the affected individuals in proportion
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to each individual's compensation, as determined under this Section prior to the
application of this limitation.
4.4 CONDITIONS AS TO CONTRIBUTIONS. Employers' contributions shall in all
events be subject to the limitations set forth in Section 5. Contributions may
be made in the form of cash, or securities and other property to the extent
permissible under ERISA, including Stock, and shall be held by the Trustee in
accordance with the Trust Agreement. In addition to the provisions of Section
13.3 for the return of an Employer's contributions in connection with a failure
of the Plan to qualify initially under the Code, any amount contributed by an
Employer due to a good faith mistake of fact, or based upon a good faith but
erroneous determination of its deductibility under Section 404 of the Code,
shall be returned to the Employer within one year after the date on which the
contribution was originally made, or within one year after its nondeductibility
has been finally determined. However, the amount to be returned shall be reduced
to take account of any adverse investment experience within the Trust Fund in
order that the balance credited to each Participant's Account is not less that
it would have been if the contribution had never been made.
SECTION 5. LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS.
5.1 LIMITATION ON ANNUAL ADDITIONS. Notwithstanding anything herein to the
contrary, allocation of Employer contributions for any Plan Year shall be
subject to the following:
5.1-1 If allocation of Employer contributions in accordance with
Section 4.1 will result in an allocation of more than one-third the total
contributions for a Plan Year to the accounts of Highly Paid Employees,
then allocation of such amount shall be adjusted so that such excess will
not occur.
5.1-2 After adjustment, if any, required by the preceding paragraph,
the annual additions during any Plan Year to any Participant's Account
under this and any other defined contribution plans maintained by the
Employer or an affiliate (within the purview of Section 414(b), (c) and (m)
and Section 415(h) of the Code, which affiliate shall be deemed the
Employer for this purpose) shall not exceed the lesser of $30,000 (or such
other dollar amount which results from cost-of-living adjustments under
Section 415(d) of the Code) or "25 percent of the Participant's Total
Compensation for such limitation year." In the event that annual additions
exceed the aforesaid limitations, they shall be reduced in the following
priority:
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(i) allocation of any excess to the accounts of the other
Participants in proportion to the Compensation of said other
Participants until the accounts of said other Participants reach the
limits of the first sentence of this paragraph,
(ii) any additional amount shall be held in the Trust for
allocation to Participants accounts in later years in proportion to
Compensation in later years, such allocation to occur as rapidly as
may be done without violating the limits of the first sentence of this
paragraph (b).
5.1-3 For purposes of this Section 5.1 and the following Section 5.2,
the "annual addition" to a Participant's accounts means the sum of (i)
employer contributions, (ii) employee contributions, if any, and (iii)
forfeitures. Annual additions to a defined contribution plan also include
amounts allocated, after March 31, 1984, to an individual medical account,
as defined in Section 415(1)(2) of the Internal Revenue Code, which is part
of a pension or annuity plan maintained by the Employer, amounts derived
from contributions paid or accrued after December 31, 1985, in taxable
years ending after such date, which are attributable to post-retirement
medical benefits allocated to the separate account of a Key Employee under
a welfare benefit fund, as defined in Section 419A(d) of the Internal
Revenue Code, maintained by the Employer. The $30,000 limitations referred
to shall, for each limitation year ending after 1988, be automatically
adjusted to the new dollar limitations determined by the Commissioner of
Internal Revenue for the calendar year beginning in that limitation year.
5.1-4 Notwithstanding the foregoing, if no more than one-third of the
Employer Contributions to the Plan for a year which are deductible under
Section 404(a)(9) of the Code are allocated to Highly Paid Employees
(within the meaning of Section 414(q) of the Internal Revenue Code), the
limitations imposed herein shall not apply to:
(i) forfeitures of employer securities (within the meaning of
Section 409 of the Code) under the Plan if such securities were
acquired with the proceeds of a loan described in Section 404(a)(9)(A)
of the Code), or
(ii) Employer Contributions to the Plan which are deductible
under Section 404(a)(9)(B) and charged against a Participant's
account.
5.1-5 If the Employer contributes amounts, on behalf of Employees
covered by this Plan, to other "defined contribution plans" as defined in
Section 3(34) of ERISA, the limitation on annual additions provided in this
Section shall be applied to annual additions in the aggregate to this Plan
and to such other plans. Reduction of annual additions, where required,
shall be accomplished first by reductions under such other plan pursuant to
the directions of the named Fiduciary for administration of such other
plans or under priorities, if any, established under the terms of such
other plans and then by allocating any remaining excess for this Plan in
the manner and priority set out above with respect to this Plan."
5.1-6 A limitation year shall mean each 12 consecutive month period
beginning each January 1.
5.2 COORDINATED LIMITATION WITH OTHER PLANS. Aside from the limitation
prescribed by Section 5.1 with respect to the annual addition to a Participant's
accounts for any single limitation year,
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if a Participant has ever participated in one or more defined benefit plans
maintained by an Employer or an affiliate, then the annual additions to his
accounts shall be limited on a cumulative basis so that the sum of his defined
contribution plan fraction and his defined benefit plan fraction does not exceed
one. For this purpose:
5.2-1 A Participant's defined contribution plan fraction with respect
to a Plan Year shall be a fraction, (i) the numerator of which is the sum
of the annual additions to his accounts through the current year, and (ii)
the denominator of which is the sum of the lesser of the following amounts
-A- and -B- determined for the current limitation year and each prior
limitation year of Service with an Employer: -A- is 1.25 times the dollar
limit in effect for the year under Section 415(c)(1)(A) of the Code, or 1.0
times such dollar limitation if the Plan is top-heavy, and -B- is 35
percent of the Participant's Total Compensation for such year. Further, if
the Participant participated in any related defined contribution plan in
any years beginning before 1976, any-excess of the sum of the actual annual
additions to the Participant's accounts for those years over the maximum
annual additions which could have been made in accordance with Section 5.1
shall be ignored, and voluntary contributions by the Participant during
those years shall be taken into account as to each such year only to the
extent that his average annual voluntary contribution in those years
exceeded 10 percent of his average annual Total Compensation in those
years.
5.2-2 A Participant's defined benefit plan fraction with respect to a
limitation year shall be a fraction, (i) the numerator of which is his
projected annual benefit payable at normal retirement under the Employers'
defined benefit plans, and (ii) the denominator of which is the lesser of
(a) 1.25 times $90,000, or 1.0 times such dollar limitation if the Plan is
top-heavy, and (b) 1.4 times the Participant's average Total Compensation
during his highest-paid three consecutive limitation years.
5.3 EFFECT OF LIMITATIONS. The Committee shall take whatever action may be
necessary from time to time to assure compliance with the limitations set forth
in Section 5.1 and 5.2. Specifically, the Committee shall see that each Employer
restrict its contributions for any Plan Year to an amount which, taking into
account the amount of available forfeitures, may be completely allocated to the
Participants consistent with those limitations. Where the limitations would
otherwise be exceeded by any Participant, further allocations to the Participant
shall be curtailed to the extent necessary to satisfy the limitations. Where an
excessive amount is contributed on account of a mistake as to one or more
Participants' compensation, or there is an amount of forfeitures which may not
be credited in the Plan Year in which it becomes available, the amount shall be
held in a suspense account to be allocated in lieu of any Employer contributions
in future years until it is eliminated, and to be returned to the Employer if it
cannot be credited consistent with these limitations before the termination of
the Plan.
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5.4 LIMITATIONS AS TO CERTAIN PARTICIPANTS. Aside from the limitations set
forth in Section 5.1 and 5.2, if the Plan acquires any Stock in a transaction as
to which a selling shareholder or the estate of a deceased shareholder is
claiming the benefit of Section 1042 of the Code, the Committee shall see that
none of such Stock, and no other assets in lieu of such Stock, are allocated to
the Accounts of certain Participants in order to comply with Section 409(n) of
the Code.
This restriction shall apply at all times to a Participant who owns (taking
into account the attribution rules under Section 318(a) of the Code, without
regard to the exception for employee plan trusts in Section 318(a)(2)(B)(i) more
than 25 percent of any class of stock of a corporation which issued the Stock
acquired by the Plan, or another corporation within the same controlled group,
as defined in Section 409(1)(4) of the Code (any such class of stock hereafter
called a "Related Class"). For this purpose, a Participant who owns more than 25
percent of any Related Class at any time within the one year preceding the
Plan's purchase of the Stock shall be subject to the restriction as to all
allocations of the Stock, but any other Participant shall be subject to the
restriction only as to allocations which occur at a time when he owns more than
25 percent of any Related Class.
Further, this restriction shall apply to the selling shareholder claiming
the benefit of Section 1042 and any other Participant who is related to such a
shareholder within the meaning of Section 267(b) of the Code, during the period
beginning on the date of sale and ending on the later of (1) the date that is
ten years after the date of sale, or (2) the date of the plan allocation
attributable to the final payment of acquisition indebtedness incurred in
connection with the sale.
This restriction shall not apply to any Participant who is a lineal
descendant of a selling shareholder if the aggregate amounts allocated under the
Plan for the benefit of all such descendants do not exceed five percent of the
Stock acquired from the shareholder.
SECTION 6. TRUST FUND AND ITS INVESTMENT.
6.1 CREATION OF TRUST FUND. All amounts received under the Plan from
Employers and investments shall be held as the Trust Fund pursuant to the terms
of this Plan and of the Trust Agreement
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between the Bank and the Trustee. The benefits described in this Plan shall be
payable only from the assets of the Trust Fund, and none of the Bank, any other
Employer, its board of directors or trustees, its stockholders, its officers,
its employees, the Committee, and the Trustee shall be liable for payment of any
benefit under this Plan except from the Trust Fund.
6.2 STOCK FUND AND INVESTMENT FUND. The Trust Fund held by the Trustee
shall be divided into the Stock Fund, consisting entirely of Stock, and the
Investment Fund, consisting of all assets of the Trust other than Stock. The
Trustee shall have no investment responsibility for the Stock Fund, but shall
accept any Employer contributions made in the form of Stock, and shall acquire,
sell, exchange, distribute, and otherwise deal with and dispose of Stock in
accordance with the instructions of the Committee. The Trustee shall have full
responsibility for the investment of the Investment Fund, except to the extent
such responsibility may be delegated from time to time to one or more investment
managers pursuant to Section 2.3 of the Trust Agreement.
6.3 ACQUISITION OF STOCK. From time to time the Committee may, in its sole
discretion, direct the Trustee to acquire Stock from the issuing Employer or
from shareholders, including shareholders who are or have been Employees,
Participants, or fiduciaries with respect to the Plan. The Trustee shall pay for
such Stock no more than its fair market value, which shall be determined
conclusively by the Committee pursuant to Section 12.4. The Committee may direct
the Trustee to finance the acquisition of Stock by incurring or assuming
indebtedness to the seller or another party which indebtedness shall be called a
"Stock Obligation". The term "Stock Obligation" shall refer to a loan made to
the Plan by a disqualified person within the meaning of Section 4975(e)(2) of
the Code, or a loan to the Plan which is guaranteed by a disqualified person. A
Stock Obligation includes a direct loan of cash, a purchase-money transaction,
and an assumption of an obligation of a tax-qualified employee stock ownership
plan under Section 4975(e)(7) of the Code ("ESOP"). For these purposes, the term
"guarantee" shall include an unsecured guarantee and the use of assets of a
disqualified person as collateral for a loan, even though the use of assets may
not be a guarantee under applicable state law. An amendment of a Stock
Obligation
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in order to qualify as an "exempt loan" is not a refinancing of the Stock
Obligation or the making of another Stock Obligation. The term "exempt loan"
refers to a loan that satisfies the provisions of this paragraph. A "non-exempt
loan" fails to satisfy this paragraph. Any Stock Obligation shall be subject to
the following conditions and limitations:
6.3-1 A Stock Obligation shall be for a specific term, shall not be
payable on demand except in the event of default, and shall bear a
reasonable rate of interest.
6.3-2 A Stock Obligation may, but need not, be secured by a collateral
pledge of either the Stock acquired in exchange for the Stock Obligation,
or the Stock previously pledged in connection with a prior Stock Obligation
which is being repaid with the proceeds of the current Stock Obligation. No
other assets of the Plan and Trust may be used as collateral for a Stock
Obligation, and no creditor under a Stock Obligation shall have any right
or recourse to any Plan and Trust assets other than Stock remaining subject
to a collateral pledge.
6.3-3 Any pledge of Stock to secure a Stock Obligation must provide
for the release of pledged Stock in connection with payments on the Stock
obligations in the ratio prescribed in Section 4.2.
6.3-4 Repayments of principal and interest on any Stock Obligation
shall be made by the Trustee only from Employer cash contributions
designated for such payments, from earnings on such contributions, and from
cash dividends received on Stock held in the Unallocated Stock Fund.
6.3-5 In the event of default of a Stock Obligation, the value of plan
assets transferred in satisfaction of the Stock Obligation must not exceed
the amount of the default. If the lender is a disqualified person within
the meaning of Section 4975 of the Code, a Stock Obligation must provide
for a transfer of plan assets upon default only upon and to the extent of
the failure of the plan to meet the payment schedule of said Stock
Obligation. For purposes of this paragraph, the making of a guarantee does
not make a person a lender.
6.4 PARTICIPANTS' OPTION TO DIVERSIFY. The Committee shall provide for a
procedure under which each Participant may, during the qualified election
period, elect to "diversify" a portion of the Employer Stock allocated to his
Account, as provided in Section 401(a)(28)(B) of the Code. An election to
diversity must be made on the prescribed form and filed with the Committee
within the period specified herein. For each of the first five (5) Plan years in
the qualified election period, the Participant may elect to diversify an amount
which does not exceed 25% of the number of shares allocated to his Account since
the inception of the Plan, less all shares with respect to which an election
under this Section has already been made. For the last year of the qualified
election period, the Participant may elect to have up to 50
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percent of the value of his Account committed to other investments, less all
shares with respect to which an election under this Section has already been
made. The term "qualified election period" shall mean the six (6) Plan Year
period beginning with the first Plan Year in which a Participant has both
attained age 55 and completed 10 years of participation in the Plan. A
Participant's election to diversify his Account may be made within each year of
the qualified election period and shall continue for the 90-day period
immediately following the last day of each year in the qualified election
period. Once a Participant makes such election, the Plan must complete
diversification in accordance with such election within 90 days after the end of
the period during which the election could be made for the Plan Year. In the
discretion of the Committee, the Plan may satisfy the diversification
requirement by any of the following methods:
6.4-1 The Plan may distribute all or part of the amount subject to the
diversification election.
6.4-2 The Plan may offer the Participant at least three other distinct
investment options, if available under the Plan. The other investment
options shall satisfy the requirements of Regulations under Section 404(c)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
6.4-3 The Plan may transfer the portion of the Participant's Account
subject to the diversification election to another qualified defined
contribution plan of the Employer that offers at least three investment
options satisfying the requirements of the Regulations under Section 404(c)
of ERISA.
SECTION 7. VOTING RIGHTS AND DIVIDENDS ON STOCK.
7.1 VOTING AND TENDERING OF STOCK. The Trustee generally shall vote all
shares of Stock held under the Plan in accordance with the written instructions
of the Committee. However, if any Employer has registration-type class of
securities within the meaning of Section 409(e)(4) of the Code, or if a matter
submitted to the holders of the Stock involves a merger, consolidation,
recapitalization, reclassification, liquidation, dissolution, or sale of
substantially all assets of an entity, then (i) the shares of Stock which have
been allocated to Participants' Accounts shall be voted by the Trustee in
accordance with the Participants' written instructions, and (ii) the Trustee
shall vote any unallocated Stock in a manner calculated to most accurately
reflect the instructions it has received from Participants regarding the
allocated Stock. In the event no shares of Stock have been allocated to
Participants' Accounts at the time
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Stock is to be voted, each Participant shall be deemed to have one share of
Stock allocated to his or her account for the sole purpose of providing the
Trustee with voting instructions.
Notwithstanding any provision hereunder to the contrary, all unallocated
shares of Stock must be voted by the Trustee in a manner determined by the
Trustee to be for the exclusive benefit of the Participants and Beneficiaries.
Whenever such voting rights are to be exercised, the Employers, the Committee,
and the Trustee shall see that all Participants are provided with the same
notices and other materials as are provided to other holders of the Stock, and
are provided with adequate opportunity to deliver their instructions to the
Trustee regarding the voting of Stock allocated to their Accounts. The
instructions of the Participants' with respect to the voting of allocated shares
hereunder shall be confidential.
7.1-1 In the event of a tender offer, Stock shall be tendered by the
Trustee in the same manner as set forth above with respect to the voting of
Stock. Notwithstanding any provision hereunder to the contrary, Stock must
be tendered by the Trustee in a manner determined by the Trustee to be for
the exclusive benefit of the Participants and Beneficiaries.
7.2 DIVIDENDS ON STOCK. Dividends on Stock which are received by the
Trustee in the form of additional Stock shall be retained in the Stock Fund, and
shall be allocated among the Participant's Accounts and the Unallocated Stock
Fund in accordance with their holdings of the Stock on which the dividends have
been paid. Dividends on Stock credited to Participants' Accounts which are
received by the Trustee in the form of cash shall, at the direction of the
Employer paying the dividends, either (i) be credited to the Accounts in
accordance with Section 8.3 and invested as part of the Investment Fund, (ii) be
distributed immediately to the Participants in proportion with the Participants'
Account balance, (iii) be distributed to the Participants within 90 days of the
close of the Plan Year in which paid in proportion with the Participants'
Account balance, or (iv) be used to repay the Stock Obligation. In the event
that the dividends are applied to repay the Stock Obligation in accordance with
(iv) above, Stock with a fair market value equal to the dividends so applied,
must be allocated to such Participants in lieu of such dividends. Dividends on
Stock held in the Unallocated Stock Fund which are received by the Trustee in
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the form of cash shall be applied as soon as practicable to payments of
principal and interest under the Stock Obligation incurred with the purchase of
the Stock.
SECTION 8. ADJUSTMENTS TO ACCOUNTS.
8.1 ADJUSTMENTS FOR TRANSACTIONS. An Employer contribution pursuant to
Section 4.1 shall be credited to the Participants' Accounts as of the last day
of the Plan Year for which it is contributed. Stock released from the
Unallocated Stock Fund upon the Trust's repayment of a Stock Obligation pursuant
to Section 4.2 shall be credited to the Participants' Accounts as of the last
day of the Plan Year in which the repayment occurred. Any excess amounts
remaining from the use of proceeds of a sale of Stock from the Unallocated Stock
Fund to repay a Stock Obligation shall be allocated as of the last day of the
Plan Year in which the repayment occurred among the Participants' Accounts in
proportion to the opening balance in each Account. Any benefit which is paid to
a Participant or Beneficiary pursuant to Section 10 shall be charged to the
Participant's Account as of the first day of the Valuation Period in which it is
paid. Any forfeiture or restoral shall be charged or credited to the
Participant's Account as of the first day of the Valuation Period in which the
forfeiture or restoral occurs pursuant to Section 9.5.
8.2 VALUATION OF INVESTMENT FUND. As of each Valuation Date, the Trustee
shall prepare a balance sheet of the Investment Fund, recording each asset
(including any contribution receivable from an Employer) and liability at its
fair market value. Any liability with respect to short positions or options and
any item of accrued income or expense and unrealized appreciation or
depreciation shall be included; provided, however, that such an item may be
estimated or excluded if it is not readily ascertainable unless estimating or
excluding it would result in a material distortion. The Committee shall then
determine the net gain or loss of the Investment Fund since the preceding
Valuation Date, which shall mean the entire income of the Investment Fund,
including realized and unrealized capital gains and losses, net of any expenses
to be charged to the general Investment Fund and excluding any contributions by
the Employer. The determination of gain or loss shall be consistent with the
balance sheets of the Investment Fund for the current and preceding Valuation
Dates.
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8.3 ADJUSTMENTS FOR INVESTMENT EXPERIENCE. Any net gain or loss of the
Investment Fund during a Valuation Period, as determined pursuant to Section
8.2, shall be allocated as of the last day of the Valuation Period among the
Participants' Accounts in proportion to the opening balance in each Account, as
adjusted for benefit payments and forfeitures during the Valuation Period,
without regard to whatever Stock may be credited to an Account.
SECTION 9. VESTING OF PARTICIPANTS' INTERESTS.
9.1 DEFERRED VESTING IN ACCOUNTS. A Participant's vested interest in his
Account shall be based on his Vesting Years in accordance with the following
Table, subject to the balance of this Section 9:
Vesting Percentage of
Years Interest Vested
----- ---------------
Fewer than 5 0%
5 or more 100%
9.2 COMPUTATION OF VESTING YEARS. For purposes of this Plan, a "Vesting
Year" means a calendar year in which an Employee has at least 1,000 Hours of
Service, beginning with the first calendar year in which the Employee has
completed an Hour of Service with the Employer, and including Service with other
employers as provided in the definition of "Service". However, a Participant's
Vesting Years shall be computed subject to the following conditions and
qualifications:
(a) A Participant's vested interest in his Account accumulated before
five (5) consecutive Breaks in Service shall be determined without regard
to any Service after such five consecutive Breaks in Service. Further, if a
Participant has five (5) consecutive Breaks in Service before his interest
in his Account has become vested to some extent, pre-Break years of Service
shall not be required to be taken into account for purposes of determining
his post-Break vested percentage.
(b) Unless otherwise specifically excluded, a Participant's Vesting
Years shall include any period of active military duty to the extent
required by the Military Selective Service Act of 1967 (38 U.S.C. Section
2021).
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9.3 FULL VESTING UPON CERTAIN EVENTS. Notwithstanding Section 9.1, a
Participant's interest in his Account shall fully vest on the Participant's
Normal Retirement. The Participant's interest shall also fully vest in the event
that his Service is terminated by Early Retirement, Disability or by death.
9.3-1 FULL VESTING UPON A CHANGE OF CONTROL. The Participant's
interest in his Account shall also fully vest in the event of a "Change of
Control" of the Bank. A "Change in Control" of the Bank shall mean:
(i) a reorganization, merger, merger conversion, consolidation or
sale of all or substantially all of the assets of the Bank, the
Company or the Stock Holding Company, or a similar transaction in
which the Bank, the Company or the Stock Holding Company is not the
resulting entity and that is not approved by a majority of the Board
of Directors of the Bank, the Company or the Stock Holding Company;
(ii) individuals who constitute the Incumbent Board of the Bank,
the Company, or the Stock Holding Company cease for any reason to
constitute a majority thereof; or
(iii) a change in control within the meaning of 12 C.F.R. Section
574.4, as determined by the board of directors of the Bank or the
Company; provided, however, that a change in control shall not be
deemed to occur if the transaction(s) constituting a change in control
is approved by a majority of the board of directors of the Bank or the
Company, as the case may be.
(iv) In the event that the Company converts to the Stock Holding
Company on a stand-alone basis, a "change in control" of the Bank or
the Stock Holding Company (a) shall mean an event 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 results in a Change in Control of the Bank or the
Stock 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 (or its predecessor agency), as in effect on the
date hereof, (b) without limitation shall be deemed to have occurred
at such time as (i) any "person" (as the term is used in Section 13(d)
and 14(d) of the Exchange Act) other than the Stock Holding Company is
or becomes a "beneficial owner" (as defined in Rule 13-d under the
Exchange Act) directly or indirectly, of securities of the Bank
representing 25% or more of the Bank's outstanding securities
ordinarily having the right to vote at the election of directors
except for any securities of the Bank received by the Stock Holding
Company in connection with the Reorganization and any securities
purchased by the Bank's employee stock ownership plan and trust shall
not be counted in determining whether such plan is the beneficial
owner of more than 25% of the Bank's securities, (ii) a proxy
statement soliciting proxies from stockholders of the Bank, by someone
other than the current management of the Bank, seeking stockholder
approval of a plan of reorganization, merger or consolidation of the
Stock Holding Company of the Bank or similar transaction with one or
more corporations as a result of which the outstanding shares of the
class of securities then subject to the plan or transaction are
exchanged or converted into cash or property or securities not issued
by the Bank or the Stock Holding Company, or (iii) a tender offer is
made for 25% or more of the voting securities of the Bank and the
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shareholders owning beneficially or of record 25% or more of the
outstanding securities of the Bank have tendered or offered to sell
their shares pursuant to such tender offer and such tendered shares
have been accepted by the tender offeror.
Notwithstanding, the foregoing, a "Change in Control" of the Bank or the
Company shall not be deemed to have occurred if the Company ceases to own at
least 51% of all outstanding shares of stock of the Bank in connection with a
conversion of the Company from mutual to stock form.
For these purposes, "Incumbent Board" means, in the case of (i) the Company
or the Stock Holding Company, or (ii) the Bank, the Board of Directors of the
Company or the Bank, respectively, on the date hereof, 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 members or stockholders was approved
by the same nominating committee serving under an Incumbent Board, shall be
considered as though he were a member of the Incumbent Board.
Also for these purposes, Bayonne Bankshares, M.H.C. and Stock Holding
Company means the holding company resulting from a stock conversion of the
Company from the mutual to stock form of organization either on a stand-alone
basis or in the context of a merger conversion, as provided by regulations of
the Office of Thrift Supervision.
9.4 FULL VESTING UPON PLAN TERMINATION. Notwithstanding Section 9.1, a
Participant's interest in his account shall fully vest if he is in active
Service upon termination of this Plan or upon the permanent and complete
discontinuance of contributions by his Employer. In the event of a partial
termination, the interest of each Participant who is in Service shall fully vest
with respect to that part of the Plan which is terminated.
9.5 FORFEITURE, REPAYMENT, AND RESTORAL. If a Participant's Service
terminates before his interest in his Account is fully vested, that portion
which has not vested shall be forfeited if he either (i) receives a distribution
of his entire vested interest pursuant to Section 10.1, or (ii) incurs 5
consecutive Breaks In Service. If a Participant's Service terminates prior to
having any portion of his Account become
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vested, such Participant shall be deemed to have a received a distribution of
his vested interest as of the Valuation Date next following his termination of
Service.
If a Participant who has received his entire vested interest returns to
Service before he has five consecutive Breaks in Service, he may repay to the
Trustee an amount equal to the distribution. The Participant may repay such
amount at any time within five years after he has returned to Service. The
amount shall be credited to his account as of the last day of the Plan Year in
which it is repaid; an additional amount equal to that portion of his Account
which was previously forfeited shall be restored to his Account at the same time
from other Employees' forfeitures and, if such forfeitures are insufficient,
from a special contribution by his Employer for that year.
9.6 ACCOUNTING FOR FORFEITURES. If a portion of a Participant's account is
forfeited, Stock allocated to said Participant's account shall be forfeited only
after other assets are forfeited. If interests in more than one class of Stock
have been allocated to a Participant's account, the Participant must be treated
as forfeiting the same proportion of each class of Stock. A forfeiture shall be
charged to the Participant's Account as of the first day of the first Valuation
Period in which the forfeiture becomes certain pursuant to Section 9.5 Except
as otherwise provided in that Section, a forfeiture shall be added to the
contributions of the terminated Participant's Employer which are to be credited
to other Participants pursuant to Section 4.1 as of the last day of the Plan
Year in which the forfeiture becomes certain.
9.7 VESTING AND NONFORFEITABILITY. A Participant's interest in his Account
which has become vested shall be nonforfeitable for any reason.
SECTION 10. PAYMENT OF BENEFITS.
10.1 BENEFITS FOR PARTICIPANTS. For a Participant whose Service ends for
any reason, distribution will be made to or for the benefit of the Participant
or, in the case of the Participant's death, his Beneficiary, by either, or a
combination of the following methods:
10.1.1 By payment in a lump sum, in accordance with Section 10.2; or
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10.1.2 By payment in a series of substantially equal annual
installments over a period not to exceed five (5) years, provided the
maximum period over which the distribution of a Participant's Account may
be made shall be extended by 1 year, up to five (5) additional years, for
each $100,000 (or fraction thereof) by which such Participant's Account
balance exceeds $500,000 (the aforementioned figures are subject to
cost-of-living adjustments prescribed by the Secretary of the Treasury
pursuant to Section 409(o)(2) of the Code).
The Participant shall elect the manner in which his vested Account balance
will be distributed to him. If a Participant so desires, he may direct how his
benefits are to be paid to his Beneficiary. If a deceased Participant did not
file a direction with the Committee, the Participant's benefits shall be
distributed to his Beneficiary in a lump sum. Notwithstanding the foregoing, if
the balance credited to his Account exceeds $3,500, his benefits shall not be
paid before the latest of his 65th birthday or the tenth anniversary of the year
in which he commenced participation in the Plan unless he elects an early
payment date in a written election filed with the Committee. A Participant may
modify such an election at any time, provided any new benefit payment date is at
least 30 days after a modified election is delivered to the Committee. In all
events, a Participant's benefits shall be paid by April 1st of the calendar year
in which he reaches age 71-1/2.
10.2 TIME FOR DISTRIBUTION.
10.2.1 Distribution of the balance of a Participant's Account
generally shall commence as soon as practicable after the last day of the
Plan Year next following his termination of Service for any reason, but no
later than one year after the close of the Plan Year:
(i) in which the Participant separates from service by reason of
attainment of his Normal Retirement Date under the Plan, Disability,
or death; or
(ii) which is the fifth Plan Year following the year in which the
Participant resigns or is dismissed, unless he is reemployed before
such date.
10.2.2 Unless the Participant elects otherwise, the distribution of
the balance of a Participant's Account shall commence not later than the
60th day after the latest of the close of the plan year in which
(i) the Participant attains the age of 65;
(ii) occurs the tenth anniversary of the year in which the
Participant commenced participation in the Plan; or
(iii) the participant terminates his service with the Employer.
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10.2.3 Notwithstanding any other provision in this Section 10.2 to the
contrary, distribution of a Participant's Account shall commence (whether
or not he remains in the employ of the Employer) not later than the April 1
of the calendar year next following the calendar year in which the
Participant attains age 70 and 1/2 years. A Participant's benefit from that
portion of his Account committed to the Investment Fund shall be calculated
on the basis of the most recent Valuation Date before the date of payment.
10.2.4 Distribution of a Participant's Account balance after his death
shall comply with the following requirements:
(i) If a Participant dies before his distributions have
commenced, distribution of his Account to his Beneficiary shall
commence not later than one year after the end of the Plan Year in
which the Participant died, however, if the Participant's Beneficiary
is his surviving spouse, distributions may commence on the date on
which the Participant would have attained age 70-1/2. In either case,
distributions shall be completed within five years after the they
commence.
(ii) If the Participant dies after distribution has commenced
pursuant to Section 10.1.2 but before his entire interest in the Plan
has been distributed to him, then the remaining portion of that
interest shall, in accordance with Section 401(a)(9) of the Code, be
distributed at least as rapidly as under the method of distribution
being used under Section 10.1.2 at the date of his death.
(iii) If a married Participant dies before his benefit payments
begin, then unless he has specifically elected otherwise the Committee
shall cause the balance in his Account to be paid to his Spouse. No
election by a married Participant of a different Beneficiary shall be
valid unless the election is accompanied by the Spouse's written
consent, which (i) must acknowledge the effect of the election, (ii)
must explicitly provide either that the designated Beneficiary may not
subsequently be changed by the Participant without the Spouse's
further consent, or that it may be changed without such consent, and
(iii) must be witnessed by the Committee, its representative, or a
notary public. (This requirement shall not apply if the Participant
establishes to the Committee's satisfaction that the Spouse may not be
located.)
10.3 MARITAL STATUS. The Committee shall from time to time take whatever
steps it deems appropriate to keep informed of each Participant's marital
status. Each Employer shall provide the Committee with the most reliable
information in the Employer's possession regarding its Participants' marital
status, and the Committee may, in its discretion, require a notarized affidavit
from any Participant as to his marital status. The Committee, the Plan, the
Trustee, and the Employers shall be fully protected and discharged from any
liability to the extent of any benefit payments made as a result of the
Committee's good faith and reasonable reliance upon information obtained from a
Participant and his Employer as to his marital status.
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10.4 DELAY IN BENEFIT DETERMINATION. If the Committee is unable to
determine the benefits payable to a Participant or Beneficiary on or before the
latest date prescribed for payment pursuant to Section 10.1 or 10.2, the
benefits shall in any event be paid within 60 days after they can first be
determined, with whatever makeup payments may be appropriate in view of the
delay.
10.5 ACCOUNTING FOR BENEFIT PAYMENTS. Any benefit payment shall be charged
to the Participant's Account as of the first day of the Valuation Period in
which the payment is made.
10.6 OPTIONS TO RECEIVE AND SELL STOCK. Unless ownership of virtually all
Stock is restricted to active Employees and qualified retirement plans for the
benefit of Employees pursuant to the certificates of incorporation or by-laws of
the Employers issuing Stock, a terminated Participant or the Beneficiary of a
deceased Participant may instruct the Committee to distribute the Participant's
entire vested interest in his Account in the form of Stock. In that event, the
Committee shall apply the Participant's vested interest in the Investment Fund
to purchase sufficient Stock from the Stock Fund or from any owner of stock to
make the required distribution. In all other cases, the Participant's vested
interest in the Stock Fund shall be distributed in shares of Stock, and his
vested interest in the Investment Fund shall be distributed in cash.
Any Participant who receives Stock pursuant to Section 10.1, and any person
who has received Stock from the Plan or from such a Participant by reason of the
Participant's death or incompetency, by reason of divorce or separation from the
Participant, or by reason of a rollover contribution described in Section
402(a)(5) of the Code, shall have the right to require the Employer which issued
the Stock to purchase the Stock for its current fair market value (hereinafter
referred to as the "put right"). The put right shall be exercisable by written
notice to the Committee during the first 60 days after the Stock is distributed
by the Plan, and, if not exercised in that period, during the first 60 days in
the following Plan Year after the Committee has communicated to the Participant
its determination as to the Stock's current fair market value. However, the put
right shall not apply to the extent that the Stock, at the time the put right
would otherwise be exercisable, may be sold on an established market in
accordance with federal
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and state securities laws and regulations. Similarly, the put right shall not
apply with respect to the portion of a Participant's account which the employee
elected to have reinvested under Code Section 401(a)(28)(B). If the put right is
exercised, the Trustee may, if so directed by the Committee in its sole
discretion, assume the Employer's rights and obligations with respect to
purchasing the Stock. Notwithstanding anything herein to the contrary, in the
case of a plan established by a Bank (as defined in Code Section 581), the put
right shall not apply if prohibited by a federal or state law and Participants
are entitled to elect their benefits be distributed in cash.
If a Participant elects to receive his distribution in the form of a lump
sum pursuant to Section 10.1.1 of the Plan, the Employer or the Trustee, as the
case may be, may elect to pay for the Stock in equal periodic installments, not
less frequently than annually, over a period not longer than five years from the
day after the put right is exercised, with adequate security and interest at a
reasonable rate on the unpaid balance, all such terms to be set forth in a
promissory note delivered to the seller with normal terms as to acceleration
upon any uncured default.
If a Participant elects to receive his distribution in the form of an
installment payment pursuant to Section 10.1.2 of the Plan, the Employer or the
Trustee, as the case may be, shall pay for the Stock distributed in the
installment distribution over a period which shall not exceed 30 days after the
exercise of the put right.
Nothing contained herein shall be deemed to obligate any Employer to
register any Stock under any federal or state securities law or to create or
maintain a public market to facilitate the transfer or disposition of any Stock.
The put right described herein may only be exercised by a person described in
the second preceding paragraph, and may not be transferred with any Stock to any
other person. As to all Stock purchased by the Plan in exchange for any Stock
Obligation, the put right shall be nonterminable. The put right for Stock
acquired through a Stock Obligation shall continue with respect to such Stock
after the Stock Obligation is repaid or the Plan ceases to be an employee stock
ownership plan.
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10.7 RESTRICTIONS ON DISPOSITION OF STOCK. Except in the case of Stock
which is traded on an established market, a Participant who receives Stock
pursuant to Section 10.1, and any person who has received Stock from the Plan or
from such a Participant by reason of the Participant's death or incompetency, by
reason of divorce or separation from the Participant, or by reason of a rollover
contribution described in Section 402(a)(5) of the Code, shall, prior to any
sale or other transfer of the Stock to any other person, first offer the Stock
to the issuing Employer and to the Plan at the greater of (i) its current fair
market value, or (ii) the purchase price offered in good faith by an independent
third party purchaser. This restriction shall apply to any transfer, whether
voluntary, involuntary, or by operation of law, and whether for consideration or
gratuitous. Either the Employer or the Trustee may accept the offer within 14
days after it is delivered. Any Stock distributed by the Plan shall bear a
conspicuous legend describing the right of first refusal under this Section
10.7, as well as any other restrictions upon the transfer of the Stock imposed
by federal and state securities laws and regulations.
10.8 CONTINUING LOAN PROVISIONS; CREATIONS OF PROTECTIONS AND RIGHTS.
Except as otherwise provided in Sections 10.6 and 10.7 and this Section, no
shares of Employer Stock held or distributed by the Trustee may be subject to a
put, call or other option, or buy-sell arrangement. The provisions of this
Section shall continue to by applicable to such Stock even if the Plan ceases to
be an employee stock ownership plan under Section 4975(e)(7) of the Code.
10.9 DIRECT ROLLOVER OF ELIGIBLE DISTRIBUTION. A Participant or distributee
may elect, at the time and in the manner prescribed by the Trustee or the
Committee, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the Participant or
distributee in a direct rollover.
10.9-1 An "eligible rollover" is any distribution that does not
include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or
life expectancy) of the distributee or the joint lives (or joint life
expectancies) of the Participant and the Participant's Beneficiary, or for
a specified period of ten years or more; any distribution to the extent
such distribution is required under Code Section 401(a)(9); and the portion
of any distribution that is not included in gross income (determined
without regard to the exclusion for net unrealized appreciation with
respect to employer securities).
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10.9-2 An "eligible retirement plan" is an individual retirement
account described in Code Section 401(a), an individual retirement annuity
described in Code Section 408(b), an annuity plan described in Code Section
403(a), or a qualified trust described in Code Section 401(a), that accepts
the distributee's eligible rollover distribution. However, in the case of
an eligible rollover distribution to the surviving spouse, an eligible
retirement plan is an individual retirement account or individual
retirement annuity.
10.9-3 A "direct rollover" is a payment by the Plan to the eligible
retirement plan specified by the distributee.
10.9-4 The term "distributee" shall refer to a deceased Participant's
spouse or a Participant's former spouse who is the alternate payee under a
qualified domestic relations order, as defined in Code Section 414(p).
SECTION 11. RULES GOVERNING BENEFIT CLAIMS AND REVIEW OF APPEALS.
11.1 CLAIM FOR BENEFITS. Any Participant or Beneficiary who qualifies for
the payment of benefits shall file a claim for his benefits with the Committee
on a form provided by the Committee. The claim, including any election of an
alternative benefit form, shall be filed at least 30 days before the date on
which the benefits are to begin. If a Participant or Beneficiary fails to file a
claim by the day before the date on which benefits become payable, he shall be
presumed to have filed a claim for payment for the Participant's benefits in the
standard form prescribed by Sections 10.1 or 10.2
11.2 NOTIFICATION BY COMMITTEE. Within 90 days after receiving a claim for
benefits (or within 180 days, if special circumstances require an extension of
time and written notice of the extension is given to the Participant or
Beneficiary within 90 days after receiving the claim for benefits), the
Committee shall notify the Participant or Beneficiary whether the claim has been
approved or denied. If the Committee denies a claim in any respect, the
Committee shall set forth in a written notice to the Participant or Beneficiary:
(i) each specific reason for the denial;
(ii) specific references to the pertinent Plan provisions on which the
denial is based;
(iii) a description of any additional material or information which
could be submitted by the Participant or Beneficiary to support his claim,
with an explanation of the relevance of such information; and
(iv) an explanation of the claims review procedures set forth in
Section 11.3.
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11.3 CLAIMS REVIEW PROCEDURE. Within 60 days after a Participant or
Beneficiary receives notice from the Committee that his claim for benefits has
been denied in any respect, he may file with the Committee a written notice of
appeal setting forth his reasons for disputing the Committee's determination. In
connection with his appeal the Participant or Beneficiary or his representative
may inspect or purchase copies of pertinent documents and records to the extent
not inconsistent with other Participants' and Beneficiaries' rights of privacy.
Within 60 days after receiving a notice of appeal from a prior determination (or
within 120 days, if special circumstances require an extension of time and
written notice of the extension is given to the Participant or Beneficiary and
his representative within 60 days after receiving the notice of appeal), the
Committee shall furnish to the Participant or Beneficiary and his
representative, if any, a written statement of the Committee's final decision
with respect to his claim, including the reasons for such decision and the
particular Plan provisions upon which it is based.
SECTION 12. THE COMMITTEE AND ITS FUNCTIONS.
12.1 AUTHORITY OF COMMITTEE. The Committee shall be the "plan
administrator" within the meaning of ERISA and shall have exclusive
responsibility and authority to control and manage the operation and
administration of the Plan, including the interpretation and application of its
provisions, except to the extent such responsibility and authority are otherwise
specifically (i) allocated to the Bank, the Employers, or the Trustee under the
Plan and Trust Agreement, (ii) delegated in writing to other persons by the
Bank, the Employers, the Committee, or the Trustee, or (iii) allocated to other
parties by operation of law. The Committee shall have exclusive responsibility
regarding decisions concerning the payment of benefits under the Plan. The
Committee shall have no investment responsibility with respect to the Investment
Fund except to the extent, if any, specifically provided in the Trust Agreement.
In the discharge of its duties, the Committee may employ accountants, actuaries,
legal counsel, and other agents (who also may be employed by an Employer or the
Trustee in the same or some other capacity) and may pay their reasonable
expenses and compensation.
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12.2 IDENTITY OF COMMITTEE. The Committee shall consists of three or more
individuals selected by the Bank. Any individual, including a director, trustee,
shareholder, officer, or employee of an Employer, shall be eligible to serve as
a member of the Committee. The Bank shall have the power to remove any
individual serving on the Committee at any time without cause upon 10 days
written notice, and any individual may resign from the Committee at any time
upon 10 days written notice to the Bank. The Bank shall notify the Trustee of
any change in membership of the Committee.
12.3 DUTIES OF COMMITTEE. The Committee shall keep whatever records may be
necessary to implement the Plan and shall furnish whatever reports may be
required from time to time by the Bank. The Committee shall furnish to the
Trustee whatever information may be necessary to properly administer the Trust.
The Committee shall see to the filing with the appropriate government agencies
of all reports and returns required of the plan Committee under ERISA and other
laws.
Further, the Committee shall have exclusive responsibility and authority
with respect to the Plan's holdings of Stock and shall direct the Trustee in all
respects regarding the purchase, retention, sale, exchange, and pledge of Stock
and the creation and satisfaction of Stock Obligations. The Committee shall at
all times act consistently with the Bank's long-term intention that the Plan, as
an employee stock ownership plan, be invested primarily in Stock. Subject to the
direction of the Board as to the application of Employer contributions to Stock
Obligations, and subject to the provisions of Sections 6.4 and 10.6 as to
Participants' rights under certain circumstances to have their Accounts invested
in Stock or in assets other than Stock, the Committee shall determine in its
sole discretion the extent to which assets of the Trust shall be used to repay
Stock Obligations, to purchase Stock, or to invest in other assets to be
selected by the Trustee or an investment manager. No provision of the Plan
relating to the allocation or vesting of any interests in the Stock Fund or the
Investment Fund shall restrict the Committee from changing any holdings of the
Trust, whether the changes involve an increase or a decrease in the Stock or
other assets credited to Participants' Accounts. In determining the proper
extent of the Trust's
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investment in Stock, the Committee shall be authorized to employ investment
counsel, legal counsel, appraisers, and other agents to pay their reasonable
expenses and compensation.
12.4 VALUATION OF STOCK. If the valuation of any Stock is not established
by reported trading on a generally recognized public market, the Committee shall
have the exclusive authority and responsibility to determine its value for all
purposes under the Plan. Such value shall be determined as of each Valuation
Date, and on any other date as of which the Plan purchases or sells such Stock.
The Committee shall use generally accepted methods of valuing stock of similar
corporations for purposes of arm's length business and investment transactions,
and in this connection the Committee shall obtain, and shall be protected in
relying upon, the valuation of such Stock as determined by an independent
appraiser experienced in preparing valuations of similar businesses.
12.5 COMPLIANCE WITH ERISA. The Committee shall perform all acts necessary
to comply with ERISA. Each individual member or employee of the Committee shall
discharge his duties in good faith and in accordance with the applicable
requirements of ERISA.
12.6 ACTION BY COMMITTEE. All actions of the Committee shall be governed by
the affirmative vote of a number of members which is a majority of the total
number of members currently appointed, including vacancies. The members of the
Committee may meet informally and may take any action without meeting as a
group.
12.7 EXECUTION OF DOCUMENTS. Any instrument executed by the Committee shall
be signed by any member or employee of the Committee.
12.8 ADOPTION OF RULES. The Committee shall adopt such rules and
regulations of uniform applicability as it deems necessary or appropriate for
the proper administration and interpretation of the Plan.
12.9 RESPONSIBILITIES TO PARTICIPANTS. The Committee shall determine which
Employees qualify to enter the Plan. The Committee shall furnish to each
eligible Employee whatever summary plan descriptions, summary annual reports,
and other notices and information may be required under ERISA.
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The Committee also shall determine when a Participant or his Beneficiary
qualifies for the payment of benefits under the Plan. The Committee shall
furnish to each such Participant or Beneficiary whatever information is required
under ERISA (or is otherwise appropriate) to enable the Participant or
Beneficiary to make whatever elections may be available pursuant to Sections 6
and 10, and the Committee shall provide for the payment of benefits in the
proper form and amount from the assets of the Trust Fund. The Committee may
decide in its sole discretion to permit modifications of elections and to defer
or accelerate benefits to the extent consistent with applicable law and the best
interests of the individuals concerned.
12.10 ALTERNATIVE PAYEES IN EVENT OF INCAPACITY. If the Committee finds at
any time that an individual qualifying for benefits under this Plan is a minor
or is incompetent, the Committee may direct the benefits to be paid, in the case
of a minor, to his parents, his legal guardian, a custodian for him under the
Uniform Gifts to Minors Act, or the person having actual custody of him, or, in
the case of an incompetent, to his spouse, his legal guardian, or the person
having actual custody of him, the payments to be used for the individual's
benefit. The Committee and the Trustee shall not be obligated to inquire as to
the actual use of the funds by the person receiving them under this Section
12.10, and any such payment shall completely discharge the obligations of the
Plan, the Trustee, the Committee, and the Employers to the extent of the
payment.
12.11 INDEMNIFICATION BY EMPLOYERS. Except as separately agreed in writing,
the Committee, and any member or employee of the Committee, shall be indemnified
and held harmless by the Employer, jointly and severally, to the fullest extent
permitted by law against any and all costs, damages, expenses, and liabilities
reasonably incurred by or imposed upon it or him in connection with any claim
made against it or him or in which it or he may be involved by reason of its or
his being, or having been, the Committee, or a member or employee of the
Committee, to the extent such amounts are not paid by insurance.
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12.12 NONPARTICIPATION BY INTERESTED MEMBER. Any member of the Committee
who also is a Participant in the Plan shall take no part in any determination
specifically relating to his own participation or benefits, unless his
abstention would leave the Committee incapable of acting on the matter.
SECTION 13. ADOPTION, AMENDMENT, OR TERMINATION OF THE PLAN.
13.1 ADOPTION OF PLAN BY OTHER EMPLOYERS. With the consent of the Bank, any
entity may become a participating Employer under the Plan by (i) taking such
action as shall be necessary to adopt the Plan, (ii) becoming a party to the
Trust Agreement establishing the Trust Fund, and (iii) executing and delivering
such instruments and taking such other action as may be necessary or desirable
to put the Plan into effect with respect to the entity's Employees.
13.2 ADOPTION OF PLAN BY SUCCESSOR. In the event that any Employer shall be
reorganized by way of merger, consolidation, transfer of assets or otherwise, so
that an entity other than an Employer shall succeed to all or substantially all
of the Employer's business, the successor entity may be substituted for the
Employer under the Plan by adopting the Plan and becoming a party to the Trust
Agreement. Contributions by the Employer shall be automatically suspended from
the effective date of any such reorganization until the date upon which the
substitution of the successor entity for the Employer under the Plan becomes
effective. If, within 90 days following the effective date of any such
reorganization, the successor entity shall not have elected to become a party to
the Plan, or if the Employer shall adopt a plan of complete liquidation other
than in connection with a reorganization, the Plan shall be automatically
terminated with respect to Employees of the Employer as of the close of business
on the 90th day following the effective date of the reorganization, or as of the
close of business on the date of adoption of a plan of complete liquidation, as
the case may be.
13.3 PLAN ADOPTION SUBJECT TO QUALIFICATION. Notwithstanding any other
provision of the Plan, the adoption of the Plan and the execution of the Trust
Agreement are conditioned upon their being determined initially by the Internal
Revenue Service to meet the qualification requirements of Section
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401(a) of the Code, so that the Employers may deduct currently for federal
income tax purposes their contributions to the Trust and so that the
Participants may exclude the contributions from their gross income and recognize
income only when they receive benefits. In the event that this Plan is held by
the Internal Revenue Service not to qualify initially under Section 401(a), the
Plan may be amended retroactively to the earliest date permitted by U.S.
Treasury Regulations in order to secure qualification under Section 401(a). If
this Plan is held by the Internal Revenue Service not to qualify initially under
Section 401(a) either as originally adopted or as amended, each Employer's
contributions to the Trust under this Plan (including any earnings thereon)
shall be returned to it and this Plan shall be terminated. In the event that
this Plan is amended after its initial qualification and the Plan as amended is
held by the Internal Revenue Service not to qualify under Section 401(a), the
amendment may be modified retroactively to the earliest date permitted by U.S.
Treasury Regulations in order to secure approval of the amendment under Section
401(a).
13.4 RIGHT TO AMEND OR TERMINATE. The Bank intends to continue this Plan as
a permanent program. However, each participating Employer separately reserves
the right to suspend, supersede, or terminate the Plan at any time and for any
reason, as it applies to that Employer's Employees, and the Bank reserves the
right to amend, suspend, supersede, merge, consolidate, or terminate the Plan at
any time and for any reason, as it applies to the Employees of each Employer. No
amendment, suspension, supersession, merger, consolidation, or termination of
the Plan shall (i) reduce any Participant's or Beneficiary's proportionate
interest in the Trust Fund, (ii) reduce or restrict, either directly or
indirectly, the benefit provided any Participant prior to the amendment, or
(iii) divert any portion of the Trust Fund to purposes other than the exclusive
benefit of the Participants and their Beneficiaries prior to the satisfaction of
all liabilities under the Plan. Moreover, there shall not be any transfer of
assets to a successor plan or merger or consolidation with another plan unless,
in the event of the termination of the successor plan or the surviving plan
immediately following such transfer, merger, or consolidation, each participant
or beneficiary would be entitled to a benefit equal to or greater than the
benefit he would have
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been entitled to if the plan in which he was previously a participant or
beneficiary had terminated immediately prior to such transfer, merger, or
consolidation. Following a termination of this Plan by the Bank, the Trustee
shall continue to administer the Trust and pay benefits in accordance with the
Plan as amended from time to time and the Committee's instructions.
If any amendment changes the vesting schedule, including an automatic
change to or from a top-heavy vesting schedule, any Participant with three (3)
or more Vesting Years may, by filing a written request with the Employer, elect
to have his vested percentage computed under the vesting schedule in effect
prior to the amendment. The election period must begin not later than the later
of sixty (60) days after the amendment is adopted, the amendment becomes
effective, or the Participant is issued written notice of the amendment by the
Employer or the Committee.
SECTION 14. MISCELLANEOUS PROVISIONS.
14.1 PLAN CREATES NO EMPLOYMENT RIGHTS. Nothing in this Plan shall be
interpreted as giving any Employee the right to be retained as an Employee by an
Employer, or as limiting or affecting the rights of an Employer to control its
Employees or to terminate the Service of any Employee at any time and for any
reason, subject to any applicable employment or collective bargaining
agreements.
14.2 NONASSIGNABILITY OF BENEFITS. No assignment, pledge, or other
anticipation of benefits from the Plan will be permitted or recognized by the
Employer, the Committee, or the Trustee. Moreover, benefits from the Plan shall
not be subject to attachment, garnishment, or other legal process for debts or
liabilities of any Participant or Beneficiary, to the extent permitted by law.
This prohibition on assignment or alienation shall apply to any judgment,
decree, or order (including approval of a property settlement agreement) which
relates to the provision of child support, alimony, or property rights to a
present or former spouse, child or other dependent of a Participant pursuant to
a State domestic relations or community property law, unless the judgment,
decree, or order is determined by the Committee to be a qualified domestic
relations order within the meaning of Section 414(p) of the Code, as more fully
set forth in Section 14.2 hereof.
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14.3 LIMIT OF EMPLOYER LIABILITY. The liability of the Employer with
respect to Participants under this Plan shall be limited to making contributions
to the Trust from time to time, in accordance with Section 4.
14.4 TREATMENT OF EXPENSES. All expenses incurred by the Committee and the
Trustee in connection with administering this Plan and Trust Fund shall be paid
by the Trustee from the Trust Fund to the extent the expenses have not been paid
or assumed by the Employer or by the Trustee.
14.5 NUMBER AND GENDER. Any use of the singular shall be interpreted to
include the plural, and the plural the singular. Any use of the masculine,
feminine, or neuter shall be interpreted to include the masculine, feminine, or
neuter, as the context shall require.
14.6 NONDIVERSION OF ASSETS. Except as provided in Sections 5.3 and 13.3,
under no circumstances shall any portion of the Trust Fund be diverted to or
used for any purpose other than the exclusive benefit of the Participants and
their Beneficiaries prior to the satisfaction of all liabilities under the Plan.
14.7 SEPARABILITY OF PROVISIONS. If any provision of this Plan is held to
be invalid or unenforceable, the other provisions of the Plan shall not be
affected but shall be applied as if the invalid or unenforceable provision had
not been included in the Plan.
14.8 SERVICE OF PROCESS. The agent for the service of process upon the Plan
shall be the president of the Bank, or such other person as may be designated
from time to time by the Bank.
14.9 GOVERNING STATE LAW. This Plan shall be interpreted in accordance with
the laws of the State of New Jersey to the extent those laws are applicable
under the provisions of ERISA.
14.10 EMPLOYER CONTRIBUTIONS CONDITIONED ON DEDUCTIBILITY. Employer
Contributions to the Plan are conditioned on deductibility under Code Section
404. In the event that the Internal Revenue Service shall determine that all or
any portion of an Employer Contribution is not deductible under that Section,
the nondeductible portion shall be returned to the Employer within one year of
the disallowance of the deduction.
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14.11 UNCLAIMED ACCOUNTS. Neither the Employer nor the Trustees shall be
under any obligation to search for, or ascertain the whereabouts of, any
Participant or beneficiary. The Employer or the Trustees, by certified or
registered mail addressed to his last known address of record with the Employer,
shall notify any Participant or beneficiary that he is entitled to a
distribution under this Plan, and the notice shall quote the provisions of this
Section. If the Participant or beneficiary fails to claim his benefits or make
his whereabouts known in writing to the Employer or the Trustees within seven
(7) calendar years after the date of notification, the benefits of the
Participant or beneficiary under the Plan will be disposed of as follows:
(a) If the whereabouts of the Participant is unknown but the
whereabouts of the Participant's beneficiary is known to the Trustees,
distribution will be made to the beneficiary.
(b) If the whereabouts of the Participant and his beneficiary are
unknown to the Trustees, but the whereabouts of one (1) or more relatives
of the Participants by adoption, blood or marriage is known to the
Trustees, the Trustees shall distribute the Participant's benefits to any
one (1) or more of such relatives and in such proportions as the Trustees
shall determine.
(c) If the Trustees do not know the whereabouts of any of the above
persons, they shall then notify the Social Security Administration of the
Participant's (or beneficiary's) failure to claim the distribution to which
he is entitled. The Trustees shall request the Social Security
Administration to notify the Participant (or beneficiary) in accordance
with the procedures it has established for this purpose.
Any payment made pursuant to the power herein conferred upon the Trustees
shall operate as a complete discharge of all obligations of the Trustees, to the
extent of the distributions so made.
14.12 QUALIFIED DOMESTIC RELATIONS ORDER. Section 14.2 shall not apply to a
"qualified domestic relations order" defined in Code Section 414(p), and such
other domestic relations orders permitted to be so treated by Administrator
under the provisions of the Retirement Equity Act of 1984. Further, to the
extent provided under a "qualified domestic relations order", a former spouse of
a Participant shall be treated as the spouse or surviving spouse for all
purposes under the Plan.
In the case of any domestic relations order received by the Plan:
(a) The Employer or the Plan Committee shall promptly notify the
Participant and any other alternate payee of the receipt of such order and
the Plan's procedures for determining the qualified status of domestic
relations orders, and
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(b) Within a reasonable period after receipt of such order, the
Employer or the Plan Committee shall determine whether such order is a
qualified domestic relations order and notify the Participant and each
alternate payee of such determination. The Employer or the Plan Committee
shall establish reasonable procedures to determine the qualified status of
domestic relations orders and to administer distributions under such
qualified orders.
During any period in which the issue of whether a domestic relations order
is a qualified domestic relations order is being determined (by the Employer or
Plan Committee, by a court of competent jurisdiction, or otherwise), the
Employer or the Plan Committee shall segregate in a separate account in the Plan
or in an escrow account the amounts which would have been payable to the
alternate payee during such period if the order had been determined to be a
qualified domestic relations order. If within eighteen (18) months the order (or
modification thereof) is determined to be a qualified domestic relations order,
the Employer or the Plan Committee shall pay the segregated amounts (plus any
interest thereon) to the person or persons entitled thereto. If within eighteen
(18) months it is determined that the order is not a qualified domestic
relations order, or the issue as to whether such order is a qualified domestic
relations order is not resolved, then the Employer or the Plan Committee shall
pay the segregated amounts (plus any interest thereon) to the person or persons
who would have been entitled to such amounts if there had been no order. Any
determination that an order is a qualified domestic relations order which is
made after the close of the eighteen (18) month period shall be applied
prospectively only. The term "alternate payee" means any spouse, former spouse,
child or other dependent of a Participant who is recognized by a domestic
relations order as having a right to receive all, or a portion of, the benefit
payable under a Plan with respect to such Participant.
SECTION 15. TOP-HEAVY PROVISIONS.
15.1 TOP-HEAVY PLAN. For any Plan Year beginning after December 31,
1983, this Plan is top-heavy if any of the following conditions exist:
(a) If the top-heavy ratio for this Plan exceeds sixty percent (60%)
and this Plan is not part of any required aggregation group or permissive
aggregation group;
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(b) If this Plan is a part of a required aggregation group (but is not
part of a permissive aggregation group) and the aggregate top-heavy ratio for
the group of Plans exceeds sixty percent (60%); or
(c) If this Plan is a part of a required aggregation group and part of
a permissive aggregation group and the aggregate top-heavy ratio for the
permissive aggregation group exceeds sixty percent (60%).
15.2 SUPER TOP-HEAVY PLAN. For any Plan Year beginning after December
31, 1983, this Plan will be a super top-heavy Plan if any of the following
conditions exist:
(a) If the top-heavy ratio for this Plan exceeds ninety percent (90%)
and this Plan is not part of any required aggregation group or permissive
aggregation group.
(b) If this Plan is a part of a required aggregation group (but is not
part of a permissive aggregation group) and the aggregate top-heavy ratio for
the group of Plans exceeds ninety percent (90%), or
(c) If this Plan is a part of a required aggregation group and part of
a permissive aggregation group and the aggregate top-heavy ratio for the
permissive aggregation group exceeds ninety percent (90%) .
15.3 DEFINITIONS.
In making this determination, the Committee shall use the following definitions
and principles:
15.3-1 The "Determination Date', with respect to the first Plan Year
of any plan, means the last day of that Plan Year, and with respect to each
subsequent Plan Year, means the last day of the preceding Plan Year. If any
other plan has a Determination Date which differs from this Plan's
Determination Date, the top-heaviness of this Plan shall be determined on
the basis of the other plan's Determination Date falling within the same
calendar years as this Plan's Determination Date.
15.3-2 A "Key Employee", with respect to a Plan Year, means an
Employee who at any time during the five years ending on the top-heavy
Determination Date for the Plan Year has received compensation from an
Employer and has been (i) an officer of the Employer having Total
Compensation greater than 50 percent of the limit then in effect under
Section 415(b)(1)(A) of the Code, (ii) one of the 10 Employees owning the
largest interests in the Employer having Total Compensation greater than
the limit then in effect under Section 415(c)(1)(A), (iii) an owner of more
than five percent of the outstanding equity interest or the outstanding
voting interest in
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any Employer, or (iv) an owner of more than one percent of the outstanding
equity interest or the outstanding voting interest in an Employer whose
Total Compensation exceeds $150,000. In determining which individuals are
Key Employees, the rules of Section 415(i) of the Code and Treasury
Regulations promulgated thereunder shall apply. The Beneficiary of a Key
Employee shall also be considered a Key Employee.
15.3-3 A "Non-key Employee" means an Employee who at any time during
the five years ending on the top-heavy Determination Date for the Plan Year
has received compensation from an Employer and who has never been a Key
Employee, and the Beneficiary of any such Employee.
15.3-4 A "required aggregation group" includes (a) each qualified Plan
of the Employer in which at least one Key Employee participates in the Plan
Year containing the Determination Date and any of the four (4) preceding
Plan Years, and (b) any other qualified Plan of the Employer which enables
a Plan described in (a) to meet the requirements of Code Sections 401(a)(4)
and 410. For purposes of the preceding sentence, a qualified Plan of the
Employer includes a terminated Plan maintained by the Employer within the
five (5) year period ending on the Determination Date. In the case of a
required aggregation group, each Plan in the group will be considered a
top-heavy Plan if the required aggregation group is a top-heavy group. No
Plan in the required aggregation group will be considered a top-heavy Plan
if the required aggregation group is not a top-heavy group. All Employers
aggregated under Code Sections 414(b), (c) or (m) or (o) (but only after
the Code Section 414(o) regulations become effective) are considered a
single Employer.
15.3-5 A "permissive aggregation group" includes the required
aggregation group of Plans plus any other qualified Plan(s) of the Employer
that are not required to be aggregated but which, when considered as a
group with the required aggregation group, satisfy the requirements of Code
Sections 401(a)(4) and 410 and are comparable to the Plans in the required
aggregation group. No Plan in the permissive aggregation group will be
considered a top-heavy Plan if the permissive aggregation group is not a
top-heavy group. Only a Plan that is part of the required aggregation group
will be considered a top-heavy Plan if the permissive aggregation group is
top heavy.
15.4 TOP-HEAVY RULES OF APPLICATION.
For purposes of determining the value of account balances and the present
value of accrued benefits the following provisions shall apply:
15.4-1 The value of account balances and the present value of accrued
benefits will be determined as of the most recent valuation date that falls
within or ends with the twelve (12) month period ending on the
Determination Date.
15.4-2 For purposes of testing whether this Plan is top-heavy, the
present value of an individual's accrued benefits and an individual's
account balances is counted only once each year.
15.4-3 The account balances and accrued benefits of a Participant who
is not presently a Key Employee but who was a Key Employee in a Plan Year
beginning on or after January 1, 1984 will be disregarded.
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15.4-4 For years beginning after December 31, 1984, non-deductible
Voluntary Employee Contributions will be taken into account for purposes of
computing the top-heavy ratio. Employer contributions attributable to a
salary reduction or similar arrangement will be taken into account.
15.4-5 When aggregating Plans, the value of account balances and
accrued benefits will be calculated with reference to the Determination
Dates that fall within the same calendar year.
15.4-6 The present value of the accrued benefits or the amount of the
account balances of an Employee shall be increased by the aggregate
distributions made to such Employee from a Plan of the Employer. No
distribution, however, made from the Plan to an individual (other than the
beneficiary of a deceased Employee who was an Employee within the five (5)
year period ending on the Determination Date) who has not been an Employee
at any time during the five (5) year period ending on the Determination
Date shall be taken into account in determining whether the Plan is
top-heavy. Also, any amounts recontributed by an Employee upon becoming a
Participant in the Plan shall no longer be counted as a distribution under
this paragraph.
15.4-7 The present value of the accrued benefits or the amount of the
account balances of an Employee shall be increased by the aggregate
distributions made to such Employee from a terminated Plan of the Employer,
provided that such Plan (if not terminated) would have been required to be
included in the aggregation group.
15.4-8 Accrued benefits and account balances of an individual shall
not be taken into account for purposes of determining the top-heavy ratios
if the individual has performed no services for the Employer during the
five (5) year period ending on the applicable Determination Date.
Compensation for purposes of this subparagraph shall not include any
payments made to an individual by the Employer pursuant to a qualified or
non-qualified deferred compensation plan.
15.4-9 The present value of the accrued benefits or the amount of the
account balances of any Employee participating in this Plan shall not
include any rollover contributions or other transfers voluntarily initiated
by the Employee except as described below. If a rollover was received by
this Plan after December 31, 1983, the rollover or transfer voluntarily
initiated by the Employee was received prior to January 1, 1984, then the
rollover or transfer shall be considered as part of the accrued benefit by
the Plan receiving such rollover or transfer. If this Plan transfers or
rolls over funds to another Plan in a transaction voluntarily initiated by
the Employee after December 31, 1983, then this Plan shall count the
distribution for purposes of determining account balances or the present
value of accrued benefits. A transfer incident to a merger or consolidation
of two or more Plans of the Employer (including Plans of related Employers
treated as a single Employer under Code Section 414), or a transfer or
rollover between Plans of the Employer, shall not be considered as
voluntarily initiated by the Employee.
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15.5 TOP-HEAVY RATIO.
If the Employer maintains one (1) or more defined contribution plans
(including any simplified Employee pension plan) and the Employer has never
maintained any defined benefit plans which have covered or could cover a
Participant in this Plan, the top-heavy ratio is a fraction, the numerator of
which is the sum of the account balances of all Key Employees as of the
Determination Date, and the denominator of which is the sum of the account
balances of all Employees as of the Determination Date. Both the numerator and
denominator of the top-heavy ratio shall be increased to reflect any
contribution which is due but unpaid as of the Determination Date.
If the Employer maintains one (1) or more defined contribution plans
(including any simplified Employee pension plan) and the Employer maintains or
has maintained one (1) or more defined benefit plans which have covered or could
cover a Participant in this Plan, the top-heavy ratio is a fraction, the
numerator of which is the sum of account balances under the defined contribution
plans for all Key Employees and the present value of accrued benefits under the
defined benefit plans for all Key Employees, and the denominator of which is the
sum of the account balances under the defined contribution plans for all
Employees and the present value of accrued benefits under the defined benefit
plans for all Employees.
15.6 MINIMUM CONTRIBUTIONS. For any Top-Heavy Year, each Employer shall
make a special contribution on behalf of each Participant to the extent that the
total allocations to his Account pursuant to Section 4 is less than the lesser
of:
(i) three percent of his Total Compensation for that year, or
(ii) the highest ratio of such allocation to Total Compensation
received by any Key Employee for that year. For purposes of the special
contribution of this Section 15.2, a Key Employee's Total Compensation
shall include amounts the Key Employee elected to defer under a qualified
401(k) arrangement. Such a special contribution shall be made on behalf of
each Participant who is employed by an Employer on the last day of the Plan
Year, regardless of the number of his Hours of Service, and shall be
allocated to his Account.
For any Plan Year when (1) the Plan is top-heavy and (2) a Non-key Employee
is a Participant in both this Plan and a defined benefit plan included in the
plan aggregation group which is top heavy,
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the sum of the Employer contributions and forfeitures allocated to the Account
of each such Non-key Employee shall be equal to at least five percent (5%) of
such Non-key Employee's Total Compensation for that year.
15.7 MINIMUM VESTING. If a Participant's vested interest in his Account is
to be determined in a Top-Heavy Year, it shall be based on the following
"top-heavy table":
Vesting Percentage of
Years Interest Vested
----- ---------------
Fewer than 3 years 0%
3 100%
15.8 MAXIMUM COMPENSATION. For any Top-Heavy Year beginning after December
31, 1993, a Participant's "Cash Compensation' as defined in Section 4.3, and his
"Total Compensation" for purposes of Section 15.2, shall not exceed $150,000 (or
the limit currently in effect under Section 415(d) of the Code).
15.9 TOP-HEAVY PROVISIONS CONTROL IN TOP-HEAVY PLAN. In the event this Plan
becomes top-heavy and a conflict arises between the top-heavy provisions herein
set forth and the remaining provisions set forth in this Plan, the top-heavy
provisions shall control.
47
NON-QUALIFIED EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME
DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT, entered into this 14th day of December 1983, in the City of
Bayonne, State of New Jersey, by and between First Savings and Loan Association
of Bayonne, a Corporation organized and existing under the laws of the State of
New Jersey, and having its principal place of business in the City of Bayonne,
State of New Jersey, hereinafter referred to as the "Corporation", and _________
of _______, New Jersey, hereinafter referred to as the Employee,"
WITNESSETH:
WHEREAS, the Corporation is engaged in the savings and loan business; and,
WHEREAS, an employment relationship has existed between the parties hereto
since January 3, 1956, to the mutual benefit of both parties; and
WHEREAS, the parties wish to continue this relationship and to provide for
certain contingencies; and
WHEREAS, the Employee is considered a highly compensated Employee or member
of a select management group of the Corporation;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, and for other good and valuable consideration,
receipt of which is hereby acknowledged, the Corporation and the Employee
covenant and agree as follows:
COMPENSATION TO EMPLOYEE IF RETIRED, DECEASED OR DISABLED
1.1 Compensation Following Termination of Employment: The Corporation
agrees, if the Employee shall have been continuously employed by the Corporation
from the date of this Agreement to his normal retirement date, and his active
employment by the Corporation shall terminate due to retirement, to pay to the
Employee beginning on a date to be determined by the Corporation but within
three calendar months of his normal retirement date, an amount sufficient to
restore in entirety, the benefits originally intended to be provided under the
Basic Pension Plan, without restrictions. The benefits will be paid in equal
monthly payments for the lifetime of the Employee but with not less than 120
monthly payments being paid on his behalf to his estate or designated
beneficiary.
1.2 Death Prior to Termination of Employment. The Corporation agrees, if
the Employee should die while continuously employed by the Corporation but prior
to his normal retirement date, to pay to such beneficiary or beneficiaries as he
may designate in paragraph 4.1, if living, otherwise to the Employee's estate,
the sum equal to one hundred times the monthly benefit as calculated in
accordance with paragraph 1.1 above.
<PAGE>
1.3 Death of Employee Following Termination of Employment. In the event
that the Employee should die after the payments provided for in Paragraph 1.1
have commenced but before a total of 120 monthly payments shall have been made
to the Employee, monthly payments shall be continued to such beneficiary or
beneficiaries as the Employee may designate in accordance with Paragraph 4.1, if
living, otherwise to the Employee's estate, in the same amount as he was
receiving under this Agreement prior to his death, and such monthly payments
shall continue until such time as a total of 120 monthly payments shall have
been made in the aggregate to the Employee and to his designated beneficiary or
beneficiaries and/or to their estates. If the last remaining designated
beneficiary should survive the Employee but should die thereafter while
receiving payments, any monthly payments remaining unpaid at that time shall be
paid to the estate of such designated beneficiary at such times and in such
manner as if the designated beneficiary were living.
CONDITIONS FOR PAYMENT
2.1 Continuous Employment. Payment of benefits to Employee or his
designated beneficiary under this Agreement are conditioned upon the continuous
Employment of the Employee by the Corporation (including periods of disability
and authorized leaves of absence as defined in paragraph 8.1 of this Agreement),
from the date of this Agreement to his date of retirement or his death,
whichever is the sooner, and upon the Employee's compliance with the terms of
this Agreement.
2.2 Covenant Not to Compete. The Employee agrees that during his employment
with the Corporation, after his retirement from the Corporation he will not
directly, or indirectly enter into, or in any manner take part in, any business,
profession or other endeavor, either as an employee, agent, independent
contractor, owner or otherwise, which in the opinion of the Corporation shall be
in competition with the business of the Corporation, which opinion of the
Corporation shall be final and conclusive for the purpose hereof. The Employee
agrees that if he shall fail to observe any of the covenants herein and shall
continue to breach any covenant herein contained for a period of thirty (30)
days after the Corporation shall have notified him in writing at this home
address that the Corporation had decided that such business is in competition
with the Corporation; then, any of the provisions hereof to the contrary
notwithstanding, the Employee agrees that no further payments shall be due or
payable by the Corporation hereunder, either to the Employee, his designated
beneficiary or beneficiaries, or to their estates, and that the Corporation
shall have no further liability hereunder. Provided, however, that the Employee
may engage in such employment if he obtains prior written consent of the
Corporation to do so.
2.3 Consultation. The Employee agrees that he will render such reasonable
business consulting and advisory services as the Corporation's board of
directors may call upon him to provide, and as his health may permit for a
period from his retirement to his death, or until prior disability. Such
services shall not require the Employee to be active in the Corporation's
day-to-day activities, and Employee shall perform such services as an
independent contractor. In addition, Employee shall be compensated for such
services in an amount to be then agreed upon, and shall be reimbursed for all
expenses incurred in performing such services.
<PAGE>
TERMINATION OF EMPLOYMENT: VESTING
3.1 Vesting Schedule. Notwithstanding any other provisions in this
Agreement, if the Employee is terminated prior to his normal retirement date for
any reason other than death or disability, he shall forfeit all rights to
whatever benefits provided in any Paragraph of this Agreement, and, in lieu
thereof, the Corporation agrees to pay to the Employee in a lump sum, or as may
be mutually agreed upon by the parties, the amount shown for the year of
termination in the following schedule:
Full Years From Date of Agreement
to Severance of Employment The Amount Shall Be
--------------------------------- -------------------
1 year but less than 2 20%
2 years but less than 3 40%
3 years but less than 4 60%
4 years but less than 5 80%
5 years 100%
If the employee should die before all the above agreed-upon benefits are
paid, the remaining benefits shall be payable to such individual or individuals
as the Employee shall have designated in accordance with Paragraph 4.1, or, in
the absence of such designation, to the estate of the Employee, until the
remaining benefits have been paid under the terms agreed upon.
3.2 Commencement of Payments. The payment of any amount coming due under
this Paragraph shall be made or shall begin on that anniversary date of this
Agreement immediately following the date of termination, and such payment or
payments shall be in final settlement of all obligations of the Corporation
which shall exist under this Agreement.
3.3 Termination for Cause. Notwithstanding any other provisions in this
Agreement, if the Employee is discharged by the Corporation for cause, all
benefits payable under this Agreement shall be forfeited. "Cause" as defined in
this Agreement shall mean (a) incompetence, (b) insubordination, (c) conviction
or a plea of nolo contrende in a felony case, or (d) drug addiction.
BENEFICIARIES
4.1 Beneficiary Designation. The Employee by written notice to the
Corporation during his lifetime signed by him and witnessed by at least two
persons, in the form attached as Exhibit A, may designate one or more persons or
entities (including a trust or trusts) to receive as beneficiaries his
contingent compensation, or any balance thereof, and any other compensation
payable to him under this Agreement, in the event of his death prior to full
payment thereof, and if he shall designate more than one, the proportion in
which each is to receive such payments. He may also designate the person or
persons who shall succeed to the rights of the person or persons originally
designated in case the latter should die while
<PAGE>
payments remain due under this Agreement. He may from time to time change any
designation so made and the last written notice received by the Corporation
before his death shall be controlling.
4.2 Simultaneous Death. If any beneficiary designated under the provisions
of this Agreement should die simultaneously with the Employee or within the
twenty-four hour period immediately following the death of the Employee, all
benefits payable under this Agreement shall be paid as if such beneficiary had
died prior to the Employee.
NAMED FIDUCIARY AND CLAIMS PROCEDURE
5.1 Name of Fiduciary. The Named Fiduciary of the plan and for purposes of
the claims procedure under this Agreement is President of the Corporation. The
business address and telephone number of the Named Fiduciary under this
Agreement is: 568 Broadway, Bayonne, NJ 07002, (201) 437-1000. The Corporation
shall have the right to change the Named Fiduciary of this Agreement. The
Corporation shall also have the right to change the address and telephone number
of the Named Fiduciary, but the Corporation shall give the Employee written
notice of any change of the Named Fiduciary, or any change in the address and
telephone number of the Named Fiduciary.
5.2 Request for Benefits. Benefits shall be paid in accordance with the
provisions of this Agreement. The Employee, or a designated beneficiary, or any
other person claiming through the Employee (hereinafter collectively referred to
as the "Claimant") shall make a written request for the benefits provided under
this Agreement. This written claim shall be mailed or delivered to the Named
Fiduciary.
5.3 Denial of Claims. The Named Fiduciary shall within a reasonable time
period, but in no event more than 90 days after the receipt of the claim by the
Named Fiduciary, provide a written notice to every Claimant who is either
partially or wholly denied a claim for benefits under this Agreement. The notice
shall set forth in a manner calculated to be understood by the Claimant, the
specific reasons for the denial; the specific reference to pertinent provisions
of this Agreement on which the denial is based; a description of any additional
material or information necessary for the Claimant to perfect the claim and an
explanation of why such material or information is necessary; and appropriate
information and explanation of the claims procedure under this Agreement to
permit the Claimant to submit his claim for review.
FUNDING
6.1 The Corporation's obligation under this Agreement shall be an unfunded
and unsecured promise to pay. The Corporation shall not be obligated under any
circumstances to fund its obligations under this Agreement but the Corporation
may, at its sole and exclusive option, elect to fund this Agreement in whole or
part. If the Corporation shall elect to fund this Agreement informally, in whole
or in part, the manner of such informal funding, and the continuance or
discontinuance of such informal funding shall be the sole and exclusive decision
of the Corporation. If the Corporation shall determine to informally fund this
<PAGE>
Agreement, in whole or in part, by procuring life insurance for its own benefit
on the life of the Employee, the form of such insurance and the amounts shall be
the sole and exclusive decision of the Corporation. Employee hereby agrees to
submit to medical examinations, supply such information and execute such
documents as may be required by the insurance company or companies to whom the
Corporation may have applied for such insurance if the Corporation shall
determine to informally fund this Agreement with life insurance. If said
policies are obtained, they shall be the sole property of the Corporation, which
shall be the owner and beneficiary of any such policies, and said policies will
in no way be deemed security to the Employee under this Agreement, but shall
remain a general corporate asset.
ACCELERATION OF BENEFIT PAYMENTS.
7.1 The Corporation reserves the right to accelerate the payment of any
benefits payable under this Agreement without the consent of the Employee, his
estate, his designated beneficiaries or any other person claiming through the
Employee, provided that the accelerated payment will be in such amounts and for
such periods as will be the equivalent of the monthly payments that would
otherwise have been payable.
LEAVE OF ABSENCE
8.1 For the purpose of determining the period of an Employee's continuous
employment within the meaning of the Agreement, an Employee's employment shall
not be deemed to have been interrupted by any periods of temporary absence taken
with the advance approval of the Corporation, during which the Employee worked
for no other employer; nor by any period of absence during service in the Armed
Forces of the United States of America, if the Employee shall return to his
employment at the time and under the circumstances required to give him
re-employment rights under any Federal or State Law. In the event the Employee
shall not return to the service of the Corporation within the specified period,
he shall be deemed to have terminated his employment when he originally left the
service of the Corporation.
BIRTHDATE
9.1 All benefits payable under this Agreement are based upon_____, 19__ as
the date of birth of the employee. If the actual date of birth is different,
equitable adjustment shall be made in the benefits payable hereunder.
NON-TRANSFERABILITY OF BENEFITS
10.1 This Agreement shall be binding upon the parties hereto, their heirs,
executors, administrators, successors, and assigns. However, no person entitled
to any payments under this Agreement shall have any right to commute, encumber,
pledge, borrow on or dispose of the right to receive such payments, and except
to the extent that this provision may be contrary to law, no assignment, pledge,
collateralization, or attachment of any of the benefits under this Agreement
shall be valid or recognized by the Corporation.
<PAGE>
CONSTRUCTION OF AGREEMENT
11.1 Corporate Merger or Termination. The Corporation agrees that it will
not merge or consolidate with any other corporation or organization, or permit
its business activities to be taken over by any other organization, unless and
until the succeeding or continuing corporation or other organization shall
expressly assume the rights and obligations of the Corporation herein set forth.
The Corporation further agrees that it will not cease its business activities or
terminate its existence, other than as heretofore set forth in this Paragraph,
without having made adequate provision for the fulfilling of its obligations
hereunder. In the event of any default with respect to the provisions of this
Paragraph, the Employee (or other obligee or obligees) shall have a continuing
lien on all corporate assets, including already transferred assets, until such
default be corrected.
11.2 Employee Security. With the exception of the circumstances enumerated
in Paragraph 11.1 above, the rights of the Employee, this designated beneficiary
or beneficiaries or their estates under this Agreement shall be solely those of
an unsecured creditor of the Corporation and they shall have only the rights to
receive from the Corporation those benefits as specified under this Agreement.
Nothing contained in this Agreement and no action taken pursuant to the
provisions of this Agreement shall create or be construed to create a trust of
any kind, or a fiduciary relationship between the Corporation and the Employee,
or any other person. Any funds which may be invested under the provisions of
this Agreement shall continue for all purposes to be a part of the general funds
of the Corporation and no person other than the Corporation shall by virtue of
the provisions of the Agreement have any interest in such funds.
11.3 Computation of Benefits. Any deferred compensation benefits under this
Agreement shall not be deemed salary or other compensation to the Employee for
the purpose of computing benefits to which he may be entitled under any pension
plan or other arrangement of the Corporation for the benefit of its Employees.
11.4 Independence of Benefits. The benefits payable under this Agreement
shall be independent of, and in addition to, any other benefits or compensation,
whether by salary, or bonus or otherwise, payable under any Employment
agreements that now exist or may hereafter exist from time to time between the
Corporation and the Employee. This Agreement between the Corporation and the
Employee does not involve a reduction in salary or foregoing of an increase in
future salary by the Employee, nor does the Agreement in any way affect or
reduce the existing and future compensation and other benefits of the Employee.
11.5 Scope of Agreement: Not a Contract of Employment. this Agreement shall
not be deemed to constitute a contract of employment between the parties hereto,
nor shall any provisions hereof restrict the right of the Corporation to
discharge the Employee for cause as defined in Paragraph 3.3, or for any other
reason; nor does it restrict the right of the Employee to terminate his
employment.
11.6 State law governing Agreement. The Law of the State of New Jersey
shall govern this Agreement.
<PAGE>
11.7 Interpretation of Agreement. Where appropriate in this Agreement,
words used in the singular shall include the plural and words used in the
masculine shall include the feminine.
REVOCATION AND AMENDMENT
12.1 This Agreement may be revoked or be amended in whole or in part by
writing signed by both of the parties hereto.
EXECUTION OF AGREEMENT
13.1 This Agreement shall be executed in duplicate, each copy of which when
so executed and delivered, shall be an original; but both copies shall,
together, constitute one and the same instrument.
IN WITNESS WHEREOF, the said Corporation has caused this Agreement to be
signed in its corporate name by its duly authorized officer, and impressed with
its corporate seal, attested by its Secretary, and the said Employee has
hereunto set his hand, all on the day and year first above written.
ATTEST: First Savings and Loan Association of
Bayonne
____________________________ By:___________________ (Seal)
Secretary
WITNESS:
- ----------------------------- ----------------------------
Employee
<PAGE>
TO:
FIRST SAVINGS AND LOAN ASSOCIATION OF BAYONNE
This is a designation of beneficiary under my deferred compensation
contract with the Association.
In the event of my death, please pay any sums due under the contract to:
(Primary
Beneficiary) ____________________________________________________
My (relationship) ______________________________________________:
if living, otherwise to
(First Contingent Beneficiary) __________________________________
My (relationship) ______________________________________________.
This designation supersedes any previous designation I may have made under
my deferred compensation contract with the Association.
_________________________ _________________________
Date Signature
_________________________ _________________________
Date Witnessed By
_________________________ _________________________
Date Witnessed By
ACKNOWLEDGED:
First Savings and Loan
Association of Bayonne
_________________________ _________________________
Date Officer
FIRST SAVINGS BANK OF NEW JERSEY, SLA
EMPLOYMENT AGREEMENT
This AGREEMENT is made effective as of _____________, 1997 by and among
First Savings Bank of New Jersey, SLA (the "Bank"), a New Jersey chartered
savings institution, with its principal administrative office at 568 Broadway,
Bayonne, New Jersey, Bayonne Bancshares, Inc., 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 faithful performance of his
duties hereunder including activities and services related to the
<PAGE>
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.
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<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 or
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
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<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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<PAGE>
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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<PAGE>
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 _____________, 1997,
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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<PAGE>
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.
Section 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.
Section 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. Section 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. Section 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. Section
1828(k) and 12 C.F.R. Section 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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<PAGE>
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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<PAGE>
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) to the fullest extent permitted under
New Jersey 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.
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 _________, 1997.
ATTEST: FIRST SAVINGS BANK OF NEW JERSEY,
SLA
By:
- ------------------------- -------------------------------------
Secretary Entire Board of Directors
[SEAL]
ATTEST: BAYONNE BANCSHARES, INC.
(Guarantor)
By:
- ------------------------- -------------------------------------
Secretary Entire Board of Directors
[SEAL]
WITNESS:
- ------------------------- -----------------------------------------
Executive
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BAYONNE BANCSHARES, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of _____________, 1997,
by and between Bayonne Bancshares, Inc. (the "Holding Company"), a corporation
organized under the laws of Delaware, with its principal administrative office
at 568 Broadway, Bayonne, New Jersey and _____________________ (the
"Executive"). Any reference to "Institution" herein shall mean First Savings
Bank of New Jersey, SLA 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 __________________________ 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,
<PAGE>
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 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 ________________________ 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
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Subsidiaries 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
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 _____________________________, 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;
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<PAGE>
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 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, or 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
4
<PAGE>
entity; provided, however, that such an event listed above will be deemed to
have occurred or 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.
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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
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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.
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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
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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 July 2, 1996, 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.
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(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.
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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.
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SIGNATURES
IN WITNESS WHEREOF, Bayone Bancshares, Inc. 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
_____, 1997.
ATTEST: BAYONNE BANCSHARES, INC.
By:
- ---------------------------- ---------------------------------
Secretary Entire Board of Directors
[SEAL]
WITNESS:
By:
- ---------------------------- ---------------------------------
Executive
12
FIRST SAVINGS BANK OF NEW JERSEY, SLA
THREE YEAR CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of _____________, 1997 by and between
First Savings Bank of New Jersey, SLA (the "Bank"), a New Jersey chartered
savings institution, with its principal administrative office at 568 Broadway,
Bayonne, New Jersey, __________________ ("Executive"), and Bayonne Bancshares,
Inc. (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 First Savings Bank of New Jersey, SLA 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 thirty-six (36) 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, as amended, the Federal Deposit Insurance Act, or 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 voting securities or right to
acquire such securities except for any voting securities of the Bank purchased
by the Holding Company in connection with the conversion of the Bank to the
stock form 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 have occurred or to have been effectuated upon the receipt of all
required regulatory approvals not including the lapse of any statutory periods.
(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
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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 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 three (3) 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
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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 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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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.
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(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.
ss.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.
ss.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.
ss.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.
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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) to the fullest extent permitted under
New Jersey law against all expenses and liabilities reasonably incurred by him
in connection with or arising out of any action, suit or
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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.
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
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SIGNATURES
IN WITNESS WHEREOF, First Savings Bank of New Jersey, SLA and Bayonne
Bancshares, Inc. have caused this Agreement to be executed by their duly
authorized officers, and Executive has signed this Agreement, on the _____ day
of __________, 1997.
ATTEST: FIRST SAVINGS BANK OF NEW JERSEY,
SLA
_______________________________ By: ___________________________
Secretary
Officer
SEAL
ATTEST: BAYONNE BANCSHARES, INC.
(Guarantor)
______________________________ By: ___________________________
Secretary Officer
SEAL
WITNESS:
- ---------------------------------- ---------------------------------
Executive
9
BAYONNE BANCSHARES, INC.
THREE YEAR CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of _____________, 1997, by and between
Bayonne Bancshares, Inc. (the "Holding Company"), a corporation organized under
the laws of the State of Delaware, with its office at 568 Broadway, Bayonne, New
Jersey, and _________________ ("Executive"). The term "Bank" refers to First
Savings Bank of New Jersey, SLA, 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 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.
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, as amended, the Federal Deposit Insurance Act, or 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 20% or more of the
Bank's or the Holding Company's outstanding voting securities except for any
voting securities of the Bank purchased by the Holding Company in connection
with the conversion of the Bank to the stock form and any voting 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; provided, however, that such an event listed above will be
deemed to have occurred or 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 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 a material loss to the Holding
Company or one of its Subsidiaries caused by 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 any material breach of this Agreement. Notwithstanding the
foregoing, Executive shall not be deemed to have been Terminated for Cause
unless and until
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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 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 three (3) 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. Such payments
shall not be reduced in the event Executive obtains other employment following
termination of employment.
(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.
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(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 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
4
<PAGE>
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 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.
5
<PAGE>
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. 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 _____________, 1997 (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.
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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.
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SIGNATURES
IN WITNESS WHEREOF, Bayonne Bancshares, Inc. has caused this Agreement to
be executed by its duly authorized officer, and Executive has signed this
Agreement, on the _____ day of _________________, 1997.
ATTEST: BAYONNE BANCSHARES, INC.
__________________________________ By: ___________________________
Secretary Officer
WITNESS:
- ---------------------------------- ---------------------------------
Executive
Seal
8
FIRST SAVINGS BANK OF NEW JERSEY, SLA
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of the First Savings Bank of New Jersey, SLA Employee
Severance Compensation Plan is to assure for First Savings Bank of New Jersey,
SLA (the "Bank") the services of Employees of the Bank in the event of a Change
in Control (capitalized terms are defined in section 2.1) of Bayonne Bancorp,
Inc. (the "Holding Company") or the Bank. The benefits contemplated by the Plan
recognize the value to the Bank of the services and contributions of the
Employees of the Bank and the effect upon the Bank resulting from the
uncertainties of continued employment, reduced Employee benefits, management
changes and relocations that may arise in the event of a Change in Control of
the Bank or the Holding Company. The Bank's and the Holding Company's Boards of
Directors believe that it is in the best interests of the Bank and the Holding
Company to provide Employees of the Bank who have been with the Bank for a
minimum of one year with such benefits in order to defray the costs and changes
in Employee status that could follow a Change in Control. The Board of Directors
believes that the Plan will also aid the Bank in attracting and retaining highly
qualified individuals who are essential to its success and the Plan's assurance
of fair treatment of the Bank's Employees will reduce the distractions and other
adverse effects on Employees' performance in the event of a Change in Control.
ARTICLE I
ESTABLISHMENT OF PLAN
1.1 Establishment of Plan
As of the Effective Date of the Plan as defined herein, the Bank hereby
establishes an employee severance compensation plan to be known as the "First
Savings Bank of New Jersey, SLA Employee Severance Compensation Plan." The
purposes of the Plan are as set forth above.
1.2 Applicability of Plan
The benefits provided by this Plan shall be available to all Employees of
the Bank, who, at or after the Effective Date, meet the eligibility requirements
of Article III, except for those executive officers who have entered into, or
who enter into in the future, and continue to be subject to an employment or
change in control agreement with the Employer.
<PAGE>
1.3 Contractual Right to Benefits
This Plan establishes in each Participant a contractual right in
consideration for meeting the eligibility requirements of the Plan, to the
benefits to which each Participant is entitled hereunder, enforceable by the
Participant against the Employer, Bank, or both.
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions
Whenever used in the Plan, the following terms shall have the meanings set
forth below.
(a) "Annual Compensation" of a Participant means and includes only regular
wages, and salary during the most recent 12 months ended the date as of which
Annual Compensation is to be determined, which are or would be includable in the
gross income of the Participant receiving the same for federal income tax
purposes.
(b) "Bank" means First Savings Bank of New Jersey, SLA or any successor as
provided for in Article VII hereof.
(c) "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, as amended, and the Rules and
Regulations promulgated by the Office of Thrift Supervision (the "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 tax-qualified 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
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reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the 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 have occurred or to have been
effectuated upon the receipt of all required regulatory approvals not including
the lapse of any statutory waiting periods; or (D) solicitations of shareholders
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 or similar transaction
with one or more corporations as a result of which the outstanding shares of the
class of securities then subject to the 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 the Holding Company.
(d) "Disability" as it regards a particular Participant has the same
meaning as in any long term disability plan ("LTD Plan") maintained by the Bank
by which such Participant is covered, in the absence of such a LTD Plan,
"Disability" means the permanent and total inability by reason of mental or
physical infirmity, or both, of an employee to perform the work customarily
assigned to him. Additionally, a medical doctor selected or approved by the
Board of Directors must advise the Board that it is either not possible to
determine if or when such Disability will terminate or that it appears probable
that such Disability will be permanent during the remainder of said employees
lifetime.
(e) "Disqualified Individual" means an individual who is an employee or
independent contractor of the corporation and is, with respect to the
corporation, (i) a shareholder, (ii) an officer, or (iii) a highly compensated
individual, as all of these terms, including Disqualified Individual, are
defined under Section 280G or the Code.
(f) "Effective Date" means the date the Plan is approved by the Board of
Directors of the Bank, or such other date as the Board shall designate in its
resolution approving the Plan.
(g) "Employee" means any Employee of the Bank or any subsidiary thereof
who has completed at least one Year of Service with the Bank, or any subsidiary
thereof, provided, however, that any Employee who is covered or hereinafter
becomes covered by an employment contract or change in control agreement with
the Employer shall not be considered to be an Employee for purposes of this
Plan.
(h) "Expiration Date" means a date ten (10) years from the Effective Date
unless earlier terminated pursuant to Section 8.2 or extended pursuant to
Section 8.1.
(i) "Employer" means the Bank or a subsidiary of the Bank or a parent of
the Bank which has adopted the Plan pursuant to Article VI hereof.
(j) "Holding Company" means Bayonne Bancshares, Inc., the holding company
of the Bank.
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<PAGE>
(k) "Just Cause" shall mean termination because of Participant'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 other
similar offenses) or any final cease-and desist order.
(l) "Leave of Absence" and "LOA" mean (i) the taking of an authorized or
approved leave of absence under the provisions of the federal Family and Medical
Leave Act ("FMLA"), (ii) any state law providing qualitatively similar benefits
as the FMLA, or (iii) a leave of absence authorized under the policies of the
Bank. "Leave of Absence" and "LOA" are defined in this paragraph for the
exclusive purposes of this Plan.
(m) "Payment" means the payment of severance compensation as provided in
Article IV hereof.
(n) "Participant" means an Employee who meets the eligibility
requirements of Article III.
(o) "Plan" means the First Savings Bank of New Jersey Employee Severance
Compensation Plan.
(p) "Year of Service" means each consecutive 12 month period, beginning
with an Employee's date of hire and running without a termination of employment
in which an Employee is credited with at least one hour of service in each of
the 12 calendar months in such period. The taking of a LOA shall not eliminate a
period of time from being a Year of Service if such period of time otherwise
qualifies as such. Further if a particular 12 month period of time would not
otherwise qualify under the Plan as a Year of Service because one hour of
service is not credited during each month of such period due to the taking of a
LOA, then such period of time shall be deemed to be a Year of Service for all
other sections of this Plan.
2.2 Applicable Law
The laws of the State of New Jersey shall be the controlling law in all
matters relating to the Plan to the extent not preempted by Federal law.
2.3 Severability
If a provision of this Plan shall be held illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of the Plan and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
4
<PAGE>
ARTICLE III
ELIGIBILITY
3.1 Participation
The term Participant shall describe those Employees of the Bank who have
completed at least one Year of Service with the Bank at the time of any
termination pursuant to Section 4.2 herein. Notwithstanding the foregoing,
persons who have entered into and continue to be covered by an employment
contract or change in control agreement with the Employer shall not be entitled
to participate in this Plan.
3.2 Duration of Participation
A Participant shall cease to be a Participant in the Plan when the
Participant ceases to be an Employee of the Bank or the Holding Company, unless
such Participant is entitled to a Payment as provided in the Plan. A Participant
entitled to receipt of a Payment shall remain a Participant in this Plan until
the full amount of such Payment has been paid to the Participant.
ARTICLE IV
PAYMENTS
4.1 Right to Payment
A Participant shall be entitled to receive from the Bank or the Holding
Company, but not both, a Payment in the amount provided in Section 4.3 if there
has been a Change in Control of the Bank or the Holding Company and if, within
one (1) year thereafter, the Participant's employment by the Bank or the Holding
Company shall terminate for any reason specified in Section 4.2, whether the
termination is voluntary or involuntary. A Participant shall not be entitled to
a Payment if termination occurs by reason of death, voluntary retirement,
voluntary termination other than for reasons specified in Section 4.2,
Disability, or for Just Cause. Each Participant shall be entitled to only one
payment under the provisions of this Plan.
4.2 Reasons for Termination
Following a Change in Control, a Participant shall be entitled to a
Payment if employment by the Bank or the Holding Company is terminated,
voluntarily or involuntarily, for any one or more of the following reasons
within one (1) year of the consummation of such a Change in Control:
(a) The Employer reduces the Participant's (i) base salary (or
regularly scheduled hours are increased without a pro rated increase in Base
Salary); (ii) rate of compensation in the case of hourly employees; or (iii) the
product of hourly rate of compensation on regularly scheduled hours (without
regard to overtime) as in effect
5
<PAGE>
immediately prior to the Change in Control, or as the same may have been
increased thereafter.
(b) The Employer materially changes Participant's function, duties
or responsibilities which would cause Participant's position to be one of lesser
responsibility, importance or scope with the Employer than immediately prior to
the change in control.
(c) The Employer requires the Participant to change the location of
the Participant's job or office, so that such Participant will be based at a
location more than twenty-five (25) miles from the location of the Participant's
job or office immediately prior to the Change in Control provided that such new
location is not closer to Participant's home.
(d) The Employer materially reduces the benefits and perquisites
available to the Participant immediately prior to the Change in Control,
provided, however, that a material reduction in benefits and perquisites
generally provided to all Employees of the Bank on a nondiscriminatory basis
would not trigger a payment pursuant to this Plan.
(e) A successor to the Bank fails or refuses to assume the Bank's
obligations under this Plan, as required by Article VII.
(f) The Bank or any successor to the Bank breaches any other
provisions of this Plan.
(g) The Employer terminates the employment of a Participant at or
after a Change in Control other than for Just Cause.
4.3 Amount of Payment
(a) Each Participant entitled to a Payment under this Plan shall
receive from the Bank a lump sum cash payment equal to one-twelfth of Annual
Compensation for each Year of Service up to a maximum of 100% of Annual
Compensation.
(b) Notwithstanding the provision (a) above, if a Payment to a
Participant who is a Disqualified Individual shall be in an amount which
includes an Excess Parachute Payment, the Payment hereunder to that Participant
shall be reduced to the maximum amount which does not include an Excess
Parachute Payment. The terms "Disqualified Individual" and "Excess Parachute
Payment" shall have the same meaning as defined in Section 280G of the Internal
Revenue Code of 1986, as amended, or any successor section of similar import.
The Participant shall not be required to mitigate damages on the amount of
the Payment by seeking other employment or otherwise, nor shall the amount of
such Payment be reduced by any compensation earned by the Participant as a
result of employment after termination of employment hereunder.
6
<PAGE>
4.4 Time of Payment
The Payment to which a Participant is entitled shall be paid to the
Participant by the Bank or the Holding Company or its successor, in cash and in
full, not later than twenty (20) business days after the termination of the
Participant's employment. If any Participant should die after termination of the
employment but before all amounts have been paid, such unpaid amounts shall be
paid to the Participant's named beneficiary, if living, otherwise to the
personal representative on behalf of or for the benefit of the Participant's
estate.
4.5 Suspension of Payment
Notwithstanding the foregoing, no payments or portions thereof shall be
made under this Plan, if such payment or portion would result in the Bank
failing to meet its minimum regulatory capital requirements as required by 12
C.F.R. ss. 567.2 of the Office of Thrift Supervision Regulations. Any payments
or portions thereof not paid shall be suspended until such time as their payment
would not result in a failure to meet the Bank's minimum regulatory capital
requirements. Any portion of benefit payments which have not been suspended will
be paid on an equitable basis, pro rata based upon amounts due each Participant,
among all eligible Participants.
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Other Benefits
Neither the provisions of this Plan nor the Payment provided for hereunder
shall reduce any amounts otherwise payable, or in any way diminish the
Participant's rights as an Employee of the Bank or the Holding Company, whether
existing now or hereafter, under any benefit, incentive, retirement, stock
option, stock bonus, stock ownership or any employment agreement or other plan
or arrangement.
5.2 Employment Status
This Plan does not constitute a contract of employment or impose on the
Participant or the Participant's Employer any obligation to retain the
Participant as an employee or Officer, to change the status of the Participant's
employment, or to change the Employer's policies regarding termination of
employment.
ARTICLE VI
PARTICIPATING EMPLOYERS
6.1 Upon approval by the Board of Directors of the Bank, this Plan may be
adopted by any Subsidiary or Parent of the Bank. Upon such adoption, the
Subsidiary or Parent shall become an Employer hereunder and the provisions of
the Plan shall be fully applicable to the Employees of that Subsidiary or
Parent. The term "Subsidiary" means any
7
<PAGE>
corporation in which the Bank, directly or indirectly, holds a majority of the
voting power of its outstanding shares of capital stock. The term "Parent" means
any corporation which holds a majority of the voting power of the Bank's
outstanding shares of capital stock.
ARTICLE VII
SUCCESSOR TO THE BANK
7.1 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
plan, 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.
ARTICLE VIII
DURATION, AMENDMENT AND TERMINATION
8.1 Duration
If a Change in Control has not occurred, this Plan shall expire as of the
Expiration Date, unless sooner terminated as provided in Section 8.2, or unless
extended for an additional period or periods by resolution adopted by the Board
of Directors of the Bank.
Notwithstanding the foregoing, if a Change in Control occurs this Plan
shall continue in full force and effect, and shall not terminate or expire until
such date as all Participants who become entitled to Payments hereunder shall
have received such Payments in full.
8.2 Amendment and Termination
The Plan may be terminated or amended in any respect by resolution adopted
by a majority of the Board of Directors of the Bank, unless a Change in Control
has previously occurred. If a Change in Control occurs, the Plan no longer shall
be subject to amendment, change, substitution, deletion, revocation or
termination in any respect whatsoever.
8.3 Form of Amendment
The form of any proper amendment or termination of the Plan shall be a
written instrument signed by a duly authorized officer or officers of the Bank,
certifying that the amendment or termination has been approved by the Board of
Directors. A proper amendment of the Plan automatically shall effect a
corresponding amendment to each Participant's rights hereunder. A proper
termination of the Plan automatically shall effect a termination of all
Participants' rights and benefits hereunder.
8
<PAGE>
8.4 No Attachment
(a) Except as required by law, no right to receive payments under
this Plan 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 such action shall be null, void,
and of no effect.
(b) This Plan shall be binding upon, and inure to the benefit of,
Employee and the Bank and their respective successors and assigns.
ARTICLE IX
LEGAL FEES AND EXPENSES
9.1 All reasonable legal fees and other expenses paid or incurred by a
party hereto pursuant to any dispute or question of interpretation relating to
this Plan shall be paid or reimbursed by the Bank or the Holding Company if a
Participant is found to have made a claim which is not without merit pursuant to
any legal judgment, arbitration or settlement.
ARTICLE X
REQUIRED PROVISIONS
10.1 The Bank may terminate the Employee's employment at any time, but any
termination by the Bank, other than Termination for Cause, shall not prejudice
Employee's right to compensation or other benefits under this Agreement.
Employee shall not have the right to receive compensation or other benefits for
any period after termination for Just Cause as defined in Section 2.1
hereinabove.
10.2 If the Employee 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 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
ss.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 the Employee 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.
10.3 If the Employee 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.
ss.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.
10.4 If the Bank is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. ss.1813(x)(1), all obligations of the
Bank under this contract shall
9
<PAGE>
terminate as of the date of default, but this paragraph shall not affect any
vested rights of the contracting parties.
10.5 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 Federal Deposit Insurance Corporation ("FDIC") or the
Resolution Trust Corporation ("RTC"), at the time 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. ss.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.
10.6 Any payments made to a Participant pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
ss.1828(k) and any rules and regulations promulgated thereunder.
ARTICLE XI
ADMINISTRATIVE PROVISIONS
11.1 Plan Administrator. The administrator of the Plan shall be under the
supervision of the Board of Directors of the Bank or a Committee appointed by
the Board (the "Board"). It shall be a principal duty of the Board to see that
the Plan is carried out in accordance with its terms, for the exclusive benefit
of persons entitled to participate in the Plan without discrimination among
them. The Board will have full power to administer the Plan in all of its
details subject, however, to the requirements of ERISA. For this purpose, the
Board's powers will include, but will not be limited to, the following
authority, in addition to all other powers provided by this Plan: (a) to make
and enforce such rules and regulations as it deems necessary or proper for the
efficient administration of the Plan; (b) to interpret the Plan, its
interpretation thereof in good faith to be final and conclusive on all persons
claiming benefits under the Plan; (c) to decide all questions concerning the
Plan and the eligibility of any person to participate in the Plan; (d) to
compute the amount of Payment that will be payable to any Participant or other
person in accordance with the provisions of the Plan, and to determine the
person or persons to whom such benefits will be paid; (e) to authorize Payments;
(f) to appoint such agents, counsel, accountants, consultants and actuaries as
may be required to assist in administering the Plan; and (g) to allocate and
delegate its responsibilities under the Plan and to designate other persons to
carry out any of its responsibilities under the Plan, any such allocation,
delegation or designation to be by written instrument and in accordance with
Section 405 of ERISA.
11.2 Named fiduciary. The Board will be a "named fiduciary" for purposes
of Section 402(a)(1) of ERISA with authority to control and manage the operation
and
10
<PAGE>
administration of the Plan, and will be responsible for complying with all of
the reporting and disclosure requirements of Part 1 of Subtitle B of Title I of
ERISA.
11.3 Claims and review procedures.
(a) Claims procedure. If any person believes he is being denied any
rights or benefits under the Plan, such person may file a claim in writing
with the Board. If any such claim is wholly or partially denied, the Board
will notify such person of its decision in writing. Such notification will
be written in a manner calculated to be understood by such person and will
contain (i) specific reasons for the denial, (ii) specific reference to
pertinent Plan provisions, (iii) a description of any additional material
or information necessary for such person to perfect such claim and an
explanation of why such material or information is necessary and (iv)
information as to the steps to be taken if the person wishes to submit a
request for review. Such notification will be given within 90 days after
the claim is received by the Board (or within 180 days, if special
circumstances require an extension of time for processing the claim, and
if written notice of such extension and circumstances is given to such
person within the initial 90 day period). If such notification is not
given within such period, the claim will be considered denied as of the
last day of such period and such person may request a review of his claim.
(b) Review procedure. Within 60 days after the date on which a
person receives a written notice of a denied claim (or, if applicable,
within 60 days after the date on which such denial is considered to have
occurred) such person (or his duly authorized representative) may (i) file
a written request with the Board for a review of his denied claim and of
pertinent documents and (ii) submit written issues and comments to the
Board. The Board will notify such person of its decision in writing. Such
notification will be written in a manner calculated to be understood by
such person and will contain specific reasons for the decision as well as
specific references to pertinent Plan provisions. The decision on review
will be made within 60 days after the request for review is received by
the Board (or within 120 days, if special circumstances require an
extension of time for processing the requests such as an election by the
Board to hold a hearing, and if written notice of such extension and
circumstances is given to such person within the initial 60 day period).
If the decision on review is not made within such period, the claim will
be considered denied.
11.4 Nondiscriminatory exercise of authority. Whenever, in the
administration of the Plan, any discretionary action by the Board is required,
the Board shall exercise its authority in a nondiscriminatory manner so that all
persons similarly situated will receive substantially the same treatment.
11.5 Indemnification of Board. The Bank will indemnify and defend to the
fullest extent permitted by law any person serving on the Board or as a member
of a committee designated as Board (including any person who formerly served as
a Board member or as a member of such committee) against all liabilities,
damages, costs and expenses (including
11
<PAGE>
attorneys fees and amounts paid in settlement of any claims approved by the
Bank) occasioned by any act or omission to act in connection with the Plan, if
such act or omission is in good faith.
11.6 "Plan Year" means the period beginning on the Effective Date and
ending on ___________, 20__ and the 12 consecutive-month period ending each year
thereafter.
11.7 Benefits solely from general assets. The benefits provided hereunder
will be paid solely from the general assets of the Bank. Nothing herein will be
construed to require the Bank or the Board to maintain any fund or segregate any
amount for the benefit of any Participant, and no Participant or other person
shall have any claim against, right to, or security or other interest in, any
fund, account or asset of the Bank from which any payment under the Plan may be
made.
Having been adopted by its Board of Directors on __________________, 1997, this
Plan is executed by its duly authorized officers this ____ the day of
____________________, 1997.
Attest FIRST SAVINGS BANK OF NEW JERSEY, SLA
_______________________ By: ___________________________
Secretary
Having been adopted by its Board of Directors on _______________, 1997,
this Plan is executed by its duly authorized officers this ____ day of
_________________, 1997.
Attest BAYONNE BANCSHARES, INC.
_________________________ By: _______________________________
Secretary
12
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
First Savings Bank of New Jersey:
We consent to the use of our report, dated April 30, 1996, included herein, and
to the reference to our Firm under the heading "Experts" included in the
Registration Statement/Prospectus of First Savings Bank of New Jersey and
Subsidiaries.
Our report refers to changes in the method of accounting for income taxes,
postretirement benefits and securities as of June 1, 1993.
KPMG Peat Marwick LLP
/s/ KPMG PEAT MARWICK LLP
------------------------------------
Short Hills, New Jersey
March 11, 1997
CONSENT
We hereby consent to the references to this firm and our opinions in the
Registration Statement on Form S-1 filed by Bayonne Bancshares, Inc., and all
amendments thereto and the Application for Conversion on the Form AC filed by
Bayonne Bankshares, M.H.C. (the "MHC") and all amendments thereto, relating to
the conversion of the MHC and the reorganization of the MHC and First Savings
Bank of New Jersey, SLA (the "Bank"), the concurrent sale or exchange of the
Bank's outstanding capital stock to Bayonne Bancshares, Inc., a holding company
formed for such purpose, and the offering of Bayonne Bancshares, Inc.'s common
stock.
MULDOON, MURPHY & FAUCETTE
/s/ MULDOON, MURPHY & FAUCETTE
-------------------------------------
Dated this 12th day of
March, 1997
[Letterhead of Morris, Nichols, Arsht & Tunnell]
March 7, 1997
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, DC 20016
Ladies and Gentlemen:
We hereby consent to the filing of our opinion to you concerning certain
matters of Delaware law in connection with the subscription and community
offering (the "Offering") by Bayone Bancshares, Inc., a Delaware corporation
(the "Company"), of shares of its common stock, par value $.01 per share, in
draft or final form, as an exhibit to (i) the Registration Statement filed with
the Securities and Exchange Commission by the Company in connection with the
Offering, and all amendments thereto, and (ii) the Application for Conversion
filed with the Office of Thrift Supervision in connection with the conversion of
Bayone Bancshares, M.H.C., a federal mutual holding company, and all amendments
thereto, and to the reference to this firm in the "Legal Matters" section of the
Prospectus relating to the Offering.
Very truly yours,
/s/ Morris, Nichols, Arsht & Tunnell
[Letterhead of Finpro]
March 12, 1997
Board of Directors
First Savings Bank of New Jersey
568 Broadway
Bayonne, NJ 07002
Dear Board Members:
We hereby consent to the use of our firm's name, FinPro, Inc. ("FinPro") in the
Form S-1 Registration Statement and Amendments thereto of Bayonne Bancshares,
Inc. so filed with the Securities and Exchange Commission, the Form AC
Application for Conversion and the prospectus included therein filed by Bayonne
Bankshares, M.H.C. and any amendments thereto, for the Valuation Appraisal
Report ("Report") regarding the valuation of First Savings Bank of New Jersey
provided by FinPro, and our opinion regarding subscription rights filed as
exhibits to the Form S-1 and Form AC referred to below. We also consent to the
use of our firm's name and the inclusion of, summary of and references to our
Report and Opinion in the prospectus included in the Form S-1, and any
amendments thereto.
Very Truly Yours,
/s/ Donald J. Musso
Donald J. Musso
Liberty Corner, New Jersey
March 12, 1997
[Letterhead of Finpro]
March 12, 1997
Board of Directors
First Savings Bank of New Jersey
568 Broadway
Bayonne, NJ 07002
Dear Board Members:
All capitalized terms not otherwise defined in this letter have the meanings
given such terms in the Plan of Conversion and Agreement and Plan of
Reorganization (the "Plan") adopted by the Board of Directors of First Savings
Bank of New Jersey (the "Bank") and Bayonne Bankshares, M.H.C. (the "MHC"),
whereby the Bank and the MHC will reorganize into the stock holding company
structure form of organization, and issue shares of Common Stock of a newly
formed Delaware - chartered holding company, Bayonne Bancshares, Inc. (the
"Company") in a Subscription and Community Offering.
We understand that in accordance with the Plan, Subscription Rights to purchase
shares of the Company's Common Stock are to be issued to (i) Eligible Account
Holders; (ii) the ESOP; (iii) Supplemental Eligible Account Holders; and (iv)
Other Members, collectively referred to as the "Recipients". Based solely on our
observation that the Subscription Rights will be available to such Recipients
without cost, will be legally non-transferable and of short duration, and will
afford the Recipients the right only to purchase shares of Common Stock at the
same price as will be paid by members of the general public in the Selected
Community Offering, but without undertaking any independent investigation of
state or federal law or the position of the Internal Revenue Service with
respect to this issue, we are of the belief that:
(1) the Subscription Rights will have no ascertainable market value; and
(2) the price at which the Subscription Rights are excercisable will not
be more or less than the pro forma market value of the shares upon
issuance.
Changes in the local and national economy, the legislative and regulatory
environment, the stock market, interest rates, and other external forces (such
as natural disasters or significant world events) may occur from time to time,
often with great unpredictability and may materially impact the value of thrift
stocks as a whole or the Bank's value alone. Accordingly, no assurance can be
given that persons who subscribe to shares of Common Stock in the offering will
thereafter be able to buy or sell such shares at the same price paid in the
Subscription Offering.
Very Truly Yours,
FinPro, Inc.
/s/ Donald J. Musso
Donald J. Musso
President
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Patrick F.X. Nilan, Michael Nilan and Eugene V.
Malinowski as the true and lawful attorneys-in-fact and agents with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign any or all amendments to the Application for
Conversion on Form AC and the Form S-1 Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Office of Thrift Supervision or the U.S. Securities and Exchange
Commission, respectively, granting unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and things requisite
and necessary to be done as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of Part 563b of the OTS Rules and Regulations
and the Securities Act of 1933, as amended, and any rules and regulations
promulgated thereunder, the foregoing Powers of Attorney prepared in conjunction
with the Application for Conversion on Form AC and the Form S-1 Registration
Statement have been duly signed by the following persons in the capacities and
on the dates indicated.
NAME DATE
---- ----
/s/ Michael Nilan March 12, 1997
- -----------------------------------
Michael Nilan
President and Chief Executive Officer
(principal executive officer)
Bayonne Bancshares, Inc.
Vice President and Chief Operating Officer
First Savings Bank of New Jersey, SLA
/s/ Patrick F.X. Nilan March 12, 1997
- -----------------------------------
Patrick F.X. Nilan
Chairman of the Board,
Bayonne Banchares, Inc.
President, Chief Executive Officer
and Chairman of the Board
(principal executive officer)
First Savings Bank of New Jersey, SLA
<PAGE>
/s/ Eugene V. Malinowski March 12, 1997
- -----------------------------------
Eugene V. Malinowski
Vice President and Chief Financial Officer
(principal accounting and financial officer)
Bayonne Bancshares, Inc.
Vice President and Chief Financial Officer
(principal accounting and financial officer)
First Savings Bank of New Jersey, SLA
/s/ Patrick D. Conaghan March 12, 1997
- -----------------------------------
Patrick D. Conaghan
Director
Bayonne Bancshares, Inc.
Director
First Savings Bank of New Jersey, SLA
/s/ Sam P. Lamparello March 12, 1997
- -----------------------------------
Sam P. Lamparello
Director
Bayonne Bancshares, Inc.
Director
First Savings Bank of New Jersey, SLA
/s/ James F. Sisk March 12, 1997
- -----------------------------------
James F. Sisk
Director
Bayonne Bancshares, Inc.
Director
First Savings Bank of New Jersey, SLA
<PAGE>
/s/ Frederick G. Whelply March 12, 1997
- -----------------------------------
Frederick G. Whelply
Director
Bayonne Bancshares, Inc.
Director
First Savings Bank of New Jersey, SLA
/s/ Joseph L. Wisniewski March 12, 1997
- -----------------------------------
Joseph L. Wisniewski
Director
Bayonne Bancshares, Inc.
Director
First Savings Bank of New Jersey, SLA
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,531
<INT-BEARING-DEPOSITS> 14,849
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 285,952
<INVESTMENTS-CARRYING> 11,277
<INVESTMENTS-MARKET> 11,384
<LOANS> 239,194
<ALLOWANCE> 2,929
<TOTAL-ASSETS> 578,574
<DEPOSITS> 441,289
<SHORT-TERM> 82,092
<LIABILITIES-OTHER> 5,608
<LONG-TERM> 0
0
0
<COMMON> 306
<OTHER-SE> 49,279
<TOTAL-LIABILITIES-AND-EQUITY> 578,574
<INTEREST-LOAN> 14,933
<INTEREST-INVEST> 15,747
<INTEREST-OTHER> 530
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<INTEREST-DEPOSIT> 15,719
<INTEREST-EXPENSE> 21,300
<INTEREST-INCOME-NET> 9,910
<LOAN-LOSSES> 90
<SECURITIES-GAINS> (2,812)
<EXPENSE-OTHER> 1070
<INCOME-PRETAX> (2,674)
<INCOME-PRE-EXTRAORDINARY> (2,674)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,971)
<EPS-PRIMARY> (.98)
<EPS-DILUTED> (.98)
<YIELD-ACTUAL> 6.81
<LOANS-NON> 4,271
<LOANS-PAST> 450
<LOANS-TROUBLED> 981
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,979
<CHARGE-OFFS> 140
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</TABLE>
FIRST SAVINGS BANK OF NEW JERSEY, SLA
BAYONNE, NEW JERSEY
__________________, 1997
Dear Shareholder:
You are invited to attend a special meeting of shareholders of First
Savings Bank of New Jersey, SLA, Bayonne, New Jersey (the "Bank") on
_____________, 1997 at _____ _.m., Eastern Time, at the main office of the Bank,
568 Broadway, Bayonne, New Jersey (the "Special Meeting"). Only shareholders of
record of the Bank as of ________________, 1997, will be entitled to vote at the
Special Meeting.
At the Special Meeting, shareholders will be asked to approve a Plan of
Conversion and Agreement and Plan of Reorganization (the "Plan") adopted by the
Bank, whereby the Bank and Bayonne Bankshares, M.H.C., the Bank's mutual holding
company (the "MHC"), will reorganize into a stock holding company structure (the
"Conversion"). In connection with the Conversion, Bayonne Bancshares, Inc., the
proposed new holding company of the Bank, will issue shares of common stock to
current shareholders of the Bank in exchange for shares of the Bank's common
stock and sell additional shares to the Bank's depositors and borrowers and the
public in a subscription and community offering. The Conversion will not affect
any deposit accounts or borrower relationships that you may have with the Bank,
and all deposits in the Bank will continue to be insured by the Federal Deposit
Insurance Corporation on the same terms up to the applicable limits of insurance
coverage.
It is very important for your shares to be represented at the Special
Meeting, regardless of whether you plan to attend in person. The affirmative
vote of two-thirds of the Bank's shares outstanding is required to approve the
Conversion. Consequently, a failure to vote will have the same effect as a vote
against the Conversion. Accordingly, it is important that you take the time to
consider and vote upon these matters. I urge you to execute, date and return the
enclosed proxy card in the enclosed postage-paid envelope as soon as possible to
ensure that your shares will be voted at the Special Meeting.
YOUR VOTE IS IMPORTANT
The Board of Directors of the Bank has determined that the Conversion is
in the best interests of the Bank and its shareholders. The enclosed proxy
materials and prospectus for the stock of Bayonne Bancshares, Inc. contain a
more detailed analysis of the Conversion. For the reasons set forth in the proxy
statement and the prospectus the Board of Directors unanimously recommends a
vote FOR the Conversion. Thank you for taking the time to consider this matter.
Sincerely,
Patrick F.X. Nilan
President and Chief Executive Officer
First Savings Bank of New Jersey, SLA
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY, SLA
568 BROADWAY
BAYONNE, NEW JERSEY 07002
(201) 437-1000
----------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON _____________, 1997
NOTICE IS HEREBY GIVEN that a special meeting of shareholders (the
"Special Meeting of Shareholders") of First Savings Bank of New Jersey, SLA (the
"Bank") will be held at the main office of the Bank, 568 Broadway, Bayonne, New
Jersey on ______________, 1997 at _______ _.m., Eastern Time, to consider and
vote upon:
1. The adoption of a Plan of Conversion and Agreement and Plan of
Reorganization (the "Plan of Conversion" or "Plan") providing for
the conversion of Bayonne Bancshares, M.H.C., the mutual holding
company of the Bank (the "MHC"), to a stock form savings and loan
holding company, with the concurrent issuance and sale of all of the
Bank's outstanding common stock to Bayonne Bancshares, Inc., a
Delaware corporation (the "Company"), and the issuance and sale of
the Company's common stock to the public; and the other transactions
provided for in the Plan;
2. The authorization of the Board of Directors of the Bank, in its
discretion, to vote upon such other business as may properly come
before the Special Meeting of Shareholders and any adjournment or
postponement thereof, including, without limitation, a motion to
adjourn or postpone the Special Meeting of Shareholders to another
time or place for the purpose of soliciting additional proxies in
order to approve and adopt the Plan of Conversion or otherwise.
Note: Management is not aware of any such other business at this time.
The Board of Directors has fixed _________________, 1997, as the record
date (the "Record Date") for the determination of shareholders entitled to
notice of and to vote at the Special Meeting of Shareholders and at any
adjournment thereof. Only holders of the Bank's common stock as of the close of
business on the Record Date will be entitled to vote at the Special Meeting of
Shareholders or any adjournment or postponement thereof. In the event there are
not sufficient votes to approve the foregoing proposal at the time of the
Special Meeting of Shareholders, the meeting may be adjourned in order to permit
further solicitation of proxies by the Bank. A list of shareholders entitled to
vote at the Special Meeting of Shareholders will be available for inspection at
568 Broadway, Bayonne, New Jersey, for a period of twenty (20) days prior to the
Special Meeting of Shareholders and also will be available at the Special
Meeting of Shareholders.
The following Proxy Statement is a summary of information about the Bank,
the MHC, the Company and the proposed Conversion. A more detailed description of
the Bank, the MHC, the Company and the proposed Conversion is included in the
Prospectus you are receiving herewith. A copy of the Plan of Conversion is
available upon written request to the Bank. Upon written request addressed to
the Secretary of the Bank at the address given above, shareholders may obtain an
additional copy of the Prospectus, and/or a copy of the Plan of Conversion and
exhibits thereto, including the Certificate of
<PAGE>
Incorporation and the Bylaws of the Company. In order to assure timely receipt
of the additional copy of the Prospectus and/or the Plan, the written request
should be received by the Bank by __________________, 1997. In addition, all
such documents may be obtained at any office of the Bank.
By Order of the Board of Directors
Bayonne, New Jersey Thomas M. Coughlin
_____________, 1997 Corporate Secretary
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU SIGN, DATE AND MARK THE
ENCLOSED PROXY CARD IN FAVOR OF THE ADOPTION OF THE PLAN OF CONVERSION AS SOON
AS POSSIBLE AND RETURN IT IN THE ENCLOSED SELF-ADDRESSED POSTAGE-PREPAID
ENVELOPE. PROXY CARDS MUST BE RECEIVED PRIOR TO THE COMMENCEMENT OF THE SPECIAL
MEETING. RETURNING THE PROXY CARD WILL NOT PREVENT YOU FROM VOTING IN PERSON IF
YOU ATTEND THE SPECIAL MEETING OF SHAREHOLDERS.
THE AFFIRMATIVE VOTE OF TWO-THIRDS OF THE OUTSTANDING SHARES OF THE BANK'S
COMMON STOCK IS REQUIRED TO APPROVE THE PROPOSAL. WE URGE YOU TO SIGN, DATE AND
RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN
TO ATTEND THE MEETING IN PERSON. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO
ITS EXERCISE IN THE MANNER DESCRIBED IN THE ATTACHED PROXY STATEMENT. ANY
SHAREHOLDER PRESENT AT THE SPECIAL MEETING OF SHAREHOLDERS, INCLUDING ANY
ADJOURNMENT OR POSTPONEMENT THEREOF, MAY REVOKE SUCH HOLDER'S PROXY AND VOTE
PERSONALLY ON EACH MATTER BROUGHT BEFORE THE SPECIAL MEETING OF SHAREHOLDERS.
YOUR VOTE IS VERY IMPORTANT. A FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A
VOTE AGAINST THE PLAN.
<PAGE>
FIRST SAVINGS BANK OF NEW JERSEY, SLA
---------------------------
PROXY STATEMENT FOR THE
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ______________, 1997
---------------------------
INTRODUCTION
This Proxy Statement is being furnished to you in connection with the
solicitation by the Board of Directors of First Savings Bank of New Jersey, SLA
(the "Bank") of proxies to be voted at the Special Meeting of Shareholders to be
held at the main office of the Bank, 568 Broadway, Bayonne, New Jersey on
______________, 1997, at _____ _.m., Eastern Time, and any adjournment thereof,
and, together with the accompanying proxy card, is being furnished to holders of
the Bank's common stock as of the close of the business on ________________,
1997 (the "Record Date") in connection with the solicitation of proxies by the
Board of Directors of the Bank for use at the Special Meeting of Shareholders.
The purpose of the Special Meeting of Shareholders is to consider and vote
upon a Plan of Conversion and Agreement and Plan of Reorganization (the "Plan of
Conversion" or "Plan"), pursuant to which the Bank organized Bayonne Bancshares,
Inc. (the "Company") and, upon consummation of the following transactions, will
become a wholly-owned subsidiary of the Company: (1) Bayonne Bankshares, M.H.C.,
the mutual holding company of the Bank (the "MHC"), which currently owns
approximately 54.2% of the Bank's common stock, will convert to a stock form
interim federal savings bank ("Interim A") and simultaneously merge with and
into the Bank, with the Bank being the surviving entity; (2) immediately
thereafter, a stock form interim savings bank subsidiary of the Company
("Interim B") will merge with and into the Bank, with the Bank being the
surviving entity; (3) each share of the Bank's common stock held by the MHC will
be cancelled and each share of the Bank's common stock held by members of the
public other than the MHC and by the Bank's employee stock ownership plan (the
"ESOP") will be converted into shares of the Company's common stock (the "Common
Stock") pursuant to an exchange ratio which will result in these stockholders
receiving approximately the same percentage of the Common Stock as the
percentage of the Bank's common stock held by them just prior to the exchange,
before giving effect to such stockholders purchasing additional shares,
receiving cash in lieu of any fractional shares or the establishment of, and
issuance of shares of Company Common Stock to, a charitable foundation which is
proposed to be established; and (4) the contemporaneous offer and sale of shares
of the Common Stock to the general public in a subscription offering, community
offering and syndicated community offering or public offering (the "Offerings").
The reorganization and conversion of the Bank and the MHC, the exchange of Bank
common stock for the Common Stock and the issuance of additional shares of
Common Stock in the Offerings is referred to in the Plan and herein as the
"Conversion."
This Proxy Statement, together with the accompanying proxy card and
Prospectus, is first being mailed or delivered to shareholders on or about
__________________, 1997.
A MORE DETAILED DESCRIPTION OF THE MHC, THE COMPANY, THE BANK AND THE
PROPOSED CONVERSION IS INCLUDED IN THE PROSPECTUS THAT YOU ARE RECEIVING
HEREWITH. UPON WRITTEN REQUEST ADDRESSED TO THE SECRETARY OF THE BANK AT THE
ADDRESS GIVEN ABOVE, SHAREHOLDERS MAY OBTAIN AN
<PAGE>
ADDITIONAL COPY OF THE PROSPECTUS, AND/OR A COPY OF THE PLAN OF CONVERSION AND
EXHIBITS THERETO, INCLUDING THE CERTIFICATE OF INCORPORATION AND THE BYLAWS OF
THE COMPANY. IN ORDER TO ASSURE TIMELY RECEIPT OF THE ADDITIONAL COPY OF THE
PROSPECTUS AND/OR THE PLAN, THE WRITTEN REQUEST SHOULD BE RECEIVED BY THE BANK
BY _________________, 1997. IN ADDITION, ALL SUCH DOCUMENTS MAY BE OBTAINED AT
ANY OFFICE OF THE BANK.
VOTING IN FAVOR OF OR AGAINST THE PLAN OF CONVERSION INCLUDES A VOTE FOR
OR AGAINST THE CONVERSION OF THE MHC INTO AN INTERIM FEDERAL STOCK SAVINGS BANK
AND THE SIMULTANEOUS MERGER OF THE MHC WITH THE BANK, AND ALL OTHER TRANSACTIONS
CONTEMPLATED BY THE PLAN.
VOTING IN FAVOR OF THE PLAN OF CONVERSION WILL NOT OBLIGATE ANY PERSON TO
PURCHASE ANY COMMON STOCK AND WILL NOT AFFECT THE BALANCE, INTEREST RATE OR
FEDERAL DEPOSIT INSURANCE OF ANY DEPOSITS.
HOLDERS OF THE BANK'S COMMON STOCK ARE REQUESTED TO SIGN, DATE AND RETURN
THE ACCOMPANYING PROXY CARD PROMPTLY TO THE BANK IN THE ENCLOSED POSTAGE-PAID,
ADDRESSED ENVELOPE. FAILURE TO RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE
AT THE MEETING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE PROPOSAL.
RECORD DATE AND VOTING RIGHTS
The Board of Directors of the Bank has fixed _______________, 1997, as the
Record Date for the determination of shareholders entitled to notice of and to
vote at the Special Meeting of Shareholders. Only holders of record of the
Bank's common stock at the close of business on the Record Date will be entitled
to vote at the Special Meeting of Shareholders and at any adjournment or
postponement thereof. At the close of business on the Record Date, there were
________________ shares of the Bank's common stock outstanding.
Each holder of shares of the Bank's common stock outstanding on the Record
Date will be entitled to one vote for each share held of record upon each matter
properly submitted at the Special Meeting of Shareholders and at any adjournment
or postponement thereof. The presence, in person or by proxy, of the holders of
at least a majority of the total number of outstanding shares of the Bank's
common stock entitled to vote at the Special Meeting of Shareholders is
necessary to constitute a quorum at the Special Meeting of Shareholders. If a
quorum is not obtained, or if fewer shares of the Bank's common stock are voted
in favor of the proposal than the number required for approval, it is expected
that the Special Meeting of Shareholders will be postponed or adjourned for the
purpose of allowing additional time for obtaining additional proxies or votes,
and, at any subsequent reconvening of the Special Meeting of Shareholders, all
proxies will be voted in the same manner as such proxies would have been voted
at the original meeting (except for any proxies which have theretofore
effectively been revoked or withdrawn).
If the enclosed proxy card is properly executed and received by the Bank
in time to be voted at the Special Meeting of Shareholders, the shares
represented thereby will be voted in accordance with the instructions marked
thereon. EXECUTED PROXIES WITH NO INSTRUCTIONS INDICATED THEREON WILL BE VOTED
FOR EACH OF THE PROPOSALS SET FORTH IN THE ACCOMPANYING NOTICE OF SPECIAL
MEETING OF SHAREHOLDERS.
2
<PAGE>
VOTES REQUIRED
In accordance with state law, the affirmative vote of two-thirds of the
shares of the Bank's common stock outstanding on the Record Date is required in
order to approve the Conversion, proposal 1. As of the Record Date, there were
___________ shares of the Bank's common stock outstanding and entitled to vote
at the Special Meeting of Shareholders, of which _____________ were owned by the
MHC, with each share being entitled to one vote. Approval of proposal 2 will
require the affirmative vote of a majority of votes present in person or by
proxy at the Special Meeting of Shareholders.
THE REQUIRED VOTE OF THE BANK'S SHAREHOLDERS ON PROPOSAL 1 IS BASED ON THE
NUMBER OF OUTSTANDING SHARES OF THE BANK'S COMMON STOCK, AND NOT THE NUMBER OF
THOSE SHARES THAT ARE ACTUALLY VOTED. ACCORDINGLY, THE FAILURE TO SUBMIT A PROXY
CARD OR TO VOTE IN PERSON AT THE SPECIAL MEETING OF SHAREHOLDERS OR THE
ABSTENTION FROM VOTING BY A SHAREHOLDER WILL HAVE THE SAME EFFECT AS A "NO" VOTE
WITH RESPECT TO PROPOSAL 1. BROKER NON-VOTES WILL NOT BE COUNTED AS HAVING BEEN
VOTED IN PERSON OR BY PROXY AT THE SPECIAL MEETING OF SHAREHOLDERS AND WILL HAVE
THE SAME EFFECT AS A "NO" VOTE ON PROPOSAL 1.
PROXIES
The Bank's shareholders may vote at the Special Meeting of Shareholders or
at any adjournment thereof in person or by proxy. Enclosed is a proxy card which
may be used by any shareholder to vote on the Plan of Conversion. ALL PROPERLY
EXECUTED PROXIES RECEIVED BY THE BANK WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS INDICATED THEREON BY THE SHAREHOLDERS GIVING SUCH PROXIES. IF NO
INSTRUCTIONS ARE GIVEN, EXECUTED PROXIES WILL BE VOTED FOR ADOPTION OF THE PLAN
OF CONVERSION AND FOR PROPOSAL 2. If any other matters are properly presented at
the Special Meeting of Shareholders and may properly be voted on, all proxies
will be voted on such matters in accordance with the best judgment of the proxy
holders named therein. Management is not aware of any other business to be
presented at the Special Meeting of Shareholders.
REVOCABILITY OF PROXIES
A proxy may be revoked at any time before it is voted by filing written
revocation of the proxy to the Secretary of the Bank, by submitting a duly
executed proxy bearing a later date or by attending and voting in person at the
Special Meeting of Shareholders or any adjournment thereof. The presence of a
shareholder at the Special Meeting of Shareholders shall not revoke a proxy
unless a written revocation is filed with the Secretary of the Special Meeting
of Shareholders prior to the voting of such proxy. The proxies being solicited
by the Board of Directors of the Bank are only for use at the Special Meeting of
Shareholders and at any and all adjournments thereof and will not be used for
any other meeting.
SOLICITATION OF PROXIES
This Proxy Statement and the accompanying proxy card are being furnished
in connection with the solicitation of proxies for the Special Meeting of
Shareholders by the Board of Directors. To the extent necessary to permit
approval of the Plan of Conversion, proxies may solicited by officers, directors
or employees of the Bank, by telephone or through other forms of communication
and, if necessary, the Special Meeting of Shareholders may be adjourned to a
later date. Such persons will be reimbursed by the Bank for their reasonable
out-of-pocket expenses incurred in connection with such solicitation. The Bank
has retained Sandler O'Neill to provide advisory services in connection with the
Conversion,
3
<PAGE>
including solicitation of proxies, account consolidation, proxy tabulation and
inspection, for an aggregate fee of $22,500 plus reimbursement of reasonable
out-of-pocket expenses. The Bank will bear all costs of this solicitation.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ADOPTION OF THE
PLAN OF CONVERSION. SEE "THE CONVERSION -- PURPOSE OF CONVERSION" IN THE
PROSPECTUS.
THE PROSPECTUS CONTAINS DETAILED INFORMATION ABOUT THE BANK, THE MHC, THE
COMPANY AND THE CONVERSION, INCLUDING THE RIGHTS OF HOLDERS OF THE BANK'S COMMON
STOCK TO EXCHANGE THEIR SHARES FOR SHARES OF THE COMPANY'S COMMON STOCK.
SHAREHOLDERS ARE URGED TO CONSIDER SUCH INFORMATION CAREFULLY PRIOR TO
SUBMITTING THEIR PROXIES.
THE OTS HAS APPROVED THE PLAN OF CONVERSION SUBJECT TO THE APPROVAL OF THE
BANK'S SHAREHOLDERS AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS. HOWEVER,
OTS APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN BY
THE OTS.
INTEREST OF MANAGEMENT AND DIRECTORS IN MATTERS TO BE ACTED UPON
Management and Directors of the MHC, the Company and the Bank have an
interest in the matters that will be acted upon because the Bank and the Company
have implemented a tax-qualified employee stock ownership plan and intend to
implement employment agreements at the time of the Conversion and a stock option
plan for employees and directors after six months following the Conversion. The
Company and the Bank currently intend to adopt such plans and make awards as are
described in the "Management of the Bank" section of the Prospectus.
PROPOSAL 1 - APPROVAL OF THE PLAN OF CONVERSION
All persons receiving this proxy are also being given a prospectus (the
"Prospectus") that describes the Conversion. The Prospectus, in its entirety, is
incorporated herein and made a part hereof. Although the Prospectus is
incorporated herein, this proxy statement does not constitute an offer or a
solicitation of an offer to purchase the common stock offered thereby. The Bank
urges you to carefully read the sections of the Prospectus that describe the
Conversion (see "The Conversion") and the Bank's, the Company's, and/or the
MHC's: (i) management and directors and compensation of such persons (see
"Management of the Bank"); (ii) business (see "Business of the Bank"); (iii)
reasons for the Conversion and management's belief that the Conversion is in the
best interest of the MHC and its members (see "The Conversion"); (iv) employment
agreements, change in control agreements and employee stock benefit plans that
the Bank and/or the Company intend to implement (see "Management of the Bank");
(v) common stock (see "Description of Capital Stock of the Company"); (vi) pro
forma capitalization, capital compliance, and pro forma information with respect
to the Conversion (see "Regulatory Capital Compliance," "Capitalization" and
"Pro Forma Data"); (vii) intended use of proceeds from the Offering ("Use of
Proceeds"); (viii) restrictions and anti-takeover devices on acquisitions of the
Company and the Bank (see "Restrictions on Acquisition of the Company and the
Bank"); and (ix) consolidated financial statements.
4
<PAGE>
PROPOSAL 2 - AUTHORITY TO ADJOURN THE SPECIAL MEETING
Proposal 1, as described above, must be approved by a two-thirds of the
votes of the Bank's shareholders eligible to be cast at the Special Meeting of
Shareholders. The form of Revocable Proxy sent to shareholders with the proxy
statement sets forth a proposal to permit the full Board of Directors of the
Bank to vote the proxy in favor of an adjournment of the Special Meeting of
Shareholders in order to solicit further proxies if holders of two-thirds of the
votes eligible to be cast at the Special Meeting of Shareholders do not submit
proxies voting in favor of Proposal 1. The proposal to authorize such
adjournment must be approved by a majority of the votes present in person or by
proxy at the Special Meeting of Shareholders. The Board of Directors recommends
a vote "FOR" the ratification of Proposal 2 and requests that shareholders check
the box permitting adjournment of the Special Meeting of Shareholders in the
event sufficient votes are not cast in favor of Proposal 1.
LEGAL AND TAX OPINIONS
The legality of the Company's Common Stock 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 and New Jersey state tax
consequences of the Conversion will be passed upon for the Bank and the Company
by KPMG Peat Marwick LLP, independent certified public accountants. Certain
legal matters will be passed upon for Sandler O'Neill by Breyer & Aguggia.
REVIEW OF OTS ACTION
Any person aggrieved by a final action of the OTS which approves, with or
without conditions, or disapproves a plan of conversion may obtain review of
such action by filing in the court of appeals of the United States for the
circuit in which the principal office or residence of such person is located, or
in the United States Court of Appeals for the District of Columbia, a written
petition praying that the final action of the OTS be modified, terminated or set
aside. Such petition must be filed within 30 days after the publication of
notice of such final action in the Federal Register, or 30 days after the
mailing by the applicant of the notice to members as provided in 12 C.F.R.
ss.563b.6(c), whichever is later. The further procedure for review is as
follows: A copy of the petition is forthwith transmitted to the OTS by the clerk
of the court and thereupon the OTS files in the court the record in the
proceeding, as provided in Section 2112 of Title 28 of the United States Code.
Upon the filing of the petition, the court has jurisdiction, which upon the
filing of the record is exclusive, to affirm, modify, terminate, or set aside in
whole or in part, the final action of the OTS. Review of such proceedings is as
provided in Chapter 7 of Title 5 of the United States Code. The judgement and
decree of the court is final, except that they are subject to review by the
Supreme Court upon certiorari as provided in Section 1254 of Title 28 of the
United States Code.
HOW TO OBTAIN ADDITIONAL INFORMATION
The Prospectus contains audited financial statements of the Bank,
including statements of income for the past three years; management's discussion
and analysis; a description of lending, savings and investment activities;
remuneration and other benefits of directors and officers; further information
about the business and financial condition of the Bank; and additional
information about the Conversion, the Subscription Offering, the Community
Offering and, if held, the Syndicated Community Offering or Public Offering. The
Plan of Conversion sets forth the terms, conditions and provisions of the
proposed
5
<PAGE>
Conversion. The Certificate of Incorporation and Bylaws of the Company are
exhibits to the Plan of Conversion.
If you would like to receive an additional copy of the Prospectus, or a
copy of the Plan of Conversion and the Certificate of Incorporation and Bylaws
of the Company, you must request such material in writing, addressed to the
Secretary of the Bank at the Bank's address given above. Such requests must be
received by the Bank no later than ____________, 1997. Requesting such materials
does not obligate you to purchase the shares. If the Bank does not receive your
request by _______________, 1997, you will not be entitled to have such
materials mailed to you. You will, however, be able to obtain a Prospectus and a
Stock Order Form from the nearest office of the Bank.
OTHER MATTERS
As of the date of this Proxy Statement, management is not aware of any
matters other than those set forth in the Notice of Special Meeting of
Shareholders that may be brought before the Special Meeting of Shareholders. If
any other matters properly come before the Special Meeting of Shareholders,
including, among other things, a motion to adjourn or postpone the Special
Meeting of Shareholders to another time or place or both for the purpose of
soliciting additional proxies or otherwise, the persons named in the
accompanying proxy will vote the shares represented by all properly executed
proxies on such matters in such manner as shall be determined by a majority of
the Board of Directors of the Bank.
By Order of the Board of Directors
Thomas M. Coughlin
Corporate Secretary
Bayonne, New Jersey
_______________, 1997
TO ASSURE THAT YOU ARE REPRESENTED AT THE SPECIAL
MEETING OF SHAREHOLDERS, PLEASE SIGN, DATE AND PROMPTLY RETURN
THE ACCOMPANYING PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED.
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION
OF AN OFFER TO BUY COMMON STOCK.
THE OFFER IS MADE ONLY BY THE PROSPECTUS.
6
<PAGE>
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF FIRST SAVINGS BANK OF NEW JERSEY, SLA
The undersigned hereby acknowledges prior receipt of the Notice of Special
Meeting of Stockholders ("Special Meeting") and the Proxy Statement describing
the matters set forth below, and indicating the date, time and place of the
Special Meeting, and hereby appoints the Board of Directors of First Savings
Bank of New Jersey, SLA (the "Bank"), the Proxy of the undersigned, to cast all
votes to which the undersigned is entitled at the Special Meeting, and at any
adjournment or adjournments thereof, on the matters referred to below in the
manner specified on the reverse side hereof:
FOR OR AGAINST the adoption of the Plan of Conversion and Agreement and
Plan of Reorganization, as amended (the "Plan" or "Plan of Conversion"), between
the MHC and First Savings Bank of New Jersey, SLA (the "Bank") pursuant to which
the Bank organized Bayonne Bancshares, Inc. (the "Company"), and upon
consummation of the following transactions, will become a wholly owned
subsidiary of the Company: (1) the MHC, which currently owns approximately 54.2%
of the outstanding shares of common stock of the Bank, will convert from mutual
form to a federal interim stock savings institution and simultaneously merger
into the Bank, with the Bank being the surviving entity; (2) the Bank will then
merge with an interim institution to be formed as a wholly owned subsidiary of
the Company, with the Bank being the surviving entity; (3) the outstanding
shares of Bank common stock (other than those held by the MHC, which will be
cancelled) will be converted into shares of the Company's common stock pursuant
to a ratio that will result in the holders of such shares owning in the
aggregate approximately the same percentage of the Company as they currently own
of the Bank, before giving effect to such stockholders purchasing additional
shares in a concurrent stock offering by the Company or by the Bank's Employee
Stock Ownership Plan ("ESOP") thereafter, receiving cash in lieu of fractional
shares or exercising dissenters' rights or shares being issued to the proposed
Bayonne First Charitable Foundation; and (4) the offer and sale of shares of the
Company's common stock.
In their discretion, upon any other matters that may properly come before
the Special Meeting or any adjournments thereof.
NOTE: The Board of Directors is not aware of any other matter that may
come before the Special Meeting.
THIS PROXY WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED STOCKHOLDER.
UNLESS OTHERWISE MARKED, THIS PROXY WILL BE VOTED FOR APPROVAL OF THE PLAN OF
CONVERSION. IF ANY OTHER BUSINESS IS PRESENTED AT THE SPECIAL MEETING, THIS
PROXY SHALL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF MANAGEMENT. THIS
PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED EITHER BY A WRITTEN
REVOCATION OF THE PROXY FILED WITH THE SECRETARY OF THE BANK OR BY SUBMITTING A
LATER DATED PROXY. THE PRESENCE OF A STOCKHOLDER AT THE SPECIAL MEETING SHALL
NOT REVOKE A PROXY UNLESS A WRITTEN NOTICE OF SUCH REVOCATION IS FILED WITH THE
SECRETARY OF THE SPECIAL MEETING PRIOR TO THE VOTING OF SUCH PROXY.
IMPORTANT: PLEASE DATE AND SIGN THE PROXY ON THE REVERSE SIDE.
VOTING FOR THE PLAN OF CONVERSION AND SIGNING THIS PROXY CARD DOES NOT
OBLIGATE YOU TO BUY ANY STOCK.
<PAGE>
IMPORTANT: Please sign your name exactly as it appears hereon. Joint accounts
need only one signature, but all account holders should sign if
possible. When signing as an attorney, administrator, agent,
corporation, officer, executor, trustee, guardian or similar
position, please add your full title to your signature.
Approval of the Plan of Conversion.
|X| Please vote by marking one of the following boxes as shown.
FOR |_| AGAINST |_|
Signature: __________________________ Date: __________, 1997
Signature: __________________________ Date: __________, 1997
PLEASE RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED POSTAGE-PAID ENVELOPE.
