<PAGE> 1
SCHEDULE 14-A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
-----
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Bayonne Bancshares, Inc.
----------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Christina M. Gattuso, Muldoon, Murphy & Faucette
--------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
...................................................................
2) Aggregate number of securities to which transaction applies:
...................................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
...................................................................
4) Proposed maximum aggregate value of transaction:
...................................................................
5) Total fee paid:
...................................................................
<PAGE> 2
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
.................................
2) Form, Schedule or Registration Statement No.:
.................................
3) Filing Party:
.................................
4) Date Filed:
.................................
<PAGE> 3
BAYONNE BANCSHARES, INC.
568 BROADWAY
BAYONNE, NEW JERSEY 07002
(201) 437-1000
February 24, 1998
Fellow Shareholders:
You are cordially invited to attend the Special Meeting of Shareholders
(the "Special Meeting") of Bayonne Bancshares, Inc. (the "Company"), the holding
company for First Savings Bank of New Jersey, SLA (the "Bank"), in order to
consider the approval of the Bayonne Bancshares, Inc. 1998 Stock-Based Incentive
Plan ("Incentive Plan") and such other matters as may properly come before the
Special Meeting, which will be held on Friday, March 27, 1998, at 3:30 p.m.,
Eastern Time, at Chandelier Restaurant, 1081 Broadway, Bayonne, New Jersey.
The attached Notice of the Special Meeting and the Proxy Statement
describes the Incentive Plan. Directors and officers of the Company will be
present at the Special Meeting to respond to any questions that our shareholders
may have regarding the Incentive Plan.
The Board of Directors of Bayonne Bancshares, Inc. has determined that
approval of the Incentive Plan at the Special Meeting is in the best interests
of the Company and its shareholders. FOR THE REASONS SET FORTH IN THE PROXY
STATEMENT, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE
INCENTIVE PLAN.
PLEASE SIGN AND RETURN THE ENCLOSED PROXY CARD PROMPTLY. YOUR COOPERATION
IS APPRECIATED SINCE A MAJORITY OF THE COMMON STOCK MUST BE REPRESENTED, EITHER
IN PERSON OR BY PROXY, TO CONSTITUTE A QUORUM FOR THE CONDUCT OF BUSINESS.
On behalf of the Board of Directors and all of the employees of the
Company and the Bank, I thank you for your continued interest and support.
Sincerely yours,
/s/ Michael Nilan
--------------------------------
Michael Nilan
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE> 4
BAYONNE BANCSHARES, INC.
568 BROADWAY
BAYONNE, NEW JERSEY 07002
----------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 27, 1998
----------------------------------
NOTICE IS HEREBY GIVEN that the Special Meeting of Shareholders (the
"Special Meeting") of Bayonne Bancshares, Inc. (the "Company"), the holding
company for First Savings Bank of New Jersey, SLA (the "Bank") will be held on
March 27, 1998 at 3:30 p.m., Eastern Time, at Chandelier Restaurant, 1081
Broadway, Bayonne, New Jersey.
The purpose of the Special Meeting is to consider and vote upon the
following matters:
1. The approval of the Bayonne Bancshares, Inc. 1998 Stock-Based
Incentive Plan; and
2. Such other matters as may properly come before the meeting and at
any adjournments thereof, including whether or not to adjourn the
meeting.
The Board of Directors has established February 17, 1998, as the record
date for the determination of shareholders entitled to receive notice of and to
vote at the Special Meeting and at any adjournments thereof. Only record holders
of the common stock of the Company as of the close of business on such record
date will be entitled to vote at the Special Meeting or any adjournments
thereof. In the event there are not sufficient votes for a quorum or to approve
the foregoing proposal at the time of the Special Meeting, the Special Meeting
may be adjourned in order to permit further solicitation of proxies by the
Company. A list of shareholders entitled to vote at the Special Meeting will be
available at Bayonne Bancshares, Inc., 568 Broadway, Bayonne, New Jersey 07002,
for a period of ten days prior to the Special Meeting and will also be available
at the Special Meeting itself.
By Order of the Board of Directors
/s/ Thomas M. Coughlin
----------------------------
Thomas M. Coughlin
CORPORATE SECRETARY
Bayonne, New Jersey
February 24, 1998
<PAGE> 5
BAYONNE BANCSHARES, INC.
-----------------------
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
MARCH 27, 1998
-----------------------
SOLICITATION AND VOTING OF PROXIES
This Proxy Statement is being furnished to shareholders of Bayonne
Bancshares, Inc. (the "Company") in connection with the solicitation by the
Board of Directors ("Board of Directors" or "Board") of proxies to be used at
the special meeting of shareholders, to be held on Friday, March 27, 1998 (the
"Special Meeting"), and at any adjournments thereof. This Proxy Statement is
first being mailed to record holders on or about February 24, 1998.
Regardless of the number of shares of common stock owned, it is important
that record holders of a majority of the shares be represented by proxy or in
person at the Special Meeting. Shareholders are requested to vote by completing
the enclosed proxy card and returning it signed and dated in the enclosed
postage-paid envelope. Shareholders are urged to indicate their vote in the
spaces provided on the proxy card. PROXIES SOLICITED BY THE BOARD OF DIRECTORS
OF THE COMPANY WILL BE VOTED IN ACCORDANCE WITH THE DIRECTIONS GIVEN THEREIN.
WHERE NO INSTRUCTIONS ARE INDICATED, SIGNED PROXY CARDS WILL BE VOTED FOR THE
APPROVAL OF THE BAYONNE BANCSHARES, INC. 1998 STOCK-BASED INCENTIVE PLAN (THE
"INCENTIVE PLAN").
Other than the matters listed on the attached Notice of Special Meeting of
Shareholders, the Board of Directors knows of no additional matters that will be
presented for consideration at the Special Meeting. EXECUTION OF A PROXY,
HOWEVER, CONFERS ON THE DESIGNATED PROXY HOLDERS DISCRETIONARY AUTHORITY TO VOTE
THE SHARES IN ACCORDANCE WITH THEIR BEST JUDGMENT ON SUCH OTHER BUSINESS, IF
ANY, THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETING AND AT ANY ADJOURNMENTS
THEREOF, INCLUDING WHETHER OR NOT TO ADJOURN THE SPECIAL MEETING.
A proxy may be revoked at any time prior to its exercise by filing a
written notice of revocation with the Corporate Secretary of the Company, by
delivering to the Company a duly executed proxy bearing a later date, or by
attending the Special Meeting and voting in person. However, if you are a
shareholder whose shares are not registered in your own name, you will need
appropriate documentation from your record holder to vote personally at the
Special Meeting.
The cost of solicitation of proxies on behalf of management will be borne
by the Company. In addition to the solicitation of proxies by mail,
Kissel-Blake, Inc., a proxy solicitation firm, will assist the Company in
soliciting proxies for the Special Meeting and will be paid a fee of $4,000,
plus out-of-pocket expenses. Proxies may also be solicited personally or by
telephone by directors, officers and other employees of the Company and its
subsidiary, First Savings Bank of New Jersey, SLA (the "Bank"), without
additional compensation therefor. The Company will also request persons, firms
and corporations holding shares in their names, or in the name of their
nominees, which are beneficially owned by others, to send proxy material to, and
obtain proxies from, such beneficial owners, and will reimburse such holders for
their reasonable expenses in doing so.
VOTING SECURITIES
The securities that may be voted at the Special Meeting consist of shares
of common stock of the Company ("Common Stock"), with each share entitling its
owner to one vote on all matters to be voted on at the Special Meeting, except
as described below.
The close of business on February 17, 1998, has been fixed by the Board of
Directors as the record date (the "Record Date") for the determination of
shareholders of record entitled to notice of and to vote at the Special Meeting
and at any adjournments thereof. The total number of shares of Common Stock
outstanding on the Record Date was 9,088,581 shares.
<PAGE> 6
As provided in the Company's Certificate of Incorporation, holders of
Common Stock who beneficially own in excess of 10% of the outstanding shares of
Common Stock (the "Limit") are not entitled to any vote with respect of the
shares held in excess of the Limit. A person or entity is deemed to beneficially
own shares owned by an affiliate of, as well as by persons acting in concert
with, such person or entity. The Company's Certificate of Incorporation
authorizes the Board of Directors (i) to make all determinations necessary to
implement and apply the Limit, including determining whether persons or entities
are acting in concert, and (ii) to demand that any person who is reasonably
believed to beneficially own stock in excess of the Limit supply information to
the Company to enable the Board of Directors to implement and apply the Limit.
The presence, in person or by proxy, of the holders of at least a majority
of the total number of shares of Common Stock entitled to vote (after
subtracting any shares in excess of the Limit pursuant to the Company's
Certificate of Incorporation) is necessary to constitute a quorum at the Special
Meeting. In the event that there are not sufficient votes for a quorum or to
approve or ratify any proposal at the time of the Special Meeting, the Special
Meeting may be adjourned in order to permit the further solicitation of proxies.
As to the approval of the Incentive Plan (the "Proposal"), the proxy card
being provided by the Board of Directors enables a shareholder to check the
appropriate box on the proxy card to (i) vote "FOR" the Proposal, (ii) vote
"AGAINST" the Proposal, or (iii) "ABSTAIN" from voting on such item. Under
Delaware law and the Company's Bylaws, the affirmative vote of the holders of a
majority of the shares of Common Stock present, in person or by proxy, at the
Special Meeting at which a quorum is present and entitled to vote on the
Proposal is required to constitute shareholder approval of the Proposal. Shares
as to which the "ABSTAIN" box has been selected on the proxy card with respect
to the Proposal will be counted as present and entitled to vote and have the
effect of a vote against the matter for which the "ABSTAIN" box has been
selected. In contrast, shares underlying broker non- votes or in excess of the
Limit will not be counted as present and entitled to vote or as votes cast on
the Proposal and have no effect on the vote on the Proposal. For further
information on the vote required to implement the Proposal during the first year
following the conversion from the mutual holding company form of organization to
the stock form, which was completed on August 22, 1997 (the "Conversion" or
"Conversion and Reorganization"), see the discussion under the Proposal herein.
Proxies solicited hereby will be returned to the Company's transfer agent,
ChaseMellon Shareholder Services ("ChaseMellon"). The Board of Directors has
designated ChaseMellon to act as inspectors of election and tabulate the votes
at the Special Meeting. ChaseMellon is not otherwise employed by, or a director
of, the Company or any of its affiliates. After the final adjournment of the
Special Meeting, the proxies will be returned to the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as to those persons believed by
management to be beneficial owners of more than 5% of the Company's outstanding
shares of Common Stock on the Record Date or as disclosed in certain reports
received to date regarding such ownership filed by such persons with the Company
and with the Securities and Exchange Commission ("SEC"), in accordance with
Sections 13(d) and 13(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Other than those persons listed below, the Company is not aware
of any person, as such term is defined in the Exchange Act, that owns more than
5% of the Company's Common Stock as of the Record Date.
2
<PAGE> 7
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
BENEFICIAL OF
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS
- -------------- ------------------------------------ ---------- -------
<S> <C> <C> <C>
Common Stock........ First Savings Bank of New Jersey, SLA 708,179 (1) 7.8%
Employee Stock Ownership Plan ("ESOP")
568 Broadway
Bayonne, New Jersey 07002
Common Stock........ Jeffrey S. Halis 93,856 (2) 1.0%(3)
500 Park Avenue
Fifth Floor
New York, New York 10022
Common Stock........ Michael Lowenstein 431,151 (4) 4.7%(5)
500 Park Avenue
Fifth Floor
New York, New York 10022
Common Stock........ Franklin Resources, Inc. 618,505 (6) 6.8%
777 Mariners Island Blvd.
San Mateo, California 94404
- -----------------------
(1) Shares of Common Stock were acquired by the ESOP in the Conversion and
Reorganization. The ESOP Committee administers the ESOP. First Security
Trust Company has been appointed as the trustee for the ESOP ("ESOP
Trustee"). The ESOP Trustee, subject to its fiduciary duty, must vote all
allocated shares held in the ESOP in accordance with the instructions of
the ESOP participants. At February 17, 1998, 191,186 shares had been
allocated under the ESOP and 516,993 shares remain unallocated. Each
participant, however, will be deemed to have one share of Common Stock in
the ESOP allocated to such participant's account for the purpose of
providing voting instructions to the ESOP Trustee. Under the ESOP,
unallocated shares and allocated shares as to which voting instructions
are not given by participants are to be voted by the ESOP Trustee in a
manner calculated to most accurately reflect the instructions received
from participants regarding the allocated stock so long as such vote is in
accordance with the fiduciary provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
(2) Based on information disclosed in a Schedule 13D filed with the SEC on
September 2, 1997.
(3) The 431,151 shares reported in a Schedule 13D filed by Michael
Lowenstein on September 5, 1997 include shares owned by Tyndall Partners,
L.P., Madison Avenue Partners, L.P., Tyndall Institutional Partners, L.P.,
and Halo International, Ltd. (collectively, the "investment group").
According to the Schedule 13D filed on September 5, 1997, Michael
Lowenstein possesses the sole power to vote and dispose of the common
stock held by the investment group. However, Jeffrey S. Halis is a general
partner of Halo Capital Partners, L.P., which is the sole general partner
of each member of the investment group, and also serves as a member of
Jemi Management, L.L.C., which serves as the investment manager for Halo
International, Ltd.
(4) Based on information disclosed in a Schedule 13D filed with the SEC on
September 5, 1997.
(5) Mr. Lowenstein disclaims any interest in the 93,856 shares owned
individually by Mr. Halis.
(6) Based on information disclosed in a Schedule 13G filed with the SEC on
January 28, 1998.
</TABLE>
3
<PAGE> 8
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of the Record Date as to
shares of Common Stock beneficially owned by directors and executive officers
individually (as defined below) and by all executive officers and directors as a
group. Ownership information is based upon information furnished by the
respective individuals.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK PERCENT
BENEFICIALLY OF
NAME TITLE(1) OWNED(2) CLASS(5)
- ---- -------- ------------ --------
DIRECTORS
<S> <C> <C> <C>
Patrick F.X. Nilan.................. Chairman of the Board 275,295 (3) 3.0%
Patrick D. Conaghan................. Director 96,281 1.1
Sam P. Lamparello................... Director 91,472 (3) *
James F. Sisk....................... Director 60,862 *
Frederick G. Whelply................ Director 79,590 (3) *
Joseph L. Wisniewski................ Director 82,088 *
Michael Nilan....................... President, Chief Executive
Officer and Director 28,251 (4) *
EXECUTIVE OFFICERS
Eugene V. Malinowski, C.P.A......... Vice President and Chief
Financial Officer 18,783 *
James E. Collins.................... Vice President/Loan Officer 25,174 (4) *
Donald Mindiak...................... Controller 17,843 (4) *
Thomas M. Coughlin, C.P.A........... Corporate Secretary/Treasurer 7,667 (4) *
All directors and executive
officers as a group
(11 persons)...................... 783,306 8.6
- ---------------------------
* Does not exceed 1.0% of the Company's voting securities.
(1) Titles are for both the Company and the Bank unless otherwise indicated.
(2) Each person effectively exercises sole (or shares with spouse or other
immediate family member) voting and dispositive power as to shares reported.
(3) Includes 37,184, 3,983 and 66 options held by Messrs. Patrick F.X. Nilan,
Lamparello and Whelply, respectively, that are currently exercisable or will
become exercisable in 60 days.
(4) Includes 4,046, 4,046, 4,046 and 3,304 options held by Messrs. Michael
Nilan, Collins, Mindiak and Coughlin, respectively, that are currently
exercisable or will become exercisable in 60 days.
(5) As of the Record Date, there were 9,088,581 shares of Common Stock
outstanding. The percentages were calculated using the number of shares
outstanding plus 56,675 options that are currently exercisable or will
become exercisable in 60 days.
</TABLE>
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Upon obtaining stockholder approval, non-employee directors and selected
officers and employees of the Bank and the Company will be eligible to receive
stock options and awards in the form of shares of Common Stock under the
Incentive Plan. As of the date of this Proxy Statement, no determination has
been made regarding the granting of stock options and awards under the Incentive
Plan.
DIRECTORS' COMPENSATION
DIRECTORS' FEES. In connection with the Conversion and Reorganization, and
as a result of the transition to operating as a publicly owned company, the
Board of Directors determined to restructure the compensation of directors to
emphasize stock-based incentives and reduce the reliance on cash-based
compensation. Accordingly, during 1997, the Board of Directors reduced the
quarterly retainer for non-employee directors by 50% and the fees paid to
non-employee directors for each meeting attended by 33 1/3%. Non-employee
directors presently receive $500 for each Board of Directors meeting attended,
plus a $3,000 retainer each quarter. The Chairman of the Board receives $665 for
each Board of Directors meeting attended, plus a quarterly retainer of $3,750.
Non-employee
4
<PAGE> 9
directors serving on the Asset/Liability Committee and the Audit Committee are
paid $250 for each meeting attended, and non-employee directors serving on the
Security and Investment Committee are paid $500 monthly. During the year ended
March 31, 1997, each director received additional compensation of $22,500.
In 1987 the Bank, prior to its reorganization into the mutual holding
company form of organization, entered into annuity compensation agreements with
each of the Bank's current directors. The Bank paid all of its obligations under
the agreements in 1987, and therefore, the agreements do not represent a current
expense for the Bank. Pursuant to the agreements, the Bank currently pays each
outside director an annual benefit of $16,000. The payments will continue to be
made over the lifetime of each outside director with no fewer than 120 monthly
payments, which commenced in 1992, to be made to each director or his
beneficiary, and are in addition to other fees received by directors. These
agreements are fully funded by Presidential Life Insurance Company and the Bank
is a mere conduit for payments to each outside director.
CONSULTING AGREEMENT. The Company and Patrick F.X. Nilan entered into a
three year consulting agreement subsequent to Mr. Nilan's retirement as
President and Chief Executive Officer of the Bank. Pursuant to the agreement,
Mr. Nilan will provide advice with respect to all areas in which the Company or
the Bank does business and in which Mr. Nilan has special knowledge, skill and
expertise, utilize his business and industry contacts to assist with the
implementation of the Bank's business plan, represent the Company and the Bank
at civic and community functions, and advise the Company and the Bank on
strategic planning matters, government affairs, industry trends and economic
factors affecting the Bank's business and future prospects. Mr. Nilan will be
paid a fee of $100,000 annually for his services.
INCENTIVE PLAN. The Company is presenting to shareholders for approval the
Incentive Plan, under which all directors of the Company and the Bank are
eligible to receive awards. See the Proposal for a summary of the material terms
of the Incentive Plan.
5
<PAGE> 10
EXECUTIVE COMPENSATION. The following table shows, for the year ended
March 31, 1997, the cash compensation paid, as well as certain other
compensation paid or accrued for that year to the Chief Executive Officer of the
Bank and one other executive officer of the Bank who earned and/or received
salary and bonus in excess of $100,000 in fiscal year 1997 ("Named Executive
Officers"). No other executive officer of the Bank earned and/or received salary
and bonus in excess of $100,000 in fiscal year 1997. The executive officers,
directors, or other personnel of the Company did not receive remuneration from
the Company during fiscal year 1997.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION(1) AWARDS PAYOUTS
------------------------------------ ------------------------ -------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION AWARDS OPTIONS/SARs PAYOUTS COMPENSATION
PRINCIPAL POSITIONS YEAR ($)(1) ($) ($) ($)(2) (#)(3) ($) ($)(4)
- ------------------- ---- ------ ------ ------------ ------ ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael Nilan(5)............. 1997 $ 99,000 $ 5,000 -- -- -- -- $36,354
President and Chief
Executive Officer
Patrick F.X. Nilan(6)........ 1997 $470,000 $37,500 -- -- -- -- $82,008
Chairman, President and 1996 432,597 75,000 -- 176,540 33,950 -- 38,203
Chief Executive Officer 1995 341,667 75,000 -- -- -- -- 16,000
of the Bank
- ---------------------
(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 of the Bank's Common Stock granted pursuant to the Bayonne
Bankshares, M.H.C. and First Savings Bank of New Jersey, SLA 1995
Recognition and Retention Plan (the "1995 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. Michael and
Patrick F.X. Nilan were awarded 2,852 and 13,580 restricted shares,
respectively, 80% of which were unvested as of March 31, 1997. At March 31,
1997, based upon the closing price of the Bank's Common Stock of $24.25 per
share, such awards had market values of $69,161 and $329,315, respectively.
Upon consummation of the Conversion and Reorganization, each share of Bank
Common Stock held by Messrs. Michael and Patrick F.X. Nilan was exchanged
for 2.933 shares of the Company Common Stock. Awards that remained unvested
at the time of the Conversion and Reorganization will continue to vest in
accordance with the terms of the 1995 Recognition Plan and will be paid in
the form of Company Common Stock.
(3) Includes options awarded pursuant to the Bayonne Bankshares, M.H.C. and
First Savings Bank of New Jersey, SLA 1995 Stock Option Plan (the "1995
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. Upon consummation of the Conversion and Reorganization, the Company
adopted the 1995 Stock Option Plan and will issue shares of Company Common
Stock in lieu of Bank Common Stock in accordance with the terms of the 1995
Stock Option Plan. The adjusted exercise price of the options is $4.43.
(4) Includes amounts received by Patrick F.X. Nilan pursuant to the Bank's
annuity compensation agreements. Includes the value of shares awarded under
the Bank's ESOP as of March 31, 1997. 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.
(5) Michael Nilan was appointed President and Chief Executive Officer of the
Company on February 6, 1997. During the fiscal year ended March 31, 1997,
Michael Nilan did not receive remuneration from the Company, but did receive
remuneration in his capacity as an officer of the Bank.
(6) Patrick F.X. Nilan retired from the positions of President and Chief
Executive Officer of the Bank effective June 30, 1997. He continues to serve
as Chairman of the Board of the Company and the Bank. Effective July 1,
1997, Michael Nilan was appointed President and Chief Executive Officer of
the Bank.
</TABLE>
6
<PAGE> 11
EMPLOYMENT AGREEMENTS
Subsequent to the Conversion and Reorganization, the Bank entered into an
employment agreement (the "Employment Agreement") with Mr. Michael Nilan (the
"Executive"). The Employment Agreement is intended to ensure that the Bank will
be able to maintain a stable and competent management base after the Conversion.
The continued success of the Bank depends to a significant degree on the skills
and competence of Mr. Michael Nilan.
The Employment Agreement provides for a one-year term for the Executive.
The Employment Agreement provides that the Board of Directors of the Bank will
review the agreement and the Executive's performance at the end of the term for
purposes of determining whether to extend the agreements with the Bank for an
additional term. The base salary for the Executive under the Employment
Agreement is $150,000. In addition to the base salary, the Employment Agreement
provides for, among other things, participation in stock benefit plans and other
fringe benefits applicable to executive personnel. The Employment Agreement
provides for termination by the Bank for cause, as defined in the agreement, at
any time. In the event the Bank chooses to terminate the Executive's employment
for reasons other than for cause, or in the event of the Executive's resignation
from the Bank 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 (v) a breach of the agreement by the Bank, the Executive or, in the event of
death, his beneficiary, is 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 will also continue and pay
for the Executive's life, health and disability coverage for the remaining term
of the Employment Agreement.
The Employment Agreement also provides for severance payments in the event
of a change in control. If voluntary or involuntary termination follows a
"change in control" of the Bank or the Company, as defined in the Employment
Agreement, the Executive or, in the event of death, his beneficiary, will 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. The Bank would
also continue the Executive's life, health, and disability coverage for 36
months.
Payments to the Executive under the Bank's Employment Agreement will be
guaranteed by the Company in the event that payments or benefits are not paid by
the Bank. All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to the Employment
Agreement will be paid by the Bank if the Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement. The Employment
Agreement also provides that the Bank indemnify the Executive to the fullest
extent allowable under federal law. 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 Agreement, 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 that may be payable, would be approximately $237,000.
CHANGE IN CONTROL AGREEMENTS
In January 1995, the Bank entered into Severance Agreements (the
"Severance Agreements") with Messrs. Michael Nilan, 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. Subsequent to the Conversion and
Reorganization, the Bank replaced the existing Severance Agreements with new
Change in Control Agreements for Messrs. Collins, Mindiak and Coughlin and the
Bank and the Company entered into a Change in Control Agreement with Mr.
Malinowski and Ms. Fern Solomos-Joskowski, Assistant Vice President of the Bank
(collectively, the "CIC Agreements"). Such agreements have terms of three years.
The Company, the Bank and Mr. Nilan terminated Mr. Nilan's existing Severance
Agreement upon the execution of his Employment Agreement. The CIC Agreements
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
are extended on a daily basis unless written notice of non-renewal is given by
the Board of Directors of the Company.
7
<PAGE> 12
The CIC Agreements with the Company also provide that in the event voluntary or
involuntary termination follows a change in control of the Bank or the Company,
the officer is entitled to receive a severance payment equal to three times the
officer's average annual compensation for the five years preceding termination,
depending on the term of the officers' CIC Agreement. The Bank's CIC Agreements
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 will also continue, and pay for, the officer's life, health and disability
coverage for 36 months following termination. Payments to the officer under the
Bank's CIC Agreements will 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 that may be payable, would be
approximately $1.2 million.
BENEFIT PLANS
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 Internal Revenue
Code of 1986, as amended (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 $10,000 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.
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.
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, 1997, the Bank made a contribution to the
Retirement Plan of $305,000.
8
<PAGE> 13
The following table indicates the annual retirement benefit that would be
payable under the Retirement Plan upon retirement at age 65 in calendar year
1997, 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 25 30 35 40
- ------------- -------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 20,000 $ 2,000 $ 4,000 $ 4,125 $ 5,500 $ 6,875 $ 8,250 $ 9,625 $ 11,625
$ 40,000 4000 8000 9188 12250 15313 18375 21438 25438
$ 60,000 6000 12000 15188 20250 25313 30375 35438 41438
$ 80,000 8000 16000 21188 28250 35313 42375 49438 57438
$100,000 10000 20000 27188 36250 45313 54375 63438 73438
$150,000 15000 30000 42188 56250 70313 84375 98438 113438
$152,000(2) 15200 30400 42788 57050 71313 85575 99838 115038
$152,000(2) 15200 30400 42788 57050 71313 85575 99838 115038
(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) Limited due to maximum earnings limits under Section 401(a)(17) of the Code.
</TABLE>
As of December 14, 1997, officers Michael Nilan and Patrick F.X. Nilan had
11 and 37 years of credit service, respectively, and accrued benefits under the
Retirement Plan equal to annual retirement benefits of $16,061 and $149,436,
respectively. Mr. Patrick F.X. Nilan retired from the Bank on June 30, 1997 and
received a lump sum benefit payment of $1.6 million under the Retirement Plan.
SUPPLEMENTAL EXECUTIVE RETIREMENT INCOME-DEFERRED COMPENSATION AGREEMENTS.
The Bank has previously maintained supplemental executive retirement agreements
for certain executives of the Bank and their beneficiaries whose benefits from
the tax-qualified defined benefit plan maintained by the Bank were 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. At March 31, 1997, the Bank provided an
additional $1.8 million in employee benefit expense to provide for one-time
payments to two retired participants in the supplemental executive retirement
agreements. The lump sum payments represented the present value of the
executives' accrued annual benefits under the supplemental executive retirement
agreements based on a current actuarial valuation. The Bank determined that
paying the participants in a lump sum would benefit the Bank over time by saving
the annual accruals that would otherwise be required to fund the supplemental
executive retirement agreements. The Bank has discontinued this plan, but may
reinstate it in the future as employees become eligible.
ADOPTION OF EXISTING BANK PLANS BY COMPANY. The Company adopted 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 issued Common Stock in lieu of Bank Common Stock to the Plans
pursuant to their terms. As of the effective date of the Conversion and
Reorganization, rights outstanding under the Plans were assumed by the Company
and constitute 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 multiplied by the exchange ratio of 2.933 (the "Exchange Ratio").
The price of each right has been adjusted to reflect the Exchange Ratio so that
the aggregate purchase price of the right is unaffected, but there is no change
in the other terms and conditions of the rights. The Company has amended the
9
<PAGE> 14
Plans to reflect that it has adopted the Plans and that there will be no adverse
effect upon the rights outstanding thereunder.
1995 STOCK OPTION PLAN. During the fiscal year ended March 31, 1996, the
Bank adopted the 1995 Stock Option Plan, which was subsequently adopted by the
Company. The 1995 Stock Option Plan authorizes the grant of stock options and
limited rights equal to 10%, or 135,802 shares, of the Bank Common Stock that
was sold in connection with the Bank's mutual holding company reorganization in
January 1995 (the "1995 MHC Reorganization"). Of this amount, 27,160 options
were awarded to non-employee directors, 85,556 options were awarded to employees
and 23,086 options were reserved for future issuance as of March 31, 1997. Upon
the Exchange, 312,038 options for Company Common Stock were outstanding, and
67,711 options were reserved for future issuance.
Set forth below is certain information concerning exercised and
unexercisable options during the fiscal year ended March 31, 1997 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-
OPTIONS AT FISCAL THE-MONEY OPTIONS AT
SHARES YEAR-END(1) FISCAL YEAR-END(2)
ACQUIRED ------------------------- ------------------------
UPON VALUE
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- -------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Patrick F.X. Nilan........... -- -- 6,790/27,160 $76,388/$305,550
Michael Nilan................ -- -- 690/2,759 $7,763/$31,039
- -----------------------
(1) Represents the number of options of Bank Common Stock held as of March 31, 1997. Upon the consummation
of the Conversion and Reorganization, each option to purchase Bank Common Stock was exchanged for 2.933
options of the Company Common Stock.
(2) 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, 1997, at which date the last sale of the Bank Common Stock, as quoted on the Nasdaq National
Market, was at $24.25 per share.
</TABLE>
1995 RECOGNITION AND RETENTION PLAN. The Bank and its former mutual
holding company implemented the 1995 Recognition Plan in 1995 as a means of
providing officers and outside directors with a proprietary interest in the Bank
in order to encourage such persons to remain with the Bank. In July 1995, the
1995 Recognition Plan acquired 54,321 shares of Bank Common Stock from
authorized but unissued shares. Upon consummation of the Conversion and
Reorganization, the Company adopted the 1995 Recognition Plan, and all
previously awarded, but unvested shares of Bank Common Stock, and any shares
that had not yet been awarded were converted into 2.933 shares of Company Common
Stock.
A Committee of the Board of Directors of the Bank and the Company
comprised of non-employee 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
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,
which were subsequently converted into 131,460 shares of Company Common Stock
upon consummation of the Conversion and Reorganization. Of the total 131,460
shares of Bank
10
<PAGE> 15
Common Stock acquired by the 1995 Recognition Plan, 69,269 shares of Company
Common Stock are presently unearned.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST. The Bank established an ESOP and
related trust for eligible employees in connection with the 1995 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 shares of Bank Common Stock held by the ESOP were converted
into Company Common Stock based upon the Exchange Ratio.
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 1995 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.
In August 1997, the ESOP purchased approximately 8% of the Company Common
Stock issued in the Conversion and Reorganization. In order to fund this
purchase, the ESOP borrowed approximately $3.9 million from the Company. The
loan will be repaid principally from the Company's or the Bank's contribution's
to the ESOP over a period of 15 years and the collateral for the loan is the
Common Stock purchased by the ESOP. This loan is 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, as the
participants are all employees of the Bank, or to reimburse the Company for
contributions it makes. Although contributions to the ESOP are discretionary,
the Company or the Bank intend to make annual contributions to the ESOP in an
aggregate amount at least equal to the principal and interest requirement on the
debt. The interest rate for the loan is the prime rate published in the Wall
Street Journal on August 21, 1997.
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.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
All loans made by the Bank to its directors and executive officers are
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other persons
and do not involve more than the normal risk of collectibility or present other
unfavorable features. The 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 federal
regulations. Under the Bank's existing policy, any loan to an executive officer
or director, must be approved, in advance, by a majority of the disinterested
members of the Board of Directors.
11
<PAGE> 16
PROPOSAL 1: APPROVAL OF THE
BAYONNE BANCSHARES, INC.
1998 STOCK-BASED INCENTIVE PLAN
The Board of Directors of the Company is presenting for stockholder
approval the Bayonne Bancshares, Inc. 1998 Stock-Based Incentive Plan
("Incentive Plan"), in the form attached hereto as Appendix A. The purpose of
the Incentive Plan is to attract and retain qualified personnel in key
positions, provide officers, employees and non-employee directors ("Outside
Directors") with a proprietary interest in the Company as an incentive to
contribute to the success of the Company, promote the attention of management to
other stockholder's concerns and reward employees for outstanding performance.
The following is a summary of the material terms of the Incentive Plan which is
qualified in its entirety by the complete provisions of the Incentive Plan
attached as Appendix A.
GENERAL
The Incentive Plan authorizes the granting of options to purchase Common
Stock, option-related awards and awards of Common Stock (collectively,
"Awards"). Subject to certain adjustments to prevent dilution of Awards to
participants, the maximum number of shares reserved for Awards under the
Incentive Plan is 681,687 shares, provided such number is not in excess of 7.53%
of the outstanding shares of the Common Stock as of the effective date of the
Incentive Plan. The maximum number of shares reserved for purchase pursuant to
the exercise of options and option-related Awards which may be granted under the
Incentive Plan is 486,919 shares, provided such number is not in excess of 5.38%
of the outstanding shares of Common Stock as of the effective date of the
Incentive Plan. The maximum number of the shares reserved for the award of
shares of Common Stock ("Stock Awards") is 194,768 shares, provided such number
is not in excess of 2.15% of the outstanding shares of Common Stock as of the
effective date of the Incentive Plan. All officers, other employees, Outside
Directors, and consultants and advisers of the Company and its affiliates are
eligible to receive Awards under the Incentive Plan. The Incentive Plan will be
administered by a committee of non-employee directors of the Company (the
"Committee"). Authorized but unissued shares or shares previously issued and
reacquired by the Company may be used to satisfy Awards under the Incentive
Plan. If authorized but unissued shares are utilized to fund the grant of stock
awards or the exercise of options granted under the Incentive Plan, it will
result in an increase in the number of shares outstanding and will have a
dilutive effect on the holdings of existing shareholders.
AWARDS
TYPES OF AWARDS. The Incentive Plan authorizes the grant of Awards to
officers, employees and Outside Directors in the form of: (i) options to
purchase the Company's Common Stock intended to qualify as incentive stock
options under Section 422 of the Code (options which afford tax benefits to the
recipients upon compliance with certain conditions and which do not result in
tax deductions to the Company), referred to as "Incentive Stock Options"; (ii)
options that do not so qualify (options which do not afford income tax benefits
to recipients, but which may provide tax deductions to the Company), referred to
as "Non-statutory Stock Options"; (iii) limited rights that are exercisable only
upon a change in control of the Company (as defined in the Incentive Plan)
("Limited Rights"); and (iv) Stock Awards, which provide a grant of Common Stock
that vests over time (a portion of such vesting would be contingent upon the
attainment of stated performance goals for all officers, employees and Outside
Directors who receive such Stock Awards).
OPTIONS. The Incentive Plan provides for the granting of options to
purchase Common Stock of the Company ("Options") to employees, officers and
Outside Directors for up to 486,919 shares. Pursuant to the Incentive Plan, the
Committee has the authority to determine the date, or dates, on which Options
shall become exercisable and any other conditions which must be met prior to
becoming exercisable. The exercise price of an Option may be paid in cash or in
Common Stock at the discretion of the Committee. See "Method of Exercise of
Options."
All options granted to employees will be qualified as Incentive Stock
Options to the extent permitted under Section 422 of the Code. Incentive Stock
Options, at the discretion of the Committee with the concurrence of the holder,
may be converted into Non-Statutory Stock Options. The exercise price of all
Incentive Stock Options must be 100% of the fair market value of the underlying
Common Stock at the time of grant, except as provided below.
12
<PAGE> 17
In order to qualify as Incentive Stock Options under Section 422 of the Code,
the option must be granted to an employee, the exercise price must not be less
than 100% of the fair market value on the date of grant, the term of the option
may not exceed ten years from the date of grant, and no more than $100,000 of
options may become exercisable or vest in any fiscal year. Incentive Stock
Options granted to any person who is the beneficial owner of more than 10% of
the outstanding voting stock may be exercised only for a period of five years
from the date of grant and the exercise price must be at least equal to 110% of
the fair market value of the underlying Common Stock on the date of grant.
Each Outside Director of the Company or its affiliates will be eligible to
receive Non-Statutory Stock Options to purchase shares of Common Stock.
Additionally, officers and employees are eligible to receive Non-Statutory Stock
Options under the Plan to the extent they are ineligible to receive Incentive
Stock Options. The exercise price of each Non-Statutory Stock Options shall be
equal to the fair market value of the Common Stock on the date the option is
granted.
Options granted under the Incentive Plan may be exercised at such times as
the Committee determines, but in no event shall an Option be exercisable more
than ten years from the date of grant (or five years from date of grant for a
10% owner). Unless otherwise determined by the Committee, upon termination of an
optionee's services for any reason other than death, disability, change in
control, retirement or termination for cause, all then exercisable Options shall
remain exercisable for a period of three (3) months following termination and
all unexercisable Options shall be canceled. Unless otherwise determined by the
Committee, in the event of the death or disability of the optionee, all
unexercisable Options held by such optionee will become fully exercisable and
remain exercisable for up to one (1) year thereafter. In the event of
termination for cause, all exercisable and unexercisable options held by the
optionee shall be canceled. In the event of the retirement of an optionee, all
exercisable options shall remain exercisable for a period of one (1) year, and
the Committee shall have the discretion to allow unexercisable options to
continue to vest in accordance with their original terms, provided the optionee
is immediately engaged as a consultant, advisor or advisory director of the
Company or any of its affiliates. Any option originally designated as an
Incentive Stock Option shall be treated as a Non-statutory Stock Option to the
extent the optionee exercises such option more than three (3) months after
retirement. In the event of the termination of an optionee due to a change in
control of the Company or the Bank, the optionee may exercise only those options
that were exercisable upon termination and only for a period of one (1) year
with respect to Non-Statutory Stock Options and three (3) months with respect to
Incentive Stock Options.
LIMITED RIGHTS. The Incentive Plan also provides the Committee with the
ability to grant a Limited Right concurrently with any Option. Limited Rights
are related to specific Options granted and become exercisable only upon a
change in control of the Bank or the Company. Upon exercise, the holder will be
entitled to receive in lieu of purchasing the stock underlying the Option, 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 less any applicable tax
withholding.
STOCK AWARDS. The Incentive Plan also authorizes the granting of Stock
Awards to employees and Outside Directors, in an amount not to exceed 194,768
shares in the aggregate. The Committee has the authority to determine the dates
on which Stock Awards granted will vest or any other conditions that must be
satisfied prior to vesting.
When stock awards are distributed in accordance with the Incentive Plan,
the recipients will also receive amounts equal to accumulated cash and stock
dividends (if any) with respect thereto plus earnings thereon minus any required
tax withholding amounts. Prior to vesting, recipients of Awards may direct the
voting of shares of Common Stock granted to them and held in a trust established
to hold shares of Common Stock which may be granted under the Incentive Plan.
Shares of Common Stock held by the Incentive Plan trust which have not been
allocated or for which voting has not been directed are voted by the trustee in
the same proportion as the awarded shares are voted in accordance with the
directions given by all recipients of Awards.
Unless otherwise determined by the Committee, upon termination of the
services of a holder of a Stock Award for any reason other than death,
disability, change in control, retirement or termination for cause, all such
holder's rights in unvested Stock Awards shall be canceled. Unless otherwise
determined by the Committee, in the
13
<PAGE> 18
event of the death or disability of the holder of the Stock Award, all unvested
Stock Awards held by such individual will become fully vested. In the event of
the termination of a holder of a Stock Award due to a change in control of the
Company or the Bank, or termination for cause of a holder of a Stock Award, all
unvested Stock Awards held by such individual shall be canceled. In the event of
a Stock Award holder's retirement, the Committee shall have the discretion to
determine that all unvested Stock Awards shall continue to vest in accordance
with their original terms, provided the holder is engaged as a consultant,
advisor or advisory director of the Company or any of its affiliates.
TAX TREATMENT
OPTIONS. An optionee will generally not be deemed to have recognized
taxable income upon grant or exercise of any Incentive Stock Option, provided
that shares transferred in connection with the exercise are not disposed of by
the optionee for at least one year after the date the shares are transferred in
connection with the exercise of the option and two years after the date of grant
of the option. If certain holding periods are satisfied, upon disposal of the
shares, the aggregate difference between the per share option exercise price and
the fair market value of the Common Stock is recognized as income taxable at
long-term capital gains rates. No compensation deduction may be taken by the
Company as a result of the grant or exercise of Incentive Stock Options,
assuming these holding periods are met.
In the case of the exercise of a Non-Statutory Stock Option, an optionee
will be deemed to have received ordinary income upon exercise of the stock
option in an amount equal to the aggregate amount by which the per share
exercise price is exceeded by the fair market value of the Common Stock. In the
event shares received through the exercise of an Incentive Stock Option are
disposed of prior to the satisfaction of the holding periods (a "disqualifying
disposition"), the exercise of the option will be treated as the exercise of a
Non-Statutory Stock Option, except that the optionee will recognize the ordinary
income for the year in which the disqualifying disposition occurs. The amount of
any ordinary income deemed to have been received by an optionee upon the
exercise of a Non-Statutory Stock Option or due to a disqualifying disposition
will be a deductible expense of the Company for tax purposes.
LIMITED RIGHTS. In the case of Limited Rights, the holder would have to
include the amount paid to him upon the exercise of the Limited Right 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.
STOCK AWARDS. When shares of Common Stock, as Stock Awards, are
distributed, the recipient is deemed to receive ordinary income equal to the
fair market value of such shares at the date of distribution plus any dividends
and earnings on such shares (provided such date is more than six months after
the date of grant) and the Company is permitted a commensurate compensation
expense deduction for income tax purposes.
PERFORMANCE AWARDS
GENERAL. The Incentive Plan provides the Committee with the ability to
condition or restrict the vesting or exercisability of any Award upon the
achievement of performance targets or goals as set forth under the Incentive
Plan. Any Award subject to such conditions or restrictions is considered to be a
"Performance Award." Subject to the express provisions of the Plan and as
discussed in this paragraph, the Committee has discretion to determine the terms
of any Performance Award, including the amount of the award, or a formula for
determining such, the performance criteria and level of achievement related to
these criteria which determine the amount of the award granted, issued,
retainable and/or vested, the period as to which performance shall be measured
for determining achievement of performance (a "performance period"), the timing
of delivery of any awards earned, forfeiture provisions, the effect of
termination of employment for various reasons, and such further terms and
conditions, in each case not inconsistent with the Plan, as may be determined
from time to time by the Committee. The performance criteria upon which
Performance Awards are granted, issued, retained and/or vested may be based on
financial performance and/or personal performance evaluations, except that for
any Performance Award that is intended by the Committee to satisfy the
requirements for "performance-based compensation" under Code Section 162(m), the
performance criteria shall be a measure based on one or more Qualifying
Performance Criteria (as defined below). Notwithstanding satisfaction of any
performance goals, the number of shares granted, issued, retainable and/or
vested under a Performance Award may be adjusted by the Committee on the basis
of such further considerations as the
14
<PAGE> 19
Committee in its sole discretion shall determine. However, the Committee may not
increase the amount earned upon satisfaction of any performance goal by any
Participant who is a "covered employee" within the meaning of Section 162(m) of
the Code.
QUALIFYING PERFORMANCE CRITERIA AND SECTION 162(M) LIMITS. Subject to
stockholder approval of the Plan, the performance criteria for any Performance
Award that is intended to satisfy the requirements for "performance-based
compensation" under the Code Section 162(m) shall be based upon any one or more
of the following performance criteria, either individually, alternatively or in
any combination, applied to either the Company as a whole or to a business unit
or subsidiary, either individually, alternatively or in any combination, and
measured either on an absolute basis or relative to a pre-established target, to
previous years' results or to a designated comparison group, in each case as
pre-established by the Committee under the terms of the Award; net income, as
adjusted for non-recurring items; cash earnings; earnings per share; cash
earnings per share; return on equity; return on assets; assets; stock price;
total shareholder return; capital; net interest income; market share; cost
control or efficiency ratio; and asset growth.
The aggregate amount of Options granted under the Plan during any 60-month
period to any one Participant may not exceed 25% of the total amount of options
available to be granted under the Incentive Plan. The aggregate amount of shares
of Common Stock issuable under a Stock Award granted under the Plan for any
60-month period to any one Participant may not exceed 25% of the total amount of
Stock Awards available to be granted under the Incentive Plan.
PAYOUT OF AWARDS
Payment due to a participant upon the exercise of an option or the
redemption of a Stock Award shall be in the form of shares of Common Stock.
Payment upon the exercise of a Limited Right shall be made in cash. Any shares
of Common Stock tendered in payment of an obligation arising under the Incentive
Plan or applied to tax withholding amounts shall be valued at the fair market
value of the Common Stock. The Committee may use treasury stock, authorized but
unissued stock or it may direct the market purchase of shares of Common Stock to
satisfy its obligations under the Incentive Plan.
METHOD OF EXERCISE OF OPTIONS
Subject to the terms of the Incentive Plan, the Committee has discretion
to determine the form of payment for the exercise of an Option. The Committee
may indicate acceptable forms in the Award Agreement covering such Options or
may reserve its decision to the time of exercise. No Option is to be considered
exercised until payment in full is accepted by the Committee. The Committee may
permit the following forms of payment for Options: (a) in cash or by certified
or cashiers check, or (b) by tendering previously acquired shares of Common
Stock. Any shares of Common Stock tendered in payment of the exercise price of
an Option shall be valued at the Fair Market Value of the Common Stock on the
date prior to the date of exercise.
AMENDMENT
The Board of Directors may amend the Incentive Plan in any respect, at any
time, provided that no amendment may affect the rights of the holder of an Award
without his or her permission. The Board of Directors intends to amend the
Incentive Plan in the future to authorize the Committee to amend previously
granted options or Stock Awards to provide for accelerated vesting upon the
occurrence of a change in control of the Company or the Bank (as defined in the
Incentive Plan).
ADJUSTMENTS
In the event of any change in the outstanding shares of Common Stock of
the Company 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 Company, or in the event an
extraordinary capital distribution is made, including the payment
15
<PAGE> 20
of an extraordinary dividend, the Committee may make such adjustments to
previously granted Awards, to prevent dilution, diminution or enlargement of the
rights of the holder. All Awards under this Incentive Plan shall be binding upon
any successors or assigns of the Company.
NONTRANSFERABILITY
Unless determined otherwise by the Committee, awards under the Incentive
Plan shall not be transferable by the recipient other than by will or the laws
of intestate succession or pursuant to a domestic relations order. With the
consent of the Committee, a participant may designate a person or his or her
estate as beneficiary of any award to which the recipient would then be
entitled, in the event of the death of the participant.
SHAREHOLDER APPROVAL
The Incentive Plan complies with the regulations of the Office of Thrift
Supervision ("OTS"). The OTS has not endorsed or approved the Incentive Plan.
Pursuant to OTS regulations, the Incentive Plan may not be implemented prior to
August 23, 1998 unless it is approved by the affirmative vote of the holders of
a majority of the total votes eligible to be cast by the Company's shareholders
at a duly called meeting of shareholders which may be held no earlier than six
months after completion of the Conversion and Reorganization.
The Incentive Plan provides that it shall become effective upon the
earlier of: (i) the date that it is approved by a majority of votes eligible to
be cast by the Company's shareholders at a duly called meting of shareholders;
or (ii) August 23, 1998. Accordingly, if the Incentive Plan is not approved by a
majority of the votes eligible to be cast by shareholders at the Special
Meeting, the Incentive Plan and any grants thereunder shall become effective on
August 23, 1998 without further shareholder approval unless it is terminated by
the Board of Directors. In the absence of approval of the Incentive Plan by a
majority of votes cast at the Special Meeting, the Options awarded under the
Incentive Plan would not qualify as Incentive Stock Options under the Code, and
the Company's qualification to have its stock traded on the Nasdaq National
Market could be adversely affected.
NEW PLAN BENEFITS
As of the date of this Proxy Statement, no determination had been made
regarding the granting of Awards or Options under the Incentive Plan. The
Company intends to retain a compensation consultant to provide advice with
respect to the grants made under the Incentive Plan. However, under OTS
regulations governing stock incentive plans adopted within one year of
Conversion, 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. Any grants made under
the Incentive Plan will comply with these limitations.
UNLESS MARKED TO THE CONTRARY, THE SHARES REPRESENTED BY THE ENCLOSED
PROXY CARD, IF EXECUTED AND RETURNED, WILL BE VOTED "FOR" THE APPROVAL OF THE
BAYONNE BANCSHARES, INC. 1998 STOCK-BASED INCENTIVE PLAN.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF
THE BAYONNE BANCSHARES, INC. 1998 STOCK-BASED INCENTIVE PLAN.
ADDITIONAL INFORMATION
SHAREHOLDER PROPOSALS
Since no annual meeting of stockholders of the Company at which a proxy
statement was distributed has been previously held, to be considered for
inclusion in the Company's proxy statement and form of proxy relating to the
1998 Annual Meeting of Shareholders, a stockholder proposal must be received by
a reasonable time before the proxy solicitation for such annual meeting is made.
Any such proposal will be subject to 17 C.F.R. ss. 240.14a-8 of the Rules and
Regulations under the Securities Exchange Act of 1934, as amended.
16
<PAGE> 21
NOTICE OF BUSINESS TO BE CONDUCTED AT A SPECIAL OR ANNUAL MEETING
The Bylaws of the Company set forth the procedures by which a shareholder
may properly bring business before a meeting of shareholders. Pursuant to the
Bylaws, only business brought by or at the direction of the Board of Directors
may be conducted at a special meeting. The Bylaws of the Company provide an
advance notice procedure for a shareholder to properly bring business before an
annual meeting. The shareholder must give written advance notice to the
Secretary of the Company not less than ninety (90) days before the date
originally fixed for such 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 shareholders, notice by the shareholder to be
timely must be received not later than the close of business on the tenth day
following the date on which the Company's notice to shareholders of the annual
meeting date was mailed or such public disclosure was made. The advance notice
by shareholders must include the shareholder's name and address, as they appear
on the Company's record of shareholders, a brief description of the proposed
business, the reason for conducting such business at the annual meeting, the
class and number of shares of the Company's capital stock that are beneficially
owned by such shareholder and any material interest of such shareholder in the
proposed business. In the case of nominations to the Board of Directors, certain
information regarding the nominee must be provided. Nothing in this paragraph
shall be deemed to require the Company to include in its proxy statement or the
proxy relating to any annual meeting any shareholder proposal which does not
meet all of the requirements for inclusion established by the Securities and
Exchange Commission in effect at the time such proposal is received.
OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING
The Board of Directors knows of no business which will be presented for
consideration at the Special Meeting other than as stated in the Notice of
Special Meeting of Shareholders. If, however, other matters are properly brought
before the Special Meeting, it is the intention of the persons named in the
accompanying proxy to vote the shares represented thereby on such matters in
accordance with their best judgment.
Whether or not you intend to be present at the Special Meeting, you are
urged to return your proxy card promptly. If you are then present at the Special
Meeting and wish to vote your shares in person, your original proxy may be
revoked by voting at the Special Meeting. However, if you are a stockholder
whose shares are not registered in your own name, you will need appropriate
documentation from your recordholder to vote personally at the Special Meeting.
By Order of the Board of Directors
/s/ Thomas M. Coughlin
-------------------------------
Thomas M. Coughlin
CORPORATE SECRETARY
Bayonne, New Jersey
February 24, 1998
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE
REQUESTED TO SIGN, DATE AND PROMPTLY RETURN THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
17
<PAGE> 22
BAYONNE BANCSHARES, INC. REVOCABLE PROXY
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF BAYONNE BANCSHARES, INC.
The undersigned hereby acknowledges prior receipt of the Notice of Special
Meeting of Shareholders ("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 Bayonne
Bancshares, Inc. (the "Company"), the Proxy of the undersigned, to cast all
votes to which the undersigned is entitled to vote only at the Special Meeting,
to be held on March 27, 1998, at 3:30 Eastern Time, and at any adjournment or
adjournments thereof, on the matter referred to below in the manner specified on
the reverse side hereof:
1. FOR, AGAINST OR ABSTAIN with regard to the approval of the Bayonne
Bancshares, Inc. 1998 Stock-Based Incentive Plan (the "Incentive Plan").
THIS PROXY WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED SHAREHOLDER.
UNLESS OTHERWISE MARKED, THIS PROXY WILL BE VOTED FOR APPROVAL OF THE INCENTIVE
PLAN. IF ANY OTHER BUSINESS IS PRESENTED AT THE SPECIAL MEETING, INCLUDING
WHETHER OR NOT TO ADJOURN OR POSTPONE THE SPECIAL MEETING, THIS PROXY SHALL BE
VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF MANAGEMENT. AT THE PRESENT TIME,
THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS THAT MAY COME BEFORE THE
SPECIAL MEETING.
THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED BY FILING A
WRITTEN REVOCATION OF THE PROXY WITH THE CORPORATE SECRETARY OF THE COMPANY, BY
SUBMITTING A LATER DATED PROXY TO THE COMPANY OR BY ATTENDING THE SPECIAL
MEETING AND VOTING IN PERSON.
IMPORTANT: PLEASE DATE AND SIGN THE PROXY ON THE REVERSE SIDE.
<PAGE> 23
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL.
/X/ Please vote by marking one of the following boxes as shown.
--
1. Approval of the Bayonne Bancshares, Inc. 1998 Stock-Based Incentive Plan.
FOR / / AGAINST / / ABSTAIN / /
-- -- --
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.
Dated: , 1998
-------------------------------
Signature:
-------------------------------
Signature:
-------------------------------
PLEASE RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE> 24
APPENDIX A
BAYONNE BANCSHARES, INC.
1998 STOCK-BASED INCENTIVE PLAN
1. DEFINITIONS.
-----------
(a) "Affiliate" means any "subsidiary corporation" of the Holding Company,
as such term is defined in Section 424(f) of the Code.
(b) "Award" means, individually or collectively, a grant under the Plan of
Non-Statutory Stock Options, Incentive Stock Options, Limited Rights and Stock
Awards.
(c) "Award Agreement" means an agreement evidencing and setting forth the
terms of an Award.
(d) "Bank" means First Savings Bank of New Jersey, SLA.
(e) "Board of Directors" means the board of directors of the Holding
Company.
(f) "Change in Control" means a change in control of the Holding Company
or the Bank 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 Sections 13 or 15(d) of the Exchange Act; (ii) results in a "change
of control" or "acquisition of control" within the meaning of the regulations
promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor
agency) found at 12 C.F.R. Part 574, as in effect on the date hereof; PROVIDED,
HOWEVER, that in applying the definition of change in control as set forth under
such regulations the Board of Directors shall substitute its judgment for that
of the OTS; or (iii) without limitation 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 Association or the Holding Company representing 20% or more of
the Association's or the Holding Company's outstanding securities except for any
securities of the Association purchased by the Holding Company and any
securities purchased by any tax-qualified employee benefit plan of the
Association; or (B) individuals who constitute the Board of Directors on the
date hereof (the "Incumbent Board") cease for any reason to constitute at least
a majority thereof, provided that any person becoming a director subsequent to
the date hereof whose election was approved by a vote of at least three-quarters
of the directors comprising the Incumbent Board, or whose nomination for
election by the Holding Company's stockholders was approved by a nominating
committee serving under the 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 Association or the Holding Company or similar transaction
occurs in which the Association or Holding Company is not the resulting entity;
or (D) a solicitation 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
Association 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
are exchanged for or converted into cash or property or securities not issued by
the Association or the Holding Company; or (E) a tender offer is made for 20% or
more of the voting securities of the Association or the Holding Company.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Committee" means the committee designated by the Board of Directors,
pursuant to Section 2 of the Plan, to administer the Plan.
(i) "Common Stock" means the Common Stock of the Holding Company, par
value, $.01 per share.
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<PAGE> 25
(j) "Date of Grant" means the effective date of an Award.
(k) "Disability" means any mental or physical condition with respect to
which the Participant qualifies for and receives benefits for under a long-term
disability plan of the Holding Company or an Affiliate, or in the absence of
such a long-term disability plan or coverage under such a plan, "Disability"
shall mean a physical or mental condition which, in the sole discretion of the
Committee, is reasonably expected to be of indefinite duration and to
substantially prevents the Participant from fulfilling his duties or
responsibilities to the Holding Company or an Affiliate.
(l) "Effective Date" means the earlier of the date the Plan is approved by
shareholders or August 23, 1998.
(m) "Employee" means any person employed by the Holding Company or an
Affiliate. Directors who are employed by the Holding Company or an Affiliate
shall be considered Employees under the Plan.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(o) "Exercise Price" means the price at which a Participant may purchase a
share of Common Stock pursuant to an Option.
(p) "Fair Market Value" means the market price of Common Stock, determined
by the Committee as follows:
(i) If the Common Stock was traded on the date in question on The
Nasdaq Stock Market then the Fair Market Value shall be equal
to the last transaction price quoted for such date by The
Nasdaq Stock Market;
(ii) If the Common Stock was traded on a stock exchanquestion, then
the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for
such date; and
(iii) If neither of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good
faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee
shall be based on the prices reported in The Wall Street Journal. The
--------------------------
Committee's determination of Fair Market Value shall be conclusive and binding
on all persons.
(q) "Holding Company" means Bayonne Bancshares, Inc.
(r) "Incentive Stock Option" means a stock option granted to a
Participant, pursuant to Section 7 of the Plan, that is intended to meet the
requirements of Section 422 of the Code.
(s) "Limited Right" means an Award granted to a Participant pursuant to
Section 8 of the Plan.
(t) "Non-Statutory Stock Option" means a stock option granted to a
Participant pursuant to the terms of the Plan but which is not intended to be
and is not identified as an Incentive Stock Option or a stock option granted
under the Plan which is intended to be and is identified as an Incentive Stock
Option but which does not meet the requirements of Section 422 of the Code.
(u) "Option" means an Incentive Stock Option or Non-Statutory Stock
Option.
A-2
<PAGE> 26
(v) "Outside Director" means a member of the Boards of Directors of the
Holding Company or an Affiliate who is not also an Employee of the Holding
Company or an Affiliate.
(w) "Participant" means any person who holds an outstanding Award.
(x) "Performance Award" means an Award granted to a Participant pursuant
to Section 10 of the Plan.
(y) "Plan" means the Bayonne Bancshares, Inc. 1998 Stock-Based Incentive
Plan.
(z) "Retirement" means retirement from employment with the Holding Company
or an Affiliate in accordance with the retirement policies of the Holding
Company or Affiliate, as applicable, then in effect. "Retirement" with respect
to an Outside Director means the termination of service from the Board of
Directors of the Holding Company and any Affiliate following written notice to
the Board of Directors of such Outside Director's intention to retire.
(aa) "Stock Award" means an Award granted to a Participant pursuant to
Section 9 of the Plan.
(bb) "Termination for Cause" shall mean, in the case of an Outside
Director, removal from the Board of Directors or, in the case of an Employee,
unless defined differently under any employment agreement with the Holding
Company or an Affiliate, termination of employment, because of a material loss
to the Holding Company or an Affiliate, as determined by and in the sole
discretion of the Board of Directors or its designee(s).
(cc) "Trust" means a trust established by the Board of Directors in
connection with this Plan to hold Plan assets for the purposes set forth herein.
(dd) "Trustee" means any person or entity approved by the Board of
Directors to hold any of the Trust assets.
2. ADMINISTRATION.
--------------
(a) The Committee shall administer the Plan. The Committee shall consist
of two or more disinterested directors of the Holding Company, who shall be
appointed by the Board of Directors. A member of the Board of Directors shall be
deemed to be "disinterested" only if he satisfies (i) such requirements as the
Securities and Exchange Commission may establish for non-employee directors
administering plans intended to qualify for exemption under Rule 16b-3 (or its
successor) under the Exchange Act and (ii) such requirements as the Internal
Revenue Service may establish for outside directors acting under plans intended
to qualify for exemption under Section 162(m)(4)(C) of the Code. The Board of
Directors may also appoint one or more separate committees of the Board of
Directors, each composed of one or more directors of the Holding Company or an
Affiliate who need not be disinterested and who may grant Awards and administer
the Plan with respect to Employees and Outside Directors who are not considered
officers or directors of the Holding Company under Section 16 of the Exchange
Act or for whom Awards are not intended to satisfy the provisions of Section
162(m) of the Code.
(b) The Committee shall (i) select the Employees and Outside Directors who
are to receive Awards under the Plan, (ii) determine the type, number, vesting
requirements and other features and conditions of such Awards, (iii) interpret
the Plan and (iv) make all other decisions relating to the operation of the
Plan. The Committee may adopt such rules or guidelines as it deems appropriate
to implement the Plan. The Committee's determinations under the Plan shall be
final and binding on all persons.
(c) Each Award shall be evidenced by a written agreement ("Award
Agreement") containing such provisions as may be approved by the Committee. Each
Award Agreement shall constitute a binding contract between the Holding Company
or an Affiliate and the Participant, and every Participant, upon acceptance of
the Award Agreement, shall be bound by the terms and restrictions of the Plan
and the Award Agreement. The terms of each
A-3
<PAGE> 27
Award Agreement shall be in accordance with the Plan, but each Award Agreement
may include such additional provisions and restrictions determined by the
Committee, in its discretion, provided that such additional provisions and
restrictions are not inconsistent with the terms of the Plan. In particular and
at a minimum, the Committee shall set forth in each Award Agreement (i) the type
of Award granted (ii) the Exercise Price of any Option, (iii) the number of
shares subject to the Award; (iv) the expiration date of the Award, (v) the
manner, time, and rate (cumulative or otherwise) of exercise or vesting of such
Award, and (vi) the restrictions, if any, placed upon such Award, or upon shares
which may be issued upon exercise of such Award. The Chairman of the Committee
and such other directors and officers as shall be designated by the Committee is
hereby authorized to execute Award Agreements on behalf of the Company or an
Affiliate and to cause them to be delivered to the recipients of Awards.
(d) The Committee may delegate all authority for: (i) the determination of
forms of payment to be made by or received by the Plan and (ii) the execution of
any Award Agreement. The Committee may rely on the descriptions,
representations, reports and estimates provided to it by the management of the
Holding Company or an Affiliate for determinations to be made pursuant to the
Plan, including the satisfaction of any conditions of a Performance Award.
However, only the Committee or a portion of the Committee may certify the
attainment of any conditions of a Performance Award intended to satisfy the
requirements of Section 162(m) of the Code.
3. TYPES OF AWARDS AND RELATED RIGHTS.
----------------------------------
The following Awards may be granted under the Plan:
(a) Non-Statutory Stock Options.
(b) Incentive Stock Options.
(c) Limited Rights.
(d) Stock Awards.
4. STOCK SUBJECT TO THE PLAN.
-------------------------
Subject to adjustment as provided in Section 15 of the Plan, the maximum
number of shares reserved for Awards under the Plan is 681,687, which number
shall not exceed 7.53% of the outstanding shares of the Common Stock determined
immediately as of the Effective Date. Subject to adjustment as provided in
Section 15 of the Plan, the maximum number of shares reserved hereby for
purchase pursuant to the exercise of Options and Option-related Awards granted
under the Plan is 486,919, which number shall not exceed 5.38% of the
outstanding shares of Common Stock as of the Effective Date. The maximum number
of the shares reserved for Stock Awards is 194,768, which number shall not
exceed 2.15% of the outstanding shares of Common Stock as of the Effective Date.
The shares of Common Stock issued under the Plan may be either authorized but
unissued shares or authorized shares previously issued and acquired or
reacquired by the Trust or the Bank, respectively. To the extent that Options
and Stock Awards are granted under the Plan, the shares underlying such Awards
will be unavailable for any other use including future grants under the Plan
except that, to the extent that Stock Awards or Options terminate, expire, or
are forfeited without having vested or without having been exercised (in the
case of Limited Rights, exercised for cash), new Awards may be made with respect
to these shares.
5. ELIGIBILITY.
-----------
Subject to the terms of the Plan, all Employees and Outside Directors
shall be eligible to receive Awards under the Plan. In addition, the Committee
may grant eligibility to consultants and advisors of the Holding Company of an
Affiliate.
A-4
<PAGE> 28
6. NON-STATUTORY STOCK OPTIONS.
---------------------------
The Committee may, subject to the limitations of this Plan and the
availability of shares of Common Stock reserved but not previously awarded under
the Plan, grant Non-Statutory Stock Options to eligible individuals upon such
terms and conditions as it may determine to the extent such terms and conditions
are consistent with the following provisions:
(a) Exercise Price. The Committee shall determine the Exercise Price of
---------------
each Non-Statutory Stock Option. However, the Exercise Price shall not be less
than 100% of the Fair Market Value of the Common Stock on the Date of Grant.
(b) Terms of Non-statutory Stock Options. The Committee shall determine
--------------------------------------
the term during which a Participant may exercise a Non-Statutory Stock Option,
but in no event may a Participant exercise a Non-Statutory Stock Option, in
whole or in part, more than ten (10) years from the Date of Grant. The Committee
shall also determine the date on which each Non-Statutory Stock Option, or any
part thereof, first becomes exercisable and any terms or conditions a
Participant must satisfy in order to exercise each Non-Statutory Stock Option.
The shares of Common Stock underlying each Non-Statutory Stock Option may be
purchased in whole or in part by the Participant at any time during the term of
such Non-Statutory Stock Option, or any portion thereof, becomes exercisable.
(c) Non-Transferability. Unless otherwise determined by the Committee in
-------------------
accordance with this Section 6(c), a Participant may not transfer, assign,
hypothecate, or dispose of in any manner, other than by will or the laws of
intestate succession, a Non-Statutory Stock Option. The Committee may, however,
in its sole discretion, permit transferability or assignment of a Non-Statutory
Stock Option if such transfer or assignment is, in its sole determination, for
valid estate planning purposes and such transfer or assignment is permitted
under the Code and Rule 16b-3 under the Exchange Act. For purposes of this
Section 6(c), a transfer for valid estate planning purposes includes, but is not
limited to: (a) a transfer to a revocable intervivos trust as to which the
Participant is both the settlor and trustee, (b) a transfer for no consideration
to: (i) any member of the Participant's Immediate Family, (ii) any trust solely
for the benefit of members of the Participant's Immediate Family, (iii) any
partnership whose only partners are members of the Participant's Immediate
Family, and (iv) any limited liability corporation or corporate entity whose
only members or equity owners are members of the Participant's Immediate Family.
For purposes of this Section 6(c), "Immediate Family" includes, but is not
necessarily limited to, a Participant's parents, grandparents, spouse, children,
grandchildren, siblings (including half bothers and sisters), and individuals
who are family members by adoption. Nothing contained in this Section 6(c) shall
be construed to require the Committee to give its approval to any transfer or
assignment of any Non-Statutory Stock Option or portion thereof, and approval to
transfer or assign any Non-Statutory Stock Option or portion thereof does not
mean that such approval will be given with respect to any other Non-Statutory
Stock Option or portion thereof. The transferee or assignee of any Non-Statutory
Stock Option shall be subject to all of the terms and conditions applicable to
such Non-Statutory Stock Option immediately prior to the transfer or assignment
and shall be subject to any other conditions proscribed by the Committee with
respect to such Non-Statutory Stock Option.
(d) Termination of Employment or Service (General). Unless otherwise
-------------------------------------------------
determined by the Committee, upon the termination of a Participant's employment
or other service for any reason other than Retirement, Disability or death, a
Change in Control, or Termination for Cause, the Participant may exercise only
those Non-Statutory Stock Options that were immediately exercisable by the
Participant at the date of such termination and only for a period of three (3)
months following the date of such termination.
(e) Termination of Employment or Service (Retirement). In the event of a
--------------------------------------------------
Participant's Retirement, the Participant's may exercise only those
Non-Statutory Stock Options that were immediately exercisable by the Participant
at the date of Retirement and only for a period of one (1) year following the
date of Retirement; PROVIDED, HOWEVER, that upon the Participant's Retirement,
the Committee, in its discretion, may determine that all Non- Statutory Stock
Options that were not exercisable by the Participant as of such date shall
continue to become exercisable in accordance with the terms of the Award
Agreement if the Participant is immediately engaged by the
A-5
<PAGE> 29
Holding Company or an Affiliate as a consultant or advisor or continues to serve
the Holding Company or an Affiliate as a director or advisory director.
(f) Termination of Employment or Service (Disability or death). Unless
------------------------------------------------------------
otherwise determined by the Committee, in the event of the termination of a
Participant's employment or other service due to Disability or death, all
Non-Statutory Stock Options held by such Participant shall immediately become
exercisable and remain exercisable for a period one (1) year following the date
of such termination.
(g) Termination of Employment or Service (Change in Control). Unless
------------------------------------------------------------
otherwise determined by the Committee, in the event of the termination of a
Participant's employment or service due to a Change in Control, the Participant
may exercise only those Non-Statutory Stock Options that were immediately
exercisable by the Participant at the date of such termination and only for a
period of one (1) year following the date of such termination.
(h) Termination of Employment or Service (Termination for Cause). Unless
-------------------------------------------------------------
otherwise determined by the Committee, in the event of a Participant's
Termination for Cause, all rights with respect to the Participant's Non-
Statutory Stock Options shall expire immediately upon the effective date of such
Termination for Cause.
(i) Payment. Payment due to a Participant upon the exercise of a
-------
Non-Statutory Stock Option shall be made in the form of shares of Common Stock.
(j) Maximum Individual Award. No individual Employee shall be granted an
-------------------------
amount of Non-Statutory Stock Options which exceeds 25% of all Options eligible
to be granted under the Plan within any 60 month period.
7. INCENTIVE STOCK OPTIONS.
-----------------------
The Committee may, subject to the limitations of the Plan and the
availability of shares of Common Stock reserved but unawarded under this Plan,
grant Incentive Stock Options to an Employee upon such terms and conditions as
it may determine to the extent such terms and conditions are consistent with the
following provisions:
(a) Exercise Price. The Committee shall determine the Exercise Price of
--------------
each Incentive Stock Option. However, the Exercise Price shall not be less than
100% of the Fair Market Value of the Common Stock on the Date of Grant;
PROVIDED, HOWEVER, that if at the time an Incentive Stock Option is granted,
the Employee owns or is treated as owning, for purposes of Section 422 of the
Code, Common Stock representing more than 10% of the total combined voting
securities of the Holding Company ("10% Owner"), the Exercise Price shall not be
less than 110% of the Fair Market Value of the Common Stock on the Date of
Grant.
(b) Amounts of Incentive Stock Options. To the extent the aggregate Fair
-----------------------------------
Market Value of shares of Common Stock with respect to which Incentive Stock
Options that are exercisable for the first time by an Employee during any
calendar year under the Plan and any other stock option plan of the Holding
Company or an Affiliate exceeds $100,000, or such higher value as may be
permitted under Section 422 of the Code, such Options in excess of such limit
shall be treated as Non-Statutory Stock Options. Fair Market Value shall be
determined as of the Date of Grant with respect to each such Incentive Stock
Option.
(c) Terms of Incentive Stock Options. The Committee shall determine the
---------------------------------
term during which a Participant may exercise an Incentive Stock Option, but in
no event may a Participant exercise an Incentive Stock Option, in whole or in
part, more than ten (10) years from the Date of Grant; PROVIDED, HOWEVER, that
if at the time an Incentive Stock Option is granted to an Employee who is a 10%
Owner, the Incentive Stock Option granted to such Employee shall not be
exercisable after the expiration of five (5) years from the Date of Grant. The
Committee shall also determine the date on which each Incentive Stock Option, or
any part thereof, first becomes exercisable and any terms or conditions a
Participant must satisfy in order to exercise each Incentive Stock Option. The
shares of Common Stock underlying each Incentive Stock Option may be purchased
in whole or in part at any time during the term of such Incentive Stock Option
after such Option becomes exercisable.
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<PAGE> 30
(d) Non-Transferability. No Incentive Stock Option shall be transferable
-------------------
except by will or the laws of descent and distribution and is exercisable,
during his lifetime, only by the Employee to whom the Committee grants the
Incentive Stock Option. The designation of a beneficiary does not constitute a
transfer of an Incentive Stock Option.
(e) Termination of Employment (General). Unless otherwise determined by
------------------------------------
the Committee, upon the termination of a Participant's employment or other
service for any reason other than Retirement, Disability or death, a Change in
Control, or Termination for Cause, the Participant may exercise only those
Incentive Stock Options that were immediately exercisable by the Participant at
the date of such termination and only for a period of three (3) months following
the date of such termination.
(f) Termination of Employment (Retirement). In the event of a
-------------------------------------------
Participant's Retirement, the Participant may exercise only those Incentive
Stock Options that were immediately exercisable by the Participant at the date
of Retirement and only for a period of one (1) year following the date of
Retirement; PROVIDED HOWEVER, that upon the Participant's Retirement, the
Committee, in its discretion, may determine that all Incentive Stock Options
that were not otherwise exercisable by the Participant as of such date shall
continue to become exercisable in accordance with the terms of the Award
Agreement if the Participant is immediately engaged by the Holding Company or an
Affiliate as a consultant or advisor or continues to serve the Holding Company
or an Affiliate as a director or advisory director. Any Option originally
designated as an Incentive Stock Option shall be treated as a Non-Statutory
Stock Options to the extent the Participant exercises such Option more than
three (3) months following the Date of the Participant's Retirement.
(g) Termination of Employment (Disability or Death). Unless otherwise
-------------------------------------------------
determined by the Committee, in the event of the termination of a Participant's
employment or other service due to Disability or death, all Incentive Stock
Options held by such Participant shall immediately become exercisable and remain
exercisable for a period one (1) year following the date of such termination.
(h) Termination of Employment (Change in Control). Unless otherwise
-------------------------------------------------
determined by the Committee, in the event of the termination of a Participant's
employment or service due to a Change in Control, the Participant may exercise
only those Incentive Stock Options that were immediately exercisable by the
Participant at the date of such termination and only for a period of three (3)
months following the date of such termination.
(i) Termination of Employment (Termination for Cause). Unless otherwise
---------------------------------------------------
determined by the Committee, in the event of an Employee's Termination for
Cause, all rights under such Employee's Incentive Stock Options shall expire
immediately upon the effective date of such Termination for Cause.
(j) Payment. Payment due to a Participant upon the exercise of an
-------
Incentive Stock Option shall be made in the form of shares of Common Stock.
(k) Maximum Individual Award. No individual Employee shall be granted an
-------------------------
amount of Incentive Stock Options which exceeds 25% of all Options eligible to
be granted under the Plan within any 60 month period.
(l) Disqualifying Dispositions. Each Award Agreement with respect to an
---------------------------
Incentive Stock Option shall require the Participant to notify the Committee of
any disposition of shares of Common Stock issued pursuant to the exercise of
such Option under the circumstances described in Section 421(b) of the Code
(relating to certain disqualifying dispositions), within 10 days of such
disposition. As of the Effective Date of this Plan, a disqualifying disposition
means any disposition of the shares of Common Stock within two years from the
date of the grant of the Incentive Stock Option to which such shares relate or
within one year of the date such shares are transferred to the Participant
pursuant to his exercise of the Incentive Stock Option.
A-7
<PAGE> 31
8. LIMITED RIGHTS.
--------------
Simultaneously with the grant of any Option, the Committee may grant a
Limited Right with respect to all or some of the shares of Common Stock covered
by such Option, subject to the following terms and conditions:
(a) Terms of Rights. In no event shall a Limited Right be exercisable in
---------------
whole or in part before the expiration of six (6) 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. The Limited Right may be exercised only when the underlying
Option is eligible to be exercised, and only when the Fair Market Value of the
underlying shares on the day of exercise is greater than the Exercise Price of
the underlying Option. Upon exercise of a Limited Right, the underlying Option
shall cease to be exercisable and shall be terminated. Upon exercise or
termination of an Option, any related Limited Rights shall terminate. 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 Holding Company or an Affiliate an amount of cash equal to the
difference between the Exercise Price of the underlying Option and the Fair
Market Value of the Common Stock subject to such Option on the date the Limited
Right is exercised, multiplied by the number of shares with respect to which
such Limited Right is being exercised.
9. STOCK AWARDS.
------------
The Committee may grants of Stock Awards, which shall consist of the grant
of some number of shares of Common Stock, to a Participant upon such terms and
conditions as it may determine to the extent such terms and conditions are
consistent with the following provisions:
(a) Grants of the Stock Awards. Stock Awards may only be made in whole
---------------------------
shares of Common Stock. Stock Awards may only be granted from shares reserved
under the Plan and available for award at the time the Stock Award is made to
the Participant.
(b) Terms of the Stock Awards. The Committee shall determine the dates on
-------------------------
which Stock Awards granted to a Participant shall vest and any terms or
conditions which must be satisfied prior to the vesting of any Stock Award or
portion thereof. Any such terms or conditions shall be determined by the
Committee as of the Date of Grant.
(c) Termination of Employment or Service (General). Unless otherwise
-------------------------------------------------
determined by the Committee, upon the termination of a Participant's employment
or service for any reason other than Retirement, Disability or death, a Change
in Control, or Termination for Cause, any Stock Awards in which the Participant
has not become vested as of the date of such termination shall be forfeited and
any rights the Participant had to such Stock Awards shall become null and void.
(d) Termination of Employment or Service (Retirement). In the event of a
--------------------------------------------------
Participant's Retirement, any Stock Awards in which the Participant has not
become vested as of the date of Retirement shall be forfeited and any rights the
Participant had to such unvested Stock Awards shall become null and void;
PROVIDED HOWEVER, that upon the Participant's Retirement, the Committee, in its
discretion, may determine that all unvested Stock Awards shall continue to vest
in accordance with the Award Agreement if the Participant is immediately engaged
by the Holding Company or an Affiliate as a consultant or advisor or continues
to serve the Holding Company or an Affiliate as a director or advisory director.
(e) Termination of Employment or Service (Disability or death). Unless
------------------------------------------------------------
otherwise determined by the Committee, in the event of a termination of the
Participant's service due to Disability or death all unvested Stock Awards held
by such Participant shall immediately vest as of the date of such termination.
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<PAGE> 32
(f) Termination of Employment or Service (Change in Control). Unless
------------------------------------------------------------
otherwise determined by the Committee, in the event of a termination of the
Participant's service due to a Change in Control any Stock Awards in which the
Participant has not become vested as of the date of such termination shall be
forfeited and any rights the Participant had to such unvested Stock Awards shall
become null and void.
(g) Termination of Employment or Service (Termination for Cause). Unless
-------------------------------------------------------------
otherwise determined by the Committee, or in the event of the Participant's
Termination for Cause, all Stock Awards in which the Participant had not become
vested as of the effective date of such Termination for Cause shall be forfeited
and any rights such Participant had to such unvested Stock Awards shall become
null and void.
(h) Maximum Individual Award. No individual Employee shall be granted an
-------------------------
amount of Stock Awards which exceeds 25% of all Options eligible to be granted
under the Plan within any 60 month period.
(i) Issuance of Certificates. Unless otherwise held in Trust and
--------------------------
registered in the name of the Trustee, (i) reasonably promptly after the Date of
Grant with respect to shares of Common Stock pursuant to a Stock Award, the
Holding Company shall cause to be issued a stock certificate, registered in the
name of the Participant to whom such Stock Award was granted, evidencing such
shares; provided, that the Holding Company shall not cause such a stock
certificate to be issued unless it has received a stock power duly endorsed in
blank with respect to such shares.
Each such stock certificate shall bear the following legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the restrictions, terms and
conditions (including forfeiture provisions and restrictions against
transfer) contained in the Bayonne Bancshares, Inc. 1998 Stock-Based
Incentive Plan and Award Agreement entered into between the
registered owner of such shares and Bayonne Bancorp, Inc. or its
Affiliates. A copy of the Plan and Award Agreement is on file in the
office of the Corporate Secretary of Bayonne Bancorp, Inc. located
at 568 Broadway, Bayonne, NJ 07002.
Such legend shall not be removed until the Participant becomes vested in such
shares pursuant to the terms of the Plan and Award Agreement. Each certificate
issued pursuant to this Section 9(h), in connection with a Stock Award, shall be
held by the Holding Company or its Affiliates, unless the Committee determines
otherwise.
(j) Non-Transferability. Except to the extent permitted by the Code, the
-------------------
rules promulgated under Section 16(b) of the Exchange Act or any successor
statutes or rules:
(i) The recipient of a Stock Award shall not sell, transfer,
assign, pledge, or otherwise encumber shares subject to the
Stock Award until full vesting of such shares has occurred.
For purposes of this section, the separation of beneficial
ownership and legal title through the use of any "swap"
transaction is deemed to be a prohibited encumbrance.
(ii) Unless determined otherwise by the Committee and except in the
event of the Participant's death or pursuant to a domestic
relations order, a Stock Award is not transferable and may be
earned in his lifetime only by the Participant to whom it is
granted. Upon the death of a Participant, a Stock Award is
transferable by will or the laws of descent and distribution.
The designation of a beneficiary shall not constitute a
transfer.
(iii) If a recipient of a Stock Award is subject to the provisions
of Section 16 of the Exchange Act, shares of Common Stock
subject to such Stock Award may not, without the written
consent of the Committee (which consent may be given in the
Award Agreement), be sold or otherwise disposed of within six
(6) months following the date of grant of the Stock Award.
A-9
<PAGE> 33
(k) Accrual of Dividends. To the extent Stock Awards are held in Trust and
--------------------
registered in the name of the Trustee, whenever shares of Common Stock
underlying a Stock Award are distributed to a Participant or beneficiary thereof
under the Plan, such Participant or beneficiary shall also be entitled to
receive, with respect to each such share distributed, a payment equal to any
cash dividends and the number of shares of Common Stock equal to any stock
dividends, declared and paid with respect to a share of the Common Stock if the
record date for determining shareholders entitled to receive such dividends
falls between the date the relevant Stock Award was granted and the date the
relevant Stock Award or installment thereof is issued. There shall also be
distributed an appropriate amount of net earnings, if any, of the Trust with
respect to any dividends paid out on the shares related to the Stock Award.
(l) Voting of Stock Awards. After a Stock Award has been granted but for
-----------------------
which the shares covered by such Stock Award have not yet been vested, earned
and distributed to the Participant pursuant to the Plan, the Participant shall
be entitled to vote or to direct the Trustee to vote, as the case may be, such
shares of Common Stock which the Stock Award covers subject to the rules and
procedures adopted by the Committee for this purpose and in a manner consistent
with the Trust agreement.
(m) Payment. Payment due to a Participant upon the redemption of a Stock
-------
Award shall be made in the form of shares of Common Stock.
10. PERFORMANCE AWARDS.
------------------
(a) The Committee may determine to make any Award under the Plan
contingent upon the satisfaction of any conditions related to the performance of
the Holding Company, an Affiliate of the Participant. Each Performance Award
shall be evidenced in the Award Agreement, which shall set forth the applicable
conditions, the maximum amounts payable and such other terms and conditions as
are applicable to the Performance Award. Unless otherwise determined by the
Committee, each Performance Award shall be granted and administered to comply
with the requirements of Section 162(m) of the Code and subject to the following
provisions:
(b) Any Performance Award shall be made not later than 90 days after the
start of the period for which the Performance Award relates and shall be made
prior to the completion of 25% of such period. All determinations regarding the
achievement of any applicable conditions will be made by the Committee. The
Committee may not increase during a year the amount of a Performance Award that
would otherwise be payable upon satisfaction of the conditions but may reduce or
eliminate the payments as provided for in the Award Agreement.
(c) Nothing contained in the Plan will be deemed in any way to limit or
restrict the Committee from making any Award or payment to any person under any
other plan, arrangement or understanding, whether now existing or hereafter in
effect.
(d) A Participant who receives a Performance Award payable in Common Stock
shall have no rights as a shareholder until the Company Stock is issued pursuant
to the terms of the Award Agreement. The Common Stock may be issued without cash
consideration.
(e) A Participant's interest in a Performance Award may not be sold,
assigned, transferred, pledged, hypothecated, or otherwise encumbered.
(f) No Award or portion thereof that is subject to the satisfaction of any
condition shall be distributed or considered to be earned or vested until the
Committee certifies in writing that the conditions to which the distribution,
earning or vesting of such Award is subject have been achieved.
A-10
<PAGE> 34
11. DEFERRED PAYMENTS.
-----------------
The Committee, in its discretion, may permit a Participant to elect to
defer receipt of all or any part of any cash or stock payment under the Plan, or
the Committee may determine to defer receipt by some or all Participants, of all
or part of any such payment. The Committee shall determine the terms and
conditions of any such deferral, including the period of deferral, the manner of
deferral, and the method for measuring appreciation on deferred amounts until
their payout.
12. METHOD OF EXERCISE OF OPTIONS.
-----------------------------
Subject to any applicable Award Agreement, any Option may be exercised by
the Participant in whole or in part at such time or times, and the Participant
may make payment of the Exercise Price in such form or forms, including, without
limitation, payment by delivery of cash, Common Stock or other consideration
(including, where permitted by law and the Committee, Awards) having a Fair
Market Value on the exercise date equal to the total Exercise Price, or by any
combination of cash, shares of Common Stock and other consideration, including
exercise by means of a cashless exercise arrangement with a qualifying
broker-dealer, as the Committee may specify in the applicable Award Agreement.
13. RIGHTS OF PARTICIPANTS.
----------------------
No Participant shall have any rights as a shareholder with respect to any
shares of Common Stock covered by an Option until the date of issuance of a
stock certificate for such Common Stock. Nothing contained herein or in any
Award Agreement confers on any person any right to continue in the employ or
service of the Holding Company or an Affiliate or interferes in any way with the
right of the Holding Company or an Affiliate to terminate a Participant's
services.
14. DESIGNATION OF BENEFICIARY.
--------------------------
A Participant may, with the consent of the Committee, designate a person
or persons to receive, in the event of death, any Award to which the Participant
would then be entitled. Such designation will be made upon forms supplied by and
delivered to the Holding Company and may be revoked in writing. If a Participant
fails effectively to designate a beneficiary, then the Participant's estate will
be deemed to be the beneficiary.
15. DILUTION AND OTHER ADJUSTMENTS.
------------------------------
In the event of any change in the outstanding shares of Common Stock 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 Holding Company, or in the event an
extraordinary capital distribution is made, the Committee may make such
adjustments to previously granted Awards, to prevent dilution, diminution, 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 or other securities that may underlie future Awards under the
Plan;
(b) adjustments in the aggregate number or kind of shares of Common
Stock or other securities underlying Awards already made under the
Plan;
(c) adjustments in the Exercise Price of outstanding Incentive and/or
Non-statutory Stock Options, or any Limited Rights attached to such
Options.
A-11
<PAGE> 35
No such adjustments may, however, materially change the value of benefits
available to a Participant under a previously granted Award. All Awards under
this Plan shall be binding upon any successors or assigns of the Holding
Company. Notwithstanding the above, in the event of an extraordinary capital
distribution, any adjustment under this Section 15 shall be subject to required
approval by the Office of Thrift Supervision.
16. TAX WITHHOLDING.
---------------
(a) Whenever under this Plan, cash or shares of Common Stock are to be
delivered upon exercise or payment of an Award or any other event with respect
to rights and benefits hereunder, the Committee shall be entitled to require as
a condition of delivery (i) that the Participant remit an amount sufficient to
satisfy all federal, state, and local withholding tax requirements related
thereto, (ii) that the withholding of such sums come from compensation otherwise
due to the Participant or from any shares of Common Stock due to the Participant
under this Plan or (iii) any combination of the foregoing PROVIDED, HOWEVER,
that no amount shall be withheld from any cash payment or shares of Common Stock
relating to an Award which was transferred by the Participant in accordance with
this Plan.
(b) If any disqualifying disposition described in Section 7(k) is made
with respect to shares of Common Stock acquired under an Incentive Stock Option
granted pursuant to this Plan, or any transfer described in Section 6(c) is
made, or any election described in Section 17 is made, then the person making
such disqualifying disposition, transfer, or election shall remit to the Holding
Company or its Affiliates an amount sufficient to satisfy all federal, state,
and local withholding taxes thereby incurred; provided that, in lieu of or in
addition to the foregoing, the Holding Company or its Affiliates shall have the
right to withhold such sums from compensation otherwise due to the Participant,
or, except in the case of any transfer pursuant to Section 6(c), from any shares
of Common Stock due to the Participant under this Plan.
17. NOTIFICATION UNDER SECTION 83(b).
--------------------------------
The Committee may, on the Date of Grant or any later date, prohibit a
Participant from making the election described below. If the Committee has not
prohibited such Participant from making such election, and the Participant
shall, in connection with the exercise of any Option, or the grant of any Stock
Award, make the election permitted under Section 83(b) of the Code (i.e., an
election to include in such Participant's gross income in the year of transfer
the amounts specified in Section 83(b) of the Code), such Participant shall
notify the Committee of such election within 10 days of filing notice of the
election with the Internal Revenue Service, in addition to any filing and
notification required pursuant to regulations issued under the authority of
Section 83(b) of the Code.
18. AMENDMENT OF THE PLAN AND AWARDS.
--------------------------------
(a) Except as provided in paragraph (c) of this Section 18, the Board of
Directors may at any time, and from time to time, modify or amend the Plan in
any respect, prospectively or retroactively; provided however, that provisions
governing grants of Incentive Stock Options shall be submitted for shareholder
approval to the extent required by such law, regulation or interpretation.
Failure to ratify or approve amendments or modifications by shareholders shall
be effective only as to the specific amendment or modification requiring such
ratification. Other provisions of this Plan will remain in full force and
effect. No such termination, modification or amendment may adversely affect the
rights of a Participant under an outstanding Award without the written
permission of such Participant.
(b) Except as provided in paragraph (c) of this Section 18, the Committee
may amend any Award Agreement, prospectively or retroactively; PROVIDED,
HOWEVER, that no such amendment shall adversely affect the rights of any
Participant under an outstanding Award without the written consent of such
Participant.
(c) In no event shall the Board of Directors amend the Plan or shall the
Committee amend an Award Agreement in any manner that has the effect of:
A-12
<PAGE> 36
(i) Allowing any Option to be granted with an exercise below the
Fair Market Value of the Common Stock on the Date of Grant.
(ii) Allowing the exercise price of any Option previously granted
under the Plan to be reduced subsequent to the Date of Award.
19. EFFECTIVE DATE OF PLAN.
----------------------
The Plan shall become effective upon approval by the Holding Company's
shareholders in accordance with OTS and Internal Revenue Service ("IRS")
regulations or August 23, 1998, whichever is earlier. The failure to obtain
shareholder ratification for such purposes will not effect the validity of the
Plan and any Awards made under the Plan; PROVIDED, HOWEVER, that if the Plan is
not ratified by stockholders in accordance with IRS regulations, the Plan shall
remain in full force and effect, and any Incentive Stock Options granted under
the Plan shall be deemed to be Non- Statutory Stock Options and any Award
intended to comply with Section 162(m) of the Code shall not comply with Section
162(m) of the Code.
20. TERMINATION OF THE PLAN.
-----------------------
The right to grant Awards under the Plan will terminate upon the earlier
of: (i) ten (10) years after the Effective Date; (ii) the issuance of a number
of shares of Common Stock pursuant to the exercise of Options or the
distribution of Stock Awards which together with the exercise of Limited Rights
is equivalent to the maximum number of shares reserved under the Plan as set
forth in Section 4 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, adversely affect a Participant's vested rights under a
previously granted Award.
21. APPLICABLE LAW.
--------------
The Plan will be administered in accordance with the laws of the state of
New Jersey and applicable federal law.
22. COMPLIANCE WITH OTS CONVERSION REGULATIONS.
------------------------------------------
Notwithstanding any other provision contained in this Plan:
(e) no Award under the Plan shall be made which would be prohibited by
12 CFRss.563b.3(g)(4).
(f) unless the Plan is approved by a majority vote of the outstanding
shares of the total votes eligible to be cast at a duty called
meeting of stockholders to consider the Plan, as required by 12 CFR
ss.563b.3(g)(4)(vii), the Plan shall not become effective or
implemented prior to one year from the date of the Bank's
reorganization;
(g) no Award granted prior to one year from the date of the Bank's
reorganization shall become vested or exercisable at a rate in
excess of 20% per year of the total number of Stock Awards or
Options (whichever may be the case) granted to such Participant,
provided, that Awards shall become fully vested or immediately
exercisable in the event of a Participant's termination of service
due to death or Disability;
(d) no Award granted to any individual Employee prior to one year from
the date of the Bank's reorganization may exceed 25% of the total
amount of Awards which may be granted under the Plan;
A-13
<PAGE> 37
(e) no Award granted to any individual Outside Director prior to one
year from the date of the Bank's reorganization may exceed 5% of the
total amount of Awards which may be granted under the Plan; and
(f) the aggregate amount of Awards granted to all Outside Directors
prior to one year from the date of the Bank's reorganization may not
exceed 30% of the total amount of Awards which may be granted under
the Plan.
A-14
