================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
----------------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NO. 000-23537
PEAPACK-GLADSTONE FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2491488
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
158 ROUTE 206
PEAPACK-GLADSTONE, NEW JERSEY 07934
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER (908) 234-0700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
----
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS
--------------------------
COMMON STOCK, NO PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K__.
As of February 28, 1998, 2,329,255 shares of Common Stock were outstanding
and the aggregate market value of the shares held by unaffiliated stockholders
was approximately $103,697,622.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Corporation's 1997 Annual Report (the "1997 Annual Report") and
Definitive Proxy Statement for the Corporation's 1998 Annual Meeting of
Shareholders (the "1998 Proxy Statement") are incorporated by reference into
Parts II and III.
================================================================================
<PAGE>
FORM 10-K
PEAPACK-GLADSTONE FINANCIAL CORPORATION
FOR THE YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
PART I
Item 1 Description of Business..........................................3
Item 2 Description of Property..........................................7
Item 3 Legal Proceedings................................................7
Item 4 Submission of Matters to a Vote of Security Holders..............7
PART II
Item 5 Market for the Registrant's Common Stock and
Related Shareholders Matters.....................................7
Item 6 Selected Financial Data..........................................8
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................9
Item 7A Quantitative and Qualitative Disclosure About Market Risk.......9
Item 8 Financial Statements and Supplementary Data......................9
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..............................9
PART III
Item 10 Directors and Executive Officers of the Registrant..............10
Item 11 Executive Compensation..........................................11
Item 12 Security Ownership of Certain Beneficial Owners and Management..11
Item 13 Certain Relationships and Related Transactions..................11
Item 14 Exhibits........................................................11
3
<PAGE>
This document contains forward-looking statements within the meaning of The
Private Securities Litigation Reform Act of 1995. Such statements are not
historical facts and involve certain risks and uncertainties. Actual results may
differ materially from the results discussed in these forward-looking
statements. Factors that might cause a difference include, but are not limited
to, changes in interest rates, economic conditions, deposit and loan growth,
loan loss provisions, and customer retention. The Corporation assumes no
obligation for updating any such forward-looking statements at any time.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
THE CORPORATION
The Peapack-Gladstone Financial Corporation (the "Corporation"), organized in
August, 1997, as a business corporation under the laws of the State of New
Jersey, was established by the Board of Directors of Peapack-Gladstone Bank (the
"Bank") to become a holding company for the Bank. The shareholders of the Bank
approved the acquisition of the Bank by the Holding Company at a special
shareholders meeting on December 11, 1997. As a result of the acquisition,
shareholders of the Bank received one share of the Corporation's common stock,
no par value for each outstanding share of the common stock of the Bank, $3.33
per share par value. The acquisition was accounted for as a "pooling of
interests," resulting in no changes in the underlying assets and liabilities.
The Bank, including its subsidiary, Peapack-Gladstone Investment Company, Inc.,
is now the wholly-owned subsidiary of the Corporation, and represents the only
significant activity of the Corporation at this time. The Corporation offers
financial services through ten full-service banking offices located in
Gladstone, Far Hills, Pluckemin, Pottersville, Bernardsville, Califon, Long
Valley, Mendham, Chester and Peapack and one mini-branch located in Fellowship
Village, a retirement community. The Corporation maintains seven (7) branches
and one (1) auxiliary office in Somerset County, one (1) in Hunterdon County and
three (3) in Morris County. Peapack-Gladstone Investment Company, Inc. was
established in 1996 and chartered in the State of New Jersey and is an
investment company whose portfolio consists primarily of U.S. Treasury
securities, U.S. Government Agency securities and investment-grade corporate
debt securities.
The Corporation is primarily dedicated to providing quality, personalized
financial, trust and investment services to individuals and small businesses.
Commercial loan customers of the Corporation are business people, including
merchants, landscapers, architects, doctors and dentists, attorneys, building
contractors and restaurateurs as well as various service firms and other local
retailers. Most forms of commercial lending are offered, including working
capital lines of credit, term loans for fixed asset acquisitions, commercial
mortgages and other forms of asset-based financing.
In addition to commercial lending activities, the Corporation offers a wide
range of consumer banking services, including: Checking and Savings accounts,
Money Market and Interest-bearing Checking accounts, Certificates of Deposit,
Individual Retirement Accounts held in Certificates of Deposit or self-directed
investment accounts as well as accounts for employers' pension funds. The
Corporation also offers residential, commercial and construction mortgages, Home
Equity lines of credit and other second mortgage loans. For children, the
Corporation offers a special Pony Club Savings account. New Jersey Consumer
Checking
4
<PAGE>
Accounts are offered to low income customers. In addition, the Corporation
provides foreign and domestic Travelers' Checks, Personal Money Orders,
Cashier's Checks and Wire Transfers. Automated Teller Machines are available at
nine (9) locations. The machines serve The Corporation customers as well as
other area consumers who are members of the MAC [??], HONOR[??] and PLUS[??]
networks. Via the Automatic Teller Machine access card issued by the
Corporation, customers may pay for commodities at Point-of-Sale merchant
locations.
The Trust and Investment Department is an important function of the Corporation.
Since its inception in 1972, trust assets (book value) have increased to more
than $453 million. This Department is committed to sound, conservative
management of assets for its clients and strives to maintain high-quality,
specialized services for this important market segment.
Deposits of the Corporation are insured for up to $100,000 per depositor by the
Bank Insurance Fund administered by the FDIC. The Bank is a member of the
Federal Reserve System.
At present, the Corporation employs 134 full-time and 18 part-time employees.
PRINCIPAL MARKET AREAS
The Corporation's principal market for its deposit gathering activities include
northern Somerset, northwestern Morris and northeastern Hunterdon Counties. The
area is composed of large estates, upper-income single family homes, moderate
income properties, some low-income housing and a few prosperous farms. There are
numerous small retail businesses in each of the towns as well as offices for
various professionals, i.e. attorneys, architects, interior decorators,
photographers, etc. A portion of the market area is bisected by Interstate
Highways 287 and 78 where numerous corporate offices have relocated over the
past 25 years. The Corporation does not have the resource capacity to satisfy
the financial needs of AT&T, Merck & Co., Chubb Insurance Company, Beneficial
Management Company, or other large corporations based in the area. However, the
Corporation has targeted the management and staff of these companies as
potential customers. The corporate decision to move offices further out of the
cities into western New Jersey caused the relatively rural nature of
Peapack-Gladstone Financial Corporation's primary trade area to change
dramatically.
The Corporation has expanded its service areas from one office in 1968 to the
present ten (10) full-service banking locations and one (1) mini-branch location
by steadily opening new branches. During 1996, the Corporation opened a new
branch office in Chester and a mini-branch office in Fellowship Village, a
retirement community located in Basking Ridge. All of the communities that the
Corporation serves are demographically similar and contiguous to the main
office, affording various management economies.
Prior to 1996, the Corporation's current operations facilities limited its
ability to continue to grow and provide superior customer service. In response
to this concern, the Corporation entered into an agreement to lease a 26,882
square foot building on Route 206 in Peapack-Gladstone, New Jersey. In April of
1996, the Corporation moved its administrative, loan and operations functions to
this new location.
COMPETITION
Competition in the banking and financial services industry in the Corporation's
market area is largely from branches of interstate banks including: First Union
Bank; Fleet Bank NY; PNC Bank, N.A.; and New Jersey regional banks including:
United National Bank, Summit Bank,
5
<PAGE>
Hudson United Bank and Valley National Bank; and Thrift institutions such as
Roselle Savings and Loan Association and Hudson City Savings Bank. There are no
other community banks that compete with the Bank in its market area. Some of the
major corporations in the trade area maintain credit unions that offer
competitive financial products.
The Corporation attracts new business through direct mail campaigns, newspaper
advertising and personal contact with potential customers. Management encourages
community involvement, supports local charitable events, and reinvests in the
many various communities it serves. Management believes the Corporation is
well-positioned to meet the deposit and credit requirements of local businesses
and customers within the trade area by responding to their various needs with
products tailored to their needs.
GOVERNMENTAL POLICIES AND LEGISLATION
The commercial banking business is affected not only by general economic
conditions, but also by the monetary and fiscal policies of the federal
government and the policies of the regulatory agencies, particularly the Federal
Reserve Board. The Federal Reserve Board implements national monetary policies
(with objectives such as curbing inflation and combating recession) by its
open-market operations in United States government securities, by adjusting the
required level of reserves for financial institutions and by varying the
discount rates applicable to borrowings by financial institutions. The actions
of the Federal Reserve Board in these areas influence the growth of bank loans,
investments and deposits, and also affect prime or reference lending rates and
interest rates paid on deposits. The nature and impact of any future changes in
monetary policies implemented by the Federal Reserve Board cannot be predicted.
From time to time, legislation is enacted which has the effect of increasing the
cost of doing business, limiting or expanding permissible activities or
affecting the competitive balance between banks and other financial
institutions. Proposals to change the laws and regulations governing the
operations and taxation of banks, bank holding companies and other financial
institutions are frequently made in Congress, in state legislatures and before
various bank regulatory agencies. The likelihood of any major changes and the
impact such changes might have on the Bank are impossible to predict. Certain
potentially significant changes which have been enacted are discussed below.
CAPITAL REQUIREMENTS
The Federal Reserve Board has adopted risk-based capital guidelines for banks
and bank holding companies. The minimum guidelines for the ratio of total
capital to risk-weighted assets is 8%. At least half of the total capital is to
be comprised of common stock, retained earnings, minority interests in the
equity accounts of consolidated subsidiaries, noncumulative perpetual preferred
stock and a limited amount of qualifying cumulative perpetual preferred stock,
less goodwill and certain other intangibles ("Tier 1 Capital"). The remainder
may consist of other preferred stock, certain other instruments and a portion of
the loan loss allowance. At December 31, 1997, the Corporation's Tier 1 Capital
and Total Capital ratios were 20.25% and 21.43%, respectively.
In addition, the Federal Reserve Board has established minimum leverage ratio
guidelines for banks and bank holding companies. These guidelines provide for a
minimum ratio of Tier 1 Capital to average total assets of 3% for banks that
meet certain specified criteria, including having the highest regulatory rating.
All other banks and bank holding companies generally are
6
<PAGE>
required to maintain a leverage ratio of at least 3% plus an additional cushion
of 100 to 200 basis points. The Corporation's leverage ratio at December 31,
1997 was 9.40%.
7
<PAGE>
RESTRICTIONS ON THE PAYMENT OF DIVIDENDS
The holders of the Corporation's common stock are entitled to receive dividends,
when, as and if declared by the Board of Directors of the Corporation out of
funds legally available. The only statutory limitation is that such dividends
may not be paid when the Corporation is insolvent. Since the principal source of
income for the Corporation will be dividends on Bank common stock paid the
Corporation by the Bank, the Corporation's ability to pay dividends to its
shareholders will depend on whether the Bank pays dividends to it. As a
practical matter, restrictions on the ability of the Bank to pay dividends act
as restrictions on the amount of funds available for the payment of dividends by
the Corporation. As a New Jersey chartered commercial bank, the Bank is subject
to the restrictions on the payment of dividends contained in the New Jersey
Banking Act of 1948, as amended (the "Banking Act"). Under the Banking Act, the
Bank may pay dividends only out of retained earnings, and out of surplus to the
extent that surplus exceeds 50% of stated capital. Under the Financial
Institutions Supervisory Act, the FDIC has the authority to prohibit a
state-chartered bank from engaging in conduct which, in the FDIC's opinion,
constitutes an unsafe or unsound banking practice. Under certain circumstances,
the FDIC could claim that the payment of a dividend or other distribution by the
Bank to the Corporation constitutes an unsafe or unsound practice. The
Corporation is also subject to FRB policies which may, in certain circumstances,
limit its ability to pay dividends. The FRB policies require, among other
things, that a bank holding company maintain a minimum capital base. The FRB
would most likely seek to prohibit any dividend payment which would reduce a
holding company's capital below these minimum amounts.
FDICIA
On December 19, 1991, the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA") was enacted. FDICIA substantially revises the depository
institution regulatory and funding provisions of the FDIC and makes revisions to
several other federal banking statutes. Among other things, FDICIA requires the
federal banking regulators to take prompt corrective action in respect of
depository institutions that do not meet minimum capital requirements. FDICIA
establishes five capital tiers: "well capitalized," "adequately capitalized,"
"under capitalized," and "critically undercapitalized." Under recently adopted
regulations, a bank is defined to be well capitalized if it maintains a leverage
ratio of at least 5%, a risk-adjusted Tier 1 capital ratio of at least 6% and a
risk-adjusted total capital ratio of at least 10% and is not otherwise in a
"troubled condition" as specified by its appropriate federal regulatory agency.
A bank is defined to be adequately capitalized if it is not deemed to be well
capitalized and it meets all of its minimum capital requirements. In addition, a
depository institution will be considered undercapitalized if it fails to meet
any minimum required measure, significantly undercapitalized if it is
significantly below such measure and critically undercapitalized if it fails to
maintain a level of tangible equity equal to not less than 2% of total assets. A
depository institution may be deemed to be in a capitalization category that is
lower than is indicated by its actual capital position if it receives an
unsatisfactory examination rating.
FDICIA further provides that a bank cannot accept brokered deposits unless (I)
it is well capitalized or (ii) it is adequately capitalized and receives a
waiver from the FDIC. A bank that cannot receive brokered deposits also cannot
offer "pass-through' insurance on certain employee benefit accounts. In
addition, a bank that is not well capitalized cannot offer rates of interest on
deposits which are more than 75 basis points above prevailing rates.
8
<PAGE>
INSURANCE FUNDS LEGISLATION
The Corporation's wholly-owned subsidiary, the Peapack-Gladstone Bank, is a
member of the Bank Insurance Fund ("BIF") of the FDIC. The FDIC also maintains
another insurance fund, the Savings Association Insurance Fund ("SAIF"), which
primarily covers savings and loan association deposits but also covers deposits
that are acquired by a BIF-insured institution from a savings and loan
association.
The Economic Growth and Regulatory Reduction Act of 1996 (the "1996 Act") signed
into law on September 30, 1996 included The Deposit Insurance Funds Act of 1996
(the "Funds Act") under which the FDIC was required to impose a special
assessment on SAIF-assessable deposits to recapitalize the SAIF. Under the Funds
Act, the FDIC will also charge assessments for SAIF and BIF deposits in a 5 to 1
ratio to pay Financing Corp. ("FICO") bonds until January 1, 2000, at which time
the assessment will be equal. Beginning January 1, 1998, a FICO rate of
approximately 1.25 basis points will be charged on BIF deposits, and
approximately 6.28 basis points will be charged on SAIF deposits. The 1996 Act
instituted a number of other regulatory relief provisions.
ITEM 2. DESCRIPTION OF PROPERTY
The Corporation owns six branches located in Gladstone, Far Hills, Pottersville,
Bernardsville, Long Valley and Mendham and leases four branches located in
Pluckemin, Califon, Chester and Fellowship Village and leases the land on which
the Far Hills office is built. The Corporation also owns two properties adjacent
to the Main Office in Gladstone, and leases an administrative and operations
office building in Peapack-Gladstone.
ITEM 3. LEGAL PROCEEDINGS
There is no currently pending litigation against the Corporation which assert
claims, that if adversely decided, would have a material adverse effect on the
Corporation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special Meeting of shareholders of Peapack-Gladstone Bank was held on December
11, 1997 for the purpose of approving an Amended and Restated Plan of
Acquisition. Pursuant to the Plan, Peapack-Gladstone Financial Corporation
became the owner of the Bank and shareholders of the Bank became owners of the
Holding Company. Each share of the Bank's common stock, par value $3.33 per
share was converted into one share of Holding Company common stock, no par
value. Of the 1,163,120 shares of Common Stock entitled to vote at the Special
Meeting, 835,513 shares voted for the plan, 315 shares voted against the plan
and 327,292 shares abstained from voting. A total of 835,828 shares voted at the
Special Meeting, representing 71.86% of the outstanding shares as of December
11, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock of Peapack-Gladstone Financial Corporation is traded on NASDAQ
as a "pink sheet item" under the symbol of PGFC. Trades on NASDAQ are
infrequent. The following table sets forth, for the periods indicated, the
reported high and low sale prices on known trades and cash dividends declared
per share by the Corporation.
9
<PAGE>
CASH DIVIDEND
HIGH LOW PER SHARE
---- --- -------------
1996
----
First Quarter $25.00 $22.50 $0.10
Second Quarter 26.00 25.00 0.10
Third Quarter 26.50 26.00 0.10
Fourth Quarter 28.00 27.50 0.10
1997
----
First Quarter $28.25 $28.25 $0.10
Second Quarter $28.75 $28.75 $0.10
Third Quarter $37.50 $35.00 $0.10
Fourth Quarter $40.50 $37.50 $0.11
The Corporation's Board approved a 2:1 stock split effective December 29, 1997.
In addition, the Board declared a 5% stock dividend in November, 1996 and a 2:1
stock split in April, 1995. All references to the average number of shares
outstanding and related prices per share amounts have been restated to reflect
these actions. As a result, the average number of shares outstanding was
2,327,731 for 1997 and 2,332,620 for 1996.
Future dividends payable by the Corporation will be determined by the Board of
Directors after consideration of earnings and financial condition of the
Corporation, need for capital and such other matters as the Board of Directors
deems appropriate. The payment of dividends is subject to certain restrictions,
see Part I, Item I, "Description of Business - Restrictions on the Payment of
Dividends."
On December 31, 1997, the last reported sale price of the Common Stock was
$40.50. Also, on February 28, 1998, there were approximately 638 shareholders of
record. Trading activity in the Corporation stock has generally been limited,
and frequently there are no reported daily trades. Ryan, Beck & Co., Inc. of
Livingston, New Jersey is the principal market maker for the common stock.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The information set forth in Management's Discussion and Analysis of the
Registrant's accompanying 1997 Annual Report is incorporated by reference with
the exception of the following table which sets forth unaudited quarterly
financial data.
10
<PAGE>
<TABLE>
<CAPTION>
SELECTED 1997 QUARTERLY DATA:
(IN THOUSANDS EXCEPT PER SHARE DATA)
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
INTEREST INCOME $5,443 $5,707 $5,764 $5,976
INTEREST EXPENSE 1,887 1,881 1,905 2,025
------ ------ ------ ------
NET INTEREST INCOME 3,556 3,826 3,859 3,951
------ ------ ------ ------
PROVISION FOR LOAN LOSSES 100 100 100 100
OTHER INCOME, EXCLUDING
SECURITIES GAINS 963 804 735 717
SECURITIES GAINS -- 15 9 5
OTHER EXPENSE 2,700 2,754 2,589 2,683
INCOME TAX EXPENSE 616 631 718 857
------ ------ ------ ------
NET INCOME $1,103 $1,160 $1,196 $1,033
====== ====== ====== ======
EARNINGS PER SHARE-BASIC $ 0.47 $ 0.50 $ 0.51 $ 0.45
EARNINGS PER SHARE-DILUTED $ 0.47 $ 0.49 $ 0.50 $ 0.44
SELECTED 1996 QUARTERLY DATA:
(IN THOUSANDS EXCEPT PER SHARE DATA)
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
INTEREST INCOME $5,081 $5,127 $5,277 $5,470
INTEREST EXPENSE 1,938 1,893 2,032 2,026
------ ------ ------ ------
NET INTEREST INCOME 3,143 3,234 3,245 3,444
------ ------ ------ ------
PROVISION FOR LOAN LOSSES 125 137 140 240
OTHER INCOME, EXCLUDING
SECURITIES GAINS 803 736 661 669
SECURITIES GAINS 40 -- 30 48
OTHER EXPENSE 2,274 2,471 2,578 2,749
INCOME TAX EXPENSE 369 657 404 330
------ ------ ------ ------
NET INCOME $1,218 $ 705 $ 814 $ 842
====== ====== ====== ======
EARNINGS PER SHARE-BASIC $ 0.52 $ 0.30 $ 0.34 $ 0.37
EARNINGS PER SHARE-DILUTED $ 0.52 $ 0.30 $ 0.34 $ 0.36
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information set forth in Management's Discussion and Analysis of the
Registrant's accompanying 1997 Annual Report is incorporated by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information set forth in Market Risk Sensitive Instruments of the
Registrant's accompanying 1997 Annual Report is incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements together with the report thereon by KPMG
Peat Marwick LLP and the Notes to the Consolidated Financial Statements are
incorporated by reference in the Registrant's accompanying 1997 Annual Report.
11
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants on accounting and
financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth in the Registrant's 1998 Proxy Statement with respect
to the name of each nominee or director, his age, his positions and offices with
the Registrant, his service on the Registrant's Board, his business experience
and his family relationships with other directors, nominees for director and
executive officers is hereby incorporated by reference.
The following is a list of the Corporation's executive officers and their
positions at December 31, 1997. The age of each executive officer at December
31, 1997 is disclosed in parentheses.
T. LEONARD HILL (86)
Chairman of the Board of the Corporation since 1997; Chairman of the Board of
the Bank since 1989; Director of the Bank since 1944.
FRANK A. KISSEL (47)
President and Chief Executive Officer since 1997; President and Chief Executive
Officer of the Bank since 1989; Senior Vice President of Somerset Trust Company
1973-1988; Engaged in the banking industry since 1973.
ROBERT M. ROGERS (39)
Senior Vice President and Assistant Secretary since 1997; Senior Vice President
and Chief Operating Officer of the Bank since 1996; Senior Vice President and
Comptroller of the Bank from 1992; Engaged in the banking industry since 1981.
ARTHUR F. BIRMINGHAM (46)
Senior Vice President and Treasurer since 1997; Senior Vice President and
Comptroller of the Bank since 1996; Senior Vice President and Chief Financial
Officer of Shrewsbury State Bank 1989-1996; Engaged in the banking industry
since 1979.
CRAIG C. SPENGEMAN (42)
Senior Vice President Since 1997; Senior Vice President and Senior Trust Officer
of the Bank since 1993; Trust Officer from 1985; Engaged in the banking industry
since 1977.
12
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is incorporated by reference
in the Corporation's 1998 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No person is known by the Corporation to be the beneficial owner of more than
five percent of any class of the Corporation's Common Stock.
Information with respect to the security ownership of management is incorporated
by reference in the 1998 Proxy Statement.
The Corporation knows of no contractual arrangements which may at a subsequent
date result in a change in control of the Corporation.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related transactions is
incorporated by reference in the Corporation's 1998 Proxy Statement.
ITEM 14. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial Statements
None
b. Exhibits
2 Amended and Restated Plan of Acquisition of all of the Outstanding
Shares of the Bank by the Corporation dated September 25, 1997
3.1 Certificates of Incorporation
3.2 By-Laws
4.1 Employees' Retirement Plan
4.2 Employees' Savings and Investment Plan
4.3 1995 Stock Option Plan
4.4 1995 Stock Option Plan for Outside Directors
4.5 Trust Agreement between the Bank and the Bank for the Bank's employees
Savings and Investment Plan
13
<PAGE>
10.1 Change in Control Agreement dated as of January 1, 1998 by and among
the Corporation, the Bank and Frank A. Kissel
10.2 Change in Control Agreement dated as of January 1, 1998 by and among
the Corporation, the Bank and Paul W. Bell
10.3 Change in Control Agreement dated as of January 1, 1998 by and among
the Corporation, the Bank and Robert M. Rogers
10.4 Change in Control Agreement dated as of January 1, 1998 by and among
the Corporation, the Bank and Craig C. Spengemen
10.5 Change in Control Agreement dated as of January 1, 1998 by and among
the Corporation, the Bank and Arthur F. Birmingham
10.6 Change in Control Agreement dated as of January 1, 1998 by and among
the Corporation, the Bank and Barbara Greco
13 1997 Annual Report
21 List of Subsidiaries:
(a) Subsidiaries of the Corporation:
PERCENTAGE OF VOTING
JURISDICTION SECURITIES OWNED BY THE
NAME OF INCORPORATION PARENT
- ---- ---------------- -----------------------
Peapack-Gladstone Bank New Jersey 100%
(b) Subsidiaries of the Bank:
PERCENTAGE OF VOTING
JURISDICTION SECURITIES OWNED BY THE
NAME OF INCORPORATION PARENT
- ---- ---------------- -----------------------
Peapack-Gladstone
Investment Company, Inc. New Jersey 100%
27 Financial Data Schedule
99 Proxy Statement for the Corporation's 1998 Annual Meeting of
Shareholders *
- ----------
* Incorporated by reference
14
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
PEAPACK-GLADSTONE FINANCIAL CORPORATION
(Registrant)
BY /s/ T. LEONARD HILL
-------------------------------------
T. Leonard Hill,
Chairman of the Board
DATE MARCH 27, 1998
------------------------------------
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE DATE
--------- ----
/s/ T. LEONARD HILL March 27, 1998
- ------------------------------------
T. Leonard Hill,
Chairman of the Board
/s/ FRANK A. KISSEL March 12, 1998
- ------------------------------------
Frank A. Kissel,
President and CEO
/s/ ARTHUR F. BIRMINGHAM March 12, 1998
- ------------------------------------
Arthur F. Birmingham,
Senior Vice President and Treasurer
/s/ PAMELA HILL March 12, 1998
- ------------------------------------
Pamela Hill,
Director
/s/ JOHN D. KISSEL March 12, 1998
- ------------------------------------
John D. Kissel,
Director
/s/ JAMES R. LAMB March 12, 1998
- ------------------------------------
James R. Lamb,
Director
/s/ GEORGE R. LAYTON March 12, 1998
- ------------------------------------
George R. Layton,
Director
/s/ EDWARD A. MERTON March 12, 1998
- ------------------------------------
Edward A. Merton, Director
15
<PAGE>
/s/ F. DUFFIELD MEYERCORD March 12, 1998
- ------------------------------------
F. Duffield Meyercord,
Director
/s/ JOHN R. MULCAHY March 12, 1998
- ------------------------------------
John R. Mulcahy, Director
/s/ PHILLIP W. SMITH III March 16, 1998
- ------------------------------------
Phillip W. Smith III
Director
/s/ JACK D. STINE March 12, 1998
- ------------------------------------
Jack D. Stine,
Director
/s/ WILLIAM TURNBULL March 12, 1998
- ------------------------------------
William Turnbull,
Director
16
EXHIBIT 2
AMENDED AND RESTATED PLAN OF ACQUISITION
OF ALL THE OUTSTANDING STOCK
OF PEAPACK-GLADSTONE BANK
BY
PEAPACK-GLADSTONE FINANCIAL CORPORATION
This AMENDED AND RESTATED PLAN OF ACQUISITION (the "Plan") is entered as of
September 25, 1997, by PEAPACK-GLADSTONE BANK, a commercial bank organized under
the laws of the State of New Jersey, with its principal office at 190 Main
Street, Gladstone, New Jersey 07934 (the "Bank") and PEAPACK-GLADSTONE FINANCIAL
CORPORATION, a corporation organized under the laws of the State of New Jersey,
with its principal office at 158 Route 206 North, Gladstone, New Jersey 07934
(the "Holding Company").
WHEREAS, the Bank is desirous of forming a bank holding company because it
believes that a holding company will provide it with future flexibility in
undertaking the Bank's current activities and future new activities; and
WHEREAS, the Board of Directors of the Bank has determined that the
formation of a holding company is in the best interest of the Bank's
stockholders; and
WHEREAS, the Holding Company was formed under the New Jersey Business
Corporation Act on behalf of the Bank at the direction of the Board of Directors
of the Bank; and
WHEREAS, N.J.S.A. 17:9A-355 et seq. authorizes a New Jersey corporation and
a state-chartered bank to enter into a plan of acquisition to exchange shares in
the bank for shares in a holding company, submit the plan to the New Jersey
Department of Banking and Insurance for approval and implement the plan if it is
approved by the bank's
<PAGE>
stockholders, subject to the right of the bank's stockholders to dissent and
receive the fair value of their shares; and
WHEREAS, the Board of Directors of each of the Bank and the Holding Company
has adopted this Plan pursuant to the provisions of N.J.S.A. 17:9A-357.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
PLAN OF ACQUISITION REQUIRED BY SECTION 17:9A-357.
1.1 Name and Address of Acquiring Corporation. The name and the address of
the acquiring corporation is: Peapack-Gladstone Financial Corporation, 158 Route
206 North, Gladstone, New Jersey 07934.
1.2 Name and Address of Participating Bank. The name and address of the
participating bank is: Peapack-Gladstone Bank, 190 Main Street, Gladstone, New
Jersey 07934.
1.3 Names and Addresses of Directors. The names and addresses of the
members of the Board of Directors of the Holding Company are:
Name Address
---- -------
Pamela Hill 158 Route 206 North
Gladstone, NJ 07934
T. Leonard Hill 158 Route 206 North
Gladstone, NJ 07934
Frank A. Kissel 158 Route 206 North
Gladstone, NJ 07934
John D. Kissel 158 Route 206 North
Gladstone, NJ 07934
James R. Lamb 158 Route 206 North
Gladstone, NJ 07934
<PAGE>
Name Address
---- -------
George R. Layton 158 Route 206 North
Gladstone, NJ 07934
Edward A. Merton 158 Route 206 North
Gladstone, NJ 07934
F. Duffield Meyercord 158 Route 206 North
Gladstone, NJ 07934
John R. Mulcahy 158 Route 206 North
Gladstone, NJ 07934
Philip W. Smith III 158 Route 206 North
Gladstone, NJ 07934
Jack D. Stine 158 Route 206 North
Gladstone, NJ 07934
William Turnbull 158 Route 206 North
Gladstone, NJ 07934
1.4 Shares of Other Banks Owned by the Holding Company. The Holding Company
does not own any shares of capital stock of any other bank.
1.5 Terms and Conditions of Acquisition. The terms and conditions of the
acquisition are the terms set forth in Articles II, III, V and VI hereof.
1.6 Effective Time. The effective time shall be the time determined under
Article VII hereof.
1.7 Other Provisions. There are no other provisions of the Plan except as
set forth herein.
ARTICLE II
CAPITALIZATION
2.1 Capitalization of the Holding Company. The Holding Company is
authorized to issue 5,000,000 shares of capital stock without nominal or par
value
<PAGE>
("Holding Company Stock"). The Holding Company shall not issue any shares of
Holding Company Stock prior to the Effective Time (as defined in Article VII
herein).
2.2 Capitalization of the Bank. The Bank is authorized to issue 5,000,000
shares of common stock, par value $3.33 per share ("Bank Stock"), of which
1,164,726 shares are presently issued and outstanding. As of the date of this
Plan, there were 56,933 shares of Bank Stock issuable upon the exercise of
outstanding options ("Stock Options") granted to officers, employees or
directors of the Bank. Other than the Stock Options, there are no securities of
the Bank issued and outstanding which are convertible into shares of Bank Stock.
ARTICLE III
TERMS OF ACQUISITION
3.1 Exchange Effective Immediately. At the Effective Time, the Holding
Company shall become the owner for all purposes of all outstanding shares of
Bank Stock (subject to the provisions of Article IV hereof relating to
dissenting stockholders), with full and exclusive power to vote the same, to
receive all dividends thereon and to exercise all other rights of record and
beneficial ownership thereof.
3.2 Bank Stock. At the Effective Time, each holder of one or more shares of
Bank Stock shall become the owner of one share of Holding Company Stock for each
share of Bank Stock then held by such stockholder, with full and exclusive power
to vote the same, to receive all dividends thereon and to exercise all of the
rights of a record and beneficial owner thereof; except that, the Holding
Company shall withhold the payment of dividends from such stockholder until such
stockholder effects the exchange of stock certificates for Holding Company
Stock, as described in Section 3.5 herein (such
<PAGE>
stockholder shall receive such withheld dividends, without interest, upon
effecting the exchange of stock certificates). However, each dissenting
stockholder who complies with the requirements of N.J.S.A. 17:9A-360 et seq.
shall have only the rights accorded dissenting stockholders and such dissenting
stockholder's certificates shall not be deemed to represent shares of either
Holding Company Stock or Bank Stock. All shares of Bank Stock issued and
outstanding immediately prior to the Effective Time shall continue as issued and
outstanding shares immediately subsequent to the Effective Time, but the
ownership of all such shares shall vest at the Effective Time in the Holding
Company, in accordance with Section 3.1 hereof (subject to the rights of
dissenting stockholders as provided in Article IV hereof). The certificates that
evidenced shares of Bank Stock prior to the Effective Time shall, after the
Effective Time, evidence only: (a) in the case of certificates held by a
non-dissenting stockholder, ownership of a like number of shares of Holding
Company Stock as the number of shares of Bank Stock stated on the certificates;
and (b) in the case of certificates held by a dissenting stockholder, the right
to dissent from the Plan by complying with all of the requirements set forth in
N.J.S.A. 17:9A-360 et seq., and after the Effective Time no holder of any
certificate that evidenced shares of Bank Stock prior to the Effective Time
shall be entitled to vote any Bank Stock, to receive dividends thereon or to
exercise any other rights of a record or beneficial owner of Bank Stock.
3.3 Stock Options. At the Effective Time all outstanding Stock Options
shall automatically be converted to and be deemed options granted by the Holding
Company to acquire a like number of shares of Holding Company Stock, and by
approval of this Plan, the Board of Directors of the Holding Company is deemed
to have reserved
<PAGE>
such number of shares of authorized Holding Company Stock for issuance upon
exercise of such options.
3.4 Meeting of the Bank's Stockholders. This Plan shall be submitted to the
stockholders of the Bank at a meeting called and held in accordance with
applicable provisions of law.
3.5 Exchange Procedures. At the Effective Time, the Bank shall issue
certificates for Bank Stock and deliver or cause to be delivered to the Holding
Company or its nominee a certificate or certificates evidencing all of the
outstanding shares of Bank Stock, and the Holding Company shall make
arrangements, as authorized by its Board of Directors, whereby non-dissenting
stockholders may exchange certificates held by them bearing the name of the Bank
(but evidencing shares of Holding Company Stock) for certificates bearing the
name of the Holding Company (and evidencing a like number of shares of Holding
Company Stock).
ARTICLE IV
DISSENTING STOCKHOLDERS
Any stockholder of the Bank who desires to dissent from the acquisition
shall have the right to dissent from the Plan by complying with all of the
requirements set forth in N.J.S.A. 17:9A-360 et seq., and, if the Plan is
consummated, shall be entitled to be paid the fair value of his shares in
accordance with those provisions.
ARTICLE V
CONDITIONS FOR CONSUMMATION OF THE PLAN AND
RIGHT OF THE BANK TO TERMINATE PLAN PRIOR TO CONSUMMATION
5.1 Conditions for Consummation. Consummation of the Plan is conditioned
upon the following:
<PAGE>
(a) Approval of the Plan by the Commissioner of Banking and Insurance
of the State of New Jersey pursuant to N.J.S.A. 17:9A-358;
(b) Approval of the Plan by the holders of two-thirds (2/3) or more of
the Bank Stock;
(c) The Board of Governors of the Federal Reserve System not objecting
to the acquisition pursuant to Section 3(a)(C) of the Bank Holding Company
Act of 1956, as amended;
(d) The receipt by the Bank of an opinion of legal counsel,
satisfactory in form and substance to the Bank, with respect to the Federal
income tax consequences of this Plan and the transactions contemplated
herein;
(e) Receipt or obtaining by the Bank and the Holding Company of all
other consents, permissions and approvals required by law or agreement to
be received or obtained by the Bank or the Holding Company prior to
consummation of the acquisition provided for herein and the expiration of
all statutory waiting periods in respect thereof.
(f) The Board of Directors of the Bank not terminating the Plan prior
to the Effective Time as permitted by Section 5.2 herein.
5.2 Right of Bank to Terminate Plan Prior to the Effective Time. At any
time prior to the Effective Time, the Board of Directors of the Bank may
terminate the Plan if in the judgment of the Board of Directors the consummation
of the Plan is inadvisable for any reason. To terminate the Plan the Bank's
Board of Directors shall adopt a resolution terminating the Plan and promptly
give written notice that the Plan has been terminated to the stockholders of the
Bank. Upon the adoption of the Board resolution, the Plan shall be
<PAGE>
of no further force or effect and the Bank and the Holding Company shall not be
liable to each other, to any stockholder of the Bank or to any other person by
reason of the Plan or the termination thereof. Without limiting the reasons for
which the Bank's Board may terminate the Plan, the Board may terminate the Plan
if:
(a) The number of stockholders dissenting from the Plan and demanding
payment of the fair value of their shares would in the judgment of the
Board render the Plan inadvisable; or
(b) The Bank or Holding Company fails to receive, or fails to receive
in form and substance satisfactory to the Bank or Holding Company, any
consents, permissions and approvals required by law or agreement to be
received or obtained by the Bank or the Holding Company prior to
consummation of the acquisition provided for herein.
<PAGE>
ARTICLE VI
EXPENSES
The Bank shall bear all of the expenses incurred by the Bank and by the
Holding Company in connection with the Plan. Without limiting the foregoing, the
Bank shall bear and pay all attorneys, accountants, and printing fees and all
licensing fees incurred in connection with this Plan and the formation of the
Holding Company.
ARTICLE VII
EFFECTIVE TIME
The Plan shall become effective at such time selected by the mutual
agreement in writing of the parties hereto (the "Effective Time"). The Effective
Time shall be within a reasonable period after the conditions set forth in
Section 5.1 have been complied with and the Bank has received any consents,
permissions or approvals without which it might terminate the plan under Section
5.2. On or prior to the agreed upon Effective Time, the Plan shall be filed with
the New Jersey Department of Banking and Insurance together with a writing
specifying the Effective Time and a certification by the president or a
vice-president of the Bank that the Bank's stockholders have approved the Plan.
<PAGE>
IN WITNESS WHEREOF, the Boards of Directors of Peapack-Gladstone Bank and
Peapack-Gladstone Financial Corporation have authorized the execution of this
Plan and caused this Plan to be executed as of the date first written above.
ATTEST: PEAPACK-GLADSTONE BANK
GARRET P. BROMLEY By: FRANK A. KISSEL
- -------------------------------------- --------------------------------
Garret P. Bromley, Assistant Secretary Frank A. Kissel, President
and Chief Executive Officer
[SEAL]
ATTEST: PEAPACK-GLADSTONE FINANCIAL
CORPORATION
ROBERT M. ROGERS By: FRANK A. KISSEL
- -------------------------------------- --------------------------------
Robert M. Rogers, Assistant Secretary Frank A. Kissel, President
and Chief Executive Officer
[CORPORATE SEAL]
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
PEAPACK-GLADSTONE FINANCIAL CORPORATION
The undersigned, being over the age of eighteen years, in order to form a
corporation pursuant to the provisions of the New Jersey Business Corporation
Act, does hereby execute this Certificate of Incorporation:
ARTICLE I
CORPORATE NAME
The name of the corporation is Peapack-Gladstone Financial Corporation.
ARTICLE II
CORPORATE PURPOSE
The purpose for which the corporation is organized is to engage in any
activity within the purposes for which corporations may be organized under the
New Jersey Business Corporation Act (the "Act").
ARTICLE III
CAPITAL STOCK
The aggregate number of shares which the corporation shall have authority
to issue is 5,000,000 shares of common stock, without nominal or par value.
ARTICLE IV
REGISTERED AGENT AND REGISTERED ADDRESS
The address of the corporation's initial registered office is 158 Route 206
North, Gladstone, New Jersey 07934, and the name of the corporation's initial
registered agent at such address is Frank A. Kissel.
<PAGE>
ARTICLE V
INITIAL BOARD OF DIRECTORS
The number of directors constituting the first board is twelve (12), and
the names and addresses of the persons who are to serve as such directors are:
Name Address
---- --------
Pamela Hill 158 Route 206 North
Gladstone, NJ 07934
T. Leonard Hill 158 Route 206 North
Gladstone, NJ 07934
Frank A. Kissel 158 Route 206 North
Gladstone, NJ 07934
John D. Kissel 158 Route 206 North
Gladstone, NJ 07934
James R. Lamb 158 Route 206 North
Gladstone, NJ 07934
George R. Layton 158 Route 206 North
Gladstone, NJ 07934
Edward A. Merton 158 Route 206 North
Gladstone, NJ 07934
F. Duffield Meyercord 158 Route 206 North
Gladstone, NJ 07934
John R. Mulcahy 158 Route 206 North
Gladstone, NJ 07934
Philip W. Smith III 158 Route 206 North
Gladstone, NJ 07934
Jack D. Stine 158 Route 206 North
Gladstone, NJ 07934
William Turnbull 158 Route 206 North
Gladstone, NJ 07934
<PAGE>
The number of directors shall be governed by the by-laws of the
corporation.
ARTICLE VI
EXCULPATION AND INDEMNIFICATION
No director or officer of the corporation, or of a subsidiary of the
corporation, shall be personally liable to the corporation or to its
shareholders for damages for breach of any duty owed to the corporation or its
shareholders unless such breach of duty is based on an act or omission (a) in
breach of such person's duty of loyalty to the corporation (and/or its
subsidiary) or its shareholders; (b) not in good faith or involving a knowing
violation of law; or (c) resulting in receipt by such person of an improper
benefit.
Unless expressly prohibited by law, the corporation shall indemnify a
director or officer of the corporation or of a subsidiary of the corporation
against his reasonable expenses and all liabilities in connection with any
proceeding involving that director or officer of the corporation or a
wholly-owned subsidiary of the corporation, including a proceeding by or in the
right of the corporation or its wholly-owned subsidiary, unless such breach of
duty is based on an act or omission (a) in breach of such person's duty of
loyalty to the corporation or its stockholders; (b) not in good faith or
involving a knowing violation of law; or (c) resulting in receipt by such person
of an improper personal benefit. The corporation shall advance or pay those
reasonable expenses incurred by such director or officer in a proceeding as and
when incurred, provided, however, that the director or officer shall, as a
condition to receipt of such advances, undertake to repay all amounts advanced
if it shall finally be adjudicated that
<PAGE>
the breach of duty by the director or officer was based upon an act or omission
(a) in breach of such person's duty of loyalty to the corporation (and/or its
subsidiary) or its stockholders; (b) not in good faith or involving a knowing
violation of law; or (c) resulting in receipt by such person of an improper
personal benefit.
ARTICLE VIII
SHAREHOLDER VOTE ON CERTAIN TRANSACTIONS
In addition to any affirmative vote required by law or this certificate of
incorporation, and except as set forth below, the affirmative vote of the
holders of 80% of each class of stock of the corporation, entitled to vote in
elections of directors, shall be required for all of the following:
(i) any merger or consolidation of the corporation with or into any
other corporation, banking institution, person or entity; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or series of transactions) of assets or of
the deposit liabilities of the corporation which, in the case of either
assets or of deposit liabilities, total 10% or more of the value of the
assets or of the deposit liabilities of the corporation on a consolidated
basis to any other corporation, banking institution, person or entity; or
(iii) any sale, lease, exchange, mortgage pledge, transfer or other
disposition (in one transaction or a series of transactions) to the
corporation of any assets of any other corporation, banking institution,
person or entity in exchange for voting securities (or securities
convertible into or exchangeable for voting securities or any options,
warrants or rights to purchase any of the same) of the bank constituting
(after
<PAGE>
giving effect to any conversion, exchange or right) 5% or more of the
outstanding voting securities of the corporation; or
(iv) any reclassification of securities, or recapitalization of the
corporation proposed by, on behalf of or pursuant to any arrangement with
any other corporation, banking institution, person or entity which has the
effect, directly or indirectly, of increasing the proportionate share of
the outstanding securities of the corporation of which that other
corporation, banking institution, person or entity is the beneficial owner;
or
(v) the issuance (in one transaction or a series of transactions) to
any other corporation, banking institution, person or entity, of voting
securities (or securities convertible into or exchangeable for voting
securities or any options, warrants or rights to purchase any of the same)
of the corporation constituting (after giving effect to any conversion,
exchange or right) 5% or more of the outstanding voting securities of the
corporation; or
(vi) the adoption of any plan or proposal for the liquidation or
dissolution of the corporation proposed by, on behalf of or pursuant to any
arrangement with any other corporation, banking institution, person or
entity;
if, in any such case, as of the record date for the determination of
stockholders entitled to notice thereof and to vote thereon or consent
thereto, such other corporation, banking institution, person or entity is:
(a) the beneficial owner, directly or indirectly, of more than 5% of the
outstanding shares of any class of stock of the corporation entitled to
vote in the election of directors or the assignee of, or otherwise the
successor to, any shares of such stock of the corporation from a
corporation, banking
<PAGE>
institution, person or entity which within the two-year period immediately
prior to such record date was a more than 5% beneficial owner (where any
such assignment or succession occurred in the course of a transaction or
series of transactions not involving a public offering within the meaning
of that term under the Securities Act of 1933, as amended); or (b) is an
affiliate (as defined subsequently in this Article) of the corporation and
at any time within the two-year period immediately prior to such record
date was the beneficial owner, directly or indirectly, of more than 5% of
the outstanding shares of any class of stock of the corporation entitled to
vote in the election of directors. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or in an agreement, if any, with any
national securities exchange or otherwise.
For the purpose, but only for the purpose of determining whether a
corporation, banking institution, person or other entity is "the beneficial
owner, directly or indirectly, of more than 5% of the outstanding shares of
stock of the corporation entitled to vote in elections of directors," within
this Article: (x) any corporation, banking institution, person or other entity
shall be deemed to be the beneficial owner of any shares of stock of the
corporation (i) which it has the right to acquire pursuant to any agreement, or
upon the exercise of conversion rights, warrants or options, or otherwise, or
(ii) which are beneficially owned, directly or indirectly (including shares
deemed owned through application of clause (i), above), by any other
corporation, person or entity with which it or its "affiliate" or "associate"
(as defined below) has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of stock of the corporation,
or which is its "affiliate" or "associate" as those terms are defined in Rule
<PAGE>
12b-2 of the General Rules and Regulations under the Securities Exchange Act of
1934 as in effect on the date of this Amendment; and (y) the outstanding shares
of any class of stock of the corporation shall include shares deemed owned
through application of clauses (i) and (ii) above.
The Board of Directors of the corporation shall have the power and duty to
determine for the purposes of this Article on the basis of information known to
the corporation, whether: (i) such other corporation, banking institution,
person or other entity beneficially owns more than 5% of the outstanding shares
of any class of stock of the corporation entitled to vote in elections of
directors, (ii) a corporation, banking institution, person or entity is an
"affiliate" or "associate" (as defined above) of another, and (iii) the value of
any assets or of deposit liabilities of the corporation proposed sales, lease,
exchange, mortgage, pledge, transfer or other disposition exceed 10% of the
corporation's assets or deposit liabilities, as the case may be. Any such
determination shall be conclusive and binding for all purposes of this Article.
The provisions of this Article shall not be applicable to: (i) any merger
or consolidation of the corporation with or into any other banking institution
or corporation, or any sale or lease of assets or deposit liabilities of the
corporation to, or any sale or lease to the corporation or any subsidiary
thereof in exchange for securities of the corporation of any assets of, any
other corporation, banking institution, person or entity, if at least two-thirds
of the members of the entire Board of Directors of the corporation shall, by
resolution, have approved such transaction prior to the time that such other
corporation, banking institution, person or entity shall have become the
beneficial owner, directly or indirectly, of more than 5% of the outstanding
shares of any class of stock of
<PAGE>
the corporation entitled to vote in elections of directors; or (ii) any merger
or consolidation of the corporation or any subsidiary thereof into or with, or
any sale, lease, exchange, mortgage, pledge, transfer or other disposition of
the assets of the corporation to, any other banking institution or corporation
of which a majority of the outstanding shares of all classes of stock entitled
to vote in elections of directors is owned of record or beneficially by the
corporation and its subsidiaries (if any) and so long as, if the corporation is
not the surviving banking institution, each beneficial owner of shares of stock
of the corporation receives the same type of consideration in such transaction
and the provisions of this Article are continued in effect or adopted by such
surviving banking institution as part of its certificate of incorporation (and
its certificate of incorporation have no provisions inconsistent with this
Article as continued or adopted) or (iii) any transaction involving the
corporation or its assets or deposit liabilities required or ordered by any
Federal or state regulatory agency; provided the Board of Directors referred to
in (i) of this paragraph passing upon such transaction shall be comprised of a
majority of continuing directors, i.e., members of such Board who were elected
by the stockholders of the corporation prior to that time, that any such
stockholder became the beneficial owner, directly or indirectly, of more than 5%
of any class of the stock of the corporation, entitled to vote in elections of
directors, or who were appointed to succeed a continuing director by a majority
of continuing directors.
No amendment to the Certificate of Incorporation of the corporation shall
amend, alter, change or repeal any of the provisions of this Article unless the
amendment effecting such amendment, alteration, change or repeal shall receive
the affirmative vote
<PAGE>
of the holders of 80% of each class of stock of the corporation entitled to vote
in elections of directors.
<PAGE>
ARTICLE IX
NAME AND ADDRESS OF THE INCORPORATOR
The name and address of the incorporator is Frank A. Kissel, 158 Route 206
North, Gladstone, New Jersey 07932.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Incorporation this 14th day of August, 1997
/s/ FRANK A. KISSEL
-------------------------------
Frank A. Kissel, Incorporator
EXHIBIT 3.2
BY-LAWS
OF
PEAPACK-GLADSTONE FINANCIAL CORPORATION
ARTICLE I
SHAREHOLDERS MEETINGS
1. Annual Meeting. The annual meeting of shareholders for the election of
directors and such other business as may properly come before the meeting shall
be held upon not less than 10 nor more than 60 days written notice of the date,
time, place and purposes of the meeting. The annual meeting shall be held at
3:00 p.m. on the fourth Tuesday of April each year at the principal place of
business of the Corporation, 158 Route 206 North, Gladstone, New Jersey, or at
such other time and place as shall be fixed by the Board of Directors.
2. Nominations for Director. Nominations for election to the Board of
Directors may be made by the Board of Directors or upon 90 days advance written
notice to the Board of Directors by any shareholder of any outstanding class of
stock of the Corporation entitled to vote for the election of directors.
3. Special Meetings. A special meeting of shareholders may be called for
any purpose by the Chairman, Chief Executive Officer, the President or a
majority of the Board of Directors. A special meeting shall be held upon not
less than 10 nor more than 60 days written notice of the time, place and purpose
of the meeting.
<PAGE>
4. Quorum. The holders of a majority of the outstanding common stock
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders. The majority of the shareholders at a meeting, though less than a
quorum, may adjourn any meeting. The Corporation shall not be required to give
notice of an adjourned meeting if the time and place of the meeting are
announced at the meeting from which an adjournment is taken and the business
transacted at the adjourned meeting is limited to that which might have been
transacted at the original meeting.
5. Shareholder Action. A majority of the votes cast shall decide every
question or matter submitted to the shareholders at any meeting, unless
otherwise provided by the New Jersey Business Corporation Act, by the
certificate of incorporation or by these By-Laws.
6. Record Date. The Board of Directors shall fix a record date for each
meeting of shareholders and for other corporate action for purposes of
determining the shareholders of the corporation who are entitled to: (i) notice
of or to vote at any meeting of shareholders; (ii) give a written consent to any
action without a meeting; or (iii) receive payment of any dividend,
distribution, or allotment of any right. The record date may not be more than 60
days nor less than 10 days prior to the shareholders meeting, or other corporate
action or event to which it relates.
7. Inspectors of Election. In advance of any shareholders meeting, the
Board of Directors may appoint one or more inspectors of election whose duty it
shall be to determine the shares outstanding and the voting power of each, the
shares represented at the meeting, the existence of a quorum, and the validity
and effect of proxies. The inspectors shall receive and tabulate all votes,
except voice votes, determine the results of
<PAGE>
all such votes, including the election of directors, and do such acts as are
proper to conduct the election or vote, including hearing and determining all
challenges and questions arising in connection with the right to vote. After any
meeting, the inspectors shall file with the Secretary of the meeting a
certificate under their hands, certifying the result of any vote or election,
and in the case of an election, the names of the directors elected.
8. Proxies. Shareholders may vote at any meeting of the shareholders by
proxies duly authorized in writing.
ARTICLE II
DIRECTORS
1. Board of Directors. The Board of Directors (the "Board") shall have the
power to manage and administer the business and affairs of the Corporation.
Except as expressly limited by these By-Laws, all powers of the Corporation
shall be vested in and may be exercised by the Board.
2. Number and Term of Office. The number of directors shall not be less
than five and not more than 25. The exact number shall be determined by the
Board. Directors shall be elected by the shareholders at each annual meeting of
shareholders and until their successors shall have been elected and qualified.
The Board shall have the right to increase the number of directors between
annual meetings and to fill vacancies so created and other vacancies occurring
for any reason.
3. Directors Emeritus and Honorary Directors. The Board may grant the title
of Director Emeritus or Honorary Director to such former directors or other
worthy
<PAGE>
individuals as it determines who will receive any fees, entitlements, duties and
powers as may be conferred by the Board in its discretion.
4. Regular Meetings. A regular meeting of the Board, for the purpose of
electing officers and conducting any other business as may come before the
meeting, shall be held without notice after the annual shareholders meeting and
before the Board's next regular meeting. The Board shall hold a regular meeting
on the second Thursday of March, June, September, and December and, by
resolution, may provide for different or additional regular meetings. All
regular meetings shall be held in the Main Office of Peapack-Gladstone Bank, 158
Route 206 North, Gladstone, New Jersey, unless otherwise provided by the Board.
All regular meetings may be held without notice to any director, except that a
director not present at the time of the adoption of a resolution setting forth
different or additional regular meeting dates shall be entitled to notice of
those meetings.
5. Special Meetings. A special meeting of the Board may be called for any
purpose at any time by the Chairman, Chief Executive Officer, the President or
by a majority of the directors. The meeting shall be held upon not less than one
day's notice if given by telegraph or orally (either by telephone or in person),
or upon not less than three days' notice if given by depositing the notice in
the United States mails, postage prepaid. The notice shall specify the time and
place of the meeting.
6. Action Without Meeting. The Board may act without a meeting if, prior or
subsequent to the action, each member of the Board shall consent in writing to
the action. The written consent or consents shall be filed in the minute book.
7. Quorum. A majority of the directors shall constitute a quorum at any
meeting, except when otherwise provided by the New Jersey Business Corporation
Act.
<PAGE>
However, a smaller number may adjourn any meeting and the meeting may be held,
as adjourned, without further notice. The act of the majority present at a
meeting at which a quorum is present shall be the act of the Board, unless
otherwise provided by the New Jersey Business Corporation Act, the certificate
of incorporation or these By-Laws.
8. Vacancies in Board of Directors. Any vacancy in the Board, including a
vacancy caused by an increase in the number of directors, may be filled by the
affirmative vote of a majority of the remaining directors.
9. Telephone Participation in Board Meetings. One or more directors may
participate in a meeting of the Board, or of any committee thereof, by means of
a speaker or conference telephone or similar communications equipment which
permits all persons participating in the meeting to hear each other. Any
director who is unable to attend any meeting of the Board or any committee
thereof shall have the right, upon prior written request, to participate in the
meeting by such telephone hook-up if the means are reasonably available at the
place where the meeting is to be held.
ARTICLE III
COMMITTEES OF THE BOARD
1. Executive Committee. The Board, by the vote of a majority of the entire
Board, annually shall appoint an Executive Committee composed of at least five
directors, among whom shall be the Chairman and the Chief Executive Officer of
the Corporation. At least three members or a majority of the Committee shall not
be employees of the Corporation or any of its subsidiaries. The Executive
Committee shall have and may exercise all of the power of the Board except as
otherwise provided in the
<PAGE>
New Jersey Business Corporation Act. As provided in the New Jersey Business
Corporation Act, the Executive Committee shall not (i) make, alter or repeal any
of these By-Laws; (ii) elect or appoint any director, or remove any officer or
director; (iii) submit to shareholders any action that requires shareholders
approval; and (iv) amend or repeal any resolution theretofore adopted by the
Board which by its terms is amendable or repealable only by the Board. The
Executive Committee shall keep minutes of its meetings, and such minutes shall
be submitted to the next regular or special meeting of the Board at which a
quorum is present, and any action taken by the Board with respect thereto shall
be entered in the minutes of the Board. A majority of the directors on the
Executive Committee shall constitute a quorum for the transaction of business.
The Chairman shall serve as chairman of the Executive Committee. The Executive
Committee shall identify and select candidates for nomination to the Board and
recommend those selected to the entire Board for its approval.
2. Audit and Examining Committee. The Board, by the vote of a majority of
the entire Board, annually shall appoint an Audit and Examining Committee
composed of not less than three directors who shall not be active officers or
employees of the Corporation. This Committee shall review significant audit and
accounting principles, policies and practices, meet with the internal auditors
of Peapack-Gladstone Bank (the "Bank"), review the report of the annual
directors' examination of the Bank conducted by the outside auditors and review
examination reports and other reports of federal regulatory agencies.
3. Compensation Committee. The Board, by the vote of a majority of the
entire Board, annually shall appoint a Compensation Committee composed of at
least five
<PAGE>
directors, none of whom shall be an officer of the Corporation. The Compensation
Committee shall approve the salaries of Senior Officers of the Corporation and
the Corporation's Profit Sharing, Pension, Long Term Stock Incentive and other
compensation plans.
4. Other Committees. The Board may appoint, from time to time, from its own
members, ad hoc and other committees of one or more directors, for such purposes
and with such powers as the Board may determine.
ARTICLE IV
WAIVERS OF NOTICE
Any notice required by these By-Laws, by the certificate of incorporation,
or by the New Jersey Business Corporation Act may be waived in writing by any
person entitled to notice. The waiver, or waivers, may be executed either before
or after the event with respect to which the notice is waived. Each director or
shareholder attending a meeting without protesting, prior to its conclusion, the
lack of proper notice shall be deemed conclusively to have waived notice of the
meeting.
ARTICLE V
OFFICERS
1. Election. At its regular meeting following the annual meeting of
shareholders, the Board shall elect a Chief Executive Officer, a Chairman of the
Board, a President, a Vice President, a Treasurer, a Secretary, and such other
officers as it shall deem necessary. One person may hold two or more offices.
<PAGE>
2. Chairman of the Board. The Board shall appoint one of its members to be
Chairman of the Board to serve at the pleasure of the Board. Such person shall
preside at all meetings of the Board and of the shareholders, and shall also
have and may exercise such further powers and duties as from time to time may be
conferred or assigned by the Board or by the Chief Executive Officer. In the
Chairman's absence, the Board will designate one of the senior officers who are
members of the Board to serve as Chairman.
3. Chief Executive Officer. The Board of Directors shall appoint one of its
members to be Chief Executive Officer of the Corporation to serve at the
pleasure of the Board. The Chief Executive Officer may also hold another office
or offices in the Corporation. He shall have general authority over all the
business and affairs of the Corporation.
4. President. The Board shall appoint one of its members to be President of
the Corporation. The President shall have and may exercise any and all powers
and duties pertaining by law, regulation, or practice to the office of
president, or imposed by these By-Laws. The President shall also have and may
exercise such further powers and duties as from time to time may be conferred or
assigned by the Board or the Chief Executive Officer.
5. Vice President. The Board may appoint one or more Executive Vice
Presidents, one or more Senior Vice Presidents, and one or more Vice Presidents.
Each Vice President shall perform the duties and have the authority as from time
to time may be delegated to him by the Chief Executive Officer, by the Board of
Directors, or by these By-Laws.
<PAGE>
6. Secretary. The Board shall appoint a Secretary who shall be Secretary
for meetings of the Board and of the Corporation, and shall keep accurate
minutes of those meetings. The Secretary shall attend to the giving of all
notices required by these By-Laws and shall be custodian of the corporate seal,
records, documents and papers of the Corporation. The Secretary also shall have
and may exercise any and all other powers and duties pertaining by law or
practice to the office of Secretary, and shall also perform such other duties as
may be assigned from time to time by the Board.
7. Treasurer. The Board shall appoint a Treasurer who shall have custody of
the funds and securities of the Corporation and shall keep or cause to be kept
regular books of the account for the Corporation. The Treasurer shall perform
such other duties and possess such other powers as are incident to his office or
as shall be assigned to him by the President or the Board.
8. Other Officers. The Board may appoint one or more Assistant Vice
Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers,
and such other officers as from time to time may appear to the Board to be
required or desirable to transact the business of the Corporation. Such officers
shall respectively exercise such power and perform such duties as pertain to
their several offices, or as may be conferred upon or assigned to them by the
Board, the Chief Executive Officer, or the President.
9. Tenure of Office. The Chairman, the Chief Executive Officer, the
President, the Secretary, the Treasurer and all other officers shall hold office
for the current year for which the Board was elected, unless they shall resign,
become disqualified, or be removed. Any vacancy occurring in the office of Chief
Executive
<PAGE>
Officer, Chairman, President, Secretary or Treasurer shall be filled promptly by
the Board.
ARTICLE VI
STOCK AND STOCK CERTIFICATES
1. Transfers. Shares of stock shall be transferable on the books of the
Corporation, and a transfer book shall be kept in which all transfers of stock
shall be recorded. Every person becoming a shareholder by such transfer shall,
in proportion to his shares, succeed to all rights of the prior holder of such
shares.
2. Share Certificates. The shares of the Corporation shall be represented
by certificates signed by or in the name of the Corporation, by the Chairman,
Chief Executive Officer, or the President or a Vice President, and by the
Secretary, Treasurer, Assistant Secretary or Assistant Treasurer of the
Corporation, and may be sealed with the seal of the Corporation. Any signature
and the seal may be reproduced by facsimile. In case any officer who has signed
or whose facsimile signature has been placed upon such certificate shall have
ceased to be an officer before such certificate is issued, it may be issued by
the Corporation with the same effect as if he were such officer at the date of
its issue.
<PAGE>
ARTICLE VII
AMENDMENTS TO AND EFFECT OF BY-LAWS; FISCAL YEAR
1. Force and Effect of By-Laws. These By-Laws are subject to the provisions
of the New Jersey Business Corporation Act and the Corporation's certificate of
incorporation, as it may be amended from time to time. If any provision in these
By-Laws is inconsistent with a provision of the Act or the certificate of
incorporation, the provisions of the Act or the certificate of incorporation
shall govern.
2. Amendments to By-Laws. These By-Laws may be altered, amended, or
repealed by the shareholders or by the Board. Any By-Law adopted, amended, or
repealed by the shareholders may be amended or repealed by the Board, unless the
resolution of the shareholders adopting such By-Law expressly reserves to the
shareholders the right to amend or repeal it.
3. Fiscal Year. The fiscal year of the Corporation shall begin on the first
day of January each year.
4. Records. The certificate of incorporation, the By-Laws and the
proceedings of all meetings of the shareholders, the Board, and standing
committees of the Board shall be recorded in appropriate minute books provided
for the purpose. The minutes of each meeting shall be signed by the Secretary or
other officer appointed to act as secretary of the meeting.
5. Inspection. A copy of the By-Laws, with all amendments thereto, shall at
all times be kept in a convenient place at the principal place of business of
the Corporation, and for a proper purpose shall be open for inspection to any
shareholder during business hours.
<PAGE>
ARTICLE VIII
CORPORATE SEAL
The Chairman, the Chief Executive Officer, the President, any Vice
President, the Secretary, any Assistant Secretary, the Treasurer and any
Assistant Treasurer, shall have authority to affix the corporate seal to any
document requiring such seal, and to attest the same. Such seal shall be
substantially in the following form:
(Impression)
( of )
(Seal )
EXHIBIT 4.1
PEAPACK-GLADSTONE BANK EMPLOYEES' RETIREMENT PLAN
<PAGE>
PEAPACK-GLADSTONE BANK EMPLOYEES' RETIREMENT PLAN
This Pension Plan, executed on 2/22, 1995, by Peapack-Gladstone Bank, a
Corporation (the "Company"),
W I T N E S S E T H T H A T:
WHEREAS, effective July 1, 1956, the Company adopted the Peapack-Gladstone
Bank Employees' Retirement Plan (hereinafter the "Prior Plan"); and
WHEREAS, the Company reserved the right to amend the Prior Plan at any time
and for any reason by resolution of its Directors, provided the amendment does
not adversely affect any accrued right of a Participant or Beneficiary, and the
Company has resolved to amend the Prior Plan by restating it in its entirety in
order to comply with the most recent laws and regulations applicable to employee
retirement plans;
NOW, THEREFORE, the Peapack-Gladstone Bank Employees' Retirement Plan is
hereby amended by restating it in its entirety as the Peapack-Gladstone Bank
Employees' Retirement Plan, effective January 1, 1989.
IN WITNESS WHEREOF, the Company has adopted this Plan and caused this
instrument to be executed by its duly authorized representative as of the above
date.
WITNESS: PEAPACK-GLADSTONE BANK
CRAIG SPENGEMEN By: FRANK KISSEL, PRESIDENT
- ------------------------- ------------------------------
Craig Spengemen Frank Kissel, President
<PAGE>
TABLE OF CONTENTS
SECTION 1. PLAN IDENTITY.......................................................
1.1 NAME.......................................................................
1.2 PURPOSE....................................................................
1.3 EFFECTIVE DATE.............................................................
1.4 FISCAL PERIOD..............................................................
1.5 TREATMENT OF PLAN FOR PARTICIPATING EMPLOYERS..............................
1.6 INTERPRETATION OF PROVISIONS...............................................
SECTION 2. DEFINITIONS.........................................................
SECTION 3. ELIGIBILITY FOR PARTICIPATION.......................................
3.1 INITIAL ELIGIBILITY........................................................
3.2 ELIGIBILITY DEFINITIONS....................................................
3.3 PRIOR PLAN PARTICIPANTS, AND TERMINATED OR PART-TIME EMPLOYEES.............
3.4 INELIGIBLE EMPLOYEES.......................................................
3.5 WAIVER OF PARTICIPATION....................................................
3.6 PARTICIPATION AND REPARTICIPATION..........................................
SECTION 4. RETIREMENT BENEFITS.................................................
4.1 NORMAL RETIREMENT..........................................................
4.2 LATER RETIREMENT...........................................................
4.3 TERMINATION BEFORE NORMAL RETIREMENT.......................................
4.4 ACCRUED BENEFIT............................................................
4.5 DEFINITIONS FOR BENEFIT COMPUTATIONS.......................................
4.6 TOP-HEAVY MINIMUM BENEFIT..................................................
4.7 SUSPENSION, DEFERRAL, AND NONDUPLICATION OF BENEFITS.......................
4.8 ADMINISTRATOR DISCRETION AS TO PAYMENTS....................................
4.9 TERM OF BENEFIT PAYMENTS...................................................
SECTION 5. VESTING AND FORFEITURE..............................................
5.1 VESTING SCHEDULE...........................................................
5.2 COMPUTATION OF VESTING YEARS...............................................
5.3 FULL VESTING UPON CERTAIN EVENTS...........................................
5.4 FULL VESTING UPON PLAN TERMINATION.........................................
5.5 FORFEITURE OF NONVESTED INTEREST...........................................
5.6 VESTING AND NONFORFEITABILITY..............................................
<PAGE>
SECTION 6. PENSION BENEFIT CLAIMS AND FORMS....................................
6.1 CLAIM FOR BENEFITS.........................................................
6.2 NOTIFICATION BY ADMINISTRATOR..............................................
6.3 CLAIMS REVIEW PROCEDURE....................................................
6.4 STANDARD AND ALTERNATIVE BENEFIT FORMS.....................................
6.5 ELECTION OF PENSION BENEFIT FORM...........................................
6.6 ADMINISTRATOR ACTION AS TO BENEFIT PAYMENTS................................
6.7 ELECTION FORMALITIES.......................................................
6.8 MARITAL STATUS.............................................................
6.9 PROOF OF AGES..............................................................
6.10 IRREVOCABILITY OF ELECTIONS................................................
6.11 PRESUMPTION IN ABSENCE OF ELECTION.........................................
6.12 EFFECT OF CONTINGENT ANNUITANT'S DEATH.....................................
6.13 EFFECT OF PARTICIPANT'S DEATH..............................................
6.14 PAYMENT IN CASH; DIRECT TRANSFER...........................................
SECTION 7. DEATH BENEFITS......................................................
7.1 DEATH BEFORE COMMENCEMENT OF BENEFITS......................................
7.2 DEATH AFTER COMMENCEMENT OF BENEFITS.......................................
SECTION 8. BENEFIT LIMITATIONS.................................................
8.1 MAXIMUM ANNUAL BENEFITS....................................................
8.2 COORDINATED LIMITATION WITH OTHER PLANS....................................
8.3 LIMITATIONS AS TO CERTAIN EMPLOYEES........................................
SECTION 9. CONTRIBUTIONS AND TRUST FUND........................................
9.1 FUNDING OF COSTS...........................................................
9.2 CREATION OF TRUST FUND.....................................................
9.3 RESPONSIBILITY FOR INVESTMENT..............................................
9.4 FUNDING METHOD AND DETERMINATION OF COST...................................
9.5 PAYMENT OF EXPENSES........................................................
9.6 RETURN OF CONTRIBUTIONS....................................................
9.7 LOANS TO PARTICIPANTS......................................................
9.8 VOLUNTARY CONTRIBUTIONS BY PARTICIPANTS....................................
9.9 ROLLOVERS BY PARTICIPANTS..................................................
9.10 RIGHT TO IMPLEMENT OR SUSPEND PROVISIONS...................................
SECTION 10. THE ADMINISTRATOR AND ITS FUNCTIONS................................
10.1 AUTHORITY OF ADMINISTRATOR................................................
10.2 IDENTITY OF ADMINISTRATOR.................................................
10.3 DUTIES OF ADMINISTRATOR...................................................
10.4 COMPLIANCE WITH ERISA.....................................................
10.5 ACTION BY ADMINISTRATOR...................................................
10.6 EXECUTION OF DOCUMENTS....................................................
10.7 ADOPTION OF RULES.........................................................
10.8 RESPONSIBILITIES TO PARTICIPANTS..........................................
10.9 ALTERNATIVE PAYEES IN EVENT OF INCAPACITY.................................
10.10 INDEMNIFICATION BY COMPANY...............................................
10.11 NONPARTICIPATION BY INTERESTED MEMBER....................................
<PAGE>
SECTION 11. ADOPTION, AMENDMENT, OR TERMINATION OF THE PLAN....................
11.1 ADOPTION OF PLAN BY OTHER EMPLOYERS.......................................
11.2 ADOPTION OF PLAN BY SUCCESSOR.............................................
11.3 PLAN RESTATEMENT SUBJECT TO QUALIFICATION.................................
11.4 RIGHT TO AMEND OR TERMINATE...............................................
11.5 DISPOSITION OF EMPLOYER'S SHARE OF TRUST FUND.............................
11.6 ALLOCATION AMONG PARTICIPANTS AND BENEFICIARIES...........................
SECTION 12. MISCELLANEOUS PROVISIONS...........................................
12.1 PLAN CREATES NO EMPLOYMENT RIGHTS.........................................
12.2 NONASSIGNABILITY OF BENEFITS..............................................
12.3 LIMIT OF EMPLOYER LIABILITY...............................................
12.4 NUMBER AND GENDER.........................................................
12.5 NONDIVERSION OF ASSETS....................................................
12.6 SEPARABILITY OF PROVISIONS................................................
12.7 SERVICE OF PROCESS........................................................
12.8 GOVERNING STATE LAW.......................................................
Section 1. Plan Identity.
1.1 Name.
The name of this Plan is the Peapack-Gladstone Bank Employees' Retirement
Plan.
1.2 Purpose.
The purpose of this Plan is to describe the terms and conditions under
which pension and death benefits will be funded by Employers and paid to the
eligible Participants and their Beneficiaries.
1.3 Effective Date.
The Effective Date of this Plan is July 1, 1956. However the provisions of
this restated plan shall generally become effective January 1, 1989, and shall
apply only to individuals who have Service with an Employer on or after that
date.
1.4 Fiscal Period.
This Plan shall be operated on the basis of a fiscal year beginning each
January 1 for the purpose of determining actuarial costs, keeping the Plan's
books and records, and distributing or filing any reports or returns required by
law. Notwithstanding the foregoing, the fiscal year
<PAGE>
which began July 1, 1987 shall end on December 31, 1987. Subsequent to December
31, 1987, the Plan shall be operated on the basis of a fiscal year beginning
each January 1 thereafter.
1.5 Treatment of Plan for Participating Employers.
This Plan shall be treated as a single Plan with respect to all
participating Employers for the purpose of making contributions and paying
pension benefits, determining whether there has been any termination of Service,
and applying the limitations set forth in section 8.
1.6 Interpretation of Provisions.
The Employers intend this Plan and the Trust to be a qualified defined
benefit plan under section 401(a) of the Code and to satisfy any applicable
requirement under ERISA. Accordingly, the Plan and Trust Agreement shall be
interpreted and applied in a manner consistent with this intent and shall be
administered at all times and in all respects in a nondiscriminatory manner.
<PAGE>
Section 2. Definitions.
The following capitalized words and phrases shall have the meanings specified
when used in this Plan and in the Trust Agreement, unless the context clearly
indicates otherwise:
"Accrued Benefit" means the monthly annuity benefit payable at a
Participant's Normal Retirement Date which he has earned on the basis of his
participation in the Plan to date, as defined in section 4.4.
"Actuarial Equivalent" means a benefit of value equivalent to the value of
the benefit replaced, based on the following actuarial assumptions:
Mortality, pre-retirement - none
Mortality, post-retirement - UP-1984 Unisex Mortality Table
Interest, pre-retirement - 6.0%
Interest, post-retirement - 6.0%
However, a single lump sum Actuarial Equivalent of an annuity benefit shall be
calculated with interest at the rates specified above or at the applicable PBGC
rate if lower. For this purpose, the "applicable PBGC rate" shall mean the
applicable rate or rates for the immediate or deferred annuity benefit in
question as adopted by the Pension Benefit Guaranty Corporation to determine the
sufficiency of plans terminating on the first day of the Plan Year in which the
lump sum is paid; provided, however, that if the present value of a lump sum
benefit using such rate or rates exceeds $25,000, the "applicable PBGC rate"
shall instead mean 120 percent of such rate or rates, but only to the extent
that the lump sum value is not thereby reduced below $25,000.
"Administrator" means the person or persons responsible for the
administration of this Plan in accordance with section 10.
"Beneficiary" means the person or persons who are designated by a
Participant (within the meaning of section 401(a)(9) of the Code) to receive
benefits payable under the Plan on the Participant's death. In the absence of
any designation, or if all the designated Beneficiaries shall die before the
Participant dies or shall die before all benefits have been paid, the
Participant's Beneficiary shall be his surviving Spouse, if any, or his estate
if he is not survived by a Spouse. The Administrator may rely upon the advice of
the Participant's executor or estate administrator as to the identity and
relationship of the Participant's Spouse.
<PAGE>
"Benefit Year" means a unit of service credited to a Participant pursuant
to section 4.5-1 for purposes of determining his Pension Benefit.
"Break in Service" means any five or more consecutive 12-month periods
beginning January 1 in which an Employee has 500 or fewer Hours of Service per
period. Solely for this purpose, an Employee shall be considered employed for
his normal hours of paid employment during a Recognized Absence, unless he does
not resume his Service at the end of the Recognized Absence. Further, any
Employee who has a Parental Absence, shall be credited with the Hours of Service
which would normally have been credited but for such absence, up to a maximum of
501 Hours of Service, in the first 12-month period which would otherwise be
counted toward a Break in Service.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Peapack-Gladstone Bank, and any entity which succeeds to
the business of Peapack-Gladstone Bank and adopts this Plan as its own pursuant
to section 11.2.
"Disability" means only a disability which renders the Participant totally
unable, as a result of bodily or mental disease or injury, to perform any duties
for an Employer for which he is reasonably fitted, of which such disability is
expected to be permanent or of long and indefinite duration. However, this term
shall not include any disability directly or indirectly resulting from or
related to habitual drunkenness or addiction to narcotics, a criminal act or
attempt, service in the armed forces of any country, an act of war, declared or
undeclared, any injury or disease occurring while compensation to the
Participant is suspended, or any injury which was intentionally self-inflicted.
Further, this term shall only apply if the Participant is sufficiently disabled
to qualify for the payment of disability benefits under the federal Social
Security Act or Veterans Disability Act.
"Early Retirement Date" means the date on which a Participant has completed
at least 15 Benefit Years and is at least 50 years old (whether he reached that
age before or after his Service was terminated).
"Earned Income" means the net earnings from any Employer within the meaning
of section 401(c)(2) of the Code, excluding income from an Employer for which
the Participant's personal services are not a material income-producing factor.
Earned Income shall exclude any qualified plan contributions on his behalf which
are deductible under section 404 of the Code,
<PAGE>
and, for taxable years beginning after 1989, shall take into account the
Employer's deduction under section 164(f) of the Code.
"Effective Date" means July 1, 1956.
"Employee" means any individual who is or has been employed or
Self-Employed by an Employer. "Employee" also means an individual who has been
employed by a leasing organization and who, pursuant to an agreement between an
Employer and the leasing organization, has performed services for the Employer
on a substantially full-time basis for at least one year, if such services are
of a type historically performed by employees in the Employer's business field.
Solely for this purpose, the "Employer" shall include any related persons within
the meaning of section 414(n)(6) of the Code. However, such a "leased employee"
shall not be considered an Employee if (i) he participates in a money purchase
pension plan sponsored by the leasing organization which provides for immediate
participation, immediate full vesting, and an annual contribution of at least 10
percent of the employee's Total Compensation, and (ii) leased employees do not
constitute more than 20 percent of the Employer's total workforce (including
leased employees, but excluding Highly Paid Employees and any other employees
who have not performed services for the Employer on a substantially full-time
basis for at least one year). Solely for this purpose, an employee's Total
Compensation shall include any salary reduction amounts excluded from the
employee's gross taxable income pursuant to any of sections 125, 402(e)(3),
402(h)(l)(B), and 403(b) of the Code.
"Employer" means the Company, any other corporation, partnership, or
proprietorship which adopts this Plan with the Company's consent pursuant to
section 11.1, and any entity which succeeds to the business of any Employer and
adopts the Plan pursuant to section 11.2.
"ERISA" means the Employee Retirement Income Security Act of 1974 (P.L.
93-406, as amended).
"Five-Percent Owner" means an Employee who owns more than five percent of
the outstanding equity interest or the outstanding voting interest in any
Employer.
"Highly Paid Employee" for any Plan Year means an Employee who performs
service during the current Plan Year and who, during the immediately preceding
12 months, (i) was at any time a Five-Percent Owner, (ii) had Total Compensation
exceeding five-sixths of the Current Limit (i.e., $81,720 for 1989), (iii) had
Total Compensation exceeding five-ninths of the Current
<PAGE>
Limit (i.e., $54,480 for 1989) and was among the most highly compensated
one-fifth of all Employees, or (iv) was at any time an officer, partner, or sole
proprietor of an Employer and had Total Compensation exceeding one-half of the
Current Limit (i.e., $49,032 for 1989). An Employee shall also be a "Highly Paid
Employee" if, substituting the current Plan Year for the Preceding Plan Year in
the preceding sentence, either (1) he would be described in clause (i), or (2)
he would be described in any of clauses (ii), (iii), and (iv) and he is among
the 100 highest-paid Employees of the Employer for the current Plan Year. For
this purpose:
(a) "Total Compensation" shall include any amount which is excludable
from the Employee's gross income for tax purposes pursuant to section 125,
402(e)(3), 402(h)(1)(B), or 403(b) of the Code.
(b) "Current Limit" means the currently applicable dollar limit under
section 415(b)(1)(A) of the Code.
(c) The number of Employees in "the most highly compensated one-fifth
of all Employees" shall be determined by taking into account all
individuals working for all related employer entities described in the
definition of "Service", but excluding any individual who has not completed
six months of Service, who normally works fewer than 17-1/2 hours per week
or in fewer than six months per year, who has not reached age 21, whose
employment is covered by a collective bargaining agreement, or who is a
nonresident alien who receives no earned income from United States sources.
(d) The number of individuals counted as "officers" shall not be more
than the lesser of (i) 50 individuals and (ii) the greater of 3 individuals
or 10 percent of the total number of Employees. If no officer earns more
than one-half of the Current Limit, then the highest paid officer shall be
a Highly Paid Employee.
(e) A former Employee shall be counted as a Highly Paid Employee if he
separated from Service (or is deemed to have separated) prior to the
current Plan Year and he was a Highly Paid Employee during either the Plan
Year in which his Service ended or any Plan Year ending after his 55th
birthday.
(f) If an Employee, during either of the current and preceding Plan
Years, is a family member of either (i) a Five-Percent Owner or (ii) a
Highly Paid Employee who is among the Employer's 10 most highly compensated
Employees, then the Employee and such family member shall be aggregated,
and the compensation paid to and plan benefits provided for such
individuals shall be treated as paid to and provided for a single Employee.
A "family member" shall include an Employee's spouse, the Employee's lineal
ancestors and descendants, and the ancestors' and descendants' spouses.
(g) In all respects, the determination of who are Highly Paid
Employees shall be made in accordance with section 414(q) of the Code and
the Treasury Regulations thereunder.
<PAGE>
"Hours of Service" means hours to be credited to an Employee's Service
under the following rules:
(a) Each hour for which an Employee is paid or is entitled to be paid
for services to an Employer is an Hour of Service.
(b) Each hour for which an Employee is directly or indirectly paid or
is entitled to be paid by an Employer due to vacation, holidays,
illness, incapacity (including disability), lay-off, jury duty,
temporary military duty, or leave of absence is an Hour of
Service. However, except as otherwise specifically provided, no
more than 501 Hours of Service shall be credited for any single
continuous period during which the Employee performs no duties.
Further, no Hours of Service shall be credited on account of
payments made solely under a plan maintained to comply with
worker's compensation, unemployment compensation, or disability
insurance laws, or to reimburse an Employee for medical expenses.
(c) Each hour for which back pay (ignoring any mitigation of damages)
is either awarded or agreed to by an Employer is an Hour of
Service. However, no more than 501 Hours of Service shall be
credited for any single continuous period during which the
Employee would not have performed any duties.
(d) Hours of Service shall be credited in any one period only under
one of paragraphs (a), (b), and (c); an Employee may not receive
double credit for the same period.
(e) If an Employer finds it impractical to count the actual Hours of
Service for any class or group of Employees, each Employee in
that class or group shall be credited with the Hours of Service
shown in the following table for each pay period in which he has
at least one Hour of Service:
PAY PERIOD HOURS OF SERVICE CREDIT
---------- -----------------------
daily 10
weekly 45
bi-weekly 90
semi-monthly 95
monthly 190
<PAGE>
However, an Employee shall only be credited for his scheduled working hours
during a paid absence.
(f) Hours of Service to be credited on account of a payment to an
Employee, including an award of back pay shall be credited in the
computation period in which the Service was rendered or to which
the award relates. If the period overlaps two or more Plan Years,
the Hours of Service credit shall be allocated in proportion to
the respective portions of the periods included in the several
Plan Years. However, in the case of periods of 31 days or less,
the Administrator may apply a uniform policy of crediting the
Hours of Service to either the first Plan Year or the second.
(g) In all respects an Employee's Hours of Service shall be counted
as required by section 2530.200b-2 of the Department of Labor's
regulations under Title I of ERISA.
"Key Employee" means an Employee who at any time during the five years
ending on the top-heavy determination date for the Plan Year has performed any
Service and has been (i) an officer of the Employer having Total Compensation
greater than one-half of the limit then in effect under section 415(b)(1)(A) of
the Code, (ii) one of the 10 Employees owning (or considered as owning under
section 318 of the Code) the largest interests in the Employer (ignoring any
Employee who does not own more than 1/2 percent interest) and having Total
Compensation greater than the limit then in effect under section 415(c)(1)(A),
(iii) a Five-Percent Owner, or (iv) an owner of more than one percent of the
outstanding equity interest or the outstanding voting interest in any Employer
whose Total Compensation exceeds $150,000. For this purpose, an Employees'
"Total Compensation" shall include any amount which is excludable from the
Employee's gross income for tax purposes pursuant to section 125, 402(e)(3),
402(h)(1)(B) or 403(b) of the Code. In determining which individuals are Key
Employees, the rules of section 416(i) of the Code and Treasury Regulations
promulgated thereunder shall apply. The Beneficiary of a Key Employee shall also
be considered a Key Employee.
"Nonkey Employee" means an Employee who at any time during the five years
ending on the top-heavy determination date for the Plan Year has performed any
Service and who has never been a Key Employee, and the Beneficiary of any such
Employee.
"Normal Retirement Date" means the later of (a) a Participant's attainment
of 65 and (b) the earlier of (i) the fifth anniversary of the Participant's
initial participation in the Plan, assuming that any Participant who entered the
Plan prior to the January 1, 1988, instead entered
<PAGE>
the Plan on that date, and (ii) the 10th anniversary of such initial
participation. However, a Participant's Normal Retirement Date in no event shall
be later than the Participant's attainment of age 70.
"Owner-Employee" means an individual who is a sole proprietor, or who is a
partner owning more than 10 percent of either the capital or profits interest of
the partnership. If this Plan provides benefits for one or more Owner-Employees
who control both the business for which this Plan is established and one or more
other trades or businesses, this Plan and the plan established for other trades
or businesses must, when looked at as a single plan, satisfy section 401(a) and
(d) for the Employees of this and all other trades or businesses and the
Employees of the other trades or businesses must be included in a Plan which
satisfies section 401(a) and (d) and which provides contributions and benefits
not less favorable than provided for Owner-Employees under this Plan.
If an individual is covered as an Owner-Employee under the plans of two or
more trades or businesses which are not controlled and the individual controls a
trade or business, then the contributions or benefits of the employees under the
plan of the trade or business which are controlled must be as favorable as those
provided for his under the most favorable plan of the trade or business which is
not controlled.
For purposes of the preceding paragraphs, an Owner-Employee, or two or more
Owner-Employees, will be considered to control a trade or business if the
Owner-Employee, or two or more Owner-Employees together:
(1) own the entire interest in an unincorporated trade or business, or
(2) in the case of a partnership, own more than 50 percent or either
the capital interest or the profits interest in the partnership.
For purposes of the preceding sentence, an Owner-Employee, or two or more
Owner-Employees, shall be treated as owning any interest in a partnership which
is owned, directly or indirectly, by a partnership which such Owner-Employee, or
such two or more Owner-Employees, are considered to control within the meaning
of the preceding sentence.
"Parental Absence" means an Employee's absence (i) by reason of the
Employee's pregnancy, (ii) by reason of the birth of the Employee's child, (iii)
by reason of the placement of a child with the Employee in connection with the
Employee's adoption of the child, or (iv) for purposes of caring for such child
for a period beginning immediately after such birth or placement.
<PAGE>
"Participant" means any Employee who is participating in the Plan or has
previously participated in the Plan and whose rights to benefits payable under
this Plan have not yet been paid in full (either directly or by distribution of
an appropriate annuity contract) or forfeited to the extent not so paid. Subject
to the provisions of section 3.3, "Participant" shall also include an individual
who previously participated in the Prior Plan unless the liability for his
unpaid accrued benefit under the Prior Plan has been separately provided for
under a funding arrangement other than the Trust Fund under this Plan. Any
reference in this Plan to an Employee's period of participation in the Plan
shall be treated as including the Employees' years of participation, if any, in
the Prior Plan.
"Pension Benefit" means the greatest of the following retirement benefits
for which a Participant is eligible following the termination of his employment,
each such benefit being an annuity for the Participant's life, with payments
guaranteed for 120 months certain, providing monthly payments of the benefit
amount prescribed in the appropriate section:
(a) "Normal Pension Benefit" means the benefit described in section
4.1.
(b) "Later Pension Benefit" means the benefit described in section
4.2.
(c) "Vested Deferred Pension Benefit", "Early Pension Benefit", and
"Disability Pension Benefit" means the benefits described in section 4.3.
"Plan Year" means each period of 12 consecutive months beginning on July 1.
The Plan Year which commenced July 1, 1987 shall end the last day of that
calendar year. Thereafter the Plan Year shall be the calendar year.
"Prior Plan" means the Peapack-Gladstone Bank Employees' Retirement Plan,
as in effect immediately prior to January 1, 1989.
"Recognized Absence" means a period for which--
(a) an Employer grants the Employee a leave of absence for a limited
period, but only if the Employer grants such leaves on a
nondiscriminatory basis; or
(b) the Employee is temporarily laid off by an Employer because of a
change in business conditions; or
(c) the Employee is on active military duty, but only to the extent
his employment rights are protected by the Military Selective Service
Act of 1967 (38 U.S.C. sec. 2021).
<PAGE>
"Self-Employed" individual means an individual who has Earned Income for
the taxable year from the trade or business for which the plan is established;
also an individual who would have Earned Income but for the fact that the trade
or business had no net profits for the taxable year.
"Service" means an Employee's period(s) of employment or self-employment
with an Employer, excluding for initial eligibility purposes any period in which
the individual was a non-resident alien and did not receive from an Employer any
earned income which constituted income from sources within the United States. An
Employee's Service shall include any service which constitutes service with a
predecessor employer within the meaning of section 414(a) of the Code, including
service with any employer which previously maintained this Plan. An Employee's
Service shall also include any service with an entity which is not an Employer,
but only (i) for a period after 1975 in which the other entity is a member of a
controlled group of corporations or is under common control with other trades
and businesses within the meaning of section 414(b) or 414(c) of the Code, and a
member of the controlled group or one of the trades and businesses is an
Employer, (ii) for a period after 1979 in which the other entity is a member of
an affiliated service group within the meaning of section 414(m) of the Code,
and a member of the affiliated service group is an Employer, or (iii) for a
period after 1983 in which the other entity is a member of a group of
businesses, or is part of any arrangement, such that the entity is to be treated
as an Employer under Treasury Regulations promulgated pursuant to section 414(o)
of the Code.
"Social Security Retirement Age" means the age used as a Participant's
retirement age under section 216(l) of the Social Security Act, which shall mean
age 65 for a Participant born before 1938, age 66 for a Participant born after
1937 but before 1955, and age 67 for a Participant born after 1954.
"Spouse" means the individual, if any, to whom a Participant is lawfully
married on the date benefit payments to the Participant are to begin, or on the
date of the Participant's death, if earlier. However, a Participant's former
spouse shall be treated as his Spouse in lieu of his current spouse to the
extent required under any judgement, decree, or order which is determined by the
Administrator in accordance with its policies and procedures to be a qualified
domestic relations order within the meaning of section 414(p) of the Code.
"Standard Annuity" means the standard benefit form in which a Participant's
Pension Benefit shall be payable pursuant to section 6.4 unless the Participant
elects a different form.
<PAGE>
"Top-Heavy Year" means a Plan Year in which the Plan is top-heavy within
the meaning of section 416 of the Code. In this connection, the Administrator
shall determine on a regular basis whether each Plan Year is or is not a
Top-Heavy Year for purposes of implementing the various provisions of the Plan
which apply only to the extent that the plan is top-heavy or super top-heavy
within the meaning of section 416 and the Treasury Regulations thereunder. In
making this determination, the Administrator shall use the following definitions
and principles:
(a) The "Employer" includes all business entities which are considered
commonly controlled or affiliated within the meaning of sections 414(b),
414(c), 414(m) and 414(o) of the Code.
(b) The "plan aggregation group" includes each qualified retirement
plan or simplified employee pension (as defined in section 408(k) of the
Code) which is or has been maintained by the Employer (whether or not
terminated) (i) in which a Key Employee is or has been a Participant during
any of the five years ending on a determination date, or (ii) which enables
or has enabled any plan described in clause (i) to satisfy the requirements
of section 401(a)(4) or 410 of the Code during those five years, or (iii)
which provides contributions or benefits comparable to those of the plans
described in clauses (i) and (ii) and which is designated by the
Administrator as part of the plan aggregation group.
(c) The "determination date", with respect to the first plan year of
any plan, means the last day of that plan year, and with respect to each
subsequent plan year, means the last day of the preceding plan year. If any
other plan has a determination date which differs from this Plan's
determination date, the top-heaviness of this Plan shall be determined on
the basis of the other plan's determination date which falls within the
same calendar year as this Plan's determination date.
(d) The "aggregated benefits" for any Plan Year means (i) the adjusted
account balances in defined contribution plans and simplified employee
pensions on the determination date, plus (ii) the adjusted value of accrued
benefits in defined benefit plans (calculated as of the annual valuation
date coinciding with or next preceding the determination date), with
respect to Key Employees and Nonkey Employees under all plans within the
plan aggregation group which includes this Plan. For this purpose, the
accrued benefit of any Nonkey Employee shall be determined (i) under the
accrual method, if any, which is uniformly applicable under all defined
benefit plans within the plan aggregation group, or (ii) if there is no
such uniform method, as if such benefit accrued under the slowest accrual
rate
<PAGE>
permitted under the fractional rule of section 411(b)(1)(c) of the Code.
Further, the "adjusted account balance" and the "adjusted value of accrued
benefit" for any Employee shall be increased by all plan distributions made
with respect to the Employee during the five years ending on the
determination date from any plan within the plan aggregation group and from
any terminated plan which during those five years was within the plan
aggregation group. In addition, the adjusted account balance under a plan
shall not include any amount attributable to a rollover contribution or
similar transfer to the plan initiated by an Employee and made after 1983,
unless both plans involved are maintained by the Employer, in which event
the transferred amount shall be counted in the transferee plan and ignored
for all purposes in the transferor plan. Finally, the adjusted value of
accrued benefits under any defined benefit plan shall be determined by
assuming whichever actuarial assumptions are prescribed in that plan.
(e) This Plan shall be "top-heavy" for any Plan Year in which the
aggregated benefits of the Key Employees exceed 60 percent of the total
aggregated benefits for both Key Employees and Nonkey Employees.
(f) This Plan shall be "super top-heavy" for any Plan Year in which
the aggregated benefits of the Key Employees exceed 90 percent of the total
aggregated benefits for both Key Employees and Nonkey Employees.
"Total Compensation" means a Participant's wages, salary, overtime,
bonuses, commissions, and any other amounts received for personal services
rendered while in Service from any Employer or an affiliate (within the purview
of sections 414(b),(c),(m) and (o) of the Code), plus his Earned Income.
A Participant's Total Compensation shall include (i) amounts excludable
from gross income under section 911 of the Code, (ii) amounts described in
sections 104(a)(3), 105(a), and 105(h) of the Code to the extent includable in
gross income, (iii) amounts received from an Employer for moving expenses which
are not deductible under section 217 of the Code, and (iv) amounts includable in
gross income in the year of, and on account of, the grant of a nonqualified
stock option, or under an unfunded nonqualified plan of deferred compensation,
or otherwise includable pursuant to section 83(b) of the Code.
A Participant's Total Compensation shall exclude (i) Employer contributions
to or amounts received from a funded or qualified plan of deferred compensation,
(ii) Employer contributions to a simplified employee pension account to the
extent deductible under section 219 of the Code, (iii) Employer contributions to
a section 403(b) annuity contract (whether or not excludable from gross income),
(iv) amounts includable in gross income pursuant to section
<PAGE>
83(a) of the Code, (v) amounts includable in gross income upon the exercise of a
nonqualified stock option or upon the disposition of stock acquired under any
stock option, and (vi) any other amounts expended by the Employer on the
Participant's behalf which are excludable from his income or which receive
special tax benefits.
"Trust" or "Trust Fund" means the trust fund created under this Plan,
including the fund carried over from the Prior Plan.
"Trust Agreement" means the agreement between the Company and the Trustee
concerning the Trust Fund. If any assets of the Trust Fund are held in a
commingled trust fund with assets of other qualified retirement plans, "Trust
Agreement" shall be deemed to include the trust agreement governing that
commingled trust fund. With respect to the allocation of investment
responsibility for the assets of the Trust Fund, the provisions of section 2.2
of the Trust Agreement are incorporated herein by reference.
"Trustee" means one or more corporate persons and individuals selected from
time to time to serve as trustee or co-trustees of the Trust Fund.
"Vesting Year" means a unit of service credited to a Participant pursuant
to section 5.2 for purposes of determining his vested interest in his Accrued
Benefit.
<PAGE>
Section 3. Eligibility for Participation
3.1 Initial Eligibility.
An Employee shall enter the Plan as of the Entry Date nearest the later of
the following dates:
(a) the last day of the Employee's 1st Eligibility Year, and
(b) the Employee's attainment of age 21.
However, if an Employee is not in active Service with an Employer on the date he
would otherwise first enter the Plan, his entry shall be deferred until the next
day he is in active Service.
3.2 Eligibility Definitions.
An "Eligibility Year" means an applicable eligibility period (as defined below)
in which the Employee has at least 1,000 Hours of Service.
For this purpose,
(a) an Employee's first "eligibility period" is the 12 consecutive
month period beginning on the first day on which he has an Hour
of Service and if applicable, the first such day following his
most recent Break in Service, and
(b) his subsequent eligibility periods will be 12 consecutive month
periods beginning on each January 1 after that first day of
Service.
"Entry Date" means each January 1.
3.3 Prior Plan Participants, and Terminated or Part-Time Employees.
Each Employee who was in active Service and participating in the Prior Plan
immediately prior to January 1, 1989 shall enter the Plan on that date. However,
no Employee shall have any interest or rights under this Plan if (i) he is never
in active Service with an Employer on or after January 1, 1989, or (ii) he had a
one year period in which Service was interrupted as described in the definition
of Break in Service in any eligibility period beginning before January 1, 1989,
and he never has an Eligibility Year after that date. Any excluded Employee who
was a participant in the Prior Plan, and the Beneficiary of any such Employee
who has died, shall only be entitled to his benefits under the Prior Plan as of
the earlier of the termination of his Service or January 1, 1989.
3.4 Ineligible Employees.
<PAGE>
No Employee shall participate in the Plan while he is actually employed by
a leasing organization rather than an Employer, except as otherwise provided in
the definition of Employee.
3.5 Waiver of Participation.
Any eligible Employee who does not wish to participate in the Plan shall
file with the Administrator a waiver of participation on a form provided for
this purpose. A waiver shall be effective until the first day of the Plan Year
following the Employee's revocation of the waiver. An Employee's waiver shall
automatically cease to be effective if his failure to participate in the Plan
would adversely affect the Plan's qualification pursuant to section 401(a)(26)
or 410(b) of the Code.
3.6 Participation and Reparticipation.
An Employee shall participate in the Plan during each period of Service in
which he satisfies the foregoing requirements. An Employee who leaves and
returns to Service and who previously satisfied the initial eligibility
requirements shall re-enter the Plan as of the date of his return. Furthermore,
an Employee who changes status from an ineligible class of Employees to an
eligible class of Employees shall participate in the Plan on the date of such
change in status, subject to the foregoing eligibility requirements of this
section 3.
<PAGE>
Section 4. Retirement Benefits.
4.1 Normal Retirement.
A Participant who retires on his Normal Retirement Date shall be
immediately eligible to receive a Normal Pension Benefit. Subject to the other
provisions of this Plan, a Participant's Normal Pension Benefit shall provide a
monthly payment equal to the sum of the following:
(a) his Accrued Benefit as of January 1, 1989,
(b) 2.2 percent of his Average Compensation multiplied by his Benefit
Years on or after January 1, 1989, but not to exceed 25 Benefit Years.
(c) 0.75 percent (0.6875 percent effective January 1, 1994) of his
Average Excess Compensation multiplied by his Benefit Years on or after
January 1, 1989, but not to exceed 25 Benefit Years.
If the Participant's Pension Benefit after the latest fresh-start date is
determined under the fractional accrual rule in section 4.4 of the Plan, the
maximum number of Benefit Years during which permitted disparity is taken into
account under this formula may not be less than 25. The number of Benefit Years
taken into account under this paragraph for any Participant will not exceed the
Participant's cumulative disparity limit. The participant's cumulative disparity
limit is equal to 35 minus the number of years during which the Participant
earned a Benefit Year under one or more qualified plans or simplified employee
pensions ever maintained by the Employer, other than years for which a
Participant earned a Benefit Year under this Plan. If the Participant's
cumulative disparity limit is less than 25 years, then for years after the
participant reaches the cumulative disparity limit until the Participant has
accumulated 25 Benefit Years, the Participant's Pension Benefit will be equal to
the excess benefit percentage, or, if lesser, the highest percentage permitted
under the 133 1/3 percent accrued rule of section 411(b)(1)(B) of the Code (if
applicable) times Average Compensation. In no event may the percentage applied
to Average Excess Compensation exceed the Annual Factor as provided in Table I,
II, or III below.
<PAGE>
TABLE I
SOCIAL SECURITY RETIREMENT AGE 67
- --------------------------------------------------------------------------------
ANNUAL FACTOR IN MAXIMUM
EXCESS ALLOWANCE AND
AGE AT WHICH MAXIMUM OFFSET ALLOWANCE
BENEFITS COMMENCE (PERCENT)
- --------------------------------------------------------------------------------
70 1.002
69 0.908
68 0.825
67 0.750
66 0.700
65 0.650
64 0.600
63 0.550
62 0.500
61 0.475
60 0.450
59 0.425
58 0.400
57 0.375
56 0.344
55 0.316
TABLE II
SOCIAL SECURITY RETIREMENT AGE 66
- --------------------------------------------------------------------------------
ANNUAL FACTOR IN MAXIMUM
EXCESS ALLOWANCE AND
AGE AT WHICH MAXIMUM OFFSET ALLOWANCE
BENEFITS COMMENCE (PERCENT)
- --------------------------------------------------------------------------------
70 1.101
69 0.998
68 0.907
67 0.824
66 0.770
65 0.700
64 0.650
63 0.600
62 0.550
61 0.500
60 0.475
59 0.450
58 0.425
57 0.400
56 0.375
55 0.344
<PAGE>
TABLE II
SOCIAL SECURITY RETIREMENT AGE 65
- --------------------------------------------------------------------------------
ANNUAL FACTOR IN MAXIMUM
EXCESS ALLOWANCE AND
AGE AT WHICH MAXIMUM OFFSET ALLOWANCE
BENEFITS COMMENCE (PERCENT)
- --------------------------------------------------------------------------------
70 1.209
69 1.096
68 0.996
67 0.905
66 0.824
65 0.750
64 0.700
63 0.650
62 0.600
61 0.550
60 0.500
59 0.475
58 0.450
57 0.425
56 0.400
55 0.375
The Annual Factor shall be reduced actuarially to the extent Normal Retirement
Date precedes Social Security Retirement Age by more than 10 years.
Notwithstanding any other provision in the Plan, the Accrued Benefit of each
Employee whose Accrued Benefit on or after January 1, 1994, is based on
Compensation that exceeded $150,000 for a year beginning prior to January 1,
1994, will be the greater of (a) or (b) below:
(a) the Accrued Benefit determined with respect to the benefit formula
applicable for the Plan Year beginning on or after January 1, 1994, as
applied to the employee's total Benefit Years, or
(b) the sum of:
(i) the Accrued Benefit as of the last day of the last Plan Year
beginning before January 1, 1994, frozen in accordance with section
1.401(a)(4)-13 of the regulations, and
(ii) the Accrued Benefit determined under the benefit formulas
applicable for the Plan Year beginning on or after January 1, 1994, as
applied to the Benefit Years beginning on or after January 1, 1994.
<PAGE>
A Participant's frozen Accrued Benefit is the amount of the Participant's
Accrued Benefit determined in accordance with the provisions of the Plan
applicable in the year containing the latest fresh-start date, determined as if
the Participant terminated service as of the latest fresh-start date, without
regard to any amendment made to the Plan after that date. If this Plan has not
had a fresh-start date, the participant's frozen Accrued Benefit will be zero.
If, as of the latest fresh-start date, the amount of a Participant's frozen
Accrued Benefit was limited by the application of section 415 of the Code, the
Participant's frozen Accrued Benefit will be increased for years after the
latest fresh-start date to the extent permitted under section 415(d)(1) of the
Code. In addition, the frozen Accrued Benefit of a participant whose frozen
Accrued Benefit includes the top-heavy minimum benefits provided in section 4.6
of the Plan, will be increased to the extent necessary to comply with the
average compensation requirement of section 416(c)(1)(D)(i).
If: (1) the plan's normal form of benefit in effect on the latest
fresh-start date is not the same as the normal form under the Plan after the
latest fresh-start date and/or (2) the normal retirement age for any Participant
on that date was greater than the normal retirement age for that Participant
under the Plan after the latest fresh-start date, the frozen Accrued Benefit
will be expressed as an actuarially equivalent benefit in the normal form under
the Plan after the latest fresh-start date, commencing at the Participant's
normal retirement age under the Plan in effect after the latest fresh-start
date.
Fresh-start date means the last day of a Plan Year preceding a Plan Year
for which any amendment of the Plan that directly or indirectly affects the
amount of a Participant's benefit determined under the current benefit formula
(such as an amendment to the definition of compensation used in the current
benefit formula or a change in the normal retirement age of the plan) is made
effective.
4.2 Later Retirement.
A Participant who retires on or after his Normal Retirement Date shall be
immediately eligible to receive a Later Pension Benefit. A Participant's Later
Pension Benefit shall provide monthly payments of an amount such that the Later
Pension Benefit is equal to the greater of (i) the Actuarial Equivalent of a
Normal Pension Benefit computed on the basis of his Benefit Years and
compensation up to the later of his Normal Retirement Date and his completion of
25 Benefit Years, such Actuarial Equivalent to be recomputed at the end of each
Plan Year falling more than 12 months after his completion of 25 Benefit Years,
plus interest thereon at the rate of 6 percent per annum, and (ii) the Accrued
Normal Pension Benefit determined as of his actual termination date, counting
his compensation through that date. If the Participant has fewer than 25 Benefit
Years when his employment terminates, his Later Pension Benefit shall provide
<PAGE>
monthly payments computed on the basis of his total Benefit Years and
compensation without any actuarial increase on account of the commencement of
his benefits after Normal Retirement Date. In all events, a Participant's
benefits shall commence by the latest of (i) April 1, 1990, or (ii) the April
1st of the calendar year following the calendar year in which he reaches age
70 1/2, unless the Participant was never a Five-Percent Owner and had attained
age 70 1/2 prior to January 1, 1988, and he has never been a Five Percent Owner,
or (iii) a Participant's actual termination date if he had accrued a benefit
under this Plan as of December 31, 1983 and had elected a later commencement
date and benefit payment form in a written election signed by the Participants
or his Beneficiary and filed with the Administrator before 1984 which complied
with then applicable law and which has not since been changed in any respect
other than to comply with section 417 of the Code. The method of distribution
designated by the Participant or the Beneficiary must specify the time at which
distribution will commence, the period over which distributions will be made,
and in the case of any distribution upon the Participant's death, the
Beneficiaries of the Participant listed in order of priority. A distributions
upon death will not be covered by this transitional rule unless the information
in the designation contains the required information described above with
respect to the distributions to be made upon the death of the Participant.
If such an election is changed in any other respect (ignoring any change in
beneficiaries which does not affect the total period of benefit payments) after
the date on which, in the absence of such election, the Participant's benefits
would have begun, the election shall be deemed revoked. The Participant must
then commence receiving benefits in a form consistent with section 6.4, with
sufficient regular or special payments made by the second December 31st on or
after that revocation such that the total benefits received by that date are not
less than would have been received under a benefit payment form authorized by
section 6.4 and commencing by the April 1st of the calendar year following the
year in which the Participant reached age 70 1/2.
4.3 Termination Before Normal Retirement.
Vested Termination: A Participant whose Service terminates other than by
death before his Normal Retirement Date but after his interest in his Accrued
Benefit has become vested to some extent shall be eligible to receive on his
Normal Retirement Date a Vested Deferred Pension Benefit, provided he is living
at that date. A Participant's Vested Deferred Pension Benefit shall be equal to
the vested portion of his Accrued Benefit, but reduced to be the Actuarial
Equivalent of such benefit if his benefits begin before his Normal Retirement
Date.
Early Retirement: A Participant whose Service terminates and who reaches
his Early Retirement Date shall be eligible to receive an Early Pension Benefit
commencing on that
<PAGE>
date in lieu of a Vested Deferred Pension Benefit. An Early Pension Benefit
shall provide monthly payments of an amount such that the benefit is the
Actuarial Equivalent of the Participant's vested Accrued Benefit at his
termination. Such Participant may elect to postpone the commencement of an Early
Pension Benefit to a date no later than his Normal Retirement Date, provided the
election is made within 30 days after he has received appropriate information
regarding the effect of a postponement on the amount of monthly payments. Such
an election may be changed at any time to specify a new benefit commencement
date at least 120 days after the new election date.
Disability Retirement: If a Participant's Service is terminated by
Disability, he shall be eligible to receive a Disability Pension Benefit. A
Disability Pension Benefit shall provide monthly payments of an amount such that
the benefit is the Actuarial Equivalent of the Participant's Accrued Benefit at
his termination. A disabled Participant may elect to receive an alternative form
of benefit described in section 6.4 other than a Standard Annuity. Subject to
section 4.7, a Disability Pension Benefit shall begin on the first day of the
month following the fifth full calendar month of the Participant's Disability,
and shall end only if the Participant's Disability ends before his Normal
Retirement Date.
4.4 Accrued Benefit.
A Participant's Accrued Benefit means that part of his Normal Pension
Benefit which he has earned on the basis of his Benefit Years to date calculated
under section 4.1. That benefit shall be increased, if necessary, to be not less
than the top-heavy minimum benefit prescribed in section 4.6, based on the
Participant's Top-Heavy Benefit Years to date. If a Participant works beyond his
Normal Retirement Date, his Accrued Benefit means the Later Pension Benefit he
would receive if he retired.
However, if this Plan has had a fresh-start, and after the latest
fresh-start date, the fresh-start rule used under the Plan is formula with
wear-away, the Accrued Benefit will not be less than the Participant's frozen
Accrued Benefit. If this Plan has had a fresh-start, and after the latest
fresh-start date, the fresh-start rule used under the Plan is the formula with
extended wear-away, in determining the Participant's Accrued Benefit with
respect to Benefit Years after the latest fresh-start date under the formula
without wear-away, the numerator in the fraction above will be limited to the
Participant's Benefit Years after the latest fresh-start date.
For Plan Years beginning before section 411 of the Code is applicable
hereto, the Participant's Accrued Benefit shall be the greater of that provided
by the Plan, or 1/2 of the Pension Benefit which would have accrued had the
provisions of section 4.4 been in effect. In
<PAGE>
the event the Accrued Benefit as of the effective date of section 411 of the
Code is less than that provided by section 4.4 such difference shall be accrued
in accordance with section 4.4.
4.5 Definitions for Benefit Computations.
In computing a Participant's Pension Benefit or Accrued Benefit, the
following terms shall have the meanings specified:
4.5-1 "Benefit Year" means any 12-month period beginning July 1 in
which a Participant has 1,000 Hours of Service, beginning with his initial
Service with any Employer. Notwithstanding the foregoing, a Participant who
has at least one Hour of Service during the short Plan Year ending December
31, 1987 and at least 1,000 Hours of Service during the 12-month period
ending December 31, 1987 shall be credited with a full Benefit Year for the
Plan Year beginning July 1, 1987 and ending the last day of that calendar
year. Subsequent to the last day of that calendar year, a "Benefit Year"
shall be measured based on the 12-month period commencing each January 1.
However, a Participant's Benefit Years shall be computed subject to the
following conditions and qualifications:
- A Participant's Benefit Years shall include all Benefit Years credited
under the Prior Plan.
- A Participant's Benefit Years shall include any period of active
military duty to the extent required by the Military Selective Service
Act of 1967 (38 U.S.C. 2021).
- A Participant's Benefit Years shall not include any Service before the
date the Participant commences participation in the Plan.
- A Participant's Benefit Years shall not include any Service before
January 1, 1989 which would not have been included in computing his
normal retirement benefit under the Prior Plan as of that date.
- If a Participant has a Break in Service before his interest in his
Accrued Benefit has become vested to some extent, he shall lose credit
for his Benefit Years before the Break in Service unless the number of
his Vesting Years before the Break (excluding any years which would be
excluded pursuant to section 5.2 on account of a previous Break)
exceeds the number of consecutive years of the Break in Service, and
the Participant completes an Eligibility Year after the Break.
4.5-2 Compensation definitions:
"Average Compensation" means a Participant's average monthly cash
compensation from one or more Employers with respect to his highest paid 5
consecutive
<PAGE>
Plan Years of Service or such average compensation during his entire period
of Service if that is less than 5 Plan Years of Service. Compensation for
purposes of this section 4.5 shall mean a Participant's Total Compensation.
Compensation shall include the remuneration paid to a Participant during
the applicable computation period, except that any compensation reduction
amount which is excludable from the Employee's gross income for tax
purposes pursuant to section 125, 402(e)(3), or 402(h)(1)(B), or 403(b) of
the Code shall be included. Any period of Recognized Absence and any period
after the Participant's final termination shall be excluded from the
determination of Compensation. For purposes of determining a Participant's
benefit accrual, a Participant's compensation shall exclude any
compensation in any Plan Year beginning after 1988 or in any early
Top-Heavy Year, in excess of the limit currently in effect under section
401(a)(17) or 416(d) of the Code (i.e., $200,000 for 1989). For Plan Years
beginning on or after January 1, 1994, the Compensation shall not exceed
the Omnibus Budget Reconciliation Act of 1993 annual compensation limit of
$150,000 as adjusted for increases in the cost of living in accordance with
section 401(a)(17)(B) of the Code. The cost of living adjustment in effect
for a calendar year applies to any period, not exceeding twelve (12)
months, over which Compensation is determined, (determination period)
beginning in such calendar year. If Compensation for any prior
determination period is taken into account in determining an Employee's
benefits accruing in the current Plan Year, the Compensation for that prior
determination period is subject to the Omnibus Budget Reconciliation Act of
1993 annual compensation limit in effect for that prior determination
period. For this purpose, for determination periods beginning before
January 1, 1994, the Omnibus Budget Reconciliation Act of 1993 annual
compensation limit is $150,000, provided, however, that such limit shall be
proportionately reduced in the case of any Plan Year containing fewer than
12 months.
If, during any Plan Year beginning after 1986, any of the Participant,
the Participant's spouse, or a lineal descendant of the Participant who has
not reached age 19 by the end of the year, is either (i) a Five-Percent
Owner or (ii) a Highly Paid Employee who is among the Employer's 10 most
highly compensated Employees, then the foregoing limitation shall be
allocated among such individuals in proportion to their actual compensation
in accordance with section 414(q)(6) of the Code and applicable Treasury
Regulations. A Participant's compensation in any earlier Plan Year which is
taken into account in determining his Pension Benefit in a later Plan Year
shall not exceed the limitation applicable in the earlier Plan Year. The
foregoing limitation shall also apply in determining a Participant's "Total
Compensation" solely for purposes of the definition of "Employee" in
section 2, the top-heavy minimum benefits under section 4.6 and the
<PAGE>
restrictions on certain distributions under section 8.3. Notwithstanding
the foregoing, for the Plan Year beginning July 1, 1987 and ending on the
last day of that calendar year Compensation shall be annualized in the
determination of "Average Compensation". Furthermore, Compensation shall be
the Compensation as defined herein during the calendar year for Plan Years
subsequent to December 31, 1987.
<PAGE>
"Average Excess Compensation" means the excess of a Participant's Average
Compensation over the transitional covered compensation amount specified in
Table 1 of IRS Notice 89-70, as follows:
================================================================================
COVERED COVERED
YEAR OF BIRTH COMPENSATION YEAR OF BIRTH COMPENSATION
- --------------------------------------------------------------------------------
1908 $ 4,200 1933 $ 27,000
1909 4,800 1934 28,200
1910 4,800 1935 29,400
1911 5,400 1936 30,600
1912 5,400 1937 31,800
1913 6,000 1938 34,200
1914 6,600 1939 35,400
1915 7,200 1940 36,600
1916 7,800 1941 37,800
1917 8,400 1942 38,400
1918 9,600 1943 39,600
1919 10,200 1944 40,800
1920 11,400 1945 42,000
1921 12,000 1946 42,600
1922 13,200 1947 43,800
1923 14,400 1948 44,400
1924 15,600 1949 45,000
1925 16,800 1950 45,600
1926 18,000 1951 46,200
1927 19,200 1952 46,800
1928 21,000 1953 46,800
1929 22,200 1954 47,400
1930 23,400 1955 48,000
1931 24,600 1956 48,000
1932 25,800 1957 or later 48,000
===============================================================================
In the case of any other Participant who has not reached his Social
Security Retirement Age, the wage bases applicable for the current and
subsequent Plan Years shall be assumed to be equal to the wage base in effect at
the beginning of the current Plan Year. After a Participant reaches his Social
Security Retirement Age, the wage bases for subsequent years shall be assumed to
remain equal to the wage base in effect at the beginning of the Plan Year in
which he reaches such age.
<PAGE>
Moreover, for the Plan Year beginning on January 1, 1994, the covered
compensation shall be based on the following table (adjusted, for Plan Years
beginning after 1994, in accordance with Internal Revenue Service regulations):
================================================================================
COVERED COVERED
YEAR OF BIRTH COMPENSATION YEAR OF BIRTH COMPENSATION
- --------------------------------------------------------------------------------
1928 $ 24,000 1946 $ 51,000
1929 24,000 1947 51,000
1930 27,000 1948 54,000
1931 27,000 1949 54,000
1932 30,000 1950 54,000
1933 30,000 1951 57,000
1934 33,000 1952 57,000
1935 33,000 1953 57,000
1936 36,000 1954 57,000
1937 36,000 1955 60,000
1938 39,000 1956 60,000
1939 42,000 1957 60,000
1940 42,000 1958 60,000
1941 45,000 1959 60,000
1942 45,000 1960 60,000
1943 48,000 1961 60,600
1944 48,000 1962 60,600
1945 51,000 1963 or later 60,600
================================================================================
4.6 Top-Heavy Minimum Benefit.
Notwithstanding the foregoing, if this Plan is ever Top-Heavy, a
Participant's Normal Pension Benefit or Accrued Benefit shall in no event
provide a monthly payment less than the product of 1.8 percent of his average
compensation multiplied by the number of his Top-Heavy Benefit Years up to but
not exceeding 10 Top-Heavy Benefit Years. For this purpose a Participant's
"average compensation" means the average of his Total Compensation which is paid
to him by an Employer during his highest paid five consecutive Plan Years out of
his entire period of Service, excluding any Service before the Plan's first
Top-Heavy Year or after its last Top-Heavy Year. If such period of Service is
shorter than five years, the Participant's average compensation for this purpose
shall be determined on the basis of the shorter period. Such minimum Normal
Pension Benefit or Accrued Benefit shall apply for purposes of calculating a
Participant's Later Pension Benefit, Early Pension Benefit, Disability Pension
Benefit, or Vested
<PAGE>
Deferred Pension Benefit, as the case may be, but shall not apply for purposes
of any pre-retirement death benefit, other than the pre-retirement spousal
annuity described in section 7.1. In calculating this minimum benefit, a
Participant's "Top-Heavy Benefit Years" are Benefit Years credited to a
Participant after 1983 which are also Top-Heavy Years, up to a maximum of 10
years. However, a Top-Heavy Year shall not be counted as a Top-Heavy Benefit
Year if the Participant participated in a qualified defined contribution plan
within the plan aggregation group for that year and his accounts were credited
with employer contributions and forfeitures (excluding any salary reduction or
matching contributions) of at least 5 percent of his Total Compensation.
4.7 Suspension, Deferral, and Nonduplication of Benefits.
Payments under a Participant's Early Pension Benefit shall be suspended if
he resumes Service with an Employer before his Normal Retirement Date, and shall
resume upon the termination of his Service. However, no benefits shall be
suspended for any month after a Participant's Normal Retirement Date in which he
has fewer than 40 Hours of Service. If benefits are suspended for any period,
regular payments shall resume either (i) if the Participant has not reached his
Normal Retirement Date, as of the first day of the month following his
termination of Service, or (ii) if he has reached his Normal Retirement Date,
the first day of the month following his termination of Service, or (iii) if he
has reached his Normal Retirement Date, the first day of the month following a
reduction of his monthly Hours of Service below 40, with an immediate makeup of
all payments missed since his Normal Retirement Date. Notwithstanding the
foregoing, no portion of a Participant's Pension Benefit representing a
Top-Heavy minimum benefit payable pursuant to section 4.6 shall be suspended for
any month after the Participant's Normal Retirement Date. The Administrator
shall give Participants written notice by personal delivery or first class mail
of the rules governing such benefit suspensions and shall take whatever further
action may be necessary to comply with section 2530.203-3 of the Department of
Labor's regulations under Title I of ERISA.
Payments under a Participant's Disability Pension Benefit, if applicable,
shall cease if his Disability ceases before his Normal Retirement Date. Further,
payments under a Disability Pension Benefit shall be deferred during any period
prior to his Normal Retirement Date in which the Participant is entitled to
receive disability benefits under any insured plan maintained by an Employer,
unless such insured benefit would not be affected by the Participant's receipt
of Disability Pension Benefits.
Any Plan benefits to which a Participant or his Beneficiary may become
entitled shall be actuarially reduced to reflect any benefits other than
disability benefits previously paid or separately payable under this Plan or any
Prior Plan. In addition, a Participant's Pension Benefit
<PAGE>
under this Plan shall be reduced to the extent of the Actuarial Equivalent of
any benefits he receives upon the termination of his employment under any public
worker's compensation or disability insurance program.
4.8 Administrator Discretion as to Payments.
The Administrator may, within a reasonable time after a Participant's
termination, distribute his vested Pension Benefit in the form of a single lump
sum which is the Actuarial Equivalent of that benefit, provided the Actuarial
Equivalent of his Accrued Benefit does not exceed and has never exceeded $3,500.
If any annuity benefit provides monthly payments of less the $100, the
Administration may provide for the payment of benefits which are the Actuarial
Equivalent on a less frequent basis such that each periodic payment is as close
as possible to $100.
4.9 Term of Benefit Payments.
The payment of any Pension Benefit shall begin on the first day of the
calendar month coinciding with or next following the date on which the
Participant becomes eligible for the benefit under sections 4.1, 4.2, or 4.3,
(his "benefit commencement date", provided his benefit form election has become
irrevocable pursuant to section 6.10, and shall end with the payment on the
first day of the calendar month in which the Participant or Beneficiary dies, or
in which the guaranteed payment period is completed, as the case may be. If the
Administrator is unable to determine the benefits payable to a Participant (or
Beneficiary) by the benefit commencement date, or is the Participant's benefit
form election has not become irrevocable by that date, the benefits shall in any
event begin within 60 days after they can first be determined or after the
election has become irrevocable, with whatever makeup payments may be
appropriate in view of the delay beyond the benefit commencement date.
<PAGE>
Section 5. Vesting and Forfeiture.
5.1 Vesting Schedule.
A Participant shall have no interest in his Accrued Benefit until he has
completed 5 Vesting Years, at which time his interest in his Accrued Benefit
shall become 100 percent vested.
If the Plan's vesting schedule is amended or the Plan is amended in any way
that directly or indirectly affects the computation of a Participant's
nonforfeitable percentage, or if the Plan is deemed amended by an automatic
change to or from a top-heavy vesting schedule, each Participant with at least 3
years of Service with the Employer may elect within a reasonable period after
the adoption of the amendment or change, to have his nonforfeitable percentage
computed under the Plan without regard to such amendment or change.
The period during which the election may be made shall commence with the
date the amendment is adopted or deemed to be made and shall end on the latest
of:
(1) 60 days after the amendment is adopted;
(2) 60 days after the amendment becomes effective or
(3) 60 days after the Participant is issued written notice of the
amendment by the Employer or the Administrator.
However, in the case of a Participant whose vested interest is to be
determined in a Top-Heavy Year, it shall instead be based on the following
table:
PERCENTAGE OF
VESTING YEARS INTEREST VESTED
------------------ -----------------
fewer than 2 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
However, this top-heavy vesting schedule does not apply to the Accrued
Benefit of any Employee who does not have an Hour of Service after the Plan has
initially become top-heavy and such Employee's Accrued Benefit will be
determined without regard to this top-heavy vesting schedule.
<PAGE>
5.2 Computation of Vesting Years.
For purposes of this Plan, a "Vesting Year" means each 12 month period
beginning July 1 in which an Employee has at least 1,000 Hours of Service,
beginning with his initial Service with any Employer, and including certain
Service with other employers as provided in the definition of "Service."
However, a Participant's Vesting Years shall be computed subject to the
following conditions and qualifications:
- Unless otherwise specifically excluded, a Participant's Vesting Years
shall include any period of active military duty to the extent
required by the Military Selective Service Act of 1967 (38 U.S.C.
section 2021).
- If a Participant has a Break in Service before his interest in his
Accrued Benefit has become vested to some extent, he shall lose credit
for any Vesting Year before the Break.
- A Participant's Vesting Years shall not include any Service before
January 1, 1971, unless he has accrued three Vesting Years since that
date.
- Notwithstanding the foregoing, a Participant shall be credited with a
Vesting Year for the Plan Year ending December 31, 1987 provided that
such Participant completes at least one Hour of Service during the
short Plan Year ending December 31, 1987 and at least 1,000 Hours of
Service during the 12-month period ending December 31, 1987.
Subsequent to the last day of that calendar year a `Vesting Year'
shall be measured based on the 12-month period commencing each January
1.
5.3 Full Vesting Upon Certain Events.
Notwithstanding section 5.1, a Participant's interest in his Accrued
Benefit shall fully vest on the Participant's Normal Retirement Date.
The Participant's interest shall also fully vest on the date he reaches his
Early Retirement Date, provided he is in Service on or after that date, or in
the event that his Service is terminated by Disability or death. These special
full vesting rules, other than as provided in the first sentence in this section
5.3, shall not apply to Top-Heavy minimum benefits accrued by a Participant
pursuant to section 4.6.
5.4 Full Vesting Upon Plan Termination.
Notwithstanding section 5.1, an affected Participant's interest in his
Accrued Benefit shall fully vest upon the complete termination of this Plan,
subject to sections 8.3 and 11.6. If there is a partial termination, each active
Participant's interest in his Accrued Benefit, with respect to that part of the
Plan which is terminated, shall fully vest to the extent such interest is
funded, as
<PAGE>
determined on a basis consistent with the priorities set forth in section 11.6
and the restrictions in section 8.3.
5.5 Forfeiture of Nonvested Interest.
If a Participant's Service terminates before his interest in his Accrued
Benefit is fully vested, that portion which has not vested shall be forfeited as
soon as he either (a) receives a distribution of his entire vested interest
pursuant to section 6, or (b) has a Break in Service. For this purpose, a
Participant who has terminated with no vested interest in his Accrued Benefit
shall be deemed to have received a distribution of his entire vested interest on
the date of his termination. However, if the nonvested portion of a
Participant's Accrued Benefit has been forfeited before he has a Break in
Service, and the Participant returns to an Employer's Service before he has a
Break, the forfeited portion shall immediately be restored to the Participant.
No forfeiture shall be used to increase the benefits any Participant or
Beneficiary would otherwise receive under the Plan.
5.6 Vesting and Nonforfeitability.
A Participant's interest in his Accrued Benefit which has become vested
shall be nonforfeitable for any reason. However, the Participant's
nonforfeitable interest shall be limited to those pension and death benefits
specifically described in sections 4 and 7, subject to all applicable conditions
and limitations under this Plan. If a benefit is forfeited because the
Participant or Beneficiary cannot be found, such benefit will be reinstated if a
claim is made by the Participant of Beneficiary. The minimum Accrued Benefit
required (to the extent required to be nonforfeitable under section 416(b)) of
the Code may not be forfeited under section 411(a)(3)(B) or 411(a)(3)(D) of the
Code.
<PAGE>
Section 6. Pension Benefit Claims and Forms.
6.1 Claim for Benefits.
Any Participant or Beneficiary who qualifies for the payment of benefits
shall file a claim for his benefits with the Administrator on a form provided by
the Administrator. The claim shall be filed at least 30 days before the date on
which the benefits are to begin. If a Participant fails to file a claim by the
30th day before the date on which his benefits are to begin, the Administrator
shall proceed as if he had filed a claim for whatever Pension Benefit the
Administrator believes he has earned.
6.2 Notification by Administrator.
Within 90 days after receiving a claim for benefits (or within 180 days, if
special circumstances require an extension of time and written notice of the
extension is given to the Participant or Beneficiary within 90 days after
receiving the claim for benefits), the Administrator shall notify the
Participant or Beneficiary whether the claim has been approved or denied. If the
Administrator denies a claim in any respect, the Administrator shall set forth
in a written notice to the Participant or Beneficiary:
(i) each specific reason for the denial;
(ii) specific references to the pertinent Plan provisions on which the
denial is based;
(iii) a description of any additional material or information which
could be submitted by the Participant or Beneficiary to support his claim,
with an explanation of the relevance of such information; and
(iv) an explanation of the claims review procedure set forth in
section 6.3.
6.3 Claims Review Procedure.
Within 60 days after a Participant or Beneficiary receives notice from the
Administrator that his claim for benefits has been denied in any respect, he may
file with the Administrator a written notice of appeal setting forth his reasons
for disputing the Administrator's determination. In connection with his appeal
the Participant or Beneficiary or his representative may inspect or purchase
copies of pertinent documents and records to the extent not inconsistent with
other Participants' and Beneficiaries' rights of privacy. Within 60 days after
receiving a notice of appeal from a prior determination (or within 120 days, if
special circumstances require an extension of time and written notice of the
extension is given to the Participant or Beneficiary and his representative
within 60 days after receiving the notice of appeal), the Administrator shall
furnish to the Participant or Beneficiary and his representative, if any, a
written statement of the
<PAGE>
Administrator's final decision with respect to his claim, including the reasons
for such decision and the particular Plan provisions upon which it is based.
6.4 Standard and Alternative Benefit Forms.
If a Participant has no Spouse, his Pension Benefit described in any of
sections 4.1, 4.2 or 4.3 shall be the "Standard Annuity" form for the
Participant. If a Participant has a Spouse, the "Standard Annuity" form in which
his Pension Benefit shall be payable shall be a joint and survivor annuity,
payable monthly for his life and, after his death, payable monthly at one-half
of the initial rate for the life of his Spouse, which is the Actuarial
Equivalent of his Pension Benefit. Any alternative form of benefit selected by a
Participant shall be the Actuarial Equivalent of his Pension Benefit payable in
the Standard Annuity form. Each Participant shall receive his benefits in the
Standard Annuity form unless he elects in accordance with section 6.5 to receive
one of the following alternative forms of benefits:
- a monthly benefit for the Participant's life, with or without payments
guaranteed at the initial rate for 60 months, 180 months, or 240
months, or, if less, a period not exceeding his life expectancy; or
- a monthly benefit for the Participant's life and, after his death, a
monthly benefit for the life of his Beneficiary which shall either be
equal to the Participant's monthly benefit or be equal to two-thirds
or one-half of his benefit; or
- a term certain annuity providing equal periodic installments over a
period of not less than 5 years, but in any event not exceeding the
joint and survivor's life expectancy of the Participant and his
Beneficiary, if any; or
- any other annuity benefit; or
- a lump sum benefit. A lump sum distribution benefit will not be
permitted if the amount of such lump sum exceeds $20,000 (effective
January 1, 1994, $25,000).
<PAGE>
Where a Participant elects to receive an annuity with a period certain, the
period selected may not extend past the Participant's 96th birthday. Where a
Participant elects to receive a joint and survivor annuity with a contingent
annuitant other than his Spouse, the ratio of the monthly payment under the
survivor annuity to the payment to the Participant shall not exceed the
applicable percentage in the following table:
================================================================================
PARTICIPANT'S AGE PARTICIPANT'S AGE
MINUS CONTINGENT APPLICABLE MINUS CONTINGENT APPLICABLE
ANNUITANTS'S AGE PERCENTAGE ANNUITANT'S AGE PERCENTAGE
- --------------------------------------------------------------------------------
10 or less 100% 28 62%
11 96% 29 61%
12 93% 30 60%
13 90% 31 59%
14 87% 32 59%
15 84% 33 58%
16 82% 34 57%
17 79% 35 56%
18 77% 36 56%
19 75% 37 55%
20 73% 38 55%
21 72% 39 54%
22 70% 40 54%
23 68% 41 53%
24 67% 42 53%
25 66% 43 53%
26 64% 44 or more 52%
27 63%
================================================================================
Further, any form elected must provide for benefit payments such that the
present value of the benefits to be paid to the Participant exceeds 50 percent
of the present value of the total benefits to be paid, and either (i) all
benefits will be paid by the Participant's death, or by the death of the
survivor of the Participant and a designated contingent annuitant, or (ii) all
benefits will be paid over a period not exceeding the Participant's life
expectancy, or the joint and survivor life expectancy of the Participant and a
designated contingent annuitant, as determined at the time benefits begin.
However, this shall not prevent the payment of benefits over a longer period
<PAGE>
pursuant to an election made by a Participant before 1984 which complied with
then applicable law and which has not since been changed in any respect other
than to comply with section 417 of the Code (ignoring any change in
beneficiaries which does not affect the total period of benefit payments).
6.5 Election of Pension Benefit Form.
Any Participant who qualifies for a Pension Benefit may, in lieu of the
Standard Annuity, elect to receive a form of benefits described in section 6.4.
Any election of a benefit form, or revocation of an election, shall be made on a
form provided by the Administrator and shall be signed by the Participant.
If a Participant is married, his election of any benefit form other than
the Standard Annuity shall be valid only if accompanied by the Spouse's written
consent to the election, which (i) must acknowledge the effect of the election,
(ii) must explicitly provide either that the designated Beneficiary, if any, and
payment form may not subsequently be changed by the Participant without the
Spouse's further consent, or that they may be changed without such consent, and
(iii) must be witnessed by the Administrator, its representative, or a notary
public. (The Administrator may waive this requirement if the Participant
established to the Administrator's satisfaction that the Spouse may not be
located.)
A Participant's election, and his Spouse's consent if applicable, shall be
filed with the Administrator during an election period beginning 90 days before
the day on which benefit payments are to begin. The Administrator shall furnish
to the Participant, at least 30 days and not more than 90 days before the
benefit commencement date, a written explanation in nontechnical language of the
Standard Annuity and other benefit forms provided under section 6.4, the
Participant's right to elect a form and revoke an election, and the relative
effect of the different forms on the amounts to be received by the Participant
and any Beneficiary. If the Participant is married, the Administrator's written
explanation shall describe the need for the Spouse to consent to the election of
any form other than a Standard Annuity.
If a Participant requests any additional information regarding the election
of a benefit form within 60 days after receiving the Administrator's initial
written explanation, the Participant's benefit commencement date shall be
changed, if necessary, to be at least 60 days after he receives the additional
information. If a Participant is to receive a form of benefits involving a fixed
or minimum number of payments, he may at any time, whether before or after the
end of the election period, change the designated Beneficiary of any benefits
which may remain payable upon the death of the Participant and any contingent
annuitant, subject his Spouse's consent if applicable.
<PAGE>
6.6 Administrator Action as to Benefit Payments.
Where a Participant or Beneficiary does not or may not elect to receive a
lump sum payment of the Participant's Pension Benefit or death benefit, the
Administrator in accordance with uniform, nondiscriminatory policies shall
determine whether the benefits shall be paid directly from the Trust Fund as the
payments become due, or shall be provided through insured individuals or group
annuity contracts, which policies may take into account the interest rates being
assumed under such contracts relative to the expected investment returns of the
Trust Fund. Where a Participant's Service has ended prior to his Normal
Retirement Date and the Participant has declined or is not permitted to accept a
lump sum payment of his Accrued Benefit, the Administrator may at any time, in
accordance with such policies, distribute a terminated Participant's Pension
Benefit to him in the form of an individual, nontransferable annuity contract
from a reputable insurer, provided such contract complies with the provisions of
this Plan and preserves all of the elections provided under sections 6.4 and
6.5.
If the lump sum distributions in excess of $3,500 are permitted by the
Plan, the Administrator shall, within a reasonable time after a Participant's
termination, distribute his Pension Benefit in the form of a single lump sum
which is the Actuarial Equivalent of that benefit, provided (i) the Actuarial
Equivalent of his Accrued Benefit does not exceed and has never exceeded $3,500,
or (ii) the Participant has reached his earliest retirement date and has elected
to receive the proposed lump sum payment in lieu of a periodic benefit as a
Standard Annuity within 30 days after the Administrator notifies him of his
right to elect the lump sum. The Administrator's notice shall be given between
30 and 90 days prior to the lump sum payment date, and shall explain the
Participant's right to receive or defer his benefit and his right to elect among
various forms of annuities if benefit payments are deferred until the
Participant's Early or Normal Retirement Date.
6.7 Election Formalities.
Any election or revocation of a benefit form shall be in writing, signed by
the Participant or, if applicable, by the Beneficiary, and delivered personally
or by mail to the Administrator. The Administrator shall provide appropriate
forms for benefits elections, but an election shall be valid whether or not it
is made on the official form.
6.8 Marital Status.
The Administrator shall from time to time take whatever steps it deems
appropriate to keep informed of each Participant's marital status. Each Employer
shall provide the Administrator with the most reliable information in the
Employer's possession regarding its Participants' marital status, and the
Administrator may, in its discretion, require a notarized affidavit from any
<PAGE>
Participant as to his marital status. The Administrator, the Plan, the Trustee
and the Employers shall be fully protected and discharged from any liability to
the extent of any benefit payment made as a result of the Administrator's good
faith and reasonable reliance upon information obtained from a Participant and
his Employer as to his marital status.
6.9 Proof of Ages.
Each Participant shall furnish satisfactory proof of his age to the
Administrator at least 30 days before the end of the election period described
in section 6.5. Further, any Participant who is to receive his benefits in a
form related to the lifespan of another individual shall furnish satisfactory
proof of the individual's age to the Administrator by the same date.
6.10 Irrevocability of Elections.
Any election by a Participant as to his benefit form shall be irrevocable
after the end of the election period described in section 6.5.
6.11 Presumption in Absence of Election.
Any Participant who fails to make a timely election in accordance with
section 6.5, or whose election is revoked or becomes void, shall be presumed
conclusively to have accepted his Pension Benefit in the form of the Standard
Annuity.
Notwithstanding the foregoing, the failure of a Participant and Spouse, if
applicable, to consent to a distribution while a benefit is immediately
distributable, within the meaning of section 4.1, 4.2 or 4.3 of the Plan, shall
be deemed to be an election to defer commencement of payment of any benefit
sufficient to satisfy this section.
6.12 Effect of Contingent Annuitant's Death.
Any election of a form of Pension Benefit related to the lifespan of
another individual shall become void automatically if such individual dies
before the date on which benefit payments are to begin. However, if the
individual dies before the Participant but after the date on which benefit
payments begin (or were to begin), the Participant shall receive only the
benefits described in the form so elected.
6.13 Effect of Participant's Death.
Any election of an alternative form of Pension Benefit described in section
6.4 shall become void automatically if the Participant dies before the date on
which benefit payments are to begin. The amount and form of the benefits, if
any, to be paid to such Participant's Spouse or other designated Beneficiary
shall be determined in accordance with section 7.
<PAGE>
6.14 Payment in Cash; Direct Transfer.
All benefits shall be paid in cash except as otherwise agreed upon by the
Administrator and the person entitled to the benefits. To the extent that the
recipient could roll over some or all of a benefit payment into another
qualified retirement plan or an individual retirement arrangement pursuant to
section 402(c) of the Code, and the amount eligible for rollover exceeds $200,
the recipient may elect to have that amount paid directly to such plan or
arrangement.
<PAGE>
Section 7. Death Benefits.
7.1 Death Before Commencement of Benefits.
If a Participant dies before his benefit commencement date while he is in
active Service, or after his interest in his Accrued Benefit has become vested
to some extent and after his Service has terminated, his Beneficiary shall
receive a death benefit which is the Actuarial Equivalent of his Accrued
Benefit, computed as of the date of his death. The death benefit shall be paid
in a lump sum, annuity, or installment form, and to one or more Beneficiaries,
as the Participant may have elected.
However, if the Participant has a Spouse at the time of his death and has
not specifically elected otherwise, the death benefit shall automatically be
paid to the Spouse in the form of a monthly annuity for the Spouse's remaining
life. The Plan Administrator shall provide each Participant within the period
beginning on the first day of the Plan Year in which the Participant attains age
32 and ending with the close of the Plan Year in which the Participant attains
age 35, a written explanation of: (i) the terms and conditions of a qualified
pre-retirement survivor annuity; (ii) the Participant's right to make and the
effect of an election to waive the qualified pre-retirement survivor annuity
form of benefit; (iii) the rights of a Participant's Spouse; and (iv) the right
to make, and the effect of a revocation of a previous election to waive the
qualified pre-retirement survivor annuity. If a Participant enters the Plan
after the first day of the Plan Year in which the Participant attained age 32,
the Plan Administrator shall provide notice no later than the close of the
second Plan Year succeeding the entry of the Participant into the Plan. Any
qualified pre-retirement survivor annuity election will be in writing and may be
changed by the Participant at any time. No election of a different Beneficiary
or a different payment form shall be valid unless the election is accompanied by
the Spouse's written consent, which (i) must acknowledge the effect of the
election (ii) must explicitly provide either that the designated Beneficiary and
payment form may not subsequently be changed by the Participant without the
Spouse's further consent, or that it may be changed without such consent, and
(iii) must be witnessed by the Administrator, its representative, or a notary
public. (The Administrator may waive this requirement if the Participant
establishes to the Administrator's satisfaction that the Spouse can not be
located.)
Unless the Participant has otherwise provided, his Beneficiary may change
or elect an alternative benefit form within 60 days after a death benefit
becomes payable. The Administrator may cause the death benefit to be paid in a
single lump sum which is the Actuarial Equivalent where (i) if the Beneficiary
is the Spouse, the lump sum is less than
<PAGE>
$3,500 or the Spouse consents to receive it, or (ii) if the Beneficiary is not
the Spouse, the lump sum is less than $3,500 or there is no valid election of a
different benefit form by the Participant or the Beneficiary.
In all events, whether pursuant to an election by the Participant or by the
Beneficiary, all of the Participant's interest under this Plan shall be
completely distributed by the sixth December 31st falling on or after the date
of his death, except in the case of death benefits payable to an individual
Beneficiary, which may be payable over the Beneficiary's remaining lifetime or
over a period certain not exceeding the Beneficiary's life expectancy at the
Participant's death. However, this shall not prevent the payment of death
benefits over a longer period pursuant to an election made by a Participant
before 1984 which complied with then applicable law and which has not since been
changed in any respect other than to comply with section 417 of the Code
(ignoring any change in beneficiaries which does not affect the total period of
benefit payments).
If a Participant dies before his benefit commencement date while in active
Service, but after his Normal Retirement Date, his Beneficiary shall receive a
death benefit which is the Actuarial Equivalent of his Accrued Benefit, subject
to the terms and conditions of the preceding paragraph.
7.2 Death After Commencement of Benefits.
If a Participant dies after his benefit commencement date, any remaining
benefits under the Standard Annuity or the alternative benefit form, if any,
elected pursuant to section 6.5 shall be paid to the Participant's Spouse or
other Beneficiary, as the case may be.
<PAGE>
Section 8. Benefit Limitations.
8.1 Maximum Annual Benefits.
Regardless of any other provision in this Plan, no Participant's
Pension Benefit shall provide annual payments exceeding the lesser of: (i)
$90,000, or the dollar limitation currently in effect (hereinafter the "Dollar
Limitation"), and (ii) the Participant's average annual Total Compensation
during his highest-paid three consecutive limitation years out of his total
period of Service with the Employers (hereinafter the "Percentage Limitation").
However, in a case of a Participant who has never participated in a defined
contribution plan maintained by an Employer, the limitation under this section
8.1 (hereinafter the "Benefit Limit") shall not be less than $1,000 multiplied
by his years of Service up to a maximum of 10 years. A "limitation year" shall
mean each 12-month period beginning on January 1. In all events, the Benefit
Limit shall be determined subject to the following:
8.1-1 The Dollar Limitation shall be reduced by one-tenth for each
whole year by which the sum of the Participant's total years of
participation in the Plan and the Prior Plan is less than 10. The
Percentage Limitation shall be reduced by one-tenth for each whole year by
which the sum of the Participant's total years of Service with the Employer
is less than 10.
8.1-2 The Benefit Limit shall be reduced to the extent of the
Participant's benefits under any other defined benefit retirement plan
which must be aggregated with this plan pursuant to sections 415(f) and (h)
of the Code, taking into account the rules prescribed under sections
414(b), (c), (m), and (o).
8.1-3 If a Participant's benefits are payable in a form other than a
straight life annuity or a qualified joint and survivor annuity, such
benefits shall be converted to an actuarially equivalent straight life
annuity for purposes of determining compliance with the Benefit Limit. A
Participant's benefits for this purpose shall not include any benefits
attributable to his rollover or voluntary contributions, any benefits
transferred from another plan not maintained by an Employer, or any
pre-retirement death benefits, post-retirement medical benefits, or
post-retirement cost-of-livings adjustments.
8.1-4 If a Participant's benefits commence before his Social Security
Retirement Age, the Dollar Limitation shall first be reduced to be
actuarially equivalent to a single life annuity beginning at that age as
follows: for benefits commencing on or after the Participant reaches age
62, the Dollar Limitation shall be reduced by 5/9 of one percent for each
of the first 36 months and by 5/12 of one percent for each of the next 24
months (if any) prior to the Social Security Retirement Age; for benefits
commencing before the
<PAGE>
Participant reached age 62, the Dollar Limitation shall be actuarially
equivalent to the limitation applicable at age 62.
8.1-5 If a Participant's benefits commence after his Social Security
Retirement Age, the Dollar Limitation shall first be increased to be
actuarially equivalent to a single life annuity of the Dollar Limitation
beginning at the Participant's Social Security Retirement Age.
8.1-6 For purposes of this section 8.1, actuarial equivalence shall be
determined using the factors specified for determining an Actuarial
Equivalent under other provisions of the Plan, except that the interest
rate for purposes of sections 8.1-3 and 8.1-4 shall be greater of five
percent and the rate used to determine an Actuarial Equivalent, while the
interest rate for purposes of section 8.1-5 shall be the lesser of five
percent and the rate used to determine an Actuarial Equivalent. Further,
there shall not be any discount for pre-retirement mortality to the extent
the Participant's Beneficiary, in the event of his death prior to his
Normal Retirement Date, would receive a death benefit under section 7.1
equivalent to his Accrued Benefit.
8.1-7 For purposes of this section 8.1 and section 8.2, the $90,000
and $30,000 Dollar Limitations referred to shall, for each limitation year
ending after 1987, be automatically adjusted to the new Dollar Limitations
determined by the Commissioner of Internal Revenue for the calendar year in
which the limitation year ends.
8.1-8 In computing a Participant's Pension Benefit, all other
reductions (e.g., those applicable in determining his Accrued Benefit, or
in computing a benefit payable before Normal Retirement Date, or in
determining an offset on account of a benefit under another plan) shall be
applied before the benefit is reduced to comply with the Benefit Limit
under this section.
8.1-9 The dollar Limitation shall in no event be less than a
Participant's Accrued Benefit in the form of a single life annuity
determined as of the last day of the last limitation year beginning before
1987, but without regard to any changes in the Plan made after May 5, 1986.
8.2 Coordinated Limitation With Other Plans.
If a Participant has ever participated in one or more defined contribution
plans maintained by the Employer or a related entity (within the purview of
sections 414(b), (c), (m) and (o) and 415(h) of the Code, which affiliate shall
be deemed an Employer for this purpose), and if the Participant's defined
contribution plan fraction has not been sufficiently limited pursuant to those
plans' provisions regarding the limitations under section 415(e) of the Code,
then the Participant's
<PAGE>
Pension Benefit shall be limited so that the sum of his defined benefit plan
fraction and his defined contribution plan fraction does not exceed one in any
limitation year. For this purpose:
8.2-1 A Participant's defined benefit plan fraction shall be a
fraction, (i) the numerator of which is the sum of 12 monthly payments of
the Participant's projected annual benefit, and (ii) the denominator of
which is the least of (a) 1.25 times the Dollar Limitation, or 1.25 times
the currently applicable Dollar Limitation, or (b) 1.0 times the Dollar
Limitation if either the Plan is super top-heavy, or the Plan is top-heavy
and the minimum benefits required pursuant to section 416(h)(2) of the Code
have not been provided, or (c) 1.4 times the Percentage Limitation.
For this purpose, a Participant "projected annual benefit" under each
defined benefit plan means the annual normal retirement benefit (adjusted
to an actuarially equivalent single life annuity in the case of any plan
under which the normal form is other than a single life annuity or
qualified joint and survivor annuity) which the Participant will receive
assuming his Service with the Employer will continue until his normal
retirement date under the plan (or until the present, if later), and
assuming that his compensation and all other factors used to determine his
benefits will remain constant through such date.
In the case of any Participant covered on or before the last day of
the Plan Year that began in 1986, by one or more defined benefit plans
established by May 6, 1986, which satisfied the requirements of section 415
for all years beginning before 1987, the denominator of his benefit plan
fraction shall in no event be less than 125 percent of the sum of the
annual benefits which he had accrued as of the last day of the Plan Year
that began in 1986, disregarding any changes in the terms of any plan after
May 5, 1986.
8.2-2 A Participant's defined contribution plan fraction shall be a
fraction, (i) the numerator of which is the sum of the annual additions to
his accounts under all qualified retirement plans and simplified employee
pensions ever maintained by an Employer (whether or not terminated), and
(ii) the denominator of which is the sum of the least of the following
amounts determined for the current year and each prior year of service with
an Employer: (a) 1.25 times $30,000, or 1.25 times the Dollar Limitation in
effect under section 415(c)(1)(A) of the Code for such year (ignoring
section 415(c)(6)), or (b) 1.0 times such Dollar Limitation if either the
Plan is super top-heavy, or the Plan is top-heavy and the minimum benefits
required pursuant to section 416(h)(2) of the Code have not been provided,
or (c) 35 percent of the Participant's Total Compensation for such year.
However, the denominator of the defined contribution plan fraction shall be
determined instead pursuant to the special transition rule set forth in
section 415(e)(6) of the Code if the Administrator so elects.
<PAGE>
If the Participant participated in a defined contribution plan in any years
beginning before 1976, any excess of the sum of the actual annual additions
to the Participant's accounts for those years over the maximum annual
additions which could have been made in accordance with section 415(c) of
the Code shall be ignored, and voluntary contributions by the Participant
during those years shall be taken into account as to each such year only to
the extent that his average annual voluntary contribution in those years
exceeded 10 percent of his average Total Compensation in those years. In
the case of any Participant covered by one or more defined contribution
plans established by May 6, 1986, for whom the sum of his defined
contribution plan fraction and defined benefit plan fraction on the last
day of the Plan Year that began in 1986 did not exceed one under the rules
of section 415(e) of the Code in effect on that date, but did exceed one
under the rules becoming effective on the first day of the Plan Year that
began in 1987, his defined contribution plan fraction shall be permanently
reduced by subtracting from the numerator an amount equal to the product of
(a) the excess of the sum of such fractions on the first day of the Plan
Year that began in 1987, over one, multiplied by (b) the denominator of the
defined contribution plan fraction on that date. No changes in the terms of
any plan after May 5, 1986, shall be taken into account in making such an
adjustment.
For this purpose, the annual additions to a Participant's accounts shall
mean the sum of (i) the Employer contributions and Employee forfeitures
allocated to his accounts (including contributions to any individual
medical benefits account as described in section 415(l)(2) or 419(d)(2) of
the Code), plus (ii) for limitation years beginning before 1987 the lesser
of one-half of his voluntary contributions or the excess of his voluntary
contributions over six percent of his Total Compensation, plus (iii)
amounts allocated after March 31, 1984 to an individual medical account as
defined in Section 415(l)(1) of the Code which is part of a defined benefit
plan maintained by the Employer, plus (iv) amounts derived from
contributions paid or accrued after December 31, 1985 to post-retirement
medical benefits allocated to the separate account of a Key Employee under
a welfare benefit fund, as defined in Code Section 419(e), maintained by
the Employer, (v) for limitation years beginning after 1986, his total
voluntary contributions. Further, any voluntary contributions by a
Participant pursuant to section 9.8 shall be treated as participation in a
defined contribution plan maintained by the Employer. Where the sum of the
fractions would exceed one for a Participant, the Administrator shall be
authorized to take whatever action (i) will reduce the Participant's
benefit accruals and annual additions to the extent required for the sum of
the fractions not to exceed one, and (ii) will result in
<PAGE>
the least reduction of retirement income to the Participant using the
actuarial assumptions applied to determine an Actuarial Equivalent.
8.3 Limitations as to Certain Employees.
Regardless of any other provision of the Plan, during any Plan Year
beginning on or after January 1 , 1994, the benefits paid to any of the 25 most
highly compensated Highly Paid Employees or their Beneficiaries shall not exceed
the payments which would be made in a single life annuity form. (For this
purpose, any loans to an Employee in excess of the limit prescribed under
section 72(p)(2)(A) of the Code, and any death benefits paid to a deceased
Participant's Beneficiary which are not provided by life insurance, shall be
deemed additional benefits.) However, the foregoing restriction shall not apply
to any Participant's benefits if (a) the Plan would have assets, after
distributing the Participant's entire remaining benefits in a lump sum,
exceeding 110 percent of the Plan's "current liabilities" within the meaning of
section 412(l)(7) of the Code, or (b) the present value of the Participant's
remaining benefits is less than one percent of such current liabilities or less
than $3,500.
During any Plan Year beginning before January 1, 1989 the Pension Benefit
payable to any active or terminated Participant who was among the 25
highest-paid Employees of all participating Employers as of the latest of (i)
July 1, 1956 (ii) the effective date of his Employer's adoption of the Plan, and
(iii) the effective date of an amendment to the Plan which generally increases
retirement benefits (that latest date to be called the "Limitation Date") shall
be subject to certain restrictions as follows:
8.3-1 The restrictions described in section 8.3-2 shall become
applicable if (i) the Plan is terminated within ten years after the
Limitation Date and the Plan's assets are not sufficient to cover the full
actuarial value of all Participants' and Beneficiaries' interests, or (ii)
the Participant's benefits become payable within ten years after the
Limitation Date.
8.3-2 The Employer's contributions which may be used for the
Participant's benefits shall not exceed the greatest of: (i) $20,000; (ii)
the sum of 20 percent of the first $50,000 of his annual compensation
multiplied by the number of years between the Limitation Date and the
earlier of the date of termination of the Plan or the date on which the
Participant's benefits commence, whichever is applicable, plus, if benefits
have been increased by an amendment, the amount which would have been used
for his benefit if the Plan had been terminated on the Limitation Date;
(iii) the amount which would have been used for his benefit if the benefit
level under the Plan as in effect prior to the Limitation Date had not been
changed; (iv) in the case of a "substantial owner" as defined in section
4022(b)(5) of ERISA, the present value of his benefits which are guaranteed
<PAGE>
under section 4022 if the Plan is terminating, or which would be guaranteed
if the Plan were terminating; or (v) in the case of a Participant who is
not a "substantial owner", the present value of the maximum benefit
described in section 4022(b)(3)(B), substituting the phrase "at the earlier
of the time the Plan terminates or the time benefits commence" in place of
"at the time the plan terminates" in that section. The foregoing
restrictions shall be applied separately with respect to each Limitation
Date arising from an amendment which increases benefits.
8.3-3 For purposes of this section 8.3, the term "benefits" shall mean
the Pension Benefits described in section 4, and the term "annual
compensation" shall mean the Participant's average Total Compensation
during the most recent five years.
8.3-4 Any terminated Participant subject to the foregoing restrictions
shall receive the unrestricted portion of his Pension Benefit in accordance
with section 4, and the Trustee shall continue to hold in trust the balance
of his benefits until the restrictions permit the remaining benefits to be
paid.
8.3-5 The restrictions shall not apply to any death benefits payable
pursuant to section 7 or to any Pension Benefit which, in the form of a
Standard Annuity, provides monthly payments to the Participant not
exceeding $125. Further, the restrictions shall not prevent the payment of
annuity benefits to the Participant so long as any excess of the benefits
paid during the current Plan Year to all Participants over the benefits
which could otherwise be paid to them under the restrictions does not
exceed the Employer's contributions already paid to the Trustee in the
year.
The foregoing restrictions shall not, in the event of a termination of
the Plan, prevent the payment of benefits in a manner which does not
discriminate in favor of Participants who are officers or shareholders of
the Employer, or are highly compensated.
8.3-6 Further, the foregoing restrictions shall not apply to a
Participant who agrees to repay, before the restrictions would otherwise
lapse, any part of the benefits which, except for this paragraph, would not
have been paid, plus interest at the rate used from time to time to
calculate the lump sum equivalent of a Pension Benefit (hereinafter the
"repayable amount"). The agreement shall be in writing, signed by the
Participant and the Administrator, and shall be secured by the deposit,
with a depository acceptable to the Administrator, of property having a
fair market value equal to 125 percent of the repayable amount.
The Participant shall agree to deposit additional property to bring
the value of the total property deposited up to 125 percent of the
repayable amount if the fair market value of the property originally
deposited falls below 110 percent of that amount. The deposited property
shall be released as security and returned to the Participant if and to
<PAGE>
the extent that the restrictions shall no longer apply to his benefits, as
long as the remaining property always equals 125 percent of the
Participant's remaining obligation under this paragraph.
To the extent that the Participant deposits U.S. Treasury bonds, cash,
or cash equivalent securities, "100 percent" shall be substituted for "125
percent" or "110 percent" in the preceding paragraphs.
<PAGE>
Section 9. Contributions and Trust Fund.
9.1 Funding of Costs.
The Employers intend to make the contributions necessary to provide the benefits
described in this Plan in accordance with a funding policy adopted by the
Company. No contribution shall be made by any Participant to provide the
prescribed benefits, although a Participant may make voluntary or rollover
contributions pursuant to sections 9.8 and 9.9. All Employer's contributions
shall be voluntary and an Employer may not be compelled by the Trustee, the
Administrator, any Participant, any Beneficiary, or any other person to make
contributions under this Plan.
9.2 Creation of Trust Fund.
The Company shall select the Trustee to whom the Employers may from time to
time make contributions for the purpose of funding the benefits described in
this Plan. The Trustee shall hold the Employers' contributions, together with
all amounts received from other qualified plans and investments, as the Trust
Fund under the terms of this Plan and the Trust Agreement. in all events, the
benefits described in this Plan shall be payable only from assets of the Trust
Fund and none of the Company, any other Employer, its board of directors or
trustees, its stockholders or members, its officers, its partners, its
proprietor, its employees, the Administrator, and the Trustee shall be liable
for the payment of any benefit under this Plan except from the Trust Fund.
9.3 Responsibility for Investment.
The Trustee shall have full responsibility for the investment of the Trust
Fund, except to the extent investment responsibility may be assigned in writing
by the Company to another fiduciary or delegated from time to time to one or
more investment managers pursuant to section 2.2 of the Trust Agreement.
9.4 Funding Method and Determination of Cost.
Subject to the approval of the Company, the Administrator shall determine
an appropriate method for funding the benefits under this Plan in a manner which
complies with ERISA. The Administrator shall engage a competent actuary,
enrolled by the federal Joint Board for the Enrollment of Actuaries, who shall
assist the Administrator in choosing the funding method to be used. Using such
factual information as he may require from the Administrator, the actuary shall
have the exclusive authority to determine appropriate actuarial assumptions for
calculating the costs of providing the Plan's benefits and for determining the
minimum amount which must be
<PAGE>
contributed in order to avoid an accumulated funding deficiency within the
meaning of section 412(a) of the Code.
9.5 Payment of Expenses.
All expenses incurred by the Administrator and the Trustee in connection
with administering this Plan and the Trust Fund shall be paid by the Trustee
from the Trust Fund to the extent the expenses have not been assumed by the
Employers or by the Trustee in accordance with the Trust Agreement.
9.6 Return of Contributions.
Any amount contributed by an Employer due to a good faith mistake of fact,
or based upon a good faith but erroneous belief that it is deductible under
section 404 of the Code, shall be returned to the Employer within one year after
the contribution was originally made. No Employer shall make any contribution to
the Trust Fund which is not currently deductible under section 404 of the Code
(taking into account the aggregate limitation under section 404(a)(7), and any
nondeductible contribution shall be returned to the Employer within one year
after its nondeductibility has been finally determined. However, the amount to
be returned shall not include any investment earnings, an d shall be reduced to
take account of any adverse investment experience within the Trust Fund in order
that the Plan's assets are not less than they would have been if the
contribution had never been made.
9.7 Loans to Participants.
Participants may not borrow from the Trust Fund under any conditions.
9.8 Voluntary Contributions by Participants.
Voluntary contributions by Participants are not permitted under this Plan.
9.9 Rollovers by Participants.
Rollovers by participants are not permitted under this Plan.
9.10 Right to Implement or Suspend Provisions.
Notwithstanding sections 9.7, 9.8, and 9.9, the Company and, in the absence
of Company action, the Administrator, shall have the right to implement or
suspend entirely the provisions of any such section, taking into account the
best interests of the Participants and the administrative burdens involved. The
Administrator may, upon reasonable notice to the Participants, establish or
modify rules and procedures applicable to any such provisions to avoid
administrative burdens and to assure compliance with the purposes of the Plan
and requirements under ERISA and the Code.
<PAGE>
Section 10. The Administrator and Its Functions.
10.1 Authority of Administrator.
The Administrator shall be the "plan administrator" within the meaning of
ERISA and shall have exclusive responsibility and authority to control and
manage the operation and administration of the Plan, including full discretion
to interpret and apply its provisions, except to the extent such responsibility
and authority are otherwise specifically (i) allocated to the Company, the
Employers, or the Trustee under the Plan and Trust Agreement, (ii) delegated in
writing to other persons by the Company, the Employers, the Administrator, or
the Trustee, or (iii) allocated to other parties by operation of law. The
Administrator shall have no investment responsibilities however, except to the
extent, if any, specifically provided in the Trust Agreement. In the discharge
of its duties, the Administrator may employ accountants, actuaries, legal
counsel, and other agents (who also may be employed by an Employer in the same
or some other capacity) and may pay their reasonable expenses and compensation.
10.2 Identity of Administrator.
The Administrator shall be one or more individuals, partnerships, and
corporations (including an Employer) who shall be selected by the Company. Any
individual, including but not limited to a director, shareholder, officer,
partner, proprietor, or employee of an Employer, shall be eligible to serve as
the Administrator or part of the Administrator. The Company shall have the power
to remove any person serving as the Administrator at any time without cause upon
10 days written notice, and any person may resign as Administrator at any time
upon 10 days written notice to the Company. The Company shall notify the Trustee
of any change in the identity of the Administrator.
10.3 Duties of Administrator.
The Administrator shall keep whatever records may be necessary to implement
the Plan and shall furnish whatever reports may be required from time to time by
the Company. The Administrator shall furnish to the Trustee whatever information
may be necessary to properly administer the Trust. The Administrator shall see
to the filing with the appropriate government agencies of all reports and
returns required of the plan administrator under ERISA and other laws.
10.4 Compliance with ERISA.
The Administrator shall perform all acts necessary to comply with ERISA.
Each individual member or employee of the Administrator shall discharge his
duties in good faith and in accordance with the applicable requirements of
ERISA.
<PAGE>
10.5 Action by Administrator.
If the Administrator consists at any time of a committee of three or more
individuals, all actions of the Administrator shall be governed by the
affirmative vote of a number of members which is a majority of the total number
of members currently appointed, including vacancies. The members of the
committee may meet informally and may take any action without meeting as a
group.
10.6 Execution of Documents.
Any instrument executed by the Administrator shall be signed by any member
or employee of the Administrator.
10.7 Adoption of Rules.
The Administrator shall adopt such rules and regulations of uniform
applicability as it deems necessary or appropriate for the proper administration
and interpretation of the Plan.
10.8 Responsibilities to Participants.
The Administrator shall determine which Employees are to enter the Plan in
accordance with section 3. The Administrator shall furnish to each eligible
Employee whatever summary plan descriptions, summary annual reports, and other
notices and information may be required under ERISA. The Administrator also
shall determine when a Participant or his Beneficiary qualifies for the payment
of benefits under the Plan, and shall have complete discretion to interpret and
apply whatever Plan provisions may be relevant to a Participant's claim for
benefits. The Administrator shall furnish to each such Participant or
Beneficiary whatever information is required under ERISA or is otherwise
appropriate to enable the Participant or Beneficiary to make whatever elections
may be available pursuant to sections 4, 6, and 7, and the Administrator shall
provide for the payment of benefits in the proper form and amount from the
assets of the Trust Fund.
10.9 Alternative Payees in Event of Incapacity.
If the Administrator finds at any time that an individual qualifying for
benefits under this Plan is a minor or is incompetent, the Administrator may
direct the benefits to be paid, in the case of a minor, to his parents, his
legal guardian, a custodian for him under the Uniform Gifts to Minors Act, or
the person having actual custody of him, or, in the case of an incompetent, to
his spouse, his legal guardian, or the person having actual custody of him, the
payments to be used for the individual's benefit. To the extent that the Plan's
obligation to the individual has been discharged by the purchase and
distribution of an annuity contract from an insurer, the insurer
<PAGE>
shall assume the Administrator's authority and responsibility with respect to
the benefits. The Administrator, the Trustee, and any insurer shall not be
obligated to inquire as to the actual use of the funds by the person receiving
them under this section 10.9, and any such payment shall completely discharge
the obligations of the Plan, the Trustee, the Administrator, the Company, the
Employers, and the insurer to the extent of the payment.
10.10 Indemnification by Company.
Except as separately agreed in writing, the Administrator, and any member
or employee of the Administrator, shall be indemnified and held harmless by the
Employers, jointly and severally, to the fullest extent permitted by law against
any and all costs, damages, expenses, and liabilities reasonably incurred by or
imposed upon it or him in connection with any claim made against it or him or in
which it or he may be involved by reason of its or his being, or having been,
the Administrator, or a member or employee of the Administrator, to the extent
such amounts are not paid by insurance.
10.11 Nonparticipation by Interested Member.
Any member of the Administrator who also is a Participant in the Plan shall
take no part in any determination specifically relating to his own participation
or benefits, unless his abstention would leave the Administrator incapable of
acting on the matter.
<PAGE>
Section 11. Adoption, Amendment, or Termination of the Plan.
11.1 Adoption of Plan by Other Employers.
With the consent of the Company, any entity may become a participating
Employer under the Plan by (i) taking such action as shall be necessary to adopt
the Plan, (ii) becoming a party to the Trust Agreement establishing the Trust
Fund, and (iii) executing and delivering such instruments and taking such other
action as may be necessary or desirable to put the Plan into effect with respect
to the entity's Employees.
11.2 Adoption of Plan by Successor.
In the event that any Employer shall be reorganized by way of merger,
consolidation, transfer of assets or otherwise, so that an entity other than an
Employer shall succeed to all or substantially all of the Employer's business,
the successor entity may be substituted for the Employer under the Plan by
adopting the Plan and becoming a party to the Trust Agreement. Contributions by
the Employer shall be automatically suspended from the effective date of any
such reorganization until the date upon which the substitution of the successor
entity for the Employer under the Plan becomes effective. If, within 90 days
following the effective date of any such reorganization, the successor entity
shall not have elected to become a party to the Plan, or if the Employer shall
adopt a plan of complete liquidation other than in connection with a
reorganization, the Plan shall be automatically terminated with respect to
Employees of the Employer as of the close of business on the 90th day following
the effective date of the reorganization, or as of the close of business on the
date of adoption of a plan of complete liquidation, as the case may be.
11.3 Plan Restatement Subject to Qualification.
In the event that this restated Plan is held by the Internal Revenue
Service not to qualify under section 401(a) of the Code, the Plan may be amended
retroactively to the earliest date permitted by U.S. Treasury regulations in
order to secure qualification under section 401(a). In the event that this
restated Plan is amended after its initial qualification and the Plan as amended
is held by the Internal Revenue Service not to qualify under section 401(a), the
amendment may be modified retroactively to the earliest date permitted by U.S.
Treasury regulations in order to secure approval of the amendment under section
401(a).
11.4 Right to Amend or Terminate.
The Company intends to continue this Plan as a permanent program. However,
each participating Employer separately reserves the right to suspend, supersede,
or terminate the Plan at any time and for any reason, as it applies to that
Employer's Employees, and the Company by
<PAGE>
written action of its board of directors or board of trustees if a corporation
or a non profit organization, its partners if a partnership, the proprietor if a
proprietorship, or such other individuals or committees as may have been
authorized to represent the Company, preserves the right to amend, suspend,
supersede, merge, consolidate, or terminate the Plan at any time and for any
reason, as it applies to the Employees of all Employers.
No amendment, suspension, supersession, merger, consolidation, or
termination of the Plan shall reduce the current Pension Benefit or Accrued
Benefit of any Participant or his Beneficiary, or reduce a Participant's vested
interest in his Accrued Benefit, although such action may result in a
Participant's or Beneficiary's Pension Benefit or Accrued Benefit not being
fully or even partially funded in accordance with section 11.6. Further, no such
action shall divert any portion of the Trust Fund to purposes other than the
exclusive benefit of the Participants and their Beneficiaries prior to the
satisfaction of all liabilities under the Plan. Any amendment which (a) reduces
the value of any form of Pension Benefit by changing the assumptions used to
determine an Actuarial Equivalent, (b) reduces or eliminates an early retirement
benefit or a retirement-type subsidiary, or (c) eliminates an optional form of
benefits, shall not be effective as to any Participant's Accrued Benefits as of
the later of the date of adoption or the effective date of the amendment.
11.5 Disposition of Employer's Share of Trust Fund.
Following the suspension, supersession, merger, consolidation, or
termination of the Plan as it applies to the Employees of an Employer, the
Trustee shall, subject to further instructions from the Administrator, deal with
that Employer's share of the Trust Fund as follows:
11.5-1 If the Plan is suspended or terminated, the Trustee shall
administer and distribute the share in accordance with section 11.6.
11.5-2 If the Plan is superseded by another pension plan which is
qualified under section 401(a) of the Code and which provides benefits
comparable to those provided under this Plan, the Trustee shall transfer
the Employer's share to the Trustee of the successor plan; however, the
Administrator may in any case instruct the Trustee to allocate and dispose
of the share in accordance with section 11.6.
11.5-3 If the assets and liabilities of another qualified plan are
merged or consolidated with this Plan, the Trustee shall adjust the share
by the amount of the assets and by the amount of any other assets
contributed with respect to the merged or consolidated plan, and shall
continue to administer the share in accordance with this Plan and the Trust
Agreement.
However, despite sections 11.5-2 and 11.5-3, there shall not be any
transfer to a successor plan or merger or consolidation with another plan
unless, if the successor plan or the
<PAGE>
surviving plan were to terminate immediately following the transfer, merger, or
consolidation, each participant or beneficiary would receive a benefit equal to
or greater than the benefit he would have received if the plan in which he was
previously a participant or beneficiary had terminated immediately prior to the
transfer, merger, or consolidation.
11.6 Allocation Among Participants and Beneficiaries.
An Employer's share of the Trust Fund to be disposed of under this section
11.6 shall first be charged with its appropriate share of any fees and expenses
(including termination and distribution expenses) owed by the Trust which are
not to be paid by the Employer. The remaining balance of the share shall be
allocated and credited to the active and terminated Participants and to the
Beneficiaries currently entitled to any death benefit described in section 7 in
proportion to the actuarial value of the unpaid balances of their respective
Accrued Benefits (in the case of active Participants) or Pension Benefits (in
the case of terminated Participants and Beneficiaries of deceased Participants),
based on service rendered to the date of suspension, termination, or
supersession of the Plan.
If the assets of the Employer's share are sufficient to cover the full
actuarial value of all Participants' and Beneficiaries' unpaid Accrued Benefits
and Pension Benefits, (using actuarial assumptions which satisfy section 4044 of
Title IV of ERISA), the remaining balance attributable to actuarial error shall
be refunded to the Employer. If the assets of the Employer's share are
insufficient to cover the full actuarial value of each Participant's or
Beneficiary's unpaid Accrued Benefit or Pension Benefit, the share shall be
applied and distributed pursuant to the priority categories set forth in such
section 4044 of Title IV of ERISA and the Pension Benefit Guaranty Corporation's
regulations thereunder, subject to the restrictions in section 8.3 to the extent
provided in section 4044(b)(4) of ERISA.
<PAGE>
Section 12. Miscellaneous Provisions.
12.1 Plan Creates No Employment Rights.
Nothing in this Plan shall be interpreted as giving any Employee the right
to be retained as an Employee by an Employer, or as limiting or affecting the
rights of an Employer to control its Employees or to terminate the employment of
any Employee at any time and for any reason, subject to any applicable
employment or collective bargaining agreements.
12.2 Nonassignability of Benefits.
Except as provided in section 9.7 with respect to certain loans to
Participants, no assignment, pledge, or other anticipation of benefits from the
Plan will be permitted or recognized by the Employers, the Administrator, or the
Trustee. Moreover, benefits from the Plan shall not be subject to attachment,
garnishment, or other legal process for debts or liabilities of any Participant
or Beneficiary, to the extent permitted by law.
This prohibition on assignment or alienation shall apply to any judgment,
decree, or order (including approval of a property settlement agreement) which
relates to the provision of child support, alimony, or property rights to a
present or former spouse, child or other dependent of a Participant pursuant to
a State domestic relations or community property law, unless the judgment,
decree, or order is determined by the Administrator to be a qualified domestic
relations order within the meaning of section 414(p) of the Code.
12.3 Limit of Employer Liability.
The liability of the Employers with respect to Participants under this Plan
shall be limited to making contributions to the Trust from time to time, in
accordance with section 9.
12.4 Number and Gender.
Any use of the singular shall be interpreted to include the plural, and the
plural the singular. Any use of the masculine, feminine, or neuter shall be
interpreted to include the masculine, feminine, or neuter, as the context shall
require.
12.5 Nondiversion of Assets.
Except as provided in sections 9.6 and 11.6, under no circumstances shall
any portion of the Trust Fund be diverted to or used for any purpose other than
the exclusive benefit of the Participants and their Beneficiaries prior to the
satisfaction of all liabilities under the Plan.
<PAGE>
12.6 Separability of Provisions.
If any provision of this Plan is held to be invalid or unenforceable, the
other provisions of the Plan shall not be affected but shall be applied as if
the invalid or unenforceable provision had not been included in the Plan.
12.7 Service of Process.
The agent for the service of process upon the Plan shall be the president,
managing partner, proprietor of the Company, or such other person as may be
designated from time to time by the Company.
12.8 Governing State Law.
This Plan shall be interpreted in accordance with the laws of the State of
New Jersey to the extent those laws are applicable under the provisions of
ERISA.
EXHIBIT 4.2
PEAPACK-GLADSTONE BANK EMPLOYEES' SAVINGS AND INVESTMENT PLAN
<PAGE>
PEAPACK-GLADSTONE BANK EMPLOYEES' SAVINGS AND INVESTMENT PLAN
This Profit Sharing Plan which contains a "qualified" cash or deferred
arrangement as described in Section 401(k) of the Internal Revenue Code,
executed on 10/1, 1993, by Peapack-Gladstone Bank, a Banking Corporation of the
state of New Jersey (the "Company"),
W I T N E S S E T H T H A T :
WHEREAS, the Directors of the Company have resolved to adopt a profit
sharing plan which contains a "qualified" cash or deferred arrangement as
described in Section 401(k) of the Internal Revenue Code for eligible employees
in accordance with the terms and conditions presented;
NOW, THEREFORE, the Company hereby adopts the following Plan setting forth
the terms and conditions pertaining to contributions by employers and
participants and the payment of benefits to participants and beneficiaries,
effective October 1, 1993.
IN WITNESS WHEREOF, the Company has adopted this Plan and caused this
instrument to be executed by its duly authorized representative as of the above
date.
WITNESS: PEAPACK-GLADSTONE BANK
CRAIG SPENGEMEN By: FRANK A. KISSEL
- ----------------------------- --------------------------------
Craig Spengemen Frank A. Kissel, President
<PAGE>
TABLE OF CONTENTS
SECTION 1. PLAN IDENTITY.......................................................
1.1 NAME.......................................................................
1.2 PURPOSE....................................................................
1.3 EFFECTIVE DATE.............................................................
1.4 FISCAL PERIOD..............................................................
1.5 TREATMENT OF PLAN FOR PARTICIPATING EMPLOYERS..............................
1.6 INTERPRETATION OF PROVISIONS...............................................
SECTION 2. DEFINITIONS.........................................................
SECTION 3. ELIGIBILITY FOR PARTICIPATION.......................................
3.1 INITIAL ELIGIBILITY........................................................
3.2 ELIGIBILITY DEFINITIONS....................................................
3.3 TERMINATED OR PART-TIME EMPLOYEES..........................................
3.4 INELIGIBLE EMPLOYEES.......................................................
3.5 WAIVER OF PARTICIPATION....................................................
3.6 PARTICIPATION AND REPARTICIPATION..........................................
SECTION 4. EMPLOYER CONTRIBUTIONS AND CREDITS..................................
4.1 EMPLOYER CONTRIBUTIONS.....................................................
4.2 ELECTIVE CONTRIBUTIONS.....................................................
4.3 MATCHING CONTRIBUTIONS.....................................................
4.4 DISCRETIONARY CONTRIBUTIONS................................................
4.5 DEFINITIONS RELATED TO CONTRIBUTIONS.......................................
4.6 CONDITIONS AS TO CONTRIBUTIONS.............................................
SECTION 5. EMPLOYEE CONTRIBUTIONS AND ROLLOVERS................................
5.1 VOLUNTARY CONTRIBUTIONS....................................................
5.2 ROLLOVERS AND TRANSFERS....................................................
SECTION 6. LIMITATIONS ON CONTRIBUTIONS FOR PARTICIPANTS.......................
6.1 LIMITATION ON ANNUAL ADDITIONS.............................................
6.2 COORDINATED LIMITATION WITH OTHER PLANS....................................
6.3 LIMITATIONS TO AVOID DISCRIMINATION........................................
6.4 COMPLIANCE WITH LIMITATIONS................................................
<PAGE>
SECTION 7. THE TRUST FUND AND ITS INVESTMENT...................................
7.1 CREATION OF THE TRUST FUND.................................................
7.2 RESPONSIBILITY FOR INVESTMENTS.............................................
7.3 INDIVIDUAL INVESTMENT SELECTION............................................
7.4 SEGREGATED ACCOUNTS........................................................
SECTION 8. USE OF ACCOUNTS DURING SERVICE......................................
8.1 WITHDRAWAL FROM ELECTIVE ACCOUNT...........................................
8.2 WITHDRAWALS FROM VOLUNTARY ACCOUNTS........................................
8.3 LOANS TO PARTICIPANTS......................................................
SECTION 9. ADJUSTMENTS TO ACCOUNTS.............................................
9.1 ADJUSTMENTS FOR TRANSACTIONS...............................................
9.2 VALUATION OF TRUST FUND....................................................
9.3 ADJUSTMENTS FOR INVESTMENT EXPERIENCE......................................
SECTION 10. VESTING OF PARTICIPANTS' INTERESTS.................................
10.1 IMMEDIATELY VESTED ACCOUNTS...............................................
10.3 COMPUTATION OF VESTING YEARS..............................................
10.4 FULL VESTING UPON CERTAIN EVENTS..........................................
10.5 FULL VESTING UPON PLAN TERMINATION........................................
10.6 FORFEITURE, REPAYMENT, AND RESTORAL.......................................
10.7 ACCOUNTING FOR FORFEITURES................................................
10.8 VESTING AND NONFORFEITABILITY.............................................
SECTION 11. PAYMENT OF BENEFITS................................................
11.1 TIME OF DISTRIBUTION TO PARTICIPANTS......................................
11.2 BENEFIT AMOUNTS AND FORMS FOR PARTICIPANTS................................
11.3 BENEFITS ON A PARTICIPANT'S DEATH.........................................
11.4 ELECTION FORMALITIES......................................................
11.5 MARITAL STATUS............................................................
11.6 PROOF OF AGES.............................................................
11.7 IRREVOCABILITY OF ELECTIONS...............................................
11.8 WAIVER OF DEADLINES.......................................................
11.9 DELAY IN BENEFIT DETERMINATION............................................
11.10 SEGREGATED BENEFITS......................................................
11.11 ACCOUNTING FOR BENEFIT PAYMENTS..........................................
11.12 PAYMENTS IN CASH.........................................................
SECTION 12. RULES GOVERNING BENEFIT CLAIMS AND REVIEW OF APPEALS...............
12.1 CLAIM FOR BENEFITS........................................................
12.2 NOTIFICATION BY ADMINISTRATOR.............................................
12.3 CLAIMS REVIEW PROCEDURE...................................................
<PAGE>
SECTION 13. THE ADMINISTRATOR AND ITS FUNCTIONS................................
13.1 AUTHORITY OF ADMINISTRATOR................................................
13.2 IDENTITY OF ADMINISTRATOR.................................................
13.3 DUTIES OF ADMINISTRATOR...................................................
13.4 COMPLIANCE WITH ERISA.....................................................
13.5 ACTION BY ADMINISTRATOR...................................................
13.6 EXECUTION OF DOCUMENTS....................................................
13.7 ADOPTION OF RULES.........................................................
13.8 RESPONSIBILITIES TO PARTICIPANTS..........................................
13.9 ALTERNATIVE PAYEES IN EVENT OF INCAPACITY.................................
13.10 INDEMNIFICATION BY EMPLOYERS.............................................
13.11 NONPARTICIPATION BY INTERESTED MEMBER....................................
SECTION 14. ADOPTION, AMENDMENT OR TERMINATION OF THE PLAN.....................
14.1 ADOPTION OF PLAN BY OTHER EMPLOYERS.......................................
14.2 ADOPTION OF PLAN BY SUCCESSOR.............................................
14.3 PLAN ADOPTION SUBJECT TO QUALIFICATION....................................
14.4 RIGHT TO AMEND OR TERMINATE...............................................
14.5 RIGHT TO IMPLEMENT OR SUSPEND PROVISIONS..................................
SECTION 15. MISCELLANEOUS PROVISIONS...........................................
15.1 PLAN CREATES NO EMPLOYMENT RIGHTS.........................................
15.2 NONASSIGNABILITY OF BENEFITS..............................................
15.3 REQUIREMENTS RELATED TO OWNER EMPLOYEES...................................
15.4 LIMIT OF EMPLOYER LIABILITY...............................................
15.5 TREATMENT OF EXPENSES.....................................................
15.6 NUMBER AND GENDER.........................................................
15.7 NONDIVERSION OF ASSETS....................................................
15.8 SEPARABILITY OF PROVISIONS................................................
15.9 SERVICE OF PROCESS........................................................
15.10 GOVERNING STATE LAW.......................................................
<PAGE>
Section 1. Plan Identity.
1.1 Name.
The name of this Plan is the Peapack-Gladstone Bank Employees' Savings and
Investment Plan.
1.2 Purpose.
The purpose of this Plan is to describe the terms and conditions under which
contributions made pursuant to the Plan will be allocated among Participants,
adjusted for investment experience and transactions, and distributed as benefits
to the Participants and their Beneficiaries.
1.3 Effective Date.
The Effective Date of this Plan is October 1, 1993.
1.4 Fiscal Period.
This Plan shall be operated on the basis of a fiscal year beginning January 1 of
each year for the purposes of keeping the Plan's books and records and
distributing or filing any reports or returns as required by law.
1.5 Treatment of Plan for Participating Employers.
This Plan shall be treated as a single Plan with respect to all participating
Employers for the purpose of crediting annual additions as provided in section
4.1, distributing benefits, determining whether there has been any termination
of Service, and applying the limitations set forth in section 6.
1.6 Interpretation of Provisions.
The Employers intend this Plan and the Trust to be a qualified profit sharing
plan under section 401(a) of the Code with a qualified cash or deferred
arrangement under section 401(k) of the Code, and to satisfy any applicable
requirement under ERISA. Accordingly, the Plan and Trust Agreement shall be
interpreted and applied in a manner consistent with this intent and shall be
administered at all times and in all respects in a nondiscriminatory manner.
<PAGE>
Section 2. Definitions.
The following capitalized words and phrases shall have the meanings as
specified when used in this Plan or in the Trust Agreement, unless the context
clearly indicates otherwise:
"Account" means a Participant's interest in the assets accumulated under
this Plan as expressed in terms of a separate account balance which is
periodically adjusted to reflect his Employer's and his own contributions, the
Plan's investment experience, and distributions and forfeitures. A Participant's
Account shall consist of subaccounts called his Regular, Elective, Matching,
Voluntary, and Rollover Accounts, as described herein.
"Active Participant" means any Employee who has satisfied the eligibility
requirements of section 3 and who qualifies as an Active Participant for a
particular Plan Year under section 4.5.
"Administrator" means the person or persons responsible for the
administration of this Plan in accordance with section 13.
"Beneficiary" means the person or persons who are designated by a
Participant (within the meaning of section 410(a)(9) of the Code) to receive
benefits payable under the Plan in the event of the Participant's death. In the
absence of any designation, or if all the designated Beneficiaries shall die
before the Participant dies or shall die before all benefits have been paid, the
Participant's Beneficiary shall be his surviving Spouse, if any, or his estate
if he is not survived by a Spouse. The Administrator may rely upon the advice of
the Participant's executor or estate administrator as to the identity and
relationship of the Participant's Spouse, or any other entity designated as
Beneficiary.
"Board" means the Directors of the Company.
"Break in Service" means, except as otherwise defined in section 3, any
five or more consecutive 12-month periods beginning January 1, in which an
Employee has 500 or fewer Hours of Service per period. Solely for this purpose,
an Employee shall be considered employed for his normal hours of paid employment
during a Recognized Absence, unless he does not resume his Service at the end of
the Recognized Absence. Further, any Employee who has a Parental Absence, shall
be credited with the Hours of Service which would normally have been credited
but for such absence, up to a maximum of 501 Hours of Service, in the first
12-month period which would otherwise be counted toward a Break in Service.
"Code" means the Internal Revenue Code of 1986, as amended.
<PAGE>
"Company" means Peapack-Gladstone Bank and any entity which succeeds to the
business of Peapack-Gladstone Bank and adopts this Plan as its own pursuant to
section 14.2.
"Compensation" means the compensation taken into account with respect to a
Participant in accordance with section 4.5.
"Disability" means only a disability which renders the Participant totally
unable, as a result of bodily or mental disease or injury, to perform any duties
for an Employer for which he is reasonably fitted, of which such disability is
expected to be permanent or of long and indefinite duration. However, this term
shall not include any disability directly or indirectly resulting from or
related to habitual drunkenness or addiction to narcotics, a criminal act or
attempt, service in the armed forces of any country, an act of war, declared or
undeclared, any injury or disease occurring at a time when the payment of
compensation to such Participant has been suspended, or any injury which was
intentionally self-inflicted. Further, this term shall apply only if (i) the
Participant is sufficiently disabled to qualify for the payment of disability
benefits under the federal Social Security Act or Veterans Disability Act, or
(ii) the Participant's disability is certified by a physician selected by the
Administrator. Unless the Participant is sufficiently disabled to qualify for
disability benefits under the federal Social Security Act or Veterans Disability
Act, the Administrator may require the Participant to be appropriately examined
from time to time by one or more physicians chosen by the Administrator, and no
Participant who refuses to be examined shall be treated as having a Disability.
"Earned Income" means the net earnings from any Employer within the meaning
of section 401(c)(2) of the Code, excluding income from an Employer for which
the Participant's personal services are not a material income-producing factor.
Earned Income shall exclude any qualified plan contributions on his behalf which
are deductible under section 404 of the Code, and, for taxable years beginning
after 1989, shall take into account the Employer's deduction under section
164(f) of the Code.
"Effective Date" means October 1, 1993.
"Elective Account" means that portion of a Participant's Account to which
Employer contributions funded pursuant to a salary reduction election are
credited pursuant to section 4.2.
"Elective Deferrals" means contributions funded pursuant to a Participant's
salary reduction election.
<PAGE>
"Employee" means any individual who is or has been employed or
Self-Employed by an Employer. "Employee" also means an individual employed by a
leasing organization who, pursuant to an agreement between an Employer and the
leasing organization, has performed services for the Employer on a substantially
full-time basis for at least one year, if such services are of a type
historically performed by employees in the Employer's business field. Solely for
this purpose, the "Employer" shall include any related persons within the
meaning of section 414(n)(6) of the Code. However, such a "leased employee"
shall not be considered an Employee if (i) he participates in a money purchase
pension plan sponsored by the leasing organization which provides for immediate
participation, immediate full vesting, and an annual contribution of at least 10
percent of the employee's Total Compensation, and (ii) leased employees do not
constitute more than 20 percent of the Employer's total workforce (including
leased employees, but excluding Highly Paid Employees and any other employees
who have not performed services for the Employer on a substantially full-time
basis for at least one year). Solely for this purpose, an employee's Total
Compensation shall include any salary reduction amounts excluded from the
employee's gross taxable income pursuant to any of sections 125, 402(e)(3),
402(l)(B)(h), and 403(b) of the Code.
"Employer" means the Company, any other corporation, partnership, or
proprietorship which adopts this Plan with the Company's consent pursuant to
section 14.1, and any entity which succeeds to the business of any Employer and
adopts the Plan pursuant to section 14.2.
"ERISA" means the Employee Retirement Income Security Act of 1974 (P.L.
93-406, as amended).
"Five-Percent Owner" means an Employee who owns more than five percent of
the outstanding equity interest or the outstanding voting interest in any
Employer.
"Highly Paid Employee" for any Plan Year means an Employee who, during the
immediately preceding Plan Year, (i) was at any time a Five-Percent Owner, (ii)
had Total Compensation exceeding five-sixths of the Current Limit (i.e., $81,720
for 1989), (iii) had Total Compensation exceeding five-ninths of the Current
Limit (i.e., $54,480 for 1989) and was among the most highly compensated
one-fifth of all Employees, or (iv) was at any time an officer, partner, or sole
proprietor of an Employer and had Total Compensation exceeding one-half of the
Current Limit (i.e., $49,032 for 1989). An Employee shall also be a "Highly Paid
Employee" if, substituting the current Plan Year for the Preceding Plan Year in
the preceding sentence, either (1) he would be described in clause (i), or (2)
he would be described in any of clauses (ii), (iii), and (iv) and he is among
the 100 highest-paid Employees of the Employer for the current Plan Year. For
this purpose:
<PAGE>
(a) "Total Compensation" shall include any amount which is excludable
from the Employee's gross income for tax purposes pursuant to section 125,
402(e)(3), 402(h)(1)(B), or 403(b) of the Code.
(b) "Current Limit" means the currently applicable dollar limit under
section 415(b)(1)(A) of the Code.
(c) The number of Employees in "the most highly compensated one-fifth
of all Employees" shall be determined by taking into account all
individuals working for all related employer entities described in the
definition of "Service", but excluding any individual who has not completed
six months of Service, who normally works fewer than 17-1/2 hours per week
or in fewer than six months per year, who has not reached age 21, whose
employment is covered by a collective bargaining agreement, or who is a
nonresident alien who receives no earned income from United States sources.
(d) The number of individuals counted as "officers" shall not be more
than the lesser of (i) 50 individuals and (ii) the greater of 3 individuals
or 10 percent of the total number of Employees. If no officer earns more
than one-half of the Current Limit, then the highest paid officer shall be
a Highly Paid Employee.
(e) A former Employee shall be counted as a Highly Paid Employee if he
was a Highly Paid Employee during either the Plan Year in which his Service
ended or any Plan Year ending after his 55th birthday.
(f) If an Employee, during either of the current and preceding Plan
Years is a family member of either (i) a Five-Percent Owner or (ii) a
Highly Paid Employee who is among the Employer's 10 most highly compensated
Employees, then the Employee and such family member shall be aggregated,
and the compensation paid to and plan contributions and benefits provided
for such individuals shall be treated as paid to and provided for a single
Employee. A "family member" shall include an Employee's spouse, the
Employee's lineal ancestors and descendants, and the ancestors' and
descendants' spouses.
"Hours of Service" means hours to be credited to an Employee's Service
under the following rules:
(a) Each hour for which an Employee is paid or is entitled to be paid
for services to an Employer is an Hour of Service.
(b) Each hour for which an Employee is directly or indirectly paid or
is entitled to be paid by an Employer due to vacation, holidays,
illness, incapacity (including disability), lay-off, jury duty,
temporary military duty, or leave of absence is an Hour of
Service. However, except as otherwise specifically provided, no
more than 501 Hours of Service shall be credited for any single
continuous period during which the Employee performs no duties.
Further, no Hours of Service
<PAGE>
shall be credited on account of payments made solely under a plan
maintained to comply with worker's compensation, unemployment
compensation, or disability insurance laws, or to reimburse an
Employee for medical expenses.
(c) Each hour for which back pay (ignoring any mitigation of damages)
is either awarded or agreed to by an Employer is an Hour of
Service. However, no more than 501 Hours of Service shall be
credited for any single continuous period during which the
Employee would not have performed any duties.
(d) Hours of Service shall be credited in any one period only under
one of paragraphs (a), (b), and (c); an Employee may not receive
double credit for the same period.
(e) If an Employer finds it impractical to count the actual Hours of
Service for any class or group of Employees, each Employee in
that class or group shall be credited with the Hours of Service
shown in the following table for each pay period in which he has
at least one Hour of Service:
PAY PERIOD HOURS OF SERVICE CREDIT
---------- -----------------------
daily 10
weekly 45
bi-weekly 90
semi-monthly 95
monthly 190
However, an Employee shall only be credited for his scheduled working hours
during a paid absence.
(f) Hours of Service to be credited on account of a payment to an
Employee, including an award of back pay shall be credited in the
computation period in which the Service was rendered or to which
the award relates. If the period overlaps two or more Plan Years,
the Hours of Service credit shall be allocated in proportion to
the respective portions of the periods included in the several
Plan Years. However, in the case of periods of 31 days or less,
the Administrator may apply a uniform policy of crediting the
Hours of Service to either the first Plan Year or the second.
(g) In all respects an Employee's Hours of Service shall be counted
as required by section 2530.200b-2 of the Department of Labor's
regulations under Title I of ERISA.
<PAGE>
"Key Employee" means an Employee who at any time during the five years
ending on the top-heavy determination date for the Plan Year has performed any
Service and has been (i) an officer of the Employer having Total Compensation
greater than one-half of the limit then in effect under section 415(b)(1)(A) of
the Code, (ii) one of the 10 Employees owning (or considered as owning under
section 318 of the Code) the largest interests in the Employer (ignoring any
Employee who does not own more than 1/2 percent interest), and having Total
Compensation greater than the limit then in effect under section 415(c)(1)(A),
(iii) a Five-Percent Owner, or (iv) an owner of more than one percent of the
outstanding equity interest or the outstanding voting interest in an Employer
whose Total Compensation exceeds $150,000. For this purpose, an Employees'
"Total Compensation" shall include any amount which is excludable from the
Employee's gross income for tax purposes pursuant to section 125, 402(e)(3),
402(h)(1)(B) or 403(b) of the Code. In determining which individuals are Key
Employees, the rules of section 416(i) of the Code and Treasury Regulations
promulgated thereunder shall apply. The Beneficiary of a Key Employee shall also
be considered a Key Employee.
"Matching Account" means that portion of a Participant's Account to which
Employer contributions made to match contributions funded by the Participant's
salary reduction elections are credited pursuant to section 4.3.
"Matching Contributions" means the Employer contribution credited pursuant
to section 4.3.
"Nonkey Employee" means an Employee who at any time during the five years
ending on the top-heavy determination date for the Plan Year has performed any
Service and who has never been a Key Employee, and the Beneficiary of any such
Employee.
"Normal Retirement Date" means a Participant's attainment of age 65 or the
5th anniversary of the Participant's initial entry into the Plan, whichever is
later. However, a Participant's Normal Retirement Date shall in no event be
later than his attainment of age 70.
"Owner-Employee" means an individual who is a sole proprietor, or is a
partner owning more than 10 percent of either the capital or profits interest of
the partnership.
"Parental Absence" means an Employee's absence (i) by reason of the
Employee's pregnancy, (ii) by reason of the birth of the Employee's child, (iii)
by reason of the placement of a child with the Employee in connection with the
Employee's adoption of the child, or (iv) for purposes of caring for such child
for a period beginning immediately after such birth or placement.
<PAGE>
"Participant" means any Employee who is participating in the Plan, or has
previously participated in the Plan and still has a balance credited to his
Account.
"Plan Year" means each period of 12 consecutive months beginning on January
1.
"Policy" means any life insurance contract purchased by the Trustee
pursuant to section 8.4.
"Recognized Absence" means a period for which--
(a) an Employer grants the Employee a leave of absence for a
limited period, but only if the Employer grants such leaves on a
nondiscriminatory basis; or
(b) the Employee is temporarily laid off by an Employer because
of a change in business conditions; or
(c) the Employee is on active military duty, but only to the
extent his employment rights are protected by the Military Selective
Service Act of 1967 (38 U.S.C. sec. 2021).
"Regular Account" means that portion of a Participant's Account to which
annual additions are credited pursuant to section 4.4.
"Rollover Account" means that portion of a Participant's Account to which
his interest under another qualified retirement plan, or his interest in an
individual retirement account or annuity to which his interest under a qualified
retirement plan has previously been rolled over, may be transferred and credited
pursuant to section 5.2.
"Self-Employed" individual means an individual who has Earned Income for
the taxable year from the trade or business for which the plan is established;
also an individual who would have Earned Income but for the fact that the trade
or business had no net profits for the taxable year.
"Service" means an Employee's period(s) of employment or self-employment
with an Employer, excluding for initial eligibility purposes any period in which
the individual was a non-resident alien and did not receive from an Employer any
earned income which constituted income from sources within the United States. An
Employee's Service shall include any service which constitutes service with a
predecessor employer within the meaning of section 414(a) of the Code. An
Employee's Service shall also include any service with an entity which is not an
Employer, but only for either (i) a period after 1975 in which the other entity
is a member of a controlled group of corporations or is under common control
with other trades and businesses within the meaning of section 414(b) or 414(c)
of the Code, and a member of the controlled group or one of the trades and
businesses is an Employer, (ii) for a period after 1979 in which the other
entity is a member of an affiliated service group within
<PAGE>
the meaning of section 414(m) of the Code, and a member of the affiliated
service group is an Employer, or (iii) for a period after 1983 in which the
other entity is a member of a group of businesses, or is part of any
arrangement, such that the entity is to be treated as an Employer under Treasury
Regulations promulgated pursuant to section 414(o) of the Code.
"Spouse" means the individual, if any, to whom a Participant is lawfully
married on the date benefit payments to the Participant are to begin, or on the
date of the Participant's death, if earlier. However, a Participant's former
spouse shall be treated as his Spouse in lieu of his current spouse to the
extent required under any judgement, decree, or order which is determined by the
Administrator in accordance with its policies and procedures to be a qualified
domestic relations order within the meaning of section 414(p) of the Code.
"Suspense Account" means a special account within the assets of the Trust
consisting of excess Employer contributions in accordance with section 6.4. If a
Suspense Account is in existence at any time during a limitation year pursuant
to this section, it will not participate in the allocation of the trust's
investment gains and losses. If a Suspense Account is in existence at any time
during a particular limitation year, all amounts in the Suspense Account must be
allocated and reallocated to Participants' Accounts before any Employer or any
Voluntary Contributions may be made to the plan for that limitation year. Excess
amounts may not be distributed to Participants or former Participants. The
amount held in the Suspense Account shall be returned to the Employer if it
cannot be credited consistent with these limitations before the termination of
the Plan.
"Top-Heavy Year" means a Plan Year in which the Plan is top-heavy within
the meaning of section 416 of the Code. In this connection, the Administrator
shall determine on a regular basis whether each Plan Year is or is not a
Top-Heavy Year for purposes of implementing the various provisions of the Plan
which apply only to the extent that the plan is top-heavy or super top-heavy
within the meaning of section 416 and the Treasury Regulations thereunder. In
making this determination, the Administrator shall use the following definitions
and principles:
(a) The "Employer" includes all business entities which are considered
commonly controlled or affiliated within the meaning of sections 414(b),
414(c), 414(m) and 414(o) of the Code.
(b) The "plan aggregation group" includes each qualified retirement
plan or simplified employee pension (as defined in section 408(k) of the
Code) maintained by the Employer (whether or not terminated) (i) in which a
Key Employee is or has been a Participant during any of the five years
ending on a determination date, or (ii) which enables or has enabled any
plan described in clause (i) to satisfy the requirements of section
401(a)(4) or 410 of the Code during those five years, or (iii) which
provides
<PAGE>
contributions or benefits comparable to those of the plans described in
clauses (i) and (ii) and which is designated by the Administrator as part
of the plan aggregation group.
(c) The "determination date", with respect to the first plan year of
any plan, means the last day of that plan year, and with respect to each
subsequent plan year, means the last day of the preceding plan year. If any
other plan has a determination date which differs from this Plan's
determination date, the top-heaviness of this Plan shall be determined on
the basis of the other plan's determination date which falls within the
same calendar year as this Plan's determination date.
(d) The "aggregated benefits" for any Plan Year means (i) the adjusted
account balances in defined contribution plans and simplified employee
pensions on the determination date, plus (ii) the adjusted value of accrued
benefits in defined benefit plans (calculated as of the annual valuation
date coinciding with or next preceding the determination date), with
respect to Key Employees and Nonkey Employees under all plans within the
plan aggregation group which includes this Plan. For this purpose, the
accrued benefit of any Nonkey Employee shall be determined (i) under the
accrual method, if any, which is uniformly applicable under all defined
benefit plans within the plan aggregation group, or (ii) if there is no
such uniform method, as if such benefit accrued under the slowest accrual
rate permitted under the fractional rule of section 411(b)(1)(c) of the
Code. Further, the "adjusted account balance" and the "adjusted value of
accrued benefit" for any Employee shall be increased by all plan
distributions made with respect to the Employee during the five years
ending on the determination date from any plan within the plan aggregation
group and from any terminated plan which during those five years was within
the plan aggregation group. In addition, the adjusted account balance under
a plan shall not include any amount attributable to a rollover contribution
or similar transfer to the plan initiated by an Employee and made after
1983, unless both plans involved are maintained by the Employer, in which
event the transferred amount shall be counted in the transferee plan and
ignored for all purposes in the transferor plan. Finally, the adjusted
value of accrued benefits under any defined benefit plan shall be
determined by assuming whichever actuarial assumptions are prescribed in
that plan.
(e) This Plan shall be "top-heavy" for any Plan Year in which the
aggregated benefits of the Key Employees exceed 60 percent of the total
aggregated benefits for both Key Employees and Nonkey Employees.
(f) This Plan shall be "super top-heavy" for any Plan Year in which
the aggregated benefits of the Key Employees exceed 90 percent of the total
aggregated benefits for both Key Employees and Nonkey Employees.
<PAGE>
"Total Compensation" means a Participant's wages, salary, overtime,
bonuses, commissions, and any other amounts received for personal services
rendered while in Service from any Employer or an affiliate (within the purview
of sections 414(b),(c),(m) and (o) of the Code), plus his Earned Income.
A Participant's Total Compensation shall include (i) amounts excludable
from gross income under section 911 of the Code, (ii) amounts described in
sections 104(a)(3), 105(a), and 105(h) of the Code to the extent includable in
gross income, (iii) amounts received from an Employer for moving expenses which
are not deductible under section 217 of the Code, and (iv) amounts includable in
gross income in the year of, and on account of, the grant of a nonqualified
stock option, or under an unfunded nonqualified plan of deferred compensation,
or otherwise includable pursuant to section 83(b) of the Code.
A Participant's Total Compensation shall exclude (i) Employer contributions
to or amounts received from a funded or qualified plan or deferred compensation,
(ii) Employer contributions to a simplified employee pension account to the
extent deductible under section 219 of the Code, (iii) Employer contributions to
a section 403(b) annuity contract (whether or not excludable from gross income),
(iv) amounts includable in gross income pursuant to section 83(a) of the Code,
(v) amounts includable in gross income upon the exercise of a nonqualified stock
option or upon the disposition of stock acquired under any stock option, and
(vi) any other amounts expended by the Employer on the Participant's behalf
which are excludable from his income or which receive special tax benefits.
"Trust" or "Trust Fund" means the trust fund created under this Plan. A
reference to the "general Trust Fund" means the Trust Fund excluding those
assets which are segregated for purposes of determining the Trust's investment
experience and allocating the gain of loss ratably to all Participants'
Accounts.
"Trust Agreement" means the agreement between the Company and the Trustee
concerning the Trust Fund. If any assets of the Trust Fund are held in a
commingled trust fund with assets of other qualified retirement plans, "Trust
Agreement" shall be deemed to include the trust agreement governing that
commingled trust fund. With respect to the allocation of investment
responsibility for the assets of the Trust Fund, the provisions of section 2.2
of the Trust Agreement are incorporated herein by reference.
"Trustee" means one or more corporate persons and individuals selected from
time to time to serve as trustee or co-trustees of the Trust Fund.
"Valuation Date" means the last day of the Plan year and each other date as
of which the Administrator shall determine the investment experience of the
Trust Fund and adjust the Participants'
<PAGE>
Accounts accordingly, except to the extent Participants' Accounts are separately
stated pursuant to an investment arrangement described in section 7.3, in which
case "Valuation Date" means each day on which Account values are available under
such arrangement.
"Valuation Period" means the period following a Valuation Date and ending
with the next Valuation Date.
"Voluntary Account" means that portion of a Participant's Account to which
contributions by a Participant, if any, pursuant to section 5.1 are credited and
withdrawals pursuant to section 8.2 are debited.
<PAGE>
Section 3. Eligibility for Participation.
3.1 Initial Eligibility.
An Employee shall enter the Plan as of the Entry Date coinciding with or next
following the later of the following dates:
(a) the last day of the Employee's 1st Eligibility Year, and
(b) the Employee's attainment of age 21.
However, if an Employee is not in active Service with an Employer on the date he
would otherwise first enter the Plan, his entry shall be deferred until the next
day he is in active Service.
3.2 Eligibility Definitions.
An "Eligibility Year" means an applicable eligibility period (as defined below)
in which the Employee has at least 1,000 Hours of Service.
For this purpose,
(a) an Employee's first "eligibility period" is the 12 consecutive
month period beginning on the first day on which he has an Hour
of Service and if applicable, the first such day following his
most recent Break in Service, and
(b) his subsequent eligibility periods will be 12 consecutive month
periods beginning on each January 1 after that first day of
Service.
"Entry Date" means October 1, 1993 or each January 1 and the following July 1.
3.3 Terminated or Part-Time Employees.
No Employee shall have any interest or rights under this Plan if (i) he is
never in active Service with an Employer on or after the Effective Date, or (ii)
he had a one year period in which Service was interrupted as described in the
definition of Break in Service in any eligibility period beginning before the
Effective Date, and he never has an Eligibility Year after such period.
3.4 Ineligible Employees.
No Employee shall participate in the Plan while his employment is covered
by a collective bargaining agreement between an Employer and the Employee's
collective bargaining representative if (i) retirement benefits have been the
subject of good faith bargaining between the Employer and the representative and
(ii) the collective bargaining agreement does not provide for the Employee's
participation in the Plan. No Employee shall participate in the Plan while he is
actually employed by a leasing organization rather than an Employer, except as
otherwise provided in the definition of Employee.
<PAGE>
3.5 Waiver of Participation.
Any eligible Employee who does not wish to participate in the Plan shall
file with the Administrator a waiver of participation on a form provided for
this purpose. A waiver shall be effective until the first day of the Plan Year
following the Employee's revocation of the waiver. An Employee's waiver shall
automatically cease to be effective if his failure to participate in the Plan
would adversely affect the Plan's qualification pursuant to section 401(a)(26)
or 410(b) of the Code.
3.6 Participation and Reparticipation.
An Employee shall participate in the Plan during each period of Service in
which he satisfies the foregoing requirements. An Employee who leaves and
returns to Service and who previously satisfied the initial eligibility
requirements shall re-enter the Plan as of the date of his return.
<PAGE>
Section 4. Employer Contributions and Credits.
4.1 Employer Contributions.
Each Employer shall contribute, with respect to a Plan Year, such amounts
as it may determine from time to time. An Employer shall have no obligation to
contribute any amount under this Plan except as so determined in its sole
discretion, except as provided in section 4.2 and 4.3.
4.2 Elective Contributions.
The Employers shall contribute amounts equal to the amounts by which the
Participants have elected to reduce their compensation. An Employee shall elect
at least 30 days prior to the first payroll period in which he will be a
Participant whether a percentage or a dollar amount of his Compensation which
would normally be paid to him shall instead be contributed by his Employer to
the Plan to be credited to his Elective Account.
A Participant may change his compensation reduction election at such times
as may be permitted under rules established by the Administrator by giving at
least 30 days prior written notice, although he may revoke his compensation
reduction election entirely at any time upon 30 days notice if he demonstrates
an adverse change in his financial circumstances. A Participant who revokes his
salary reduction election shall not be eligible to resume deferrals pursuant to
a new election until the next following date on which salary reduction changes
are generally permitted.
Notwithstanding the foregoing, a Participant who is a partner in a
partnership Employer shall, as to his compensation for the partnership's taxable
year ending with or within the Plan Year, make his deferral election on or
before the last day of that taxable year.
In no event may a Participant fund compensation reduction contributions of
more than the lesser of 15 percent of his Compensation or the currently
applicable limit under section 402(g) of the Code (i.e., $7,627 for 1989) in any
of his taxable years after 1986; in the case of any Participant who is a partner
in a partnership Employer, that limit shall be reduced by the amount of any
matching contributions made on his behalf pursuant to section 4.3. If a
Participant elects to withdraw any amount from his Elective Account pursuant to
section 8.1 and is suspended from making compensation reduction contributions
for the following 12 months, the currently applicable limit for the taxable year
in which he may resume contributions shall be reduced by the amount of his
contributions during the taxable year in which he made the withdrawal.
The Employers shall keep the Administrator informed on a regular basis of
the amounts expected to be contributed under this section 4.2 in order to permit
the Administrator to assure the Plan's compliance with the foregoing limitations
and those set forth in section 6.
Any contribution funded by a compensation reduction election under this
section 4.2 shall be paid by the Employer to the Trustee no later than 30 days
after it would otherwise have been paid as compensation to the Participant.
<PAGE>
4.3 Matching Contributions.
Each Active Participant's Matching Account shall be credited on the last
day of the Matching Period with an amount equal to 50% of the Participant's
Elective Deferrals credited during such Matching Period.
Notwithstanding the foregoing, Matching Contributions shall not be credited
to a Participant's Matching Account with respect to any Elective Deferrals which
are in excess of the limitations of section 6.3-5(a). Furthermore, Matching
Contributions shall not be credited to a Participant's Matching Account to the
extent that such credit would be in excess of the limitations of section
6.3-5(b) or (c).
In any event, the total Matching Contribution for a Participant in any Plan
Year shall not exceed $250.00.
4.4 Discretionary Contributions.
The Employer's discretionary contributions and available forfeitures for a
Plan Year shall be allocated as of the last day of the year among the Regular
Accounts of the Active Participants of that Employer in proportion to their
amounts of Basic Compensation. However, for any Top-Heavy Year, a Participant
who was employed by an Employer as of the last day of that Valuation Period, but
who fails to qualify as an Active Participant, shall be included in the
allocation of contributions and forfeitures up to a maximum of three percent of
his Total Compensation. Further, in any Top-Heavy Year, allocations to
Participants who qualify as Active Participants shall be based upon Total
Compensation until each such Participant has been allocated 3 percent of his
Compensation.
4.5 Definitions Related to Contributions.
For purposes of this Plan, the following terms have the meanings as
specified:
"Active Participant" means a Participant who has satisfied the eligibility
requirements under section 3. However, a Participant shall not qualify as an
Active Participant unless (i) he is in active Service with an Employer as of the
last day of the Plan Year, or (ii) he is on a Recognized Absence as of that
date. However, if in any Plan Year the Plan would fail to satisfy the
requirements of section 401(a)(26) or 410(b) of the Code because Participants
who have at least 1,000 Hours of Service are not treated as Active Participants,
then notwithstanding the preceding sentence the smallest number of such
Participants needed to satisfy such requirements shall be treated as Active
Participants, including all those still in Service on the last day of the year
before any of those no longer in Service on that date, and within each group
starting with the lowest-paid Participant and including them in increasing order
of Total Compensation.
"Basic Compensation" shall mean Compensation excluding any overtime and
bonuses.
<PAGE>
"Compensation" means a Participant's Total Compensation from his Employer
with respect to a Plan Year in which he is an Active Participant. However,
Compensation shall also include the remuneration paid to a Participant during
the applicable computation period, and shall also include any Employer
contributions representing deferred compensation deductible under section 125,
402(e)(3), 402(h)(l)(B) or 403(b) of the Code. Any compensation income realized
under a stock option or restricted property arrangement, amounts paid by or
received from an Employer to cover travel, entertainment, moving or similar
expenses, and the value of any fringe benefits not received in cash shall be
excluded. A Self-Employed Participant's compensation is his Earned Income. If a
Participant is a partner in a partnership with a taxable year different from the
Plan Year, his Compensation is his Earned Income for the partnership's taxable
year ending within the Plan Year. Any period of Recognized Absence and any
period after the Participant's final termination shall be excluded from the
determination of Compensation.
A Participant's Compensation shall exclude any compensation in any
limitation year or Plan Year beginning after 1988 in excess of the limit
currently in effect under section 401(a)(17) of the Code (i.e., $200,000 in
1989); provided however, that such limit shall be proportionately reduced in the
case of a limitation year or Plan Year containing less than 12 months. If,
during the limitation year or Plan Year, any of the Participant, the
Participant's spouse, or a lineal descendant of the Participant who has not
reached age 19 by the end of the year, is either (i) a Five-Percent Owner or
(ii) a Highly Paid Employee who is among the Employer's 10 most highly
compensated Employees, then the foregoing limitation shall be allocated among
such individuals in proportion to their actual compensation in accordance with
section 414(q)(6) of the Code and applicable Treasury Regulations.
"Matching Period" means the 12 month period ending on the last day of the
Plan Year.
4.6 Conditions as to Contributions.
Employers' contributions shall in all events be subject to the limitations
set forth in section 6. Contributions may be made in the form of cash, or
securities and other property to the extent permissible under ERISA, including
securities of the Employer or an affiliate, and shall be held by the Trustee in
accordance with the Trust Agreement.
In addition to the provisions of section 14.3 for the return of an
Employer's contributions in connection with a failure of the Plan to qualify
initially under the Code, any amount contributed to the Trust Fund by an
Employer due to a good faith mistake of fact, shall be returned to the Employer
within one year after the contribution was originally made. No Employer shall
make any contribution to the Trust Fund which is not currently deductible under
section 404 of the Code (taking into account the aggregate limitation under
section 401(a)(7) where the Employer also maintains a defined benefit plan), and
any nondeductible contribution shall be returned to the Employer within one year
after its nondeductibility has been finally determined. However, the amount to
be returned shall be reduced to take account of any adverse investment
experience within the Trust Fund in order that the balance credited to each
Participant's Account is not less than it would have been if the contribution
had never been made.
<PAGE>
Section 5. Employee Contributions and Rollovers.
5.1 Voluntary Contributions.
Under the terms of this Plan as stated herein, Participants may not
contribute any voluntary nondeductible contributions to the Trust Fund.
5.2 Rollovers and Transfers.
Subject to section 14.5, any Employee who is, or is expected to become, a
Participant in this Plan and who has received a distribution of his interest
under another qualified retirement plan may, within 60 days after receiving the
distribution, deliver it to the Trustee to be held in the Participant's Rollover
Account, provided the distribution qualifies to be rolled over under section
402(a)(5) of the Code.
If authorized by the Employee in accordance with the other plan, the
Trustee shall accept a direct transfer of the Employee's interest from that plan
for credit to the Employee's Rollover Account. The Trustee may also accept a
direct transfer from another plan which is not authorized by the Employee,
provided the transferor plan has never been subject to the requirements of
section 401(a)(11) of the Code, and provided further that none of the amounts
transferred represent elective deferrals by the Employee under a cash or
deferred arrangement within the meaning of section 401(k) of the Code unless the
transfer is made on account of the Employee's termination from a prior
employer's service.
If such an Employee has previously rolled over a distribution from a
qualified retirement plan into an individual retirement account or annuity
pursuant to section 402(a)(5), he may withdraw his interest in that account or
annuity and deliver it to the Trustee for credit to the Employee's Rollover
Account, provided such transfer satisfies the requirements of section 408(d)(3)
of the Code.
All such transfers of interests from other retirement plans or individual
retirement accounts or annuities shall be subject to any reasonable,
nondiscriminatory rules and limitations established from time to time by the
Administrator. Any cash portion of a transfer shall be held initially as a
segregated account described in section 7.4, and shall then be transferred into
the general Trust Fund and credited to the Participant's Rollover Account as of
the last day of the Valuation Period in which it is delivered. Any portion of a
distribution received in kind which the Participant desires and the
Administrator agrees to retain in that form, shall be held permanently as a
segregated account described in section 7.4.
A Participant may request to withdraw an amount from his Rollover Account
on the following terms and conditions:
5.2-1 Any request to withdraw shall be made by written application to
the Administrator at least 30 days prior to the date of the proposed
withdrawal. If, pursuant to section 11.3, an annuity for life is a
permitted form of distribution, and if the Participant is married and the
value of his Account exceeds $3,500, his Spouse must consent to such
<PAGE>
withdrawal by co-signing his notice of withdrawal. Spousal consent shall be
obtained no earlier than the beginning of the 90-day period that ends on
the date on which the withdrawal is to occur. The consent must be in
writing, must acknowledge the effect of the withdrawal, and must be
witnessed by a plan representative or notary public. Such consent shall
thereafter be binding with respect to the consenting Spouse or any
subsequent Spouse with respect to that withdrawal.
5.2-2 Any withdrawal shall be charged to the Rollover Account as of
the first day of the Valuation Period in which the withdrawal is made
unless such Account is a segregated account as described in section 7.4.
5.2-3 In no event may the amount withdrawn cause the total vested
balance credited to a Participant's Account to be less than twice the
amount of the sum of any outstanding loans of the Participant pursuant to
section 8.2.
<PAGE>
Section 6. Limitations on Contributions for Participants.
6.1 Limitation on Annual Additions.
Notwithstanding the provisions of sections 4 and 5, the annual addition to
a Participant's accounts under this Plan and under any other qualified
retirement plans and simplified employee pensions maintained by the Employers or
an affiliate (within the purview of sections 414(b), (c), (m), and (o) and
section 415 (h) of the Code, which affiliate shall be deemed an Employer for
this purpose) shall not exceed for any Plan Year an amount equal to the lesser
of (i) the dollar limitation currently in effect under section 415(c) of the
Code (i.e. $30,000 for 1989); or(ii) 25 percent of the Participant's Total
Compensation for any such limitation year.
For purposes of this section 6, the "annual addition" to a Participant's
accounts means the sum of (i) the Employer contributions and forfeitures
allocated to his accounts (including, solely for purposes of the dollar
limitation, contributions to any individual medical benefits account described
in section 415(l)(2) or 419A(d)(2) of the Code), plus (ii) for any limitation
year beginning before 1987, the lesser of one-half of the Participant's
voluntary contributions credited within the limitation year, or the excess of
his after-tax contributions over six percent of his Total Compensation for that
year, plus (iii) for any limitation year beginning after 1986, the Participant's
total after-tax contributions for that year. The annual addition for a
Participant shall include any excess contributions subsequently returned to the
Participant by the Trustee pursuant to section 6.4, provided however, that (i)
it shall not include any excess contributions attributable to a reasonable error
which are returned, reallocated, or credited to a suspense account pursuant to
section 6.4-1, and (ii) it shall not include any elective deferrals in excess of
the dollar limit applicable under section 4.2 which are returned to the
Participant in accordance with section 6.4-3.
The $30,000 and $90,000 dollar limitations referred to in this section 6
shall, for each limitation year ending after 1987, be automatically adjusted to
the new dollar limitations determined by the Commissioner of Internal Revenue
for the calendar year beginning in that limitation year. A "limitation year"
means each 12-month period beginning on January 1.
6.2 Coordinated Limitation With Other Plans.
Aside from the limitation prescribed by section 6.1 for any single
limitation year, if a Participant has ever participated in one or more defined
benefit plans maintained by an Employer or an affiliate, and if the Participants
under any such plan have not been limited so that his defined benefit fraction
does not exceed one minus his defined contribution fraction then the annual
additions to his accounts shall be limited on a cumulative basis so that the sum
of his defined contribution plan fraction and his defined benefit plan fraction
does not exceed one. For this purpose:
6.2-1 A Participant's "defined contribution plan fraction" with
respect to a limitation year shall be a fraction, (i) the numerator of
which is the sum of the annual additions to his accounts through the end of
the current limitation year under all qualified retirement plans and
<PAGE>
simplified employee pensions ever maintained by an Employer (whether or not
terminated) and (ii) the denominator of which is the sum of the least of
the following amounts determined for the current year and each prior year
of the Participant's Service with an Employer: (a) 1.25 times $30,000, (or,
if greater, 25 percent of the dollar limitation in effect under section
415(b)(1)(A) of the Code), or (b) 1.0 times such dollar limitation if the
Plan is either super top-heavy, or the Plan is top-heavy and the minimum
benefits required pursuant to section 416(h)(2) of the Code and regulation
thereto have not been provided, or (c) 35 percent of the Participant's
Total Compensation for such year. However, the denominator of the defined
contribution plan fraction shall be determined instead pursuant to the
special transition rule set forth in section 415(e)(6) of the Code if the
Administrator so elects.
If the Participant participated in any related defined contribution
plan in any years beginning before 1976, any excess of the sum of the
actual annual additions to the Participant's account for those years over
the maximum annual additions which could have been made in accordance with
section 6.1 shall be ignored, and voluntary contributions by the
Participant during those years shall be taken into account as to each such
year only to the extent that his average annual voluntary contribution in
those years exceeded 10 percent of his average annual Total Compensation in
those years.
In the case of any Participant covered by one or more defined
contribution plans established by May 6, 1986, for whom the sum of his
defined contribution plan fraction and defined benefit plan fraction on the
day preceding January 1, 1987, did not exceed one under the rules of
section 415(e) of the Code in effect on that date but did exceed one under
the rules becoming effective on January 1, 1987, his defined contribution
plan fraction shall be permanently reduced by subtracting from the
numerator an amount equal to the product of (a) the excess of the sum of
such fractions on January 1, 1987, over one, multiplied by (b) the
denominator of the defined contribution plan fraction on that date. No
changes in the terms of any plan after May 5, 1986, shall be taken into
account in making such an adjustment.
6.2-2 A Participant's "defined benefit plan fraction" with respect to
a limitation year shall be a fraction, (i) the numerator of which is his
projected annual benefit payable at normal retirement under all defined
benefit plans maintained by the Employer (whether or not terminated), and
(ii) the denominator of which is the least of (a) 1.25 times $90,000, or
(b) 1.0 times such dollar limitation if the Plan is either super top-heavy,
or the Plan is top-heavy and the minimum benefits required pursuant to
section 416(h)(2) of the Code and regulations thereto have not been
provided, or (c) 1.4 times the Participant's average Total Compensation
during his highest-paid three consecutive limitation years.
For this purpose, the projected annual benefit shall be the annual
retirement benefit (adjusted to an actuarially equivalent straight life
annuity if such benefit is expressed in a form other than a straight life
annuity or qualified joint and survivor annuity) which the Participant
<PAGE>
will receive, assuming his Service will continue until normal retirement
age under the plan (or current age, if later), and that compensation and
all other relevant factors used to determine benefits under the plan will
remain constant through such date.
Notwithstanding the foregoing, in the case of any Participant covered
on or before January 1, 1987, by one or more defined benefit plans
established by May 6, 1986, which satisfied the requirements of section 415
for all years beginning before 1987, the denominator of his benefit plan
fraction shall in no event be less than 125 percent of the sum of the
annual benefits which he had accrued as of January 1, 1987, disregarding
any changes in the terms of any plan after May 5, 1986.
6.3 Limitations to Avoid Discrimination.
The contributions credited to the Elective, Matching, and Voluntary
Accounts under section 4.2, 4.3, and 5.1 of Participants who are Highly Paid
Employees for any Plan Year shall be limited as follows:
6.3-1 For this purpose, with respect to any Plan Year, "Participants"
shall include each individual who was eligible for any Employer
contribution (including Elective Deferrals under section 4.2) or to make
any Employer after-tax contribution in that year, whether or not any
contribution was made. Any Participant who is a member of the family (as
defined in section 414(q) of the Code) of a Highly Paid Employee who either
(i) owns more than five percent of the outstanding equity interest or
voting interest in any Employer, or (ii) is one of the 10 most highly
compensated Highly Paid Employees for the Plan Year, shall not be counted
as a separate Participant, but his Compensation and any contributions on
his behalf shall be treated as Compensation to and contributions on behalf
of that Highly Paid Employee.
6.3-2 The "deferral percentage" for each Participant shall be equal to
the ratio of (i) the Employer contributions, if any, credited to his
Elective Account for the Plan Year, to (ii) his Compensation for that year.
6.3-3 The "contribution percentage" for each Participant shall be
equal to the ratio of (i) the contributions, if any, credited to his
Matching and Voluntary Accounts for the Plan Year, to (ii) his Compensation
for that year. A Participant's contribution percentage shall be computed
without regard to any contributions which exceed the limit described in
section 6.1, are attributable to a reasonable error, and are returned
pursuant to section 6.4-1.
6.3-4 Employee contributions shall not be counted in computing the
contribution percentage for a Plan Year if they are made after the end of
the year; Employer contributions shall not be counted in computing the
deferral and contribution percentages for a Plan Year if the contributions
are made more than 12 months after the end of the year.
In the case of any Highly Paid Employee who is eligible to make
elective deferrals or after-tax contributions or to receive Employer
matching contributions under any other qualified retirement plan maintained
by an Employer, his deferral percentage and contribution percentage
<PAGE>
for this and each other such plan shall be determined as if such
contributions under all such plans were made under each plan. If any other
such plan has a different plan year from this Plan, the contributions for
plan years ending within the same calendar year shall be aggregated. A
Participant's "compensation" for this purpose shall be determined by the
Administrator in a manner consistent with section 414(s) of the Code,
provided the same definition is applied to all Participants in any Plan
Year.
If this Plan satisfies the requirements of section 401(a)(4), 401(m),
or 410(b) of the Code only if aggregated with one or more other plans, or
if one or more other plans satisfy any of such requirements only if
aggregated with this Plan, then the deferral percentage and the
contribution percentage of each participant in such plans shall be
determined as if they were a single plan.
The Administrator may elect to treat all or a portion of the Employer
contributions to Participants' Matching and Regular Accounts under section
4.3 and 4.4 for a Plan Year as elective deferrals for purposes of
determining Participants' "deferral percentages", in which event those
contributions to Participants Matching Accounts under section 4.3 which are
so treated shall not be included in determining Participants' "contribution
percentages". Further, the Administrator may elect to treat all of part of
the Employer contributions to Participants' Elective and Regular Accounts
under section 4.3 and 4.4 for a Plan Year as matching contributions for
purposes of determining Participants' "contribution percentages". However
such elections may be made only if the conditions set forth in Treasury
Regulations sections 1.401(k)-1(b)(5) and 1.401(m)-1(b)(4) are satisfied.
6.3-5 The contributions credited for Highly Paid Employees shall be
limited so that each of the following conditions which is applicable is
satisfied:
(a) For each Plan Year, either (i) the average deferral
percentage among the Highly Paid Employees is not more than 1.25 times
the average deferral percentage among all other Participants, or (ii)
the average deferral percentage among the Highly Paid Employees is not
more than 2 times the average deferral percentage among all other
Participants, and the former percentage is not more than 2 percentage
points above the latter percentage.
(b) For each Plan Year, either (i) the average contribution
percentage among the Highly Paid Employees is not more than 1.25 times
the average contribution percentage among all other Participants, or
(ii) the average contribution percentage among the Highly Paid
Employees is not more than 2 times the average contribution percentage
among all other Participants, and the former percentage is not more
than 2 percentage points above the latter percentage.
<PAGE>
(c) For each Plan Year, the sum of the average deferral
percentage plus the average contribution percentage of the
Participants who are Highly Paid Employees is not more than the
greater of:
(i) the sum of (A) 1.25 times the lesser of (1) the average
deferral percentage and the average contribution percentage for
the other Participants plus (B) the lesser of (1) the greater of
those two percentages for the other Participants increased by 2
percentage points and (2) the greater of those two percentages
multiplied by 2; and
(ii) the sum of (A) 1.25 times the greater of the average
deferral percentage and the average contribution percentage for
the other Participants plus (B) the lesser of (1) the lesser of
those two percentages for the other Participants increased by 2
percentage points and (2) the lesser of those two percentages
multiplied by 2.
6.4 Compliance With Limitations.
The Administrator and Employers shall take such action as may be necessary
from time to time to assure compliance with the limitations set forth in
sections 6.1, 6.2, 6.3, and 4.2. Specifically:
6.4-1 The Administrator shall use its best efforts to see that the
Employers and Participants restrict their contributions for any Plan Year
to an amount which, taking into account the amount of available
forfeitures, may be completely credited to the Participants consistent with
the limitations set forth in sections 6.1 and 6.2.
Where those limitations would otherwise be exceeded with respect to
any Participant in a limitation year, the Administrator shall first cause
the Trustee to return the Participant's after-tax voluntary contributions,
if any, to the extent necessary to satisfy the limitations. If the
limitations cannot be satisfied by returning all of the Participant's
after-tax contributions, the Administrator shall cause the Trustee to
return the Employer contributions otherwise allocable to the Participant
(as nondeductible contributions described in section 4.6) to the extent
necessary to satisfy the limitations; in such event, the Participant's
elective deferrals shall be returned before any of the Employer's own
contributions, or if the election deferrals were subject to matching
Employer Contributions, the Administrator shall require first the return of
the Participant's elective deferrals which were not eligible for matching
Employer contributions pursuant to section 4.3, then the return of the
Participant's elective deferrals and associated Employer matching
contributions in the same proportion in which they were made, and finally
the return of other Employer contributions.
Where the limitations cannot be satisfied by returning Employer
contributions (such as where the contributions may no longer be returned
pursuant to section 4.6, or where the limitations are being exceeded on
account of other Participants' forfeitures rather than Employer
contributions), the excess amount shall be held in a Suspense Account to be
allocated in lieu of
<PAGE>
any Employer contributions in future years until it is eliminated, and to
be returned to the Employer if it cannot be credited consistent with these
limitations before the termination of the Plan.
6.4-2 In the case of a potential failure to satisfy any
anti-discrimination limitation in section 6.3-5:
(a) With respect to the separate limitations in paragraphs
6.3-5(a) and (b) the Administrator shall first reduce the deferral or
contribution percentage of those Highly Paid Employees having the
highest percentage to the level of those having the next highest
percentage, and then, if necessary, reducing the deferral or
contribution percentage of all Highly Paid Employees at that level to
the level of those having the next highest percentage, and so on until
the limitation is satisfied for the Plan Year. With respect to the
combined limitation in paragraph 6.3-5(c), the Administrator shall
reduce the contribution percentages of the Highly Paid Employees
before reducing their deferral percentages.
(b) To the extent possible, the Administrator shall reduce a
Highly Paid Employee's deferral or contribution percentage by
modifying his elections and curtailing further contributions under
sections 4.2, 4.3, and 5.1 on his behalf for the Plan Year.
However, if this is insufficient with respect to the Employee's
deferral percentage for a Plan Year, the Administrator shall cause a
portion of the Employee's elective deferrals already made under
section 4.2 to be recharacterized as after-tax contributions to the
extent the Employee could have made such after-tax contributions
without exceeding any limitation under the Plan, provided (i) such
amounts are treated as additional taxable income to the Employee for
the taxable year in which the deferrals were made, (ii) the amounts
involved are determined and all affected Employees are notified no
later than 2-1/2 months after the end of the Plan Year, and (iii) the
Employer has not suspended the after-tax contribution feature for that
year pursuant to section 14.5. Any such recharacterized contributions
shall remain credited to the Employee's Elective Account and subject
to the restrictions on distributions under this Plan applicable to the
Employee's elective deferrals.
Where a Highly Paid Employee's deferral or contribution
percentage cannot be adequately reduced by curtailing further
contributions during the Plan Year or by recharacterizing elective
deferrals as after-tax contributions, the Administrator shall cause
the Trustee to return to the Employee a portion of the contributions
credited to his Elective or Voluntary Account, as adjusted for the
investment gains or losses attributable to such excess contributions,
and to reallocate to other Participants any Employer contributions
previously credited to the Employee's Matching Account under section
4.3 on the basis of such elective deferrals as are returned to the
Employee.
<PAGE>
Any such distributions to correct excessive contributions in a
Plan Year shall be made as soon as practicable, but in no event later
than the end of the following Plan Year, and shall be adjusted for the
investment gains or losses attributable to such excess contributions
up to the last day of the Plan Year preceding the date of
distribution. Such adjustment shall be equal to the total income or
loss credited to the Participant's Account for the Plan Year in which
the excess contributions were made, multiplied by the ratio of the
amount of excess contributions being returned to the total balance in
the applicable Account as of the last day of the plan year (determined
without regard to the year's income or loss).
(c) In lieu of the Administrator's causing the limitations under
section 6.3 to be satisfied for a Plan Year by recharacterization of
excess elective deferrals as employee contributions or by return of
excess elective deferrals or employee contributions and reallocation
of matching contributions with respect to one or more Highly Paid
Employees, the Employers may elect to make an additional, special
contribution under section 4.4 to be credited to the Elective Accounts
of the Active Participants other than Highly Paid Employees in
proportion to their amounts of Compensation.
6.4-3 In the case of a Participant who notifies the Administrator in
writing that his elective deferrals under section 4.2 during his current or
preceding taxable year have caused him to exceed the applicable limitation
under section 402(g) of the Code, the Administrator shall cause the Trustee
to return to the Participant a portion of the deferrals credited to his
Elective Account during that year, as adjusted for the investment gains or
losses attributable to such excess deferrals in accordance with section
6.4-2(b). (A Participant shall be deemed to have given such notice if the
Administrator determines that excess deferrals have occurred under this
Plan and any other cash or deferred arrangement maintained by Employers,
without regard to the Participant's elective deferrals under any other
employers' plans.) However, such a distribution may be made only if the
Participant so notifies the Administrator, and the payment to the
Participant by the Trustee is effected no later than the April 15th
immediately following the Participant's taxable year in which the
limitation has been exceeded.
<PAGE>
Section 7. The Trust Fund and Its Investment.
7.1 Creation of the Trust Fund.
All amounts received under this Plan from Employers, Participants, other
qualified plans, and investments shall be held as the Trust Fund pursuant to the
terms of this Plan and of the Trust Agreement between the Company and the
Trustee. The benefits described in this Plan shall be payable only from the
assets of the Trust Fund, and none of the Company, any other Employer, its board
of directors, its stockholders, its officers, its partners, its employees, its
proprietors, the Administrator, or the Trustee shall be liable for the payment
of any benefit under this Plan except from the Trust Fund.
7.2 Responsibility for Investments.
The Trustee shall have full responsibility for the investment of the Trust
Fund, except to the extent such responsibility may be delegated from time to
time to one or more investment managers pursuant to section 2.2 of the Trust
Agreement or to Participants pursuant to section 5.2, 7.3, 7.4 or 11.10.
7.3 Individual Investment Selection.
From time to time the Administrator may divide the Trust Fund into two or more
separate funds having different investment objectives and policies in order to
permit the Participants to allocate their Accounts among the separate funds in
accordance with their individual preferences. All or a portion of any fund may
be managed by an investment manager pursuant to section 2.2 of the Trust
Agreement and may be committed to an appropriate investment fund maintained by a
banking or other financial institution or by an insurer under an insurance
contract.
Any such separate fund shall be treated as "the Trust Fund" for purposes of
allocating its investment experience pursuant to section 9 among the portions of
Participants' Accounts committed to that fund. While any separate funds are
maintained, the Administrator shall establish reasonable rules and procedures
for Participants to direct the investment of their Accounts and to change those
directions on an annual or more frequent basis.
Further, the Administrator may arrange to have the Trust Fund held in two
or more investment funds maintained by a bank, brokerage firm, or other
financial institution, or by an insurer under an insurance contract, under
which each Participant's Account shall be maintained as one or more separately
stated accounts within the one or more funds which the Participant selects from
time to time. To the extent that any such arrangement automatically provides
individual accounting for additions and withdrawals and regular updating of the
Participant's account values, any inconsistent provisions of this Plan regarding
adjustments to the values of Participants' Accounts shall be deemed superseded
by the terms of that arrangement.
In all events, the Administrator shall have the right, exercisable upon
reasonable notice to the Participants, to add or eliminate a separate fund, to
change any of the terms or conditions or the rules
<PAGE>
and procedures established in connection with the funds, and to terminate all of
the separate funds and the Participants' rights to direct the investment of
their Accounts.
7.4 Segregated Accounts.
Any portion of a Participant's Account under the Plan which is segregated
from the general Trust Fund and individually invested shall be treated as a
separate fund, to be credited with all income and gains and charged with all
losses and transaction costs attributable to its own investments. Any such fund
shall not share in any gain or loss of the Trust Fund, except that the separate
fund shall be charged with its proportionate share of general administrative
expenses paid from the Trust Fund pursuant to section 15.4.
<PAGE>
Section 8. Use of Accounts During Service
8.1 Withdrawal from Elective Account.
Subject to section 14.5, any Participant may request to withdraw an amount
from his Elective Account (his "Account" for purposes of this section) on the
following terms and conditions:
8.1-1 Any request to withdraw shall be made by written application to
the Administrator at least 30 days prior to the date of the proposed
withdrawal. However, the Administrator in its discretion may authorize the
withdrawal on less than 30 days notice. If the Participant is married, he
may not apply for or receive any withdrawal within the 90-day benefit
selection period described in section 11.2. A Participant shall be
suspended from making any further contributions under section 4.2 or 5.1
(and under any other qualified or nonqualified plan of deferred
compensation maintained by the Employers) from the date of withdrawal until
the first Entry Date which is more than 12 months after the withdrawal.
8.1-2 Any withdrawal from an Account shall be charged to the Account
as of the first day of the Valuation Period in which the withdrawal is
made.
8.1-3 The amount withdrawn may not cause the Participant's Account
balance to be less than twice the amount of any outstanding loans to the
Participant under section 8.3. The amount withdrawn from the Participant's
Elective Account in any Plan Year shall not exceed the cumulative
contributions credited to that Account, plus any investment earnings
credited through December 31, 1988, but ignoring any investment earnings
credited after that date, and shall not include any special contributions
made by his Employer pursuant to section 6.4-2(c).
8.1-4 A Participant who has not reached age 59 1/2 may only request a
withdrawal to meet an immediate and heavy financial need arising on account
of: (i) an injury, illness, or death within his family, including any
medical expenses (within the meaning of section 213(d) of the Code) which
have been or need to be incurred for the Participant, his Spouse, or any
dependents (within the meaning of section 152 of the Code); (ii) a casualty
loss or a legal judgement or liability which the Participant, as a legal or
practical matter, has no choice but to cover or pay; (iii) an accumulation
of debts which the Participant is unable to pay as they fall due and which
if not paid are likely to lead to defaults, loss of credit standing, or
legal action by the creditors; (iv) the initial purchase of a principal
residence for the Participant (excluding the cost of furnishings and normal
mortgage and other periodic payments falling due after the purchase); (v) a
delinquency in mortgage or rental payments for the Participant's principal
residence which must be cured promptly to avoid foreclosure or eviction; or
(vi) tuition expenses for the next 12 months of post-secondary school
education for the Participant, his Spouse, or one of his children or other
dependents. In addition, a withdrawal for any such purpose shall not exceed
that portion of the total amount actually required to cover the
Participant's financial need which the Participant is unable to satisfy
from other resources that
<PAGE>
are reasonably available to him. For this purpose, there shall be taken
into account the Participant's additional tax liabilities due to the
withdrawal.
8.1-5 A Participant requesting a withdrawal shall submit whatever
information the Administrator may ask for regarding the circumstances of
his request. The Administrator may rely (provided such reliance is
reasonable in view of other facts known by the Administrator) upon the
Participant's representation that he is unable to satisfy his financial
need from other resources if the Participant states that the need cannot be
relieved (i) through reimbursement or compensation from insurance or
another party, (ii) by borrowing from normal commercial sources on
reasonable terms (which shall exclude any loan requiring interest in excess
of 1.5 times the current applicable federal mid-term rate under section
1274 of the Code), (iii) by a liquidation of other readily saleable assets
(excluding any liquidation which would itself to further serious hardship),
(iv) by suspension of the Participant's contributions to this or any other
retirement or savings plan or program, or (v) by other distributions
(excluding any similar hardship withdrawal) or loans from this or any other
retirement or savings plan or program.
8.1-6 In approving or denying requests for withdrawals, the
Administrator shall treat all Participants in a uniform and
nondiscriminatory manner.
8.2 Withdrawals from Voluntary Accounts.
A Participant may not withdraw any amounts from his Voluntary Account.
8.3 Loans to Participants.
Subject to section 14.5, any Participant in active Service may borrow from
his Elective Account on the following terms and conditions:
8.3-1 Any request to borrow shall be made by written application to
the Administrator at least 30 days prior to the date of the proposed loan.
If, pursuant to section 11.2, an annuity for life is a permitted form of
distribution, and if the Participant is married, his Spouse must consent to
such loan by co-signing his loan application and his promissory note as
delivered to the Trustee, to evidence their joint acceptance and liability
for repayment. Spousal consent shall be obtained no earlier than the
beginning of the 90-day period that ends on the date on which the loan is
to be so secured. The consent must be in writing, must acknowledge the
effect of the loan, and must be witnessed by a plan representative or
notary public. Such consent shall thereafter be binding with respect to the
consenting Spouse or any subsequent Spouse with respect to that loan. A new
consent shall be required if the account balance is used for renegotiation,
extension, renewal, or other revision of the loan.
8.3-2 The outstanding loans to a Participant under this Plan and the
plans of any other employers which are deemed commonly controlled or
affiliated within the meaning of section 414(b), (c), (m) and (o) of the
Code shall not exceed the lesser of (i) $50,000 and (ii) 50 percent of his
vested interest in the balance credited to his Account under the Plan. The
$50,000 limit
<PAGE>
in the preceding sentence shall be reduced by the excess, if any, of (i)
the highest outstanding balance of such loans during the past 12 months
over (ii) the presently outstanding balance. The loans shall not exceed an
amount which the Participant demonstrates to the Administrator's
satisfaction that he will be able to repay at his current level of
compensation.
8.3-3 Any loan shall be automatically secured by the Participant's
interest under the Plan to the extent of the outstanding principal and
accrued interest on the loan, and the existence of that security interest
shall not be deemed prohibited by the provisions of section 15.2. Further,
the Administrator may require the Participant to pledge other tangible or
intangible property as security for a loan, to the extent the Administrator
deems it prudent and appropriate.
8.3-4 Any loan shall bear a reasonable rate of interest to be
determined by the Administrator based on prevailing commercial rates. A
loan shall be repayable by regular payroll deductions or in substantially
equal monthly or quarter-annual installments over a period not exceeding
five years. However, the term of a loan may be for up to 30 years if the
proceeds will be used to acquire any dwelling unit which will be used
within a reasonable time as a principal residence of the Participant.
8.3-5 In all events, a loan shall become due and payable upon either
(i) the Participant's termination of Service, or (ii) the termination of
the Plan. Any loan not repaid in accordance with its terms shall be treated
as in default and, until satisfied by payment from the Participant or by
the Trustee's receipt of proceeds on the disposition of collateral, shall
bear interest thereafter at 125% of the rate initially applicable. In the
event of default, foreclosure on the note and attachment of security will
not occur until a distributable event occurs in the plan.
8.3-6 In exercising its responsibilities under this section, the
Administrator shall assure that loans are made available to all
Participants on a reasonable equivalent basis and in a nondiscriminatory
manner.
8.3-7 No loans will be made to any shareholder-employee or
Owner-Employee. For purposes of this requirement, a shareholder-employee
means an employee or officer of an electing small business (S corporation)
who owns (or is considered as owning within the meaning of section
318(a)(1) of the Code), on any day during the taxable year of such
corporation, more than 5% of the outstanding stock of the corporation.
8.3-8 The minimum initial amount of any loan shall be $1,000.00.
<PAGE>
Section 9. Adjustments to Accounts.
9.1 Adjustments for Transactions.
Each Participant's Regular Account shall be adjusted for Employer
contributions and other Participants' forfeitures under section 4, Employee
contributions and transfers under section 5, withdrawals, loans, premiums under
section 8, restorals under section 10, and benefit payments under section 11.
9.2 Valuation of Trust Fund.
As of each Valuation Date, the Trustee shall prepare a balance sheet of the
general Trust Fund, recording each asset (including any contribution receivable
from an Employer) and liability at its fair market value. Any liability with
respect to short positions or options and any item of accrued income or expense
and unrealized appreciation or depreciation shall be included; provided,
however, that such an item may be estimated or excluded if it is not readily
ascertainable unless estimating or excluding it would result in a material
distortion.
The Administrator shall then determine the net gain or loss of the Trust
Fund since the preceding Valuation Date, which shall mean the entire income of
the Trust Fund, including realized and unrealized capital gains and losses, net
of any expenses to be charged to the general Trust Fund and excluding any
contributions by the Employer and by Participants. The determination of gain or
loss shall be consistent with the balance sheets of the Trust Fund for the
current and preceding Valuation Dates.
For purposes of this section and section 9.3, the value of any segregated
portion of a Participant's Account shall not be considered an asset of the
general Trust Fund and its value shall be excluded from the balance of the
Account in determining and allocating the net gain or loss of the general Trust
Fund.
9.3 Adjustments for Investment Experience.
Any net gain or loss of the general Trust Fund during a Valuation Period,
as determined pursuant to section 9.2, shall be allocated as of the last day of
the Valuation Period among the Participants' nonsegregated Accounts in
proportion to the opening balance in each Account as adjusted for withdrawals,
loans, premium payments, benefit payments, and forfeitures during the Valuation
Period.
If, pursuant to section 7.3, the Participants' Accounts are maintained as
separately stated accounts within a number of investment funds maintained by a
bank, brokerage firm, or other financial institution, or by an insurer under an
insurance contract, under an arrangement providing for automatic individual
accounting and regular updating of the Participant's account values, each
Participant's Account shall be adjusted solely in accordance with such
procedures as may be applicable from time to time under the terms of that
arrangement, and the foregoing provisions of this section 9 shall be deemed
superseded.
<PAGE>
Section 10. Vesting of Participants' Interests.
10.1 Immediately Vested Accounts.
A Participant's interest in his Elective, Voluntary, Rollover and Matching
Accounts shall at all times be fully vested and nonforfeitable for any reason.
10.2 Deferred Vesting in Accounts. A Participant's vested interest in his
Regular Account shall be based on his Vesting Years in accordance with the
following table, subject to the balance of this section 10.
VESTING YEARS PERCENTAGE OF INTEREST VESTED
------------- -----------------------------
fewer than 5 0%
5 or more 100%
However, in the case of a Participant whose vested interest is to be
determined in a Top-Heavy Year, it shall instead be based on the following
"top-heavy table":
VESTING YEARS PERCENTAGE OF INTEREST VESTED
------------- -----------------------------
fewer than 3 0%
3 or more 100%
If the applicable vesting schedule under the Plan for any Plan Year is less
favorable to a Participant than the applicable vesting schedule for any previous
Plan Year (whether on account of an amendment of the Plan or the Plan's change
in status from top-heavy to not top-heavy), the Participant's vested interest
shall be no less than (i) his vested interest as of the last day of such
previous Plan Year, if he had fewer than three Vesting Years at that date, or
(ii) his vested interest determined under the applicable schedule for the
previous Plan Year, if he had three or more Vesting Years at that date.
10.3 Computation of Vesting Years.
For purposes of this Plan, a "Vesting Year" means each 12 consecutive month
period beginning January 1 in which an Employee has at least 1,000 Hours of
Service, beginning with his initial Service with any Employer, and including
certain Service with other entities as provided in the definition of "Service."
However, a Participant's Vesting Years shall be computed subject to the
following conditions and qualifications:
- Unless otherwise specifically excluded, a Participant's Vesting Years
shall include any period of active military duty to the extent
required by the Military Selective Service Act of 1967 (38 U.S.C.
Section 2021).
<PAGE>
- A Participant's vested interest accumulated before a Break in Service
shall be determined without regard to any Service after the Break.
Further, if a Participant has a Break in Service before his interest
has become vested to any extent, he shall lose credit for his Vesting
Years before the Break.
10.4 Full Vesting Upon Certain Events.
Notwithstanding section 10.2, a Participant's interest in his Account shall
fully vest on the Participant's Normal Retirement Date, provided the Participant
is in Service on or after that date. The Participant's interest shall also fully
vest in the event that his Service is terminated by Disability or by death.
10.5 Full Vesting Upon Plan Termination.
Notwithstanding section 10.2, a Participant's interest in his Account shall
fully vest upon termination of this Plan or upon the permanent and complete
discontinuance of contributions by his Employer. In the event of a partial
termination, each affected Participant's interest shall fully vest with respect
to that part of the Plan which is terminated.
10.6 Forfeiture, Repayment, and Restoral.
If a Participant's Service terminates before his interest in his Account is
fully vested, that portion which has not vested shall be forfeited if he either
(i) has a Break in Service, or (ii) receives the distribution of his entire
vested interest pursuant to section 11. For this purpose, a Participant whose
vested interest is zero shall be considered to have received the distribution of
his vested balance on the day his Service terminated.
If a Participant returns to Service before he has a Break in Service, he
may repay to the Trustee an amount equal to the distribution, disregarding any
portion of the distribution from his Voluntary and Rollover Accounts. The
Participant may repay such amount at any time within the five years after he has
returned to Service. The amount shall be credited to his applicable Account as
of the last day of the Plan year in which it is repaid; an additional amount
equal to the portion of his applicable Account which was previously forfeited
shall be restored to his Account at the same time from other Employees'
forfeitures or by a special contribution from his Employer for that year. For
this purpose, a Participant with no vested interest in the portion of his
Account which was previously forfeited shall be deemed to have repaid his entire
vested interest in such account on the date of his return to Service.
In the case of a terminated Participant who does not receive a distribution
of his entire vested interest and whose Service resumes after a Break in
Service, any undistributed vested balance from his prior participation shall be
maintained as a fully vested subaccount within his applicable Account.
<PAGE>
10.7 Accounting for Forfeitures.
A forfeiture shall be charged to the Participant's Account as of the first
day of the first Valuation Period in which the forfeiture becomes certain
pursuant to section 10.6. A forfeiture from a Participant's Regular Account
shall be added to the contributions of the terminated Participant's Employer
which are to be credited to other Participants pursuant to section 4.4 and 4.5
as of the last day of the Plan Year in which the forfeiture becomes certain.
10.8 Vesting and Nonforfeitability.
A Participant's interest in his Account which has become vested shall be
nonforfeitable for any reason.
<PAGE>
Section 11. Payment of Benefits.
11.1 Time of Distribution to Participants.
A Participant whose Service ends for any reason other than death shall
receive the vested portion of his Account balance or the first periodic payment
of such balance, as the case may be, on a benefit commencement date which shall
be on or before the 60th day following the last day of the Plan Year in which
his Service ends. However, if the balance credited to his Account exceeds
$3,500, his benefits shall not be paid before his Normal Retirement Date unless
he elects an earlier commencement date in a written election filed with the
Administrator.
In all events, a Participant's benefits shall commence by the April 1st of
the calendar year following the calendar year in which he reaches age 70 1/2.
11.2 Benefit Amounts and Forms for Participants.
A Participant's benefits shall be calculated on the basis of the most
recent Valuation Date before the date of payment, except to the extent the
benefits are based upon separately stated account values determined under an
investment arrangement described in section 7.3, or upon assets held in the
Participant's segregated Account described in section 7.4.
A Participant's benefits will be payable in a single lump sum unless the
vested amount credited to his Account exceeds $3,500, and he has had a Break in
Service or he has become fully vested in his Regular Account, in this event he
may elect to receive his benefits in the form of annual installments. Any such
installments (except possibly the last) must equal at least $1,000, and shall be
payable for a specified number of years, or for a number of years equal to the
Participant's life expectancy or to his and his Beneficiary's joint and last
survivor life expectancy. (Any life expectancy shall be based on the expected
return multiples in Tables V and VI of Treasury Income Tax Regulation section
1.79-9). A Participant shall elect whether his life expectancy, or his and his
Beneficiary's joint and last survivor life expectancy if his Spouse is his
Beneficiary, is to be computed only once when benefits commence, or is to be
recomputed immediately prior to each payment (which will be presumed if the
Participant fails to make an election by the benefit commencement date). Each
installment shall be equal to (i) the balance credited to the Participant's
Account, divided by (ii) the number of annual installments which remain to be
paid (including the current payment being computed).
A Participant's election shall be filed with the Administrator during an
election period beginning 90 days before the date on which benefit payments are
to begin and ending on the later of (i) the benefit commencement date or (ii)
the 90th day after the Administrator has delivered to the Participant the
applicable information regarding his benefit form election. However, a
Participant may at any time, whether before or after the end of the election
period, change the designated Beneficiary of any benefits which may remain
payable after the Participant's death.
<PAGE>
Where a Participant elects to receive installments over a period measured
by the joint and last life expectancy of the Participant and a Beneficiary other
than the Spouse, such period may not extend beyond the Participant's 96th
birthday.
11.3 Benefits on a Participant's Death.
If a Participant dies after his benefits have begun to be paid in
installments or as an annuity pursuant to section 11.1, the benefits shall
continue to be paid in the form elected by the Participant, except to the extent
that his Beneficiary may exercise a right granted by the Participant to elect a
more rapid distribution of benefits.
If a Participant dies before his benefits have been paid or have begun to
be paid, the balance credited to his Account shall be paid to his Beneficiary as
he elected or, if applicable, as elected by the Beneficiary. The benefits shall
be calculated on the basis of the most recent Valuation Date before the date of
payment, except to the extent the benefits are based upon individual account
values determined under an investment arrangement described in section 7.3, or
upon the assets held in the Participant's segregated account described in
section 7.4.
A deceased Participant's benefits will generally be payable in a single
lump sum. However, if the balance credited to a Participant's Account exceeds
$3,500, he may elect at any time in lieu of a lump sum to have his Beneficiary
receive all or any portion of the benefits in annual installments of at least
$1,000, payable for five or fewer years, or if the Beneficiary is an individual,
for not longer than the Beneficiary's life expectancy as of the Participant's
death, each payment being equal to (i) the balance credited to the Participant's
Account, divided by (ii) the number of annual installments which remain to be
paid (including the current payment being computed). The foregoing elections
shall also be available to the Beneficiary of any deceased Participant, provided
it is made not later than 60 days after benefits become payable.
If a Participant is married when he dies, then unless he has validly
elected otherwise the Administrator shall cause the balance in his Account to be
paid in a single lump sum to his Spouse. No election by a married Participant of
a different Beneficiary or a different payment form (other than an annuity for
the Spouse's remaining life) shall be valid unless the Participant files the
election with the Administrator on or after the earlier of (i) the first day of
the Plan Year in which he reached age 35, or (ii) the termination of the
Participant's Service. Any such election must be accompanied by the Spouse's
written consent, which (i) must acknowledge the effect of the election, (ii)
must explicitly provide either that the designated Beneficiary and payment form
may not subsequently be changed by the Participant without the Spouse's further
consent, or that they may be changed without such consent, and (iii) must be
witnessed by the Administrator, its representative, or a notary public. (This
requirement shall not apply if the Participant establishes to the
Administrator's satisfaction that the Spouse may not be located.)
In this connection, the Administrator shall furnish to the Participant, by
a reasonable time after the earlier of (i) the first day of the Plan Year in
which the Participant reached age 32 or (ii) the
<PAGE>
termination of the Participant's Service, a written explanation in nontechnical
language of the death benefit forms provided under this section 11.2, the
Participant's right to elect a form and Beneficiary and revoke an election, and
the relative effect of the different forms on the amounts to be received by any
Beneficiary. If the Participant is married, the Administrator's written
explanation shall describe the need for the Spouse to consent to the election of
any death benefit other than a single lump sum payable to the Spouse or an
annuity for the Spouse's remaining life.
A lump sum benefit shall be paid no later than 60 days after the end of the
Plan Year in which the Participant died; any other form of benefit shall
commence by that date. In all events, whether pursuant to an election by the
Participant or by the Beneficiary, all of the Participant's interest under this
Plan shall be completely distributed by December 31 of the calendar year
containing the fifth anniversary of the Participant's death, except in the case
of death benefits payable to an individual Beneficiary, which may be paid over
the Beneficiary's remaining lifetime or over a period certain not exceeding the
Beneficiary's life expectancy at the Participant's death.
11.4 Election Formalities.
Any election or revocation of a benefit form shall be in writing, signed by
the Participant or, if applicable, by the Beneficiary, and delivered personally
or by mail to the Administrator. The Administrator shall provide appropriate
forms for benefit elections, but an election shall be valid whether or not it is
made on the official form. For this purpose the Administrator shall see to the
provision of the appropriate election forms to the Participant as soon as
possible, following the date on which the Participant's Service was terminated.
A Participant may modify such an election at any time, provided any new benefit
commencement date is at least 30 days after a modified election is delivered to
the Administrator.
11.5 Marital Status.
The Administrator shall from time to time take whatever steps it deems
appropriate to keep informed of each Participant's marital status. Each Employer
shall provide the Administrator with the most reliable information in the
Employer's possession regarding its Participants' marital status, and the
Administrator may, in its discretion, require a notarized affidavit from any
Participant as to his marital status. The Administrator, the Plan, the Trustees,
and the Employers shall be fully protected and discharged from any liability to
the extent of any benefit payments made as a result of the Administrator's good
faith and reasonable reliance upon information obtained from a Participant and
his Employer as to his marital status.
11.6 Proof of Ages.
Each Participant shall furnish satisfactory proof of his age to the
Administrator at least 30 days before the end of the election period described
in section 11.2. Further, any Participant who is to
<PAGE>
receive his benefits in a form related to the life span of another individual
shall furnish satisfactory proof of the individual's age to the Administrator by
the same date.
11.7 Irrevocability of Elections.
Except as provided in section 11.8, any election by a Participant as to his
benefit form shall be irrevocable after the end of the election period described
in section 11.2.
11.8 Waiver of Deadlines.
The Administrator in its sole discretion may waive any time limitation
prescribed for making or revoking an election, or for furnishing proof of ages.
However, the Administrator may require as a condition of its waiver that the
Participant furnish to the Administrator satisfactory evidence of his good
health and the good health of any contingent annuitant, and demonstrate to the
Administrator that its failure to waive a limitation would be unfair to the
Participant or would cause him any undue hardship.
11.9 Delay in Benefit Determination.
If the Administrator is unable to determine the benefits payable to a
Participant or Beneficiary on or before the latest date prescribed for payment
pursuant to sections 11.1, 11.2 or 11.3, the benefits shall in any event be paid
within 60 days after they can first be determined, with whatever makeup payments
may be appropriate in view of the delay.
11.10 Segregated Benefits.
In the case of a Participant whose benefits are not paid within 60 days
after the end of the second Valuation Period following the Plan Year in which
his Service ends, or in the case of a Participant or Beneficiary who is to
receive benefits in two or more installments, such Participant may notify the
Administrator to direct the Trustee to segregate any balance retained in the
Trust Fund in one or more individual accounts with a money market mutual fund or
a banking institution, as the Participant or Beneficiary prefers, and such
balance shall thereafter be treated as a segregated Account described in section
7.4. However, the Administrator shall not segregate any rollover amount which is
already segregated as a directed investment pursuant to section 5.2 or 7.3.
11.11 Accounting for Benefit Payments.
Any benefit payment shall be charged to the Participant's Account as of the
first day of the Valuation Period in which the payment is made, except to the
extent that benefits are based upon separately stated account values determined
under an investment arrangement described in section 7.3, or upon the assets
held in the Participant's segregated account described in section 7.4.
<PAGE>
11.12 Payments in Cash.
All benefits shall be paid in cash except in the case of assets held in a
Participant's segregated Account, or in the case of assets held in a
Participant's Regular Account, which distributions shall be in the form of whole
shares of Company Stock, with fractional shares distributed in cash, or as
otherwise agreed upon by the Administrator and the person entitled to the
benefits. If authorized by the Participant, the Administrator may arrange for
payment of the Participant's benefits directly to another qualified retirement
plan fund in which he is a Participant subject to the terms of such other
qualified retirement plan. With regard to distributions made on or after January
1, 1993, notwithstanding any provision of the Plan to the contrary that would
otherwise limit a distributee's election under this section, a distributee may
elect, at the time and in the manner prescribed by the Plan Administrator to
have any portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a direct rollover. For
this purpose:
(i) An eligible rollover distribution is any distribution of all or
any portion of the balance to the credit of the distributee, except that an
eligible rollover distribution does not include: any distribution that is
one of a series of substantially equal periodic payments (not less
frequently than annually) made for the life (or life expectancy) of the
distributee or the joint lives (or joint life expectancies) of the
distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more, any distribution to the extent such
distribution is required under section 401(a)(9) of the Code, and any
portion of any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized appreciation
with respect to employer securities).
(ii) An eligible retirement plan is an individual retirement account
described in section 408(a) of the Code, an individual retirement annuity
described in section 408(b) of the Code, an annuity plan described is
section 403(a) of the Code, or a qualified trust described in section
401(a) of the Code that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover distribution to
the surviving Spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
(iii) A distributee includes an Employee or former Employee. In
addition, the Employee's or former Employee's surviving Spouse and the
Employee's or former Employee's Spouse or former Spouse who is the
alternate payee under a qualified domestic relations order, as defined in
section 414(p) of the Code, are distributees with regard to the interest of
the Spouse or former Spouse.
(iv) A direct rollover is a payment by the plan to the eligible
retirement plan specified by the distributee.
<PAGE>
Section 12. Rules Governing Benefit Claims and Review of Appeals.
12.1 Claim for Benefits.
Any Participant or Beneficiary who qualifies for payment of benefits may
file a claim for his benefits with the Administrator on a form provided by the
Administrator. Any election of an alternative benefit form, shall be filed not
later than 30 days before the date on which the Participant or Beneficiary has
been notified by the Administrator that the benefits are to begin. If a
Participant or Beneficiary does not file a claim by such date, he shall be
presumed to have filed a claim for payment of benefits in the standard form
prescribed by section 11.2 or 11.3.
12.2 Notification by Administrator.
Within 90 days after receiving a claim for benefits (or within 180 days, if
special circumstances require an extension of time and written notice of the
extension is given to the Participant or Beneficiary within 90 days after
receiving the claim for benefits), the Administrator shall notify the
Participant or Beneficiary whether the claim has been approved or denied. If the
Administrator denies a claim in any respect, the Administrator shall set forth
in a written notice to the Participant or Beneficiary: (i) each specific reason
for the denial; (ii) specific references to the pertinent Plan provisions on
which the denial is based; (iii) a description of any additional material or
information which could be submitted by the Participant or Beneficiary to
support this claim, with an explanation of the relevance of that material or
information; and (iv) an explanation of the claims review procedure described in
section 12.3.
12.3 Claims Review Procedure.
Within 60 days after receiving notice from the Administrator that his claim
for benefits has been denied in any respect, he may file with the Administrator
a written notice of appeal setting forth his reasons for disputing the
Administrator's determination. In connection with his appeal the Participant or
Beneficiary or his representative may inspect or purchase copies of pertinent
documents and records to the extent not inconsistent with other Participants'
and Beneficiaries' rights of privacy. Within 60 days after receiving a notice of
appeal from a prior determination (or within 120 days, if special circumstances
require an extension of time and written notice of the extension is given to the
Participant or Beneficiary and his representative within 60 days after receiving
the notice of appeal), the Administrator shall furnish to the Participant or
Beneficiary and his representative, if any, a written statement of the
Administrator's final decision with respect to his claim, including the reasons
for the decision and the particular Plan provisions upon which it is based.
<PAGE>
Section 13. The Administrator and Its Functions.
13.1 Authority of Administrator.
The Administrator shall be the "plan administrator" within the meaning of
ERISA and shall have exclusive responsibility and authority to control and
manage the operation and administration of the Plan, including the
interpretation and application of its provisions, except to the extent such
responsibility and authority are otherwise specifically (i) allocated to the
Company, the Employers, or the Trustee under the Plan and Trust Agreement, (ii)
delegated in writing to other persons by the Company, the Employers, the
Administrator, or the Trustee, or (iii) allocated to other parties by operation
of law. The Administrator shall have no investment responsibility with respect
to the Trust Fund except to the extent, if any, specifically provided in the
Trust Agreement. In the discharge of its duties, the Administrator may employ
accountants, actuaries, legal counsel, consultants, records keepers and other
agents (who also may be employed by an Employer or the Trustee in the same or
some other capacity) and may pay their reasonable expenses and compensation from
the Trust Fund.
13.2 Identity of Administrator.
The Administrator shall be one or more individuals, partnerships, and
corporations (including an Employer) who shall be selected by the Company. Any
individual, including a director, shareholder, officer, or employee of an
Employer, shall be eligible to serve as the Administrator or part of the
Administrator. The Company shall have the power to remove any person serving as
the Administrator at any time without cause upon 10 days written notice, and any
person may resign as Administrator at any time upon 10 days written notice to
the Company. The Company shall notify the Trustee of any change in the identity
of the Administrator.
13.3 Duties of Administrator.
The Administrator shall keep whatever records may be necessary to implement
the Plan and shall furnish whatever reports may be required from time to time by
the Company. The Administrator shall furnish to the Trustee whatever information
may be necessary to properly administer the Trust. The Administrator shall see
to the filing with the appropriate government agencies of all reports and
returns required of the plan administrator under ERISA and other laws.
13.4 Compliance with ERISA.
The Administrator shall perform all acts necessary to comply with ERISA.
Each individual member or employee of the Administrator shall discharge his
duties in good faith and in accordance with the applicable requirements of
ERISA.
13.5 Action by Administrator.
If the Administrator consists at any time of a committee of three or more
individuals, all actions of the Administrator shall be governed by the
affirmative vote of a number of members which is a
<PAGE>
majority of the total number of members currently appointed, including any
vacancies. The members of the committee may meet informally and may take any
action without meeting as a group.
13.6 Execution of Documents.
Any instrument executed by the Administrator shall be signed by any member
or employee of the Administrator.
13.7 Adoption of Rules.
The Administrator shall adopt such rules and regulations of uniform
applicability as it deems necessary or appropriate for the proper administration
and interpretation of the Plan.
13.8 Responsibilities to Participants.
The Administrator shall determine which Employees have satisfied the
eligibility requirements to enter the Plan. The Administrator shall furnish to
each eligible Employee whatever summary plan descriptions, summary annual
reports, and other notices and information may be required under ERISA. The
Administrator shall maintain on its records for the Participants the separate
Accounts that may be necessary in connection with their participation. The
Administrator shall determine when a Participant or his Beneficiary has
satisfied the requirement to receive benefits under the Plan. The Administrator
shall furnish to each Participant or Beneficiary whatever information is
required under ERISA (or is otherwise appropriate) to enable the Participant or
Beneficiary to make whatever elections may be available pursuant to Sections 5,
7, 8 and 11 and the Administrator shall provide for the payment of benefits in
the proper form and amount from the assets of the Trust Fund.
13.9 Alternative Payees in Event of Incapacity.
If the Administrator finds at any time that an individual qualifying for
benefits under this Plan is a minor or is incompetent, the Administrator may
direct the benefits to be paid, in the case of a minor, to his parents, his
legal guardian, a custodian for him under the Uniform Transfers to Minors Act,
or the person having actual custody of him, or, in the case of an incompetent,
to his spouse, his legal guardian, or the person having actual custody of him,
the payments to be used for the individual's benefit. To the extent that the
Plan's obligation to the individual has been discharged by the purchase and
distribution of an annuity contract from an insurer, the insurer shall assume
the Administrator's authority and responsibility with respect to the benefits.
The Administrator, the Trustee, and any insurer shall not be obligated to
inquire as to the actual use of the funds by the person receiving them under
this section 13.9, and any such payment shall completely discharge the
obligations of the Plan, the Trustee, the Administrator, the Company, the
Employers, and the insurer to the extent of the payment.
<PAGE>
13.10 Indemnification by Employers.
Except as separately agreed in writing, the Administrator, and any member
or employee of the Administrator, shall be indemnified and held harmless by the
Employers, jointly and severally, to the fullest extent permitted by law against
any and all costs, damages, expenses, and liabilities reasonably incurred by or
imposed upon it or him in connection with any claim made against it or him or in
which it or he may be involved by reason of its or his being, or having been,
the Administrator, or a member or employee of the Administrator, to the extent
such amounts are not paid by insurance.
13.11 Nonparticipation by Interested Member.
Any member of the Administrator who also is a Participant in the Plan shall
take no part in any determination specifically relating to his own participation
or benefits, unless his abstention would leave the Administrator incapable of
acting on the matter.
<PAGE>
Section 14. Adoption, Amendment or Termination of the Plan.
14.1 Adoption of Plan by Other Employers.
With the consent of the Company, any entity may become a participating
Employer under the Plan by (i) taking such action as shall be necessary to adopt
the Plan, (ii) becoming a party to the Trust Agreement establishing the Trust
Fund, and (iii) executing and delivering such instruments and taking such other
action as may be necessary or desirable to put the Plan into effect with respect
to the entity's Employees.
14.2 Adoption of Plan by Successor.
In the event that any Employer shall be reorganized by way of merger,
consolidation, transfer of assets or otherwise, so that an entity other than an
Employer shall succeed to all or substantially all of the Employer's business,
the successor entity may be substituted for the Employer under the Plan by
adopting the Plan and becoming a party to the Trust Agreement. Contributions by
the Employer shall be automatically suspended from the effective date of any
such reorganization until the date upon which the substitution of the successor
entity for the Employer under the Plan becomes effective. If, within 90 days
following the effective date of any such reorganization, the successor entity
shall not have elected to become a party to the Plan, or if the Employer shall
adopt a plan of complete liquidation other than in connection with a
reorganization, the Plan shall be automatically terminated with respect to
Employees of the Employer as of the close of business on the 90th day following
the effective date of the reorganization, or as of the close of business on the
date of adoption of a plan of complete liquidation, as the case may be.
14.3 Plan Adoption Subject to Qualification.
Notwithstanding any other provision of the Plan, the adoption of the Plan
and the execution of the Trust Agreement are conditioned upon their being
determined initially by the Internal Revenue Service to meet the qualification
requirements of section 401(a) of the Code, so that the Employers may deduct
currently, for federal income tax purposes, their contributions to the Trust and
so that the Participants may exclude the contributions as allocated from their
gross income and recognize income only when they receive benefits. In the event
that this Plan is held by the Internal Revenue Service to not qualify initially
under section 401(a), the Plan may be amended retroactively to the earliest date
permitted by the U.S. Treasury regulations in order to secure qualification
under section 401(a). If this Plan is held by the Internal Revenue Service to
not qualify initially under section 401(a) either as originally adopted or as
amended, each Employer's contributions to the Trust under this Plan (including
any earnings thereon) shall be returned to such Employer, and this Plan shall be
terminated. In the event that this Plan is amended after its initial
qualification and the Plan as amended is held by the Internal Revenue Service to
not qualify under section 401(a), the amendment may be modified retro-
<PAGE>
actively to the earliest date permitted by U.S. Treasury regulations in order to
secure approval of the amendment under section 401(a).
14.4 Right to Amend or Terminate.
The Company intends to continue this Plan as a permanent program. However,
each participating Employer separately reserves the right to suspend, supersede,
or terminate the Plan at any time and for any reason, as it applies to that
Employer's Employees, and the Company reserves the right to amend, suspend,
supersede, merge, consolidate, or terminate the Plan at any time and for any
reason, as it applies to the Employees of all Employers.
No amendment, suspension, supersession, merger, consolidation, or
termination of the Plan shall reduce any Participant's or Beneficiary's benefit
options or proportionate interest in the Trust Fund, or shall divert any portion
of the Trust Fund to purposes other than the exclusive benefit of the
Participants and their Beneficiaries prior to the satisfaction of all
liabilities under the Plan. Moreover, there shall not be any transfer of assets
to a successor plan or merger or consolidation with another plan unless, in the
event of the termination of the successor plan or the surviving plan immediately
following such transfer, merger, or consolidation, each participant or
beneficiary would be entitled to a benefit equal to or greater than the benefit
he would have been entitled to if the plan in which he was previously a
participant or beneficiary had terminated immediately prior to such transfer,
merger, or consolidation.
Following a termination of this Plan by the Company, the Trustee shall
continue to administer the Trust and pay benefits in accordance with the Plan as
amended from time to time and the Administrator's instructions.
14.5 Right to Implement or Suspend Provisions.
Notwithstanding sections 5.1, 5.2, 7.3, 7.4, 8.1, 8.2, 8.3, and 8.4, the
Company and, in the absence of Company action, the Administrator, shall have the
right to implement or suspend entirely the provisions of any such section,
taking into account the best interests of the Participants and the
administrative burdens involved. The Administrator may, upon reasonable notice
to the Participants, establish or modify rules and procedures applicable to any
such provisions to avoid administrative burdens and to assure compliance with
the purposes of the Plan and requirements under ERISA and the Code.
<PAGE>
Section 15. Miscellaneous Provisions.
15.1 Plan Creates No Employment Rights.
Nothing in this Plan shall be interpreted as giving any Employee the right
to be retained as an Employee by an Employer, or as limiting or affecting the
rights of an Employer to control its Employees or to modify or terminate the
Service of any Employee at any time and for any reasons, subject to any
applicable employment or collective bargaining agreements.
15.2 Nonassignability of Benefits.
Except as provided in section 8.3, with respect to certain loans, no
assignment, pledge, or other anticipation of benefits from the Plan will be
permitted or recognized by the Employers, the Administrator, or the Trustee.
Moreover, benefits from the Plan shall not be subject to attachment,
garnishment, or other legal process for debts or liabilities of any Participant
or Beneficiary, to the extent permitted by law.
This prohibition on assignment or alienation shall apply to any judgment,
decree, or order (including approval of a property settlement agreement) which
relates to the provision of child support, alimony, or property rights to a
present or former spouse, child or other dependent of a Participant pursuant to
a state domestic relations or community property law, unless the judgment,
decree, or order is determined by the Administrator in accordance with its
policies and procedures to be a qualified domestic relations order within the
meaning of section 414(p) of the Code.
15.3 Requirements Related to Owner Employees.
If this Plan provides contributions or benefits for one or more
Owner-Employees who control both the business for which this Plan is established
and one or more other trades or businesses, this Plan and the plan established
for other trades or business must, when looked at as a single plan, satisfy
sections 401(a) and (d) for the employees of this and all other trades or
businesses.
If the Plan provides contributions or benefits for one or more
Owner-Employees who control one or more other trades or businesses, the
employees of the other trades or businesses must be included in a plan which
satisfies sections 401(a) and (d) and which provides contributions and benefits
not less favorable than provided for Owner-Employees under this Plan.
If an individual is covered as an Owner-Employee under the plans of two or
more trades or businesses which are not controlled and the individual controls a
trade or business, then the contributions or benefits of the employees under the
Plan must be as favorable as those provided for him under the most favorable
plan of the trade or business which is not controlled.
For purposes of the preceding paragraphs, an Owner-Employee, or two or more
Owner-Employees, will be considered to control a trade or business if the
Owner-Employee, or two or more Owner-Employees together:
(1) own the entire interest in an unincorporated trade or business, or
<PAGE>
(2) in the case of a partnership, own more than 50 percent of either
the capital interest or the profits interest in the partnership.
For purposes of the preceding sentence, an Owner-Employee, or two or more
Owner-Employees shall be treated as owning any interest in a partnership which
is owned, directly or indirectly, by a partnership which such Owner-Employee, or
such two or more Owner-Employees, are considered to control within the meaning
of the preceding sentence.
15.4 Limit of Employer Liability.
The liability of an Employer with respect to Participants under this Plan
shall be limited to making such contributions to the Trust from time to time, in
accordance with section 4.
15.5 Treatment of Expenses.
All expenses incurred by the Administrator and the Trustee in connection
with administering this Plan and the Trust Fund shall be paid by the Trustee
from the Trust Fund to the extent the expenses have not been paid or assumed by
the Employers. The expenses incurred in a Valuation Period shall be allocated
among the general Trust Fund and any segregated accounts described in section
7.4 in proportion to their respective values as of the first day of the
Valuation Period.
15.6 Number and Gender.
Any use of the singular shall be interpreted to include the plural, and the
plural the singular. Any use of the masculine, feminine or neuter shall be
interpreted to include the masculine, feminine or neuter, as the context shall
require.
15.7 Nondiversion of Assets.
Except as provided in section 4.6, 6.4 and 14.3, under no circumstances
shall any portion of the Trust Fund be diverted to or used for any purpose other
than the exclusive benefit of the Participants and their Beneficiaries prior to
the satisfaction of all liabilities under the Plan.
15.8 Separability of Provisions.
If any provision of this Plan is held to be invalid or nonenforceable, the
other provisions of the Plan shall not be affected but shall be applied as if
the invalid or nonenforceable provision had not been included in the Plan.
15.9 Service of Process.
The agent for the service of process upon the Plan shall be the president,
managing partner, or proprietor of the Company, or such other person as may be
designated from time to time by the Company.
<PAGE>
15.10 Governing State Law.
This Plan shall be interpreted in accordance with the laws of the State of
New Jersey to the extent that those laws are applicable under the provisions of
ERISA.
EXHIBIT 4.3
PEAPACK-GLADSTONE BANK
1995 STOCK OPTION PLAN
1. PURPOSE
The purpose of the Peapack-Gladstone Bank's (the "Company") 1995 Stock
Option Plan (the "Plan") is to advance the interests of the Company and its
shareholders by providing those key employees of the Company, upon whose
judgment, initiative and efforts the successful conduct of the business of
the Company largely depends, with additional incentive to perform in
superior manner. A purpose of the Plan is also to attract people of
experience and ability to the service of the Company.
2. DEFINITIONS
A. Board of Directors or Board: means the board of directors of the
Company.
B. Change in Control: for purposes of this Plan, a Change in Control of
the Company shall mean an event of a nature that; (1) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) who
is not now presently but becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the Company's
outstanding securities except for any securities purchased by any
tax-qualified employee benefit plan of the Company; or (2) individuals
who constitute the Board on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof,
provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Company's stockholders was
approved by the same Nominating Committee serving under an Incumbent
Board, shall be, for purposes of this clause (2), considered as though
he were a member of the Incumbent Board; or (3) filing is made for
regulatory approval to implement a plan of reorganization, merger,
consolidation, sale of all or substantially all the assets of the
Company or similar transaction in which the Company is not the
resulting entity or such plan, merger consolidation, sale or similar
transaction occurs; or (4) a proxy statement soliciting proxies from
shareholders of the Company, by someone other than the current
management of the Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Company or similar
transaction with one or more corporations as a result of which the
<PAGE>
outstanding shares of the class of securities then subject to the plan
or transaction are exchanged for or converted into cash or property or
securities not issued by the Company shall be distributed; or (5) a
tender offer is made for 25% or more of the voting securities of the
Company.
C. Committee: means a committee consisting of those members of the
Compensation Committee of the Board of Directors who are non-employee
members of the Board of Directors, all of whom are "disinterested
directors" as such term is defined under Rule 16b-3 ("Rule 16b-3")
under the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), as promulgated by the Securities and Exchange
Commission.
D. Date of Grant: means the date an Option is granted by the Committee.
E. Disability: means the permanent and total inability by reason of
mental or physical infirmity, or both, of an employee to perform the
work customarily assigned to him. Additionally, a medical doctor
selected or approved by the Board of Directors must advise the
Committee that it is either not possible to determine when such
Disability will terminate or that it appears probable that such
Disability will be permanent during the remainder of said
Participant's lifetime.
F. Fair Market Value: for purposes of the 1995 Stock Option Plan , when
used in connection with Common Stock on a certain date, Fair Market
Value means the average of the high and low prices of known trades of
the Common Stock on the relevant date, or if the Common Stock was not
traded on such date, on the next preceding day on which the Common
Stock was traded thereon.
G. Incentive Stock Option: means an Option granted by the Committee to a
Participant, which Option is designated as an Incentive Stock Option
pursuant to Section 8.
H. Non-qualified Stock Option: means an Option granted by the Committee
to a Participant and which is not designated by the Committee as an
Incentive Stock Option.
I. Normal Retirement: means retirement at the normal or early retirement
date as set forth in any tax-qualified retirement/pension plan of the
Company.
J. Option: means the grant of Incentive Stock Options or Non-qualified
Stock Options granted under Section 7 or Section 8.
<PAGE>
K. Participant: means an employee of the Company or its affiliates chosen
by the Committee to participate in the Plan.
L. Plan Year(s): means the part of the year beginning with the date the
plan is accepted by the New Jersey Department of Banking and ending on
December 31, 1995, and calendar years thereafter.
M. Termination for Cause: means the termination upon an intentional
failure to perform stated duties, breach of a fiduciary duty involving
personal dishonesty, or willful violation of any law, rule or
regulation (other than traffic violations or similar offenses) or
final cease-and-desist order.
3. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee is
authorized, subject to the provisions of the Plan, to establish such rules
and regulations as it sees necessary for the proper administration of the
Plan and to make determinations and interpretations in connection with the
Plan it sees as necessary or advisable. All determinations and
interpretations made by the Committee shall be binding and conclusive on
all Participants in the Plan and on their legal representatives and
successors in interest.
4. TYPES OF AWARDS
Awards under the Plan may be granted in any one or a combination of:
(a) Non-qualified Stock Options; and
(b) Incentive Stock Options
as defined below in paragraphs 7 and 8 of the Plan.
5. STOCK SUBJECT TO THE PLAN *
Subject to adjustment as provided in Section 13, the maximum number of
shares reserved for purchase pursuant to the exercise of options granted
under the Plan shall not exceed 27,500 of the shares of Common Stock of the
Company, par value $6 2/3 per share, subject to adjustments pursuant to
this Section 5. These shares of Common Stock may be either authorized but
unissued shares or shares previously issued and reacquired by the Company.
Shares subject to any unexercised portion of a terminated, cancelled or
expired option granted hereunder, and pursuant to which a participant never
acquired benefits of ownership, including payment of a stock dividend (but
excluding voting rights), may again be subjected to grants and awards under
the Plan.
<PAGE>
6. ELIGIBILITY
Officers and other employees of the Company shall be eligible to receive
Incentive Stock Options and Non-qualified Stock Options under the Plan.
Directors who are not employees or officers of the Company shall not be
eligible to receive Options under the Plan.
7. NON-QUALIFIED STOCK OPTIONS
7.1 Grant of Non-qualified Stock Options.
The Committee may, from time to time, grant Non-qualified Stock Options to
eligible employees and, upon such terms and conditions as the Committee may
determine, grant Non-qualified options in exchange for and upon surrender
of previously granted Options under this Plan. Non-qualified Stock Options
granted under this Plan are subject to the following terms and conditions.
(a) Price. The purchase price per share of Common Stock deliverable upon
the exercise of each Non-qualified Stock Option shall be determined by
the Committee on the date the option is granted. The purchase price
shall not be less than 100% of the Fair Market Value of the Company's
Common Stock on the Date of Grant and in no event below the par value
of the Common Stock on the Date of Grant. Shares may be purchased only
upon full payment of the purchase price. Payment of the purchase price
may be made, in whole or in part, through the surrender of shares of
the Common Stock of the Company at the Fair Market Value of such
shares on the date of surrender determined in the manner described in
Section 2(i).
(b) Terms of Options. The terms during which each Non-qualified Stock
Option may be exercised shall be determined by the Committee, but in
no event shall a Non-qualified Stock Option be exercisable in whole or
in part more than 10 years from the Date of Grant. The Committee shall
determine the date on which each Non-qualified Stock Option shall
become exercisable and may provide that a Non-qualified Stock Option
shall become exercisable in installments. The shares comprising each
installment may be purchased in whole or in part at any time after
such installment becomes purchasable. The Committee may, in its sole
discretion, accelerate the time at which any Non-qualified Stock
Option may be exercised in whole or in part. Notwithstanding the
above, in the event of a Change in Control of the Company, all
Non-statutory Stock Options shall become immediately exercisable.
(c) Termination of Employment. Unless otherwise determined by the
Committee at the time a Non-qualified Stock Option is granted, upon
the termination of a Participant's service for any reason other than
Disability, Normal Retirement, Change in Control, death or Termination
for Cause, the Participant's Non-statutory Stock Options shall be
exercisable only as
<PAGE>
to those shares which were immediately purchasable by the Participant
at the date of termination and only for a period of three years
following termination. Notwithstanding any provision set forth herein
or contained in any Agreement relating to the award of a Non-qualified
Stock Option, in the event of Termination for Cause, all rights under
the Participant's Non-statutory Stock Options shall expire upon
termination. Unless otherwise determined by the Committee at the time
a Stock Option is granted, in the event of the death, Disability,
termination due to Change in Control or Normal Retirement of any
Participant, all Non-statutory Stock Options held by the Participant,
whether or not exercisable at such time, shall be exercisable by the
Participant or his legal representatives or successors in interest of
the Participant for three years or such longer period as determined by
the Committee following the date of the Participant's death, Normal
Retirement or cessation of employment due to Disability or Change in
Control, provided that in no event shall the period extend beyond the
expiration of the Non-statutory Stock Option term.
8. INCENTIVE STOCK OPTIONS
8.1 Grant of Incentive Stock Options.
The Committee may, from time to time, grant Incentive Stock Options to
eligible employees. Incentive Stock Options granted pursuant to the Plan
shall be subject to the following terms and conditions:
(a) Price. The purchase price per share of Common Stock deliverable upon
the exercise of each Incentive Stock Option shall not be less than
100% of the Fair Market Value of the Company's Common Stock on the
Date of Grant and in no event below the par value of the Common Stock
on the Date of Grant. However, if a Participant owns stock possessing
more than 10% of the total combined voting power of all classes of
Common Stock of the Company, the purchase price per share of Common
Stock deliverable upon the exercise of each Incentive Stock Options
shall not be less than 110% of the Fair Market Value of the Company's
Common Stock on the Date of Grant. Shares may be purchased only upon
payment of the full purchase price. Payment of the purchase price may
be made, in whole or in part, through the surrender of shares of the
Common Stock of the Company at the Fair Market Value of such shares on
the date of surrender determined in the manner described in Section
2(i).
(b) Amounts of Options. Incentive Stock Options may be granted to any
eligible employee in such amounts as determined by the Committee. The
aggregate Fair Market Value (determined as of the time the option is
granted) of the Common Stock with respect to which Incentive Stock
<PAGE>
Options granted are exercisable for the first time by the Participant
during any calendar year (under all plans of the Participant's
employer corporation and its parent and subsidiary corporations, IF
ANY) shall not exceed $100,000. The provisions of this Section 8.1(b)
shall be construed and applied in accordance with Section 422(d) of
the Code and the regulations, if any, promulgated thereunder. To the
extent an award under this Section 8.1 exceeds this $100,000 limit,
the portion of the award in excess of such limit shall be deemed a
Non-qualified Option.
(c) Terms of Options. The term during which each Incentive Stock Option
may be exercised shall be determined by the Committee, but in no event
shall an Incentive Stock Options be exercisable in whole or in part
more than 10 years from the Date of Grant. If at the time an Incentive
Stock is granted to any employee, the employee owns Common Stock
representing more than 10% of the total combined voting power of the
Company (or, under Section 425(d) of the Code, is deemed to own Common
Stock representing more than 10% of the total combined voting power of
all such classes of Common Stock, by reason of the ownership of such
classes of Common Stock, directly or indirectly, by or for any
brother, sister, spouse, ancestor or lineal descendent of such
employee, or by or for any corporation, partnership, estate or trust
of which such employee is a shareholder, partner or beneficiary), the
Incentive Stock Option granted to such employee shall not be
exercisable after the expiration of five years from the Date of Grant.
No Incentive Stock Option granted under the Plan is transferable
except by will or the laws of descent and distribution and is
exercisable in his lifetime only by the employee to whom it is
granted.
The Committee shall determine the date on which each Incentive Stock
Option shall become exercisable and may provide that an Incentive
Stock Option shall become exercisable in installments. The shares
comprising each installment may be purchased in whole or in part at
any time after such installment becomes purchasable, provided that the
amount able to be first exercised in a given year is consistent with
the terms of Section 422 of the Code. The Committee may, in its sole
discretion, accelerate the time at which any Incentive Stock Option
may be exercised in whole or in part. In the event of a Change in
Control of the Company, all Incentive Stock Options shall become
immediately exercisable.
(d) Termination of Employment. Upon the termination of a Participant's
service for any reason other than Disability, Normal Retirement,
Change in Control, death or Termination for Cause, the Participant's
Incentive Stock Options shall be exercisable only as to those shares
which were immediately purchasable by the Participant at the date of
termination and only for a period of three months following
termination. In the event of
<PAGE>
Termination for Cause all rights under the Participant's Incentive
Stock Options shall expire upon termination.
In the event of death or Disability of any employee, all Incentive
Stock Options held by such Participant, whether or not exercisable at
such time, shall be exercisable by the Participant or the
Participant's legal representatives or beneficiaries for three years
following the date of the Participant's death or cessation of
employment due to Disability. Upon termination of the Participant's
service due to Normal Retirement, or a Change in Control, all
Incentive Stock Options held by such Participant, whether or not
exercisable at such time, shall be exercisable for a period of three
months following the date of Participant's cessation of employment. In
no event shall the exercise period extend beyond the expiration of the
Incentive Stock Option term.
(e) Compliance with Code. The options granted under this Section 8 of the
Plan are intended to qualify as incentive stock options within the
meaning of Section 4212 of the Code, but the Company makes no warranty
as to the qualifications of any option as an incentive stock options
within the meaning of Section 422 of the Code.
9. SURRENDER OPTION
In the event of a Participant's termination of employment as a result of
death, disability or Normal Retirement, the Participant (or the
Participant's legal representative or successor(s) in interest) may, in a
form acceptable to the Committee make application to surrender all or part
of options held by such Participant in exchange for a cash payment from the
Company of an amount equal to the difference between the Fair Market Value
of the Common Stock on the date of termination of employment and the
exercise price per share of the option on the Date of Grant. Whether the
Committee accepts such application or determines to make payment, in whole
or part, is within its absolute and sole discretion, it being expressly
understood that the Committee is under no obligation to any Participant
whatsoever to make such payments. In the event that the Committee accepts
such application and the Company determines to make payment, such payment
shall be in lieu of the exercise of the underlying option and such option
shall cease to be exercisable.
10. RIGHTS OF A SHAREHOLDER: NONTRANSFERABLILITY
No Participant shall have any rights as a shareholder with respect to any
shares covered by a Non-qualified and/or Incentive Stock Option until the
date of issuance of a stock certificate for such shares. Nothing in this
Plan or in any Option granted confers on any person any right to continue
in the employ of the Company or to continue to perform services for the
Company or interferes in any way with the right of the
<PAGE>
Company to terminate a Participant's services as an officer or other
employee at any time.
No Option under the Plan shall be transferable by the optionee other than
by will or the laws of descent and distribution and may only be exercised
during his lifetime by the optionee, or by a guardian or legal
representative.
11. AGREEMENT WITH GRANTEES
Each grant of Options, will be evidenced by a written agreement, executed
by the Participant and the Company which describes the conditions for
receiving the Options including the date of Date of Grant, the purchase
price if any, applicable periods, and any other terms and conditions as may
be required by the Board of Directors or applicable securities law.
12. 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 Options to which the
Participant would then be entitled. Such designation will be made upon
forms supplied by and delivered to the 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.
13. DILUTION AND OTHER 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, the
Committee will make such proportionate adjustments to previously granted
Options, to prevent dilution or enlargement of the rights of the
Participant, including any or all of the following:
(a) proportionate adjustments in the aggregate number of kind of
shares of Common Stock which may be awarded under the Plan;
(b) adjustments in the aggregate number or kind of shares of Common
Stock covered by Options already granted under the Plan;
(c) adjustments in the purchase price of outstanding Incentive and/or
Non-qualified Stock Options.
No such adjustments may, however, materially change the value of benefits
available to a Participant under a previously granted Options.
<PAGE>
14. TAX WITHHOLDING
There shall be deducted from each distribution of cash and/or Common Stock
under the Plan the amount required by any governmental authority to be
withheld for income tax purposes.
15. AMENDMENT OF THE PLAN
The Board of Directors may at any time, and from time to time, modify or
amend the Plan in any respect subject to obtaining any shareholder approval
required by applicable New Jersey and Federal banking law ; provided
further that if it has been determined to continue to qualify the Plan
under Rule 16b-3, shareholder approval shall be required for any such
modification or amendment in order to qualify under 16B-3, including any
modifications or amendments which:
(a) increases the maximum number of shares for which options may be
granted under the Plan (subject, however, to the provisions of Section
13 hereof);
(b) reduces the exercise price at which Options may be granted
(subject, however, to the provisions of Section 13 hereof):
(c) extends the period during which Options may be granted or
exercised beyond the times originally prescribed; or
(d) changes the persons eligible to participate in the Plan.
Failure to ratify or approve amendments or modifications to subsections (a)
through (d) of this Section by shareholders shall be effective only as to
the specific amendment or modification requiring such ratification. Other
provisions, sections, and subsections of this Plan will remain in full
force and effect.
No such termination, modification or amendment may affect the rights of a
Participant under an outstanding Options.
16. EFFECTIVE DATE OF PLAN
This Plan was approved by the Board of Directors on January 12, 1995 and,
subject to first obtaining approval at the 1995 Annual Meeting of the
Shareholders of the Company by the affirmative vote of at least 66 2/3% of
the shares of Common Stock of the Company entitled to vote at the 1995
Annual Meeting, will become effective on the date it is accepted by the New
Jersey Department of Banking.
<PAGE>
17. TERMINATION OF THE PLAN
The right to grant Options under the Plan will terminate upon the earlier
of ten (10) years after the Effective Date of the Plan or the issuance of
Common Stock or the exercise of Options equivalent to the maximum number of
shares reserved under the Plan as set forth in Section 5. 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 his rights under a previously granted Option.
18. APPLICABLE LAW
The Plan will be administered in accordance with the laws of the State of
New Jersey and applicable Federal law.
19. COMPLIANCE WITH SECTION 16
If this Plan is qualified under Rule 16b-3, with respect to persons subject
to Section 16 of the Exchange Act, transactions under this Plan are
intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the Exchange Act. To the extent any provisions of the Plan
or action by the Committee fail to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Committee.
<PAGE>
* At their meeting held on July 10, 1997 the Board unanimously approved the
following amendment to our 1995 Stock Option Plan.
5. STOCK SUBJECT TO PLAN
Shares subject to any unexercised portion of a terminated, cancelled or
expired option granted hereunder, and pursuant to which a participant never
acquired benefits of ownership, including payment of a stock dividend (but
excluding voting rights), may again be subjected to grants and awards under the
Plan.
EXHIBIT 4.4
PEAPACK-GLADSTONE BANK
1995 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
1. PURPOSE
The purpose of the Peapack-Gladstone Bank (the "Company") 1995 Stock Option
Plan for Outside Directors (the "Directors' Option Plan" or the "Plan") is
to promote the growth and profitability of the Company by providing Outside
Directors of the Company with an incentive to achieve long-term objectives
of the Company and to attract and retain non-employee directors of
outstanding competence by providing such Outside Directors with an
opportunity to acquire an equity interest in the Company.
2. GRANT OF OPTIONS
(a) Each Outside Director (for purposes of this Directors' Option Plan, the
term "Outside Director" shall mean a member of the Board of Directors of
the Company not also serving as a employee of the Company) will receive one
grant of options to purchase shares of the common stock of the Company
("Common Stock"), subject to adjustment as provided in Section 4 hereof,
under this Plan according to when the recipient first becomes an Outside
Director. Subject to Section 5, below, shares will be granted according to
the following schedule:
- --------------------------------------------------------------------------------
WHEN PARTICIPANT FIRST BECOMES AN OUTSIDE NUMBER OF SHARES
DIRECTOR GRANTED
- --------------------------------------------------------------------------------
At or prior to the 1995 Annual Shareholders meeting 1,250
- --------------------------------------------------------------------------------
After the 1995 Annual Shareholders meeting and at or prior 1,000
to the 1996 Annual Shareholders meeting
- --------------------------------------------------------------------------------
After the 1996 Annual Shareholders meeting and at or prior 750
to the 1997 Annual Shareholders meeting
- --------------------------------------------------------------------------------
After the 1997 Annual Shareholders meeting and at or prior 500
to the 1998 Annual Shareholders meeting
- --------------------------------------------------------------------------------
After the 1998 Annual Shareholders meeting and at or prior 250
to the 1999 Annual Shareholders meeting
- --------------------------------------------------------------------------------
The purchase price per share of the Common Stock deliverable upon exercise
of such option shall equal the Fair Market Value of the Common Stock on the
date of the grant of this option as determined under paragraph (e) of this
Section 2 and in no event below the par value of the Common Stock on the
Date of Grant. These initial grants shall be effective as of the effective
date of the Directors' Option Plan as defined in Section 5 hereof
("Effective Date").
<PAGE>
(b) If options for sufficient shares are not available under the Directors'
Option Plan to fulfill the grant of options under Section 2(a) to any
Outside Director or Outside Director first elected subsequent to the
Effective Date of this Plan, and thereafter options become available, such
Outside Directors shall then receive options to purchase an amount of
shares of Common Stock, determined by dividing pro rata among each Outside
Director who has not received their full allotment of shares, options for
the number of shares then available under the Outside Directors' Plan, not
to exceed options for shares with the values set forth in the preceding
paragraph with respect to such subsequent Outside Directors, subject to
adjustment under Section 4 as appropriate. The date of grant shall be the
date options for such shares become available. The purchase price per share
of the Common Stock deliverable upon exercise of such options shall equal
the Fair Market Value of the Common Stock on the date the option is granted
as determined under paragraph (e) of this Section 2.
(d) Ineligibility. An option under the Directors' Option Plan shall not be
granted to any Outside Director who at any previous time was an employee of
the Company and in such capacity was eligible to receive any options to
purchase Common Stock.
(e) Fair Market Value. For purposes of the Directors' Option Plan, when
used in connection with Common Stock on a certain date, Fair Market Value
means the average of the high and low prices of known trades of the Common
Stock on the relevant date, or if the Common Stock was not traded on such
date, on the next preceding day on which the Common Stock was traded
thereon.
3. TERMS AND CONDITIONS
(a) Option Agreement. Each option shall be evidenced by a written option
agreement between the Company and the recipient specifying the number of
shares of Common Stock that may be acquired through its exercise and
containing such other terms and conditions which are not inconsistent with
the terms of this grant.
(b) Vesting. Each option granted pursuant to Section 2(a), (b) or (c)
hereof shall become exercisable in five annual installments of twenty
percent (20%). The first installment of options granted pursuant to Section
2(a) shall vest one year from the date of grant. The first installment of
options granted pursuant to Section 2(b) shall vest one year from the date
of their grant.
(c) Manner of Exercise. The option when exercisable may be exercised from
time to time in whole or in part, by delivering a written notice of
exercise to the President of the Company signed by the recipient. Such
notice is irrevocable and must be accompanied by full payment of the
exercise price (as determined in Section 2(a) or (b) hereof) in cash or
shares of previously acquired common stock of the Company at the Fair
Market Value of such shares determined on the exercise date by the manner
described in Section 2(e) above.
(d) Transferability. Each option granted hereby may be exercised only by
the recipient to whom it is issued, or in the event of the Outside
Director's death, his or her legal representative or successor in interest
pursuant to the terms of Section 3(e) hereof.
<PAGE>
(e) Termination of Service. Upon the termination of a recipient's service
for any reason other than disability, Change in Control, death or removal
for cause, the participant's stock options shall be exercisable only as to
those shares which were immediately purchasable by the recipient at the
date of termination. In the event of death or disability of any recipient,
all stock options held by such recipient, whether or not exercisable at
such time, shall become immediately exercisable by the recipient or the
recipient's legal representatives or beneficiaries. Upon termination of the
recipient's service due to a Change in Control, all stock options held by
such recipient, whether or not exercisable at such time, shall become
immediately exercisable. However, shares of Common Stock acquired through
the exercise of options granted under Section 2 may not be sold or
otherwise disposed of for a period of one year from the Date of Grant of
the option. For purposes of this plan the following terms are defined:
(i) "Change in Control" for purposes of this Plan, a "Change in
Control" of the Company shall mean an event of a nature that; (1)
any "person" (as the term is used in Sections 13(d) and 14(d) of
the Exchange Act) who is not now presently but becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company
representing 25% or more of the Company's outstanding securities
except for any securities purchased by any tax-qualified employee
benefit plan of the Company; or (2) individuals who constitute
the Board on the date hereof (the "Incumbent Board") cease for
any reason to constitute at least a majority thereof, provided
that any person becoming a director subsequent to the date hereof
whose election was approved by a vote of at least three-quarters
of the directors comprising the Incumbent Board, or whose
nomination for election by the Company's stockholders was
approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (2),
considered as though he were a member of the Incumbent Board; or
(3) filing is made for regulator approval to implement a plan of
reorganization, merger, consolidation, sale of all or
substantially all the assets of the Company or similar
transaction occurs in which the Company is not the resulting
entity or such plan, merger, consolidation, sale or similar
transaction occurs; or (4) a proxy statement soliciting proxies
from shareholders of the Company, by someone other than the
current management of the Company, seeking stockholder approval
of a plan of reorganization, merger or consolidation of the
Company or similar transaction with one or more corporations as a
result of which the outstanding shares of the class of securities
then subject to the plan or transaction are exchanged for or
converted into cash or property or securities not issued by the
Company shall be distributed; or (5) a tender offer is made for
25% or more of the voting securities of the Company.
(ii) "Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of an Outside Director to
perform the work customarily assigned to him. Additionally, a
medical doctor selected or approved by the Board of Directors
must advise the Board that it is either not possible to
<PAGE>
determine when such disability will terminate or that it appears
probable that such disability will be permanent during the
remainder of said recipient's lifetime.
(f) Termination of Option. Each option shall expire upon the earlier of (i)
one hundred and twenty (120) months following the date of grant, or (ii)
three (3) years following the date on which the Outside Director ceases to
serve in such capacity for any reason other than removal for cause. If the
Outside Director dies before fully exercising any portion of an option then
exercisable, such option may be exercised by such Outside Director's
beneficiary, personal representative(s), heir(s) or devisee(s) at any time
within the three (3) year period following his or her death; provided,
however, that in no event shall the option be exercisable more than one
hundred and twenty (120) months after the date of its grant. If the Outside
Director is removed for cause, all options awarded to him shall expire upon
such removal.
4. COMMON STOCK SUBJECT TO THE DIRECTORS' OPTION PLAN
The shares which shall be issued and delivered upon exercise of options
granted under the Directors' Option Plan may be either authorized and
unissued shares of Common Stock or authorized and issued shares of Common
Stock held by the Company as treasury stock. The number of shares of Common
Stock reserved for issuance under the Directors' Option Plan shall not
exceed 15,000 shares of the Common Stock of the Company, par value $6 2/3
per share, subject to adjustments pursuant to this Section 4. Any shares of
Common Stock subject to an option which for any reason either terminates
unexercised or expires, shall again be available for issuance under the
Directors' Option Plan.
In the event of any change or changes in the outstanding Common Stock of
the Company by reason of any stock dividend or split, recapitalization,
reorganization, merger, consolidation, spin-off, combination or any similar
corporate change, or other increase or decrease in such shares effected
without receipt or payment of consideration by the Company, the number of
shares of Common Stock which may be issued under the Directors' Option
Plan, the number of shares of Common Stock to options granted under this
Directors' Option Plan and the option price of such options, shall be
automatically and proportionately adjusted to prevent dilution or
enlargement of the rights granted to recipient under the Directors' Option
Plan.
5.5. EFFECTIVE DATE OF THE PLAN; SHAREHOLDER RATIFICATION
This Plan was approved by the Board of Directors on January 12, 1995 and,
subject to first obtaining approval at the 1995 Annual Meeting of
Shareholders of the Company by the affirmative vote of at least 66 2/3% of
the shares of Common Stock of the Company entitled to vote at the 1995
Annual Meeting, when accepted by the New Jersey Department of Banking.
6. TERMINATION OF THE PLAN
The right to grant options under the Directors' Option Plan will terminate
automatically upon the earlier of five years after the Effective Date of
the Plan or the issuance of 15,000 shares of
<PAGE>
Common Stock (the maximum number of shares of Common Stock reserved for
under this Plan) subject to adjustment pursuant to Section 4 hereof.
7. AMENDMENT OF THE PLAN
The Directors' Option Plan may be amended from time to time by the Board of
Directors of the Company provided that Section 2 and 3 hereof shall not be
amended more than once every six months other than to comport with the
Internal Revenue Code of 1986, as amended, or the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder. Except as
provided in Section 4 hereof, rights and obligations under any option
granted before an amendment shall not be altered or impaired by such
amendment without the written consent of the optionee. If the Directors'
Option Plan becomes qualified under 17 C.F.R. ss.240.16(b)-3 ("Rule
16(b)-3") of the rules and regulations promulgated under the Securities
Exchange Act of 1934 and an amendment would require shareholder approval
under such Rule 16(b)-3 to retain the Plan's qualification and as may be
required under applicable New Jersey and federal banking law, then subject
to the discretion of the Board of Directors of the Company, such amendment
shall be presented to shareholders for ratification, provided, however,
that the failure to obtain shareholder ratification shall not affect the
validity of this Plan as so amended and the options granted thereunder.
8. APPLICABLE LAW
The Plan will be administered in accordance with the laws of the State of
New Jersey and applicable federal law.
9. COMPLIANCE WITH SECTION 16
If this Plan is qualified under Rule 16b-3 transactions under this Plan are
intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the Exchange Act. To the extent that any provision of the
Plan fails to so comply, such provision shall be deemed null and void, to
the extent permitted by law.
EXHIBIT 4.5
TRUST AGREEMENT
BETWEEN
PEAPACK-GLADSTONE BANK
AND
PEAPACK-GLADSTONE BANK
FOR THE
PEAPACK-GLADSTONE BANK EMPLOYEES' SAVINGS AND INVESTMENT PLAN
<PAGE>
TABLE OF CONTENTS
SECTION 1. CREATION OF TRUST................................................54
1.1 TRUSTEE.................................................................54
1.2 TRUST FUND..............................................................54
1.3 INCORPORATION OF PLAN...................................................54
1.4 NAME....................................................................54
1.5 NONDIVERSION OF ASSETS..................................................54
SECTION 2. INVESTMENT OF TRUST FUND AND ADMINISTRATIVE POWERS OF THE TRUSTEE.54
2.1 RESPONSIBILITY FOR INVESTMENT...........................................54
2.2 DELEGATION OF INVESTMENT RESPONSIBILITY.................................55
2.3 TRUSTEE POWERS..........................................................56
SECTION 3. COMPENSATION AND INDEMNIFICATION OF TRUSTEE.......................58
AND PAYMENT OF EXPENSES AND TAXES............................................58
3.1 COMPENSATION............................................................58
3.2 INDEMNIFICATION.........................................................59
3.3 EXPENSES................................................................59
3.4 TAXES...................................................................59
SECTION 4. RECORDS AND VALUATION............................................59
4.1 RECORDS.................................................................59
4.2 VALUATION...............................................................59
SECTION 5. INSTRUCTIONS FROM ADMINISTRATOR..................................60
5.1 CERTIFICATION OF MEMBERS AND EMPLOYEES..................................60
5.2 INSTRUCTIONS TO TRUSTEE.................................................60
5.3 PLAN CHANGES............................................................60
5.4 POLICIES................................................................60
SECTION 6. CHANGE OF TRUSTEES...............................................60
SECTION 7. MISCELLANEOUS....................................................61
7.1 RIGHT TO AMEND..........................................................61
7.2 COMPLIANCE WITH ERISA...................................................61
7.3 NONRESPONSIBILITY FOR FUNDING...........................................61
7.4 REPORTS.................................................................62
7.5 DEALINGS WITH TRUSTEE...................................................62
7.6 LIMITATIONS UPON RESPONSIBILITIES.......................................62
7.7 SUCCESSOR TRUSTEES......................................................62
7.8 GOVERNING STATE LAW.....................................................62
<PAGE>
This TRUST AGREEMENT dated 10/1, 1993,
BETWEEN PEAPACK-GLADSTONE BANK, a Banking Corporation of the state of New Jersey
(hereinafter called the "Company"),
AND PEAPACK-GLADSTONE BANK (hereinafter called the "Trustee"),
W I T N E S S E T H T H A T :
WHEREAS, effective October 1, 1993, the Company approved and adopted a
retirement plan for the benefit of its employees (hereinafter called the
"Plan"); and
WHEREAS, the Board has authorized the execution of this Trust Agreement and
has appointed Peapack-Gladstone Bank as Trustee of the Trust Fund created
pursuant to the Plan; and
WHEREAS, said Trustee agrees to hold and administer the assets of the Plan
in accordance with the terms of this Trust Agreement;
NOW, THEREFORE, in consideration of the appointment of Peapack-Gladstone
Bank as Trustee and in consideration of the premises and covenants contained
herein, the Company and the Trustee agree as follows:
<PAGE>
Section 1. Creation of Trust
1.1 Trustee.
Peapack-Gladstone Bank shall be Trustee of the Trust Fund created in
accordance with and in furtherance of the Plan, and shall serve as Trustee until
removal or resignation in accordance with section 6 hereof. The effective date
of said trusteeship for purposes of this instrument shall be the data on which
the Plan, of which this Trust Agreement compliments, is considered effective.
1.2 Trust Fund.
The Trustee hereby agrees to accept contributions from the Company and the
Participants and amounts transferred from other qualified retirement plans from
time to time in accordance with the terms of the Plan. All such property and
contributions, together with income thereon and increments thereto, shall
constitute the "Trust Fund" to be held in accordance with the terms of this
Trust Agreement.
1.3 Incorporation of Plan.
An instrument entitled Peapack-Gladstone Bank Employees' Savings and
Investment Plan is incorporated herein by reference, and this Trust Agreement
shall be interpreted consistently with that Plan. All words and phrases defined
in that Plan shall have the same meaning when used in this Trust Agreement.
1.4 Name.
The name of this trust shall be Peapack-Gladstone Bank Employees'
Savings and Investment Trust.
1.5 Nondiversion of Assets.
In no event shall any part of the corpus or income of the Trust Fund be
used for, or diverted to, purposes other than for the exclusive benefit of the
Participants and their Beneficiaries prior to the satisfaction of all
liabilities under the Plan, except to the extent that assets may be returned to
the Employers in accordance with the Plan where the Plan fails to qualify
initially under section 401(a) of the Code, or where they are attributable to
contributions made by mistake of fact or conditioned upon their deductibility.
Section 2. Investment of Trust Fund and Administrative Powers of the Trustee.
2.1 Responsibility for Investment.
If authorized by the Plan, the Trustee shall from time to time purchase
policies in accordance with the Plan and pay the premiums from the Trust Fund.
The Trustee shall invest the balance of the Trust Fund in such property as the
Trustee, in its discretion, shall deem advisable, subject to any
<PAGE>
instructions by the Administrator or an investment manager or a Participant as
to the investment of all or a portion of the Trust Fund pursuant to section 2.2.
However, the Trustee shall not make any investment or take any action involving
those assets for which it remains responsible which (i) is inconsistent with the
prudence and diversification requirements set forth in sections 404(a)(1)(B) and
(C) of ERISA, or (ii) is prohibited by section 406 of ERISA, or (iii) would
impair the qualification of the Plan or the exemption of the Trust under
sections 401 and 501 of the Code. Notwithstanding the foregoing, the Company's
discretionary contributions for allocations to Participants' Regular Accounts
pursuant to Section 4.4 of the Plan shall be in the form of qualifying employer
securities (as defined in section 407(d)(5) of ERISA), provided that such
contributions comply with section 408(e) of ERISA.
2.2 Delegation of Investment Responsibility.
The Administrator may, by written notice, direct the Trustee to segregate
any portion or all of the Trust Fund into one or more separate accounts for each
of which full investment responsibility will be delegated to an investment
manager appointed in such notice pursuant to section 402(c)(3) of ERISA
(hereinafter a "Manager") or to an individual Participant. For any separate
account where the Trustee is to maintain custody of the assets, the Trustee and
the Manager or the Participant shall agree upon procedures for the transmittal
of investment instructions from the Manager or the Participant to the Trustee,
and the Trustee may provide the Manager or the Participant with such documents
as may be necessary to authorize the Manager or the Participant to effect
transactions directly on behalf of the segregated account. Further, the
Administrator may, by written notice, direct the Trustee to segregate any
portion or all of the Trust Fund into one or more separate accounts for each of
which full investment responsibility will be delegated to an insurance company
through one or more group annuity contracts, deposit administration contracts,
or similar contracts, which may provide for investments in any commingled
separate accounts established under such contracts. An insurance company shall
be a Manager with respect to any amounts held under such a contract except to
the extent the insurer's assets are not deemed assets of the Plan and Trust Fund
pursuant to section 401(b)(2) of ERISA. The allocation of amounts held under
such a contract among the insurer's general account and one or more individual
or commingled separate accounts shall be determined by the Administrator except
as otherwise agreed by the Administrator and the insurer. Any Manager shall have
all of the powers given to the Trustee pursuant to section 2.3 with respect to
the portion of the Trust Fund committed to its investment discretion and
control. The Trustee shall be responsible for the safekeeping of any assets
which remain in its custody, but in no event shall the Trustee be under any duty
to question or make any inquiry or suggestion regarding the action or inaction
of a Manager, or an insurer, or a Participant, or the advisability of acquiring,
retaining, or disposing of any asset of a segregated account. The Employers
shall indemnify and hold the Trustee harmless from any and all costs, damages,
expenses, and liabilities which the Trustee may incur by reason of any action
taken or omitted to be taken by the Trustee upon directions from the
Administrator, a Manager, or an insurer, or a Participant pursuant to this
section 2.2.
<PAGE>
2.3 Trustee Powers.
In addition to and not by way of limitation upon the fiduciary powers
granted to it by law, the Trustee shall have the following specific powers,
subject to the limitations set forth in section 2.1:
2.3-1 to receive, hold, manage, invest and reinvest the money or other
property which constitutes the Trust Fund, without distinction between principal
and income;
2.3-2 to hold funds uninvested temporarily without liability for interest
thereon, and to deposit funds in one or more savings or similar accounts with
any banks and savings and loan associations which are insured by an
instrumentality of the federal government, including the Trustee if it is such
an institution;
2.3-3 to invest or reinvest the whole or any portion of the money or other
property which constitutes the Trust Fund in such common or preferred stocks,
investment trust shares, mutual funds, commingled trust funds, partnership
interests, bonds, notes, or other evidences of indebtedness, and real and
personal property as the Trustee in its absolute judgment and discretion may
deem to be for the best interests of the Trust Fund, regardless of
nondiversification to the extent that such nondiversification is clearly
prudent, and regardless of whether any such investment or property is authorized
by law regarding the investment of trust funds, of a wasting asset nature,
temporarily nonincome producing, or within or without the State of New Jersey or
the United States;
2.3-4 to invest in common and preferred stocks, bonds, notes, or other
obligations of any corporation or business enterprise in which an Employer or
its owners may own an interest;
2.3-5 to invest in real property purchased from, leased to, and managed or
operated by or for an Employer and any other corporation or business enterprise
in which an Employer or its owners may own an interest, upon such terms and
conditions as the Trustee in its absolute discretion may deem advisable;
2.3-6 to exchange any investment or property, real or personal, for other
investments or properties at such time and upon such terms as the Trustee shall
deem proper;
2.3-7 to sell, transfer, convey or otherwise dispose of any investment or
property, real or personal, for cash or on credit, in such manner and upon such
terms and conditions as the Trustee shall deem advisable, and no person dealing
with the Trustee shall be under any duty to inquire as to the validity,
expediency, or propriety of any such sale or as to the application of the
purchase money paid to the Trustee;
2.3-8 to hold any investment or property in the name of the Trustee, with
or without the designation of any fiduciary capacity, or in name of a nominee,
or unregistered, or in such other form that title may pass by delivery;
provided, however, that the Trustee's records always shall show that such
investment or property belongs to the Trust and the Trustee shall not be
relieved hereby of its responsibility to maintain safe custody of the Trust
Fund;
<PAGE>
2.3-9 to organize one or more corporations to hold, manage, or liquidate
any property, including real estate, owned or acquired by the Trust Fund if in
the sole discretion of the Trustee the organization of such corporation or
corporations is for the best interest of the Trust;
2.3-10 to extend the time for payment of, to modify, to renew, or to
release security from any mortgage, note or other evidence of indebtedness, or
to take advantage of or waive any default; to foreclose mortgages and bid in
property under foreclosure or to take title to property by conveyance in lieu of
foreclosure, either with or without the payment of additional consideration;
2.3-11 to vote in person or by proxy all stocks and other securities having
voting privileges; to exercise or refrain from exercising any option or
privilege with respect to stocks and other securities, including any right or
privilege to subscribe for or otherwise to acquire stocks and other securities;
or to sell any such right or privilege; to assent to and join in any plan of
refinance, merger, consolidation, reorganization or liquidation of any
corporation or other enterprise in which this Trust may have an interest, to
deposit stocks and other securities with any committee formed to effectuate the
same, to pay any expense incidental thereto, to exchange stocks and other
securities for those which may be issued pursuant to any such plan, and to
retain as an investment the stocks and other securities received by the Trustee;
and to deposit any investment in a voting trust;
2.3-12 to abandon any property, real or personal, which the Trustee shall
consider to be worthless or not of sufficient value to warrant its keeping or
protecting; to abstain from the payment of taxes, water rents, assessments,
repairs, maintenance, and upkeep of any such property; to permit any such
property to be lost by tax sale or other proceedings, and to convey any such
property for a nominal consideration or without consideration;
2.3-13 to borrow money from an Employer or from others (including the
Trustee) upon such terms and conditions and at such reasonable rates of interest
as the Trustee may deem to be advisable; to issue its promissory note as Trustee
to evidence such debt; and to secure the payment of such note by pledging any
property of the Trust Fund;
2.3-14 to manage and operate any real property which shall at any time
constitute an asset of the Trust Fund; to make repairs, alterations, and
improvements thereto; to insure such property against loss by fire or other
casualty; to lease or grant options for the sale of such property, which lease
or option may be for a period of time which may extend beyond the life of this
Trust; and to take any other action or enter into any other contract respecting
such property which is consistent with the best interests of the Trust;
2.3-15 to employ and compensate agents, investment counsel, custodians,
actuaries, attorneys, and accountants and to pay any and all expenses incurred
in connection with the exercise of any power, right, authority or discretion
granted herein;
2.3-16 to employ and consult with any legal counsel, who also may be
counsel to an Employer or the Administrator, with respect to the meaning or
construction of this Trust Agreement, the extent of the Trustee's obligations
and duties hereunder, and whether the Trustee should take or decline to take a
<PAGE>
particular action hereunder, and the Trustee shall be fully protected with
respect to any action taken or omitted by it in good faith pursuant to such
advice;
2.3-17 to defend any action or proceeding instituted against the Trust
Fund, to institute any action on behalf of the Trust Fund, and to compromise or
submit to arbitration any dispute concerning the Trust Fund;
2.3-18 to make, execute, acknowledge and deliver any and all documents of
transfer and conveyance and any and all other instruments that may be necessary
or appropriate to carry out the powers herein granted;
2.3-19 to commingle the Trust Fund created pursuant hereto, in whole or in
part, in a single trust with all or any portion of any other trust fund,
assigning an undivided interest to each such commingled trust fund, provided
that such commingled trust is itself exempt from taxation pursuant to section
501(a) of the Code, or its successor section; and provided further that the
trust agreement governing such commingled trust shall be deemed incorporated by
reference in the Plan;
2.3-20 where two or more trusts governed by this Trust Agreement have an
undivided interest in any property, to credit the income from such property to
such trusts in proportion to their undivided interests, and when non pro-rata
distributions of property or money are made from such trusts, to make
appropriate adjustments to the undivided fractional interests of such trusts;
2.3-21 to invest all or any portion of the Trust Fund in one or more group
annuity contracts, deposit administration contracts, and other such contracts
with insurance companies, including any commingled separate accounts established
under such contracts, as shall be determined by the Trustee to be desirable and
for the best interest of the Trust Fund;
2.3-22 generally, with respect to all cash, stocks and other securities,
and property, both real and personal, received or held in the Trust Fund by the
Trustee, to exercise all the same rights and powers as are or may be lawfully
exercised by persons owning cash, or stocks and other securities, or such
property in their own right; and to do all other acts, whether or not expressly
authorized, which it may deem necessary or proper for the protection of the
Trust Fund; and
2.3-23 whenever more than two persons shall qualify to act as co-trustees,
to exercise and perform every power (including discretionary powers), authority
or duty by the concurrence of a majority of them with the same effect as if all
had joined therein, except that the unanimous vote of such persons shall be
necessary to determine the number (one or more) and identity of persons who may
sign checks, make withdrawals from financial institutions, have access to safe
deposit boxes, or direct the sale of trust assets and the disposition of the
proceeds.
Section 3. Compensation and Indemnification of Trustee and Payment of Expenses
and Taxes.
<PAGE>
3.1 Compensation.
The Trustee shall receive as its compensation and as reimbursement for
expenses such amounts as shall be agreed upon from time to time between it and
the Board. However, in no event shall any compensation be paid from the Trust
Fund to an individual trustee who receives full-time compensation as an employee
of an Employer.
3.2 Indemnification.
Notwithstanding any other provision of this Trust Agreement, any individual
designated as a trustee hereunder shall be indemnified and held harmless by the
Employer to the fullest extent permitted by law against any and all costs,
damages, expenses and liabilities reasonably incurred by or imposed upon such
individual in connection with any claim made against him or in which he may be
involved by reason of his being, or having been, a trustee hereunder, to the
extent such amounts are not satisfied by insurance maintained by the Employers.
Further, any corporate trustee shall be indemnified and held harmless by the
Employers to the fullest extent permitted by law against any and all costs,
damages, expenses and liabilities reasonably incurred by or imposed upon such
corporation in connection with any claim made against it or in which it may be
involved by reason of its being, or having been, a trustee hereunder, to the
extent such claim is not based upon the trustee's negligence or breach of
fiduciary duty and such amounts are not satisfied by insurance.
3.3 Expenses.
All expenses of administering this Trust and the Plan, whether incurred by
the Trustee or the Administrator, shall be paid by the Trustee from the Trust
Fund to the extent such expenses shall not have been assumed by the Employers or
the Trustee.
3.4 Taxes.
All taxes of any kind that may be levied or assessed upon the Trust Fund,
its income or assets, shall be paid from the Trust Fund, but the Trustee shall
not be obliged to pay such tax so long as it shall contest the validity of such
levy or assessment upon the advice of counsel.
Section 4. Records and Valuation.
4.1 Records.
The Trustee, and any investment manager appointed pursuant to section 2.2,
shall maintain accurate and detailed records and accounts of all investments,
receipts, disbursements and other transactions made by it with respect to the
Trust Fund, and all accounts, books and records relating thereto shall be open
at all reasonable times to inspection and audit by the Administrator and the
Employers.
<PAGE>
4.2 Valuation.
From time to time upon the request of the Administrator, but at least
annually as of the last day of each Plan Year, the Trustee shall prepare a
balance sheet and income statement of the Trust Fund and shall deliver copies of
the balance sheet and income statement to the Administrator and the Employers.
For this purpose, the Trustee shall record each asset (including any
contribution receivable from the Employers) at its fair market value. Any
liability with respect to short positions or options and any item of accrued
income or expense and unrealized appreciation or depreciation shall be included;
provided, however, that such an item may be excluded if it is not readily
ascertainable unless its exclusion would result in a material distortion. In the
absence of any written objections to the balance sheet by the Administrator or
an Employer within 90 days after its delivery to them, the Trustee shall be
entitled to presume and to rely upon its correctness for all purposes.
Section 5. Instructions from Administrator.
5.1 Certification of Members and Employees.
From time to time the Company shall certify to the Trustee in writing the
names of the individuals comprising the Administrator and shall furnish to the
Trustee specimens of their signatures and the signatures of their agents, if
any. The Trustee shall be entitled to presume that the identities of such
individuals and their agents are unchanged until receipt of a certification from
the Company notifying it of any changes.
5.2 Instructions to Trustee.
The Trustee shall pay such sums to such persons and shall take such other
actions as shall be set forth in written instructions from the Administrator.
The Trustee shall be fully protected in taking any action based upon such
written instructions and shall have no power, authority, or duty to interpret
the Plan or to inquire into the decisions or determinations of the
Administrator, or to question the instructions given to it by the Administrator.
5.3 Plan Changes.
In the event of an amendment, merger, division, or termination of the Plan,
the Trustee shall continue to disburse funds and to take other proper actions in
accordance with the instructions of the Administrator.
5.4 Policies.
With respect to Policies purchased pursuant to the Plan, the Trustee shall
take such action and execute such documents as shall be requested in written
instructions given to the Trustee by the Administrator.
<PAGE>
Section 6. Change of Trustees.
The Company may at any time, by action of the Board, remove any person or
corporation serving as a trustee hereunder by giving to such person or
corporation written notice of removal and, if applicable, the name and address
of the successor trustee. Any person or corporation serving as a trustee
hereunder may resign at any time by giving written notice to the Company. Any
such removal or resignation shall take effect within 30 days after notice has
been given by the trustee or by the Company, as the case may be. Within those 30
days, the removed or resigned trustee shall transfer, pay over and deliver any
portion of the Trust Fund in its possession or control (less an appropriate
reserve for any unpaid fees, expenses, and liabilities) and all pertinent
records to the successor or remaining trustee; provided, however, that any
assets which are invested in a collective fund or in some other manner which
prevents their immediate transfer shall be transferred and delivered to the
successor trustee as soon as may be practicable. Thereafter, the removed or
resigned trustee shall have no liability for the Trust Fund or for its
administration by the successor or remaining trustee, but shall render an
accounting to the Administrator of its administration of the Trust Fund to the
date on which its trusteeship shall have been terminated. The Company may also,
upon 30 days' notice to each person currently serving as a trustee, appoint one
or more persons to serve as co-trustees hereunder.
Section 7. Miscellaneous.
7.1 Right to Amend.
This Trust Agreement may be amended from time to time by an instrument
executed by the Company; provided, however, that any amendment affecting the
powers or duties of the Trustee must be approved by the Trustee, and provided,
further, that no amendment may divert any portion of the Trust Fund to purposes
other than the exclusive benefit of the Participants and their Beneficiaries
prior to the satisfaction of all liabilities for benefits. Any amendment shall
apply to the Trust Fund as constituted at the time of the amendment as well as
to that portion of the Trust Fund which is subsequently acquired.
7.2 Compliance with ERISA.
In the exercise of its powers and the performance of its duties hereunder,
the Trustee shall act in good faith and in accordance with the applicable
requirements under ERISA. Except as may be otherwise required by ERISA, the
Trustee shall not be required to furnish any bond in any jurisdiction for the
performance of its duties hereunder and, if a bond is required despite this
provision, no surety shall be required on it.
<PAGE>
7.3 Nonresponsibility for Funding.
The Trustee shall be under no duty to enforce the payment of any
contributions and shall not be responsible for the adequacy of the Trust Fund to
satisfy any obligations for benefits under the Plan.
7.4 Reports.
The Trustee shall file any report which it is required by law to file with
any governmental authority with respect to this Trust, and the Administrator
shall furnish to the Trustee whatever information is necessary to prepare the
report.
7.5 Dealings with Trustee.
Persons dealing with the Trustee, including but not limited to banks,
brokers, dealers, and insurers, shall be under no obligation to inquire
concerning the validity of anything which the Trustee purports to do, nor need
any person see to the proper application of any money paid or any property
transferred upon the order of the Trustee or to inquire into the Trustee's
authority as to any transaction.
7.6 Limitations Upon Responsibilities.
The Trustee shall have no responsibilities under this Trust Agreement other
than those specifically enumerated or explicitly allocated to it under the
provisions of ERISA. All other responsibilities are retained and shall be
performed by one or more of the Employers, the Administrator, and such advisors
or agents as they choose to engage.
7.7 Successor Trustees.
This Trust Agreement shall apply to any person or corporation who shall be
appointed to succeed one or more of the persons or corporations currently
appointed as a trustee; and any reference herein to the Trustee shall be deemed
to include any one or more individuals or corporations or any combination
thereof who or which shall at any time act as a co-trustee or as the sole
trustee.
7.8 Governing State Law.
This Trust Agreement shall be interpreted in accordance with the laws of
the State of New Jersey to the extent those laws may be applicable under the
provisions of ERISA.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
WITNESS: PEAPACK-GLADSTONE BANK
TONI ROSELL By: FRANK A. KISSEL
- ---------------------------- ----------------------------
Toni Rosell Frank A. Kissel, President
WITNESS: PEAPACK-GLADSTONE BANK, TRUSTEE
TONI ROSELL CRAIG C. SPENGEMAN
- ---------------------------- ----------------------------------------
Toni Rosell Craig C. Spengeman, Senior Trust Officer
EXHIBIT 10.1
CHANGE-IN-CONTROL AGREEMENT
(Frank A. Kissel)
THIS EMPLOYMENT AGREEMENT (the "Agreement"), is made as of this 1st day of
January, 1998, among PEAPACK-GLADSTONE BANK ("Bank"), a New Jersey state banking
association with its principal office at 190 Main Street, Gladstone, New Jersey
07934, PEAPACK-GLADSTONE FINANCIAL CORPORATION ("Peapack"), a New Jersey
Corporation which maintains its principal office at 158 Route 206 North,
Gladstone, New Jersey 07934 (Peapack and the Bank collectively are the
"Company") and FRANK A. KISSEL (the "Executive").
BACKGROUND
WHEREAS, the Executive has been continuously employed by the Bank for many
years;
WHEREAS, the Executive throughout his tenure has worked diligently in his
position in the business of the Bank and Peapack;
WHEREAS, the Board of Directors of the Bank and Peapack believe that the
future services of the Executive are of great value to the Bank and Peapack and
that it is important for the growth and development of the Bank that the
Executive continue in his position;
WHEREAS, if the Company receives any proposal from a third person
concerning a possible business combination with, or acquisition of equities
securities of, the Company, the Board of Directors of the Company (the "Board")
believes it is imperative that the Company and the Board be able to rely upon
the Executive to continue in his position, and that they be able to receive and
rely upon his advice, if they request it, as to the best interests of the
Company and its shareholders, without concern that the Executive might be
distracted by the personal uncertainties and risks created by such a proposal;
<PAGE>
WHEREAS, to achieve that goal, and to retain the Executive's services prior
to any such activity, the Board of Directors and the Executive have agreed to
enter into this Agreement to govern the Executive's termination benefits in the
event of a Change in Control of the Company, as hereinafter defined.
NOW, THEREFORE, to assure the Company that it will have the continued
dedication of the Executive and the availability of his advice and counsel
notwithstanding the possibility, threat or occurrence of a bid to take over
control of the Company, and to induce the Executive to remain in the employ of
the Company, and for other good and valuable consideration, the Company and the
Executive, each intending to be legally bound hereby agree as follows:
Definitions
a) Cause. For purposes of this Agreement "Cause" with respect to the
termination by the Company of Executive's employment shall mean (i) willful and
continued failure by the Executive to perform his duties for the Company under
this Agreement after at least one warning in writing from the Company's Board of
Directors identifying specifically any such failure; (ii) the willful engaging
by the Executive in misconduct which causes material injury to the Company as
specified in a written notice to the Executive from the Board of Directors; or
(iii) conviction of a crime, other than a traffic violation, habitual
drunkenness, drug abuse, or excessive absenteeism other than for illness, after
a warning (with respect to drunkenness or absenteeism only) in writing from the
Board of Directors to refrain from such behavior. No act or failure to act on
the part of the Executive shall be considered willful unless done, or omitted to
be done, by the Executive not in good faith and without reasonable belief that
the action or omission was in the best interest of the Company.
b) Change in Control. "Change in Control" means any of the following
events: (i) when Peapack or a Subsidiary acquires actual knowledge that any
person (as such term is used
<PAGE>
in Sections 13(d) and 14(d)(2) of the Exchange Act), other than an affiliate of
Peapack or a Subsidiary or an employee benefit plan established or maintained by
Peapack, a Subsidiary or any of their respective affiliates, is or becomes the
beneficial owner (as defined in Rule 13d-3 of the Exchange Act) directly or
indirectly, of securities of Peapack representing more than twenty-five percent
(25%) of the combined voting power of Peapack's then outstanding securities (a
"Control Person"), (ii) upon the first purchase of Peapack's common stock
pursuant to a tender or exchange offer (other than a tender or exchange offer
made by Peapack, a Subsidiary or an employee benefit plan established or
maintained by Peapack, a Subsidiary or any of their respective affiliates),
(iii) upon the approval by Peapack's stockholders of (A) a merger or
consolidation of Peapack with or into another corporation (other than a merger
or consolidation which is approved by at least two-thirds of the Continuing
Directors (as hereinafter defined) and the definitive agreement for which
provides that at least two-thirds of the directors of the surviving or resulting
corporation immediately after the transaction are Continuing Directors (a
"Non-Control Transaction")), (B) a sale or disposition of all or substantially
all of Peapack's assets or (C) a plan of liquidation or dissolution of Peapack,
(iv) if during any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the Board (the "Continuing Directors") cease
for any reason to constitute at least two-thirds thereof or, following a
Non-Control Transaction, two-thirds of the board of directors of the surviving
or resulting corporation; provided that any individual whose election or
nomination for election as a member of the Board (or, following a Non-Control
Transaction, the board of directors of the surviving or resulting corporation)
was approved by a vote of at least two-thirds of the Continuing Directors then
in office shall be considered a Continuing Director, or (v) upon a sale of (A)
common stock of the Bank if after such sale any person (as such term is used in
Section 13(d) and 14(d)(2) of the Exchange Act) other than Peapack, an employee
benefit plan established or maintained by Peapack or a Subsidiary, or an
affiliate of Peapack or a Subsidiary, owns a majority of the Bank's common stock
or (B) all or substantially
<PAGE>
all of the Bank's assets (other than in the ordinary course of business). No
person shall be considered a Control Person for purposes of clause (i) above if
(A) such person is or becomes the beneficial owner, directly or indirectly, of
more than ten percent (10%) but less than twenty-five percent (25%) of the
combined voting power of Peapack's then outstanding securities if the
acquisition of all voting securities in excess of ten percent (10%) was approved
in advance by a majority of the Continuing Directors then in office or (B) such
person acquires in excess of ten percent (10%) of the combined voting power of
Peapack's then outstanding voting securities in violation of law and by order of
a court of competent jurisdiction, settlement or otherwise, disposes or is
required to dispose of all securities acquired in violation of law.
c) Contract Period. "Contract Period" shall mean the period commencing the
day immediately preceding a Change in Control and ending on the earlier of (i)
the third anniversary of the Change in Control or (ii) the date the Executive
would attain age 65 or (iii) the death of the Executive. For the purpose of this
Agreement, a Change in Control shall be deemed to have occurred at the date
specified in the definition of Change-in-Control.
d) Exchange Act. "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
e) Good Reason. When used with reference to a voluntary termination by
Executive of his employment with the Company, "Good Reason" shall mean any of
the following, if taken without Executive's express written consent:
(1) The assignment to Executive of any duties inconsistent with, or
the reduction of powers or functions associated with, Executive's position,
title, duties, responsibilities and status with the Company immediately
prior to a Change in Control; any removal of Executive from, or any failure
to re-elect Executive to, any position(s) or office(s) Executive held
immediately prior to such
<PAGE>
Change in Control. A change in title or positions resulting merely from a
merger of the Company into or with another bank or company which does not
downgrade in any way the Executive's powers, duties and responsibilities
shall not meet the requirements of this paragraph;
(2) A reduction by the Company in Executive's annual base compensation
as in effect immediately prior to a Change in Control or the failure to
award Executive annual increases in accordance herewith;
(3) A failure by the Company to continue any bonus plan in which
Executive participated immediately prior to the Change in control or a
failure by the Company to continue Executive as a participant in such plan
on at least the same basis as Executive participated in such plan prior to
the Change in Control;
(4) The Company's transfer of Executive to another geographic location
outside of New Jersey or more than 25 miles from his present office
location, except for required travel on the Company's business to an extent
substantially consistent with Executive's business travel obligations
immediately prior to such Change in Control;
(5) The failure by the Company to continue in effect any employee
benefit plan, program or arrangement (including, without limitation the
Company's retirement plan, benefit equalization plan, life insurance plan,
health and accident plan, disability plan, deferred compensation plan or
long term stock incentive plan) in which Executive is participating
immediately prior to a Change in Control (except that the Company may
institute or continue plans, programs or arrangements providing Executive
with substantially similar benefits); the taking of any action by the
Company which would adversely affect Executive's participation in or
materially reduce Executive's benefits under, any of such plans, programs
or arrangements; the failure to continue, or the taking of any action which
would deprive Executive, of any material fringe benefit enjoyed by
Executive immediately
<PAGE>
prior to such Change in Control; or the failure by the Company to provide
Executive with the number of paid vacation days to which Executive was
entitled immediately prior to such Change in Control;
(6) The failure by the Company to obtain an assumption in writing of
the obligations of the Company to perform this Agreement by any successor
to the Company and to provide such assumption to the Executive prior to any
Change in Control; or
(7) Any purported termination of Executive's employment by the Company
during the term of this Agreement which is not effected pursuant to all of
the requirements of this Agreement; and, for purposes of this Agreement, no
such purported termination shall be effective.
f) Subsidiary. "Subsidiary" means any corporation in an unbroken chain of
corporations, beginning with Peapack, if each of the corporations other than the
last corporation in the unbroken chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
2. Employment. The Company hereby agrees to employ the Executive, and the
Executive hereby accepts employment, during the Contract Period upon the terms
and conditions set forth herein.
3. Position. During the Contract Period the Executive shall be employed as
President of Peapack and the Bank, or such other corporate or divisional profit
center as shall then be the principal successor to the business, assets and
properties of the Company, with substantially the same title and the same duties
and responsibilities as before the Change in Control. The Executive shall devote
his full time and attention to the business of the Company, and shall not during
the Contract Period be engaged in any other business activity. This paragraph
shall not be construed as preventing the Executive from managing any investments
of his which do not require any service on his part in the operation of such
investments.
<PAGE>
4. Cash Compensation. The Company shall pay to the Executive compensation
for his services during the Contract Period as follows:
a) Base Salary. A base annual salary equal to the annual salary in
effect as of the Change in Control. The annual salary shall be payable in
installments in accordance with the Company's usual payroll method.
b) Annual Bonus. An annual cash bonus equal to at least the average of
the bonuses paid to the Executive in the three years prior to the Change in
Control. The bonus shall be payable at the time and in the manner which the
Company paid such bonuses prior to the Change in Control.
c) Annual Review. The Board of Directors of the Company during the
Contract Period shall review annually, or at more frequent intervals which
the Board determines is appropriate, the Executive's compensation and shall
award him additional compensation to reflect the Executive's performance,
the performance of the Company and competitive compensation levels, all as
determined in the discretion of the Board of Directors.
5. Expenses and Fringe Benefits.
a) Expenses. During the Contract Period, the Executive shall be
entitled to reimbursement for all business expenses incurred by him with
respect to the business of the Company in the same manner and to the same
extent as such expenses were previously reimbursed to him immediately prior
to the Change in Control.
b) Supplemental Retirement Plan. During the Contract Period, if the
Executive was entitled to benefits under any supplemental retirement plan
prior to the Change in Control, the Executive shall be entitled to
continued benefits under such plan after the Change in Control and such
plan may not be modified to reduce or eliminate such benefits during the
Contract Period.
<PAGE>
c) Club Membership and Automobile. If prior to the Change in Control,
the Executive was entitled to membership in a country club and/or the use
of an automobile, he shall be entitled to the same membership and/or use of
an automobile at least comparable to the automobile provided to him prior
to the Change in Control.
d) Other Benefits. The Executive also shall be entitled to vacations
and sick days, in accordance with the practices and procedures of the
Company, as such existed immediately prior to the Change in Control. During
the Contract Period, the Executive also shall be entitled to hospital,
health, medical and life insurance, and any other benefits enjoyed, from
time to time, by senior officers of the Company, all upon terms as
favorable as those enjoyed by other senior officers of the Company.
Notwithstanding anything in this paragraph 5(d) to the contrary, if the
Company adopts any change in the benefits provided for senior officers of
the Company, and such policy is uniformly applied to all officers of the
Company (and any successor or acquiror of the Company, if any), including
the chief executive officer of such entities, then no such change shall be
deemed to be contrary to this paragraph.
6. Termination for Cause. The Company shall have the right to terminate the
Executive for Cause, upon written notice to him of the termination which notice
shall specify the reasons for the termination. In the event of termination for
Cause the Executive shall not be entitled to any further benefits under this
Agreement.
7. Disability. During the Contract Period if the Executive becomes
permanently disabled, or is unable to perform his duties hereunder for 4
consecutive months in any 12 month period, the Company may terminate the
employment of the Executive. In such event, the Executive shall not be entitled
to any further benefits under this Agreement.
8. Death Benefits. Upon the Executive's death during the Contract Period,
his estate shall not be entitled to any further benefits under this Agreement.
<PAGE>
9. Termination Without Cause or Resignation for Good Reason. The Company
may terminate the Executive without Cause during the Contract Period by written
notice to the Executive providing four weeks notice. The Executive may resign
for Good Reason during the Contract Period upon four weeks' written notice to
the Company specifying facts and circumstances claimed to support the Good
Reason. The Executive shall be entitled to give a Notice of Termination that his
or her employment is being terminated for Good Reason at any time during the
Contract Period, not later than twelve months after any occurrence of an event
stated to constitute Good Reason. If the Company terminates the Executive's
employment during the Contract Period without Cause or if the Executive Resigns
for Good Reason, the Company shall, subject to Section 12 hereof:
(a) Within 20 business days of the termination of employment pay the
Executive a lump sum severance payment in an amount equal to three (3.0)
times the highest annual cash compensation, consisting solely of salary and
bonus, as well as any 401(k) deferral, paid to the Executive during any
calendar year in each of the three calendar years immediately prior to the
Change in Control; and
(b) Continue to provide the Executive during the remainder of the
Contract Period with health, hospitalization and medical insurance, as were
provided at the time of the termination of his employment with the Company,
at the Company's cost (subject to standard deductibles and co-pays, and the
Executive's continuing payment of his part of the premium for family
coverage, if applicable).
The Executive shall not have a duty to mitigate the damages suffered by him
in connection with the termination by the Company of his employment without
Cause or a resignation for Good Reason during the Contract Period. If the
Company fails to pay the Executive the lump sum amount due him hereunder or to
provide him with the health, hospitalization and medical insurance benefits due
under this section, the Executive, after giving 10 days' written notice to the
Company identifying the Company's
<PAGE>
failure, shall be entitled to recover from the Company all of his reasonable
legal fees and expenses incurred in connection with his enforcement against the
Company of the terms of this Agreement. The Executive shall be denied payment of
his legal fees and expenses only if a court finds that the Executive sought
payment of such fees without reasonable cause and not in good faith.
10. Resignation Without Good Reason. The Executive shall be entitled to
resign from the employment of the Company at any time during the Contract Period
without Good Reason, but upon such resignation the Executive shall not be
entitled to any additional compensation for the time after which he ceases to be
employed by the Company, and shall not be entitled to any of the other benefits
provided hereunder. No such resignation shall be effective unless in writing
with four weeks' notice thereof.
11. Non-Disclosure of Confidential Information.
a) Non-Disclosure of Confidential Information. Except in the course of
his employment with the Company and in the pursuit of the business of the
Company or any of its subsidiaries or affiliates, the Executive shall not,
at any time during or following the Contract Period, disclose or use, any
confidential information or proprietary data of the Company or any of its
subsidiaries or affiliates. The Executive agrees that, among other things,
all information concerning the identity of and the Company's relations with
its customers is confidential information.
b) Specific Performance. Executive agrees that the Company does not
have an adequate remedy at law for the breach of this section and agrees
that he shall be subject to injunctive relief and equitable remedies as a
result of the breach of this section. The invalidity or unenforceability of
any provision of this Agreement shall not affect the force and effect of
the remaining valid portions.
<PAGE>
c) Survival. This section shall survive the termination of the
Executive's employment hereunder and the expiration of this Agreement.
12. Certain Reduction of Payments by the Company.
a) Anything in this Agreement to the contrary notwithstanding, prior
to the payment of any lump sum amount payable hereunder, the certified
public accountants of the Company immediately prior to a Change of Control
(the "Certified Public Accountants") shall determine as promptly as
practical and in any event within 20 business days following the
termination of employment of Executive whether any payment or distribution
by the Company to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise) (a "Payment") would more likely than not be
nondeductible by the Company for Federal income purposes because of Section
280G of the Internal Revenue Code of 1986, as amended (the "Code"), and if
it is then the aggregate present value of amounts payable or distributable
to or for the benefit of Executive pursuant to this Agreement (such
payments or distributions pursuant to this Agreement are thereinafter
referred to as "Agreement Payments") shall be reduced (but not below zero)
to the reduced Amount. For purposes of this paragraph, the "Reduced Amount"
shall be an amount expressed in present value which maximizes the aggregate
present value of Agreement Payments without causing any Payment to be
nondeductible by the Company because of said Section 280G of the Code.
b) If under paragraph (a) of this section the Certified Public
Accountants determine that any Payment would more likely than not be
nondeductible by the Company because of Section 280G of the Code, the
Company shall promptly give the Executive notice to that effect and a copy
of the detailed calculation thereof and of the Reduced Amount, and the
Executive may then elect, in his sole discretion, which and how much of the
Agreement Payments shall be eliminated or reduced (as long as after such
election the aggregate present value of the Agreement Payments equals the
Reduced Amount), and shall advise the Company in writing of his election
within 20 business days of his receipt of notice. If no such election is
made by the Executive within such 20-day period, the Company may elect
which and how much of the Agreement Payments shall be eliminated or reduced
(as long as after such election the Aggregate present Value of the
Agreement Payments equals the
<PAGE>
Reduced Amount),and shall advise the Company in writing of his election
within 20 business days of his receipt of notice. If no selection is made
by the Executive within such 20-day period, the Company may elect which and
how much of the Agreement Payments shall be eliminated or reduced (as long
as after such election the Aggregate present Value of the Agreement
Payments equals the Reduced Amount) and shall notify the Executive promptly
of such election. For purposes of this paragraph, present Value shall be
determined in accordance with Section 280G(d)(4) of the Code. All
determinations made by the Certified Public Accountants shall be binding
upon the Company and Executive shall be made within 20 business days of a
termination of employment of Executive. With the consent of the Executive,
the Company may suspend part or all of the lump sum payment due under
Section 9 hereof and any other payments due to the Executive hereunder
until the Certified Public Accountants finish the determination and the
Executive (or the Company, as the case may be) elect how to reduce the
Agreement Payments, if necessary. As promptly as practicable following such
determination and the elections hereunder, the Company shall pay to or
distribute to or for the benefit of Executive such amounts as are then due
to Executive under this Agreement and shall promptly pay to or distribute
for the benefit of Executive in the future such amounts as become due to
Executive under this Agreement.
c) As a result of the uncertainty in the application of Section 280G
of the Code, it is possible that Agreement Payments may have been made by
the Company which should not have been made ("Overpayment") or that
additional Agreement Payments which will have not been made by the Company
could have been made ("Underpayment"), in each case, consistent with the
calculation of the Reduced Amount hereunder. In the event that the
Certified Public Accountants, based upon the assertion of a deficiency by
the Internal Revenue Service against the Company or Executive which said
Certified Public Accountants believe has a high probability of success,
determines that an Overpayment has been made, any such Overpayment shall be
treated for all purposes as a loan to Executive which
<PAGE>
Executive shall repay to the Company together with interest at the
applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code;
provided, however, that no amount shall be payable by Executive to the
Company in and for the extent such payment would not reduce the amount
which is subject to taxation under Section 4999 of the Code. In the event
that the Certified Public Accountants, based upon controlling precedent,
determine that an Underpayment has occurred, any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive
together with interest at the applicable Federal rate provided for in
Section 7872(f)(2)(A) of the Code.
13. Term and Effect Prior to Change in Control.
a) Term. Except as otherwise provided for hereunder, this Agreement
shall commence on the date hereof and shall remain in effect for a period
of 3 years from the date hereof (the "Initial Term") or until the end of
the Contract Period, whichever is later. The Initial Term shall be
automatically extended for an additional one year period on the anniversary
date hereof (so that the Initial Term is always 3 years) unless, prior to a
Change in Control, the Chairman of the Board of Directors of Peapack
notifies the Executive in writing at any time that the Contract is not so
extended, in which case the Initial Term shall end upon the later of (i) 3
years after the date hereof, or (ii) 2 years after the date of such written
notice. Notwithstanding anything to the contrary contained herein, the
Initial Term shall cease when the Executive attains age 65.
b) No Effect Prior to Change in Control. This Agreement shall not
effect any rights of the Company to terminate the Executive prior to a
Change in Control or any rights of the Executive granted in any other
agreement or contract or plan with the Company. The rights, duties and
benefits provided hereunder shall only become effective upon and after a
Change in Control. If the full-time employment of the Executive by the
Company is ended for any reason prior to a Change in Control, this
Agreement shall thereafter be of no further force and effect.
<PAGE>
14. Severance Compensation and Benefits Not in Derogation of Other
Benefits. Anything to the contrary herein contained notwithstanding, the payment
or obligation to pay any monies, or granting of any benefits, rights or
privileges to Executive as provided in this Agreement shall not be in lieu or
derogation of the rights and privileges that the Executive now has or will have
under any plans or programs of or agreements with the Company, except that if
the Executive received any payment hereunder, he shall not be entitled to any
payment under the Company's severance policies for officers and employees.
15. Miscellaneous. This Agreement is the joint and several obligation of
the Bank and Peapack. The terms of this Agreement shall be governed by, and
interpreted and construed in accordance with the provisions of, the laws of New
Jersey. This Agreement supersedes all prior agreements and understandings with
respect to the matters covered hereby, including expressly any prior agreement
with the Company concerning change-in-control benefits. The parties hereto
expressly agree that the Severance Agreement between the Bank and the Executive
dated 1/27/95, is hereby terminated in its entirety. The amendment or
termination of this Agreement may be made only in a writing executed by the
Company and the Executive, and no amendment or termination of this Agreement
shall be effective unless and until made in such a writing. This Agreement shall
be binding upon any successor (whether direct or indirect, by purchase, merge,
consolidation, liquidation or otherwise) to all or substantially all of the
assets of the Company. This Agreement is personal to the Executive and the
Executive may not assign any of his rights or duties hereunder but this
Agreement shall be enforceable by the Executive's legal representatives,
executors or administrators. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
<PAGE>
IN WITNESS WHEREOF, Peapack-Gladstone Bank and Peapack-Gladstone Financial
Corporation each have caused this Agreement to be signed by their duly
authorized representatives pursuant to the authority of their Boards of
Directors, and the Executive has personally executed this Agreement, all as of
the day and year first written above.
ATTEST: PEAPACK-GLADSTONE
FINANCIAL CORPORATION
/s/ CATHERINE A. McCATHARN By: /S/ T. LEONARD HILL
- --------------------------------- ------------------------------------
Catherine A. McCatharn, Secretary T. Leonard Hill, Chairman
ATTEST: PEAPACK-GLADSTONE BANK
CATHERINE A. McCATHARN By: /s/ T. LEONARD HILL
- --------------------------------- ------------------------------------
Catherine A. McCatharn, Secretary T. Leonard Hill, Chairman
WITNESS:
TONI ROSELL FRANK A. KISSEL, EXECUTIVE
- ----------------------------------- -----------------------------------
Toni Rosell Frank A. Kissel, Executive
Exhibit 10.2
CHANGE-IN-CONTROL AGREEMENT
(Paul W. Bell)
THIS EMPLOYMENT AGREEMENT (the "Agreement"), is made as of this 1st day of
January, 1998, among PEAPACK-GLADSTONE BANK ("Bank"), a New Jersey state banking
association with its principal office at 190 Main Street, Gladstone, New Jersey
07934, PEAPACK-GLADSTONE FINANCIAL CORPORATION ("Peapack"), a New Jersey
Corporation which maintains its principal office at 158 Route 206 North,
Gladstone, New Jersey F7934 (Peapack and the Bank collectively are the
"Company") and Paul W. Bell (the "Executive").
BACKGROUND
WHEREAS, the Executive has been continuously employed by the Bank for many
years;
WHEREAS, the Executive throughout his tenure has worked diligently in his
position in the business of the Bank and Peapack;
WHEREAS, the Board of Directors of the Bank and Peapack believe that the
future services of the Executive are of great value to the Bank and Peapack and
that it is important for the growth and development of the Bank that the
Executive continue in his position;
WHEREAS, if the Company receives any proposal from a third person
concerning a possible business combination with, or acquisition of equities
securities of, the Company, the Board of Directors of the Company (the "Board")
believes it is imperative that the Company and the Board be able to rely upon
the Executive to continue in his position, and that they be able to receive and
rely upon his advice, if they request it, as to the best interests of the
Company and its shareholders, without concern that the Executive might be
distracted by the personal uncertainties and risks created by such a proposal;
<PAGE>
WHEREAS, to achieve that goal, and to retain the Executive's services prior
to any such activity, the Board of Directors and the Executive have agreed to
enter into this Agreement to govern the Executive's termination benefits in the
event of a Change in Control of the Company, as hereinafter defined.
NOW, THEREFORE, to assure the Company that it will have the continued
dedication of the Executive and the availability of his advice and counsel
notwithstanding the possibility, threat or occurrence of a bid to take over
control of the Company, and to induce the Executive to remain in the employ of
the Company, and for other good and valuable consideration, the Company and the
Executive, each intending to be legally bound hereby agree as follows:
Definitions
a) Cause. For purposes of this Agreement "Cause" with respect to the
termination by the Company of Executive's employment shall mean (i) willful and
continued failure by the Executive to perform his duties for the Company under
this Agreement after at least one warning in writing from the Company's Board of
Directors identifying specifically any such failure; (ii) the willful engaging
by the Executive in misconduct which causes material injury to the Company as
specified in a written notice to the Executive from the Board of Directors; or
(iii) conviction of a crime, other than a traffic violation, habitual
drunkenness, drug abuse, or excessive absenteeism other than for illness, after
a warning (with respect to drunkenness or absenteeism only) in writing from the
Board of Directors to refrain from such behavior. No act or failure to act on
the part of the Executive shall be considered willful unless done, or omitted to
be done, by the Executive not in good faith and without reasonable belief that
the action or omission was in the best interest of the Company.
b) Change in Control. "Change in Control" means any of the following
events: (i) when Peapack or a Subsidiary acquires actual knowledge that any
person (as such term is used
<PAGE>
in Sections 13(d) and 14(d)(2) of the Exchange Act), other than an affiliate of
Peapack or a Subsidiary or an employee benefit plan established or maintained by
Peapack, a Subsidiary or any of their respective affiliates, is or becomes the
beneficial owner (as defined in Rule 13d-3 of the Exchange Act) directly or
indirectly, of securities of Peapack representing more than twenty-five percent
(25%) of the combined voting power of Peapack's then outstanding securities (a
"Control Person"), (ii) upon the first purchase of Peapack's common stock
pursuant to a tender or exchange offer (other than a tender or exchange offer
made by Peapack, a Subsidiary or an employee benefit plan established or
maintained by Peapack, a Subsidiary or any of their respective affiliates),
(iii) upon the approval by Peapack's stockholders of (A) a merger or
consolidation of Peapack with or into another corporation (other than a merger
or consolidation which is approved by at least two-thirds of the Continuing
Directors (as hereinafter defined) and the definitive agreement for which
provides that at least two-thirds of the directors of the surviving or resulting
corporation immediately after the transaction are Continuing Directors (a
"Non-Control Transaction")), (B) a sale or disposition of all or substantially
all of Peapack's assets or (C) a plan of liquidation or dissolution of Peapack,
(iv) if during any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the Board (the "Continuing Directors") cease
for any reason to constitute at least two-thirds thereof or, following a
Non-Control Transaction, two-thirds of the board of directors of the surviving
or resulting corporation; provided that any individual whose election or
nomination for election as a member of the Board (or, following a Non-Control
Transaction, the board of directors of the surviving or resulting corporation)
was approved by a vote of at least two-thirds of the Continuing Directors then
in office shall be considered a Continuing Director, or (v) upon a sale of (A)
common stock of the Bank if after such sale any person (as such term is used in
Section 13(d) and 14(d)(2) of the Exchange Act) other than Peapack, an employee
benefit plan established or maintained by Peapack or a Subsidiary, or an
affiliate of Peapack or a Subsidiary, owns a majority of the Bank's common stock
or (B) all or substantially
<PAGE>
all of the Bank's assets (other than in the ordinary course of business). No
person shall be considered a Control Person for purposes of clause (i) above if
(A) such person is or becomes the beneficial owner, directly or indirectly, of
more than ten percent (10%) but less than twenty-five percent (25%) of the
combined voting power of Peapack's then outstanding securities if the
acquisition of all voting securities in excess of ten percent (10%) was approved
in advance by a majority of the Continuing Directors then in office or (B) such
person acquires in excess of ten percent (10%) of the combined voting power of
Peapack's then outstanding voting securities in violation of law and by order of
a court of competent jurisdiction, settlement or otherwise, disposes or is
required to dispose of all securities acquired in violation of law.
c) Contract Period. "Contract Period" shall mean the period commencing the
day immediately preceding a Change in Control and ending on the earlier of (i)
the third anniversary of the Change in Control or (ii) the date the Executive
would attain age 65 or (iii) the death of the Executive. For the purpose of this
Agreement, a Change in Control shall be deemed to have occurred at the date
specified in the definition of Change-in-Control.
d) Exchange Act. "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
e) Good Reason. When used with reference to a voluntary termination by
Executive of his employment with the Company, "Good Reason" shall mean any of
the following, if taken without Executive's express written consent:
(1) The assignment to Executive of any duties inconsistent with, or the
reduction of powers or functions associated with, Executive's position, title,
duties, responsibilities and status with the Company immediately prior to a
Change in Control; any removal of Executive from, or any failure to re-elect
Executive to, any position(s) or office(s) Executive held immediately prior to
such
<PAGE>
Change in Control. A change in title or positions resulting merely from a merger
of the Company into or with another bank or company which does not downgrade in
any way the Executive's powers, duties and responsibilities shall not meet the
requirements of this paragraph;
(2) A reduction by the Company in Executive's annual base compensation as
in effect immediately prior to a Change in Control or the failure to award
Executive annual increases in accordance herewith;
(3) A failure by the Company to continue any bonus plan in which Executive
participated immediately prior to the Change in control or a failure by the
Company to continue Executive as a participant in such plan on at least the same
basis as Executive participated in such plan prior to the Change in Control;
(4) The Company's transfer of Executive to another geographic location
outside of New Jersey or more than 25 miles from his present office location,
except for required travel on the Company's business to an extent substantially
consistent with Executive's business travel obligations immediately prior to
such Change in Control;
(5) The failure by the Company to continue in effect any employee benefit
plan, program or arrangement (including, without limitation the Company's
retirement plan, benefit equalization plan, life insurance plan, health and
accident plan, disability plan, deferred compensation plan or long term stock
incentive plan) in which Executive is participating immediately prior to a
Change in Control (except that the Company may institute or continue plans,
programs or arrangements providing Executive with substantially similar
benefits); the taking of any action by the Company which would adversely affect
Executive's participation in or materially reduce Executive's benefits under,
any of such plans, programs or arrangements; the failure to continue, or the
taking of any action which would deprive Executive, of any material fringe
benefit enjoyed by Executive immediately
<PAGE>
prior to such Change in Control; or the failure by the Company to provide
Executive with the number of paid vacation days to which Executive was entitled
immediately prior to such Change in Control;
(6) The failure by the Company to obtain an assumption in writing of the
obligations of the Company to perform this Agreement by any successor to the
Company and to provide such assumption to the Executive prior to any Change in
Control; or
(7) Any purported termination of Executive's employment by the Company
during the term of this Agreement which is not effected pursuant to all of the
requirements of this Agreement; and, for purposes of this Agreement, no such
purported termination shall be effective.
f) Subsidiary. "Subsidiary" means any corporation in an unbroken chain of
corporations, beginning with Peapack, if each of the corporations other than the
last corporation in the unbroken chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
2. Employment. The Company hereby agrees to employ the Executive, and the
Executive hereby accepts employment, during the Contract Period upon the terms
and conditions set forth herein.
3. Position. During the Contract Period the Executive shall be employed as
President of Peapack and the Bank, or such other corporate or divisional profit
center as shall then be the principal successor to the business, assets and
properties of the Company, with substantially the same title and the same duties
and responsibilities as before the Change in Control. The Executive shall devote
his full time and attention to the business of the Company, and shall not during
the Contract Period be engaged in any other business activity. This paragraph
shall not be construed as preventing the Executive from managing any investments
of his which do not require any service on his part in the operation of such
investments.
<PAGE>
4. Cash Compensation. The Company shall pay to the Executive compensation
for his services during the Contract Period as follows:
a) Base Salary. A base annual salary equal to the annual salary in effect
as of the Change in Control. The annual salary shall be payable in installments
in accordance with the Company's usual payroll method.
b) Annual Bonus. An annual cash bonus equal to at least the average of the
bonuses paid to the Executive in the three years prior to the Change in Control.
The bonus shall be payable at the time and in the manner which the Company paid
such bonuses prior to the Change in Control.
c) Annual Review. The Board of Directors of the Company during the Contract
Period shall review annually, or at more frequent intervals which the Board
determines is appropriate, the Executive's compensation and shall award him
additional compensation to reflect the Executive's performance, the performance
of the Company and competitive compensation levels, all as determined in the
discretion of the Board of Directors.
5. Expenses and Fringe Benefits.
a) Expenses. During the Contract Period, the Executive shall be entitled to
reimbursement for all business expenses incurred by him with respect to the
business of the Company in the same manner and to the same extent as such
expenses were previously reimbursed to him immediately prior to the Change in
Control.
b) Supplemental Retirement Plan. During the Contract Period, if the
Executive was entitled to benefits under any supplemental retirement plan prior
to the Change in Control, the Executive shall be entitled to continued benefits
under such plan after the Change in Control and such plan may not be modified to
reduce or eliminate such benefits during the Contract Period.
<PAGE>
c) Club Membership and Automobile. If prior to the Change in Control, the
Executive was entitled to membership in a country club and/or the use of an
automobile, he shall be entitled to the same membership and/or use of an
automobile at least comparable to the automobile provided to him prior to the
Change in Control.
d) Other Benefits. The Executive also shall be entitled to vacations and
sick days, in accordance with the practices and procedures of the Company, as
such existed immediately prior to the Change in Control. During the Contract
Period, the Executive also shall be entitled to hospital, health, medical and
life insurance, and any other benefits enjoyed, from time to time, by senior
officers of the Company, all upon terms as favorable as those enjoyed by other
senior officers of the Company. Notwithstanding anything in this paragraph 5(d)
to the contrary, if the Company adopts any change in the benefits provided for
senior officers of the Company, and such policy is uniformly applied to all
officers of the Company (and any successor or acquiror of the Company, if any),
including the chief executive officer of such entities, then no such change
shall be deemed to be contrary to this paragraph.
6. Termination for Cause. The Company shall have the right to terminate the
Executive for Cause, upon written notice to him of the termination which notice
shall specify the reasons for the termination. In the event of termination for
Cause the Executive shall not be entitled to any further benefits under this
Agreement.
7. Disability. During the Contract Period if the Executive becomes
permanently disabled, or is unable to perform his duties hereunder for 4
consecutive months in any 12 month period, the Company may terminate the
employment of the Executive. In such event, the Executive shall not be entitled
to any further benefits under this Agreement.
8. Death Benefits. Upon the Executive's death during the Contract Period,
his estate shall not be entitled to any further benefits under this Agreement.
<PAGE>
9. Termination Without Cause or Resignation for Good Reason. The Company
may terminate the Executive without Cause during the Contract Period by written
notice to the Executive providing four weeks notice. The Executive may resign
for Good Reason during the Contract Period upon four weeks' written notice to
the Company specifying facts and circumstances claimed to support the Good
Reason. The Executive shall be entitled to give a Notice of Termination that his
or her employment is being terminated for Good Reason at any time during the
Contract Period, not later than twelve months after any occurrence of an event
stated to constitute Good Reason. If the Company terminates the Executive's
employment during the Contract Period without Cause or if the Executive Resigns
for Good Reason, the Company shall, subject to Section 12 hereof:
(a) Within 20 business days of the termination of employment pay the
Executive a lump sum severance payment in an amount equal to three (3.0) times
the highest annual cash compensation, consisting solely of salary and bonus, as
well as any 401(k) deferral, paid to the Executive during any calendar year in
each of the three calendar years immediately prior to the Change in Control; and
(b) Continue to provide the Executive during the remainder of the Contract
Period with health, hospitalization and medical insurance, as were provided at
the time of the termination of his employment with the Company, at the Company's
cost (subject to standard deductibles and co-pays, and the Executive's
continuing payment of his part of the premium for family coverage, if
applicable).
The Executive shall not have a duty to mitigate the damages suffered by him
in connection with the termination by the Company of his employment without
Cause or a resignation for Good Reason during the Contract Period. If the
Company fails to pay the Executive the lump sum amount due him hereunder or to
provide him with the health, hospitalization and medical insurance benefits due
under this section, the Executive, after giving 10 days' written notice to the
Company identifying the Company's
<PAGE>
failure, shall be entitled to recover from the Company all of his reasonable
legal fees and expenses incurred in connection with his enforcement against the
Company of the terms of this Agreement. The Executive shall be denied payment of
his legal fees and expenses only if a court finds that the Executive sought
payment of such fees without reasonable cause and not in good faith.
10. Resignation Without Good Reason. The Executive shall be entitled to
resign from the employment of the Company at any time during the Contract Period
without Good Reason, but upon such resignation the Executive shall not be
entitled to any additional compensation for the time after which he ceases to be
employed by the Company, and shall not be entitled to any of the other benefits
provided hereunder. No such resignation shall be effective unless in writing
with four weeks' notice thereof.
11. Non-Disclosure of Confidential Information.
a) Non-Disclosure of Confidential Information. Except in the course of his
employment with the Company and in the pursuit of the business of the Company or
any of its subsidiaries or affiliates, the Executive shall not, at any time
during or following the Contract Period, disclose or use, any confidential
information or proprietary data of the Company or any of its subsidiaries or
affiliates. The Executive agrees that, among other things, all information
concerning the identity of and the Company's relations with its customers is
confidential information.
b) Specific Performance. Executive agrees that the Company does not have an
adequate remedy at law for the breach of this section and agrees that he shall
be subject to injunctive relief and equitable remedies as a result of the breach
of this section. The invalidity or unenforceability of any provision of this
Agreement shall not affect the force and effect of the remaining valid portions.
<PAGE>
c) Survival. This section shall survive the termination of the Executive's
employment hereunder and the expiration of this Agreement.
2. Certain Reduction of Payments by the Company.
a) Anything in this Agreement to the contrary notwithstanding, prior to the
payment of any lump sum amount payable hereunder, the certified public
accountants of the Company immediately prior to a Change of Control (the
"Certified Public Accountants") shall determine as promptly as practical and in
any event within 20 business days following the termination of employment of
Executive whether any payment or distribution by the Company to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise) (a
"Payment") would more likely than not be nondeductible by the Company for
Federal income purposes because of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), and if it is then the aggregate present value of
amounts payable or distributable to or for the benefit of Executive pursuant to
this Agreement (such payments or distributions pursuant to this Agreement are
thereinafter referred to as "Agreement Payments") shall be reduced (but not
below zero) to the reduced Amount. For purposes of this paragraph, the "Reduced
Amount" shall be an amount expressed in present value which maximizes the
aggregate present value of Agreement Payments without causing any Payment to be
nondeductible by the Company because of said Section 280G of the Code.
b) If under paragraph (a) of this section the Certified Public Accountants
determine that any Payment would more likely than not be nondeductible by the
Company because of Section 280G of the Code, the Company shall promptly give the
Executive notice to that effect and a copy of the detailed calculation thereof
and of the Reduced Amount, and the Executive may then elect, in his sole
discretion, which and how much of the Agreement Payments shall be eliminated or
reduced (as long as after such election the aggregate present value of the
Agreement Payments equals the
<PAGE>
Reduced Amount), and shall advise the Company in writing of his election within
20 business days of his receipt of notice. If no such election is made by the
Executive within such 20-day period, the Company may elect which and how much of
the Agreement Payments shall be eliminated or reduced (as long as after such
election the Aggregate present Value of the Agreement Payments equals the
Reduced Amount) and shall notify the Executive promptly of such election. For
purposes of this paragraph, present Value shall be determined in accordance with
Section 280G(d)(4) of the Code. All determinations made by the Certified Public
Accountants shall be binding upon the Company and Executive shall be made within
20 business days of a termination of employment of Executive. With the consent
of the Executive, the Company may suspend part or all of the lump sum payment
due under Section 9 hereof and any other payments due to the Executive hereunder
until the Certified Public Accountants finish the determination and the
Executive (or the Company, as the case may be) elect how to reduce the Agreement
Payments, if necessary. As promptly as practicable following such determination
and the elections hereunder, the Company shall pay to or distribute to or for
the benefit of Executive such amounts as are then due to Executive under this
Agreement and shall promptly pay to or distribute for the benefit of Executive
in the future such amounts as become due to Executive under this Agreement.
c) As a result of the uncertainty in the application of Section 280G of the
Code, it is possible that Agreement Payments may have been made by the Company
which should not have been made ("Overpayment") or that additional Agreement
Payments which will have not been made by the Company could have been made
("Underpayment"), in each case, consistent with the calculation of the Reduced
Amount hereunder. In the event that the Certified Public Accountants, based upon
the assertion of a deficiency by the Internal Revenue Service against the
Company or Executive which said Certified Public Accountants believe has a high
probability of success, determines that an Overpayment has been made, any such
Overpayment shall be treated for all purposes as a loan to Executive which
<PAGE>
Executive shall repay to the Company together with interest at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code; provided,
however, that no amount shall be payable by Executive to the Company in and for
the extent such payment would not reduce the amount which is subject to taxation
under Section 4999 of the Code. In the event that the Certified Public
Accountants, based upon controlling precedent, determine that an Underpayment
has occurred, any such Underpayment shall be promptly paid by the Company to or
for the benefit of the Executive together with interest at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code.
13. Term and Effect Prior to Change in Control.
a) Term. Except as otherwise provided for hereunder, this Agreement shall
commence on the date hereof and shall remain in effect for a period of 3 years
from the date hereof (the "Initial Term") or until the end of the Contract
Period, whichever is later. The Initial Term shall be automatically extended for
an additional one year period on the anniversary date hereof (so that the
Initial Term is always 3 years) unless, prior to a Change in Control, the
Chairman of the Board of Directors of Peapack notifies the Executive in writing
at any time that the Contract is not so extended, in which case the Initial Term
shall end upon the later of (i) 3 years after the date hereof, or (ii) 2 years
after the date of such written notice. Notwithstanding anything to the contrary
contained herein, the Initial Term shall cease when the Executive attains age
65.
b) No Effect Prior to Change in Control. This Agreement shall not effect
any rights of the Company to terminate the Executive prior to a Change in
Control or any rights of the Executive granted in any other agreement or
contract or plan with the Company. The rights, duties and benefits provided
hereunder shall only become effective upon and after a Change in Control. If the
full-time employment of the Executive by the Company is ended for any reason
prior to a Change in Control, this Agreement shall thereafter be of no further
force and effect.
<PAGE>
14. Severance Compensation and Benefits Not in Derogation of Other
Benefits. Anything to the contrary herein contained notwithstanding, the payment
or obligation to pay any monies, or granting of any benefits, rights or
privileges to Executive as provided in this Agreement shall not be in lieu or
derogation of the rights and privileges that the Executive now has or will have
under any plans or programs of or agreements with the Company, except that if
the Executive received any payment hereunder, he shall not be entitled to any
payment under the Company's severance policies for officers and employees.
15. Miscellaneous. This Agreement is the joint and several obligation of
the Bank and Peapack. The terms of this Agreement shall be governed by, and
interpreted and construed in accordance with the provisions of, the laws of New
Jersey. This Agreement supersedes all prior agreements and understandings with
respect to the matters covered hereby, including expressly any prior agreement
with the Company concerning change-in-control benefits. The parties hereto
expressly agree that the Severance Agreement between the Bank and the Executive
dated 1/27/95, is hereby terminated in its entirety. The amendment or
termination of this Agreement may be made only in a writing executed by the
Company and the Executive, and no amendment or termination of this Agreement
shall be effective unless and until made in such a writing. This Agreement shall
be binding upon any successor (whether direct or indirect, by purchase, merge,
consolidation, liquidation or otherwise) to all or substantially all of the
assets of the Company. This Agreement is personal to the Executive and the
Executive may not assign any of his rights or duties hereunder but this
Agreement shall be enforceable by the Executive's legal representatives,
executors or administrators. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
<PAGE>
IN WITNESS WHEREOF, Peapack-Gladstone Bank and Peapack-Gladstone Financial
Corporation each have caused this Agreement to be signed by their duly
authorized representatives pursuant to the authority of their Boards of
Directors, and the Executive has personally executed this Agreement, all as of
the day and year first written above.
ATTEST: PEAPACK-GLADSTONE
FINANCIAL CORPORATION
CATHERINE A. MCCATHARN By: T. LEONARD HILL
- --------------------------------- --------------------------------
Catherine A. McCatharn, Secretary T. Leonard Hill, Chairman
ATTEST: PEAPACK-GLADSTONE BANK
CATHERINE A. MCCATHARN By: T. LEONARD HILL
- --------------------------------- ---------------------------------
Catherine A. McCatharn, Secretary T. Leonard Hill, Chairman
WITNESS:
/s/ ARTHUR F. BIRMINGHAM PAUL W. BELL, EXECUTIVE
- --------------------------------- -------------------------------------
Arthur F. Birmingham Paul W. Bell, Executive
Exhibit 10.3
CHANGE-IN-CONTROL AGREEMENT
(Robert M. Rogers)
THIS EMPLOYMENT AGREEMENT (the "Agreement"), is made as of this 1st day of
January, 1998, among PEAPACK-GLADSTONE BANK ("Bank"), a New Jersey state banking
association with its principal office at 190 Main Street, Gladstone, New Jersey
07934, PEAPACK-GLADSTONE FINANCIAL CORPORATION ("Peapack"), a New Jersey
Corporation which maintains its principal office at 158 Route 206 North,
Gladstone, New Jersey F7934 (Peapack and the Bank collectively are the
"Company") and Robert M. Rogers (the "Executive").
BACKGROUND
WHEREAS, the Executive has been continuously employed by the Bank for many
years;
WHEREAS, the Executive throughout his tenure has worked diligently in his
position in the business of the Bank and Peapack;
WHEREAS, the Board of Directors of the Bank and Peapack believe that the
future services of the Executive are of great value to the Bank and Peapack and
that it is important for the growth and development of the Bank that the
Executive continue in his position;
WHEREAS, if the Company receives any proposal from a third person
concerning a possible business combination with, or acquisition of equities
securities of, the Company, the Board of Directors of the Company (the "Board")
believes it is imperative that the Company and the Board be able to rely upon
the Executive to continue in his position, and that they be able to receive and
rely upon his advice, if they request it, as to the best interests of the
Company and its shareholders, without concern that the Executive might be
distracted by the personal uncertainties and risks created by such a proposal;
<PAGE>
WHEREAS, to achieve that goal, and to retain the Executive's services prior
to any such activity, the Board of Directors and the Executive have agreed to
enter into this Agreement to govern the Executive's termination benefits in the
event of a Change in Control of the Company, as hereinafter defined.
NOW, THEREFORE, to assure the Company that it will have the continued
dedication of the Executive and the availability of his advice and counsel
notwithstanding the possibility, threat or occurrence of a bid to take over
control of the Company, and to induce the Executive to remain in the employ of
the Company, and for other good and valuable consideration, the Company and the
Executive, each intending to be legally bound hereby agree as follows:
Definitions
a) Cause. For purposes of this Agreement "Cause" with respect to the
termination by the Company of Executive's employment shall mean (i) willful and
continued failure by the Executive to perform his duties for the Company under
this Agreement after at least one warning in writing from the Company's Board of
Directors identifying specifically any such failure; (ii) the willful engaging
by the Executive in misconduct which causes material injury to the Company as
specified in a written notice to the Executive from the Board of Directors; or
(iii) conviction of a crime, other than a traffic violation, habitual
drunkenness, drug abuse, or excessive absenteeism other than for illness, after
a warning (with respect to drunkenness or absenteeism only) in writing from the
Board of Directors to refrain from such behavior. No act or failure to act on
the part of the Executive shall be considered willful unless done, or omitted to
be done, by the Executive not in good faith and without reasonable belief that
the action or omission was in the best interest of the Company.
b) Change in Control. "Change in Control" means any of the following
events: (i) when Peapack or a Subsidiary acquires actual knowledge that any
person (as such term is used
<PAGE>
in Sections 13(d) and 14(d)(2) of the Exchange Act), other than an affiliate of
Peapack or a Subsidiary or an employee benefit plan established or maintained by
Peapack, a Subsidiary or any of their respective affiliates, is or becomes the
beneficial owner (as defined in Rule 13d-3 of the Exchange Act) directly or
indirectly, of securities of Peapack representing more than twenty-five percent
(25%) of the combined voting power of Peapack's then outstanding securities (a
"Control Person"), (ii) upon the first purchase of Peapack's common stock
pursuant to a tender or exchange offer (other than a tender or exchange offer
made by Peapack, a Subsidiary or an employee benefit plan established or
maintained by Peapack, a Subsidiary or any of their respective affiliates),
(iii) upon the approval by Peapack's stockholders of (A) a merger or
consolidation of Peapack with or into another corporation (other than a merger
or consolidation which is approved by at least two-thirds of the Continuing
Directors (as hereinafter defined) and the definitive agreement for which
provides that at least two-thirds of the directors of the surviving or resulting
corporation immediately after the transaction are Continuing Directors (a
"Non-Control Transaction")), (B) a sale or disposition of all or substantially
all of Peapack's assets or (C) a plan of liquidation or dissolution of Peapack,
(iv) if during any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the Board (the "Continuing Directors") cease
for any reason to constitute at least two-thirds thereof or, following a
Non-Control Transaction, two-thirds of the board of directors of the surviving
or resulting corporation; provided that any individual whose election or
nomination for election as a member of the Board (or, following a Non-Control
Transaction, the board of directors of the surviving or resulting corporation)
was approved by a vote of at least two-thirds of the Continuing Directors then
in office shall be considered a Continuing Director, or (v) upon a sale of (A)
common stock of the Bank if after such sale any person (as such term is used in
Section 13(d) and 14(d)(2) of the Exchange Act) other than Peapack, an employee
benefit plan established or maintained by Peapack or a Subsidiary, or an
affiliate of Peapack or a Subsidiary, owns a majority of the Bank's common stock
or (B) all or substantially
<PAGE>
all of the Bank's assets (other than in the ordinary course of business). No
person shall be considered a Control Person for purposes of clause (i) above if
(A) such person is or becomes the beneficial owner, directly or indirectly, of
more than ten percent (10%) but less than twenty-five percent (25%) of the
combined voting power of Peapack's then outstanding securities if the
acquisition of all voting securities in excess of ten percent (10%) was approved
in advance by a majority of the Continuing Directors then in office or (B) such
person acquires in excess of ten percent (10%) of the combined voting power of
Peapack's then outstanding voting securities in violation of law and by order of
a court of competent jurisdiction, settlement or otherwise, disposes or is
required to dispose of all securities acquired in violation of law.
c) Contract Period. "Contract Period" shall mean the period commencing the
day immediately preceding a Change in Control and ending on the earlier of (i)
the third anniversary of the Change in Control or (ii) the date the Executive
would attain age 65 or (iii) the death of the Executive. For the purpose of this
Agreement, a Change in Control shall be deemed to have occurred at the date
specified in the definition of Change-in-Control.
d) Exchange Act. "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
e) Good Reason. When used with reference to a voluntary termination by
Executive of his employment with the Company, "Good Reason" shall mean any of
the following, if taken without Executive's express written consent:
(1) The assignment to Executive of any duties inconsistent with, or
the reduction of powers or functions associated with, Executive's position,
title, duties, responsibilities and status with the Company immediately
prior to a Change in Control; any removal of Executive from, or any failure
to re-elect Executive to, any position(s) or office(s) Executive held
immediately prior to such
<PAGE>
Change in Control. A change in title or positions resulting merely from a
merger of the Company into or with another bank or company which does not
downgrade in any way the Executive's powers, duties and responsibilities
shall not meet the requirements of this paragraph;
(2) A reduction by the Company in Executive's annual base compensation
as in effect immediately prior to a Change in Control or the failure to
award Executive annual increases in accordance herewith;
(3) A failure by the Company to continue any bonus plan in which
Executive participated immediately prior to the Change in control or a
failure by the Company to continue Executive as a participant in such plan
on at least the same basis as Executive participated in such plan prior to
the Change in Control;
(4) The Company's transfer of Executive to another geographic location
outside of New Jersey or more than 25 miles from his present office
location, except for required travel on the Company's business to an extent
substantially consistent with Executive's business travel obligations
immediately prior to such Change in Control;
(5) The failure by the Company to continue in effect any employee
benefit plan, program or arrangement (including, without limitation the
Company's retirement plan, benefit equalization plan, life insurance plan,
health and accident plan, disability plan, deferred compensation plan or
long term stock incentive plan) in which Executive is participating
immediately prior to a Change in Control (except that the Company may
institute or continue plans, programs or arrangements providing Executive
with substantially similar benefits); the taking of any action by the
Company which would adversely affect Executive's participation in or
materially reduce Executive's benefits under, any of such plans, programs
or arrangements; the failure to continue, or the taking of any action which
would deprive Executive, of any material fringe benefit enjoyed by
Executive immediately
<PAGE>
prior to such Change in Control; or the failure by the Company to provide
Executive with the number of paid vacation days to which Executive was
entitled immediately prior to such Change in Control;
(6) The failure by the Company to obtain an assumption in writing of
the obligations of the Company to perform this Agreement by any successor
to the Company and to provide such assumption to the Executive prior to any
Change in Control; or
(7) Any purported termination of Executive's employment by the Company
during the term of this Agreement which is not effected pursuant to all of
the requirements of this Agreement; and, for purposes of this Agreement, no
such purported termination shall be effective.
f) Subsidiary. "Subsidiary" means any corporation in an unbroken chain of
corporations, beginning with Peapack, if each of the corporations other than the
last corporation in the unbroken chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
2. Employment. The Company hereby agrees to employ the Executive, and the
Executive hereby accepts employment, during the Contract Period upon the terms
and conditions set forth herein.
3. Position. During the Contract Period the Executive shall be employed as
President of Peapack and the Bank, or such other corporate or divisional profit
center as shall then be the principal successor to the business, assets and
properties of the Company, with substantially the same title and the same duties
and responsibilities as before the Change in Control. The Executive shall devote
his full time and attention to the business of the Company, and shall not during
the Contract Period be engaged in any other business activity. This paragraph
shall not be construed as preventing the Executive from managing any investments
of his which do not require any service on his part in the operation of such
investments.
<PAGE>
4. Cash Compensation. The Company shall pay to the Executive compensation
for his services during the Contract Period as follows:
a) Base Salary. A base annual salary equal to the annual salary in effect
as of the Change in Control. The annual salary shall be payable in installments
in accordance with the Company's usual payroll method.
b) Annual Bonus. An annual cash bonus equal to at least the average of the
bonuses paid to the Executive in the three years prior to the Change in Control.
The bonus shall be payable at the time and in the manner which the Company paid
such bonuses prior to the Change in Control.
c) Annual Review. The Board of Directors of the Company during the Contract
Period shall review annually, or at more frequent intervals which the Board
determines is appropriate, the Executive's compensation and shall award him
additional compensation to reflect the Executive's performance, the performance
of the Company and competitive compensation levels, all as determined in the
discretion of the Board of Directors.
5. Expenses and Fringe Benefits.
a) Expenses. During the Contract Period, the Executive shall be entitled to
reimbursement for all business expenses incurred by him with respect to the
business of the Company in the same manner and to the same extent as such
expenses were previously reimbursed to him immediately prior to the Change in
Control.
b) Supplemental Retirement Plan. During the Contract Period, if the
Executive was entitled to benefits under any supplemental retirement plan prior
to the Change in Control, the Executive shall be entitled to continued benefits
under such plan after the Change in Control and such plan may not be modified to
reduce or eliminate such benefits during the Contract Period.
<PAGE>
c) Club Membership and Automobile. If prior to the Change in Control, the
Executive was entitled to membership in a country club and/or the use of an
automobile, he shall be entitled to the same membership and/or use of an
automobile at least comparable to the automobile provided to him prior to the
Change in Control.
d) Other Benefits. The Executive also shall be entitled to vacations and
sick days, in accordance with the practices and procedures of the Company, as
such existed immediately prior to the Change in Control. During the Contract
Period, the Executive also shall be entitled to hospital, health, medical and
life insurance, and any other benefits enjoyed, from time to time, by senior
officers of the Company, all upon terms as favorable as those enjoyed by other
senior officers of the Company. Notwithstanding anything in this paragraph 5(d)
to the contrary, if the Company adopts any change in the benefits provided for
senior officers of the Company, and such policy is uniformly applied to all
officers of the Company (and any successor or acquiror of the Company, if any),
including the chief executive officer of such entities, then no such change
shall be deemed to be contrary to this paragraph.
6. Termination for Cause. The Company shall have the right to terminate the
Executive for Cause, upon written notice to him of the termination which notice
shall specify the reasons for the termination. In the event of termination for
Cause the Executive shall not be entitled to any further benefits under this
Agreement.
7. Disability. During the Contract Period if the Executive becomes
permanently disabled, or is unable to perform his duties hereunder for 4
consecutive months in any 12 month period, the Company may terminate the
employment of the Executive. In such event, the Executive shall not be entitled
to any further benefits under this Agreement.
8. Death Benefits. Upon the Executive's death during the Contract Period,
his estate shall not be entitled to any further benefits under this Agreement.
<PAGE>
9. Termination Without Cause or Resignation for Good Reason. The Company
may terminate the Executive without Cause during the Contract Period by written
notice to the Executive providing four weeks notice. The Executive may resign
for Good Reason during the Contract Period upon four weeks' written notice to
the Company specifying facts and circumstances claimed to support the Good
Reason. The Executive shall be entitled to give a Notice of Termination that his
or her employment is being terminated for Good Reason at any time during the
Contract Period, not later than twelve months after any occurrence of an event
stated to constitute Good Reason. If the Company terminates the Executive's
employment during the Contract Period without Cause or if the Executive Resigns
for Good Reason, the Company shall, subject to Section 12 hereof:
(a) Within 20 business days of the termination of employment pay the
Executive a lump sum severance payment in an amount equal to three (3.0)
times the highest annual cash compensation, consisting solely of salary and
bonus, as well as any 401(k) deferral, paid to the Executive during any
calendar year in each of the three calendar years immediately prior to the
Change in Control; and
(b) Continue to provide the Executive during the remainder of the
Contract Period with health, hospitalization and medical insurance, as were
provided at the time of the termination of his employment with the Company,
at the Company's cost (subject to standard deductibles and co-pays, and the
Executive's continuing payment of his part of the premium for family
coverage, if applicable).
The Executive shall not have a duty to mitigate the damages suffered by him
in connection with the termination by the Company of his employment without
Cause or a resignation for Good Reason during the Contract Period. If the
Company fails to pay the Executive the lump sum amount due him hereunder or to
provide him with the health, hospitalization and medical insurance benefits due
under this section, the Executive, after giving 10 days' written notice to the
Company identifying the Company's
<PAGE>
failure, shall be entitled to recover from the Company all of his reasonable
legal fees and expenses incurred in connection with his enforcement against the
Company of the terms of this Agreement. The Executive shall be denied payment of
his legal fees and expenses only if a court finds that the Executive sought
payment of such fees without reasonable cause and not in good faith.
10. Resignation Without Good Reason. The Executive shall be entitled to
resign from the employment of the Company at any time during the Contract Period
without Good Reason, but upon such resignation the Executive shall not be
entitled to any additional compensation for the time after which he ceases to be
employed by the Company, and shall not be entitled to any of the other benefits
provided hereunder. No such resignation shall be effective unless in writing
with four weeks' notice thereof.
11. Non-Disclosure of Confidential Information.
a) Non-Disclosure of Confidential Information. Except in the course of his
employment with the Company and in the pursuit of the business of the Company or
any of its subsidiaries or affiliates, the Executive shall not, at any time
during or following the Contract Period, disclose or use, any confidential
information or proprietary data of the Company or any of its subsidiaries or
affiliates. The Executive agrees that, among other things, all information
concerning the identity of and the Company's relations with its customers is
confidential information.
b) Specific Performance. Executive agrees that the Company does not have an
adequate remedy at law for the breach of this section and agrees that he shall
be subject to injunctive relief and equitable remedies as a result of the breach
of this section. The invalidity or unenforceability of any provision of this
Agreement shall not affect the force and effect of the remaining valid portions.
<PAGE>
c) Survival. This section shall survive the termination of the Executive's
employment hereunder and the expiration of this Agreement.
12. Certain Reduction of Payments by the Company.
a) Anything in this Agreement to the contrary notwithstanding, prior to the
payment of any lump sum amount payable hereunder, the certified public
accountants of the Company immediately prior to a Change of Control (the
"Certified Public Accountants) shall determine as promptly as practical and in
any event within 20 business days following the termination of employment of
Executive whether any payment or distribution by the Company to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise) (a
"Payment") would more likely than not be nondeductible by the Company for
Federal income purposes because of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), and if it is then the aggregate present value of
amounts payable or distributable to or for the benefit of Executive pursuant to
this Agreement (such payments or distributions pursuant to this Agreement are
thereinafter referred to as "Agreement Payments") shall be reduced (but not
below zero) to the reduced Amount. For purposes of this paragraph, the "Reduced
Amount" shall be an amount expressed in present value which maximizes the
aggregate present value of Agreement Payments without causing any Payment to be
nondeductible by the Company because of said Section 280G of the Code.
b) If under paragraph (a) of this section the Certified Public Accountants
determine that any Payment would more likely than not be nondeductible by the
Company because of Section 280G of the Code, the Company shall promptly give the
Executive notice to that effect and a copy of the detailed calculation thereof
and of the Reduced Amount, and the Executive may then elect, in his sole
discretion, which and how much of the Agreement Payments shall be eliminated or
reduced (as long as after such election the aggregate present value of the
Agreement Payments equals the
<PAGE>
Reduced Amount), and shall advise the Company in writing of his election within
20 business days of his receipt of notice. If no such election is made by the
Executive within such 20-day period, the Company may elect which and how much of
the Agreement Payments shall be eliminated or reduced (as long as after such
election the Aggregate present Value of the Agreement Payments equals the
Reduced Amount) and shall notify the Executive promptly of such election. For
purposes of this paragraph, present Value shall be determined in accordance with
Section 280G(d)(4) of the Code. All determinations made by the Certified Public
Accountants shall be binding upon the Company and Executive shall be made within
20 business days of a termination of employment of Executive. With the consent
of the Executive, the Company may suspend part or all of the lump sum payment
due under Section 9 hereof and any other payments due to the Executive hereunder
until the Certified Public Accountants finish the determination and the
Executive (or the Company, as the case may be) elect how to reduce the Agreement
Payments, if necessary. As promptly as practicable following such determination
and the elections hereunder, the Company shall pay to or distribute to or for
the benefit of Executive such amounts as are then due to Executive under this
Agreement and shall promptly pay to or distribute for the benefit of Executive
in the future such amounts as become due to Executive under this Agreement.
c) As a result of the uncertainty in the application of Section 280G of the
Code, it is possible that Agreement Payments may have been made by the Company
which should not have been made ("Overpayment") or that additional Agreement
Payments which will have not been made by the Company could have been made
("Underpayment"), in each case, consistent with the calculation of the Reduced
Amount hereunder. In the event that the Certified Public Accountants, based upon
the assertion of a deficiency by the Internal Revenue Service against the
Company or Executive which said Certified Public Accountants believe has a high
probability of success, determines that an Overpayment has been made, any such
Overpayment shall be treated for all purposes as a loan to Executive which
<PAGE>
Executive shall repay to the Company together with interest at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code; provided,
however, that no amount shall be payable by Executive to the Company in and for
the extent such payment would not reduce the amount which is subject to taxation
under Section 4999 of the Code. In the event that the Certified Public
Accountants, based upon controlling precedent, determine that an Underpayment
has occurred, any such Underpayment shall be promptly paid by the Company to or
for the benefit of the Executive together with interest at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code.
13. Term and Effect Prior to Change in Control.
a) Term. Except as otherwise provided for hereunder, this Agreement shall
commence on the date hereof and shall remain in effect for a period of 3 years
from the date hereof (the "Initial Term") or until the end of the Contract
Period, whichever is later. The Initial Term shall be automatically extended for
an additional one year period on the anniversary date hereof (so that the
Initial Term is always 3 years) unless, prior to a Change in Control, the
Chairman of the Board of Directors of Peapack notifies the Executive in writing
at any time that the Contract is not so extended, in which case the Initial Term
shall end upon the later of (i) 3 years after the date hereof, or (ii) 2 years
after the date of such written notice. Notwithstanding anything to the contrary
contained herein, the Initial Term shall cease when the Executive attains age
65.
b) No Effect Prior to Change in Control. This Agreement shall not effect
any rights of the Company to terminate the Executive prior to a Change in
Control or any rights of the Executive granted in any other agreement or
contract or plan with the Company. The rights, duties and benefits provided
hereunder shall only become effective upon and after a Change in Control. If the
full-time employment of the Executive by the Company is ended for any reason
prior to a Change in Control, this Agreement shall thereafter be of no further
force and effect.
<PAGE>
14. Severance Compensation and Benefits Not in Derogation of Other Benefits.
Anything to the contrary herein contained notwithstanding, the payment or
obligation to pay any monies, or granting of any benefits, rights or privileges
to Executive as provided in this Agreement shall not be in lieu or derogation of
the rights and privileges that the Executive now has or will have under any
plans or programs of or agreements with the Company, except that if the
Executive received any payment hereunder, he shall not be entitled to any
payment under the Company's severance policies for officers and employees.
15. Miscellaneous. This Agreement is the joint and several obligation of
the Bank and Peapack. The terms of this Agreement shall be governed by, and
interpreted and construed in accordance with the provisions of, the laws of New
Jersey. This Agreement supersedes all prior agreements and understandings with
respect to the matters covered hereby, including expressly any prior agreement
with the Company concerning change-in-control benefits. The parties hereto
expressly agree that the Severance Agreement between the Bank and the Executive
dated 1/27/95, is hereby terminated in its entirety. The amendment or
termination of this Agreement may be made only in a writing executed by the
Company and the Executive, and no amendment or termination of this Agreement
shall be effective unless and until made in such a writing. This Agreement shall
be binding upon any successor (whether direct or indirect, by purchase, merge,
consolidation, liquidation or otherwise) to all or substantially all of the
assets of the Company. This Agreement is personal to the Executive and the
Executive may not assign any of his rights or duties hereunder but this
Agreement shall be enforceable by the Executive's legal representatives,
executors or administrators. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
<PAGE>
IN WITNESS WHEREOF, Peapack-Gladstone Bank and Peapack-Gladstone Financial
Corporation each have caused this Agreement to be signed by their duly
authorized representatives pursuant to the authority of their Boards of
Directors, and the Executive has personally executed this Agreement, all as of
the day and year first written above.
ATTEST: PEAPACK-GLADSTONE
FINANCIAL CORPORATION
CATHERINE A. MCCATHARN By: T. LEONARD HILL
- --------------------------------- --------------------------------
Catherine A. McCatharn, Secretary T. Leonard Hill, Chairman
ATTEST: PEAPACK-GLADSTONE BANK
CATHERINE A. MCCATHARN By: T. LEONARD HILL
- -------------------------------- --------------------------------
Cahterine A. McCatharn, Secretary T. Leonard Hill, Chairman
WITNESS:
/s/ BARBARA GRECO ROBERT M. ROGERS, EXECUTIVE
- -------------------------------- ------------------------------------
Barbara Greco Robert M. Rogers, Executive
Exhibit 10.4
CHANGE-IN-CONTROL AGREEMENT
(Craig C. Spengeman)
THIS EMPLOYMENT AGREEMENT (the "Agreement"), is made as of this 1st day of
January, 1998, among PEAPACK-GLADSTONE BANK ("Bank"), a New Jersey state banking
association with its principal office at 190 Main Street, Gladstone, New Jersey
07934, PEAPACK-GLADSTONE FINANCIAL CORPORATION ("Peapack"), a New Jersey
Corporation which maintains its principal office at 158 Route 206 North,
Gladstone, New Jersey F7934 (Peapack and the Bank collectively are the
"Company") and Craig C. Spengeman (the "Executive").
BACKGROUND
WHEREAS, the Executive has been continuously employed by the Bank for many
years;
WHEREAS, the Executive throughout his tenure has worked diligently in his
position in the business of the Bank and Peapack;
WHEREAS, the Board of Directors of the Bank and Peapack believe that the
future services of the Executive are of great value to the Bank and Peapack and
that it is important for the growth and development of the Bank that the
Executive continue in his position;
WHEREAS, if the Company receives any proposal from a third person
concerning a possible business combination with, or acquisition of equities
securities of, the Company, the Board of Directors of the Company (the "Board")
believes it is imperative that the Company and the Board be able to rely upon
the Executive to continue in his position, and that they be able to receive and
rely upon his advice, if they request it, as to the best interests of the
Company and its shareholders, without concern that the Executive might be
distracted by the personal uncertainties and risks created by such a proposal;
<PAGE>
WHEREAS, to achieve that goal, and to retain the Executive's services prior
to any such activity, the Board of Directors and the Executive have agreed to
enter into this Agreement to govern the Executive's termination benefits in the
event of a Change in Control of the Company, as hereinafter defined.
NOW, THEREFORE, to assure the Company that it will have the continued
dedication of the Executive and the availability of his advice and counsel
notwithstanding the possibility, threat or occurrence of a bid to take over
control of the Company, and to induce the Executive to remain in the employ of
the Company, and for other good and valuable consideration, the Company and the
Executive, each intending to be legally bound hereby agree as follows:
Definitions
a) Cause. For purposes of this Agreement "Cause" with respect to the
termination by the Company of Executive's employment shall mean (i) willful and
continued failure by the Executive to perform his duties for the Company under
this Agreement after at least one warning in writing from the Company's Board of
Directors identifying specifically any such failure; (ii) the willful engaging
by the Executive in misconduct which causes material injury to the Company as
specified in a written notice to the Executive from the Board of Directors; or
(iii) conviction of a crime, other than a traffic violation, habitual
drunkenness, drug abuse, or excessive absenteeism other than for illness, after
a warning (with respect to drunkenness or absenteeism only) in writing from the
Board of Directors to refrain from such behavior. No act or failure to act on
the part of the Executive shall be considered willful unless done, or omitted to
be done, by the Executive not in good faith and without reasonable belief that
the action or omission was in the best interest of the Company.
b) Change in Control. "Change in Control" means any of the following
events: (i) when Peapack or a Subsidiary acquires actual knowledge that any
person (as such term is used
<PAGE>
in Sections 13(d) and 14(d)(2) of the Exchange Act), other than an affiliate of
Peapack or a Subsidiary or an employee benefit plan established or maintained by
Peapack, a Subsidiary or any of their respective affiliates, is or becomes the
beneficial owner (as defined in Rule 13d-3 of the Exchange Act) directly or
indirectly, of securities of Peapack representing more than twenty-five percent
(25%) of the combined voting power of Peapack's then outstanding securities (a
"Control Person"), (ii) upon the first purchase of Peapack's common stock
pursuant to a tender or exchange offer (other than a tender or exchange offer
made by Peapack, a Subsidiary or an employee benefit plan established or
maintained by Peapack, a Subsidiary or any of their respective affiliates),
(iii) upon the approval by Peapack's stockholders of (A) a merger or
consolidation of Peapack with or into another corporation (other than a merger
or consolidation which is approved by at least two-thirds of the Continuing
Directors (as hereinafter defined) and the definitive agreement for which
provides that at least two-thirds of the directors of the surviving or resulting
corporation immediately after the transaction are Continuing Directors (a
"Non-Control Transaction")), (B) a sale or disposition of all or substantially
all of Peapack's assets or (C) a plan of liquidation or dissolution of Peapack,
(iv) if during any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the Board (the "Continuing Directors") cease
for any reason to constitute at least two-thirds thereof or, following a
Non-Control Transaction, two-thirds of the board of directors of the surviving
or resulting corporation; provided that any individual whose election or
nomination for election as a member of the Board (or, following a Non-Control
Transaction, the board of directors of the surviving or resulting corporation)
was approved by a vote of at least two-thirds of the Continuing Directors then
in office shall be considered a Continuing Director, or (v) upon a sale of (A)
common stock of the Bank if after such sale any person (as such term is used in
Section 13(d) and 14(d)(2) of the Exchange Act) other than Peapack, an employee
benefit plan established or maintained by Peapack or a Subsidiary, or an
affiliate of Peapack or a Subsidiary, owns a majority of the Bank's common stock
or (B) all or substantially
<PAGE>
all of the Bank's assets (other than in the ordinary course of business). No
person shall be considered a Control Person for purposes of clause (i) above if
(A) such person is or becomes the beneficial owner, directly or indirectly, of
more than ten percent (10%) but less than twenty-five percent (25%) of the
combined voting power of Peapack's then outstanding securities if the
acquisition of all voting securities in excess of ten percent (10%) was approved
in advance by a majority of the Continuing Directors then in office or (B) such
person acquires in excess of ten percent (10%) of the combined voting power of
Peapack's then outstanding voting securities in violation of law and by order of
a court of competent jurisdiction, settlement or otherwise, disposes or is
required to dispose of all securities acquired in violation of law.
c) Contract Period. "Contract Period" shall mean the period commencing the
day immediately preceding a Change in Control and ending on the earlier of (i)
the third anniversary of the Change in Control or (ii) the date the Executive
would attain age 65 or (iii) the death of the Executive. For the purpose of this
Agreement, a Change in Control shall be deemed to have occurred at the date
specified in the definition of Change-in-Control.
d) Exchange Act. "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
e) Good Reason. When used with reference to a voluntary termination by
Executive of his employment with the Company, "Good Reason" shall mean any of
the following, if taken without Executive's express written consent:
(1) The assignment to Executive of any duties inconsistent with, or
the reduction of powers or functions associated with, Executive's position,
title, duties, responsibilities and status with the Company immediately
prior to a Change in Control; any removal of Executive from, or any failure
to re-elect Executive to, any position(s) or office(s) Executive held
immediately prior to such
<PAGE>
Change in Control. A change in title or positions resulting merely from a
merger of the Company into or with another bank or company which does not
downgrade in any way the Executive's powers, duties and responsibilities
shall not meet the requirements of this paragraph;
(2) A reduction by the Company in Executive's annual base compensation
as in effect immediately prior to a Change in Control or the failure to
award Executive annual increases in accordance herewith;
(3) A failure by the Company to continue any bonus plan in which
Executive participated immediately prior to the Change in control or a
failure by the Company to continue Executive as a participant in such plan
on at least the same basis as Executive participated in such plan prior to
the Change in Control;
(4) The Company's transfer of Executive to another geographic location
outside of New Jersey or more than 25 miles from his present office
location, except for required travel on the Company's business to an extent
substantially consistent with Executive's business travel obligations
immediately prior to such Change in Control;
(5) The failure by the Company to continue in effect any employee
benefit plan, program or arrangement (including, without limitation the
Company's retirement plan, benefit equalization plan, life insurance plan,
health and accident plan, disability plan, deferred compensation plan or
long term stock incentive plan) in which Executive is participating
immediately prior to a Change in Control (except that the Company may
institute or continue plans, programs or arrangements providing Executive
with substantially similar benefits); the taking of any action by the
Company which would adversely affect Executive's participation in or
materially reduce Executive's benefits under, any of such plans, programs
or arrangements; the failure to continue, or the taking of any action which
would deprive Executive, of any material fringe benefit enjoyed by
Executive immediately
<PAGE>
prior to such Change in Control; or the failure by the Company to provide
Executive with the number of paid vacation days to which Executive was
entitled immediately prior to such Change in Control;
(6) The failure by the Company to obtain an assumption in writing of
the obligations of the Company to perform this Agreement by any successor
to the Company and to provide such assumption to the Executive prior to any
Change in Control; or
(7) Any purported termination of Executive's employment by the Company
during the term of this Agreement which is not effected pursuant to all of
the requirements of this Agreement; and, for purposes of this Agreement, no
such purported termination shall be effective.
f) Subsidiary. "Subsidiary" means any corporation in an unbroken chain of
corporations, beginning with Peapack, if each of the corporations other than the
last corporation in the unbroken chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
2. Employment. The Company hereby agrees to employ the Executive, and the
Executive hereby accepts employment, during the Contract Period upon the terms
and conditions set forth herein.
3. Position. During the Contract Period the Executive shall be employed as
President of Peapack and the Bank, or such other corporate or divisional profit
center as shall then be the principal successor to the business, assets and
properties of the Company, with substantially the same title and the same duties
and responsibilities as before the Change in Control. The Executive shall devote
his full time and attention to the business of the Company, and shall not during
the Contract Period be engaged in any other business activity. This paragraph
shall not be construed as preventing the Executive from managing any investments
of his which do not require any service on his part in the operation of such
investments.
<PAGE>
4. Cash Compensation. The Company shall pay to the Executive compensation
for his services during the Contract Period as follows:
a) Base Salary. A base annual salary equal to the annual salary in effect
as of the Change in Control. The annual salary shall be payable in installments
in accordance with the Company's usual payroll method.
b) Annual Bonus. An annual cash bonus equal to at least the average of the
bonuses paid to the Executive in the three years prior to the Change in Control.
The bonus shall be payable at the time and in the manner which the Company paid
such bonuses prior to the Change in Control.
c) Annual Review. The Board of Directors of the Company during the Contract
Period shall review annually, or at more frequent intervals which the Board
determines is appropriate, the Executive's compensation and shall award him
additional compensation to reflect the Executive's performance, the performance
of the Company and competitive compensation levels, all as determined in the
discretion of the Board of Directors.
5. Expenses and Fringe Benefits.
a) Expenses. During the Contract Period, the Executive shall be entitled to
reimbursement for all business expenses incurred by him with respect to the
business of the Company in the same manner and to the same extent as such
expenses were previously reimbursed to him immediately prior to the Change in
Control.
b) Supplemental Retirement Plan. During the Contract Period, if the
Executive was entitled to benefits under any supplemental retirement plan prior
to the Change in Control, the Executive shall be entitled to continued benefits
under such plan after the Change in Control and such plan may not be modified to
reduce or eliminate such benefits during the Contract Period.
<PAGE>
c) Club Membership and Automobile. If prior to the Change in Control, the
Executive was entitled to membership in a country club and/or the use of an
automobile, he shall be entitled to the same membership and/or use of an
automobile at least comparable to the automobile provided to him prior to the
Change in Control.
d) Other Benefits. The Executive also shall be entitled to vacations and
sick days, in accordance with the practices and procedures of the Company, as
such existed immediately prior to the Change in Control. During the Contract
Period, the Executive also shall be entitled to hospital, health, medical and
life insurance, and any other benefits enjoyed, from time to time, by senior
officers of the Company, all upon terms as favorable as those enjoyed by other
senior officers of the Company. Notwithstanding anything in this paragraph 5(d)
to the contrary, if the Company adopts any change in the benefits provided for
senior officers of the Company, and such policy is uniformly applied to all
officers of the Company (and any successor or acquiror of the Company, if any),
including the chief executive officer of such entities, then no such change
shall be deemed to be contrary to this paragraph.
6. Termination for Cause. The Company shall have the right to terminate the
Executive for Cause, upon written notice to him of the termination which notice
shall specify the reasons for the termination. In the event of termination for
Cause the Executive shall not be entitled to any further benefits under this
Agreement.
7. Disability. During the Contract Period if the Executive becomes
permanently disabled, or is unable to perform his duties hereunder for 4
consecutive months in any 12 month period, the Company may terminate the
employment of the Executive. In such event, the Executive shall not be entitled
to any further benefits under this Agreement.
8. Death Benefits. Upon the Executive's death during the Contract Period,
his estate shall not be entitled to any further benefits under this Agreement.
<PAGE>
9. Termination Without Cause or Resignation for Good Reason. The Company
may terminate the Executive without Cause during the Contract Period by written
notice to the Executive providing four weeks notice. The Executive may resign
for Good Reason during the Contract Period upon four weeks' written notice to
the Company specifying facts and circumstances claimed to support the Good
Reason. The Executive shall be entitled to give a Notice of Termination that his
or her employment is being terminated for Good Reason at any time during the
Contract Period, not later than twelve months after any occurrence of an event
stated to constitute Good Reason. If the Company terminates the Executive's
employment during the Contract Period without Cause or if the Executive Resigns
for Good Reason, the Company shall, subject to Section 12 hereof:
(a) Within 20 business days of the termination of employment pay the
Executive a lump sum severance payment in an amount equal to three (3.0)
times the highest annual cash compensation, consisting solely of salary and
bonus, as well as any 401(k) deferral, paid to the Executive during any
calendar year in each of the three calendar years immediately prior to the
Change in Control; and
(b) Continue to provide the Executive during the remainder of the
Contract Period with health, hospitalization and medical insurance, as were
provided at the time of the termination of his employment with the Company,
at the Company's cost (subject to standard deductibles and co-pays, and the
Executive's continuing payment of his part of the premium for family
coverage, if applicable).
The Executive shall not have a duty to mitigate the damages suffered by him
in connection with the termination by the Company of his employment without
Cause or a resignation for Good Reason during the Contract Period. If the
Company fails to pay the Executive the lump sum amount due him hereunder or to
provide him with the health, hospitalization and medical insurance benefits due
under this section, the Executive, after giving 10 days' written notice to the
Company identifying the Company's
<PAGE>
failure, shall be entitled to recover from the Company all of his reasonable
legal fees and expenses incurred in connection with his enforcement against the
Company of the terms of this Agreement. The Executive shall be denied payment of
his legal fees and expenses only if a court finds that the Executive sought
payment of such fees without reasonable cause and not in good faith.
10. Resignation Without Good Reason. The Executive shall be entitled to
resign from the employment of the Company at any time during the Contract Period
without Good Reason, but upon such resignation the Executive shall not be
entitled to any additional compensation for the time after which he ceases to be
employed by the Company, and shall not be entitled to any of the other benefits
provided hereunder. No such resignation shall be effective unless in writing
with four weeks' notice thereof.
11. Non-Disclosure of Confidential Information.
a) Non-Disclosure of Confidential Information. Except in the course of his
employment with the Company and in the pursuit of the business of the Company or
any of its subsidiaries or affiliates, the Executive shall not, at any time
during or following the Contract Period, disclose or use, any confidential
information or proprietary data of the Company or any of its subsidiaries or
affiliates. The Executive agrees that, among other things, all information
concerning the identity of and the Company's relations with its customers is
confidential information.
b) Specific Performance. Executive agrees that the Company does not have an
adequate remedy at law for the breach of this section and agrees that he shall
be subject to injunctive relief and equitable remedies as a result of the breach
of this section. The invalidity or unenforceability of any provision of this
Agreement shall not affect the force and effect of the remaining valid portions.
<PAGE>
c) Survival. This section shall survive the termination of the Executive's
employment hereunder and the expiration of this Agreement.
12. Certain Reduction of Payments by the Company.
a) Anything in this Agreement to the contrary notwithstanding, prior to the
payment of any lump sum amount payable hereunder, the certified public
accountants of the Company immediately prior to a Change of Control (the
"Certified Public Accountants) shall determine as promptly as practical and in
any event within 20 business days following the termination of employment of
Executive whether any payment or distribution by the Company to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise) (a
"Payment") would more likely than not be nondeductible by the Company for
Federal income purposes because of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), and if it is then the aggregate present value of
amounts payable or distributable to or for the benefit of Executive pursuant to
this Agreement (such payments or distributions pursuant to this Agreement are
thereinafter referred to as "Agreement Payments") shall be reduced (but not
below zero) to the reduced Amount. For purposes of this paragraph, the "Reduced
Amount" shall be an amount expressed in present value which maximizes the
aggregate present value of Agreement Payments without causing any Payment to be
nondeductible by the Company because of said Section 280G of the Code.
b) If under paragraph (a) of this section the Certified Public Accountants
determine that any Payment would more likely than not be nondeductible by the
Company because of Section 280G of the Code, the Company shall promptly give the
Executive notice to that effect and a copy of the detailed calculation thereof
and of the Reduced Amount, and the Executive may then elect, in his sole
discretion, which and how much of the Agreement Payments shall be eliminated or
reduced (as long as after such election the aggregate present value of the
Agreement Payments equals the
<PAGE>
Reduced Amount), and shall advise the Company in writing of his election within
20 business days of his receipt of notice. If no such election is made by the
Executive within such 20-day period, the Company may elect which and how much of
the Agreement Payments shall be eliminated or reduced (as long as after such
election the Aggregate present Value of the Agreement Payments equals the
Reduced Amount) and shall notify the Executive promptly of such election. For
purposes of this paragraph, present Value shall be determined in accordance with
Section 280G(d)(4) of the Code. All determinations made by the Certified Public
Accountants shall be binding upon the Company and Executive shall be made within
20 business days of a termination of employment of Executive. With the consent
of the Executive, the Company may suspend part or all of the lump sum payment
due under Section 9 hereof and any other payments due to the Executive hereunder
until the Certified Public Accountants finish the determination and the
Executive (or the Company, as the case may be) elect how to reduce the Agreement
Payments, if necessary. As promptly as practicable following such determination
and the elections hereunder, the Company shall pay to or distribute to or for
the benefit of Executive such amounts as are then due to Executive under this
Agreement and shall promptly pay to or distribute for the benefit of Executive
in the future such amounts as become due to Executive under this Agreement.
c) As a result of the uncertainty in the application of Section 280G of the
Code, it is possible that Agreement Payments may have been made by the Company
which should not have been made ("Overpayment") or that additional Agreement
Payments which will have not been made by the Company could have been made
("Underpayment"), in each case, consistent with the calculation of the Reduced
Amount hereunder. In the event that the Certified Public Accountants, based upon
the assertion of a deficiency by the Internal Revenue Service against the
Company or Executive which Said Certified Public Accountants believe has a high
probability of success, determines that an Overpayment has been made, any such
Overpayment shall be treated for all purposes as a loan to Executive which
<PAGE>
Executive shall repay to the Company together with interest at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code; provided,
however, that no amount shall be payable by Executive to the Company in and for
the extent such payment would not reduce the amount which is subject to taxation
under Section 4999 of the Code. In the event that the Certified Public
Accountants, based upon controlling precedent, determine that an Underpayment
has occurred, any such Underpayment shall be promptly paid by the Company to or
for the benefit of the Executive together with interest at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code.
13. Term and Effect Prior to Change in Control.
a) Term. Except as otherwise provided for hereunder, this Agreement shall
commence on the date hereof and shall remain in effect for a period of 3 years
from the date hereof (the "Initial Term") or until the end of the Contract
Period, whichever is later. The Initial Term shall be automatically extended for
an additional one year period on the anniversary date hereof (so that the
Initial Term is always 3 years) unless, prior to a Change in Control, the
Chairman of the Board of Directors of Peapack notifies the Executive in writing
at any time that the Contract is not so extended, in which case the Initial Term
shall end upon the later of (i) 3 years after the date hereof, or (ii) 2 years
after the date of such written notice. Notwithstanding anything to the contrary
contained herein, the Initial Term shall cease when the Executive attains age
65.
b) No Effect Prior to Change in Control. This Agreement shall not effect
any rights of the Company to terminate the Executive prior to a Change in
Control or any rights of the Executive granted in any other agreement or
contract or plan with the Company. The rights, duties and benefits provided
hereunder shall only become effective upon and after a Change in Control. If the
full-time employment of the Executive by the Company is ended for any reason
prior to a Change in Control, this Agreement shall thereafter be of no further
force and effect.
<PAGE>
14. Severance Compensation and Benefits Not in Derogation of Other Benefits.
Anything to the contrary herein contained notwithstanding, the payment or
obligation to pay any monies, or granting of any benefits, rights or privileges
to Executive as provided in this Agreement shall not be in lieu or derogation of
the rights and privileges that the Executive now has or will have under any
plans or programs of or agreements with the Company, except that if the
Executive received any payment hereunder, he shall not be entitled to any
payment under the Company's severance policies for officers and employees.
15. Miscellaneous. This Agreement is the joint and several obligation of
the Bank and Peapack. The terms of this Agreement shall be governed by, and
interpreted and construed in accordance with the provisions of, the laws of New
Jersey. This Agreement supersedes all prior agreements and understandings with
respect to the matters covered hereby, including expressly any prior agreement
with the Company concerning change-in-control benefits. The parties hereto
expressly agree that the Severance Agreement between the Bank and the Executive
dated 1/27/97, is hereby terminated in its entirety. The amendment or
termination of this Agreement may be made only in a writing executed by the
Company and the Executive, and no amendment or termination of this Agreement
shall be effective unless and until made in such a writing. This Agreement shall
be binding upon any successor (whether direct or indirect, by purchase, merge,
consolidation, liquidation or otherwise) to all or substantially all of the
assets of the Company. This Agreement is personal to the Executive and the
Executive may not assign any of his rights or duties hereunder but this
Agreement shall be enforceable by the Executive's legal representatives,
executors or administrators. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
<PAGE>
IN WITNESS WHEREOF, Peapack-Gladstone Bank and Peapack-Gladstone Financial
Corporation each have caused this Agreement to be signed by their duly
authorized representatives pursuant to the authority of their Boards of
Directors, and the Executive has personally executed this Agreement, all as of
the day and year first written above.
ATTEST: PEAPACK-GLADSTONE
FINANCIAL CORPORATION
CATHERINE A. MCCATHARN By: T. LEONARD HILL
- --------------------------------- --------------------------------
Catherine A. McCatharn, Secretary T. Leonard Hill, Chairman
ATTEST: PEAPACK-GLADSTONE BANK
CATHERINE A. MCCATHARN By: T. LEONARD HILL
- --------------------------------- --------------------------------
Catherine A. McCatharn, Secretary T. Leonard Hill, Chairman
WITNESS:
GARRETT BROMLEY CRAIG C. SPENGEMAN, EXECUTIVE
- --------------------------------- -------------------------------------
Garrett Bromley Craig C. Spengeman, Executive
Exhibit 10.5
CHANGE-IN-CONTROL AGREEMENT
(Arthur F. Birmingham)
THIS EMPLOYMENT AGREEMENT (the "Agreement"), is made as of this 1st day of
January, 1998, among PEAPACK-GLADSTONE BANK ("Bank"), a New Jersey state banking
association with its principal office at 190 Main Street, Gladstone, New Jersey
07934, PEAPACK-GLADSTONE FINANCIAL CORPORATION ("Peapack"), a New Jersey
Corporation which maintains its principal office at 158 Route 206 North,
Gladstone, New Jersey F7934 (Peapack and the Bank collectively are the
"Company") and Arthur F. Birmingham (the "Executive").
BACKGROUND
WHEREAS, the Executive has been continuously employed by the Bank for many
years;
WHEREAS, the Executive throughout his tenure has worked diligently in his
position in the business of the Bank and Peapack;
WHEREAS, the Board of Directors of the Bank and Peapack believe that the
future services of the Executive are of great value to the Bank and Peapack and
that it is important for the growth and development of the Bank that the
Executive continue in his position;
WHEREAS, if the Company receives any proposal from a third person
concerning a possible business combination with, or acquisition of equities
securities of, the Company, the Board of Directors of the Company (the "Board")
believes it is imperative that the Company and the Board be able to rely upon
the Executive to continue in his position, and that they be able to receive and
rely upon his advice, if they request it, as to the best interests of the
Company and its shareholders, without concern that the Executive might be
distracted by the personal uncertainties and risks created by such a proposal;
<PAGE>
WHEREAS, to achieve that goal, and to retain the Executive's services prior
to any such activity, the Board of Directors and the Executive have agreed to
enter into this Agreement to govern the Executive's termination benefits in the
event of a Change in Control of the Company, as hereinafter defined.
NOW, THEREFORE, to assure the Company that it will have the continued
dedication of the Executive and the availability of his advice and counsel
notwithstanding the possibility, threat or occurrence of a bid to take over
control of the Company, and to induce the Executive to remain in the employ of
the Company, and for other good and valuable consideration, the Company and the
Executive, each intending to be legally bound hereby agree as follows:
Definitions
a) Cause. For purposes of this Agreement "Cause" with respect to the
termination by the Company of Executive's employment shall mean (i) willful and
continued failure by the Executive to perform his duties for the Company under
this Agreement after at least one warning in writing from the Company's Board of
Directors identifying specifically any such failure; (ii) the willful engaging
by the Executive in misconduct which causes material injury to the Company as
specified in a written notice to the Executive from the Board of Directors; or
(iii) conviction of a crime, other than a traffic violation, habitual
drunkenness, drug abuse, or excessive absenteeism other than for illness, after
a warning (with respect to drunkenness or absenteeism only) in writing from the
Board of Directors to refrain from such behavior. No act or failure to act on
the part of the Executive shall be considered willful unless done, or omitted to
be done, by the Executive not in good faith and without reasonable belief that
the action or omission was in the best interest of the Company.
b) Change in Control. "Change in Control" means any of the following
events: (i) when Peapack or a Subsidiary acquires actual knowledge that any
person (as such term is used
<PAGE>
in Sections 13(d) and 14(d)(2) of the Exchange Act), other than an affiliate of
Peapack or a Subsidiary or an employee benefit plan established or maintained by
Peapack, a Subsidiary or any of their respective affiliates, is or becomes the
beneficial owner (as defined in Rule 13d-3 of the Exchange Act) directly or
indirectly, of securities of Peapack representing more than twenty-five percent
(25%) of the combined voting power of Peapack's then outstanding securities (a
"Control Person"), (ii) upon the first purchase of Peapack's common stock
pursuant to a tender or exchange offer (other than a tender or exchange offer
made by Peapack, a Subsidiary or an employee benefit plan established or
maintained by Peapack, a Subsidiary or any of their respective affiliates),
(iii) upon the approval by Peapack's stockholders of (A) a merger or
consolidation of Peapack with or into another corporation (other than a merger
or consolidation which is approved by at least two-thirds of the Continuing
Directors (as hereinafter defined) and the definitive agreement for which
provides that at least two-thirds of the directors of the surviving or resulting
corporation immediately after the transaction are Continuing Directors (a
"Non-Control Transaction")), (B) a sale or disposition of all or substantially
all of Peapack's assets or (C) a plan of liquidation or dissolution of Peapack,
(iv) if during any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the Board (the "Continuing Directors") cease
for any reason to constitute at least two-thirds thereof or, following a
Non-Control Transaction, two-thirds of the board of directors of the surviving
or resulting corporation; provided that any individual whose election or
nomination for election as a member of the Board (or, following a Non-Control
Transaction, the board of directors of the surviving or resulting corporation)
was approved by a vote of at least two-thirds of the Continuing Directors then
in office shall be considered a Continuing Director, or (v) upon a sale of (A)
common stock of the Bank if after such sale any person (as such term is used in
Section 13(d) and 14(d)(2) of the Exchange Act) other than Peapack, an employee
benefit plan established or maintained by Peapack or a Subsidiary, or an
affiliate of Peapack or a Subsidiary, owns a majority of the Bank's common stock
or (B) all or substantially
<PAGE>
all of the Bank's assets (other than in the ordinary course of business). No
person shall be considered a Control Person for purposes of clause (i) above if
(A) such person is or becomes the beneficial owner, directly or indirectly, of
more than ten percent (10%) but less than twenty-five percent (25%) of the
combined voting power of Peapack's then outstanding securities if the
acquisition of all voting securities in excess of ten percent (10%) was approved
in advance by a majority of the Continuing Directors then in office or (B) such
person acquires in excess of ten percent (10%) of the combined voting power of
Peapack's then outstanding voting securities in violation of law and by order of
a court of competent jurisdiction, settlement or otherwise, disposes or is
required to dispose of all securities acquired in violation of law.
c) Contract Period. "Contract Period" shall mean the period commencing the
day immediately preceding a Change in Control and ending on the earlier of (i)
the third anniversary of the Change in Control or (ii) the date the Executive
would attain age 65 or (iii) the death of the Executive. For the purpose of this
Agreement, a Change in Control shall be deemed to have occurred at the date
specified in the definition of Change-in-Control.
d) Exchange Act. "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
e) Good Reason. When used with reference to a voluntary termination by
Executive of his employment with the Company, "Good Reason" shall mean any of
the following, if taken without Executive's express written consent:
(1) The assignment to Executive of any duties inconsistent with, or
the reduction of powers or functions associated with, Executive's position,
title, duties, responsibilities and status with the Company immediately
prior to a Change in Control; any removal of Executive from, or any failure
to re-elect Executive to, any position(s) or office(s) Executive held
immediately prior to such
<PAGE>
Change in Control. A change in title or positions resulting merely from a
merger of the Company into or with another bank or company which does not
downgrade in any way the Executive's powers, duties and responsibilities
shall not meet the requirements of this paragraph;
(2) A reduction by the Company in Executive's annual base compensation
as in effect immediately prior to a Change in Control or the failure to
award Executive annual increases in accordance herewith;
(3) A failure by the Company to continue any bonus plan in which
Executive participated immediately prior to the Change in control or a
failure by the Company to continue Executive as a participant in such plan
on at least the same basis as Executive participated in such plan prior to
the Change in Control;
(4) The Company's transfer of Executive to another geographic location
outside of New Jersey or more than 25 miles from his present office
location, except for required travel on the Company's business to an extent
substantially consistent with Executive's business travel obligations
immediately prior to such Change in Control;
(5) The failure by the Company to continue in effect any employee
benefit plan, program or arrangement (including, without limitation the
Company's retirement plan, benefit equalization plan, life insurance plan,
health and accident plan, disability plan, deferred compensation plan or
long term stock incentive plan) in which Executive is participating
immediately prior to a Change in Control (except that the Company may
institute or continue plans, programs or arrangements providing Executive
with substantially similar benefits); the taking of any action by the
Company which would adversely affect Executive's participation in or
materially reduce Executive's benefits under, any of such plans, programs
or arrangements; the failure to continue, or the taking of any action which
would deprive Executive, of any material fringe benefit enjoyed by
Executive immediately
<PAGE>
prior to such Change in Control; or the failure by the Company to provide
Executive with the number of paid vacation days to which Executive was
entitled immediately prior to such Change in Control;
(6) The failure by the Company to obtain an assumption in writing of
the obligations of the Company to perform this Agreement by any successor
to the Company and to provide such assumption to the Executive prior to any
Change in Control; or
(7) Any purported termination of Executive's employment by the Company
during the term of this Agreement which is not effected pursuant to all of
the requirements of this Agreement; and, for purposes of this Agreement, no
such purported termination shall be effective.
f) Subsidiary. "Subsidiary" means any corporation in an unbroken chain
of corporations, beginning with Peapack, if each of the corporations other
than the last corporation in the unbroken chain owns stock possessing 50%
or more of the total combined voting power of all classes of stock in one
of the other corporations in such chain.
2. Employment. The Company hereby agrees to employ the Executive, and
the Executive hereby accepts employment, during the Contract Period upon
the terms and conditions set forth herein.
3. Position. During the Contract Period the Executive shall be
employed as President of Peapack and the Bank, or such other corporate or
divisional profit center as shall then be the principal successor to the
business, assets and properties of the Company, with substantially the same
title and the same duties and responsibilities as before the Change in
Control. The Executive shall devote his full time and attention to the
business of the Company, and shall not during the Contract Period be
engaged in any other business activity. This paragraph shall not be
construed as preventing the Executive from managing any investments of his
which do not require any service on his part in the operation of such
investments.
<PAGE>
4. Cash Compensation. The Company shall pay to the Executive
compensation for his services during the Contract Period as follows:
a) Base Salary. A base annual salary equal to the annual salary in
effect as of the Change in Control. The annual salary shall be payable in
installments in accordance with the Company's usual payroll method.
b) Annual Bonus. An annual cash bonus equal to at least the average of
the bonuses paid to the Executive in the three years prior to the Change in
Control. The bonus shall be payable at the time and in the manner which the
Company paid such bonuses prior to the Change in Control.
c) Annual Review. The Board of Directors of the Company during the
Contract Period shall review annually, or at more frequent intervals which
the Board determines is appropriate, the Executive's compensation and shall
award him additional compensation to reflect the Executive's performance,
the performance of the Company and competitive compensation levels, all as
determined in the discretion of the Board of Directors.
5. Expenses and Fringe Benefits.
a) Expenses. During the Contract Period, the Executive shall be entitled to
reimbursement for all business expenses incurred by him with respect to the
business of the Company in the same manner and to the same extent as such
expenses were previously reimbursed to him immediately prior to the Change in
Control.
b) Supplemental Retirement Plan. During the Contract Period, if the
Executive was entitled to benefits under any supplemental retirement plan prior
to the Change in Control, the Executive shall be entitled to continued benefits
under such plan after the Change in Control and such plan may not be modified to
reduce or eliminate such benefits during the Contract Period.
<PAGE>
c) Club Membership and Automobile. If prior to the Change in Control, the
Executive was entitled to membership in a country club and/or the use of an
automobile, he shall be entitled to the same membership and/or use of an
automobile at least comparable to the automobile provided to him prior to the
Change in Control.
d) Other Benefits. The Executive also shall be entitled to vacations and
sick days, in accordance with the practices and procedures of the Company, as
such existed immediately prior to the Change in Control. During the Contract
Period, the Executive also shall be entitled to hospital, health, medical and
life insurance, and any other benefits enjoyed, from time to time, by senior
officers of the Company, all upon terms as favorable as those enjoyed by other
senior officers of the Company. Notwithstanding anything in this paragraph 5(d)
to the contrary, if the Company adopts any change in the benefits provided for
senior officers of the Company, and such policy is uniformly applied to all
officers of the Company (and any successor or acquiror of the Company, if any),
including the chief executive officer of such entities, then no such change
shall be deemed to be contrary to this paragraph.
6. Termination for Cause. The Company shall have the right to terminate the
Executive for Cause, upon written notice to him of the termination which notice
shall specify the reasons for the termination. In the event of termination for
Cause the Executive shall not be entitled to any further benefits under this
Agreement.
7. Disability. During the Contract Period if the Executive becomes
permanently disabled, or is unable to perform his duties hereunder for 4
consecutive months in any 12 month period, the Company may terminate the
employment of the Executive. In such event, the Executive shall not be entitled
to any further benefits under this Agreement.
8. Death Benefits. Upon the Executive's death during the Contract Period,
his estate shall not be entitled to any further benefits under this Agreement.
<PAGE>
9. Termination Without Cause or Resignation for Good Reason. The Company
may terminate the Executive without Cause during the Contract Period by written
notice to the Executive providing four weeks notice. The Executive may resign
for Good Reason during the Contract Period upon four weeks' written notice to
the Company specifying facts and circumstances claimed to support the Good
Reason. The Executive shall be entitled to give a Notice of Termination that his
or her employment is being terminated for Good Reason at any time during the
Contract Period, not later than twelve months after any occurrence of an event
stated to constitute Good Reason. If the Company terminates the Executive's
employment during the Contract Period without Cause or if the Executive Resigns
for Good Reason, the Company shall, subject to Section 12 hereof:
(a) Within 20 business days of the termination of employment pay the
Executive a lump sum severance payment in an amount equal to three (3.0)
times the highest annual cash compensation, consisting solely of salary and
bonus, as well as any 401(k) deferral, paid to the Executive during any
calendar year in each of the three calendar years immediately prior to the
Change in Control; and
(b) Continue to provide the Executive during the remainder of the
Contract Period with health, hospitalization and medical insurance, as were
provided at the time of the termination of his employment with the Company,
at the Company's cost (subject to standard deductibles and co-pays, and the
Executive's continuing payment of his part of the premium for family
coverage, if applicable).
The Executive shall not have a duty to mitigate the damages suffered by him
in connection with the termination by the Company of his employment without
Cause or a resignation for Good Reason during the Contract Period. If the
Company fails to pay the Executive the lump sum amount due him hereunder or to
provide him with the health, hospitalization and medical insurance benefits due
under this section, the Executive, after giving 10 days' written notice to the
Company identifying the Company's
<PAGE>
failure, shall be entitled to recover from the Company all of his reasonable
legal fees and expenses incurred in connection with his enforcement against the
Company of the terms of this Agreement. The Executive shall be denied payment of
his legal fees and expenses only if a court finds that the Executive sought
payment of such fees without reasonable cause and not in good faith.
10. Resignation Without Good Reason. The Executive shall be entitled to
resign from the employment of the Company at any time during the Contract Period
without Good Reason, but upon such resignation the Executive shall not be
entitled to any additional compensation for the time after which he ceases to be
employed by the Company, and shall not be entitled to any of the other benefits
provided hereunder. No such resignation shall be effective unless in writing
with four weeks' notice thereof.
11. Non-Disclosure of Confidential Information.
a) Non-Disclosure of Confidential Information. Except in the course of his
employment with the Company and in the pursuit of the business of the Company or
any of its subsidiaries or affiliates, the Executive shall not, at any time
during or following the Contract Period, disclose or use, any confidential
information or proprietary data of the Company or any of its subsidiaries or
affiliates. The Executive agrees that, among other things, all information
concerning the identity of and the Company's relations with its customers is
confidential information.
b) Specific Performance. Executive agrees that the Company does not have an
adequate remedy at law for the breach of this section and agrees that he shall
be subject to injunctive relief and equitable remedies as a result of the breach
of this section. The invalidity or unenforceability of any provision of this
Agreement shall not affect the force and effect of the remaining valid portions.
<PAGE>
c) Survival. This section shall survive the termination of the Executive's
employment hereunder and the expiration of this Agreement.
12. Certain Reduction of Payments by the Company.
a) Anything in this Agreement to the contrary notwithstanding, prior to the
payment of any lump sum amount payable hereunder, the certified public
accountants of the Company immediately prior to a Change of Control (the
"Certified Public Accountants) shall determine as promptly as practical and in
any event within 20 business days following the termination of employment of
Executive whether any payment or distribution by the Company to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise) (a
"Payment") would more likely than not be nondeductible by the Company for
Federal income purposes because of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), and if it is then the aggregate present value of
amounts payable or distributable to or for the benefit of Executive pursuant to
this Agreement (such payments or distributions pursuant to this Agreement are
thereinafter referred to as "Agreement Payments") shall be reduced (but not
below zero) to the reduced Amount. For purposes of this paragraph, the "Reduced
Amount" shall be an amount expressed in present value which maximizes the
aggregate present value of Agreement Payments without causing any Payment to be
nondeductible by the Company because of said Section 280G of the Code.
b) If under paragraph (a) of this section the Certified Public Accountants
determine that any Payment would more likely than not be nondeductible by the
Company because of Section 280G of the Code, the Company shall promptly give the
Executive notice to that effect and a copy of the detailed calculation thereof
and of the Reduced Amount, and the Executive may then elect, in his sole
discretion, which and how much of the Agreement Payments shall be eliminated or
reduced (as long as after such election the aggregate present value of the
Agreement Payments equals the
<PAGE>
Reduced Amount), and shall advise the Company in writing of his election within
20 business days of his receipt of notice. If no such election is made by the
Executive within such 20-day period, the Company may elect which and how much of
the Agreement Payments shall be eliminated or reduced (as long as after such
election the Aggregate present Value of the Agreement Payments equals the
Reduced Amount) and shall notify the Executive promptly of such election. For
purposes of this paragraph, present Value shall be determined in accordance with
Section 280G(d)(4) of the Code. All determinations made by the Certified Public
Accountants shall be binding upon the Company and Executive shall be made within
20 business days of a termination of employment of Executive. With the consent
of the Executive, the Company may suspend part or all of the lump sum payment
due under Section 9 hereof and any other payments due to the Executive hereunder
until the Certified Public Accountants finish the determination and the
Executive (or the Company, as the case may be) elect how to reduce the Agreement
Payments, if necessary. As promptly as practicable following such determination
and the elections hereunder, the Company shall pay to or distribute to or for
the benefit of Executive such amounts as are then due to Executive under this
Agreement and shall promptly pay to or distribute for the benefit of Executive
in the future such amounts as become due to Executive under this Agreement.
c) As a result of the uncertainty in the application of Section 280G of the
Code, it is possible that Agreement Payments may have been made by the Company
which should not have been made ("Overpayment") or that additional Agreement
Payments which will have not been made by the Company could have been made
("Underpayment"), in each case, consistent with the calculation of the Reduced
Amount hereunder. In the event that the Certified Public Accountants, based upon
the assertion of a deficiency by the Internal Revenue Service against the
Company or Executive which said Certified Public Accountants believe has a high
probability of success, determines that an Overpayment has been made, any such
Overpayment shall be treated for all purposes as a loan to Executive which
<PAGE>
Executive shall repay to the Company together with interest at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code; provided,
however, that no amount shall be payable by Executive to the Company in and for
the extent such payment would not reduce the amount which is subject to taxation
under Section 4999 of the Code. In the event that the Certified Public
Accountants, based upon controlling precedent, determine that an Underpayment
has occurred, any such Underpayment shall be promptly paid by the Company to or
for the benefit of the Executive together with interest at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code.
13. Term and Effect Prior to Change in Control.
a) Term. Except as otherwise provided for hereunder, this Agreement shall
commence on the date hereof and shall remain in effect for a period of 3 years
from the date hereof (the "Initial Term") or until the end of the Contract
Period, whichever is later. The Initial Term shall be automatically extended for
an additional one year period on the anniversary date hereof (so that the
Initial Term is always 3 years) unless, prior to a Change in Control, the
Chairman of the Board of Directors of Peapack notifies the Executive in writing
at any time that the Contract is not so extended, in which case the Initial Term
shall end upon the later of (i) 3 years after the date hereof, or (ii) 2 years
after the date of such written notice. Notwithstanding anything to the contrary
contained herein, the Initial Term shall cease when the Executive attains age
65.
b) No Effect Prior to Change in Control. This Agreement shall not effect
any rights of the Company to terminate the Executive prior to a Change in
Control or any rights of the Executive granted in any other agreement or
contract or plan with the Company. The rights, duties and benefits provided
hereunder shall only become effective upon and after a Change in Control. If the
full-time employment of the Executive by the Company is ended for any reason
prior to a Change in Control, this Agreement shall thereafter be of no further
force and effect.
<PAGE>
14. Severance Compensation and Benefits Not in Derogation of Other
Benefits. Anything to the contrary herein contained notwithstanding, the payment
or obligation to pay any monies, or granting of any benefits, rights or
privileges to Executive as provided in this Agreement shall not be in lieu or
derogation of the rights and privileges that the Executive now has or will have
under any plans or programs of or agreements with the Company, except that if
the Executive received any payment hereunder, he shall not be entitled to any
payment under the Company's severance policies for officers and employees.
15. Miscellaneous. This Agreement is the joint and several obligation of
the Bank and Peapack. The terms of this Agreement shall be governed by, and
interpreted and construed in accordance with the provisions of, the laws of New
Jersey. This Agreement supersedes all prior agreements and understandings with
respect to the matters covered hereby, including expressly any prior agreement
with the Company concerning change-in-control benefits. The parties hereto
expressly agree that the Severance Agreement between the Bank and the Executive
dated 5/6/97, is hereby terminated in its entirety. The amendment or termination
of this Agreement may be made only in a writing executed by the Company and the
Executive, and no amendment or termination of this Agreement shall be effective
unless and until made in such a writing. This Agreement shall be binding upon
any successor (whether direct or indirect, by purchase, merge, consolidation,
liquidation or otherwise) to all or substantially all of the assets of the
Company. This Agreement is personal to the Executive and the Executive may not
assign any of his rights or duties hereunder but this Agreement shall be
enforceable by the Executive's legal representatives, executors or
administrators. This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, and it shall not be necessary in making
proof of this Agreement to produce or account for more than one such
counterpart.
<PAGE>
IN WITNESS WHEREOF, Peapack-Gladstone Bank and Peapack-Gladstone Financial
Corporation each have caused this Agreement to be signed by their duly
authorized representatives pursuant to the authority of their Boards of
Directors, and the Executive has personally executed this Agreement, all as of
the day and year first written above.
ATTEST: PEAPACK-GLADSTONE
FINANCIAL CORPORATION
CATHERINE A. MCCATHARN By: T. LEONARD HILL
- --------------------------------- --------------------------------
Catherine A. McCatharn, Secretary T. Leonard Hill, Chairman
ATTEST: PEAPACK-GLADSTONE BANK
CATHERINE A. MCCATHARN By: T. LEONARD HILL
- --------------------------------- --------------------------------
Catherine A. McCatharn, Secretary T. Leonard Hill, Chairman
WITNESS:
PAUL BELL ARTHUR F. BIRMINGHAM, EXECUTIVE
- --------------------------------- ------------------------------------
Paul Bell Arthur F. Birmingham, Executive
EXHIBIT 10-6
CHANGE-IN-CONTROL AGREEMENT
(Barbara A. Grecco)
THIS EMPLOYMENT AGREEMENT (the "Agreement"), is made as of this 1st day of
January, 1998, among PEAPACK-GLADSTONE BANK ("Bank"), a New Jersey state banking
association with its principal office at 190 Main Street, Gladstone, New Jersey
07934, PEAPACK-GLADSTONE FINANCIAL CORPORATION ("Peapack"), a New Jersey
Corporation which maintains its principal office at 158 Route 206 North,
Gladstone, New Jersey F7934 (Peapack and the Bank collectively are the
"Company") and Barbara A. Grecco (the "Executive").
BACKGROUND
WHEREAS, the Executive has been continuously employed by the Bank for many
years;
WHEREAS, the Executive throughout his tenure has worked diligently in his
position in the business of the Bank and Peapack;
WHEREAS, the Board of Directors of the Bank and Peapack believe that the
future services of the Executive are of great value to the Bank and Peapack and
that it is important for the growth and development of the Bank that the
Executive continue in his position;
WHEREAS, if the Company receives any proposal from a third person
concerning a possible business combination with, or acquisition of equities
securities of, the Company, the Board of Directors of the Company (the "Board")
believes it is imperative that the Company and the Board be able to rely upon
the Executive to continue in his position, and that they be able to receive and
rely upon his advice, if they request it, as to the best interests of the
Company and its shareholders, without concern that the Executive might be
distracted by the personal uncertainties and risks created by such a proposal;
<PAGE>
WHEREAS, to achieve that goal, and to retain the Executive's services prior
to any such activity, the Board of Directors and the Executive have agreed to
enter into this Agreement to govern the Executive's termination benefits in the
event of a Change in Control of the Company, as hereinafter defined.
NOW, THEREFORE, to assure the Company that it will have the continued
dedication of the Executive and the availability of his advice and counsel
notwithstanding the possibility, threat or occurrence of a bid to take over
control of the Company, and to induce the Executive to remain in the employ of
the Company, and for other good and valuable consideration, the Company and the
Executive, each intending to be legally bound hereby agree as follows:
Definitions
a) Cause. For purposes of this Agreement "Cause" with respect to the
termination by the Company of Executive's employment shall mean (i) willful and
continued failure by the Executive to perform his duties for the Company under
this Agreement after at least one warning in writing from the Company's Board of
Directors identifying specifically any such failure; (ii) the willful engaging
by the Executive in misconduct which causes material injury to the Company as
specified in a written notice to the Executive from the Board of Directors; or
(iii) conviction of a crime, other than a traffic violation, habitual
drunkenness, drug abuse, or excessive absenteeism other than for illness, after
a warning (with respect to drunkenness or absenteeism only) in writing from the
Board of Directors to refrain from such behavior. No act or failure to act on
the part of the Executive shall be considered willful unless done, or omitted to
be done, by the Executive not in good faith and without reasonable belief that
the action or omission was in the best interest of the Company.
b) Change in Control. "Change in Control" means any of the following
events: (i) when Peapack or a Subsidiary acquires actual knowledge that any
person (as such term is used
<PAGE>
in Sections 13(d) and 14(d)(2) of the Exchange Act), other than an affiliate of
Peapack or a Subsidiary or an employee benefit plan established or maintained by
Peapack, a Subsidiary or any of their respective affiliates, is or becomes the
beneficial owner (as defined in Rule 13d-3 of the Exchange Act) directly or
indirectly, of securities of Peapack representing more than twenty-five percent
(25%) of the combined voting power of Peapack's then outstanding securities (a
"Control Person"), (ii) upon the first purchase of Peapack's common stock
pursuant to a tender or exchange offer (other than a tender or exchange offer
made by Peapack, a Subsidiary or an employee benefit plan established or
maintained by Peapack, a Subsidiary or any of their respective affiliates),
(iii) upon the approval by Peapack's stockholders of (A) a merger or
consolidation of Peapack with or into another corporation (other than a merger
or consolidation which is approved by at least two-thirds of the Continuing
Directors (as hereinafter defined) and the definitive agreement for which
provides that at least two-thirds of the directors of the surviving or resulting
corporation immediately after the transaction are Continuing Directors (a
"Non-Control Transaction")), (B) a sale or disposition of all or substantially
all of Peapack's assets or (C) a plan of liquidation or dissolution of Peapack,
(iv) if during any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the Board (the "Continuing Directors") cease
for any reason to constitute at least two-thirds thereof or, following a
Non-Control Transaction, two-thirds of the board of directors of the surviving
or resulting corporation; provided that any individual whose election or
nomination for election as a member of the Board (or, following a Non-Control
Transaction, the board of directors of the surviving or resulting corporation)
was approved by a vote of at least two-thirds of the Continuing Directors then
in office shall be considered a Continuing Director, or (v) upon a sale of (A)
common stock of the Bank if after such sale any person (as such term is used in
Section 13(d) and 14(d)(2) of the Exchange Act) other than Peapack, an employee
benefit plan established or maintained by Peapack or a Subsidiary, or an
affiliate of Peapack or a Subsidiary, owns a majority of the Bank's common stock
or (B) all or substantially
<PAGE>
all of the Bank's assets (other than in the ordinary course of business). No
person shall be considered a Control Person for purposes of clause (i) above if
(A) such person is or becomes the beneficial owner, directly or indirectly, of
more than ten percent (10%) but less than twenty-five percent (25%) of the
combined voting power of Peapack's then outstanding securities if the
acquisition of all voting securities in excess of ten percent (10%) was approved
in advance by a majority of the Continuing Directors then in office or (B) such
person acquires in excess of ten percent (10%) of the combined voting power of
Peapack's then outstanding voting securities in violation of law and by order of
a court of competent jurisdiction, settlement or otherwise, disposes or is
required to dispose of all securities acquired in violation of law.
c) Contract Period. "Contract Period" shall mean the period commencing the
day immediately preceding a Change in Control and ending on the earlier of (i)
the third anniversary of the Change in Control or (ii) the date the Executive
would attain age 65 or (iii) the death of the Executive. For the purpose of this
Agreement, a Change in Control shall be deemed to have occurred at the date
specified in the definition of Change-in-Control.
d) Exchange Act. "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
e) Good Reason. When used with reference to a voluntary termination by
Executive of his employment with the Company, "Good Reason" shall mean any of
the following, if taken without Executive's express written consent:
(1) The assignment to Executive of any duties inconsistent with, or
the reduction of powers or functions associated with, Executive's position,
title, duties, responsibilities and status with the Company immediately
prior to a Change in Control; any removal of Executive from, or any failure
to re-elect Executive to, any position(s) or office(s) Executive held
immediately prior to such
<PAGE>
Change in Control. A change in title or positions resulting merely from a
merger of the Company into or with another bank or company which does not
downgrade in any way the Executive's powers, duties and responsibilities
shall not meet the requirements of this paragraph;
(2) A reduction by the Company in Executive's annual base compensation
as in effect immediately prior to a Change in Control or the failure to
award Executive annual increases in accordance herewith;
(3) A failure by the Company to continue any bonus plan in which
Executive participated immediately prior to the Change in control or a
failure by the Company to continue Executive as a participant in such plan
on at least the same basis as Executive participated in such plan prior to
the Change in Control;
(4) The Company's transfer of Executive to another geographic location
outside of New Jersey or more than 25 miles from his present office
location, except for required travel on the Company's business to an extent
substantially consistent with Executive's business travel obligations
immediately prior to such Change in Control;
(5) The failure by the Company to continue in effect any employee
benefit plan, program or arrangement (including, without limitation the
Company's retirement plan, benefit equalization plan, life insurance plan,
health and accident plan, disability plan, deferred compensation plan or
long term stock incentive plan) in which Executive is participating
immediately prior to a Change in Control (except that the Company may
institute or continue plans, programs or arrangements providing Executive
with substantially similar benefits); the taking of any action by the
Company which would adversely affect Executive's participation in or
materially reduce Executive's benefits under, any of such plans, programs
or arrangements; the failure to continue, or the taking of any action which
would deprive Executive, of any material fringe benefit enjoyed by
Executive immediately
<PAGE>
prior to such Change in Control; or the failure by the Company to provide
Executive with the number of paid vacation days to which Executive was
entitled immediately prior to such Change in Control;
(6) The failure by the Company to obtain an assumption in writing of
the obligations of the Company to perform this Agreement by any successor
to the Company and to provide such assumption to the Executive prior to any
Change in Control; or
(7) Any purported termination of Executive's employment by the Company
during the term of this Agreement which is not effected pursuant to all of
the requirements of this Agreement; and, for purposes of this Agreement, no
such purported termination shall be effective.
f) Subsidiary. "Subsidiary" means any corporation in an unbroken chain of
corporations, beginning with Peapack, if each of the corporations other than the
last corporation in the unbroken chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
2. Employment. The Company hereby agrees to employ the Executive, and the
Executive hereby accepts employment, during the Contract Period upon the terms
and conditions set forth herein.
3. Position. During the Contract Period the Executive shall be employed as
President of Peapack and the Bank, or such other corporate or divisional profit
center as shall then be the principal successor to the business, assets and
properties of the Company, with substantially the same title and the same duties
and responsibilities as before the Change in Control. The Executive shall devote
his full time and attention to the business of the Company, and shall not during
the Contract Period be engaged in any other business activity. This paragraph
shall not be construed as preventing the Executive from managing any investments
of his which do not require any service on his part in the operation of such
investments.
<PAGE>
4. Cash Compensation. The Company shall pay to the Executive compensation
for his services during the Contract Period as follows:
a) Base Salary. A base annual salary equal to the annual salary in
effect as of the Change in Control. The annual salary shall be payable in
installments in accordance with the Company's usual payroll method.
b) Annual Bonus. An annual cash bonus equal to at least the average of
the bonuses paid to the Executive in the three years prior to the Change in
Control. The bonus shall be payable at the time and in the manner which the
Company paid such bonuses prior to the Change in Control.
c) Annual Review. The Board of Directors of the Company during the
Contract Period shall review annually, or at more frequent intervals which
the Board determines is appropriate, the Executive's compensation and shall
award him additional compensation to reflect the Executive's performance,
the performance of the Company and competitive compensation levels, all as
determined in the discretion of the Board of Directors.
5. Expenses and Fringe Benefits.
a) Expenses. During the Contract Period, the Executive shall be entitled to
reimbursement for all business expenses incurred by him with respect to the
business of the Company in the same manner and to the same extent as such
expenses were previously reimbursed to him immediately prior to the Change in
Control.
b) Supplemental Retirement Plan. During the Contract Period, if the
Executive was entitled to benefits under any supplemental retirement plan prior
to the Change in Control, the Executive shall be entitled to continued benefits
under such plan after the Change in Control and such plan may not be modified to
reduce or eliminate such benefits during the Contract Period.
<PAGE>
c) Club Membership and Automobile. If prior to the Change in Control, the
Executive was entitled to membership in a country club and/or the use of an
automobile, he shall be entitled to the same membership and/or use of an
automobile at least comparable to the automobile provided to him prior to the
Change in Control.
d) Other Benefits. The Executive also shall be entitled to vacations and
sick days, in accordance with the practices and procedures of the Company, as
such existed immediately prior to the Change in Control. During the Contract
Period, the Executive also shall be entitled to hospital, health, medical and
life insurance, and any other benefits enjoyed, from time to time, by senior
officers of the Company, all upon terms as favorable as those enjoyed by other
senior officers of the Company. Notwithstanding anything in this paragraph 5(d)
to the contrary, if the Company adopts any change in the benefits provided for
senior officers of the Company, and such policy is uniformly applied to all
officers of the Company (and any successor or acquiror of the Company, if any),
including the chief executive officer of such entities, then no such change
shall be deemed to be contrary to this paragraph.
6. Termination for Cause. The Company shall have the right to terminate the
Executive for Cause, upon written notice to him of the termination which notice
shall specify the reasons for the termination. In the event of termination for
Cause the Executive shall not be entitled to any further benefits under this
Agreement.
7. Disability. During the Contract Period if the Executive becomes
permanently disabled, or is unable to perform his duties hereunder for 4
consecutive months in any 12 month period, the Company may terminate the
employment of the Executive. In such event, the Executive shall not be entitled
to any further benefits under this Agreement.
8. Death Benefits. Upon the Executive's death during the Contract Period,
his estate shall not be entitled to any further benefits under this Agreement.
<PAGE>
9. Termination Without Cause or Resignation for Good Reason. The Company
may terminate the Executive without Cause during the Contract Period by written
notice to the Executive providing four weeks notice. The Executive may resign
for Good Reason during the Contract Period upon four weeks' written notice to
the Company specifying facts and circumstances claimed to support the Good
Reason. The Executive shall be entitled to give a Notice of Termination that his
or her employment is being terminated for Good Reason at any time during the
Contract Period, not later than twelve months after any occurrence of an event
stated to constitute Good Reason. If the Company terminates the Executive's
employment during the Contract Period without Cause or if the Executive Resigns
for Good Reason, the Company shall, subject to Section 12 hereof:
(a) Within 20 business days of the termination of employment pay the
Executive a lump sum severance payment in an amount equal to three (3.0)
times the highest annual cash compensation, consisting solely of salary and
bonus, as well as any 401(k) deferral, paid to the Executive during any
calendar year in each of the three calendar years immediately prior to the
Change in Control; and
(b) Continue to provide the Executive during the remainder of the
Contract Period with health, hospitalization and medical insurance, as were
provided at the time of the termination of his employment with the Company,
at the Company's cost (subject to standard deductibles and co-pays, and the
Executive's continuing payment of his part of the premium for family
coverage, if applicable).
The Executive shall not have a duty to mitigate the damages suffered by him
in connection with the termination by the Company of his employment without
Cause or a resignation for Good Reason during the Contract Period. If the
Company fails to pay the Executive the lump sum amount due him hereunder or to
provide him with the health, hospitalization and medical insurance benefits due
under this section, the Executive, after giving 10 days' written notice to the
Company identifying the Company's
<PAGE>
failure, shall be entitled to recover from the Company all of his reasonable
legal fees and expenses incurred in connection with his enforcement against the
Company of the terms of this Agreement. The Executive shall be denied payment of
his legal fees and expenses only if a court finds that the Executive sought
payment of such fees without reasonable cause and not in good faith.
10. Resignation Without Good Reason. The Executive shall be entitled to
resign from the employment of the Company at any time during the Contract Period
without Good Reason, but upon such resignation the Executive shall not be
entitled to any additional compensation for the time after which he ceases to be
employed by the Company, and shall not be entitled to any of the other benefits
provided hereunder. No such resignation shall be effective unless in writing
with four weeks' notice thereof.
11. Non-Disclosure of Confidential Information.
a) Non-Disclosure of Confidential Information. Except in the course of his
employment with the Company and in the pursuit of the business of the Company or
any of its subsidiaries or affiliates, the Executive shall not, at any time
during or following the Contract Period, disclose or use, any confidential
information or proprietary data of the Company or any of its subsidiaries or
affiliates. The Executive agrees that, among other things, all information
concerning the identity of and the Company's relations with its customers is
confidential information.
b) Specific Performance. Executive agrees that the Company does not have an
adequate remedy at law for the breach of this section and agrees that he shall
be subject to injunctive relief and equitable remedies as a result of the breach
of this section. The invalidity or unenforceability of any provision of this
Agreement shall not affect the force and effect of the remaining valid portions.
<PAGE>
c) Survival. This section shall survive the termination of the Executive's
employment hereunder and the expiration of this Agreement.
12. Certain Reduction of Payments by the Company.
a) Anything in this Agreement to the contrary notwithstanding, prior to the
payment of any lump sum amount payable hereunder, the certified public
accountants of the Company immediately prior to a Change of Control (the
"Certified Public Accountants") shall determine as promptly as practical and in
any event within 20 business days following the termination of employment of
Executive whether any payment or distribution by the Company to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise) (a
"Payment") would more likely than not be nondeductible by the Company for
Federal income purposes because of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), and if it is then the aggregate present value of
amounts payable or distributable to or for the benefit of Executive pursuant to
this Agreement (such payments or distributions pursuant to this Agreement are
thereinafter referred to as "Agreement Payments") shall be reduced (but not
below zero) to the reduced Amount. For purposes of this paragraph, the "Reduced
Amount" shall be an amount expressed in present value which maximizes the
aggregate present value of Agreement Payments without causing any Payment to be
nondeductible by the Company because of said Section 280G of the Code.
b) If under paragraph (a) of this section the Certified Public Accountants
determine that any Payment would more likely than not be nondeductible by the
Company because of Section 280G of the Code, the Company shall promptly give the
Executive notice to that effect and a copy of the detailed calculation thereof
and of the Reduced Amount, and the Executive may then elect, in his sole
discretion, which and how much of the Agreement Payments shall be eliminated or
reduced (as long as after such election the aggregate present value of the
Agreement Payments equals the Reduced Amount), and shall advise the Company in
writing of his election within 20 business days of his receipt of notice. If no
such election is made by the Executive within such 20-day period, the Company
may elect which and how much of the Agreement Payments shall be eliminated or
reduced (as long as after such election the Aggregate present Value of the
Agreement Payments equals the
<PAGE>
Reduced Amount), and shall advise the Company in writing of his election within
20 business days of his receipt of notice. If no such election is made by the
Executive within such 20-day period, the Company may elect which and how much of
the Agreement shall be eliminated or reduced (as long as after such election the
Aggregate present Value of the Agreement Payments equals the Reduced Amount) and
shall notify the Executive promptly of such election. For purposes of this
paragraph, present Value shall be determined in accordance with Section
280G(d)(4) of the Code. All determinations made by the Certified Public
Accountants shall be binding upon the Company and Executive shall be made within
20 business days of a termination of employment of Executive. With the consent
of the Executive, the Company may suspend part or all of the lump sum payment
due under Section 9 hereof and any other payments due to the Executive hereunder
until the Certified Public Accountants finish the determination and the
Executive (or the Company, as the case may be) elect how to reduce the Agreement
Payments, if necessary. As promptly as practicable following such determination
and the elections hereunder, the Company shall pay to or distribute to or for
the benefit of Executive such amounts as are then due to Executive under this
Agreement and shall promptly pay to or distribute for the benefit of Executive
in the future such amounts as become due to Executive under this Agreement.
c) As a result of the uncertainty in the application of Section 280G of the
Code, it is possible that Agreement Payments may have been made by the Company
which should not have been made ("Overpayment") or that additional Agreement
Payments which will have not been made by the Company could have been made
("Underpayment"), in each case, consistent with the calculation of the Reduced
Amount hereunder. In the event that the Certified Public Accountants, based upon
the assertion of a deficiency by the Internal Revenue Service against the
Company or Executive which said Certified Public Accountants believe has a high
probability of success, determines that an Overpayment has been made, any such
Overpayment shall be treated for all purposes as a loan to Executive which
<PAGE>
Executive shall repay to the Company together with interest at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code; provided,
however, that no amount shall be payable by Executive to the Company in and for
the extent such payment would not reduce the amount which is subject to taxation
under Section 4999 of the Code. In the event that the Certified Public
Accountants, based upon controlling precedent, determine that an Underpayment
has occurred, any such Underpayment shall be promptly paid by the Company to or
for the benefit of the Executive together with interest at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code.
13. Term and Effect Prior to Change in Control.
a) Term. Except as otherwise provided for hereunder, this Agreement shall
commence on the date hereof and shall remain in effect for a period of 3 years
from the date hereof (the "Initial Term") or until the end of the Contract
Period, whichever is later. The Initial Term shall be automatically extended for
an additional one year period on the anniversary date hereof (so that the
Initial Term is always 3 years) unless, prior to a Change in Control, the
Chairman of the Board of Directors of Peapack notifies the Executive in writing
at any time that the Contract is not so extended, in which case the Initial Term
shall end upon the later of (i) 3 years after the date hereof, or (ii) 2 years
after the date of such written notice. Notwithstanding anything to the contrary
contained herein, the Initial Term shall cease when the Executive attains age
65.
b) No Effect Prior to Change in Control. This Agreement shall not effect
any rights of the Company to terminate the Executive prior to a Change in
Control or any rights of the Executive granted in any other agreement or
contract or plan with the Company. The rights, duties and benefits provided
hereunder shall only become effective upon and after a Change in Control. If the
full-time employment of the Executive by the Company is ended for any reason
prior to a Change in Control, this Agreement shall thereafter be of no further
force and effect.
<PAGE>
14. Severance Compensation and Benefits Not in Derogation of Other
Benefits. Anything to the contrary herein contained notwithstanding, the payment
or obligation to pay any monies, or granting of any benefits, rights or
privileges to Executive as provided in this Agreement shall not be in lieu or
derogation of the rights and privileges that the Executive now has or will have
under any plans or programs of or agreements with the Company, except that if
the Executive received any payment hereunder, he shall not be entitled to any
payment under the Company's severance policies for officers and employees.
15. Miscellaneous. This Agreement is the joint and several obligation of
the Bank and Peapack. The terms of this Agreement shall be governed by, and
interpreted and construed in accordance with the provisions of, the laws of New
Jersey. This Agreement supersedes all prior agreements and understandings with
respect to the matters covered hereby, including expressly any prior agreement
with the Company concerning change-in-control benefits. The parties hereto
expressly agree that the Severance Agreement between the Bank and the Executive
dated 5/6/97, is hereby terminated in its entirety. The amendment or termination
of this Agreement may be made only in a writing executed by the Company and the
Executive, and no amendment or termination of this Agreement shall be effective
unless and until made in such a writing. This Agreement shall be binding upon
any successor (whether direct or indirect, by purchase, merge, consolidation,
liquidation or otherwise) to all or substantially all of the assets of the
Company. This Agreement is personal to the Executive and the Executive may not
assign any of his rights or duties hereunder but this Agreement shall be
enforceable by the Executive's legal representatives, executors or
administrators. This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, and it shall not be necessary in making
proof of this Agreement to produce or account for more than one such
counterpart.
<PAGE>
IN WITNESS WHEREOF, Peapack-Gladstone Bank and Peapack-Gladstone Financial
Corporation each have caused this Agreement to be signed by their duly
authorized representatives pursuant to the authority of their Boards of
Directors, and the Executive has personally executed this Agreement, all as of
the day and year first written above.
ATTEST: PEAPACK-GLADSTONE
FINANCIAL CORPORATION
CATHERINE A. MCCATHARN By: T. LEONARD HILL
- --------------------------------- ---------------------------------
Catherine A. McCatharn, Secretary T. Leonard Hill, Chairman
ATTEST: PEAPACK-GLADSTONE BANK
CATHERINE A. MCCATHARN By: T. LEONARD HILL
- --------------------------------- ---------------------------------
Catherine A. McCatharn, Secretary T. Leonard Hill, Chairman
WITNESS:
ROBERT ROGERS BARBARA A. GRECCO, EXECUTIVE
- --------------------------------- ------------------------------------
Robert Rogers Barbara A. Grecco, Executive
FINANCIAL HIGHLIGHTS
(dollars in thousands, except per share data)
1997 1996 1995
---- ---- ----
SELECTED YEAR-END DATA:
NET INCOME ......................... $ 4,492 $ 3,579 $ 3,907
TOTAL ASSETS ....................... 363,665 327,404 300,076
TOTAL DEPOSITS ..................... 328,473 295,190 269,504
TOTAL SECURITIES ................... 145,558 139,794 136,430
TOTAL LOANS ........................ 174,374 149,874 122,432
STOCKHOLDERS' EQUITY ............... 33,639 30,208 28,376
TRUST DEPARTMENT ASSETS (BOOK VALUE) 453,671 378,879 251,254
FINANCIAL RATIOS:
RETURN ON AVERAGE ASSETS ........... 1.30% 1.13% 1.37%
RETURN ON AVERAGE EQUITY ........... 14.22% 12.41% 15.05%
CAPITAL LEVERAGE RATIO ............. 9.40% 9.43% 9.63%
RISK BASED CAPITAL:
TIER I ............................. 20.25% 24.06% 23.63%
TOTAL .............................. 21.43% 25.37% 24.68%
PER SHARE:
EARNINGS-BASIC ..................... $ 1.93 $ 1.53 $ 1.67
EARNINGS-DILUTED ................... 1.90 1.52 1.67
BOOK VALUE ......................... 14.47 12.97 12.15
<PAGE>
EXHIBIT 13
PEAPACK-GLADSTONE FINANCIAL CORPORATION
1997 ANNUAL REPORT
To Our Shareholders and Friends:
This is the first annual report of Peapack-Gladstone Financial Corporation.
Shareholders overwhelmingly approved the formation of our holding company at the
special meeting on December 11, 1997. Peapack-Gladstone Bank shareholders
received Peapack-Gladstone Financial Corporation stock in a tax free exchange.
The Board of Peapack-Gladstone Financial Corporation immediately voted to
pay a 2X1 stock split to shareholders on December 29, 1997. The timing enabled
us to pay the split as the new holding company stock certificates were being
distributed. The end result was that shareholders received two shares of
Peapack-Gladstone Financial Corporation stock for each share of
Peapack-Gladstone Bank stock. It was an exciting month that ended a very
productive year.
As Mr. Hill has said, we felt that forming the holding company was an
important step for our future. It was not in response to or in anticipation of
any particular transaction. However, when we contemplate new services for our
customers, the structure may best be accommodated in a holding company format.
It just made sense to address this issue at this time.
<PAGE>
In my talk at the special meeting in December, I said, "There is no
question in anyone's mind that the financial services industry is undergoing
tremendous change. Barely does a day go by when there isn't another announcement
of a consolidation or a new financial product or a better way to provide it. All
these changes caused us to take a long, hard look at what we do and how we do
it. The Board and virtually every officer in the Bank has spent endless hours in
strategic planning sessions to be sure that our mission is still viable in this
consolidating industry. We emerged from these sessions with renewed confidence
that an independent community bank, particularly in our community, not only can
be successful but can thrive in this rapidly changing environment.
We are convinced that technology is the key to efficient, better, and more
convenient service for our customers. Great use of technology and great service
to the customer do not have to be exclusive of each other. We are excited about
this, and we will move ahead with implementing new technology as quickly as
practicable and as soon as budgets will bear."
Planning for and implementing new technologies has been a major focus for
the Bank. An upgrade of our mainframe computer took place in the Fall. It is
extraordinary that the new machine has more than twenty times the "horsepower"
for 20% less cost than the machine purchased just four years ago. Imagine how
productive we could all be if those sorts of efficiencies were found in
everything we do.
<PAGE>
During 1998 we will upgrade many of our main software systems which will
enable us to provide better, faster service for customers. We will also be
offering three important new services during the course of 1998. A new,
comprehensive phone banking system will enable customers to gain access to
information about their accounts, specifically, and the Bank in general, 24
hours a day, seven days a week. This system is targeted for late spring or early
summer. Later in the year we will put in a new call center which will give us
the opportunity to provide customers more complete information about their
accounts and other services that are available to them. It is our belief that
both of these new services will make banking at Peapack-Gladstone Bank even more
convenient for our customers.
We are also planning to offer THE CHAIRMAN'S CLUB to our senior customers.
THE CHAIRMAN'S CLUB will combine discounted banking services with special
newsletters and activities for this important segment of our customer base. This
will not only be fun and informative for the members, but good business for the
Bank as well.
One highlight of 1997 was our stock performance. The price of shares at the
beginning of 1997 was $56.50. Adjusted for the 2X1 stock split, shares traded at
$40.50 by the end of the year. This represents a 43% increase during that
period. That is in addition to the 31% increase recorded in our letter for the
year 1996. Nobody should believe that stock prices only go in one direction
forever, however, I do believe that the strong performance of our stock is a
reflection of the outstanding support we have traditionally had from our
shareholders. We thank you for that.
<PAGE>
Net income increased from $3,579,000 to $4,492,000, a record for our
company, representing a 26% rise in earnings for the year. Return on average
assets and equity also improved to 1.30% and 14.22%, respectively. We look
forward to further improvement in the future.
I am pleased to report that our Trust and Investment Department continues
to grow rapidly as more and more customers take advantage of the services
provided there. Market value of assets held in the Department at year end grew
to over $676,000,000. I encourage each of you to visit this Department. We can
be a valuable resource to you and your family regarding investment management,
custody accounts, trusts, wills, bequests, mutual funds, and retirement account
services.
As we explore ways to be more valuable to you and all our customers, the
concept of what a top notch financial services company should be continues to
evolve. We are excited about the opportunities that the future will bring.
We want to thank our shareholders, our Board and all the employees who have made
1997 such an important year. We wish each of you a happy and prosperous 1998.
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS: Peapack-Gladstone Financial Corporation's performance in
its inaugural year of 1997 was highlighted by sharply higher net interest
income, which resulted from strong loan growth which was funded by equally
strong core deposit growth. Assimilation of our new branches opened in 1996 in
Chester and Fellowship Village was a strong factor in our success.
Another significant factor during 1997 was the continued growth in the
Trust and Investment Department, as total fees generated increased 16% to nearly
$1.5 million. Fee generation has become a vital area of importance for financial
institutions as increased competition erodes traditional community bank profit
margins.
As a result of sustained earnings and capital growth, the Board of
Directors declared a two-for-one stock split effective December 29, 1997. This
constituted the third consecutive year that the Corporation has either declared
a stock split or a stock dividend.
Net income for the year ended December 31, 1997 amounted to $4,492,000 as
compared to $3,579,000 and $3,907,000 earned for the comparable periods in 1996
and 1995, respectively. The resulting diluted earnings per share amounted to
$1.90 for 1997 as compared to $1.52 and $1.67 earned in 1996 and 1995,
respectively. These figures have been restated to reflect the two-for-one stock
splits effective in 1997 and 1995 and the five percent stock dividend in 1996.
Key performance ratios reflected the strong results as the return on
average assets during 1997 was 1.30% as compared to 1.13% for the previous year,
while the return on average equity was 14.22% versus 12.41% for 1996.
The operating results of the Corporation depend primarily on net interest
income, which is the difference between interest income on interest-earning
assets, consisting primarily of loans and securities and interest expense on
interest-bearing deposits. The performance is also affected by the provision for
loan losses, resulting from management's assessment of the adequacy of the
allowance for loan losses, the level of noninterest income, including fees from
Trust Department operations, noninterest expense and income tax expense. Each of
these principal categories of net income are discussed below.
EARNING ASSETS: Total earning assets, consisting primarily of loans,
securities, and federal funds sold, increased approximately 10% from
$305,468,000 at December 31, 1996 to $335,432,000 at year-end 1997.
LOANS: The loan portfolio represents the Corporation's largest earning
asset balance and is a significant source of interest and fee income.
<PAGE>
Total loans increased $24,500,000 or 16% from year-end 1996 levels. This
growth was focused primarily in the real estate sector, as loans secured by real
estate increased $24,926,000. The increase related primarily to the
Corporation's intent to lend within its geographic market areas to customers
seeking residential first mortgages on their primary residence. Total loans at
year-end were $174,374,000 and $149,874,000 in 1997 and 1996, respectively.
The following table presents an analysis of outstanding loans as of December 31,
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Real Estate - Construction $ 4,213 $ 4,703 $ 1,686 $ 1,865 $ 2,371
Real Estate - Mortgage
1-4 Family Residential:
First Liens 99,168 77,365 59,410 47,993 47,904
Junior Liens 10,914 11,147 9,804 9,035 8,591
Home Equity 6,238 4,817 4,757 4,110 4,317
Real Estate - Commercial 29,151 26,726 22,882 19,484 18,139
Commercial Loans 10,332 11,832 10,396 9,682 6,369
Consumer Loans 13,462 11,219 10,882 11,374 10,138
Other Loans 896 2,065 2,615 1,841 1,944
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS $174,374 $149,874 $122,432 $105,384 $99,773
===========================================================================================================================
</TABLE>
The following table sets forth the maturity distribution of the Corporation's
loan portfolio as of December 31, 1997. The table excludes real estate loans
(other than construction loans) and installment loans:
<PAGE>
Due After
Due in One Year
One Year Through Due After Years
(In thousands) or Less Five Years Five Years Total
- -------------- -------- ---------- ---------- -----
Commercial Loans $ 2,741 $4,542 $3,049 $10,332
Construction Loans 3,434 356 423 4,213
- -------------------------------------------------------------------------------
TOTAL $ 6,175 $4,898 $3,472 $14,545
===============================================================================
The following table sets forth, as of December 31, 1997, the sensitivity of the
loan amounts due after one year to changes in interest rates. The table excludes
real estate loans (other than construction loans) and installment loans:
Due After
One Year Due
Through After Five
(In thousands) Five Years Years
---------- -----------
Fixed Interest Rates $2,912 $3,346
Variable Interest Rates 1,986 126
- --------------------------------------------------------------------------------
TOTAL $4,898 $3,472
================================================================================
INVESTMENT SECURITIES: Investment securities are those securities that the
Corporation has both the ability and intent to be held to maturity. These
securities are carried at amortized cost. The portfolio consists of U.S.
Treasury and U.S. government agency and municipal obligations. The
Corporation's investment securities amounted to $53,978,000 at December 31,
1997, compared with $55,198,000 at year-end 1996.
The following table presents the contractual maturities of investment securities
at amortized cost, as of December 31, 1997:
<TABLE>
<CAPTION>
After 1 After 5
Within But Within But Within After
(In thousands) 1 Year 5 Years 10 Years 10 Years Total
------ ---------- ---------- --------- -----
<S> <C> <C> <C> <C> <C>
U.S. Treasury $6,998 $12,999 $ -- $ -- $19,997
U.S. Government Agencies -- 21,558 3,002 -- 24,560
State and Political Subdivisions 1,282 4,083 3,608 448 9,421
- ---------------------------------------------------------------------------------------------------------------
TOTAL $8,280 $38,640 $6,610 $ 448 $53,978
===============================================================================================================
</TABLE>
<PAGE>
SECURITIES AVAILABLE FOR SALE: Securities available for sale are used as a part
of the Corporation's interest rate risk management strategy, and they may be
sold in response to changes in interest rates, liquidity needs, and other
factors. These securities are carried at estimated fair value, and unrealized
changes in fair value are recognized as a separate component of stockholders'
equity, net of income taxes. Realized gains and losses are recognized in income
at the time the securities are sold.
At December 31, 1997, the Corporation had securities available for sale with a
market value of $91,580,000, compared with $84,596,000 at year-end 1996. A
$476,000 and $329,000 unrealized gain (net of income tax) was included in
stockholders' equity at December 31, 1997 and December 31, 1996, respectively.
The following table presents the contractual maturities of debt securities
available for sale, stated at market value, as of December 31, 1997:
<TABLE>
<CAPTION>
After 1 After 5
Within But Within But Within After
In thousands) 1 Year 5 Years 10 Years 10 Years Total
- -------------- ------- ---------- ---------- -------- -----
<S> <C> <C> <C> <C> <C>
U.S. Treasury $ 10,044 $39,682 $ -- $ -- $49,726
U.S. Government Agencies -- 23,998 13,075 -- 37,073
Other Debt Securities Available for Sale 1,002 996 -- -- 1,998
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL $11,046 $64,676 $13,075 $ -- $88,797
===========================================================================================================================
</TABLE>
Federal funds sold are an integral part of the Corporation's investment and
liquidity strategies. The average balance of federal funds sold during 1997 and
1996 was $15.7 million and $16.6 million, respectively.
DEPOSITS: Total deposits increased $33,283,000 or 11% to $328,473,000 at
December 31, 1997, compared to $295,190,000 at year-end 1996.
Noninterest-bearing demand deposits increased $20,173,000 or 37%, reflecting
marketing promotions and strong growth in new and existing market areas. Super
NOW accounts and certificates of deposits also grew at a steady pace, up
$8,847,000 and $8,484,000, respectively.
The Corporation does not participate in the brokered deposit market, and
certificates of deposit over $100,000 are generally purchased by local municipal
governments or individual depositors for periods of one year or less. These
factors translate into a stable customer oriented cost-effective funding source.
<PAGE>
The following table shows remaining maturity for certificates of deposit over
$100,000 as of December 31, 1997 (in thousands):
Three months or less.................................$ 9,032
Over three months through twelve months.............. 2,818
Over twelve months................................... 6,393
-------
Total................................................$18,243
=======
The following table sets forth information concerning the composition of the
Corporation's average deposit base and average interest rates paid for the
following years:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(In thousands) $ % $ % $ %
- - - - - -
<S> <C> <C> <C> <C> <C> <C>
Noninterest-Bearing Demand Deposits $ 61,508 -- $ 50,861 -- $ 43,493 --
Super NOW Deposits 67,097 1.29 59,950 1.74 53,533 2.08
Savings Deposits 71,624 2.46 72,799 2.89 71,418 2.94
Money Market Deposits 27,919 2.89 26,512 2.99 27,792 2.97
Certificates of Deposit 82,358 5.17 75,322 5.24 61,223 5.21
- -------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS $310,506 $285,444 $257,459
===========================================================================================================================
</TABLE>
NET INTEREST INCOME: Net interest income on a tax-equivalent basis, the largest
component of operating income, equaled $15,323,000 for 1997, an increase of 16%
over the $13,208,000 for 1996. This increase in net interest income was
primarily due to the $25,776,000 increase in average interest-earning assets,
lower cost of funds and strong growth in demand deposits, up $10,647,000 on
average. The net interest margin for 1997 was 4.83%, an increase of 29 basis
points from 4.54% for 1996.
In 1997, the higher volume of interest-earning assets increased interest income
by $2,103,000 offset in part by lower rates earned which lowered interest income
by $179,000. When the effects of volume and rate are combined, total interest
income increased $1,924,000 compared to 1996, on a tax-equivalent basis.
<PAGE>
The higher level of interest-bearing liabilities increased total interest
expense by $501,000 while lower interest rates paid reduced total interest
expense by $692,000. The combined effects of the volume and rate changes reduced
total interest expense by $191,000 which, when coupled with the $1,924,000
increase in total interest income, increased net interest income by $2,115,000
on a tax-equivalent basis.
The net interest rate spread, defined as the yield on total interest-earning
assets on a tax-equivalent basis less the cost of funds on total
interest-bearing liabilities, rose 28 basis points to 4.17% for 1997 from 3.89%
from 1996.
Tax-equivalent net interest income equaled $13,208,000 for 1996, an increase of
$760,000 from the $12,448,000 earned in 1995. The net interest margin of 4.54%
for 1996 resulted in a decrease of 20 basis points compared to 4.74% for 1995.
<PAGE>
The following table compares the average balance sheet, net interest spreads and
net interest margins for the periods ended December 31, 1997, 1996, and 1995
(fully tax-equivalent - FTE): (in thousands, except yield information)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------
Average Income/ Yield
Balance Expense(FTE) (FTE)
---------- ------------ ------
<S> <C> <C> <C>
ASSETS:
INTEREST-EARNING ASSETS:
Investments
Taxable $132,547 $ 8,497 6.41%
Tax-Exempt 10,495 655 6.24%
Loans 158,232 13,025 8.23%
Federal Funds Sold 15,681 844 5.38%
-------- ------- ----
TOTAL INTEREST-EARNING ASSETS 316,955 23,021 7.26%
-------- ------- ----
NONINTEREST-EARNING ASSETS:
Cash and Due from Banks 16,713
Allowance for Loan Losses (1,773)
Premises and Equipment 8,508
Other Assets 4,373
--------
TOTAL NONINTEREST- EARNING ASSETS 27,821
--------
TOTAL ASSETS $344,776
========
LIABILITIES AND STOCKHOLDERS' EQUITY:
INTEREST-BEARING DEPOSITS:
Super NOW $ 67,097 $ 867 1.29%
Money Market 27,919 807 2.89%
Savings 71,624 1,765 2.46%
Certificates of Deposit 82,358 4,259 5.17%
-------- ------ ----
TOTAL INTEREST-BEARING DEPOSITS 248,998 7,698 3.09%
-------- ------ ----
NON-INTEREST BEARING LIABILITIES:
Demand Deposits 61,508
Accrued Expenses and Other Liabilities 2,686
--------
TOTAL NONINTEREST- BEARING LIABILITIES 64,194
--------
STOCKHOLDERS' EQUITY 31,584
TOTAL LIABILITIES AND STOCKHOLDERS' --------
EQUITY $344,776
========
NET INTEREST INCOME $15,323
=======
NET INTEREST SPREAD 4.17%
----
NET INTEREST MARGIN 4.83%
----
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------
Average Income/ Yield
Balance Expense(FTE) (FTE)
---------- ------------ ------
<S> <C> <C> <C>
ASSETS:
INTEREST-EARNING ASSETS:
Investments
Taxable $129,028 $ 8,363 6.48%
Tax-exempt 10,682 715 6.69%
Loans 134,825 11,150 8.27%
Federal Funds Sold 16,644 869 5.22%
-------- ------- ----
TOTAL INTEREST-EARNING ASSETS 291,179 21,097 7.25%
-------- ------- ----
NONINTEREST- EARNING ASSETS:
Cash and Due from Banks 14,404
Allowance for Loan Losses (1,446)
Premises and Equipment 8,218
Other Assets 4,549
--------
TOTAL NONINTEREST- EARNING ASSETS 25,725
TOTAL ASSETS $316,904
========
LIABILITIES AND STOCKHOLDERS' EQUITY:
INTEREST-BEARING DEPOSITS:
Super NOW $59,950 $ 1,042 1.74%
Money Market 26,512 793 2.99%
Savings 72,799 2,107 2.89%
Certificates of Deposit 75,322 3,947 5.24%
-------- ------- ----
TOTAL INTEREST-BEARING DEPOSITS 234,583 7,889 3.36%
-------- ------- ----
NONINTEREST- BEARING LIABILITIES:
Demand Deposits 50,861
Accrued Expenses and Liabilities 2,617
--------
TOTAL NONINTEREST- BEARING LIABILITIES 53,478
STOCKHOLDERS' EQUITY 28,843
--------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $316,904
========
NET INTEREST INCOME $13,208
========
NET INTEREST SPREAD 3.89%
-----
NET INTEREST MARGIN 4.54%
-----
</TABLE>
<PAGE>
<TABLE>
YEAR ENDED DECEMBER 31, 1995
<CAPTION>
Average Income/ Yield
Balance Expense(FTE) (FTE)
------- ------------ -----
<S> <C> <C> <C>
ASSETS:
INTEREST-EARNING ASSETS:
Investments
Taxable $120,506 $ 8,084 6.71%
Tax Exempt 14,981 1,245 8.31%
Loans 111,382 9,455 8.49%
Federal Funds Sold 15,550 895 5.76%
-------- ------- -----
TOTAL INTEREST-EARNING ASSETS 262,419 19,679 7.50%
-------- ------- -----
NONINTEREST-EARNING ASSETS:
Cash and Due from Banks 12,109
Allowance for Loan Losses (1,365)
Premises and Equipment 6,943
Other Assets 5,694
--------
TOTAL NONINTEREST- EARNING ASSETS 23,381
--------
TOTAL ASSETS $285,800
========
LIABILITIES AND STOCKHOLDERS' EQUITY:
INTEREST-BEARING DEPOSITS:
Super NOW $ 53,533 $ 1,111 2.08%
Money Market 27,792 826 2.97%
Savings 71,418 2,102 2.94%
Certificates of Deposit 61,223 3,192 5.21%
-------- ----- -----
TOTAL INTEREST-BEARING DEPOSITS 213,966 7,231 3.38%
-------- ----- -----
NONINTEREST-BEARING LIABILITIES:
Demand Deposits 43,493
Accrued Expenses and Liabilities 2,384
--------
TOTAL NONINTEREST- BEARING LIABILITIES 45,877
--------
STOCKHOLDERS' EQUITY 25,957
--------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $285,800
========
NET INTEREST INCOME $ 12,448
========
NET INTEREST SPREAD 4.12%
-----
NET INTEREST MARGIN 4.74%
-----
</TABLE>
1. Average loan balances include non-accrual and restructured loans.
2. The tax-equivalent adjustment was computed based on a federal tax rate of
34%.
3. Investments consist of investment securities and securities available for
sale.
<PAGE>
RATE/VOLUME ANALYSIS (fully tax-equivalent basis):
The effect of volume and rate changes on net interest income for the year ended
December 31, 1997 and 1996 are shown below: (In thousands)
<TABLE>
<CAPTION>
YEAR ENDED 1997 COMPARED WITH 1996 YEAR ENDED 1996 COMPARED WITH 1995
NET DIFFERENCE DUE TO CHANGE IN: NET DIFFERENCE DUE TO CHANGE IN:
INCOME/ INCOME/
------------------------------------- --------------------------------------
VOLUME RATE EXPENSE VOLUME RATE EXPENSE
------- ----- ------- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments $217 $(143) $74 $(161) $ (90) $ (251)
Loans 1,936 (61) 1,875 1,990 (295) 1,695
Federal Funds Sold (50) 25 (25) 63 (89) (26)
-------- ------- ------ ------- ------- ------
TOTAL INTEREST
INCOME $2,103 $ (179) $1,924 $1,892 $(474) $1,418
======== ======= ====== ======= ======= ======
LIABILITIES
Super NOW $124 $(299) $(175) $ 133 $ (202) $ (69)
Money Market 42 (28) 14 (38) 5 (33)
Savings (34) (308) (342) 41 (36) 5
Certificates of
Deposit 369 (57) 312 735 20 755
-------- ------- ------ ------- ------- ------
TOTAL INTEREST
EXPENSE $501 $(692) $(191) $871 $(213) $658
======== ======= ====== ======= ======= ======
</TABLE>
PROVISION FOR LOAN LOSSES: The provision for loan losses represents management's
determination of the amount necessary to bring the allowance for loan losses to
a level that management considers adequate to reflect the risk of losses
inherent in the Corporation's loan portfolio. In its evaluation of the adequacy
of the allowance for loan losses, management considers past loan loss
experience, changes in the composition of non-performing loans, the condition of
borrowers facing financial pressure, the relationship of the current level of
the allowance to the credit portfolio and to non-performing loans and existing
economic conditions. The process of determining the adequacy of the allowance is
necessarily judgmental and subject to changes in external conditions.
<PAGE>
The total provision for loan losses for 1997 was $400,000 as compared to
$642,000 in 1996 and $75,000 in 1995. Net charge-offs for 1997, 1996 and 1995
were $143,000, $227,000 and $327,000, respectively. Additionally, non-performing
loans (consisting of all non-accrual loans and loans over 90 days past due and
still accruing interest) were $846,000 in 1997, $1,305,000 in 1996 and
$1,177,000 in 1995. Other real estate owned at year-end 1997 totaled $340,000,
representing a 21% decrease from the $432,000 level of 1996. Other real estate
owned on December 31, 1995 was $999,000. The allowance for loan losses was
$1,893,000 at December 31, 1997 as compared to $1,636,000 at December 31, 1996.
The allowance for loan losses currently provides 224% coverage of all
non-performing loans. At December 31, 1997, the allowance for loan losses as a
percentage of total loans outstanding was 1.09% compared to 1.09% at year-end
1996 and 1.00% at year-end 1995.
<PAGE>
The following table presents the loan loss experience during the periods ended
December 31:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Allowance for Loan Losses at
beginning of year $1,636 $1,221 $1,473 $1,538 $1,101
Loans charged off during the period:
Real Estate 150 202 190 -- 805
Consumer 97 49 34 286 26
Commercial and Other 35 25 153 -- 173
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS CHARGED-OFF 282 276 377 286 1,004
- ---------------------------------------------------------------------------------------------------------------------------
Recoveries during the period:
Real Estate 105 19 -- 94 4
Consumer 25 8 8 7 16
Commercial and Other 9 22 42 60 11
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RECOVERIES 139 49 50 161 31
- ---------------------------------------------------------------------------------------------------------------------------
Net Charge-offs 143 227 327 125 973
- ---------------------------------------------------------------------------------------------------------------------------
Provision charged to expense 400 642 75 60 1,410
- ---------------------------------------------------------------------------------------------------------------------------
Allowance for Loan Losses at end of year $1,893 $1,636 $1,221 $1,473 $1,538
===========================================================================================================================
</TABLE>
The following table shows the allocation of the allowance for loan losses as of
December 31:
<TABLE>
<CAPTION>
(In thousands) 1997 % 1996 % 1995 %
---- - ---- - ---- -
<S> <C> <C> <C> <C> <C> <C>
Real Estate $ 946 50 $ 818 50 $ 611 50
Consumer 95 5 82 5 61 5
Commercial and Other 852 45 736 45 549 45
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL $1,893 100 $1,636 100 $1,221 100
===========================================================================================================================
</TABLE>
NON-PERFORMING ASSETS
The following table presents for the years indicated the components of
non-performing assets: (In thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans past due 90 days or more
and still accruing interest $ 104 $ 122 $ 636 $ 161 $ --
Non-accrual loans 742 1,183 541 697 1,215
Total non-performing loans 846 1,305 1,177 858 1,215
- ---------------------------------------------------------------------------------------------------------------------------
Other real estate owned 340 432 999 1,592 2,436
Total non-performing assets 1,186 1,737 2,176 2,450 3,651
- ---------------------------------------------------------------------------------------------------------------------------
Loan charge-offs 282 276 377 286 1,004
Loan recoveries 139 49 50 161 31
Net loan charge-offs 143 227 327 125 973
- ---------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses $1,893 $1,636 $1,221 $1,473 $1,538
===========================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RATIOS:
<S> <C> <C> <C> <C> <C>
Total non-performing loans/Total loans 0.49% 0.87% 0.96% 0.81% 1.22%
Total non-performing loans/Total assets 0.23% 0.40% 0.39% 0.31% 0.43%
Total non-performing assets/Total assets 0.33% 0.53% 0.73% 0.88% 1.30%
Allowance for loan losses/Total loans 1.09% 1.09% 1.00% 1.40% 1.54%
Allowance for loan losses/Total
non-performing loans 223.76% 125.36% 103.74% 171.68% 126.58%
</TABLE>
Interest income of $47,000, $82,000 and $44,000 would have been recognized
during 1997, 1996, and 1995, respectively, if non-accrual loans had been current
in accordance with their original terms.
OTHER INCOME: Other income before gains on securities was $3,219,000 in 1997,
representing a 12% increase from 1996 and a 37% increase from 1995. This
increase was primarily due to higher service charges and higher trust fees.
Service charges on deposit accounts increased to just over $1.3 million in 1997,
representing a 9% gain over 1996 and a 30% gain over 1995. Trust department fees
for 1997 were $1,474,000, 16% higher than 1996 and 46% higher than 1995. For the
year ended December 31, 1997, securities gains were $29,000 as compared to gains
of $118,000 and $62,000 for 1996 and 1995, respectively.
The following table presents the major components of other income:
<TABLE>
<CAPTION>
(in thousands) YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service charges on deposit accounts $1,307 $1,202 $ 1,002
Trust Department fees 1,474 1,270 1,009
Safe deposit rental fees 164 157 145
Other fee income 180 145 103
Check printing fees 49 36 40
Other non-interest income 45 59 58
- ---------------------------------------------------------------------------------------------------------------------------
Other income before gain on securities 3,219 2,869 2,357
Securities gains 29 118 62
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME $3,248 $2,987 $2,419
===========================================================================================================================
</TABLE>
OTHER EXPENSE: Other expense during 1997 was $10,726,000 as compared with
$10,072,000 in 1996 and $9,108,000 in 1995. The increase in 1996 versus 1995 was
primarily attributable to the addition of a new administration building and two
new branch offices.
As in most financial institutions, the largest components of other expense
are salaries and employee benefits. Normal merit and promotional raises plus the
addition of several well-qualified individuals contributed to a 7% increase in
salary expense which was $4,639,000 in 1997, $4,327,000 in 1996 and $3,849,000
in 1995. Contributions to the employee savings and profit sharing plan were
approximately $198,000 in 1997, $146,000 in 1996 and $118,000 in 1995. The
Corporation sponsors
<PAGE>
a noncontributory defined benefit pension plan for its employees. The net
periodic pension cost was $348,000, $337,000 and $309,000 for 1997, 1996 and
1995, respectively.
Total other expense, excluding salaries and employee benefits, increased
$149,000 or 3% over 1996 levels. This modest increase reflects efforts by
management and staff to control expenses and maximize operating efficiencies.
The Corporation's efficiency/overhead ratio (other expense as a percentage
of the sum of net interest income on a tax-equivalent basis and other income)
improved to 57.76% from 62.19% in 1996.
The following table presents the major components of other expense:
<TABLE>
<CAPTION>
(in thousands) YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Salaries $4,639 $4,327 $3,849
Retirement, health and other benefits 1,454 1,261 1,340
Premises and equipment 2,231 2,124 1,491
FDIC insurance assessment 37 1 288
Stationery and Supplies 279 245 163
Check printing expense 60 46 40
Postage 218 259 207
Telephone 187 163 136
Other expense 1,621 1,646 1,594
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSE $10,726 $10,072 $9,108
===========================================================================================================================
</TABLE>
INCOME TAXES: Income tax expense for the year ended December 31, 1997 was
$2,822,000 as compared to $1,760,000 and $1,518,000 for the years 1996 and 1995,
respectively. The increased income tax expense reflects changes in the levels of
taxable income relative to tax-exempt income and certain deferred tax
adjustments.
CAPITAL RESOURCES: The solid capital base of the Bank provides the ability for
future growth and financial strength. Maintaining a strong capital position
supports the Bank's goal of providing shareholders an attractive and stable
long-term return on investment. At $33,639,000, total stockholders' equity grew
11% or $3,431,000 as compared with $30,208,000 at year-end 1996. At year-end
1997, unrealized gains net of taxes were $476,000 as compared to unrealized
gains of $329,000 at December 31, 1996. Federal regulations require banks to
meet target Tier 1 and total capital ratios of 4% and 8%, respectively. At
20.25% and 21.43%, the Bank's Tier 1 and total capital ratios are well in excess
of regulatory minimums. The Bank's capital leverage ratio was 9.40% at December
31, 1997.
<PAGE>
LIQUIDITY: Liquidity refers to an institution's ability to meet short-term
requirements in the form of loan requests, deposit withdrawals and maturing
obligations. Principal sources of liquidity include cash, temporary investments
and investment securities.
Management feels the Corporation's liquidity position is sufficient to meet
any future needs. Cash and cash equivalents, including federal funds sold,
averaged over $32 million in 1997. In addition, the Corporation has over $91
million in securities designated as available for sale. These securities can be
sold in response to liquidity concerns. As of December 31, 1997, investment
securities and securities available for sale maturing within one year amounted
to $21,324,000 and cash and cash equivalents totaled $33,240,000.
Another source of liquidity is borrowing capacity. The Corporation has a
variety of sources of short-term liquidity available, including federal funds
purchased from correspondent banks, sales of securities under repurchase
agreements, loan participation or sales of loans and sales of securities
available for sale. The Corporation also generates liquidity from the regular
principal payments made on its loan portfolio.
INTEREST RATE SENSITIVITY: Interest rate sensitivity is a measure of the
relationship between interest-earning assets and supporting funds which are
susceptible to changes in interest rates during comparable time periods.
Interest rate movements and deregulation of interest rates on deposits have made
managing the Corporation's interest rate sensitivity increasingly more important
as a means of managing net interest income. The Corporation's Asset/Liability
Committee is responsible for managing the exposure to changes in market interest
rates. The "sensitivity" gap quantifies the repricing mismatch between assets
and supporting funds over various time intervals. The cumulative gap position as
a percentage of total rate-sensitive assets provides one relative measure of the
Corporation's interest rate exposure.
The Corporation's ratio of rate-sensitive assets to rate-sensitive
liabilities was approximately .36 on December 31, 1997 based on contractual
maturities for the next twelve months subject to certain assumptions explained
in the following paragraph. Since this ratio is less than 1.00, the Corporation
has a "negative gap" position which may cause its assets to reprice more slowly
than its deposit liabilities. In a declining interest rate environment, interest
costs may be expected to fall faster than the interest received on earning
assets, thus increasing the net interest spread. If interest rates increase, a
negative gap means that the interest received on earning assets may be expected
to increase more slowly than the interest paid on the Corporation's liabilities,
therefore decreasing the net interest spread.
For purposes of calculating the gap position, interest-earning demand
deposits, money market deposits and savings deposits are included in the 0-3
month category. The Corporation recognizes that certain of these deposits are
more stable with an effective maturity greater than their repricing frequency.
Assets with daily floating rates are included in the 0-3 month category. Assets
and
<PAGE>
liabilities are included based on their maturities or period to first repricing,
subject to the foregoing assumptions.
The table below presents the maturity and repricing relationships between
interest-earning assets and interest-bearing deposits as of December 31, 1997.
(In thousands)
<TABLE>
<CAPTION>
Repricing or 0 - 3 3 - 12 1 - 5 Over 5
Maturity Date Months Months Years Years Total
------ ------ ----- ------ ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Securities $ 12,228 $ 9,575 $103,317 $ 20,438 $145,558
Federal Funds Sold 15,500 -- -- -- 15,500
Loans (1) 28,936 10,833 51,112 82,751 173,632
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-
SENSITIVE ASSETS $ 56,664 $20,408 $154,429 $103,189 $334,690
===========================================================================================================================
DEPOSITS
Certificates of Deposit $ 22,405 $28,012 $ 37,556 $ -- $ 87,973
Savings 70,419 -- -- -- 70,419
Money Market Accounts 24,624 -- -- -- 24,624
Super NOW 70,745 -- -- -- 70,745
Noninterest-Bearing Demand Deposits -- -- -- 74,712 74,712
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-
SENSITIVE DEPOSITS $188,193 $28,012 $ 37,556 $ 74,712 $328,473
===========================================================================================================================
ASSETS/DEPOSITS 0.30 0.73 4.11 1.38 1.02
ASSETS/DEPOSITS (CUMULATIVE) 0.30 0.36 0.91 1.02
</TABLE>
(1) Loan balances do not include non-accrual loans.
EFFECTS OF INFLATION AND CHANGING PRICES: The financial statements and related
financial data presented herein have been prepared in terms of historical
dollars without considering changes in the relative purchasing power of money
over time due to inflation. Unlike most industrial companies, virtually all of
the assets and liabilities of a financial institution are monetary in nature. As
a result, interest rates have a more significant impact on a financial
institution's performance than do general levels of inflation. Interest rates do
not necessarily move in the same magnitude as the prices of goods and services.
The Corporation believes residential real estate values have stabilized,
however, if real estate prices in the Corporation's trade area decrease, the
values of real estate collateralizing the Corporation's loans and real estate
held by the Corporation as other real estate owned could also be adversely
affected.
<PAGE>
MARKET RISK SENSITIVE INSTRUMENTS: A derivative financial instrument includes
futures, forwards, interest rate swaps, option contracts and other financial
instruments with similar characteristics. The Corporation currently does not
enter into futures, forwards, swaps or options. However, the Corporation is
party to financial instruments with off-balance sheet risk in the normal course
of business to meet the financing needs of the customers of the Corporation.
These financial instruments include commitments to extend credit and standby
letters of credit. These instruments involve to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
consolidated statements of condition. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates and may require collateral from the borrower if deemed
necessary by the Corporation. Standby letters of credit are conditional
commitments issued by the Corporation to guarantee the performance of a customer
to a third party up to a stipulated amount and with specified terms and
conditions.
Commitments to extend credit and standby letters of credit are not recorded
as an asset or liability by the Corporation until the instrument is exercised.
The Corporation's exposure to market risk is reviewed on a regular basis by
the Asset/Liability Committee. Interest rate risk is the potential of economic
losses due to future interest rate changes. These economic losses can be
reflected as a loss of future net interest income and/or a loss of current fair
market values. The objective is to measure the effect on net interest income and
to adjust the statement of condition to minimize the inherent risk while at the
same time maximize income. Management realizes certain risks are inherent and
that the goal is to identify and minimize the risks. Tools used by management
include the standard GAP report and a recently instituted interest rate shock
simulation report. The Corporation has no market risk sensitive instruments held
for trading purposes. It appears the Corporation's market risk is reasonable at
this time.
The following table presents the scheduled maturity of market risk sensitive
instruments as December 31, 1997:
<TABLE>
<CAPTION>
(In thousands)
Within 1-5 Over
Maturing in: 1 Year Years 5 Years Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Securities $ 21,803 $103,317 $ 20,438 $145,558
Loans 39,769 51,112 82,751 173,632
- ---------------------------------------------------------------------------------------------------------
Total $ 61,572 $154,429 $103,189 $319,190
=========================================================================================================
LIABILITIES
Savings, Super NOW
and Money Market $165,788 $ -- $ -- $165,788
CD's 50,417 37,556 -- 87,973
- ---------------------------------------------------------------------------------------------------------
Total $216,205 $37,556 $ -- $253,761
=========================================================================================================
Average Estimated
Total Interest Rate Fair Value
- ---------------------------------------------------------------------------------------------------------
ASSETS
Securities $145,558 6.43% $146,032
Loans 173,632 8.01% 173,588
LIABILITIES
Savings, Super NOW
and Money Market $165,788 2.06% $165,823
- ---------------------------------------------------------------------------------------------------------
CD's 87,973 5.17% 87,992
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CHANGES IN ACCOUNTING PRINCIPLES: In June 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 establishes standards
for reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general purpose financial
statements. This Statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. This Statement requires that an enterprise (a)
classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. SFAS 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
In June 1997, the FASB issued Statement of Financial Accounting Standards
NO. 131, "Disclosures about Segments of an Enterprise and Related Information"
(SFAS 131). SFAS 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS 131 is effective for fiscal years
beginning after December 15, 1997.
YEAR 2000 CONSIDERATION: Senior management has initiated an intensive study to
prepare the Corporation's computer systems and application software for the year
2000. The Corporation expects to incur internal staff costs as well as costs to
upgrade, replace or enhance existing software to conform for the year 2000.
These efforts in most instances would be addressed in the normal course of
evaluating the Corporation's future technology needs. Accordingly, the
Corporation does not expect the expense required to have a material effect on
its financial results.
TRUST AND INVESTMENT DEPARTMENT: The Trust and Investment Department continues
to be an extremely important part of Peapack-Gladstone Financial Corporation.
Since its inception in 1972, the Trust and Investment Department has served in
the roles of executor and trustee while providing investment management,
custodial, tax, retirement, and financial services to its growing client base.
The book value of assets under management in the Trust and Investment
Department increased from $378.9 million in 1996 to $453.7 million in 1997, an
increase of 20%. The corresponding market value is now in excess of $676.1
million. Fee income generated by the Trust Department was $1,474,000, $1,270,000
and $1,009,000 in 1997, 1996 and 1995, respectively.
The following table presents the total book value of assets under management in
the Trust Department for the years ended December 31:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
TRUST ASSETS $453,671 $378,879 $251,254 $246,526 $202,754
</TABLE>
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA:
The following is selected consolidated financial data for the Corporation and
its subsidiaries for the years indicated. This information is derived from the
historical consolidated financial statements and should be read in conjunction
with the Consolidated Financial Statements and Notes.
<TABLE>
<CAPTION>
(In thousands, except per share data) Years Ended December 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SUMMARY EARNINGS:
Interest Income $22,890 $20,955 $19,420 $17,739 $17,507
Interest Expense 7,698 7,889 7,231 5,619 6,051
Net Interest Income 15,192 13,066 12,189 12,120 11,456
Provision for Loan Losses 400 642 75 60 1,410
- --------------------------------------------------------------------------------------------------------------------------------
Net Interest Income after
Provision for Loan Losses 14,792 12,424 12,114 12,060 10,046
- --------------------------------------------------------------------------------------------------------------------------------
Other Income, Exclusive
of Securities Gains (Losses) 3,219 2,869 2,357 2,174 2,132
Other Expenses 10,726 10,072 9,108 8,506 8,091
Securities Gains (Losses) 29 118 62 (392) 134
- --------------------------------------------------------------------------------------------------------------------------------
Income Before Income Tax Expense
and Cumulative Effect of Change
in Accounting Principles 7,314 5,339 5,425 5,336 4,221
================================================================================================================================
Income Tax Expense 2,822 1,760 1,518 1,465 1,095
- --------------------------------------------------------------------------------------------------------------------------------
Income Before Cumulative Effect
of Change in Accounting Principles 4,492 3,579 3,907 3,871 3,126
- --------------------------------------------------------------------------------------------------------------------------------
Cumulative Effect of Change
in Accounting for Income Taxes -- -- -- -- 816
Cumulative Effect of Change in
Accounting for Postretirement
Benefits Other Than Pensions, Net of Taxes -- -- -- -- (112)
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME $4,492 $ 3,579 $3,907 $3,871 $3,830
=================================================================================================================================
</TABLE>
PER SHARE DATA: (Reflects 2:1 stock split in December, 1997; 5% stock dividend
paid in 1996; and 2:1 stock split in April, 1995.)
<TABLE>
<S> <C> <C> <C> <C> <C>
Income Before Cumulative Effect of Change
in Accounting Principles $1.90 $ 1.52 $ 1.67 $ 1.66 $ 1.34
Cumulative Effect of Change
in Accounting Principles -- -- -- -- 0.30
Earnings per Share-Basic 1.93 1.53 1.67 1.66 1.64
Earnings per Share-Diluted 1.90 1.52 1.67 1.66 1.64
Cash Dividends Declared 0.41 0.40 0.37 0.32 0.31
Book Value End-of-Period $14.47 $12.97 $12.15 $10.09 $9.05
Weighted Average Shares Outstanding 2,327,731 2,332,620 2,335,238 2,335,238 2,335,238
Common Stock Equivalents 42,196 27,850 6,315 -- --
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
(Dollars in thousands) 1997 1996
---- ----
<S> <C> <C>
ASSETS
CASH AND DUE FROM BANKS $ 17,740 $ 10,962
FEDERAL FUNDS SOLD 15,500 15,800
- -------------------------------------------------------------------------------------------------------------------
TOTAL CASH AND CASH EQUIVALENTS 33,240 26,762
INVESTMENT SECURITIES (APPROXIMATE
MARKET VALUE $54,452 IN 1997 AND
$55,486 IN 1996)
U.S. TREASURY AND GOVERNMENT AGENCIES 44,557 44,543
STATES AND POLITICAL SUBDIVISIONS 9,421 10,655
- -------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES 53,978 55,198
SECURITIES AVAILABLE FOR SALE (AMORTIZED COST
$90,817 IN 1997 AND $84,072 IN 1996)
U.S. TREASURY AND GOVERNMENT AGENCIES 86,799 75,745
OTHER SECURITIES AVAILABLE FOR SALE 4,781 8,851
- -------------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES AVAILABLE FOR SALE 91,580 84,596
LOANS:
LOANS SECURED BY REAL ESTATE 149,684 124,758
OTHER LOANS 24,690 25,116
- -------------------------------------------------------------------------------------------------------------------
TOTAL LOANS 174,374 149,874
LESS: ALLOWANCE FOR LOAN LOSSES 1,893 1,636
- -------------------------------------------------------------------------------------------------------------------
NET LOANS 172,481 148,238
PREMISES AND EQUIPMENT 8,595 8,600
OTHER REAL ESTATE OWNED 340 432
ACCRUED INTEREST RECEIVABLE 3,006 2,915
OTHER ASSETS 445 663
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $363,665 $327,404
===================================================================================================================
LIABILITIES
DEPOSITS:
NONINTEREST-BEARING DEMAND DEPOSITS $ 74,712 $ 54,539
INTEREST-BEARING DEPOSITS:
SUPER NOW 70,745 61,898
SAVINGS 70,419 71,831
MONEY MARKET ACCOUNTS 24,624 27,433
CERTIFICATES OF DEPOSIT OVER $100,000 18,243 16,728
CERTIFICATES OF DEPOSIT LESS THAN $100,000 69,730 62,761
- -------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 328,473 295,190
ACCRUED EXPENSES AND OTHER LIABILITIES 1,553 2,006
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 330,026 297,196
- -------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
COMMON STOCK (NO PAR VALUE; STATED VALUE $1 2/3
PER SHARE; AUTHORIZED 10,000,000 SHARES;
ISSUED 2,335,238 SHARES; REFLECTS 2:1 STOCK
SPLIT OF DECEMBER 1997) 3,892 3,892
SURPLUS 6,218 6,205
TREASURY STOCK AT COST, 11,178 SHARES IN 1997
AND 5,446 SHARES IN 1996 (367) (142)
RETAINED EARNINGS 23,420 19,924
NET UNREALIZED GAINS ON SECURITIES
AVAILABLE FOR SALE (NET OF INCOME TAX) 476 329
- -------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 33,639 30,208
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $363,665 $327,404
===================================================================================================================
</TABLE>
See accompanying notes to Consolidated Financial Statements
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
(Dollars in thousands, except per share amounts) YEAR ENDED DECEMBER 31,
1997 1996 1995
---- ----- ----
<S> <C> <C> <C>
INTEREST INCOME
INTEREST AND FEES ON LOANS $ 13,025 $11,150 $ 9,455
INTEREST ON INVESTMENT SECURITIES:
TAXABLE 2,800 2,465 3,871
TAX-EXEMPT 524 573 986
INTEREST ON SECURITIES AVAILABLE FOR SALE:
TAXABLE 5,697 5,898 4,213
INTEREST ON FEDERAL FUNDS SOLD 844 869 895
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 22,890 20,955 19,420
- --------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
INTEREST ON SAVINGS ACCOUNT DEPOSITS 3,439 3,942 4,039
INTEREST ON CERTIFICATES OF DEPOSIT
OVER $100,000 965 802 488
INTEREST ON OTHER TIME DEPOSITS 3,294 3,145 2,704
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 7,698 7,889 7,231
- --------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 15,192 13,066 12,189
- --------------------------------------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 400 642 75
- --------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 14,792 12,424 12,114
- --------------------------------------------------------------------------------------------------------------------------
OTHER INCOME
SERVICE CHARGES AND FEES FOR OTHER SERVICES 3,125 2,774 2,259
SECURITIES GAINS 29 118 62
OTHER INCOME 94 95 98
- --------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 3,248 2,987 2,419
- --------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES
SALARIES AND EMPLOYEE BENEFITS 6,093 5,588 5,189
PREMISES AND EQUIPMENT 2,231 2,124 1,491
FDIC INSURANCE ASSESSMENT 37 1 288
OTHER EXPENSE 2,365 2,359 2,140
- --------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 10,726 10,072 9,108
- --------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 7,314 5,339 5,425
INCOME TAX EXPENSE 2,822 1,760 1,518
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 4,492 $ 3,579 $ 3,907
==========================================================================================================================
EARNINGS PER SHARE (REFLECTS A 2:1 STOCK SPLIT
IN DECEMBER, 1997; 5% STOCK DIVIDEND
IN 1996 AND 2:1 STOCK SPLIT IN APRIL, 1995)
BASIC $ 1.93 $ 1.53 $ 1.67
- --------------------------------------------------------------------------------------------------------------------------
DILUTED $ 1.90 $ 1.52 $ 1.67
==========================================================================================================================
</TABLE>
See accompanying notes to Consolidated Financial Statements
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
NET
UNREALIZED
GAINS
(LOSSES) ON
SECURITIES
COMMON TREASURY RETAINED AVAILABLE
STOCK SURPLUS STOCK EARNINGS FOR SALE TOTAL
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 $3,707 $3,486 $ -- $17,112 $ (745) $23,560
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME 1995 3,907 3,907
DIVIDENDS DECLARED ($0.37 per share) (823) (823)
NET UNREALIZED GAINS ON
TRANSFER OF INVESTMENT
SECURITIES TO SECURITIES
AVAILABLE FOR SALE 177 177
CHANGE IN NET UNREALIZED
GAINS ON SECURITIES
AVAILABLE FOR SALE 1,555 1,555
- --------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 $3,707 $3,486 $ -- $20,196 $ 987 $28,376
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME 1996 3,579 3,579
DIVIDENDS DECLARED ($0.40 per share) (911) (911)
COMMON STOCK DIVIDEND
(Five Percent) 185 2,755 (2,940) --
COMMON STOCK OPTIONS
EXERCISED (36) (36)
PURCHASE OF TREASURY STOCK
5,446 SHARES (142) (142)
CHANGE IN NET UNREALIZED
GAINS ON SECURITIES
AVAILABLE FOR SALE (658) (658)
- --------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 $3,892 $6,205 $ (142) $19,924 $ 329 $30,208
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME 1997 4,492 4,492
DIVIDENDS DECLARED ($0.41 per share) (978) (978)
COMMON STOCK OPTIONS
EXERCISED AND RELATED
TAX BENEFITS 13 56 (18) 51
PURCHASE OF TREASURY STOCK
7,892 SHARES (281) (281)
CHANGE IN NET UNREALIZED
GAINS IN SECURITIES
AVAILABLE FOR SALE 147 147
- --------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 $3,892 $6,218 $ (367) $23,420 $ 476 $33,639
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Dividends declared per share reflect 2:1 stock split in December, 1997 and 2:1
stock split in April, 1995.
See accompanying notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: (at period end)
Total Assets $363,665 $327,404 $300,076 $278,523 $280,166
Investment Securities 53,978 55,198 45,540 81,804 146,651
Securities Available for Sale 91,580 84,596 90,890 55,024 --
Loans 174,374 149,874 122,432 105,384 99,773
Allowance for Loan Losses 1,893 1,636 1,221 1,473 1,538
Total Deposits 328,473 295,190 269,504 253,375 257,575
Total Stockholders' Equity 33,639 30,208 28,376 23,560 21,135
Trust Assets (Book Value) 453,671 378,879 251,254 246,526 202,754
SELECTED PERFORMANCE RATIOS:
Return on Average Total Assets 1.30% 1.13% 1.37% 1.38% 1.42%
Return on Average Total Stockholders' Equity 14.22% 12.41% 15.05% 17.09% 19.25%
Dividend Payout Ratio 21.77% 25.45% 21.06% 18.10% 18.00%
Average Total Stockholders' Equity
to Average Assets 9.16% 9.10% 9.08% 8.09% 7.39%
Non-interest Expenses to Average Assets 3.11% 3.18% 3.19% 3.04% 3.00%
Non-interest Income to Average Assets 0.93% 0.91% 0.82% 0.78% 0.79%
ASSET QUALITY RATIOS: (at period end)
Non-accrual Loans to Total Loans 0.43% 0.79% 0.44% 0.66% 1.22%
Non-performing Assets to Total Assets 0.33% 0.53% 0.73% 0.88% 1.30%
Allowance for Loan Losses to
Non-performing Loans 223.76% 125.36% 103.74% 171.68% 126.58%
Allowance for Loan Losses to Total Loans 1.09% 1.09% 1.00% 1.40% 1.54%
Net Charge-Offs (Recoveries) to Average
Loans Plus Other Real Estate Owned 0.09% 0.17% 0.29% 0.12% 0.97%
LIQUIDITY AND CAPITAL RATIOS:
Average Loans to Average Deposits 50.96% 47.23% 43.26% 39.72% 39.87%
Total Stockholders' Equity to Total Assets 9.25% 9.23% 9.46% 8.46% 7.54%
Tier 1 Capital to Risk Weighted Assets 20.25% 24.06% 23.63% 20.62% 16.90%
Total Capital to Risk Weighted Assets 21.43% 25.37% 24.68% 21.87% 18.13%
Tier 1 Leverage Ratio 9.40% 9.43% 9.63% 8.68% 7.85%
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars in thousands) YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
NET INCOME $ 4,492 $ 3,579 $ 3,907
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION 694 670 475
AMORTIZATION OF PREMIUM AND ACCRETION
OF DISCOUNT ON SECURITIES, NET 43 75 112
PROVISION FOR LOAN LOSSES 400 642 75
PROVISION FOR DEFERRED TAXES 399 (96) 23
GAIN ON SECURITIES (29) (118) (62)
(INCREASE) DECREASE IN INTEREST RECEIVABLE (91) (48) 39
(INCREASE) DECREASE IN OTHER ASSETS (270) 46 412
(DECREASE) INCREASE IN ACCRUED EXPENSES AND OTHER LIABILITIES (453) (190) 3
- --------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,185 4,560 4,984
- --------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
PROCEEDS FROM MATURITIES OF INVESTMENT SECURITIES 14,671 12,852 7,180
PROCEEDS FROM MATURITIES OF SECURITIES
AVAILABLE FOR SALE 11,000 25,000 5,500
PROCEEDS FROM CALLS OF INVESTMENT SECURITIES 2,000 10,207 20,542
PROCEEDS FROM SALES AND CALLS OF SECURITIES
AVAILABLE FOR SALE 6,840 10,025 12,267
PURCHASE OF INVESTMENT SECURITIES (15,466) (32,664) (19,524)
PURCHASE OF SECURITIES AVAILABLE FOR SALE (24,625) (33,814) (20,558)
NET DECREASE (INCREASE) IN SHORT-TERM INVESTMENTS 38 4,018 (2,317)
NET INCREASE IN LOANS (24,903) (27,957) (17,375)
NET DECREASE IN OTHER REAL ESTATE OWNED 352 855 593
PURCHASES OF PREMISES AND EQUIPMENT (689) (2,376) (386)
- --------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (30,782) (33,854) (14,078)
- --------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
NET INCREASE IN DEPOSITS 33,283 25,686 16,129
DIVIDENDS PAID (978) (911) (823)
EXERCISE OF STOCK OPTIONS 51 (36) --
PURCHASE OF TREASURY STOCK (281) (142) --
- --------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 32,075 24,597 15,306
- --------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 6,478 (4,697) 6,212
- --------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 26,762 31,459 25,247
- --------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $33,240 $ 26,762 $ 31,459
- --------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID DURING THE YEAR FOR:
INTEREST ON DEPOSITS $8,836 $ 8,163 $6,618
INCOME TAXES 2,487 1,885 1,495
NONCASH INVESTING ACTIVITIES:
TRANSFER OF LOANS TO OTHER REAL ESTATE 260 288 --
TRANSFER OF INVESTMENT SECURITIES TO
SECURITIES AVAILABLE FOR SALE -- -- 28,020
</TABLE>
See accompanying notes to Consolidated Financial Statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND ORGANIZATION: Effective December 12, 1997 all of
the then outstanding common shares of the Peapack-Gladstone Bank (the Bank) were
exchanged on a one-for-one basis for shares of Peapack-Gladstone Financial
Corporation (the Corporation), which was organized as a New Jersey Bank Holding
Company on August 19, 1997. This exchange of shares has been accounted for as a
"pooling-of-interests," and as a result, the Corporation reports on a combined
basis the values of the assets, liabilities and stockholders' equity of the Bank
and the Holding Company.
The consolidated financial statements of the Corporation are prepared on
the accrual basis and include the accounts of the Corporation and its
wholly-owned subsidiary, Peapack-Gladstone Bank and its wholly-owned subsidiary,
Peapack-Gladstone Investment Company. While the following footnotes include the
collective results of Peapack-Gladstone Financial Corporation and
Peapack-Gladstone Bank, these footnotes primarily reflect the Bank's activities.
All significant intercompany balances and transactions have been eliminated from
the accompanying consolidated financial statements.
BUSINESS: The Peapack-Gladstone Bank, the subsidiary of the Corporation,
provides a full range of banking services to individual and corporate customers
through its branch operations in northwestern New Jersey. The Bank is subject to
competition from other financial institutions, is regulated by certain federal
and state agencies and undergoes periodic examinations by those regulatory
authorities.
BASIS OF FINANCIAL STATEMENT PRESENTATION: The consolidated financial statements
have been prepared in accordance with generally accepted accounting principles.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the statement
of condition and revenues and expenses for that period. Actual results could
differ from those estimates.
CASH AND CASH EQUIVALENTS: For purposes of the statements of cash flows, cash
and cash equivalents include cash and due from banks and federal funds sold.
Generally, federal funds are sold for one-day periods.
INVESTMENT SECURITIES: Investment securities are composed of debt securities
that the Corporation has the positive intent and ability to hold to maturity.
Such securities are stated at cost, adjusted for amortization of premium and
accretion of discount over the term of the investments.
<PAGE>
SECURITIES AVAILABLE FOR SALE: Debt securities that cannot be categorized as
investment securities are classified as securities available for sale. Such
securities include debt securities to be held for indefinite periods of time and
not intended to be held to maturity, as well as marketable equity securities.
Securities held for indefinite periods of time include securities that
management intends to use as part of its asset/liability management strategy and
that may be sold in response to changes in interest rates, resultant prepayment
risk and other factors related to interest rate and resultant prepayment risk
changes. In November 1995, the Financial Accounting Standards Board issued
"Special Report - A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities" within which there was
offered transition guidance permitting an enterprise to reassess the
appropriateness of the classifications of all of its securities before December
31, 1995. The Corporation reassessed its classifications and in December 1995
transferred $28.0 million (amortized cost) of its securities previously
classified as held to maturity, to the available for sale classification. The
related unrealized gain as of the transfer date was $177,000 which has been
recognized and reported as a separate component of stockholders' equity.
Securities available for sale are carried at fair value and unrealized holding
gains and losses (net of related tax effects) on such securities are excluded
from earnings, but are included in stockholders' equity. Upon realization, such
gains or losses are included in earnings using the specific identification
method.
LOANS: Loans are stated at the principal amount outstanding. Loan origination
fees and certain direct loan origination costs are deferred and recognized over
the life of the loan as an adjustment to the loan's yield. The accrual of income
on loans is discontinued if certain factors indicate reasonable doubt as to the
timely collectibility of such interest, generally when the loan becomes over 90
days delinquent. A non-accrual loan is not returned to an accrual status until
factors indicating doubtful collection no longer exist. The majority of the
loans are secured by real estate located within the Corporation's market area in
Northwestern New Jersey.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is maintained at a
level considered adequate to provide for potential loan losses inherent in the
portfolio. The allowance is based on management's evaluation of the loan
portfolio considering economic conditions, the volume and nature of the loan
portfolio, historical loan loss experience, and individual credit situations.
The allowance is increased by provisions charged to expense and reduced by net
charge-offs.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize loan losses, future additions
to the allowance may be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the allowance for loan losses. Such agencies may
require the Corporation to recognize additions to the allowance based on their
judgments about information available to them at the time of their examinations.
<PAGE>
Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a loan to be impaired
when it is probable that the Corporation will be unable to collect all amounts
due according to the contractual terms of the loan agreement. When a loan is
considered to be impaired, the amount of impairment is measured based on the
fair value of the collateral. Impairment losses are included in the allowance
for loan losses through provisions charged to operations.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost, less
accumulated depreciation. Depreciation charges are computed using the
straight-line method. Premises and equipment are depreciated over the estimated
useful lives of the assets. Expenditures for maintenance and repairs are
expensed as incurred. The cost of major renewals and improvements are
capitalized. Gains or losses realized on routine dispositions are recorded as
other income or other expense.
OTHER REAL ESTATE OWNED: Other real estate owned is carried at fair value minus
estimated costs to sell, based on an independent appraisal. When a property is
acquired, the excess of the loan balance over the estimated fair value is
charged to the allowance for loan losses. Any subsequent write-downs that may be
required to the carrying value of the properties or losses on the sale of
properties are charged to the valuation allowance on other real estate owned or
to other expense.
INCOME TAXES: The Corporation files a consolidated Federal income tax return.
Separate State income tax returns are filed for each subsidiary based on current
laws and regulations.
The Corporation recognizes deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in its
financial statements or tax returns. The measurement of deferred tax assets and
liabilities is based on the enacted tax rates applicable to taxable income for
the years in which these temporary differences are expected to be recovered or
settled. Such tax assets and liabilities are adjusted for the effect of a change
in tax rates in the period of enactment.
STOCK OPTION PLAN: Prior to January 1, 1996, the Corporation accounted for its
stock option plans in accordance with the provisions of Accounting Principles
Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. As such, compensation expense was recorded on the date
of grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Corporation adopted SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits entities to recognize
as expense over the vesting period the fair value of all stock-based awards on
the date of grant.
<PAGE>
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Corporation has elected to continue to apply the provisions of APB
Opinion No. 25 and to provide the pro forma disclosure provisions of SFAS No.
123.
EARNINGS PER SHARE: In February 1997, the FASB issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share" (SFAS 128). SFAS 128
established standards for computing and presenting earnings per share (EPS) by
simplifying the standards for computing EPS previously found in APB Opinion No.
15, "Earnings per Share." Under the new requirements, the Corporation is
required to present both basic and diluted EPS on the face of the income
statement. Basic EPS replaced the current EPS terminology and is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding. Diluted EPS includes any additional common shares
as if all potentially dilutive common shares were issued (e.g. stock options).
The Corporation was required to adopt SFAS 128 for the period ended December 31,
1997. All prior-period EPS data is restated as required.
The Board of Directors approved a 2 for 1 stock split effective December
29, 1997. In addition, per share data reflects the 5 percent stock dividend paid
in November 1996. As a result, the average number of shares outstanding was
2,369,927, 2,360,470 and 2,341,553 for 1997, 1996 and 1995, respectively, and
included common stock equivalents of 42,196, 27,850 and 6,315 for 1997, 1996 and
1995, respectively.
TRANSFERS AND SERVICING OF FINANCIAL ASSETS: In June 1996, the (FASB) issued
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS
125). SFAS 125 amends portions of SFAS 115, amends and extends to all servicing
assets and liabilities the accounting standards for mortgage servicing rights
now in SFAS 65, and supersedes SFAS 122. The Statement provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. Those standards are based upon consistent
application of a financial components approach that focuses on control. The
Statement also defines the accounting treatment for servicing assets and other
retained interest in the assets that are transferred. SFAS 125 is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996. The adoption of the Statement did not have a
material effect on the Corporation's financial condition or results of
operation.
RECLASSIFICATION: Certain reclassifications have been made in the 1995 and 1996
financial statements in order to conform to the 1997 presentation.
<PAGE>
2. INVESTMENT SECURITIES
A summary of amortized cost and approximate market value of investment
securities included in the consolidated statement of condition as of December
31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1997
----
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
(In thousands) COST GAINS LOSSES VALUE
--------- ---------- ----------- ------
<S> <C> <C> <C> <C>
U.S. TREASURY & GOVERNMENT AGENCIES $44,557 $174 $ (48) $ 44,683
STATES AND POLITICAL SUBDIVISIONS 9,421 348 -- 9,769
==========================================================================================================================
$53,978 $522 $ (48) $ 54,452
==========================================================================================================================
<CAPTION>
1996
----
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
(In thousands) COST GAINS LOSSES VALUE
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. TREASURY & GOVERNMENT AGENCIES $44,543 $173 $ (156) $ 44,560
STATES AND POLITICAL SUBDIVISIONS 10,655 289 (18) 10,926
==========================================================================================================================
$55,198 $462 $ (174) $ 55,486
==========================================================================================================================
</TABLE>
The amortized cost and approximate market value of investment securities as of
December 31, 1997, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or repay obligations with or without call or prepayment penalties.
MATURING IN:
<TABLE>
<CAPTION>
APPROXIMATE
(In thousands) AMORTIZED COST MARKET VALUE
-------------- -------------
<S> <C> <C>
ONE YEAR OR LESS $ 8,280 $ 8,298
AFTER ONE YEAR THROUGH FIVE YEARS 38,640 38,806
AFTER FIVE YEARS THROUGH TEN YEARS 6,610 6,798
AFTER TEN YEARS 448 550
==========================================================================================================================
$53,978 $54,452
==========================================================================================================================
</TABLE>
<PAGE>
Securities having an approximate carrying value of $5,000,000 and
$3,000,000 as of December 31, 1997 and 1996, respectively, were pledged to
secure public funds and for other purposes required or permitted by law. Gross
gains of $5,000, $95,000 and $40,000 were realized in 1997, 1996 and 1995
respectively. There were no gross realized losses in 1997, 1996 and 1995. There
were no sales of investment securities in 1997, 1996 or 1995 except for
securities called by issuers.
<PAGE>
3. SECURITIES AVAILABLE FOR SALE
A summary of amortized cost and approximate market value of securities available
for sale included in the consolidated statement of condition as of December 31,
1997 and 1996 follows:
<TABLE>
<CAPTION>
1997
------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
(In thousands) COST GAINS LOSSES VALUE
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. TREASURY & GOVERNMENT AGENCIES $86,035 $ 838 $ (74) $86,799
OTHER SECURITIES AVAILABLE FOR SALE 4,782 2 (3) 4,781
==========================================================================================================================
$90,817 $ 840 $ (77) $91,580
==========================================================================================================================
<CAPTION>
1996
------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
(In thousands) COST GAINS LOSSES VALUE
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. TREASURY & GOVERNMENT AGENCIES $75,254 $680 $ (189) $75,745
OTHER SECURITIES AVAILABLE FOR SALE 8,818 45 (12) 8,851
==========================================================================================================================
$84,072 $725 $ (201) $84,596
==========================================================================================================================
</TABLE>
The amortized cost and approximate market value of debt securities available for
sale as of December 31, 1997, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or repay obligations with or without call or prepayment
penalties.
MATURING IN:
<TABLE>
<CAPTION>
(In thousands) APPROXIMATE
AMORTIZED COST MARKET VALUE
-------------- ------------
<S> <C> <C>
ONE YEAR OR LESS $11,008 $11,046
AFTER ONE YEAR THROUGH FIVE YEARS 63,985 64,676
AFTER FIVE YEARS THROUGH TEN YEARS 13,042 13,075
==========================================================================================================================
$88,035 $88,797
==========================================================================================================================
</TABLE>
<PAGE>
Gross gains of $24,000, $23,000 and $29,000 were realized in 1997, 1996 and
1995, respectively. There were no gross realized losses in 1997 or 1996. Gross
realized losses of $7,000 were incurred in 1995.
<PAGE>
4. LOANS
Loans outstanding as of December 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
---- ----
<S> <C> <C>
LOANS SECURED BY REAL ESTATE $145,471 $ 120,055
CONSTRUCTION LOANS 4,213 4,703
COMMERCIAL LOANS 10,332 11,832
CONSUMER LOANS 13,462 11,219
OTHER LOANS 896 2,065
==========================================================================================================================
TOTAL LOANS $174,374 $149,874
==========================================================================================================================
</TABLE>
Non-accrual loans totaled $742,000 and $1,183,000 at December 31, 1997 and 1996,
respectively. Loans past due 90 days or more and still accruing interest totaled
$104,000 and $122,000 at December 31, 1997 and 1996, respectively. There are no
commitments to lend additional amounts on non-accrual loans. The amount of
interest income recognized on year-end non-accrual loans totaled $25,000,
$18,000 and $9,000 in 1997, 1996 and 1995, respectively. Interest income of
$47,000, $82,000 and $44,000 would have been recognized during 1997, 1996 and
1995, respectively, under contractual terms for such non-accrual loans.
Loans that met the criteria of troubled debt restructuring totaled $261,000 and
$265,000 at December 31, 1997 and 1996, respectively. The amount of interest
income recognized on troubled debt restructurings in 1997, 1996 and 1995 totaled
$18,000, $16,000 and $4,000, respectively. Interest income of approximately
$26,000, $27,000 and $28,000 would have been recognized during 1997, 1996 and
1995, based on original terms. There are no commitments to lend additional
amounts on troubled debt restructurings.
The Corporation defines an impaired loan as an investment in a loan that is on
non-accrual status with a principal outstanding balance in excess of $100,000.
Residential mortgage loans, a group of homogeneous loans that are collectively
evaluated for impairment, are excluded. There was no recorded investment in
impaired loans as of December 31, 1997 and 1996 and no investments in impaired
loans during 1997 and 1996.
<PAGE>
5. ALLOWANCE FOR LOAN LOSSES
A summary of changes in the allowance for loan losses for the years indicated
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
(In thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
BALANCE, BEGINNING OF YEAR $1,636 $1,221 $1,473
PROVISION CHARGED TO EXPENSE 400 642 75
LOANS CHARGED- OFF (282) (276) (377)
RECOVERIES 139 49 50
==========================================================================================================================
BALANCE, END OF YEAR $1,893 $1,636 $1,221
==========================================================================================================================
</TABLE>
6. PREMISES AND EQUIPMENT
Premises and equipment for the years indicated follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
(In thousands) 1997 1996
---- ----
<S> <C> <C>
LAND $ 2,259 $ 2,259
BUILDINGS 4,703 4,703
FURNITURE AND EQUIPMENT 3,818 3,706
LEASEHOLD IMPROVEMENTS 2,577 2,551
- --------------------------------------------------------------------------------------------------------------------------
13,357 13,219
LESS: ACCUMULATED DEPRECIATION 4,762 4,619
==========================================================================================================================
TOTAL $ 8,595 $ 8,600
==========================================================================================================================
</TABLE>
Depreciation expense amounted to $694,000, $670,000 and $475,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.
<PAGE>
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Corporation discloses estimated fair values for its significant financial
instruments. Because no market exists for a significant portion of the
Corporation's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
The following methods and assumptions were used to estimate the fair value of
each class of significant financial instruments:
CASH AND SHORT-TERM INVESTMENTS - For short-term instruments, the carrying
amount is a reasonable estimate of fair value.
SECURITIES - For securities, fair values are based upon quoted market prices or
dealer quotes.
LOANS - The fair values of loans is estimated by discounting the future cash
flows using the build-up approach consisting of four components: the risk-free
rate, credit quality, operating expense and prepayment option price.
DEPOSIT LIABILITIES - The fair value of deposits with no stated maturity, such
as demand deposits, Super NOW accounts, savings and money market accounts, is
equal to the carrying amount. The fair value of certificates of deposit is based
on the discounted value of contractual cash flows.
The following table summarizes carrying amounts and fair values for financial
instruments at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
---- ----
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
CASH AND CASH EQUIVALENTS $ 33,240 $ 33,240 $ 26,762 $ 26,762
INVESTMENT SECURITIES 53,978 54,452 55,198 55,486
SECURITIES AVAILABLE FOR SALE 91,580 91,580 84,596 84,596
LOANS, NET OF ALLOWANCE
FOR LOAN LOSSES 172,481 172,437 148,238 145,450
FINANCIAL LIABILITIES:
DEPOSITS 328,473 328,543 295,190 295,365
</TABLE>
<PAGE>
8. INCOME TAXES
The income tax expense included in the consolidated financial statements for the
years ended December 31, 1997, 1996 and 1995, is allocated as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- -------------- ---- ---- ----
<S> <C> <C> <C>
INCOME TAX EXPENSE FROM OPERATIONS:
FEDERAL:
CURRENT EXPENSE $2,178 $1,655 $1,461
- -------------------------------------------------------------------------------------------------------------------
DEFERRED EXPENSE (BENEFIT) 309 (83) 27
- -------------------------------------------------------------------------------------------------------------------
STATE:
CURRENT EXPENSE 245 201 34
- -------------------------------------------------------------------------------------------------------------------
DEFERRED EXPENSE (BENEFIT) 90 (13) (4)
- -------------------------------------------------------------------------------------------------------------------
TOTAL INCOME TAX EXPENSE
FROM OPERATIONS 2,822 1,760 1,518
- -------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
DEFERRED EXPENSE:
UNREALIZED GAIN ON SECURITIES
AVAILABLE FOR SALE 153 383 1,007
===================================================================================================================
</TABLE>
Total income tax expense differed from the amounts computed by applying the U.S.
Federal income tax rate of 34% in 1997, 1996 and 1995 to income before taxes as
a result of the following:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- -------------- ---- ---- ----
<S> <C> <C> <C>
COMPUTED "EXPECTED" TAX EXPENSE $2,487 $1,815 $1,844
INCREASE (DECREASE) IN TAXES RESULTING FROM:
TAX-EXEMPT INCOME (161) (176) (342)
STATE INCOME TAXES 221 124 20
DEFERRED TAX ADJUSTMENT-TAX BAD DEBT 210 -- --
OTHER 65 (3) (4)
==========================================================================================================================
$2,822 $1,760 $1,518
==========================================================================================================================
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities as of December 31, 1997
and 1996 are as follows:
(In thousands) 1997 1996
- -------------- ---- ----
DEFERRED TAX ASSETS:
LOANS, PRINCIPALLY DUE TO ALLOWANCE FOR
LOAN LOSSES AND DEFERRED FEE INCOME $462 $741
- --------------------------------------------------------------------------------
OTHER REAL ESTATE OWNED, PRINCIPALLY DUE TO
RESERVES FOR WRITEDOWNS 28 31
- --------------------------------------------------------------------------------
POST RETIREMENT BENEFITS OTHER THAN PENSIONS 50 54
- --------------------------------------------------------------------------------
CAPITAL LOSS CARRYOVER 25 33
- --------------------------------------------------------------------------------
TOTAL GROSS DEFERRED ASSETS 565 859
- --------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
UNREALIZED GAIN ON SECURITIES
AVAILABLE FOR SALE 43 196
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES, PRINCIPALLY DUE TO
THE ACCRETION OF BOND DISCOUNT 45 38
- --------------------------------------------------------------------------------
PREMISES AND EQUIPMENT
PRINCIPALLY DUE TO DIFFERENCES IN DEPRECIATION 365 267
- --------------------------------------------------------------------------------
TOTAL GROSS DEFERRED LIABILITIES 453 501
- --------------------------------------------------------------------------------
NET DEFERRED TAX ASSET $112 $358
================================================================================
<PAGE>
9. BENEFIT PLANS
The Corporation sponsors a non-contributory defined benefit pension plan that
covers substantially all salaried employees. The benefits are based on an
employee's compensation, age at retirement and years of service. It is the
policy of the Corporation to fund not less than the minimum funding amount
required by the Employee Retirement Income Security Act (ERISA).
The following table sets forth the plan's estimated status on December 31,
(In thousands) 1997 1996
---- ----
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATION:
ACCUMULATED BENEFIT OBLIGATION, INCLUDING VESTED
BENEFITS OF $2,183 IN 1997 AND $1,787 IN 1996 $ 2,336 $ 1,938
================================================================================
PROJECTED BENEFIT OBLIGATION 3,178 2,644
================================================================================
PLAN ASSETS AT FAIR VALUE, PRIMARILY STOCKS AND
FIXED INCOME SECURITIES 3,635 2,720
================================================================================
PLAN ASSETS IN EXCESS OF PROJECTED BENEFIT
OBLIGATION 456 76
UNRECOGNIZED PRIOR SERVICE COST (5) 9
UNRECOGNIZED NET GAIN (296) (5)
UNRECOGNIZED NET TRANSITION ASSET (77) (84)
- --------------------------------------------------------------------------------
PREPAID (ACCRUED) PENSION COST $ 78 $ (4)
================================================================================
NET PERIODIC EXPENSE FOR THE YEARS ENDED DECEMBER 31 INCLUDED THE FOLLOWING
COMPONENTS:
(In thousands) 1997 1996 1995
---- ---- ----
SERVICE COST - BENEFITS
EARNED DURING THE PERIOD $ 430 $ 405 $ 356
INTEREST COST ON PROJECTED
BENEFIT OBLIGATION 157 148 130
ACTUAL RETURN
ON PLAN ASSETS (545) (292) (326)
- --------------------------------------------------------------------------------
NET GAIN ON ASSETS
DURING THE PERIOD DEFERRED
FOR LATER RECOGNITION 313 83 155
NET AMORTIZATION (7) (7) (6)
================================================================================
NET PERIODIC PENSION COST $ 348 $ 337 $ 309
================================================================================
For December 31, 1997 and 1996 the weighted average discount rate and rate of
increase in future compensation used in determining the actuarial present value
of the projected benefit obligation were 6.0 percent and 3.0 percent,
respectively. The related expected long-term rate of return on plan assets was
7.5 percent.
<PAGE>
SAVINGS AND PROFIT SHARING PLANS:
In addition to the retirement plan, the Corporation sponsors a profit sharing
plan and a savings plan under Section 401(K) of the Internal Revenue Code,
covering substantially all salaried employees over the age of 21 with at least
12 months service. Under the savings portion of the plan, employee contributions
are partially matched by the Corporation. Expense for the savings plan was
approximately $23,000, $21,000 and $18,000 in 1997, 1996 and 1995, respectively.
Contributions to the profit sharing portion are made at the discretion of the
Board of Directors and all funds are invested solely in Corporation stock. The
contribution to the profit sharing plan was $175,000 in 1997, $125,000 in 1996
and $100,000 in 1995.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
The Corporation provides certain health care and life insurance benefits to
eligible retired employees. Accordingly, the cost of retiree health care and
other benefits is accrued during the employees active service. Expense for the
years ended December 31, 1997, 1996 and 1995 is not material.
10. STOCK OPTION PLAN
The Corporation's incentive stock option plan allows the granting of up to
115,500 shares of the Corporation's common stock to certain key employees. The
options granted under this plan are, in general, exercisable not earlier than
one year after the date of grant, at a price equal to the fair market value of
the common stock on the date of grant, and expire not more than ten years after
the date of grant. The stock options will vest during a period of up to five
years after the date of grant. Changes in options outstanding during the past
three years were as follows:
OPTION PRICE
SHARES PER SHARE
------ -------------
BALANCE, DECEMBER 31, 1994 -- --
GRANTED DURING 1995 66,360 $18.00-$19.80
FORFEITED DURING 1995 1,680 18.00
BALANCE, DECEMBER 31, 1995 64,680 18.00-19.80
- --------------------------------------------------------------------------------
GRANTED DURING 1996 4,830 25.00
EXERCISED DURING 1996 3,696 18.00
FORFEITED DURING 1996 2,688 18.00
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 63,126 18.00-25.00
- --------------------------------------------------------------------------------
GRANTED DURING 1997 43,600 28.75-39.63
EXERCISED DURING 1997 2,160 18.00
FORFEITED DURING 1997 400 18.00
================================================================================
BALANCE, DECEMBER 31, 1997 104,166 $18.00-$39.63
================================================================================
At December 31, 1997, the number of options exercisable was 22,910 and the
weighted-average price of those options was $18.78 per share. At December 31,
1996, the number of options exercisable was 11,360 and the weighted-average
price of those options was $18.00 per share.
<PAGE>
The Corporation has a non-qualified stock option plan for non-employee
directors. The plan allows the granting of up to 63,000 shares of the
Corporation's common stock. The options granted under this plan are, in general,
exercisable not earlier than one year after the date of grant, at a price equal
to the fair market value of the common stock on the date of grant, and expire
not more than ten years after the date of grant. The stock options will vest
during a period of up to five years after the date of grant. Changes in options
outstanding during the past three years were as follows:
OPTION PRICE
SHARES PER SHARE
------ ------------
BALANCE, DECEMBER 31, 1994 -- --
GRANTED DURING 1995 51,450 $18.00-$21.88
BALANCE, DECEMBER 31, 1995 51,450 18.00-21.88
- --------------------------------------------------------------------------------
EXERCISED DURING 1996 1,050 18.00
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 50,400 18.00-21.88
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 50,400 $18.00-$21.88
================================================================================
At December 31, 1997, the number of options exercisable was 19,530 and the
weighted-average price of those options was $18.00. At December 31, 1996, the
number of options exercisable was 8,800 and the weighted-average price of those
options was $18.00.
At December 31, 1997, there were 17,428 additional shares available for
grant under the Plans. The per share weighted-average fair value of stock
options granted during 1997 and 1996 was $8.64 and $5.45 on the date of grant
using the Black Scholes option-pricing model with the following weighted-average
assumptions: 1997 - expected dividend yield 0.88%, expected volatility of 11%,
risk-free interest rate of 6.13%, and an expected life of 5 years; 1996 -
expected dividend yield of 1.50%, expected volatility of 11%, risk-free interest
rate of 6.48%, and an expected life of 5 years.
The Corporation applies APB Opinion No. 25 in accounting for its Plans and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Corporation determined compensation cost based
on the fair value at the grant date for its stock options under SFAS No. 123,
the Corporation's net income and earnings per share would have been reduced to
the pro forma amounts indicated below:
(In thousands except per share data) 1997 1996
---- ----
NET INCOME:
AS REPORTED $ 4,492 $ 3,579
PRO FORMA $ 4,389 $ 3,516
EARNINGS PER SHARE:
AS REPORTED
BASIC $ 1.93 $ 1.53
DILUTED $ 1.90 $ 1.52
PRO FORMA
BASIC $ 1.89 $ 1.51
DILUTED $ 1.85 $ 1.49
<PAGE>
11. COMMITMENTS AND REGULATORY MATTERS
The Corporation, in the ordinary course of business, is a party to
litigation arising from the conduct of its business. Management does not
consider that its actions depart from routine legal proceedings and such actions
will not affect its financial position or results of its operations in any
material manner. There are various outstanding commitments and contingencies,
such as guarantees and credit extensions, including loan commitments of
$29,077,000 and $19,891,000 and letters of credit of $1,261,000 and $1,276,000
at December 31, 1997 and 1996, respectively, which are not included in the
accompanying consolidated financial statements. For commitments to originate
loans, the Corporation's maximum exposure to credit risk is represented by the
contractual amount of those instruments. Those commitments represent ultimate
exposure to credit risk only to the extent that they are subsequently drawn upon
by customers. The Corporation uses the same credit policies and underwriting
standards in making loan commitments as it does for on-balance-sheet
instruments. For loan commitments, the Corporation would generally be exposed to
interest rate risk from the time a commitment is issued with a defined
contractual interest rate.
At year-end 1997 and 1996, the Bank was required to maintain balances of
$7,291,000 and $4,805,000, respectively, at the Federal Reserve Bank of New York
in satisfaction of statutory reserve requirements.
At December 31, 1997, the Bank was obligated under non-cancelable operating
leases for certain premises. Rental expense aggregated $579,000, $607,000 and
$316,000 for the years ended December 31, 1997, 1996 and 1995, respectively,
which is included in premises and equipment expense in the consolidated
statements of income.
The minimum annual lease payments under the terms of the lease agreements, as of
December 31, 1997, were as follows:
(In thousands)
1998 .................................................................. $ 478
1999 .................................................................. 361
2000 .................................................................. 345
2001 .................................................................. 445
2002 .................................................................. 445
Thereafter ............................................................ 3,589
------
TOTAL ................................................................. $5,663
======
<PAGE>
12. REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements administered
by the Federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's consolidated financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the Bank's
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weighting and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
<PAGE>
The Bank's actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER FOR CAPITAL
PROMPT CORRECTIVE ADEQUACY
(In thousands) ACTUAL ACTION PROVISIONS PURPOSES
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997:
TOTAL CAPITAL
(TO RISK-WEIGHTED ASSETS) $34,313 21.4% $16,010 10.0% $ 12,808 8.0%
TIER I CAPITAL
(TO RISK-WEIGHTED ASSETS) 32,420 20.3% 9,606 6.0% 6,404 4.0%
TIER I CAPITAL
(TO AVERAGE ASSETS) 32,420 9.4% 17,239 5.0% 10,343 3.0%
- --------------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1996:
TOTAL CAPITAL
(TO RISK-WEIGHTED ASSETS) $31,515 25.4% $12,415 10.0% $9,932 8.0%
TIER I CAPITAL
(TO RISK-WEIGHTED ASSETS) 29,879 24.1% 7,449 6.0% 4,966 4.0%
TIER I CAPITAL
(TO AVERAGE ASSETS) 29,879 9.4% 15,845 5.0% 9,507 3.0%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
13. FINANCIAL INFORMATION OF PARENT COMPANY
Peapack-Gladstone Financial Corporation (the parent company) was incorporated on
August 19, 1997 for the purpose of acquiring the Bank in a one-for-one stock
exchange. The following information of the parent company only financial
statements as of December 31, 1997 should be read in conjunction with the notes
to the consolidated financial statements.
CONDENSED STATEMENT OF CONDITION
December 31, 1997
-----------------
(DOLLARS IN THOUSANDS)
ASSETS:
Cash $ 947
Investment in Subsidiary 32,897
Other Assets 52
--------
TOTAL ASSETS $ 33,896
========
LIABILITIES:
Other Liabilities $ 257
--------
TOTAL LIABILITIES 257
STOCKHOLDERS' EQUITY:
Common Stock 3,892
Surplus 6,218
Treasury Stock (367)
Net Unrealized Gains on Securities Available For
Sale (Net of Income Tax) 476
Retained Earnings 23,420
--------
TOTAL STOCKHOLDERS' EQUITY 33,639
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 33,896
========
<PAGE>
CONDENSED STATEMENT OF INCOME
For the period from
December 12, 1997 to
December 31, 1997
--------------------
(DOLLARS IN THOUSANDS)
INCOME:
Equity in Undistributed Earnings of Bank $ 140
Dividend from Bank 1,000
--------
TOTAL INCOME 1,140
--------
EXPENSES:
Other Expenses 1
--------
TOTAL EXPENSES 1
--------
NET INCOME $1,139
========
CONDENSED STATEMENT OF CASH FLOWS
For the period from
December 12, 1997 to
December 31, 1997
--------------------
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,139
Less Equity in Undistributed Earnings (140)
Increase in Other Assets (52)
Increase in Other Liabilities 257
-------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,204
CASH FLOWS FROM INVESTING ACTIVITIES --
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends Paid (257)
-------
NET CASH PROVIDED BY FINANCING ACTIVITIES (257)
Net Increase in Cash and Cash Equivalents 947
-------
Cash and Cash Equivalents at Beginning of Period 0
-------
Cash and Cash Equivalents at End of Period $ 947
=======
<PAGE>
STOCK PRICES:
The following table shows the 1997 and 1996 range of prices paid on known trades
of Corporation stock.*
DIVIDEND
1997 HIGH LOW PER SHARE
- ---- ---- --- ---------
1ST QUARTER $ 28.25 $ 28.25 $ 0.10
- --------------------------------------------------------------------------------
2ND QUARTER 28.75 28.75 0.10
- --------------------------------------------------------------------------------
3RD QUARTER 37.50 35.00 0.10
- --------------------------------------------------------------------------------
4TH QUARTER 40.50 37.50 0.11
- --------------------------------------------------------------------------------
DIVIDEND
1996 HIGH LOW PER SHARE
- ---- ---- --- ---------
1st Quarter $ 25.00 $ 22.50 $ 0.10
- --------------------------------------------------------------------------------
2nd Quarter 26.00 25.00 0.10
- --------------------------------------------------------------------------------
3rd Quarter 26.50 26.00 0.10
- --------------------------------------------------------------------------------
4th Quarter 28.00 27.50 0.10
- --------------------------------------------------------------------------------
* Prices from 10/19/96 auction of fractional shares not included in table.
<PAGE>
OFFICERS
- --------------------------------------------------------------------------------
GLADSTONE T. LEONARD HILL Chairman of the Board*
LOAN AND ADMINISTRATION FRANK A. KISSEL President & CEO*
BUILDING ROBERT M. ROGERS Senior Vice President & COO*
PAUL W. BELL Senior Vice President
ARTHUR F. BIRMINGHAM Senior Vice President &
Comptroller *
GARRETT P. BROMLEY Senior Vice President &
Chief Credit Officer
BARBARA A. GRECO Senior Vice President
ELIZABETH B. BOOCOCK Vice President
TODD T. BRUNGARD Vice President & Auditor
RICHARD CIMO Vice President
TERESA P. GARRUTO Vice President
V. SHERRI LiCATA Vice President
DENNIS A. LONGO Vice President
PAUL A. SMITH Vice President
JAMES STADTMUELLER Vice President
MARIA FORNARO Assistant Vice President
PATRICIA J. MORSCH Assistant Vice President
PAULA A. PHILHOWER Assistant Vice President
CATHERINE A. McCATHARN Secretary*
MARJORIE DZWONCZYK Assistant Cashier
JOHN G. HARITON Assistant Cashier
KATHRYN M. NEIGH Assistant Cashier
CHRISTOPHER POCQUAT Assistant Cashier
DIANE M. RIDOLFI Assistant Cashier
KENNETH M. SELMER Assistant Cashier
MARCIA A. TRETHAWAY Assistant Cashier
FRANK C. WALDRON Assistant Cashier
- --------------------------------------------------------------------------------
TRUST DEPARTMENT CRAIG C. SPENGEMAN Senior Vice President &
GLADSTONE Senior Trust Officer*
BRYANT K. ALFORD Vice President & Trust
Officer
JOHN M. BONK Vice President & Trust
Officer
GRETA N. DAWSON Vice President & Trust
Officer
RICHARD K. DONNELLY Vice President & Trust
Officer
JOHN C. KAUTZ Vice President & Trust
Officer
KURT G. TALKE Assistant Vice President &
Trust Officer
CATHERINE A. McCATHARN Assistant Trust Officer
- --------------------------------------------------------------------------------
BERNARDSVILLE DONNA IORIO-GISONE Vice President
- --------------------------------------------------------------------------------
CALIFON CAROL L. BEHLER Assistant Cashier
- --------------------------------------------------------------------------------
<PAGE>
CHESTER DONNA M. WHRITENOUR Assistant Vice President
JAMES CICCONE Assistant Cashier
- --------------------------------------------------------------------------------
GLADSTONE PATRICIA A. STUMP Assistant Vice President
- --------------------------------------------------------------------------------
FAR HILLS MARK L. PETERSON Assistant Cashier
- --------------------------------------------------------------------------------
LONG VALLEY DONALD R. GOLDENBAUM Vice President
- --------------------------------------------------------------------------------
MENDHAM ELIZABETH RAHN Vice President
- --------------------------------------------------------------------------------
PEAPACK/FELLOWSHIP JANET E. BATTAGLIA Assistant Cashier
- --------------------------------------------------------------------------------
PLUCKEMIN PAMELA W. STONE Vice President
MARILYN M. MORROW Assistant Cashier
MARY ANN THOMSON Assistant Cashier
- --------------------------------------------------------------------------------
POTTERSVILLE PHYLLIS HERZOG Assistant Cashier
* Denotes a Holding Company Officer
DIRECTORS OFFICES
- --------------------------------------------------------------------------------
PAMELA HILL LOAN & ADMINISTRATION TRUST & INVESTMENT
President BUILDING DEPARTMENT
Ferris Corp. 158 Route 206 North 190 Main Street
Gladstone, NJ Gladstone, NJ 07934 Gladstone, NJ 07934
(908)234-0700 (908)234-9500
T. LEONARD HILL
Chairman of the Board
Gladstone, NJ GLADSTONE (Main Office) BERNARDSVILLE
190 Main Street 36 Morristown Road
FRANK A. KISSEL Gladstone, NJ 07934 Bernardsville, NJ 07924
President & CEO (908)234-0700 (908)766-1711
JOHN D. KISSEL
Turpin Realty, Inc. CALIFON CHESTER
Far Hills, NJ 438 Route 513 350 Main Street
Califon, NJ 07830 Chester, NJ 07930
JAMES R. LAMB, ESQ. (908)832-5131 (908)879-8115
James R. Lamb, P.C.
Morristown, NJ
FAR HILLS FELLOWSHIP VILLAGE
GEORGE R. LAYTON 26 Dumont Road 8000 Fellowship Road
Director Far Hills, NJ 07931 Basking Ridge, NJ 07920
Layton Funeral Home (908)781-1018 (908)719-4332
Bedminster, NJ
LONG VALLEY MENDHAM
EDWARD A. MERTON 59 East Mill Road 17 East Main Street
President (Route 24) Mendham, NJ 07945
Merton Excavating Long Valley, NJ 07853 (973)543-9630
& Paving Co. (908)876-3300
Chester, NJ
<PAGE>
F. DUFFIELD MEYERCORD PLUCKEMIN POTTERSVILLE
Managing Director 468 Route 206 North 11 Pottersville Rd.
Meyercord Advisors, Inc. Bedminster, NJ 07921 Pottersville, NJ 07979
Bedminster, NJ (908)658-4500 (908)439-2265
JOHN R. MULCAHY
Basking Ridge, NJ
PHILIP W. SMITH III
President
Phillary Management Inc.
Far Hills, NJ
JACK D. STINE
Chairman
Bridgewater Community Services
Bridgewater, NJ
WILLIAM TURNBULL
Gladstone, NJ
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 33,240
<SECURITIES> 145,558
<RECEIVABLES> 177,380
<ALLOWANCES> 1,893
<INVENTORY> 0
<CURRENT-ASSETS> 785
<PP&E> 8,595
<DEPRECIATION> 0
<TOTAL-ASSETS> 363,665
<CURRENT-LIABILITIES> 330,026
<BONDS> 0
0
0
<COMMON> 3,892
<OTHER-SE> 29,747
<TOTAL-LIABILITY-AND-EQUITY> 363,665
<SALES> 0
<TOTAL-REVENUES> 26,138
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,726
<LOSS-PROVISION> 400
<INTEREST-EXPENSE> 7,698
<INCOME-PRETAX> 7,314
<INCOME-TAX> 2,822
<INCOME-CONTINUING> 4,492
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,492
<EPS-PRIMARY> 1.93
<EPS-DILUTED> 1.90
</TABLE>
