<PAGE>
As filed with the Securities and Exchange Commission via EDGAR on
December 15, 1997 Registration Statement No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
CRUSADER HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania
(State or other jurisdiction of incorporation or organization)
<TABLE>
<CAPTION>
<S> <C>
6749 23-2562545
(Primary Standard Industrial Classification Code Number) (IRS Employer Identification Number)
</TABLE>
1230 Walnut Street
Philadelphia, Pennsylvania 19107
(215) 893-1500
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Bruce A. Levy
President
Crusader Holding Corporation
1230 Walnut Street
Philadelphia, Pennsylvania 19107
(215) 893-1500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------------
<TABLE>
<CAPTION>
Copies to:
<S> <C>
Justin P. Klein, Esquire Mark K. Kessler, Esquire
Ballard Spahr Andrews & Ingersoll Richard A. Silfen, Esquire
1735 Market Street, 51st Floor Wolf, Block, Schorr and Solis-Cohen LLP
Philadelphia, Pennsylvania 19103 111 South 15th Street, 12th Floor
(215) 665-8500 Philadelphia, Pennsylvania 19102
(215) 977-2000
</TABLE>
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------
Proposed maximum Proposed maximum
Title of each class of Amount to offering price aggregate Amount of
securities to be registered be registered(1) per share(2) offering price(2) registration fee
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share 1,150,000 shares $16 $18,400,000 $5,428
</TABLE>
- -----------------------------------
(1) Includes 150,000 shares subject to an over-allotment option granted to the
Underwriters.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 15, 1997
1,000,000 Shares
[LOGO]
CRUSADER HOLDING CORPORATION
Common Stock
----------------------
All of the shares of Common Stock (the "Common Stock") offered hereby (the
"Offering") are being sold by Crusader Holding Corporation, a Pennsylvania
corporation (the "Company"). Prior to the Offering, there has been no public
market for the Common Stock. It is currently estimated that the initial public
offering price will be between $14 and $16 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. Application will be made to have the Common Stock approved for
quotation on the Nasdaq National Market ("Nasdaq") under the symbol "CRSB."
----------------------
Prospective investors should carefully consider the factors set forth in
"Risk Factors" beginning on page 8 hereof.
----------------------
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR OTHER OBLIGATIONS
OF A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER INSURER OR GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================================================================
Underwriting
Discounts and
Price to Public Commissions(1) Proceeds to Company(2)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................ $ $ $
- --------------------------------------------------------------------------------------------------------------------------------
Total(3)............................. $ $ $
================================================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). The Company has agreed to pay the
representative of the Underwriters (the "Representative") a financial
advisory fee of $75,000. See "Underwriting."
(2) Before deducting estimated expenses of the Offering (exclusive of the
aforementioned financial advisory fee) of approximately $400,000 payable by
the Company and approximately $3.2 million of Company indebtedness to
certain existing shareholders (who are also directors of the Company). See
"Use of Proceeds."
(3) The Company has granted the Underwriters an option to purchase up to 150,000
additional shares of Common Stock at the Price to Public less Underwriting
Discounts and Commissions solely to cover over-allotments, if any. If the
Underwriters exercise such option in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
-------------------------------
The shares of Common Stock are offered severally by the Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by the
Underwriters. The Underwriters reserve the right to reject orders in whole or in
part and to withdraw, cancel or modify the Offering without notice. It is
expected that delivery of certificates representing the shares of Common Stock
will be made to the Underwriters on or about January , 1998.
-------------------------------
Advest, Inc.
The date of this Prospectus is January , 1998
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZATION, THE PURCHASE OF COMMON STOCK TO COVER SYNDICATE SHORT
POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING." SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements, including the Notes thereto,
appearing elsewhere in this Prospectus. Unless otherwise indicated, all
information in this Prospectus is based on the assumption that the Underwriters
(as defined herein) will not exercise their over-allotment option, and that
outstanding shares do not include 300,000 shares reserved for issuance under the
Company's stock option plans. Where appropriate, amounts throughout this
Prospectus have been adjusted retroactively to reflect a two-for-one split of
the Company's Common Stock, par value $0.01 per share (the "Common Stock"), in
December 1997 and a twenty-eight-for-one split of the Common Stock in March
1996, both of which were effected in the form of a stock dividend. Except as the
context may otherwise require (i) the "Company" means Crusader Holding
Corporation together with its wholly-owned subsidiary, Crusader Savings Bank,
FSB (the "Bank"), and the subsidiaries of the Bank, (ii) the "Bank" means the
Bank and its subsidiaries, and (iii) "fiscal" or "fiscal year" means the
Company's fiscal year ended June 30th. Ratios computed with respect to fiscal
years are actual and with respect to interim periods have been annualized. See
"Risk Factors."
The Company
The Company, a Pennsylvania corporation established in 1988 and
headquartered in Philadelphia, Pennsylvania, is the holding company for the
Bank, a federally chartered savings bank. Currently, all of the Company's
business activities are conducted through the Bank. At September 30, 1997, the
Company had total assets of $134.5 million, total deposits of $110.6 million and
total shareholders' equity of $3.9 million. The Bank's deposits are federally
insured by the Savings Association Insurance Fund ("SAIF") of the Federal
Deposit Insurance Corporation ("FDIC") to the maximum extent permitted by law.
As a savings and loan holding company, the Company is subject to the supervision
and regulation of the Office of Thrift Supervision ("OTS").
The Bank provides community banking services through two branches and two
automated teller machines ("ATMs") in Philadelphia, and has focused primarily on
mortgage lending for residential and multi-family housing and commercial real
estate. In the latter part of 1995, management began to refocus the Company and
developed a plan designed to expand its operations and to grow its assets and
profitability. The Company's strategy is to maintain a core banking operation
that provides a growing stream of income enhanced by engaging in various
specialty lending and product niche activities designed to provide the Company
with significantly higher risk-adjusted rates of return. These activities
currently include the origination and acquisition for resale of nonconforming
credit residential mortgages ("Nonconforming Mortgages"), the origination of
loans guaranteed by the U.S. Small Business Administration ("SBA") and the
acquisition of delinquent property tax liens.
The key elements of the Company's strategy include:
o Maintaining and increasing the Company's core banking operations
by expanding its portfolio lending activities;
o Expanding the Bank's Nonconforming Mortgage operation by
developing new broker relationships, increasing the purchase of
loan pools and broadening the geographic scope of its activities;
and
o Increasing other existing specialty lending and product niche
activities and identifying and developing new activities.
The Company believes that the Bank can compete effectively in its various
areas of business activity because of the quality of its management team, its
ready access to federally insured deposits and borrowings from the Federal Home
Loan Bank ("FHLB"), and the ability to use its federal charter to operate
throughout the United States. In addition to generating the interest income, the
Bank's specialty lending and product niche activities are beginning to generate
significant levels of non-interest income, in particular from the Bank's sale of
Nonconforming Mortgage loans.
4
<PAGE>
The Bank generally sells for cash its interest in its Nonconforming
Mortgage loans to institutional investors. To date, the Bank has favored this
approach over securitizations because it realizes a cash gain on the sale of its
loans and retains no risks, other than certain repurchase risks associated with
representations and warranties and, in certain cases, first year prepayment
risks. This differentiates the Bank from institutions that securitize their
loans, which retain default and prepayment risk on the loans they have
historically securitized, and which in certain cases, have incurred write-downs
of their securitization receivables due to adverse default and prepayment
experience. The Bank does not retain these risks and, since it sells its loans
together with their related servicing rights, does not retain any risk with
respect to the ongoing valuation of servicing rights.
The Company, through the Bank, has been successful in implementing its
strategy and has become increasingly profitable. The Company has grown its
assets from $63.6 million as of June 30, 1995 to $134.5 million as of September
30, 1997. During this period of growth, the Company grew its core banking income
by increasing its net interest income and controlling its core operating
expenses. In addition, the Company is continuing to grow and expand its
Nonconforming Mortgage lending operations. Nonconforming Mortgage originations
totaled $24.5 million for the year ended June 30, 1997 and $25.6 million for the
quarter ended September 30, 1997.
The Company had net income of $665,000 for the quarter ended September 30,
1997, as compared to net income of $227,000, excluding a one-time SAIF
assessment, for the comparable prior year period.
The executive office of the Company is located at 1230 Walnut Street,
Philadelphia, Pennsylvania 19107 and its telephone number is (215) 893-1500.
5
<PAGE>
<TABLE>
<CAPTION>
Summary Consolidated Financial Data
At or for the Three
Months Ended September 30, At or for the Year Ended June 30,
-------------------------- ---------------------------------
1997 1996 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(Dollars in thousands, except per share amounts)
Net income (loss)................ $ 665 $ 35 $ 962 $ 112 $ (65)
Net income (loss), excluding SAIF
assessment (1)................. 665 227 1,154 112 (65)
Net income (loss) per share (2) (6) 0.31 0.02 0.46 0.07 (0.05)
Net income (loss) per share, excluding
SAIF assessment (1) (2)........ 0.31 0.11 0.55 0.07 (0.05)
Total assets..................... 134,538 88,703 117,093 81,307 63,550
Loans receivable, net............ 93,857 62,830 85,992 53,604 43,616
Loans held for sale.............. 16,767 1,528 6,244 1,659 1,550
Shareholders' notes (3).......... 3,238 2,918 2,990 2,918 1,970
Shareholders' equity............. 3,871 1,605 2,895 1,512 1,197
Return on average assets (5)..... 2.02% 0.16% 0.97% 0.17% (0.12)%
Net yield on interest-earning assets 3.31% 2.69% 2.89% 2.23% 2.08 %
Supplemental Performance Ratios: (5)
Return on average assets, excluding
SAIF assessment (1) (5)........ 2.02% 1.07% 1.17% 0.17% (0.12)%
Return on average invested
capital (4) (5)................ 37.42% 3.10% 16.35% 2.53% (2.05)%
Return on average invested capital,
excluding SAIF assessment (1) (4) (5) 37.42% 20.08% 19.61% 2.53% (2.05)%
</TABLE>
(1) In September 1996, the Company incurred a one-time SAIF assessment of
$296,000 to recapitalize the fund. Net of related tax effects, this reduced
net income by $192,000 for the quarter ended September 30, 1996 and the year
ended June 30, 1997.
(2) Adjusted to retroactively reflect prior stock splits. See "Dividends."
(3) The Company issued notes payable to shareholders, the proceeds of which were
contributed as capital to the Bank. Such notes will be repaid from the
proceeds of the Offering. See "Use of Proceeds."
(4) Invested capital is the sum of shareholders' notes and shareholders' equity.
(5) Interim period ratios are annualized where appropriate.
(6) Supplemental earnings per share would have been $0.29 and $0.47 for the
quarter ended September 30, 1997 and the year ended June 30, 1997,
respectively, assuming that a sufficient number of shares of Common Stock
were issued at an assumed public offering price of $15 per share to permit
the Company to repay the debt to shareholders outstanding during the
respective periods with the proceeds from the sale of such sales.
6
<PAGE>
<TABLE>
<CAPTION>
The Offering
<S> <C>
Common Stock offered 1,000,000 shares
Common Stock outstanding prior
to the Offering 2,500,000 shares
Common Stock outstanding after
the Offering 3,500,000 shares
Use of Proceeds The estimated net proceeds received by the Company from the sale of
the shares of Common Stock offered hereby will be used to repay
$3.2 million of the Company's indebtedness to certain existing
shareholders (who are also directors of the Company), and the balance
will be contributed as capital to the Bank. The Bank intends to use
such capital for general corporate purposes and to support the future
growth of the assets of the Bank. See "Use of Proceeds."
Dividends on Common Stock The Company does not currently intend to pay cash dividends on the
Common Stock. See "Dividends."
Nasdaq National Market symbol Application will be made to have the Common Stock approved for quotation
on the Nasdaq National Market under the symbol "CRSB."
</TABLE>
Recent Developments
Effective November 30, 1997, the Company, the Bank and Crusader
Mortgage Corporation ("CMC") entered into an agreement with the minority
shareholder of CMC and a corporation controlled by him (the "Minority
Shareholder Corporation"). The agreement provides for the Bank's acquisition of
the entire interest in CMC held by the minority shareholder in exchange for
150,000 shares of the Common Stock, and further provides for the payment of
accrued compensation of $250,000. The agreement also provides for a reduction in
the number of shares of Common Stock to which the minority shareholder would
otherwise be entitled in the event that CMC's net income for the twelve months
ending December 31, 1998 does not exceed a certain level. The agreement further
requires that the minority shareholder's shares of Common Stock be escrowed for
three years, with a portion of such shares released on each of three designated
dates. The agreement also contains certain indemnities in favor of the Company,
the Bank and CMC and prohibits the minority shareholder and the Minority
Shareholder Corporation from competing with the Company for a period of three
years. In addition, for a three year period from the effective date of the
agreement, the Minority Shareholder Corporation shall receive a monthly payment
of $6,250, and the minority shareholder shall be available, upon request and
subject to regulatory approval, to serve as a consultant to CMC. As a result of
this transaction, as of November 30, 1997, the Bank owned all of the outstanding
shares of CMC. If the Bank had owned 100% of CMC and the Company issued 150,000
additional shares of Common Stock on July 1, 1996, net income would have
increased by $43,000 and net income per share would have decreased by $0.01 for
the year ended June 30, 1997 and net income and net income per share would have
increased by $103,000 and $0.02, respectively, for the quarter ended September
30, 1997. See "Summary Financial Data" and "Selected Consolidated Financial
Data."
Risk Factors
Prospective investors should carefully consider the matters set forth
under "Risk Factors."
7
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors, which address those risks material to the Offering and the Company,
should be considered carefully in evaluating an investment in the Common Stock
offered by this Prospectus. Certain statements in this Prospectus are
forward-looking and are identified by the use of forward-looking words or
phrases such as "intended," "will be positioned," "expects," is or are
"expected," "anticipates" and "anticipated." In addition, certain financial
ratios with respect to interim periods have been computed on an annualized basis
and as a result, may be considered forward-looking statements, although they are
not necessarily indicative of the actual ratios that would result from an entire
year of operations. These forward-looking statements are based on the Company's
current expectations. To the extent any of the information contained in this
Prospectus constitutes a "forward-looking statement" as defined in Section
27A(i)(l) of the Securities Act, the risk factors set forth below are cautionary
statements identifying important factors that could cause actual results to
differ materially from those in the forward-looking statement.
Restrictions on the Company as a Holding Company
The Company is a legal entity separate and distinct from the Bank,
although the principal source of the Company's operating cash flow is from the
Bank. The right of the Company to participate in the assets of any subsidiary,
including the Bank, upon liquidation, reorganization or otherwise (and thus the
ability of the holders of Common Stock to benefit from any distribution of such
assets) will be subject to the claims of such subsidiary's creditors, which will
have priority over the interests of the holders of Common Stock, except, under
certain circumstances, to the extent that the Company may itself be a creditor
with a recognized claim. The Bank is also subject to restrictions under federal
law which limit the transfer of funds by the Bank to the Company, whether in the
form of loans, extensions of credit, investments, asset purchases or otherwise.
See "Supervision and Regulation."
Risk of Recent Rapid Growth of Company and Bank
During the last several fiscal years, the Company and the Bank have
experienced rapid and significant growth. The total assets of the Company have
increased from $63.6 million at June 30, 1995, to $134.5 million at September
30, 1997. Although the Company believes that it has adequately managed its
growth in the past, there can be no assurance that the Company will continue to
experience similar growth, or any growth, in the future and, to the extent that
it does experience continued growth, that the Company will be able to adequately
and profitably manage such growth. The continued growth of the Bank has led the
Company to undertake the Offering and the capital to be raised from the Offering
is necessary to provide sufficient capital to support the anticipated future
growth of assets. No assurance can be given that rapid growth will continue,
and, if it does, there is no assurance that the earnings of the Bank or other
sources of capital which may be available to the Bank can adequately provide the
necessary capital for the Bank to maintain required regulatory capital levels
commensurate with continued rapid growth. The level of future earnings of the
Company also will depend on the ability of the Bank to profitably deploy and
manage the increased assets. The rapid growth of the Bank in asset size and the
rapid increase in its volume of loans during the past several fiscal years have
increased the possible risks inherent in an investment in the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Although the Bank has experienced moderate loan losses to date, the
rapid growth of its loan portfolio from $43.6 million at June 30, 1995, to $93.9
million at September 30, 1997, may result in an increase to its loan loss
experience. Many of the loans recently made by the Bank are unseasoned, and,
therefore, specific payment and loss experience for this portion of the
portfolio has not yet been fully established. This may increase the potential
for additional loan losses even if the Bank continues to adhere to the same
underwriting criteria and monitoring procedures that have resulted in the Bank's
moderate loan loss experience to date. In addition, the Bank has generated
non-interest income from certain specialty lending and product niche activities,
and anticipates continued
8
<PAGE>
expansion of these activities. However, there can be no assurance that the Bank
will be able to increase these activities in a manner consistent with
management's business goals. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Allowance for Loan Losses."
Adequacy of Allowance for Loan Losses
The risk of loan losses varies with, among other things, general
economic conditions, the type of loan being made, the creditworthiness of the
borrower over the term of the loan and, in the case of a collateralized loan,
the value of the collateral. Management maintains an allowance for loan losses
based upon, among other things, historical experience, an evaluation of economic
conditions and a regular review of delinquencies and loan portfolio quality.
Based upon such factors, management makes various assumptions and judgments
about the ultimate collectibility of the loan portfolio and provides an
allowance for loan losses for specific loans when their ultimate collectibility
is considered questionable and, for other loans, based upon a percentage of the
outstanding balances. Because certain lending activities involve greater risks,
the percentage applied to specific loan types may vary. If management's
assumptions and judgments prove to be incorrect and the allowance for loan
losses is inadequate to absorb future credit losses, or if the regulatory
authorities require the Bank to increase its allowance for loan losses, the
Bank's earnings could be significantly and adversely affected.
As of September 30, 1997, the allowance for loan losses was $487,000,
which represented 45.13% of nonperforming assets and 0.52% of the total net loan
portfolio as of such date. The Bank actively manages its nonperforming loans in
an effort to minimize credit losses and monitors its asset quality to maintain
an adequate allowance for loan losses. As its loan growth has increased, the
Bank has increased its allowance for loan losses. The Bank believes that such
allowance is adequate; however, future additions to the allowance in the form of
the provision for loan losses may be necessary due to changes in economic
conditions and the growth and performance of the Bank's loan portfolio. See "--
Risk of Recent Rapid Growth of Company and Bank."
Concentration of Credit Risk
The Bank's loan portfolio is concentrated in the Philadelphia
metropolitan area. As a result, a decline in the general economic conditions in
the Philadelphia metropolitan area could have a material adverse effect on the
Company. See "Business -- Core Banking Activities -- Conforming Credit
Residential Lending" and "-- Commercial Real Estate Lending."
Risks Related to Certain Operating Activities
The Company is engaged in a variety of lending activities which
generally involve significant uncertainties and risks, including changing
economic conditions and interest rates. In addition, many of the activities in
which the Company is involved and the loans and securities which it purchases
and sells involve real estate. Accordingly, the Company's operating performance
is subject to and affected by many of the risks typically related to real estate
lending, including borrower default, foreclosure, liquidation, significant
declines in the value of the properties that secure loans and environmental
hazards.
The Company's strategy is to enhance the earnings generated by its core
banking operation by engaging in various specialty lending and product niche
activities that are designed to provide it with significantly higher
risk-adjusted rates of return than its historic bank lending activities. The
Company intends to monitor on an ongoing basis the risk/reward characteristics
of each of its specialty lending and product niche activities and determine
whether to expand, maintain or discontinue such activity. The Company may also
elect to pursue additional specialty lending and product niche activities. There
can be no assurance that the Company will be successful in its assessment of the
risk/reward characteristics of each of its specialty lending and product niche
activities or, even if such characteristics are considered favorable, that the
Company will successfully operate such activity. There can be no assurance that
the Company
9
<PAGE>
will be able to identify new specialty lending activities and if such activities
are identified, that the Company will be able to develop such activities.
Commercial Real Estate Loans. Although a significant portion of the
Company's mortgage portfolio has been in single family residential real estate
loans which generally conform to the underwriting standards of the Federal
National Mortgage Association ("FNMA"), an increasingly significant portion is
in multi-family residential and non-residential ("Commercial Real Estate")
loans. Mortgage lending with respect to these loans may entail risks of loss in
the event of delinquency and foreclosure that are greater than similar risks
associated with traditional single family residential loans. These risks result
from a variety of factors, including generally larger loan balances, the
dependency on the successful operation of the project for repayment and loan
terms which often do not require a full amortization of the loan over its term
and instead, provide for a balloon payment at the stated maturity. Although the
Company generally requires personal guarantees on these loans, if the net
operating income from the project is reduced, the borrower's ability to repay
the loan may be impaired. There can be no assurance that the Bank's Commercial
Real Estate loans will not be adversely affected by these and other risks
related to such activities.
Nonconforming Credit Residential Real Estate Loans. The Bank originates
and acquires Nonconforming Mortgage loans made to borrowers who, because of
prior credit problems, the absence of a credit history, deviation from FNMA
guidelines or other factors, are unable or unwilling to qualify as borrowers
under FNMA guidelines ("nonconforming borrowers"). The Bank seeks to resell
these loans on a non-recourse basis pursuant to the terms of certain agreements
with purchasers pertaining thereto. The Bank's ability to continue to earn
income from this line of business is dependent, among other things, upon the
volume of loans to nonconforming borrowers that the Bank is able to originate,
acquire and resell. These loans are offered pursuant to various programs,
including programs which provide for reduced or no documentation for verifying a
borrower's income and employment. Loans to nonconforming borrowers present a
higher level of risk of default than conforming loans because of the increased
potential for default by borrowers who may have had previous credit problems or
who do not have any credit history, and may not be as saleable as loans which
conform to FNMA guidelines. There can be no assurance that the Bank will be able
to sell these loans, and if the Bank is unable to sell the loans, they will
become part of the Bank's portfolio.
Potential Impact of Changes in Interest Rates
The Bank's profitability is dependent to a large extent on its net
interest income, which is the difference between its interest income on
interest-earning assets (as defined below) and its interest expense on
interest-bearing liabilities (as defined below). The Bank, like most financial
institutions, is affected by changes in general interest rate levels and by
other economic factors beyond its control. Changes in the general level of
interest rates can affect the Bank's net interest income by affecting the spread
between the Bank's interest-earning assets and interest-bearing liabilities, as
well as, among other things, the ability of the Bank to originate loans, the
value of the Bank's interest-earning assets and its ability to realize gains
from the sale of such assets, the average life of the Bank's interest-earning
assets, and the Bank's ability to obtain deposits in competition with other
available investment alternatives. Interest rates are highly sensitive to many
factors, including government monetary policies, domestic and international
economic and political conditions and other factors beyond the control of the
Bank. Interest rate risk also arises from mismatches between the dollar amount
of repricing or maturing assets and liabilities. Although management believes
that the maturities of the Bank's assets currently are well-balanced in relation
to its liabilities (which belief involves various estimates as to how changes in
the general level of interest rates will impact its assets and liabilities),
there can be no assurance that the profitability of the Bank would not be
adversely affected during any period of change in interest rates. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Asset and Liability Management."
10
<PAGE>
Limitations Imposed by Government Regulation
Both the Company, as a savings and loan holding company, and the Bank,
as a federally-chartered savings bank, are subject to extensive government
supervision and regulation, which is intended primarily for the protection of
depositors. In addition, both the Company and the Bank are subject to changes in
federal and state laws, including changes in tax laws which could materially
affect the real estate lending industry, as well as changes in regulations,
government policies and accounting principles. Recently enacted, proposed and
future legislation and regulations have had and will continue to have
significant impact on the financial services industry, including the Company.
Some of the legislative and regulatory changes may benefit the Company. However,
other changes may increase the Company's costs of doing business and assist
competitors, which could have a materially adverse effect on the Company. There
can be no assurance that the Company will be able to comply with regulations
promulgated in the future. See "Supervision and Regulation."
Impact of Changes in Economic Conditions and Monetary Policies
Conditions beyond the Company's control may have a significant impact
on changes in the Company's net interest income and non-interest income from one
period to another. Examples of such conditions could include: (i) the strength
of credit demands by customers; (ii) the fiscal and debt management policies of
the federal government, including changes in tax laws; (iii) the monetary policy
of the Board of Governors of the Federal Reserve (the "Federal Reserve Board");
(iv) the introduction and growth of new investment instruments and transaction
accounts by non-bank financial competitors and (v) changes in rules and
regulations governing the payment of interest on deposit accounts.
High Degree of Competition
The banking business is highly competitive. The Bank competes with
other savings banks, commercial banks, savings and loan associations, mortgage
bankers and brokers, credit unions, finance companies, mutual funds, insurance
companies and brokerage and investment banking firms operating locally and
elsewhere. Many of the Bank's primary competitors are substantially larger, have
substantially greater resources and lending limits than the Bank and may offer
certain services, such as trust services, that the Bank does not provide at this
time. In addition, many of the Bank's primary competitors may have lower costs
of funds than the Bank. Furthermore, the current level of gains realized by the
Bank and its competitors on the sale of loans they originate and acquire is
attracting and may continue to attract additional competitors into the mortgage
markets. Increased competition could have adverse side effects, including (i)
lowering gains that may be realized on the Bank's loan sales, (ii) reducing the
volume of the Bank's loan originations and loan sales and (iii) increasing the
demand for the Bank's experienced personnel and the potential that such
personnel will be recruited by the Bank's competitors. The profitability of the
Company depends upon the Bank's ability to compete in the market relevant to
each of its businesses. See "Business -- Competition."
Relationship with Subsidiaries
All of the Company's operations are currently conducted through its
wholly-owned subsidiary, the Bank, and through the Bank's subsidiaries. The Bank
has entered into agreements with the minority shareholders of each subsidiary
which is not wholly-owned. Each of the minority shareholders is integral to the
day-to-day operation of each respective subsidiary. The profitability of the
Company is contingent in part on the profitability of the Bank's subsidiaries.
In the event that any one or more of the subsidiaries experiences a loss, such
loss could have a material adverse effect on the Company. The Bank does not have
employment agreements with the minority shareholders of the subsidiaries.
Severance of the relationship between the Bank and any of the subsidiaries or
its minority shareholders could have a material adverse effect on the Company.
There can be no assurance that the Bank's relationship with the minority
shareholders will continue or that the subsidiaries will continue to operate
profitability.
11
<PAGE>
Effects of Anti-Takeover Provisions in Discouraging Takeover Offers and Changes
in Management
The Company's Articles of Incorporation and Bylaws provide, among other
things, that (1) special meetings of the Company's shareholders may be called
only by the Chairman of the Board of Directors, the President or a majority of
the Company's Board of Directors; (2) the Board of Directors may issue
additional shares of authorized Common Stock and fix the terms and designations
of and issue shares of authorized preferred stock without any further action by
the shareholders; (3) a majority of the shareholders can act by written consent
with prompt notice thereof given to the remaining shareholders thereafter and
(4) shareholders who propose to nominate a candidate for election to the Board
of Directors must give advance notice of, and furnish information relating to,
the proposed nominee to the Company. The management of the Company does not have
the ability to waive any of these provisions. See "Certain Restrictions on
Acquisition of the Company and the Bank" and "Certain Anti-Takeover Provisions
in the Articles of Incorporation and Bylaws."
Such provisions are intended to encourage a potential acquiror of the
Company to negotiate with the Board of Directors, which the Company believes is
in the best position to act on behalf of all of the shareholders, before seeking
to obtain control of the Company. Such provisions may, however, have the effect
of discouraging takeover offers that certain shareholders might deem to be in
their best interests, including takeover proposals in which shareholders might
receive a premium for their shares over the then-current market price. Such
provisions will also make it more difficult for individual shareholders or a
group of shareholders to replace existing management, whether or not such
shareholders believe that a change in management is in the best interest of the
Company.
Reliance on Existing Management
The operations of the Company to date have been largely dependent on
existing management. The loss to the Company of one or more of its existing
executive officers could have a material adverse effect on its business and
results of operations. The Company has entered into employment agreements with
certain executive officers of the Company and the Bank. See "Management."
Control by Management/Principal Shareholders
A total of 2,350,000 shares, or 67.14%, of the outstanding shares of
Common Stock will be owned beneficially by the directors and executive officers
of the Company following the Offering. As of the date of this Prospectus (after
giving effect to the Offering), Thomas J. Knox, Chairman and a director of the
Company, will own beneficially 1,610,000 shares, or 46.00%, of the outstanding
shares of Common Stock and Bruce A. Levy, President and a director of the
Company, will own beneficially 690,000 shares, or 19.71%, of the outstanding
shares of Common Stock. Therefore, to the extent they vote together, Mr. Knox
and Mr. Levy will have the ability to control the election of the Company's
Board of Directors and other corporate actions requiring shareholder approval.
See "Security Ownership of Certain Beneficial Owners and Management."
Dilution and Benefit to Existing Shareholders
The proposed initial public offering price is substantially higher than
the net tangible book value per share of the Common Stock as of September 30,
1997. As a result, investors participating in the Offering will incur immediate
and substantial net tangible book value dilution in the amount of $9.82 per
share. See "Dilution."
No Prior Public Market; Determination of Offering Price
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock will be determined
through negotiations between the Company and the Representative. See
12
<PAGE>
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. There can be no assurance that an active
trading market in the Common Stock will develop or be sustained following the
Offering. In addition to the risks inherent in stock market investing in
general, an investment in the Common Stock has the additional risk that the
number of active buyers and sellers of the Common Stock at any particular time
may be limited. Under such circumstances, investors in the Common Stock could
have difficulty disposing of their shares and therefore should not view the
Common Stock as a short-term investment.
Shares Eligible for Future Sale
Sales of shares of Common Stock in the public market following the Offering by
existing shareholders or option holders could adversely affect the market price
of the Common Stock. The Company's executive officers and directors have agreed
not to sell any of their shares until 180 days after the date of this Prospectus
without the prior written consent of the Representative. According to Rule 144
under the Securities Act, as currently in effect, these shares will not be
eligible for public sale until at least 90 days after the date of this
Prospectus, and then will be subject to the volume limitations and other
conditions imposed by Rule 144. No prediction can be made as to the effect, if
any, that future sales of Common Stock, or the availability of Common Stock for
future sale, will have on the market price of the Common Stock prevailing from
time to time. See "Shares Eligible for Future Sale."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 shares
of Common Stock offered by the Company hereby (assuming an initial public
offering price of $15 per share and after giving effect to the payment of
underwriting discounts and commissions and estimated offering expenses) are
estimated to be approximately $13.5 million ($15.6 million if the Underwriters'
over-allotment option is exercised in full). Approximately $3.2 million of the
net proceeds will be used by the Company to repay, without premium or penalty,
borrowings under several notes held by certain of the Company's existing
shareholders (who are also directors of the Company), the proceeds of which
notes were contributed as capital to the Bank. The notes provide for interest at
an annual rate of 6% and mature on March 1 and December 31, 2006 and September
30, 2007. The balance of the net proceeds will be contributed as capital to the
Bank. The Bank intends to use such proceeds for working capital and for other
general corporate purposes.
DIVIDENDS
Historically, the Company has not paid cash dividends on the Common
Stock. The Company's Board of Directors does not currently intend to pay cash
dividends, and intends to retain all earnings to fund the growth of the Company
and the Bank. In December 1997, a two-for-one split of the Common Stock and in
March 1996, a twenty-eight-for-one split of the Common Stock were effected, each
in the form of a stock dividend. Future declarations of dividends by the Board
of Directors will depend upon a number of factors, including the Company's and
the Bank's financial condition and results of operations, investment
opportunities available to the Company and the Bank, capital requirements,
regulatory limitations, tax considerations and general economic conditions. No
assurance can be given, however, that any dividends will be paid or, if payment
is made, will continue to be paid.
The principal source of income and cash flow for the Company, including
cash flow to pay cash dividends on the Common Stock, is from the Bank. Various
federal laws, regulations and policies limit the ability of the Bank to pay cash
dividends to the Company. For certain limitations on the Bank's ability to pay
cash dividends to the Company, see "Supervision and Regulation -- Regulation of
the Bank -- Limitations on Capital Distributions."
13
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company and the regulatory capital ratios of the Bank at September 30, 1997, and
as adjusted, at such date, to give effect to the issuance and sale of the shares
of Common Stock offered hereby and the application of the net proceeds therefrom
as set forth in "Use of Proceeds," including the contribution by the Company to
the capital of the Bank of a portion of the estimated net proceeds therefrom.
The table should be read in conjunction with the Company's Consolidated
Financial Statements, including the Notes thereto, appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
At September 30, 1997
--------------------------------
Actual As Adjusted
------ -----------
(Dollars in thousands)
<S> <C> <C>
Shareholders' notes................................................... $ 3,238 $ --
----------- -----------
Shareholders' Equity:
Preferred Stock $0.01 par value, 5,000,000
shares authorized, actual and as adjusted; none outstanding,
actual and as adjusted,........................................ -- --
Common Stock $0.01 par value, 20,000,000
shares authorized, actual and as adjusted; 2,350,000 shares
issued and outstanding, actual and 3,350,000 issued and
outstanding, as adjusted (1)(2)(3)............................. 24 34
Additional paid-in capital(1)(3)................................... 2,310 15,775
Retained earnings.................................................. 1,524 1,524
Unrealized gains on securities available-for-sale.................. 13 13
-------------- ---------------
Total shareholders' equity............................... 3,871 17,346
------------- --------------
Total capitalization............................................... $ 7,109 $ 17,346
============= ==============
At September 30, 1997
------------------------------------------
Minimum
Regulatory
Actual As Adjusted Requirement
------ ----------- -----------
Bank Capital Ratios(1):
Tangible capital 5.29% 11.95% 1.50%
Core (leverage) capital 5.29 11.95 4.00
Risk-based capital 10.26 23.36 8.00
</TABLE>
- --------------
(1) Assumes the Company will contribute the net proceeds from the sale of the
shares of Common Stock offered hereby, after payment of $3.2 million of
indebtedness, to the Bank as set forth in "Use of Proceeds." Also assumes
that the Underwriters' over-allotment option to purchase up to 150,000
shares is not exercised. The Bank capital ratios, as adjusted, are computed
in a manner consistent with OTS guidelines and assume that the net proceeds
from the Offering that are contributed to the Bank are invested in assets
that carry a 20% risk-weighting
(2) Excludes 150,000 shares of Common Stock issued effective November 30, 1997
in connection with the Company's acquisition of the minority interest in
CMC. See "Prospectus Summary -- Recent Developments." Also excludes 300,000
shares of Common Stock reserved for issuance under the Company's stock
option plans. See "Management -- Stock Option Plans."
(3) Adjusted retroactively to reflect a two-for-one split of the Common Stock
in December 1997 and a twenty-eight-for-one split of the Common Stock in
March 1996, both of which were effected in the form of a stock dividend.
14
<PAGE>
DILUTION
The difference between the public offering price per share of Common
Stock and the Company's net tangible book value per share after the Offering
constitutes the dilution to new investors in the Offering. Net tangible book
value per share is determined by dividing the net tangible book value of the
Company (total tangible assets less total liabilities) by the number of
outstanding shares of Common Stock.
At September 30, 1997, the net tangible book value of the Company was
$3,871,000, or $1.65 per share. After giving effect to the sale of the 1,000,000
shares of Common Stock being offered hereby and the receipt of the estimated net
proceeds therefrom (assuming an initial public offering price of $15 per share
and less underwriting discounts and commissions and estimated expenses of the
Offering), the pro forma net tangible book value of the Company at September 30,
1997 would be approximately $17,346,000, or $5.18 per share, representing an
immediate increase in net tangible book value of $3.53 per share to existing
shareholders and an immediate dilution of $9.82 per share to new investors. The
following table illustrates the foregoing information with respect to dilution
to new investors on a per share basis.
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price................................. $ 15.00
Net tangible book value before
the Offering.................................................. $1.65
Increase attributable to new investors in
the Offering.................................................. 3.53
-----
Adjusted pro forma net tangible book value
after the Offering.................................................. 5.18
---------
Dilution to new investors in the Offering............................. $ 9.82
</TABLE>
The following table sets forth, with respect to existing shareholders
and new investors in the Offering, a comparison of the number of shares of
Common Stock acquired from the Company, the percentage of ownership of such
shares, the total cash consideration paid, the percentage of total cash
consideration paid and the average price per share.
<TABLE>
<CAPTION>
Total Cash
Shares Purchased Consideration Average
---------------- ------------- Price Per
Number Percent Amount Percent Share
------ ------- ------ ------- -----
<S> <C> <C> <C> <C> <C>
Existing shareholders.......... 2,350,000 70.15% $ 2,322,000 13.40% $ 0.99
New investors.................. 1,000,000 29.85 15,000,000 86.60 15.00
--------- ------- ----------- ------- ------
Total........................ 3,350,000 100.00% $17,322,000 100.00% $ 5.17
========= ======= =========== ======= ======
</TABLE>
The above table assumes an initial public offering price of $15 per
share, no exercise of the Underwriters' over-allotment option, no exercise of
outstanding stock options and no purchase by existing shareholders of shares
offered hereby. If the Underwriters' over-allotment option is exercised in full,
new investors will have paid $17,250,000 for 1,150,000 shares of Common Stock,
representing approximately 88.14% of the total cash consideration for 32.86% of
the total Common Stock outstanding. In addition, the above table excludes
150,000 shares of Common Stock issued in December 1997 in connection with the
acquisition of the minority interest in CMC. See "Prospectus Summary -- Recent
Developments." The table also excludes 300,000 shares of Common Stock reserved
for issuance under the Company's stock option plans.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected information regarding the Company should be read
in conjunction with the Company's Consolidated Financial Statements, including
the Notes thereto, appearing elsewhere in this Prospectus. Consolidated
historical financial and other data regarding the Company at or for the three
months ended September 30, 1997 and 1996 have been prepared by the Company
without audit and may not be indicative of results on an annualized basis or any
other period. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) that are necessary for a fair presentation for such
periods or dates have been made.
<TABLE>
<CAPTION>
At or for the Three
Months Ended September 30, At or for the Year Ended June 30,
---------------------------- ------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Unaudited)
(In thousands, except per share amounts and ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Results of Operations:
Interest income(1)............ $ 2,818 $ 1,666 $ 7,919 $ 4,973 $ 3,773 $ 2,351 $ 5,219
Interest expense.............. 1,751 1,111 5,130 3,559 2,681 1,335 3,804
Net interest income........... 1,067 555 2,789 1,414 1,092 1,016 1,415
Provision for loan losses..... 15 11 58 42 30 30 114
Total non-interest income..... 1,001 308 1,585 417 199 644 1,143
CMC non-interest income(1). 833 177 1,074 0 0 0 0
Total non-interest expenses... 1,011 798 2,862 1,616 1,346 1,170 2,937
Core non-interest expenses. 449 384 1,680 1,616 1,346 1,170 2,937
CMC expenses............... 562 118 886 0 0 0 0
SAIF special assessment(2). 0 296 296 0 0 0 0
Minority interest in earnings. 19 0 12 0 0 0 0
Income tax expense (benefit)(3) 358 19 480 61 (20) 211 225
Net income (loss) from continuing
operations.................. 665 35 962 112 (65) 249 (718)
Income from discontinued
operations(4)............... 0 0 0 0 0 301 0
Cumulative effect of change in
accounting principle(3)..... 0 0 0 0 0 83 0
Net income (loss)............. 665 35 962 112 (65) 633 (718)
Net income (loss), excluding SAIF
assessment(2)............... 665 227 1,154 112 (65) 633 (718)
Per Share Data:(5)
Income (loss) from continuing
operations per share(10)..... 0.31 0.02 0.46 0.07 (0.05) 0.18 (0.51)
Weighted average shares outstanding 2,170 2,000 2,083 1,600 1,400 1,400 1,400
Balance Sheet Data:
Total assets.................. $134,538 $88,703 $117,093 $81,307 $63,550 $39,243 $73,869
Loans held for sale........... 16,767 1,528 6,244 1,659 1,550 738 17,942
Investment and mortgage-backed
securities(9)................ 20,840 22,317 22,343 22,097 16,651 12,770 1,478
Loans receivable net.......... 93,857 62,830 85,992 53,604 43,616 24,471 20,369
Deposits...................... 110,625 66,381 95,906 59,624 47,530 27,180 63,661
Borrowings ................... 15,130 16,701 14,730 16,651 12,097 9,402 6,000
Shareholders' notes........... 3,238 2,918 2,990 2,918 1,970 880 2,484
Shareholders' equity.......... 3,871 1,605 2,895 1,512 1,197 1,238 605
Performance Ratios:(6)
Return on average assets...... 2.02% 0.16% 0.97% 0.17% (0.12)% 0.86% (0.93)%
Net yield on interest-earning assets. 3.31% 2.69% 2.89% 2.23% 2.08% 3.12% 2.01%
Supplemental Performance Ratios: (6)
Return on average assets, excluding
SAIF assessment(2).......... 2.02% 1.07% 1.17% 0.17% (0.12)% 0.86% (0.93)%
Return on average invested capital(7) 37.42% 3.10% 16.35% 2.53% (2.05)% 11.76% (23.24)%
Return on average invested capital,
excluding SAIF assessment(2)(7). 37.42% 20.08% 19.61% 2.53% (2.05)% 11.76% (23.24)%
Non-interest expenses, excluding
CMC expenses and SAIF assessment, to
average assets(2)........... 1.37% 1.81% 1.70% 2.47% 2.48% 4.05% 3.80%
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
At or for the Three
Months Ended September 30, At or for the Year Ended June 30,
-------------------------- ---------------------------------------------
1997 1996 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Asset Quality Ratios:
Non-accrual loans to net loans(8). 0.66% 0.94% 0.87% 1.11% 0.88% 3.37% 5.07%
Non-performing loans to net
loans(8).................... 1.04% 0.94% 1.28% 1.81% 2.43% 7.03% 8.94%
Non-performing assets to net loans
plus OREO(8)................ 1.15% 1.07% 1.28% 1.96% 2.56% 7.22% 10.25%
Allowance for loan losses to
total non-accrual loans(8).. 75.42% 74.37% 63.36% 72.51% 101.57% 44.61% 36.11%
Allowance for loan losses to
net loans................... 0.52% 0.70% 0.55% 0.80% 0.89% 1.50% 1.83%
Capital Ratios:
Company equity to assets...... 2.88% 2.03% 2.45% 1.86% 1.88% 3.15% 0.82%
Bank core capital ratio....... 5.29% 5.48% 5.12% 5.79% 5.05% 5.30% 4.47%
Bank risk-based capital ratio. 10.26% 12.57% 10.81% 12.72% 11.65% 12.42% 10.27%
</TABLE>
- --------------------
(1) Effective July 1, 1996, the Company adopted SFAS No. 122, "Accounting for
Mortgage Servicing Rights." The effect of adoption was not significant to
the Company's financial position or results of operations.
(2) In September 1996, the Company incurred a one-time SAIF assessment of
$296,000 to recapitalize the fund. Net of related tax effects, this
assessment reduced net income by $192,000 for the quarter ended September
30, 1996 and the year ended June 30, 1997.
(3) Effective July 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes." The cumulative effect of the adoption of SFAS No. 109 was
the recognition of deferred tax assets and an $83,000 reduction of income
tax expense for the year ended June 30, 1994.
(4) During the year ended June 30, 1994, the Company sold its conforming
residential mortgage servicing portfolio. Net of related tax effects, this
resulted in a gain of $301,000 for the year ended June 30, 1994.
(5) Per share amounts have been adjusted to retroactively reflect prior stock
splits. See "Dividends."
(6) Interim period ratios are annualized where appropriate. Returns are
calculated based on income (loss) from continuing operations.
(7) Invested capital is the sum of shareholders' notes and shareholders'
equity.
(8) Non-accrual loans are loans past due 90 or more days and on which interest
is not being accrued. Non-performing loans are loans past due 90 or more
days, including non-accrual loans and loans still accruing interest.
Non-performing assets are non-performing loans plus Other Real Estate Owned
("OREO"). Effective July 1, 1995, the Company adopted SFAS No. 114,
"Accounting for Impairment of a Loan," as amended by SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Loan Recognition and
Disclosures." The effect of adoption was not significant to the Company's
financial position or results of operations.
(9) Effective July 1, 1994, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." The effect of adoption
was not material to the Company's financial position or results of
operations.
(10) Supplemental earnings per share would have been $0.29 and $0.47 for the
quarter ended September 30, 1997 and the year ended June 30, 1997,
respectively, assuming that a sufficient number of shares of Common Stock
were issued at an assumed public offering price of $15 per share to permit
the Company to repay the debt to shareholders outstanding during the
respective periods with the proceeds from the sale of such shares.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's consolidated financial
condition and results of operations and capital resources and liquidity should
be read in conjunction with Selected Consolidated Financial Data and the
Consolidated Financial Statements and related Notes included elsewhere herein.
Prospective investors are urged to carefully consider this related information
in connection with a review of the following discussion.
General
The Company is a holding company operating a federally chartered
savings bank. The Bank conducts community banking activities by accepting
deposits from the public and investing the proceeds in loans and investment
securities. In addition to bank lending products, such as single family
conforming credit residential mortgages ("Conforming Residential Mortgages"),
home equity loans, multi-family residential and non-residential real estate
(collectively, "Commercial Real Estate") loans and SBA loans, the Bank
originates or acquires Nonconforming Mortgages that are subsequently resold in
larger pools and delinquent property tax liens. In order to manage its liquidity
and interest rate risk, the Bank maintains an investment portfolio consisting of
bonds and mortgage-backed securities, all of which currently are U.S. Treasury
or U.S. Government Agency quality. The Bank's loan and investment portfolios are
funded with deposits as well as borrowings from the FHLB or collateralized
borrowings secured by the Bank's investment securities. The Bank's earnings are
largely dependent upon its net interest income (the difference between what it
earns on its loans and investments and what it pays on its deposits and
borrowings). In addition to net interest income, the Bank's net income is
impacted by its loan loss provision, non-interest income (such as revenues
realized by CMC in its Nonconforming Mortgage operation, mortgage banking
revenue from the sale of conforming residential mortgage loans and loan, deposit
and ATM fees) and non-interest expenses (such as salaries and benefits,
professional fees, occupancy costs, deposit insurance premiums and expenses
related to CMC Nonconforming Mortgage operations).
Recent Developments
Effective November 30, 1997, the Company, the Bank and CMC entered into
an agreement with the minority shareholder of CMC and the Minority Shareholder
Corporation. The agreement provides for the Bank's acquisition of the entire
interest in CMC held by the minority shareholder in exchange for 150,000 shares
of the Common Stock, and further provides for the payment of accrued
compensation of $250,000. The agreement also provides for a reduction in the
number of shares of Common Stock to which the minority shareholder would
otherwise be entitled in the event that CMC's net income for the twelve months
ending December 31, 1998 does not exceed a certain level. The agreement further
requires that the minority shareholder's shares of Common Stock be escrowed for
three years, with a portion of such shares released on each of three designated
dates. The agreement also contains certain indemnities in favor of the Company,
the Bank and CMC and prohibits the minority shareholder and the Minority
Shareholder Corporation from competing with the Company for a period of three
years. In addition, for a three year period from the effective date of the
agreement, the Minority Shareholder Corporation shall receive a monthly payment
of $6,250, and the minority shareholder shall be available, upon request and
subject to regulatory approval, subject to regulatory approval, to serve as a
consultant to CMC. As a result of this transaction, as of November 30, 1997, the
Bank owned all of the outstanding shares of CMC. If the Bank had owned 100% of
CMC and the Company issued 150,000 additional shares of Common Stock on July 1,
1996, net income would have increased by $43,000 and net income per share would
have decreased by $0.01 for the year ended June 30, 1997 and net income and net
income per share would have increased by $103,000 and $0.02, respectively, for
the quarter ended September 30, 1997. See "Summary Financial Data" and "Selected
Consolidated Financial Data."
18
<PAGE>
Overview
Through 1995, the Bank primarily engaged in the origination and sale of
conforming residential mortgage loans (FNMA fixed rate mortgage loans) and the
origination of adjustable rate single family mortgages for its portfolio. The
Bank has established and seeks to continue developing a loan referral network
consisting of mortgage banking companies affiliated with local realty companies
and local realtors with no mortgage company affiliation, as well as smaller
mortgage bankers and brokers. In this business, the Bank attempts to distinguish
itself from its competition by providing efficient service and offering
specialized adjustable rate loan products. Since opening its Center City,
Philadelphia branch in 1994, the Bank has been developing a referral base for
Commercial Real Estate loans consisting of local realtors and real estate
investors, as well as repeat and referral business from existing borrowers. In
order to better monitor its Commercial Real Estate loan portfolio, the Bank
concentrates its lending in the Philadelphia metropolitan area, consisting of
Bucks, Chester, Delaware, Montgomery and Philadelphia counties, as well as
Central and Southern New Jersey and Northern Delaware. In order to better
compete in this business, the Bank attempts to provide its applicants with quick
responses by having a Board Loan Committee which meets on an as needed basis to
evaluate loan applications.
In the latter part of 1995, management began to refocus the Company and
developed a plan designed to grow its assets and profitability. The Company's
strategy is to maintain a core banking operation that provides a growing stream
of core income enhanced by engaging in various specialty lending and product
niche activities designed to provide the Company with significantly higher
risk-adjusted rates of return. In July 1996, the Bank formed CMC to originate
and acquire for resale Nonconforming Mortgages. Initially, the Bank maintained a
51% controlling interest in CMC which was subsequently increased to 67.5% in
September 1997 and to 100% as of November 1997. See "-- Recent Developments." In
August 1996, the Bank formed a 60%-owned subsidiary, Crusader Servicing
Corporation ("CSC") to acquire delinquent property tax liens.
From June 1995 through September 1997, the Company increased its asset
base from $63.6 million to $134.5 million, primarily relating to its core
banking operation. In addition, the Bank's specialty lending and product niche
activities have produced increasing amounts of non-interest income. Despite the
growth in its assets, the Company has emphasized controlling its operating
expenses. In this regard, the Company has reduced its ratio of core non-interest
expenses (operating expenses exclusive of the SAIF assessment and CMC expenses)
to average assets from 2.47% for fiscal year 1996 to 1.70% for fiscal year 1997
and to 1.37% for the quarter ended September 30, 1997.
The increase in net interest income resulting from the growth in the
Company's asset base, the containment of core non-interest expenses and the
increase in non-interest income all have contributed to the Company's higher
level of profitability in recent periods. The Company continues to generate
asset growth at a rate that cannot be supported by internally generated capital
growth and thus has determined to offer the shares of Common Stock in the
Offering to support its growth.
Results of Operations
Three months ended September 30, 1997 versus three months ended
September 30, 1996. Net income increased to $665,000 for the three months ended
September 30, 1997 as compared to $35,000 for the comparable prior year period.
Net interest income increased by $512,000 due primarily to a growth in average
earning assets. Non-interest income increased by $693,000 due primarily to an
increase in the Nonconforming Mortgage banking income of CMC, which commenced
operations in July 1996. Non-interest expenses increased by $213,000. Excluding
an increase of $444,000 in CMC operating expenses and the $296,000 one-time SAIF
assessment incurred during the prior year period, non-interest expenses
increased by $65,000, which is due to the Bank's expansion of staff to
accommodate for the growth in assets. Subsequent to the recapitalization of
SAIF, the ongoing insurance
19
<PAGE>
costs were reduced from 0.23% to 0.065% as the Bank is currently charged the
rate attributed to institutions with the lowest risk rating. Income taxes were
$339,000 higher due to the increased profitability.
Year ended June 30, 1997 versus year ended June 30, 1996. Net income
increased to $962,000 for the year ended June 30, 1997 as compared to $112,000
for the prior year. Net interest income increased by $1.4 million due primarily
to a growth in average earning assets. Non-interest income increased by $1.2
million due primarily to the CMC Nonconforming Mortgage banking income of $1.1
million. Non-interest expenses increased by $1.2 million due principally to
expenses of $886,000 associated with the operation of CMC and the one-time SAIF
assessment of $296,000. Excluding these two items, non-interest expenses
increased by $64,000 resulting primarily from staff expansion. Income taxes
increased by $419,000 due to the increased profitability of the Company.
Year ended June 30, 1996 versus year ended June 30, 1995. Net income
increased to $112,000 for the year ended June 30, 1996, as compared to a loss of
$65,000 for the prior year. Net interest income increased by $322,000 due
primarily to a growth in average earning assets. Non-interest income increased
by $218,000 resulting primarily from a $165,000 increase in mortgage banking
income and a $73,000 increase in service fees on deposit accounts. Non-interest
expenses increased by $270,000 due to staff expansion to accommodate current and
anticipated asset growth and, to a lesser extent, higher FDIC premiums resulting
from deposit growth. Income taxes were $81,000 higher due to the increased
profitability.
Net Interest Income
Net interest income is the difference between interest received on the
Bank's loans and investment securities ("interest-earning assets") and interest
paid on deposits and borrowings ("interest-bearing liabilities"). It is the most
significant component of the Bank's operating income and is largely dependent
upon the volume and rate earned on interest-earning assets and the volume and
rate paid on interest-bearing liabilities.
20
<PAGE>
The following tables set forth a summary of average balances with
corresponding interest income and interest expense as well as average yield and
rate information for the periods presented. Average balances are derived from
daily balances during the indicated periods, except where noted otherwise.
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1997 1996
---------------------------------------- ------------------------------------
(Dollars in thousands)
Average Average
Average Yield/ Average Yield
Balance Interest Rate(1) Balance Interest Rate(1)
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Average assets:
Loans receivable(2).......................... $105,792 $2,415 9.13% $58,691 $1,264 8.61%
Investment and mortgage-backed
securities(3)....................... 22,993 403 7.01 23,711 402 6.78
-------- ----- ---- ------ ----- ----
Total interest-earning assets................ 128,785 2,818 8.75 82,402 1,666 8.09
----- ---- ----- ----
Non-interest-earning assets.................. 2,704 2,688
-------- -------
Total assets................................. $131,489 $85,090
======== =======
Average liabilities and shareholders'
equity:
Interest-bearing deposit accounts ........... 105,729 1,473 5.57 62,097 839 5.40
Borrowings................................... 16,272 240 5.90 16,785 234 5.58
Shareholders' notes.......................... 2,975 38 5.11 2,918 38 5.21
-------- ----- ---- ------- ----- ----
Total interest-bearing liabilities........... 124,976 1,751 5.60 81,800 1,111 5.43
----- ---- ----- ----
Non-interest bearing deposit accounts........ 2,063 1,421
Other non-interest-bearing liabilities....... 1,208 310
-------- -------
Total liabilities............................ 128,247 83,531
Shareholders' equity(4)...................... 3,242 1,559
-------- -------
Total liabilities and shareholders' equity... $131,489 $85,090
======== =======
Net interest income.......................... $1,067 $555
====== ====
Interest rate spread(5)...................... 3.15% 2.66%
===== =====
Net yield on interest-earning assets(6)...... 3.31% 2.69%
===== =====
Ratio of interest-earning assets to
interest-bearing liabilities............... 103.05% 100.74%
======= =======
</TABLE>
- --------------------
(1) Ratios for interim periods have been annualized.
(2) Average balances include non-accrual loans, interest on which is recognized
on a cash basis, and loans held for sale.
(3) Yields are calculated based on the fair value of investment and
mortgage-backed securities. Includes interest-bearing deposits at the FHLB.
(4) Averages were computed using month-end balances.
(5) Represents the difference between the average yield earned on
interest-earning assets and the average rate paid on interest-bearing
liabilities.
(6) Represents net interest income as a percentage of average interest-earning
assets.
21
<PAGE>
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------ ---------------------------------- ---------------------------
(Dollars in thousands)
Average Average Average
Average Yield/ Average Yield Average Yield
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average assets:
Loans receivable(1).................... $74,306 $6,413 8.63% $46,390 $3,903 8.41% $35,126 $2,724 7.75%
Investment and mortgage-backed
securities(2)......................... 22,183 1,506 6.79 17,088 1,070 6.26 17,449 1,049 6.01
------ ----- ---- ------ ----- ---- ------ ----- ----
Total interest-earning assets.......... 96,489 7,919 8.21 63,478 4,973 7.83 52,575 3,773 7.18
----- ---- ----- ---- ----- ----
Non-interest-earning assets............ 2,254 2,014 1,677
------- ------- -------
Total assets........................... $98,743 $65,492 $54,252
======= ======= =======
Average liabilities and
shareholders' equity:
Interest-bearing deposit accounts...... 74,403 3,978 5.35 51,358 2,825 5.50 38,763 1,881 4.85
Borrowings............................. 17,267 995 5.76 9,341 543 5.81 11,970 665 5.56
Shareholders' notes.................... 2,954 157 5.31 1,910 191 10.00 1,227 135 11.00
------- ------ ---- ------- ------- ----- ------- ------- -----
Total interest-bearing and deposit
liabilities.......................... 94,624 5,130 5.42 62,609 3,559 5.68 51,960 2,681 5.16
------ ---- ----- ----- ------- -----
Non-interest-bearing deposit
accounts............................. 1,794 812 408
Other non-interest-bearing liabilities. 141 790 666
------- ------- -------
Total liabilities...................... 96,559 64,211 53,034
Shareholders' equity(3)................ 2,184 1,281 1,218
------- ------- -------
Total liabilities and
shareholders' equity................. $98,743 $65,492 $54,252
======= ======= =======
Net interest income.................... $2,789 $1,414 $1,092
====== ====== ======
Interest rate spread(4)................ 2.79% 2.15% 2.02%
===== ===== =====
Net yield on interest-
earning assets(5).................... 2.89% 2.23% 2.08%
===== ===== =====
Ratio of interest-earning assets to
interest-bearing liabilities......... 101.97% 101.39% 101.18%
======= ======= =======
</TABLE>
- ---------------
(1) Average balances include non-accrual loans, interest on which is recognized
on a cash basis, and loans held for sale.
(2) Yields are calculated based on the fair value of investment and
mortgage-backed securities. Includes interest-bearing deposits at the FHLB.
(3) Averages were computed using month-end balances.
(4) Represents the difference between the average yield earned on
interest-earning assets and the average rate paid on interest-bearing
liabilities.
(5) Represents net interest income as a percentage of average interest-earning
assets.
22
<PAGE>
The following tables set forth certain information regarding changes in
interest income and interest expense for the periods indicated for each category
of interest-earning assets and interest-bearing liabilities. Information is
provided on changes attributable to (i) changes in volume (changes in average
volume multiplied by prior rate), (ii) changes in rate (changes in average rate
multiplied by prior average volume), and (iii) changes in rate and volume
(changes in average volume multiplied by change in average rate).
<TABLE>
<CAPTION>
Three Months Ended September 30,
1997 versus 1996
Increase (Decrease) Due to
-------------------------------------------------------
(Dollars in thousands)
Rate/
Volume Rate Volume Total
------ ---- ------ -----
<S> <C> <C> <C> <C>
Interest income:
Loans receivable................. $1,014 $ 76 $61 $1,151
Investment and mortgage-backed
securities..................... (50) 53 (2) 1
------- --- -- -----
Total interest-earning assets......... 964 129 59 1,152
------- --- -- -----
Interest expense:
Deposit accounts................. 584 30 20 634
Borrowings....................... (7) 9 4 6
Shareholders' notes.............. 3 (1) (2) 0
------- --- -- -----
Total interest-bearing liabilities.... 580 38 22 640
------- --- -- -----
Increase in net interest income....... $ 384 $ 91 $37 $ 512
======= ==== === =====
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------------------------------------------------------------
1997 versus 1996 1996 versus 1995
--------------------------------------- -----------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
--------------------------------------- -----------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
------ ---- ------ ----- ------ ---- ------ -----
Interest income:
Loans receivable........... $2,348 $103 $ 59 $2,510 $873 $232 $74 $1,179
Investment and
mortgage-backed
securities............... 317 90 29 436 (22) 44 (1) 21
------ ----- ------ ------- ------- ------- ------- ------
Total interest-earning
assets.................... 2,665 193 88 2,946 851 276 73 1,200
----- ------ ------ ------- ------ ------ ------ -----
Interest expense:
Deposit accounts........... 1,300 (99) (48) 1,153 626 239 79 944
Borrowings................. 461 (5) (4) 452 (146) 30 (6) (122)
Shareholders' notes........ 104 (90) (48) (34) 75 (12) (7) 56
------- ----- ----- ----- ----- ---- ---- -----
Total interest-bearing
liabilities............... 1,865 (194) (100) 1,571 555 257 66 878
----- ----- ----- ----- ----- --- --- -----
Increase in net interest
income.................... $ 800 $387 $188 $1,375 $296 $ 19 $ 7 $ 322
===== ==== ==== ====== ==== ==== === =====
</TABLE>
24
<PAGE>
Three months ended September 30, 1997 versus three months ended
September 30, 1996. Net interest income increased by $512,000 or 92.25% for the
three month period ended September 30, 1997 as compared to the comparable prior
year period. Interest income increased by $1.2 million due primarily to a rise
in average outstanding loan balances of $47.1 million and, to a lesser extent, a
0.52% higher average yield earned on loans. The loan growth occurred largely in
Commercial Real Estate lending and in Nonconforming Mortgages available for
sale. Both of these loan types carry higher yields than Conforming Residential
Mortgages which comprised a more significant portion of the loan balance during
the prior year period. Interest expense increased by $640,000 due primarily to
an increase in average interest-bearing deposit balances of $43.6 million.
Deposits were the primary funding source of the loan growth. The Company's
aggregate cost of funds increased to 5.60% as compared to 5.43% for the
comparable prior year period. The Company's net yield on interest-earning assets
increased to 3.31% as compared to 2.69% for the prior year period. This 0.62%
increase was due principally to the Bank's higher yield from loans and an
increase in the Company's average shareholders' equity balances.
Year ended June 30, 1997 versus year ended June 30, 1996. Net interest
income increased by $1.4 million or 97.24% for the year ended June 30, 1997 as
compared to the prior year. Interest income increased by $2.9 million due
primarily to a $33.0 million increase in average earning assets and, to a lesser
extent, an increase in the yield on earning assets of 0.38%. Interest expense
increased by $1.6 million due primarily to a $32.0 million increase in average
interest-bearing liabilities which was partially offset by a decline in the
average rate paid on these liabilities of 0.26%. The net yield on
interest-earning assets increased by 0.66% The increase in the rate on earning
assets resulted from the continued upward repricing of promotional rate
adjustable rate residential mortgage loans, as well as the growth in the higher
yielding Commercial Real Estate loan portfolio. The decline in the rate on
interest-bearing liabilities reflects a decline in general market interest
rates. Loan growth was funded primarily by increases in average interest-bearing
deposits of $23.0 million and in average borrowings of $7.9 million.
Year ended June 30, 1996 versus year ended June 30, 1995. Net interest
income increased by $322,000 or 29.49% for the year ended June 30, 1996 as
compared to the prior year. Interest income increased by $1.2 million primarily
due to a $10.9 million increase in average interest-earning assets and a 0.65%
increase in the average yield. Interest expense increased by $878,000 due
primarily to a $10.6 million increase in average interest-bearing liabilities
and a 0.52% increase in the average rate paid on such liabilities. The net yield
on interest earning assets and the rate on interest-bearing liabilities both
increased due to an increase in general market interest rates. The Company's net
yield on interest-earning assets increased 0.15% primarily due to the Company's
loan portfolio comprising a larger relative portion of average earning assets
than in the prior year. Interest rates earned on loans are generally higher than
the rates earned on the investment securities portfolio. The asset growth was
funded through an increase in average interest-bearing deposits of $12.6 million
which was offset by a reduction in average borrowings of $2.6 million.
Provision for Loan Losses
For the three months ended September 30, 1997, the provision for loan
losses was $15,000, a 36.36% increase compared to the comparable prior year
period. The Bank's provision for loan losses was $58,000 for the year ended June
30, 1997 compared to $42,000 and $30,000, respectively, for the two prior years.
These increases resulted from the growth in the loan portfolio. On a quarterly
basis, the Bank's Board of Directors and management perform a detailed analysis
of the adequacy of the allowance for loan losses. This analysis includes an
evaluation of credit risk concentration, delinquency trends, past loss
experience, current economic conditions, composition of the loan portfolio,
classified loans and other relevant factors. The loan growth experienced by the
Bank has not resulted in significant increases in delinquencies or an increase
in the chargeoffs incurred by the Bank. Net chargeoffs by the Bank for the
fiscal years ended June 30, 1997, 1996 and 1995 were $16,000, $0, and $10,000,
respectively. Charge-offs for the quarters ended September 30, 1997 and
September 30, 1996 were $0 and $1,000, respectively.
25
<PAGE>
The Bank will continue to monitor its allowance for loan losses and
make future adjustments to the allowance through the provision for loan losses
as conditions warrant. Although the Bank believes that the allowance for loan
losses is adequate to provide for losses inherent in the loan portfolio, there
can be no assurance that future losses will not exceed the estimated amounts or
that additional provisions will not be required in the future.
The Bank is subject to periodic regulatory examination by the OTS. As
part of the examination, the OTS will assess the adequacy of the Bank's
allowance for loan losses and may include factors not considered by the Bank. In
the event that an OTS examination results in a conclusion that the Bank's
allowance for loan losses is not adequate, the Bank may be required to increase
its provision for loan losses.
Non-Interest Income
Non-interest income is derived primarily from revenue realized by CMC
in its Nonconforming Mortgage operation, mortgage banking revenue from the
Bank's sale of conforming residential mortgage loans and deposit and loan fees,
including revenues generated from the Bank's ATMs.
For the three month period ended September 30, 1997, non-interest
income increased by $693,000 or 225.00% as compared to the comparable prior year
period. This resulted primarily from a $656,000 increase in the revenues of CMC
as its operations continued to experience strong growth. During the current year
quarter, the Bank had Nonconforming Mortgage loan originations and acquisitions
of $25.6 million, and Nonconforming Mortgage loan sales of $14.9 million, with
an average gain on sale of 5.02%. This compares to Nonconforming Mortgage loan
originations of $4.0 million during the comparable prior year period, which was
CMC's first quarter of operation. In addition to the increased revenue from CMC,
the Bank's conforming mortgage banking revenue increased by $31,000, due
primarily to an increased volume of loan sales.
For the year ended June 30, 1997, non-interest income increased by $1.2
million or 280.10% as compared to the prior year. This increase is primarily the
result of CMC's revenues of $1.1 million during the year. During the year, the
Bank had $20.1 million of Nonconforming Mortgage loan sales, with an average
gain on sale of 5.10%. In addition, the Bank instituted a surcharge fee for the
use of its ATMs by non-bank customers which resulted in additional fee income to
the Bank of $64,000.
Non-interest income for the year ended June 30, 1996 increased by
$218,000 or 109.55% as compared to the prior year. This increase resulted
primarily from an increase in the Bank's conforming mortgage banking revenues of
$165,000, due to increased demand for fixed rate loans. Although the Bank's
volume of loan originations was comparable in both years, fiscal 1996 loan
origination volume included a greater percentage of fixed rate loans which were
resold, while a higher percentage of originations in fiscal 1995 were adjustable
rate loans that were maintained in the Bank's loan portfolio.
Non-Interest Expenses
Non-interest expenses for the three month period ended September 30,
1997 increased by $213,000 or 26.69% as compared to the comparable prior year
period. Excluding the $296,000 SAIF assessment incurred in the prior year period
and the $444,000 increase in CMC operating expenses, non-interest expenses
increased by $65,000 or 16.92%. The increase is primarily due to the hiring of
additional personnel in connection with the Bank's growth in assets.
For the year ended June 30, 1997, non-interest expenses increased by
$1.3 million or 81.25% as compared to the prior year. Excluding the $296,000
SAIF assessment and the $886,000 increase in CMC operating expenses,
non-interest expenses increased by $64,000 or 3.96%. This resulted from a
$96,000 increase in compensation
26
<PAGE>
expenses, offset by a reduction of $33,000 in ongoing deposit insurance
premiums, which were reduced following the SAIF Assessment.
Non-interest expenses for the fiscal year ended June 30, 1996 increased
by $270,000 or 20.06% as compared to the prior year. This was primarily due to
increased compensation costs of $242,000 and, to a lesser extent, a $31,000
increase in FDIC premiums resulting from deposit growth.
Income Tax Expense
Income tax expense was $358,000 for the three month period ended
September 30, 1997, as compared to $19,000 during the comparable prior year
period. Income tax expense was $480,000 for the year ended June 30, 1997 as
compared to a $61,000 expense and a $20,000 income tax benefit for the two prior
years. The changes in income tax expense primarily relate to the changes in
income before taxes.
Liquidity and Capital Resources
A major source of the Company's asset growth has been funded through
deposits, mostly certificates of deposit ("CDs"), generated through the Bank's
two branch offices and a network of financial planners and brokers.
The Bank currently does not intend to open additional retail branches.
The ability of the Bank to retain and attract deposits is dependent
upon a number of factors, including interest rates offered on the Bank's
products. The Bank also funds its assets with secured borrowings from the FHLB
and collateralized borrowings secured by its investment securities portfolio.
These borrowings generally provide the Bank with greater flexibility in matching
the duration of its liabilities with that of certain of its assets. Future
availability of these funding sources is largely dependent upon the Bank having
sufficient available eligible assets to collateralize these borrowings. The Bank
currently has available excess collateral to secure future borrowings from these
sources and it anticipates that future asset growth will provide additional
eligible collateral. The Bank's assets generally provide for scheduled principal
and interest payments which provide the Bank with additional sources of funds.
If required, additional funds could be obtained through the sale of either loans
or investment securities, which are classified as available for sale. The Bank
has and will continue to utilize its investment securities portfolio to manage
liquidity.
The Bank's primary uses of funds are the origination and acquisition of
loans, the funding of maturing deposits and the repayment of borrowings. The
Bank has experienced strong loan demand. The Company believes that its income
from its operations and its existing funding sources, together with the
anticipated proceeds to be provided by the Offering, will be adequate to meet
its operating and growth requirements.
Net cash used in operating activities for the years ended June 30, 1997
and 1996 was $2.2 million and $838,000, respectively. During fiscal year 1997,
the $2.2 million related principally to growth in loans available for sale while
the $838,000 in fiscal year 1996 related to growth in loans available for sale
and other assets. During fiscal year 1995, the cash used in operating activities
was $1.0 million related primarily to growth in loans available for sale.
Net cash used in investing activities approximated $33.2 million, $15.9
million and $23.3 million during the years ended June 30, 1997, 1996 and 1995,
respectively. During each year, the primary use was the funding of the growth in
the Bank's loan portfolio.
The Bank monitors its capital level relative to its business operations
and anticipated growth and has continually maintained it at a level which would
allow it to be classified as "well-capitalized" under the Federal Deposit
Insurance Corporation Improvement Act ("FDICIA"). Well-capitalized institutions
are assessed lower deposit insurance premiums.
27
<PAGE>
The following table sets forth the Bank's regulatory capital levels at
September 30, 1997. The Company is not subject to regulatory capital
requirements.
<TABLE>
<CAPTION>
To Be Well Capitalized
Required for Under Prompt
Capital Adequacy Corrective Action
Actual Purposes Provisions
------ ---------------- ----------------------
(Dollars in thousands)
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $7,158 5.29% $2,030 1.50% $6,766 5.00%
Core capital 7,158 5.29 5,413 4.00 6,766 5.00
Risk-based capital 7,645 10.26 5,960 8.00 7,450 10.00
</TABLE>
Asset and Liability Management
The Bank's exposure to interest rate risk results from, among other
things, the difference in maturities on interest-earning assets and
interest-bearing liabilities. Since the Bank's assets currently have a longer
maturity than its liabilities, the Bank's earnings could be negatively impacted
during a period of rising interest rates and conversely positively impacted
during a period of falling interest rates. The relationship between the interest
rate sensitivity of the Bank's assets and liabilities is continually monitored
by management. In this regard, the Bank emphasizes the origination of adjustable
rate assets for portfolio while originating longer term fixed rate assets for
resale. Additionally, the origination level of fixed rate assets are continually
monitored and if deemed appropriate, the Bank will enter into forward
commitments for the sale of these assets to ensure the Bank is not exposed to
undue interest rate risk.
One measure of a bank's interest rate risk is through the use of a GAP
analysis. Using a GAP analysis, the Bank matches the extent to which its
interest-earning assets and interest-bearing liabilities mature or reprice
within specified time horizons. The interest rate sensitivity gap is defined as
the excess of interest-earning assets maturing or repricing within a specific
time period over the interest-bearing liabilities maturing or repricing within
the same time period (a negative GAP for a specified time period would indicate
there are more liabilities than assets maturing or repricing within that time
period). The Bank attempts to maintain its one and three year GAP positions
within +/- 10% and +/- 15% of assets, respectively.
At September 30, 1997, the Bank had negative one and three year GAP
positions of 9.5% and 4.8%, respectively. GAP analysis is a useful measurement
of asset and liability management, however, it is difficult to predict the
effect of changing interest rates based solely on this measure. An additional
analysis required by the OTS and generated quarterly is the OTS Interest Rate
Exposure Report. This report forecasts changes in the Bank's net interest income
and market value of portfolio equity ("MVPE") under alternative interest rate
environments. The MVPE is defined as the net present value of the Bank's
existing assets, liabilities and off-balance sheet instruments. The most
commonly used alternative interest rate environment is that of an assumed +/-
200 basis point immediate and sustained change in interest rates ("Interest Rate
Shock"). At September 30, 1997, a 200 basis point Interest Rate Shock increase
would result in a 29% decrease in the MVPE, while a 200 basis point Interest
Rate Shock decrease would result in a 12% increase in the MVPE, both of which
comply with the policies established by the Bank's Board of Directors.
28
<PAGE>
Management believes that the assumptions utilized in evaluating the
vulnerability of the Company's operations to changes in interest rates
approximate actual experience; however, the interest rate sensitivity of the
Bank's assets and liabilities as well as the estimated effect of changes in
interest rates on net interest income and MVPE could vary substantially if
different assumptions are used or actual experience differs from the experience
on which the assumptions were based.
In the event the Bank should experience a mismatch in its desired GAP
ranges or an excessive decline in its MVPE subsequent to an Interest Rate Shock,
it has a number of options which it could utilize to remedy such mismatch. The
Bank could restructure its investment portfolio through sale or purchase of
securities with more favorable repricing attributes. It could also emphasize
loan products with appropriate maturities or repricing attributes, or it could
attract deposits or obtain borrowings with desired maturities.
The following table summarizes the maturity and repricing of the Bank's
interest-earning assets and interest-bearing liabilities at September 30, 1997.
Except as noted in the footnotes, all amounts are categorized by their actual
maturity or repricing date.
<TABLE>
<CAPTION>
Within Three Four to Twelve One to
Months Months Five Years Over Five Years Total
------------ -------------- ---------- --------------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Rate-sensitive assets:
Loans receivable(1).......... $43,745 $29,158 $31,229 $ 6,492 $110,624
Investment securities(2)..... 2,095 6,294 7,414 5,037 20,840
-------- ------- ------- ------- --------
Total rate-sensitive assets.. 45,840 35,452 38,643 11,529 131,464
-------- ------- ------- ------- --------
Rate-sensitive liabilities:
Interest-bearing demand
deposits(3)................ -- -- -- 9,883 9,883
Savings deposits(3).......... -- -- -- 1,776 1,776
Time certificates............ 47,546 39,763 9,244 -- 96,553
FHLB advances................ 4,350 -- -- -- 4,350
Securities sold under
agreement to repurchase... -- 2,500 8,280 -- 10,780
------ ----- ----- ------ ------
Total rate-sensitive
liabilities............... 51,896 42,263 17,524 11,659 123,322
------ ------ ------ ------ -------
Periodic gap................. (6,056) (6,811) 21,119 (130) 8,122
======= ======== ====== ======= ========
Cumulative gap............... (6,056) (12,867) 8,252 8,122 --
======= ======== ====== ======= ========
Cumulative gap ratio......... (4.61)% (9.79)% 6.28% 6.18% --
======= ======== ====== ======= ========
</TABLE>
- --------------------
(1) Loans held for sale are included in loans receivable and are categorized
within three months as it is the intent to sell those assets within that
time frame.
(2) Includes mortgage-backed securities and interest-bearing deposits at the
FHLB.
(3) Historically, interest bearing demand deposits and savings deposits reflect
insignificant change in deposit trends and therefore, the Bank classifies
these deposits over five years.
29
<PAGE>
Impact of Inflation and Changing Prices
The Consolidated Financial Statements of the Company and Notes thereto,
presented elsewhere herein, have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time and
due to inflation. The impact of inflation is reflected in the increased cost of
the Company's operations. Nearly all the assets and liabilities of the Company
are monetary. As a result, interest rates have a greater impact on the Company's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the price
of goods and services.
Financial Condition
General
The Company's assets have grown to $134.5 million at September 30, 1997
as compared to $117.1 million and $81.3 million at June 30, 1997 and 1996,
respectively. The increase in assets primarily reflects the deployment of
proceeds from certificates of deposits into loans, including portfolio loans and
loans available for sale. At September 30, 1997, the loan portfolio aggregated
$93.9 million as compared to $86.0 million and $53.6 million, at June 30, 1997
and 1996, respectively. The growth has been concentrated in Commercial Real
Estate loans and conforming adjustable rate residential mortgages. Loans
available for sale increased to $16.8 million at September 30, 1997 as compared
to $6.2 million and $1.7 million at June 30, 1997 and 1996, respectively. This
growth is primarily due to increased volume of Nonconforming Mortgage
originations and acquisitions. At September 30, 1997, Nonconforming Mortgage
loans available for sale was $14.7 million as compared to $4.3 million at June
30, 1997. The Bank carries its Nonconforming Mortgage loans available for sale
at the lower of cost or market until such time as they are sold or, in certain
cases, until the Bank has a firm commitment for the sale of the loans.
Accordingly, the carrying value of the Nonconforming Mortgage loans available
for sale does not fully reflect the gain the Bank anticipates it will realize
upon the ultimate sale of the loans. The Bank had no Nonconforming Mortgage
loans as of June 30, 1996. Deposits were $110.6 million, $95.9 million and $59.6
million at September 30, 1997, June 30, 1997 and June 30, 1996, respectively.
Loans
Net loans receivable increased to $93.9 million at September 30, 1997
as compared to $86.0 million at June 30, 1997 and $53.6 million at June 30,
1996. These increases were due primarily to internally generated Commercial Real
Estate loans and conforming residential adjustable rate mortgages. At June 30,
1997, the Commercial Real Estate loan portfolio was $28.1 million as compared to
$13.0 million at June 30, 1996, representing an increase of 116.15%. The
conforming residential adjustable rate mortgage loan portfolio grew to $54.5
million at June 30, 1997 compared to $39.5 million at June 30, 1996. The above
noted loan growth was achieved without a significant increase in delinquencies
or charge-offs. The Bank internally underwrites each of its loans to comply with
prescribed policies and approval levels established by its Board of Directors.
30
<PAGE>
The table below sets forth data relating to the composition of the
Bank's loan portfolio by type of loan on the dates indicated.
<TABLE>
<CAPTION>
At June 30,
At September 30, --------------------------------------------
1997 1997 1996
------------------------ ---------------------- -------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Type of Loan
- -------------
One-to-four family residential
real estate......................... $59,665 63.57% $54,493 63.37% $39,485 73.66%
Multi-family residential real estate.. 13,973 14.89 13,244 15.41 5,357 9.99
Construction one-to-four family
residential ....................... 1,380 1.47 1,414 1.64 344 0.64
Commercial and non-residential
real estate........................ 16,827 17.93 14,817 17.23 7,616 14.20
Consumer.............................. 2,516 2.68 2,375 2.77 1,285 2.40
Less allowance for loan losses........ (487) (0.52) (472) (0.55) (430) (0.80)
Deferred fees......................... (17) (0.02) 121 0.13 (53) 0.09
------- ------ ------- ------ ------ ------
Net loans............................. $93,857 100.0% $85,992 100.0% $53,604 100.0%
======= ======= ======= ====== ======= ======
Type of Security
- -----------------
Residential real estate:
One-to-four family................. $63,758 67.93% $59,905 69.66% $40,673 75.88%
Multi-family....................... 13,973 14.89 13,244 15.41 5,357 9.99
Non-residential real estate........... 14,080 15.00 10,890 12.66 7,076 13.20
Depository accounts................... 553 0.59 442 0.52 441 .82
Marketable securities................. 1,320 1.41 1,260 1.47 -- --
Other................................. 677 0.72 602 0.70 540 1.00
Less allowance for loan losses........ (487) (0.52) (472) (0.55) (430) (0.80)
Deferred fees......................... (17) (0.02) 121 0.13 (53) 0.09
------- ------ ------- ------ ------ ------
Net loans............................. $93,857 100.0% $85,992 100.0% $53,604 100.0%
======= ======= ======= ====== ======= ======
</TABLE>
31
<PAGE>
The following table sets forth the estimated maturity of the Bank's
loan portfolio at September 30, 1997. The table does not include prepayments or
scheduled principal repayments. Adjustable-rate mortgage loans are shown as
maturing on their contractual maturities.
<TABLE>
<CAPTION>
Due Due Allowance
within One through Due after for
One year Five years Five years Loan Losses Total
-------- ---------- ---------- ----------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
One-to-four family residential
real estate.............. $ 688 $ 47 $58,913 $(141) $59,507
Multi-family, commercial and
non-residential real estate 413 4,640 25,747 (302) 30,498
Construction - one-to-four family
residential.............. 1,380 -- -- (3) 1,377
Consumer................... 1,047 95 1,374 (7) 2,509
Unassigned reserve......... -- -- -- (34) (34)
------ ------ ------- ----- -------
Total...................... $3,528 $4,782 $86,034 $(487) $93,857
====== ====== ======= ===== =======
</TABLE>
The following table sets forth the dollar amount of all loans due after
September 30, 1997, which have pre-determined interest rates and which have
floating or adjustable interest rates.
<TABLE>
<CAPTION>
Floating or
adjustable
Fixed rates rates Total
----------- ----- -----
(Dollars in thousands)
<S> <C> <C> <C>
One-to-four family residential real estate..... $3,654 $56,011 $59,665
Multi-family, commercial and non-
residential real estate...................... 1,009 29,791 30,800
Construction - one-to-four family
residential ................................. -- 1,380 1,380
Consumer....................................... 553 1,963 2,516
------ ------- -------
Total.......................................... $5,216 $89,145 $94,361
====== ======= =======
</TABLE>
Non-Performing and Problem Assets
Loan Delinquencies
The recent loan growth experienced by the Bank has not resulted in a
corresponding increase in delinquencies. Collection procedures generally provide
that after a loan is 15 days or more past due, a late charge is added. The
borrower is contacted by mail or telephone and payment is requested. If a loan
becomes 90 days or more contractually delinquent, the Bank will usually
institute foreclosure proceedings. Additionally, all such loans are generally
placed on non-accrual status unless the credit is well secured and in the
process of collection. If collection of principal or interest is deemed doubtful
at an earlier date, the loan would be placed on non-accrual status.
32
<PAGE>
Other Real Estate Owned
Real estate acquired by the Bank as a result of foreclosure on an
outstanding loan balance is classified as Other Real Estate Owned ("OREO") until
such time as the property is sold. Upon acquisition, the property is recorded at
the lower of the unpaid principal balance of the related loan or its fair value
less estimated disposal costs. Write-downs required at acquisition are charged
to the allowance for loan losses. Subsequent write-downs of OREO are charged to
operations. The Bank has had minimal OREO. At September 30, 1997, the Bank's
OREO balance was $105,000.
The following table details the Bank's non-performing loans and OREO at
the dates indicated.
<TABLE>
<CAPTION>
June 30,
September 30, ----------------------------------
1997 1997 1996
------------------ ---------- -------
<S> <C> <C> <C>
Loans accounted for on a non-accrual basis: (Dollars in thousands)
One-to-four family residential real estate $581 $705 $553
Consumer........................ 40 40 40
------ ------ ------
Total non-accrual loans......... 621 745 593
------ ------ ------
Accruing loans that are contractually past
due 90 days or more:............
One to four family mortgage..... 353 353 378
------ ------ ------
Total 90-day past-due loans..... 353 353 378
------ ------ ------
Total non-accrual and 90-day past due loans 974 1,098 971
Other Real Estate Owned......... 105 -- 81
------ ------ ------
Total non-performing loans...... $1,079 $1,098 $1,052
====== ====== ======
Non-accrual loans to net loans.. 0.66% 0.87% 1.11%
====== ====== ======
Total non-accrual loans and 90-day
past due loans to net loans... 1.04% 1.28% 1.81%
====== ====== ======
Total non-performing assets to net loans
plus OREO..................... 1.15% 1.28% 1.96%
====== ====== ======
Total allowance for loan losses to total
non-performing assets........ 45.13% 42.99% 40.87%
====== ====== ======
</TABLE>
33
<PAGE>
Allowance for Loan Losses
It is the policy of Management and the Board of Directors to provide
for losses on both identified and unidentified losses inherent in its loan
portfolio. A provision for loan losses is charged to operations based upon an
evaluation of the potential losses in the loan portfolio. This evaluation takes
into account such factors as portfolio concentrations, delinquency trends,
trends of non-accrual and classified loans, economic conditions, and other
relevant factors. The following table sets forth activity in the Bank's
allowance for loan losses for the periods indicated.
<TABLE>
<CAPTION>
September 30, June 30,
------------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Allowance for loan losses,
beginning of period.............................. $472 $430 $430 $388
Charge-offs:
One-to-four family residential real estate............ 0 (1) (16) 0
--- ----- ----- ----
Total charge-offs..................................... 0 (1) (16) 0
--- ----- ----- ----
Provision for loan losses............................. 15 11 58 42
----- ----- ----- -----
Allowance for loan losses, end of period.............. $487 $440 $472 $430
==== ==== ==== ====
Allowance for loan losses to total loans.............. 0.52% 0.48% 0.55% 0.80%
===== ===== ===== ====
Net loans charged-off as a percent
of average loans outstanding..................... - - 0.02% -
===== ===== ===== ====
</TABLE>
34
<PAGE>
The following table sets forth the allocation of the Bank's allowance
for loan losses by loan category and the percentage of loans in each category to
total loans receivable at the dates indicated. The portion of the allowance for
loan losses allocated to each loan category does not represent the total
available for future losses that may occur within the loan category, since the
total loan loss allowance is a valuation reserve applicable to the entire loan
portfolio.
<TABLE>
<CAPTION>
At June 30,
At September 30, --------------------------------------------
1997 1997 1996
---------------- ---------------- --------------------
Percent of Percent of Percent of
Loans to Loans to Loans to
Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at end of period
applicable to:
One-to-four family residential real estate $141 63.57% $129 63.42% $114 72.66%
Multi-family residential real estate... 100 14.89 109 15.41 60 9.99
Construction one-to-four family
residential.......................... 3 1.47 4 1.65 1 0.64
Commercial and non-residential
real estate.......................... 202 17.93 154 17.23 166 14.20
Consumer............................... 7 2.68 7 2.76 3 2.40
Unallocated............................ 34 -- 69 -- 86 --
---- ---- ----
Total allowance for
loan losses.......................... $487 $472 $430
==== ==== ====
</TABLE>
Investment Securities
The Bank utilizes its investment securities portfolio to manage its
liquidity and interest rate risk. For this reason, the Bank's investment
securities portfolio is classified as available for sale.
The investment policy of the Bank and classification of securities are
established by its Board of Directors. It is based on its asset and liability
management goals and is designed to provide for a portfolio of high quality
liquid investments which optimize interest income. All or a portion of the
Bank's investment securities portfolio may be utilized to collateralize
borrowings from the FHLB or Repurchase Agreements.
The following table sets forth the carrying value of the Bank's
investment and mortgage-backed securities ("MBS") portfolio at the dates
indicated.
35
<PAGE>
<TABLE>
<CAPTION>
At September 30,
1997
-------------------------------------------------------
Gross Gross Fair
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Available-for-sale:
FHLMC..............$ 7,257 $47 $ (8) $ 7,296
GNMA............... 4,039 18 (3) 4,054
FNMA............... 5,436 -- (31) 5,405
------- ---- ------ -------
Total MBS.......... 16,732 65 (42) 16,755
------- ---- ------ -------
US government &
agency ........... 3,302 -- (3) 3,299
SBA pool........... -- -- -- --
FHLB stock......... 786 -- -- 786
------- ---- ------ -------
Total securities
available for
sale.............$20,820 $65 $(45) $20,840
======= === ===== =======
At June 30,
------------------------------------------------------------------------------------------------------
1997 1996
---------------------------------------------------- ----------------------------------------------
Gross Gross Fair Gross Gross Fair
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
---- ----- ------ ----- ---- ----- ------ -----
(Dollars in thousands)
Available-for-sale:
FHLMC.............. $ 7,601 $14 $ (47) $ 7,568 $ 6,572 $4 $(122) $ 6,454
GNMA............... 6,305 23 (15) 6,313 9,462 -- (133) 9,329
FNMA............... 2,189 1 (27) 2,163 2,398 -- (54) 2,344
------- --- ------ ------- ------- --- ----- -------
Total MBS.......... 16,095 38 (89) 16,044 18,432 4 (309) 18,127
------- --- ------ ------- ------- --- ----- -------
US government &
agency ........... 4,375 -- ( 11) 4,364 1,971 -- ( 30) 1,941
SBA pool........... 1,119 -- ( 7) 1,112 1,556 -- ( 2) 1,554
FHLB stock......... 823 -- -- 823 475 -- -- 475
Total securities
available for
sale............. $22,412 $38 $(107) $22,343 $22,434 $ 4 $(341) $22,097
======= === ======== ======= ======= === ===== =======
</TABLE>
36
<PAGE>
The following table sets forth certain information regarding the
carrying values, weighted average yields and maturities of the Bank's investment
portfolio at September 30, 1997. All investment securities are classified as
available-for-sale, therefore the carrying value is the estimated market value.
<TABLE>
<CAPTION>
One Year or Less One to Five Years Five to Ten Years
---------------- ----------------- -----------------
Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
US government agencies....... $597 5.35% $2,702 6.81% -- --
Mortgage-backed
securities.................. -- -- -- -- $1,848 7.20%
FHLB stock(1)................ -- -- -- -- -- --
----- ------ ------ ------- ------ -------
TOTAL........................ $597 5.35% $2,702 6.81% $1,848 7.20%
==== ====== ====== ======= ====== =======
More than Ten Years Total
------------------- -----
Carrying Average Carrying Average
Value Yield Value Yield
----- ----- ----- -----
(Dollars in thousands)
US government agencies....... -- -- $ 3,299 6.61%
Mortgage-backed
securities.................. $14,907 6.96% 16,755 6.99
FHLB stock(1)................ 786 6.50 786 6.50
------- ------- -------- -----
TOTAL........................ $15,693 6.94% $20,840 6.91%
======= ======= ======== ======
</TABLE>
- --------------------
(1) FHLB stock has no stated maturity; however, it must be owned as long as the
Bank remains a member of the FHLB system. The Bank does not anticipate that
it will discontinue its membership and, therefore, the investment is
classified as more than ten years.
Deposits
Consumer and commercial retail deposits are attracted primarily at the
Bank's two branch locations by offering a broad selection of deposit products.
The Bank evaluates its interest rates and fees on deposit products through a
regular review of competing financial institutions and prevailing market
interest rates.
Competition for retail deposits is intense and the administrative and
operational costs of a retail branch can be high. Therefore, the Bank also
attracts deposits through a network of financial planners and brokers. The Bank
has utilized these deposits to fund a substantial portion of the asset growth
experienced in recent years. While the Bank has attracted deposits by paying
interest rates slightly higher than generally offered in the retail market, this
has allowed the Company to focus on the implementation of its business strategy,
including the development of its specialty lending and product niche activities,
and to control its core non-interest expenses.
Deposits at September 30, 1997 totaled $110.6 million compared to $95.9
and $59.6 million at June 30, 1997 and June 30, 1996, respectively. While the
Bank has established a core level of retail deposits which include
37
<PAGE>
both transaction type of accounts (checking, savings, money market) and CDs, the
growth in the deposit base is attributed primarily to jumbo CDs.
The following table sets forth average deposits by various types of
demand and time deposits.
<TABLE>
<CAPTION>
Years Ended June 30,
Three Months --------------------
Ended September 30, 1997 1997 1996
------------------------ ------------------------- ------------------------
Deposits Avg. Yield Deposits Avg. Yield Deposits Avg. Yield
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest-bearing
demand deposits........... $ 2,063 -- $ 1,794 -- $ 812 --
Interest bearing demand
deposits.................. 10,336 4.02% 9,605 3.92% 6,027 3.78%
Savings deposits........... 1,799 2.89 1,908 2.80 2,203 2.95
Certificates of deposit.... 93,594 5.80 62,890 5.64 43,128 5.88
-------- ---- ------- ---- -------- ----
Total...................... $107,792 5.47% $76,197 5.22% $52,170 5.42%
-------- ---- ------- ---- -------- ----
</TABLE>
The following table indicates the amount of CDs of $100,000 or more by
remaining maturity at September 30, 1997.
(Dollars in thousands)
Remaining Maturity:
Three months or less..................................$12,627
Over three months through six months.................. 3,082
Over six months through twelve months................. 4,138
Over twelve months.................................... 1,042
-------
Total.................................................$20,889
=======
Borrowings
The Bank utilizes borrowings from the FHLB and collateralized
repurchase agreements in managing its interest rate risk and as a tool to
augment deposits in funding asset growth. FHLB borrowings totaled $4.4 million
at September 30, 1997 as compared to $9.0 million at June 30, 1997 and $9.5
million at June 30, 1996. The $5.6 million decline resulted from repayment from
proceeds of a repurchase agreement for which the Bank was able to secure a
favorable rate as compared to rates offered by the FHLB at the time. Repurchase
agreements totaled $10.8 million at September 30, 1997 as compared to $5.8
million at June 30, 1997 and $7.2 million at June 30, 1996. During the quarter
ended September 30, 1997, the Bank obtained a longer term repurchase agreement
borrowing to better match the repricing characteristics of the growth it
experienced in its Commercial Real Estate loan portfolio.
38
<PAGE>
The following table sets forth certain balance and rate information
with respect to FHLB borrowings and repurchase agreements for the periods
indicated.
Federal Home Loan Bank Advances and Repurchase Agreements
<TABLE>
<CAPTION>
At June 30,
At September 30, -------------------------
1997 1997 1996
---------------------- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Advances outstanding at period
end....................................... $ 4,350 $ 8,950 $ 9,500
Interest rate at period end................. 5.71% 5.70% 5.55%
Approximate average amount
outstanding............................... $ 8,207 $ 8,344 $ 6,694
Maximum month-end balance................... $ 9,000 $ 17,450 $ 11,000
Approximate weighted average
rate...................................... 5.95% 5.56% 5.80%
Repurchase agreements
outstanding at end of period.............. $ 10,780 $ 5,780 $ 7,151
Interest rate............................... 5.85% 5.90% 5.85%
Approximate average amount
outstanding............................... $ 8,065 $ 8,923 $ 2,647
Maximum month-end balance................... $ 10,780 $ 10,431 $ 7,151
Approximate weighted average
rate...................................... 5.85% 5.95% 5.85%
</TABLE>
In connection with FHLB borrowings and repurchase agreements, the Bank
is required to maintain certain eligible assets as collateral.
Shareholders' Notes and Shareholders' Equity
At September 30, 1997, the Company had outstanding shareholders' notes
and shareholders' equity of $3.2 million and $3.9 million, respectively, as
compared to $3.0 million and $2.9 million at June 30, 1997 and $2.9 million and
$1.5 million at June 30, 1996. The Company has utilized the issuance of notes as
well as the Common Stock to raise money from its shareholders, because the
proceeds from both the notes and the Common Stock can be contributed as capital
to the Bank and be included in the calculation of capital for regulatory
purposes. Since July 1, 1995, in addition to earnings retained in the Company,
the Company's shareholders have contributed an additional $2.1 million of notes
and capital to allow the Company to pursue its significant growth.
Impact of New Financial Account Standards
Accounting For Earnings Per Share. In February 1997, the Financial
Accounting Standards Board (the "FASB") issued Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128 establishes
standards for computing and presenting Earnings Per Share (EPS) and applies to
entities with publicly held common stock or potential common stock. This
statement simplifies the standards for computing earnings per share previously
found in APB Opinion No. 15, "Earnings per share," and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS and requires dual presentation of basic and diluted
EPS on the face of the income statement for all entities with complex capital
structures. It also requires a reconciliation of the numerator and denominator
of the basic EPS computation to the numerator and denominator of the diluted EPS
computation.
39
<PAGE>
SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier application
is not permitted. This statement requires restatement of all prior-period EPS
data presented. The Company will adopt the statement effective for the fiscal
year ending June 30, 1998. Basic and diluted earnings per share under SFAS 128
would be identical to earnings per share as presented in the financial
statements and, therefore, will not have any material effect on the Company.
Reporting of Comprehensive Income. In June 1997, the FASB issued
Statement of Financial Accounting Standards No. 130, "Reporting of Comprehensive
Income" ("SFAS 130"), which establishes standards for the reporting and display
of comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of financial statements. This statement also 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 is effective for fiscal years beginning after December
15, 1997. Earlier application is permitted. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
The Company does not anticipate that preparation of disclosure to comply with
SFAS 130 will have a material effect on the Company's financial statements.
Disclosure about Segments and Related Information. In June 1997, the
FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS 131"), which
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that such enterprises report selected information about operating segments in
interim financial reports issued to shareholders. This statement also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. This statement requires the reporting of
financial and descriptive information about an enterprise's reportable operating
segments.
This statement is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. The Company does
not anticipate that the preparation of disclosure to comply with SFAS 131 will
have a material effect on the Company's financial statements.
Year 2000 Compliance
The Company is evaluating the potential impact of what is commonly
referred to as the "Year 2000" issue, concerning the inability of certain
information systems to properly recognize and process dates containing the Year
2000 and beyond. If not corrected, these systems could fail or create erroneous
results. The Company is in the process of determining which of its systems, if
any, may present Year 2000 issues, the magnitude of these issues and the steps
that may be necessary to correct them. Therefore, the potential liabilities and
costs associated with Year 2000 compliance cannot be estimated with certainty at
this time. Regardless of the Year 2000 compliance of the Company's systems,
there can be no assurance that the Company will not be adversely affected by the
failure of others to become Year 2000 compliant. Such risks may include
potential losses related to loans made to third parties whose businesses are
adversely affected by the Year 2000 issue, the disruption or inaccuracy of data
provided by non-Year 2000 compliant third parties and business disruption caused
by the failure of service providers, such as security and data processing
companies, to become Year 2000 compliant. Because of these uncertainties, there
can be no assurance that the Year 2000 issue will not have a material financial
impact in any future period.
40
<PAGE>
BUSINESS
General
The Company, a Pennsylvania corporation established in 1988 and
headquartered in Philadelphia, Pennsylvania, is the holding company for the
Bank, a federally chartered savings bank. Currently, all of the Company's
business activities are conducted through the Bank. At September 30, 1997, the
Company had total assets of $134.5 million, total deposits of $110.6 million and
total shareholders' equity of $3.9 million. The Bank's deposits are federally
insured by the SAIF of the FDIC to the maximum extent permitted by law. As a
savings and loan holding company, the Company is subject to the supervision and
regulation of the OTS.
The Bank provides community banking services through two branches and
two ATMs in Philadelphia, and has focused primarily on mortgage lending for
residential and multi-family housing and commercial real estate. In the latter
part of 1995, management began to refocus the Company and developed a plan
designed to expand its operations and grow its assets and profitability. The
Company's strategy is to maintain a core banking operation that provides a
growing stream of income enhanced by engaging in various specialty lending and
product niche activities designed to provide the Company with significantly
higher risk-adjusted rates of return. These activities currently include the
origination and acquisition for resale of Nonconforming Mortgages, the
origination of loans guaranteed by the SBA and the acquisition of delinquent
property tax liens.
The Company intends to monitor on an ongoing basis the risk/reward
characteristics of each of its specialty lending and product niche activities in
order to determine whether to expand, maintain or discontinue such activity. The
Company may also elect to pursue additional specialty lending and product niche
activities.
History
The Bank was founded in 1943 and acquired by the Company in 1989.
Through 1995, the Bank operated exclusively as a community savings bank,
accepting deposits from the public and investing the proceeds in investment
securities and loans, primarily adjustable rate conforming residential mortgage
loans. The Bank also originated fixed rate mortgages for resale in the secondary
market, earning a fee in connection with such resales, and offered ancillary
residential loan products such as home equity lines of credit. In 1994, the Bank
opened its Center City, Philadelphia branch and, in 1995, began to focus on the
origination of Commercial Real Estate loans.
The Company has grown its assets from $63.6 million as of June 30, 1995
to $134.5 million as of September 30, 1997. During this period of growth, the
Company has controlled its operating expenses. While increasing its net interest
income from $1.4 million for fiscal year 1996 to $2.8 million for fiscal year
1997 and to $1.1 million for the quarter ended September 30, 1997, the Company
contained the growth in its core non-interest expenses (operating expenses
exclusive of the SAIF assessment and CMC Nonconforming Mortgage banking
expenses) from $1.6 million (2.47% of average assets) for fiscal year 1996 to
$1.7 million (1.70% of average assets) for fiscal year 1997 and $449,000 for the
quarter ended September 30, 1997 (1.37% of average assets).
The Subsidiaries
The Bank's approach to developing certain of its specialty lending and
product niche activities has been to establish and expand them through
majority-owned subsidiaries, with minority interests issued to one or more
individuals with significant experience in the business. This allows the
subsidiary to combine the Bank's financial resources and competitive advantages,
with the experience and knowledge of the minority owner-operator. Under the
typical arrangement, the Bank owns at least 51% of the subsidiary and funds the
loans the subsidiary generates at a cost to the subsidiary equal to the Bank's
cost of funds plus 250 basis points. The minority shareholder does not receive
any monetary benefit from the subsidiary until such time as the subsidiary's
results of operations reflect
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a profit. This approach allows the Bank to enter a new business line with an
experienced manager who is incented to maximize the subsidiary's profitability.
The Bank closely monitors the operations and activities of each subsidiary, in
turn providing management, accounting, back office and marketing support to the
subsidiary. The Bank, in concert with the minority shareholders, has developed
strict underwriting and operating guidelines for each subsidiary, and closely
monitors compliance with such guidelines through the review of loans prior to
funding.
Currently, the Bank's operating subsidiaries are as follows:
Crusader Servicing Corporation ("CSC") is a 60% owned
subsidiary that commenced operations in August 1996, and acquires,
through auction, delinquent property tax liens in various
jurisdictions, assuming a lien position that is generally superior to
any mortgage liens on the property, and obtaining certain foreclosure
rights as defined by local statute.
Crusader Mortgage Corporation of Delaware ("CMCD") is a 51%
owned subsidiary formed in October 1997 in conjunction with the
shareholder of Merit Financial Corporation, a licensed mortgage broker
operating principally in Delaware, to assume the operations previously
conducted by Merit. CMCD will maintain a conforming and nonconforming
residential mortgage lending operation in Wilmington, Delaware.
National Chinese Mortgage Corporation ("NCM") is a 51% owned
subsidiary formed in December 1997 in conjunction with Dr. Haiching
Zhao, the sole shareholder of National Chinese Service Corporation
("NCSC"), a company that focuses on marketing financial services
products to the U.S. Chinese community. NCM markets residential
mortgage loans on an affinity group basis to the U.S. Chinese
community.
CMC was originally a 51% owned subsidiary that commenced
operations in July 1996, for which the Bank originates and acquires
nonconforming residential mortgage loans and services such loans until
they are sold in larger pools, typically within 90 days. The Bank
increased its ownership position in CMC to 67.5% in September 1997 and
to 100% effective in November 1997. See "Prospectus Summary -- Recent
Developments."
The Bank also has a wholly-owned subsidiary, Quest Holding
Corporation ("QUEST"), that periodically holds title to the real estate
holdings of the Bank acquired through foreclosure, pending resale of
such property. In addition, QUEST is a 50% owner of an office building
purchased in December 1996 for $410,000 that includes the offices of
CMC, with the other 50% owned by Ronald L. Caplan, who is a director of
the Company and of the Bank. See "Certain Relationships and Related
Transactions."
A brief description of each of the Bank's primary product lines and
services follows:
Core Banking Activities
Conforming Credit Residential Lending
Generally, the Bank's conforming residential lending approach has
complied with the Federal National Mortgage Association ("FNMA") underwriting
standards with respect to credit, debt ratios and documentation. Loans in excess
of an 80% loan-to-value ("LTV") ratio carry private mortgage insurance.
Generally, to avoid interest rate risk, all fixed rate mortgages are originated
for resale in the secondary market, and the Bank earns a fee in connection with
such resale. Adjustable rate mortgages, depending upon size, are either sold or
retained in the Bank's portfolio. The Bank also offers a full line of single
family construction loans, rehabilitation loans and home equity lines of credit.
During the past two fiscal years, the Bank originated an average of
approximately $42 million of conforming residential real estate loans annually,
although in the future this volume is likely to fluctuate
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based on a variety of factors, including, among other things, housing purchase
activity and interest rates. During the past two years, 71.45% of the Bank's
originations were for home purchases, making it less dependent on interest rate
reductions than many of its competitors which focus more on refinancings. The
Bank's portfolio of conforming residential real estate loans was $59.7 million
as of September 30, 1997. The Bank does not retain servicing on loans sold.
The Bank has recently developed several initiatives in an attempt to
grow and enhance the profitability of its conforming mortgage banking
operations. In August 1997, the Bank negotiated a higher fee for the sale of
servicing rights on its fixed rate loans. In October 1997, the Bank formed CMCD
to generate retail loan production in Delaware and to market conforming mortgage
products to the network of brokers established by CMC for its Nonconforming
Mortgage products. In December 1997, the Bank formed NCM to market residential
mortgage loans on an affinity group basis to the U.S. Chinese community in
conjunction with Dr. Haiching Zhao. The Bank, through NCM, has obtained certain
underwriting concessions from FNMA in recognition of the needs of NCM's target
population. The Bank expects to begin generating loan activity through NCM
during the latter part of the quarter ending March 31, 1998.
Commercial Real Estate Lending
The Bank's Commercial Real Estate lending activities consist of loans
secured by apartment buildings, small office buildings and mixed use properties
and occasionally commercial loans secured by non-real estate collateral. The
Bank believes these loans are generally less risky than commercial real estate
loans secured by a property with a single business user, where the ability of
the borrower to repay is dependent upon the operations of the business. The
Bank's Commercial Real Estate loans are generally secured by real estate located
principally in the Philadelphia metropolitan area, and in certain cases, in
southern and central New Jersey and Delaware. The loans are underwritten in
accordance with strict debt service and LTV guidelines, generally with maximum
LTVs of up to 75%. The Bank typically requires personal guarantees on Commercial
Real Estate loans. The Bank will sometimes permit a borrower to supplement or
substitute marketable securities or other property as collateral for Commercial
Real Estate loans in accordance with prescribed guidelines. All Commercial Real
Estate loans are approved by the Loan Committee of the Bank's Board of Directors
(the "Bank Loan Committee").
The Bank has emphasized Commercial Real Estate loans ranging in size
between $500,000 and $1.2 million. The Bank believes this is an underserved
portion of the market, and not subject to the intense competition present with
respect to Commercial Real Estate loans in excess of $1.2 million. This has
allowed the Bank to generate an adequate volume of Commercial Real Estate loans
without generally varying from its strict underwriting guidelines and its policy
of requiring a personal guarantee on all Commercial Real Estate loans.
The Bank's Commercial Real Estate loans provide primarily for fixed
interest rates during an initial period ranging from one year to five years. At
the end of the initial period, the interest rate adjusts to a specified margin
over the prevailing U.S. Treasury rate for the ensuing period. The Bank's
Commercial Real Estate loan portfolio has been priced to provide an average
spread of at least 300 basis points over the comparable Treasury securities at
time of origination. The Bank originated $23.5 million of Commercial Real Estate
loans during the year ended June 30, 1997, and as of September 30, 1997, had an
aggregate outstanding balance of Commercial Real Estate loans of $30.8 million.
Small Business Administration Lending
In 1996, the Bank became an approved SBA lender. Under this program,
the SBA guarantees up to 75% (80% for loans under $100,000) of the outstanding
loan balance of an approved SBA loan. Because the loans are generally
collateralized by real estate or other assets, the ultimate risk of loss is
reduced substantially, as any collateral recoveries are realized by the lending
institution on a pro-rata basis in accordance with the non-guaranteed percentage
of the loan balance. Interest rates on the Bank's SBA loans generally float
based on the prime rate, with
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typical average margins above prime of 175 to 275 basis points. Thus, the Bank
is able to earn above average interest rates on the full balance of the loans,
while generally limiting its exposure to a maximum of 20% to 25% of the
outstanding balance, which exposure is further reduced by its share of
recoveries.
Because the guaranteed portion of an SBA loan is backed by the full
faith and credit of the U.S. Government, this portion can be sold as a security,
often generating gains on sale of up to 10% of the guaranteed principal
balances. The sale of the guaranteed portion is generally without recourse and
without exposure with respect to prepayment of the loan. Any gain on the sale of
the guaranteed portion further reduces the Bank's exposure with respect to the
loan.
Despite its reduced exposure, the Bank adheres to strict underwriting
guidelines with respect to its origination of SBA loans, including obtaining
personal guarantees from the borrower's principals. All SBA loans require the
approval of the Bank Loan Committee. The Bank utilizes the SBA program primarily
to make commercial loans to single business users of properties and to make
certain loans that do not fit into its traditional underwriting criteria, such
as lending to restaurants and new businesses.
As of September 30, 1997, the Bank had $619,000 of SBA loans
outstanding and received signed commitment letters on an additional $675,000
that were funded in October 1997.
Investment and Mortgage-Backed Securities
The Bank maintains an investment securities portfolio in order to
provide liquidity and manage interest rate risk. Securities in the portfolio are
all U.S. Treasury or U.S. Agency quality. The Bank's investment securities
portfolio as of September 30, 1997 was $20.8 million, including $16.8 million of
mortgage-backed securities. The Bank's current investment policy allows it to
purchase bonds, mortgage-backed securities, and preferred stock with an "A"
rating or better by Moody's Investor Services, Inc. For details of the Bank's
investment securities portfolio, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Funding of Assets
The Bank has funded its assets through the generation of deposits at
its two branches, and through borrowings from the Federal Home Loan Bank
("FHLB") and collateralized borrowings against its securities portfolio.
Management closely monitors rates and terms of competing sources of funds on a
regular basis and attempts to utilize the sources that are the most cost
effective. As of September 30, 1997, the Bank had $110.6 million of outstanding
deposits and $15.1 million of borrowings.
The Bank offers a full array of deposit products through its two
branches including checking accounts, certificates of deposit, money market
funds and statement savings accounts. The Bank also offers ancillary products
such as merchant credit card services, and has two full service Automated Teller
Machines.
Approximately 85% of the Bank's deposits are represented by CDs,
primarily marketed through its branches and through financial planners and
brokers. The Bank currently does not intend to open additional branches. While
the Bank has attracted deposits by paying interest rates slightly higher than
generally offered in the retail market, this has allowed the Company to focus on
the implementation of its business strategy, including the development of its
specialty lending and product niche activities, and to control its core
non-interest expenses. For details of the Bank's deposits by product type and
maturity dates, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Deposits."
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Specialty Lending and Product Niche Activities
Nonconforming Credit (B/C) Residential Mortgage Lending
The Bank originates and acquires nonconforming credit mortgage loans
for subsequent resale on behalf of CMC. Nonconforming credit loans are those
that generally do not conform to agency underwriting guidelines, whether due to
poor credit histories, the absence of a credit history, excessive debt-to-income
ratios, inability to verify the borrower's income, refinance cash-out exceptions
or a variety of other agency guideline exceptions. In exchange for the
additional lender risk associated with these loans, nonconforming borrowers
generally are required to pay a higher interest rate, and depending upon the
severity of the credit history, a lower LTV may be required than for a
conforming borrower.
The Bank generally originates and acquires nonconforming loans with the
intention of holding the loans for up to 90 days and in turn selling them in
larger pools to institutional investors. In connection with such sales, the Bank
earns a cash premium on the unpaid principal balance of the loans, generally
equal to a designated multiple of the excess of the weighted average interest
rate of the loan pool over the interest rate required by the institutional
investor for the mix of loans delivered.
Currently, all loans and their related servicing rights are sold on a
non-recourse basis pursuant to agreements containing customary representations
and warranties by the Bank regarding the underwriting criteria and the
origination process. The Bank, therefore, could be required to repurchase a loan
in the event of a breach of its representations and warranties. In addition, in
certain of its agreements, the Bank is required to repurchase a loan in the
event of a default on the first monthly payment due the purchaser, and to refund
a portion of the premium received with respect to a loan if the loan is prepaid
in full during the first year after it is sold (such portion declines ratably to
zero by the end of the year). However, absent a breach of its representations
and warranties or, if applicable, a first payment default, the Bank has no
exposure with respect to losses incurred by the purchaser with respect to a
default by the borrower. To date, the Bank has not been required to repurchase a
nonconforming loan, although there is no assurance that it will not be required
to do so in the future.
Historically, the Bank has favored whole loan sales over
securitizations because it realizes cash revenues on the sale of its loans and
retains no risks, other than as described above, with respect to the loans sold.
A company that securitizes its loans generally obtains its "premium" in the form
of a retained interest in certain future revenues of the securitization trust,
and generally recognizes a receivable for the estimated present value of such
future revenues. However, the realization of such receivable is subject to the
actual payment experience of the loan pool. While the securitizer's loans are
eliminated from its balance sheet upon securitization, typically the securitizer
retains a level of default and prepayment risk on the outstanding loans it is
servicing. Some securitizers have incurred substantial write-downs of their
securitization receivables due to adverse default and prepayment experience. The
Bank does not retain these risks and, since it sells its loans with their
related servicing rights, it does not retain any risk with respect to the
ongoing valuation of servicing rights. The Bank from time to time monitors and
evaluates the economics and relative risk/reward characteristics of whole loan
sales and securitizations.
The Bank offers a wide array of nonconforming mortgage products in
accordance with its own internal underwriting guidelines, including fixed rate
first and second mortgages, various types of adjustable rate products, high LTV
products, reduced documentation loans and loans secured by non-owner occupied
properties. The Bank has originated its loans primarily through its own mortgage
originators and through a network of independent mortgage brokerage and banking
firms meeting the Bank's approval criteria ("Brokers"). The Bank believes that
the utilization of small independent Brokers represents the most cost effective
approach for the Bank. By offering a more comprehensive array of products,
excellent service and quick approval and documentation turn-around, the Bank
strives to be the sole or dominant origination source for each of its Brokers.
The Bank, through CMC, employs six regional account executives who market to
Brokers, and whose compensation packages are heavily incentive oriented based on
the dollar volume of loans originated on behalf of their Brokers. The Bank has
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agreements with approximately 125 Brokers located primarily in the Mid-Atlantic
and Southeastern parts of the country.
As of November 30, 1997, the Bank, through CMC, had a staff of 24
underwriters, processors, loan closers, funders and quality reviewers who are
responsible for the various processes involved in the origination and sale of a
loan. In addition, the Bank makes extensive use of computer technology in its
processing of loans. All files are computerized so that information can be
accessed by all appropriate individuals. The Bank generally prepares its own
documents on all loans it originates, thereby reducing its dependence on the
Brokers for proper documentation. It also closely monitors compliance issues and
re-discloses broker compensation and other required disclosure matters on every
loan it originates. The Bank typically charges a processing and underwriting fee
averaging $450 on each loan it originates.
During the quarters ended June 30 and September 30, 1997, the Bank
originated or acquired $10 million and $25.6 million, respectively, of
nonconforming loans. Upon achieving this higher volume level, the Bank was able
to generate larger gains from the sale of its nonconforming loans by dividing
the loans into various homogenous pools that are more valuable to purchasers
seeking the type of product in the pool (e.g., fixed rate, adjustable rate,
higher credit grade pool, higher LTV pool).
In October 1997, the Bank began to purchase loans from mortgage banking
firms in pools generally ranging from $500,000 to $3 millon. By purchasing loan
pools, the Bank incurs reduced underwriting and processing costs, since it does
not have to provide pre-approvals on individual loans and can underwrite a group
of loans more efficiently. In connection with the Bank's purchase of loan pools,
the Bank enters into agreements with the sellers that for the most part mirror
the provisions of the agreements the Bank has with purchasers of its loans.
Because of the larger volume of loans it is producing, the Bank has sometimes
utilized forward pricing commitments on its fixed rate loans generally lasting
up to 40 days.
In addition to the revenues derived from the sale of nonconforming
loans, the Bank also earns net interest income on the loans until their
subsequent sale. As of September 30, 1997, the weighted average interest rate on
the Bank's nonconforming loan portfolio available for sale was 11.34%. This
resulted in an annualized spread of approximately 570 basis points on the
nonconforming loan portfolio pending sale.
In an attempt to further accelerate its growth in the origination of
nonconforming loans, CMC hired a Vice President - National Sales on December 1,
1997. The Bank and CMC are also pursuing additional loan pool purchase
relationships. The Bank is currently in negotiations to form a new 51% owned
subsidiary for which the Bank will originate and acquire nonconforming loans in
the Midwestern region of the United States. If the Bank is successful in its
negotiations, the subsidiary is expected to commence operations during the
quarter ending March 31, 1998.
Delinquent Property Tax Liens/Certificates
Through its 60% owned subsidiary, CSC, the Bank acquires, at auction or
through assignment, delinquent property tax certificates in various
jurisdictions that sell such certificates. The procedures for the sale and
purchase of property tax certificates are defined by local law, but generally,
in exchange for paying the outstanding property taxes and penalties, the
purchaser assumes a lien position on the property that is superior to any
mortgage lien. After a specified holding period, the purchaser has the right to
commence strict foreclosure proceedings, under which the purchaser will receive
title to the property free and clear of any liens, regardless of the
relationship between the property value and the property tax lien. Prior to such
strict foreclosure, the property owner and/or junior lien holders have the right
to redeem the certificate by paying the amount expended by the tax certificate
holder, plus interest and/or penalties as defined by local statute. Since the
outstanding property taxes are generally a small percentage of the property
value, there is an incentive for a junior lien holder or property owner to
redeem
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<PAGE>
the certificate prior to strict foreclosure, as they will not otherwise share in
the excess of the property value over the property tax lien amount.
CSC is currently focusing its efforts in New Jersey and Connecticut,
although it is exploring other states. While the effective rate of return
(increase in redemption value) of each individual tax lien will vary, CSC has on
average been able to earn approximately a 14% yield with effective LTVs
significantly below the Bank's prevailing lending standards. In New Jersey, by
virtue of acquiring a tax lien, CSC also obtains the right to pay any future
unpaid delinquent property taxes, and, once paid, is statutorily entitled to
interest up to 18% annually on such future delinquent taxes.
Prior to bidding at any auctions, CSC conducts due diligence on
available properties in accordance with internal guidelines, such as the review
of property types, appraised values and lien searches and, depending upon size,
will physically inspect the property. As of September 30, 1997, CSC had a
portfolio of $1.9 million of delinquent property tax certificates.
Properties
The Company's headquarters are located at 1230 Walnut Street in
Philadelphia, Pennsylvania. The Bank operates from two branch offices, one of
which is located at the Company's headquarters and the other is located at 6526
Castor Avenue in Philadelphia. The Bank leases its Walnut Street and Castor
Avenue locations under lease agreements with terms expiring in 2014 and 1999,
respectively, assuming the Bank exercises all of its options to renew such
leases. The Walnut Street location is leased from Walnut Square Partners, a
partnership controlled by Ronald L. Caplan, a director of the Company and the
Bank. In addition, CMC leases space at a building owned by 1334 Walnut Street
Partners, which is a partnership controlled by Mr. Caplan and QUEST, a
wholly-owned subsidiary of the Bank. See "Certain Relationships and Related
Transactions."
Personnel
At November 30, 1997, the Company, including the Bank and its
subsidiaries, had 70 full-time and four part-time employees, of which 22 were
employed by the Bank and 50 were employed by the Bank's subsidiaries. The
Company's only employees were the Chairman and the President. The Company's and
the Bank's employees are not represented by a collective bargaining group. The
Company and the Bank believe that their relationship with their respective
employees is good.
Legal Proceedings
There are various claims and lawsuits in which the Company or the Bank
are periodically involved, such as claims to enforce liens, condemnation
proceedings on properties in which the Bank holds security interests, claims
involving the making and servicing of real property loans, and other issues
incident to the Bank's business. In the opinion of management, there are no
material pending claims or lawsuits.
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SUPERVISION AND REGULATION
General
The Bank is chartered as a federal savings bank under the Home Owners'
Loan Act, as amended (the "HOLA"), which is implemented by regulations adopted
and administered by the OTS. As a federal savings bank, the Bank is subject to
regulation, supervision and regular examination by the OTS. The OTS also has
extensive enforcement authority over all savings institutions and their holding
companies, including the Bank and the Company. Federal banking laws and
regulations control, among other things, the Bank's investments, loans, required
reserves, mergers and consolidations, payment of dividends and other aspects of
the Bank's operations. The deposits of the Bank are insured by the SAIF
administered by the FDIC to the maximum extent provided by law ($100,000 for
each depositor). In addition, the FDIC has certain regulatory and examination
authority over OTS-regulated savings institutions and may recommend enforcement
actions against savings institutions to the OTS. The supervision and regulation
of the Bank is intended primarily for the protection of the SAIF and the Bank's
depositors rather than the Company or its shareholders.
As a savings and loan holding company, the Company is registered with
the OTS and subject to OTS regulation and supervision under the HOLA. The
Company also will be required to file certain reports with, and otherwise comply
with the rules and regulations of, the Commission under the federal securities
laws.
The following discussion is intended to be a summary of certain
statutes, rules and regulations affecting the Bank and the Company. A number of
other statutes and regulations have an impact on their operations. The following
summary of applicable statutes and regulations does not purport to be complete
and is qualified in its entirety by reference to relevant statutes and
regulations.
Regulation of the Bank
Business Activities. The Bank derives its lending and investment powers
from the HOLA and the regulations of the OTS thereunder. Under these laws and
regulations, the Bank may invest in mortgage loans secured by residential and
commercial real estate, commercial and consumer loans, certain types of
commercial paper and debt securities, and certain other assets. The Bank may
also establish service corporations that may engage in activities reasonably
related to the business of financial institutions but not otherwise permissible
for the Bank, including certain real estate equity investments and securities
and insurance brokerage. These investment powers are subject to various
limitations.
Branching. Subject to certain limitations, OTS regulations currently
permit a federally chartered savings institution like the Bank to establish
branches in any state of the United States, provided that the federal savings
institution qualifies as a "domestic building and loan association" under the
Internal Revenue Code of 1986, as amended (the "Code"), or is a "qualified
thrift lender" under HOLA. See " -- Qualified Thrift Lender Test." The Bank has
no current plans to establish any branch outside Pennsylvania although its
authority to establish interstate branches could facilitate a geographic
diversification in the future.
Regulatory Capital. The OTS has adopted capital adequacy regulations
that require savings institutions such as the Bank to meet three minimum capital
standards: a "core" capital requirement of 3% of adjusted total assets, a
"tangible" capital requirement of 1.5% of adjusted total assets, and a
"risk-based" capital requirement of 8% of total risk-based capital to total
risk-weighted assets. In addition, the OTS has adopted regulations imposing
certain restrictions on savings institutions that have a total risk-based
capital ratio of less than 8%, a ratio of Tier 1 capital to risk-weighted assets
of less than 4% or a ratio of Tier 1 capital to total assets of less than 4% (or
3% if the institution is rated Composite 1 under the CAMEL examination rating
system). See "-- Prompt Corrective Regulatory Action."
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The core capital, or "leverage ratio," requirement mandates that a
savings institution maintain core capital equal to at least 3% of its adjusted
total assets. "Core capital" includes common shareholders' equity (including
retained earnings), noncumulative perpetual preferred stock and related surplus,
minority interests in the equity accounts of fully consolidated subsidiaries and
certain nonwithdrawable accounts and pledged deposits. Core capital is generally
reduced by the amount of the savings institution's intangible assets, with
limited exceptions for permissible mortgage servicing rights ("MSRs"), purchased
credit card relationships and certain intangible assets arising from prior
regulatory accounting practices. Core capital is further reduced by the amount
of a savings institution's investments in and loans to subsidiaries engaged in
activities not permissible for national banks. At September 30, 1997, the Bank
had no such investments.
The risk-based capital standards of the OTS require maintenance of core
capital equal to at least 4% of risk- weighted assets and total capital equal to
at least 8% of risk-weighted assets. For purposes of the risk-based capital
requirement, "total capital" includes core capital plus supplementary capital up
to the amount of core capital. Supplementary capital includes preferred stock
that does not qualify as core capital, nonwithdrawable accounts and pledged
deposits to the extent not included in core capital, perpetual and mandatory
convertible subordinated debt and maturing capital instruments meeting specified
requirements and a portion of the institution's loan and lease loss allowance.
The risk-based capital requirement is measured against risk-weighted
assets, which equal the sum of each asset and the credit-equivalent amount of
each off-balance sheet item after the dollar amount of each such asset and item
is multiplied by an assigned risk weight, which ranges from 0% to 100% as
assigned by the OTS capital regulations based on the risks the OTS believes are
inherent in the type of asset or off-balance sheet item.
The OTS risk-based capital regulation also includes an interest rate
risk ("IRR") component that requires savings institutions with greater than
normal IRR, when determining compliance with the risk-based capital
requirements, to maintain additional total capital. The OTS has, however,
indefinitely deferred enforcement of its IRR requirements.
The following table sets forth the Bank's compliance with its
regulatory capital requirements at September 30, 1997.
<TABLE>
<CAPTION>
Capital
Bank Capital Requirements Excess Capital
-------------------- --------------------- ---------------------
Amount Percent Amount Percent Amount Percent
--------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital...... $7,158 5.29% $2,030 1.50% $5,128 3.79%
Core capital.......... 7,158 5.29 5,413 4.00 1,745 1.29
Total risk-based
capital............. 7,645 10.26 5,960 8.00 1,685 2.26
</TABLE>
Prompt Corrective Regulatory Action. Under FDICIA, the federal banking
regulators are required to take prompt corrective action in respect of
depository institutions that do not meet certain minimum capital requirements,
including a leverage limit and a risk-based capital requirement. All
institutions, regardless of their capital levels, are restricted from making any
capital distribution or paying any management fees that would cause the
institution to become undercapitalized. As required by FDICIA, banking
regulators, including the OTS, have issued regulations that classify insured
depository institutions by capital levels and provide that the applicable agency
will take various prompt corrective actions to resolve the problems of any
institution that fails to satisfy the capital standards.
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Under the joint prompt corrective action regulations, a
"well-capitalized" institution is one that is not subject to any regulatory
order or directive to meet any specific capital level and that has or exceeds
the following capital levels: a total risk-based capital ratio of 10%, a Tier 1
risk-based capital ratio of 6%, and a ratio of Tier 1 capital to total assets
("leverage ratio") of 5%. An "adequately capitalized" institution is one that
does not qualify as "well capitalized" but meets or exceeds the following
capital requirements: a total risk-based capital of 8%, a Tier 1 risk-based
capital ratio of 4%, and a leverage ratio of either (i) 4% or (ii) 3% if the
institution has the highest composite examination rating. An institution not
meeting these criteria is treated as "undercapitalized," "significantly
undercapitalized," or "critically undercapitalized" depending on the extent to
which its capital levels are below these standards. An institution that falls
within any of the three "undercapitalized" categories will be subject to certain
severe regulatory sanctions required by FDICIA and the implementing regulations.
As of September 30, 1997, the Bank was "well-capitalized" as defined by the
regulations, with a total risk-based capital ratio of 10.26%, a Tier 1
risk-based capital ratio of 9.61% and a leverage ratio of 5.29%.
Federal Deposit Insurance. The Bank is required to pay assessments,
based on a percentage of its insured deposits, to the FDIC for insurance of its
deposits by the SAIF.
Under the FDIC's risk-based deposit insurance assessment system, the
insurance assessment rate for an insured depository institution depends on the
assessment risk classification assigned to the institution. Institutions are
assigned by the FDIC to one of three capital groups -- well-capitalized,
adequately capitalized, or undercapitalized -- and, within each capital
category, to one of three supervisory subgroups. Unless permitted by the FDIC or
required by law, insured institutions may not state their assessment risk
classification in any advertisement or promotional material.
In order to recapitalize the SAIF and to equalize the deposit insurance
premiums paid by SAIF-insured institutions and institutions with deposits
insured by the Bank Insurance Fund, Congress enacted the Deposit Insurance Funds
Act of 1996 (the "1996 Act"), which authorized the FDIC to impose a one-time
special assessment on all institutions with SAIF-assessable deposits in the
amount necessary to recapitalize the SAIF to the statutorily designated reserve
ratio of 1.25% of insured deposits. Institutions were assessed at the rate of
65.7 basis points per $100 of each institution's SAIF-assessable deposits as of
March 31, 1995. The 1996 Act provides that the amount of the special assessment
will be deductible for federal income tax purposes for the taxable year in which
the special assessment is paid. Based on the foregoing, the Bank paid a special
assessment of $296,000 on November 26, 1996. Net of related tax effects, this
reduced reported earnings by $192,000 for the three months ended September 30,
1996 and the year ended June 30, 1997.
As a result of the recapitalization of the SAIF by the 1996 Act, the
FDIC reduced the insurance assessment rate for SAIF-assessable deposits for
periods beginning October 1, 1996. For the first half of 1997, the FDIC set the
effective insurance assessment rates for SAIF-insured institutions, such as the
Bank, at zero to 27 basis points. In addition, SAIF-insured institutions will be
required, until December 31, 1999, to pay assessments to the FDIC at an annual
rate of between 6.0 and 6.5 basis points to help fund interest payments on
certain bonds issued by the Financing Corporation ("FICO"), an agency of the
federal government established to recapitalize the predecessor to the SAIF.
During this period, BIF member banks will be assessed for payment of the FICO
obligations at one-fifth the annual rate applicable to SAIF member institutions.
After December 31, 1999, BIF and SAIF members will be assessed at the same rate
(currently estimated at approximately 2.4 basis points) to service the FICO
obligations.
The 1996 Act also provides that the FDIC may not assess regular
insurance assessments for the SAIF unless required to maintain or to achieve the
designated reserve ratio of 1.25%, except for such assessments on those
institutions that are not classified as "well-capitalized" or that have been
found to have "moderately severe" or "unsatisfactory" financial, operational or
compliance weaknesses. The Bank is classified as "well-capitalized" and has not
been found by the OTS to have such supervisory weaknesses.
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Qualified Thrift Lender Test. The HOLA and OTS regulations require all
savings institutions to satisfy one of two Qualified Thrift Lender ("QTL") tests
or to suffer a number of sanctions, including restrictions on activities. To
qualify as a QTL, a savings institution must either (i) be deemed a "domestic
building and loan association" under the Code by maintaining at least 60% of its
total assets in specified types of assets, including cash, certain government
securities, loans secured by and other assets related to residential real
property, educational loans, and investments in premises of the institution or
(ii) satisfy the HOLA's QTL test by maintaining at least 65% of "portfolio
assets" in certain "Qualified Thrift Investments." For purposes of the HOLA's
QTL test, portfolio assets are defined as total assets less intangibles,
property used by a savings institution in its business and liquidity investments
in an amount not exceeding 20% of assets. Qualified Thrift Investments consist
of (a) loans or securities related to domestic residential housing or
manufactured housing, (b) loans to small businesses, student loans and credit
card loans and (c) subject to a limitation equal to 20% of portfolio assets, 50%
of the dollar amount of residential mortgage loans subject to sale under certain
conditions, 100% of consumer loans (not described above) and certain other
assets, 200% of their investments in loans to finance "starter homes" (with
purchase prices not exceeding 60% of median value) and loans for construction,
development or improvement of housing and community service facilities or for
financing small business in "credit needy" areas.
A savings institution must maintain its status as a QTL on a monthly
basis in at least nine out of every 12 months. An initial failure to qualify as
a QTL results in a number of sanctions, including the imposition of certain
operating restrictions and a restriction on obtaining additional advances from
its Federal Home Loan Bank. If a savings institution does not requalify under
the QTL test within the three-year period after it fails the QTL test, it would
be required to terminate any activity (and dispose of any investment) not
permissible for a national bank and repay as promptly as possible any
outstanding advances from its Federal Home Loan Bank. In addition, the holding
company of such an institution, such as the Company, would be required to
register as a bank holding company with the Federal Reserve Board. At September
30, 1997, the Bank qualified as a QTL.
Loans to One Borrower. Under HOLA, savings associations are generally
subject to the national bank limits on loans to one borrower. Generally, a
savings institution may not make a loan or extend credit to a single or related
group of borrowers in excess of 15% of the institution's unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if such loan is fully secured by readily marketable collateral,
which is defined to include certain securities and bullion, but generally does
not include real estate.
Enforcement. Under the Federal Deposit Insurance Act (the "FDI Act"),
the OTS has primary enforcement responsibility over savings associations such as
the Bank and has the authority to bring enforcement action against all
"institution-related parties," including shareholders, attorneys, appraisers,
and accountants who knowingly or recklessly participate in wrongful action that
caused or is likely to cause more than a minimal financial loss to, or a
significant adverse effect on, an insured depository institution. Civil
penalties cover a wide range of violations and actions and range up to $25,000
per day unless a finding of reckless disregard is made, in which case fines of
up to $1 million per day are permitted. Criminal penalties for most financial
institution crimes include fines of up to $1 million and imprisonment for up to
30 years. In addition, regulators have substantial discretion to take
enforcement action against an institution that fails to comply with its
regulatory requirements, particularly with respect to the capital requirements.
Possible enforcement action ranges from the imposition or the termination of
deposit insurance. Under the FDI Act, the FDIC has the authority to recommend to
the director of the OTS that enforcement action be taken with respect to a
particular savings institution. If action is not taken by the director, the FDIC
has authority to take such action under certain circumstances. The Bank is not
presently subject to any of the foregoing enforcement actions.
Safety and Soundness Standards. FDICIA, as amended by the Riegle
Community Development and Regulatory Improvement Act of 1994, requires the OTS,
together with the other federal bank regulatory agencies, to prescribe
standards, by regulation or guideline, relating to internal controls,
information systems and internal
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audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, asset quality, earnings, stock valuation, and
compensation, fees and benefits and such other operational and managerial
standards as the agencies deem appropriate. The OTS and the federal bank
regulatory agencies have adopted a set of guidelines prescribing safety and
soundness standards pursuant to the statute. In general, guidelines adopted by
the OTS require, among other things, appropriate systems and practices to
identify and manage the risks and exposures specified in the guidelines. The
guidelines prohibit excessive compensation as an unsafe and unsound practice and
describe compensation as excessive when the amounts paid are unreasonable or
disproportionate to the services performed by an executive officer, employee,
director or principal shareholder.
In addition, on July 10, 1995, the OTS and the federal bank regulatory
agencies proposed guidelines for asset quality and earnings standards. Under the
proposed standards, a savings institution would be required to maintain systems,
commensurate with its size and the nature and scope of its operations, to
identify problem assets and prevent deterioration in those assets as well as to
evaluate and monitor earnings and ensure that earnings are sufficient to
maintain adequate capital and reserves. Management believes that the asset
quality and earnings standards, in the form proposed by banking agencies, would
not have a material effect on the operations of the Bank.
Limitations on Capital Distributions. OTS regulations impose
limitations upon capital distributions by a savings institution, such as cash
dividends, payments to repurchase or otherwise acquire its shares, payments to
shareholders of another institution in a cash-out merger and other distributions
charged against capital. A savings institution must give notice to the OTS at
least 30 days before a proposed capital distribution. A savings institution that
has capital in excess of all regulatory capital requirements before and after a
proposed capital distribution and that is not otherwise restricted in making
capital distributions, may, after prior notice but without the approval of the
OTS, make capital distributions during a calendar year equal to the greater of
(a) 100% of its net income to date during the calendar year plus the amount that
would reduce by one-half its "surplus capital ratio" (the excess capital over
its capital requirements) at the beginning of the calendar year, or (b) 75% of
its net income for the previous four quarters. Any additional capital
distributions would require prior OTS approval.
Under OTS regulations, the Bank would not be permitted to pay dividends
on its capital stock if its regulatory capital would thereby be reduced below
the amount then required for the liquidation account established for the benefit
of certain depositors of the Bank at the time of the Conversion. In addition,
under the OTC's prompt corrective action regulations, the Bank would be
prohibited from paying dividends if the Bank were classified as
"undercapitalized" under such rules. See "-- Prompt Corrective Regulatory
Action."
In addition to the foregoing, earnings of the Bank appropriated to bad
debt reserves and deducted for federal income tax purposes are not available for
payment of dividends or other distributions to the Company without payment of
taxes at the then current tax rate by the Bank on the amount of earnings removed
from the reserves for such distributions. See "Taxation."
Consumer Credit Regulation. The Bank's mortgage lending activities are
subject to the provisions of various federal and state statutes, including,
among others, the Truth in Lending Act, the Equal Credit Opportunity Act, the
Real Estate Settlement Procedures Act, the Fair Housing Act, statutes limiting
loan fees and charges, and the regulations promulgated thereunder. These
statutes and regulations, among other provisions, prohibit discrimination,
prohibit unfair and deceptive trade practices, require the disclosure of certain
basic information to mortgage borrowers concerning credit terms and settlement
costs, prohibit the payment or receipt of money or other valuable consideration
for a referral of real estate settlement services (including the origination of
mortgage loans) and otherwise regulate terms and conditions of credit and the
procedures by which credit is offered and administered. Failure to comply (or
perceived failure to comply) with these requirements can lead to administrative
enforcement actions, class action lawsuits and demands for restitution or loan
rescission. In recent years, consumer litigation (including class action
litigation) has become increasingly prevalent in the Bank's market area.
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Transactions with Affiliates. The Bank is subject to restrictions
imposed by Sections 23A and 23B of the Federal Reserve Act on extensions of
credit to, and certain other transactions with, the Company and other
affiliates, and on investments in the stock or other securities thereof. Such
restrictions prevent the Company and such other affiliates from borrowing from
the Bank unless the loans are secured by specified collateral at specified
levels (equal to or greater than 100% of the loan amount), and require such
transactions to have terms comparable to terms of arms-length transactions with
third persons. Further, such secured loans and other transactions and
investments by the Bank are generally limited in amount as to the Company or any
other affiliate to 10% of the Bank's capital and surplus and as to the Company
and all other affiliates to an aggregate of 20% of the Bank's capital and
surplus. These restrictions may limit the Company's ability to obtain funds from
the Bank for its cash needs, including funds for acquisitions and for payment of
dividends, interest and operating expenses.
Loans to Directors, Executive Officers and Principal Shareholders. The
Bank's ability to extend credit to the directors, executive officers and 10%
shareholders of the Bank and the Company, as well as to entities controlled by
such persons, is governed by the requirements of Sections 22(g) and 22(h) of the
Federal Reserve Act and Regulation O of the Federal Reserve Board thereunder.
Among other things, these provisions require that an institution's extensions of
credit to these insiders (a) be made on terms that are substantially the same
as, and follow credit underwriting procedures that are not less stringent than,
those prevailing for comparable transactions with unaffiliated persons and that
do not involve more than the normal risk of repayment or present other
unfavorable features and (b) not exceed certain limitations on the amount of
credit extended to such persons, individually and in the aggregate, which limits
are based, in part, on the amount of the institution's capital. In addition,
extensions of credit in excess of certain limits must be approved by the
institution's Board of Directors.
Reserve Requirements. Pursuant to regulations of the Federal Reserve
Board, all FDIC-insured depository institutions must maintain average daily
reserves against their transaction accounts. No reserves are required to be
maintained on the first $4.4 million of transaction accounts, and reserves equal
to 3% must be maintained on the next $49.3 million of transaction accounts, plus
reserves equal to 10% on the remainder. These percentages are subject to
adjustment by the Federal Reserve Board. Because required reserves must be
maintained in the form of vault cash or in a non-interest-bearing account at a
Federal Reserve Bank, the effect of the reserve requirement is to reduce the
amount of the institution's interest-earning assets. As of September 30, 1997,
the Bank met its reserve requirements.
Liquidity Requirements. The Bank is required to maintain sufficient
liquidity to insure its safe and sound operation. In addition, for each calendar
quarter, the Bank is required to maintain an average daily balance of liquid
assets (cash, savings accounts and certain time deposits, bankers' acceptances,
highly rated corporate debt and commercial paper, securities of certain mutual
funds, and specified United States government, state or federal agency
obligations with maturities not exceeding specified lengths) equal to not less
than 4% of the average daily balance or ending balance of its net short-term
withdrawable savings deposits plus short-term borrowings for the prior calendar
quarter.
Classification of Assets. Savings institutions are required to classify
their assets on a regular basis, establish appropriate allowances for losses and
report the results of such classification quarterly to the OTS. A savings
institution is also required to set aside adequate valuation allowances and
establish liabilities for off-balance sheet items, such as letters of credit,
when a loss becomes probable and estimable. The OTS has the authority to review
the institution's classification of its assets and to determine whether
additional assets must be classified or the institution's valuation allowances
must be increased.
Community Reinvestment. Under the Community Reinvestment Act (the
"CRA"), as implemented by OTS regulations, a savings institution has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low-
and moderate- income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial associations
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<PAGE>
nor does it limit an institution's discretion to develop the types of products
and services that it believes are best-suited to its particular community. The
CRA requires the OTS, in connection with its examination of a savings
institution, to assess the institution's record of meeting the credit needs of
its community and to take such record into account in evaluating certain
applications by such institution. The CRA also requires all associations to
publicly disclose their CRA rating. The Bank received a CRA rating of
"satisfactory" in its most recent examination.
Federal Home Loan Bank System. The FHLB System consists of 12 district
Federal Home Loan Banks subject to supervision and regulation by the Federal
Housing Finance Board ("FHFB"). The Federal Home Loan Banks provide a central
credit facility primarily for member institutions. As a member of the FHLB, the
Bank is required to acquire and hold shares of capital stock in the FHLB in an
amount at least equal to 1% of the aggregate unpaid principal of its home
mortgage loans, home purchase contracts, and similar obligations at the
beginning of each year, or 1/20 of its advances (borrowings) from the FHLB,
whichever is greater. At September 30, 1997, the Bank was in compliance with
this requirement, with an investment in FHLB stock of $786,000. Long-term FHLB
advances may only be made for the purpose of providing funds for residential
housing finance. At September 30, 1997, the Bank had $4.4 million of total
advances outstanding from the FHLB.
Federal Reserve System. Federal Reserve regulations require savings
associations to maintain non-interest earning reserves against their transaction
accounts (primarily regular checking and NOW accounts). The Bank is in
compliance with these regulations. The balances maintained to meet the reserve
requirements imposed by the Federal Reserve may be used to satisfy liquidity
requirements imposed by the OTS. Because required reserves must be maintained in
the form of vault cash, a non-interest-bearing account at a Federal Reserve Bank
or a pass-through account as defined by the Federal Reserve, the effect of this
reserve requirements is to reduce the Bank's interest-earning assets. FHLB
system members are also authorized to borrow from the Federal Reserve, but
applicable regulations require associations to exhaust all FHLB sources before
borrowing from a Federal Reserve Bank.
Proposed Legislation. Legislation currently pending before the United
States Congress would, if enacted, require all federal savings institutions
(such as the Bank) to convert to a national bank or a state bank or savings bank
charter. If the pending legislation were to be adopted in its current form, it
would eliminate certain advantages now enjoyed by federal savings institutions
over their commercial bank counterparts, such as unrestricted interstate
branching authority and broader preemption of restrictive state laws.
As the proposed legislation is part of a larger financial services bill
and is in early stages of consideration, the Company cannot predict whether or
in what form the legislation will be enacted. However, based upon the provisions
of the currently pending legislation, the management of the Company does not
believe that the enactment of such legislation would have a material adverse
effect on its financial condition or results of operations. The 1996 legislation
repealed the percentage of taxable income method of calculating the bad debt
reserve. The Bank historically elected to use the percentage of taxable income
method and has been required by the 1996 legislation to recapture the excess
portion of post-1997 reserves over a six year period.
Regulation of the Company
The Company is a savings and loan holding company under the HOLA and,
as such, is subject to OTS regulation, supervision and examination. In addition,
the OTS has enforcement authority over the Company and its non-savings
institution subsidiaries and may restrict or prohibit activities that are
determined to represent a serious risk to the safety, soundness or stability of
the Bank or any other subsidiary savings institution.
Under the HOLA, a savings and loan holding company is required to
obtain the prior approval of the OTS before acquiring another savings
institution or savings and loan holding company. A savings and loan holding
company may not (i) acquire, with certain exceptions, more than 5% of a
non-subsidiary savings institution or a non-subsidiary savings and loan holding
company; or (ii) acquire or retain control of a depository institution that
54
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is not insured by the FDIC. In addition, while the Bank generally may acquire a
savings institution by merger in any state without restriction by state law, the
Company could acquire control of an additional savings institution in a state
other than Pennsylvania only if such acquisition is permitted under the laws of
the target institution's home state. As a unitary savings and loan holding
company, the Company generally will not be subject to any restriction as to the
types of business activities in which it may engage, provided that the Bank
continues to satisfy the QTL test. See "-- Regulation and Supervision of the
Bank -- Qualified Thrift Lender Test."
Upon any non-supervisory acquisition by the Company of another savings
institution that is held as a separate subsidiary, the Company would become a
multiple savings and loan holding company and would be subject to limitations on
the types of business activities in which it could engage. The HOLA limits the
activities of a multiple savings and loan holding company and its non-insured
institution subsidiaries primarily to activities permissible for bank holding
companies under the Bank Holding Company Act, subject to the prior approval of
the OTS, and to other activities authorized by OTS regulation.
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TAXATION
General
The Company files a consolidated federal income tax return with the
Bank and its subsidiaries that are more than 80% owned based on its fiscal year.
Consolidated returns have the effect of deferring gain or loss on intercompany
transactions and allowing companies included within the consolidated return to
offset income against losses under certain circumstances. Subsidiaries which are
less than 80% owned by the Company are not permitted to be included in the
Company's consolidated federal income tax return.
Federal Income Taxation
Thrift institutions are subject to the provisions of the Code in the
same general manner as other corporations. Prior to 1996 legislation,
institutions such as the Bank which met certain definitional tests and other
conditions prescribed by the Code benefited from certain favorable provisions
regarding their deductions from taxable income for annual additions to their bad
debt reserve. The bad debt reserve deduction with respect to qualifying real
property loans could be based upon actual loss experience (the "experience
method") or a percentage of taxable income determined without regard to such
deduction (the "percentage of taxable income method").
Earnings appropriated to the Bank's pre-1988 bad debt reserve are not
available for distribution to shareholders (including distributions made on
dissolution or liquidation), unless the amount of such earnings is included in
the Bank's taxable income, along with the amount deemed necessary to pay the
resulting federal income tax. For information regarding additions to the tax bad
debt reserves, see Note K to Financial Statements.
The Company's federal corporate income tax returns for the years ended
June 30, 1993 and June 30, 1994 have been examined by the Internal Revenue
Service. No changes were made to the Company's reported taxable income as a
result of such examinations.
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MANAGEMENT
Directors and Executive Officers
The Board of Directors of the Company is currently composed of ten
members, each of whom serves for a term of one year. The Board of Directors of
the Bank is composed of the same individuals. Executive officers are elected
annually by the Board and serve at the Board's discretion subject to the terms
of employment agreements with certain of its officers.
The following table sets forth information with respect to the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Thomas J. Knox 56 Chairman and Chief Executive Officer
Bruce A. Levy 42 President and Director
Joseph T. Crowley 35 Director, Vice President, Secretary and Treasurer
Paul Bachow 45 Director
Ronald L. Caplan 49 Director
D. Walter Cohen, D.D.S. 70 Director
Daniel DiLella 46 Director
Linda R. Knox 52 Director
Joel S. Lawson III 50 Director
Brian McAdams 51 Director
</TABLE>
Biographical Information
Directors and Executive Officers of the Company
The principal occupation for at least the last five years of each
executive officer and director of the Company, as well as certain other
information, is set forth below.
Thomas J. Knox. Mr. Knox has served as Chairman and Chief Executive
Officer of the Company since 1988 and Chairman of the Bank since 1993. From 1989
to 1993, Mr. Knox was President of the Board of Directors of the Bank. From 1993
to 1995, Mr. Knox served as Special Deputy Rehabilitator and Chief Executive
Officer of Fidelity Mutual Life Insurance Company, a $7.5 billion life insurance
company placed in rehabilitation by the Pennsylvania Insurance Department. From
1992 to 1993, he served as Deputy Mayor of the City of Philadelphia overseeing
the Office of Management and Productivity. He serves as a director of the City
of Philadelphia Productivity Bank, which he chaired from 1992 to 1993,
Vice-Chairman of the Philadelphia Airport Advisory Board, Chairman of the
Concerto Soloist Orchestra and Chairman of the Sunday Serenade. Mr. Knox is a
past director of Independence Blue Cross, the Medical College of Pennsylvania,
St. Christopher's Hospital for Children and the Visiting Nurses Association.
Bruce A. Levy. Mr. Levy has served as President and a director of the
Company and a director of the Bank since 1996. From 1994 to 1996, Mr. Levy was a
private investor and an independent consultant. From 1992 until its sale in
1994, he was the sole shareholder of Philadelphia Benefits Corporation, a health
benefits consulting and marketing firm. From 1981 to 1992, Mr. Levy served as
President and was a shareholder of Preferred Benefits Corporation, a 401(k)
consulting and administration firm he co-founded. From 1975 to 1981, he served
in various capacities with Ernst & Young. Mr. Levy is a graduate of the Wharton
School of the University of Pennsylvania.
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Joseph T. Crowley. Mr. Crowley has served as Vice-President,
Secretary, Treasurer and a director of the Company since 1993, President of the
Bank since 1993 and was Chief Financial Officer of the Bank from 1992 to 1993.
From 1988 to 1992, Mr. Crowley was Senior Vice President of Hansen Savings Bank.
From 1985 to 1988, he was an auditor with KPMG Peat Marwick, specializing in the
banking industry. Mr. Crowley is a graduate of Widener University.
Paul Bachow. Mr. Bachow became a director of the Company in 1997 and
has served as director of the Bank since 1993. Since 1985, Mr. Bachow has been
Senior Managing Director and President of Bachow & Associates, Inc. Mr. Bachow
received a B.A. in Accounting and Finance from American University, a Master's
degree in Tax Law from New York University and a Juris Doctor from Rutgers Law
School. Mr. Bachow is a Certified Public Accountant.
Ronald L. Caplan. Mr. Caplan became a director of the Company in 1997
and has been a director of the Bank since 1995. Mr. Caplan is the President of
Philadelphia Management Corporation, which he founded in 1982. He is also the
founder and President of Roosevelts' Incorporated. Since 1975, Mr. Caplan has
been actively engaged in acquiring, financing, renovating and managing
residential and commercial real estate in the Greater Philadelphia area, with
his activities largely concentrated in Center City Philadelphia. Mr. Caplan is a
graduate of Northeastern University.
D. Walter Cohen, D.D.S. Dr. Cohen became a director of the Company in
1997 and has served as a director of the Bank since 1994. Since 1993, Dr. Cohen
has been Chancellor of the Allegheny University of the Health Sciences. From
1986 to 1993, Dr. Cohen was President of the Medical College of Pennsylvania.
Dr. Cohen is also a partner in a periodontal practice in Philadelphia. Dr. Cohen
is a graduate of the University of Pennsylvania and earned his D.D.S. from its
School of Dental Medicine.
Daniel DiLella. Mr. DiLella became a director of the Company in 1997
and has served as a director of the Bank since 1991. Mr. DiLella has been
President and CEO of Berwind Property Group since 1983. From 1973 to 1983, Mr.
DiLella was Vice President of Girard Bank. Mr. DiLella is a graduate of
Villanova University and received his MBA from Saint Joseph's University.
Linda R. Knox. Ms. Knox became a director of the Company in 1997, and
has served as President of the Board of Directors of the Bank since 1993 and a
director of the Bank since 1989. Prior to 1993, Ms. Knox was a realtor
specializing in the sale of historical and architecturally significant
properties in the Philadelphia area. Ms. Knox attended Rider University and is a
graduate of the Temple University Real Estate Institute. Ms. Knox is the wife of
Mr. Knox.
Joel S. Lawson III. Mr. Lawson became a director of the Company in
1997 and has served as a director of the Bank since 1994. Mr. Lawson is the
Managing Partner and CEO of Howard, Lawson & Co., an investment banking and
corporate finance firm in Philadelphia, a position he has held since 1980. Mr.
Lawson is also a director of Urban Outfitters, Inc. and several privately-held
companies. He is a graduate of Yale University and received his MBA from the
Wharton School of the University of Pennsylvania.
Brian McAdams. Mr. McAdams became a director of the Company in 1997
and has served as a director of the Bank since 1989. Mr. McAdams is Chairman and
CEO of STRATVIS Advisement, Chairman of McAdams, Richman & Ong, an advertising
and design firm, and Chairman of Back Health Centers, Inc. Mr. McAdams served as
Chairman and CEO of National Media Corporation from 1994 to 1996, and continues
to serve as a director of that company.
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Executive Officers of the Bank's Subsidiaries
Robert N. Morro, age 37. Mr. Morro has served as Executive Vice
President of CMC since 1996. From 1995 to 1996, Mr. Morro was Vice
President-Wholesale Lending for Freedom Mortgage Corporation. From 1993 to 1995,
Mr. Morro was Director of Operations for DSB Funding, a division of Delaware
Savings Bank, and from 1990 to 1993, he was Assistant Vice President of American
Financial Corporation located in Tampa. Mr. Morro is a graduate of Stockton
State College.
Robert W. Stein, age 30. Mr. Stein has served as President of CSC since
1996. From 1995 to 1996, Mr. Stein was an associate with the law firm of Pepper
Hamilton & Scheetz LLP. From 1994 to 1995, Mr. Stein was a law clerk for the
late John F. Gerry, then Chief Judge of the District Court for the District of
New Jersey. Mr. Stein is a graduate of the University of Chicago and received
his law degree from the Rutgers University School of Law.
Michael D. Kushner, age 32. Mr. Kushner has served as President of CMCD
since 1997. Since 1990, Mr. Kushner has been President and the sole shareholder
of Merit Financial Corporation, a licensed mortgage broker. Mr. Kushner is a
graduate of George Washington University.
Haiching Zhao, Ph.D., age 41. Dr. Zhao has served as President of NCM
since 1997. Since 1993, Dr. Zhao has served as President and sole shareholder of
NCSC, a company that markets financial services products to the U.S. Chinese
community. Dr. Zhao is President of the National Council on Chinese Affairs. Dr.
Zhao is a graduate of Peking University and received an M.S. in Biochemistry and
a Ph.D. in Biophysics from the University of Connecticut.
Committees of the Board of Directors
The Board of Directors of the Company recently established Executive,
Audit, Nominating and Compensation Committees. A brief description of these
committees is set forth below.
The Executive Committee is generally responsible to act on behalf of
the Board of Directors on all matters between regular and special meetings of
the Board. Currently, the members of this Committee are Mr. Knox, Mr. Levy and
Mr. Lawson.
The Audit Committee reviews and advises the Board of Directors with
respect to reports by the Company's independent auditors and monitors the
Company's compliance with laws and regulations applicable to the Company's
financial statements. Currently, the members of this Committee are Mr. Levy, Mr.
McAdams and Dr. Cohen.
The Nominating Committee is responsible for considering potential
nominees to the Board of Directors. In its deliberations, the Nominating
Committee considers the candidate's knowledge of the banking business and
involvement in community, business and civic affairs, among other factors.
Currently, the members of this Committee are Mr. Knox, Mr. Levy and Ms. Knox.
The Compensation Committee handles personnel and compensation matters
relating to the executive officers of the Company. Currently, the members of
this Committee are Mr. McAdams and Dr. Cohen.
The Bank has a Loan Committee which reviews all Commercial Real Estate
loans, SBA loans and certain other loans. Currently, the members of this
Committee are Mr. Knox, Ms. Knox, Mr. Levy, Mr. Crowley, Mr. Caplan and Mr.
DiLella.
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Compensation Committee Interlocks and Insider Participation
Determinations regarding compensation of the Company's executive
officers are made by the Company's Compensation Committee. Mr. McAdams and Dr.
Cohen currently serve on the Compensation Committee. The Bank extended Mr.
McAdams a $60,000 personal line of credit in September 1997. Amounts outstanding
under the line of credit accrue interest at the prime rate as reported in the
Wall Street Journal ("Prime") minus 0.5% and outstanding amounts are secured by
certain marketable securities. The Bank has also extended a term loan in the
amount of $280,000 to Bastille Associates, L.P., a partnership of which Mr.
McAdams is a general partner. Amounts outstanding under the term loan accrue
interest at a rate of Prime plus 1.5% (adjusted annually) and outstanding
amounts are secured by certain assets of the partnership. Mr. McAdams personally
guaranteed 50% of the loan. The Bank extended Dr. Cohen a $125,000 business line
of credit in March 1996. Amounts outstanding under the line of credit accrue
interest at a rate of Prime plus 0.75% and outstanding amounts are secured by
certain assets of Dr. Cohen's dental practice as well as his personal guarantee.
Dr. Cohen is also a limited partner in Bastille Associates, L.P. Each of these
loans has been current throughout its term and was made on substantially the
same terms, including interest rates and collateral requirements, as those
prevailing at the time for comparable transactions with unrelated persons.
Remuneration of Executive Officers
Summary Compensation Table
The following table sets forth compensation paid to the Chairman and
Chief Executive Officer, President and Vice President of the Company in fiscal
year 1997. Except as set forth below, no executive officer of the Company was
paid salary and bonus during the fiscal year that exceeded $100,000 for
services rendered in all capacities to the Company.
<TABLE>
<CAPTION>
==================================================================================================================================
Long Term
Compensation
Annual Compensation Awards
- ----------------------------------------------------------------------------------------------------------------------------------
Securities
Name and Underlying All Other
Principal Position Year Salary Bonus Options(#) Compensation
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas J. Knox(1) 1997 $ --(1) $ -- -- $ --
Chairman and Chief
Executive Officer
- ----------------------------------------------------------------------------------------------------------------------------------
Bruce A. Levy (1) 1997 $93,000(1) $ -- -- $ --
President
- ----------------------------------------------------------------------------------------------------------------------------------
Joseph T. Crowley 1997 $88,000 $12,000 -- (2) $6,000(3)
Vice President
==================================================================================================================================
</TABLE>
- --------------------
(1) Mr. Knox received no compensation from the Company and its subsidiary
during the year ended June 30, 1997. Following the Offering, Mr. Knox
will be paid annual compensation of $61,800 and Mr. Levy will be paid
compensation in accordance with his employment agreement. See "--
Employment Agreements." Mr. Knox and Mr. Levy received interest
payments in connection with certain notes to the Company. See "Certain
Relationships and Related Transactions."
(2) In December 1997, the Company granted Mr. Crowley options to purchase
20,000 shares of Common Stock at an exercise price of $12 per share and
options to purchase 8,000 shares of Common Stock at the public offering
price.
(3) Represents automobile allowance of $6,000.
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<PAGE>
Stock Option Plans
Employee Plan. The Employee Stock Option Plan (the "Employee
Plan") was adopted by the Board and approved by the Company's shareholders in
December 1997. The Employee Plan permits the Company to grant non-qualified
stock options to officers, employees and consultants of the Company and its
subsidiaries.
The Employee Plan is administered by the Board, which has the
authority to determine the plan's participants and the terms and conditions of
the options granted under the plan, including the number of shares subject to
each option grant, the exercise price, the option term (which may not exceed ten
years) and vesting and termination provisions. The per share exercise price
cannot be less than 100% of the fair market value of a share of Common Stock on
the date of grant and is payable to the Company in full upon exercise. Payment
may be made in cash or, if approved by the Board, in shares of Common Stock or
by reduction in the number of shares of Common Stock issuable upon exercise of
the option.
The particular terms and conditions of each option will be set
forth in a separate agreement. Options generally will terminate when a
participant ceases to be an employee or consultant of the Company or its
subsidiaries, except that options that were exercisable on the date of such
termination may be exercised for a period of 30 days, or one year in the case of
a termination due to a participant's disability. If a participant dies, all
options will become fully exercisable and may be exercised for a period of one
year. All options will become immediately exercisable upon a change of control
(as defined in the plan).
The maximum aggregate number of shares of Common Stock that
may be issued under the Employee Plan is 200,000 shares. As of December 8, 1997,
options to purchase a total of 20,000 shares of Common Stock at an exercise
price of $12.00 per share had been granted under the Employee Plan, which
options will become exercisable in four equal annual installments and will
expire on the fifth anniversary of the date of grant. The Board has also
approved the grant of options to purchase an additional 8,000 shares at an
exercise price equal to the initial public offering price. These options will be
granted on the date on which the Registration Statement is declared effective
and will become exercisable six months after such date. Options that expire,
terminate or are cancelled or forfeited will again be available for grant under
the Employee Plan. The Board, in its discretion, may at any time amend,
discontinue or terminate the Employee Plan, provided that the rights of a
participant with respect to any outstanding option may not be diminished or
impaired without the participant's consent.
Directors Plan. The Director Stock Option Plan (the "Director Plan")
was adopted by the Board and approved by the Company's shareholders in December
1997. The Director Plan is administered by the Board and provides for the grant
to non-employee directors of Replacement Stock Options and Annual Stock
Options (as described below).
Replacement Stock Options will be granted to each non-employee
director on the date on which the Registration Statement is declared effective
in exchange for the surrender by each such director of the phantom stock options
previously granted under the Company's Phantom Stock Option Plan. In the
aggregate, such Replacement Options will give such non-employee Directors the
right to purchase 54,000 shares of Common Stock at an exercise price per share
equal to the initial public offering price. All Replacement Stock Options become
exercisable six months after the date of grant and terminate five years after
the date of grant.
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<PAGE>
Annual Stock Options will be granted to each non-employee
director on the date on which the Registration Statement is declared effective
and each year thereafter on the date of the Company's Annual Meeting of
Shareholders. In the initial grant, each non-employee director who serves on one
or more committees of the Board will receive Annual Stock Options to purchase
1,000 shares of Common Stock and each non-employee director who does not serve
on any committee of the Board will receive Annual Stock Options to purchase 500
shares. In each subsequent grant, the number of shares of Common Stock subject
to the Annual Stock Option will be determined by dividing $15,000 (or $7,500 in
the case of a non-employee director who does not serve on any committee of the
Board) by the fair market value of a share of Common Stock on the date of grant,
and rounding up to the next higher whole number. The exercise price for the
initial grant of Annual Stock Options will be the initial public offering price;
the exercise price for all subsequent grants will be 100% of the fair market
value of a share of Common Stock on the date of grant. All Annual Stock Options
become exercisable one year after the date of grant and expire five years after
the date of grant.
The particular terms and conditions of each option will be set
forth in a separate agreement. Upon exercise of an option, the exercise price
must be paid to the Company in full in cash or, if approved by the Board, in
shares of Common Stock or by reduction in the number of shares of Common Stock
issuable upon such exercise. If a participant ceases to be a director of the
Company, all Replacement Stock Options and Annual Stock Options that were
exercisable on such date may be exercised for a period of 30 days (except that,
if a participant ceases to be a director because of death or disability, all
options will become immediately exercisable and may be exercised for a period of
one year). All options will become immediately exercisable upon a change of
control (as defined in the plan).
The maximum aggregate number of shares of Common Stock that
may be issued under the Director Plan is 100,000 shares. Options that expire,
terminate or are cancelled or forfeited will again be available for grant under
the Director Plan. The Board, in its discretion, may at any time amend,
discontinue or terminate the Director Plan, provided that the rights of a
participant with respect to any outstanding option may not be diminished or
impaired without the participant's consent.
Directors' Compensation
In fiscal years 1996 and 1997, grants of options to purchase 27,100
shares were made to certain directors (other than Mr. Knox, Mr. Levy, Mr.
Crowley and Ms. Knox) under a phantom stock option plan. In December 1997, such
directors renounced their rights to such phantom options and received options to
purchase an aggregate of 54,200 shares of Common Stock at the Offering price per
share. Mr. Bachow, Mr. Caplan, Dr. Cohen, Mr. DiLella, Mr. Lawson and Mr.
McAdams received options to purchase 3,800, 14,000, 10,200, 7,200, 11,600 and
7,400 shares, respectively.
Each member of the Board of Directors, except for Mr. Knox, Mr. Levy,
Mr. Crowley and Ms. Knox, will be granted the option to purchase 1,000 shares on
the effective date of the Offering (500 if a director does not serve on a
committee). In addition, on each anniversary thereafter, each such member of the
Board shall receive grants to purchase that number of shares having an aggregate
value of $15,000 ($7,500 if a director does not serve on a committee) determined
by dividing the aggregate amount by the price per share of the Common Stock on
the date the options are granted.
Employment Agreements
The Company has a five-year employment agreement, dated March 1, 1996,
with Bruce A. Levy. Under the terms of the agreement, Mr. Levy devotes
substantially all of his time and efforts to conducting the business activities
of the Company as President. Following the Offering, Mr. Levy will receive an
annual salary of $150,000. Mr. Levy's employment is terminable by the Company
for cause as defined in the agreement, and is terminable by Mr. Levy upon
written notice to the Company. Upon termination, Mr. Levy is not permitted to
compete with the Company or any subsidiary or affiliate of the Company by
soliciting its employees or soliciting business from its customers or suppliers
for a period of one year following such termination.
The Bank has a three-year employment agreement, dated December 11, 1997
with Joseph T. Crowley. Under the terms of the agreement, Mr. Crowley will
devote substantially all of his time and effort to conducting the business
activities of the Bank as President thereof and will receive an annual salary of
$100,000 with an eight percent increase as of July 1, 1999. In addition, Mr.
Crowley is eligible for an annual bonus as determined by the Bank's Board of
Directors. Upon termination, Mr. Crowley is not permitted to compete with the
Bank in any of its businesses in the relevant market areas for such businesses
for varying periods following termination depending upon the reason therefor. If
Mr. Crowley's employment is prematurely terminated by the Bank without cause,
Mr. Crowley is eligible to receive severance payments in varying amounts
depending upon the date and manner of such termination.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to a Management Agreement dated March 1, 1996, between the
Company and the Bank, the Company provides certain services to the Bank,
including the services of an officer of the Company as Chairman of the Board of
Directors of the Bank, the services of another officer of the Company as a
member of the Board of Directors of the Bank, the services of one or more of the
Company's officers as members of the Bank's Loan, Compensation or any other
committees created by the Board of Directors of the Bank and the provision of
advisory services to the Bank. As compensation for these services, the Bank pays
the Company a management fee of $18,500 each month. The Bank paid a management
fee to the Company of $222,000 for each of the years ended June 30, 1997 and
1996.
The Company is indebted to each of its existing shareholders (except
Ms. Knox) in the aggregate principal amount of $3.2 million. Such debts are
evidenced by promissory notes, which are dated March 1, 1996, January 31, 1997
or September 30, 1997. The funds obtained in exchange for the issuance of the
notes were contributed as capital to the Bank. Interest on each of the Notes is
payable quarterly, provided, however, that such interest payments are due only
to the extent that such sums are available for payment pursuant to all
applicable federal banking regulations. The notes dated March 1, 1996 are due
March 1, 2006, the notes dated January 31, 1997 are due December 31, 2006 and
the notes dated September 30, 1997 are due September 30, 2007. These notes will
be repaid upon consummation of the Offering. There is no premium or penalty for
early repayment of these notes.
The Bank's headquarters and Center City Philadelphia branch, located at
1230 Walnut Street, are leased from Walnut Square Partners, a partnership
controlled by Ronald L. Caplan, a director of the Company and the Bank. The
Lease covers approximately 6,000 square feet of space on the first and second
floors of the property. The lease expires in 2014, assuming the Bank exercises
its option to renew the lease for two additional terms of five years each. The
base rent under the lease is $48,000 per annum for the initial ten year term.
The base rent increases to $60,000 and $72,000 per annum for the first and
second optional renewal terms, respectively. The terms of the lease were reached
through arms length negotiations and are comparable to the terms the Company
could have obtained from a third party.
QUEST, a wholly-owned subsidiary of the Bank, has formed a partnership
with Ronald L. Caplan, a director of the Company, through which the partnership
acquired an office building located at 1334-36 Walnut Street for a total price
of $410,000. CMC leases approximately 3,600 square feet of space in this
building at an annual rent of $36,000, and beginning January 1998, CMC intends
to lease an additional 2,400 square feet of space in this building at an annual
rent of $24,000. The terms of CMC's lease were reached through arms length
negotiations and are comparable to the terms the Company could have obtained
from a third party.
The Bank has made loans to or to entities controlled by officers,
directors and employees of the Company and the Bank. All such loans were made in
the ordinary course of the Bank's business, were made on substantially the same
terms, including interest rates and collateral requirements, as those prevailing
at the time for comparable transactions with unrelated persons and, in the
opinion of management, do not involve more than the normal risk of
collectibility or present other unfavorable features.
63
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of December 1, 1997, the shares of
Common Stock beneficially owned by (i) each person who was a beneficial owner of
more than five percent of the outstanding Common Stock; (ii) each director and
executive officer of the Company; and (iii) all executive officers and directors
of the Company as a group.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent of Class Percent of Class
Beneficial Owner(1) Beneficial Ownership(2) Before Offering After Offering
- ------------------- ----------------------- ----------------- ----------------
<S> <C> <C> <C>
Thomas J. Knox(3) 1,484,000 59.36% 42.40%
Bruce A. Levy 690,000 29.36 19.71
Joseph T. Crowley -- -- --
Paul Bachow -- -- --
Ronald L. Caplan 10,000 * *
D. Walter Cohen 10,000 * *
Daniel DiLella 10,000 * *
Linda R. Knox(4) 126,000 5.04 3,60
Joel Lawson III 10,000 * *
Brian McAdams 10,000 * *
Jeffrey K. Rafsky 150,000 6.00 4.29
All directors and officers as a
group (10 persons) 2,350,000 94.00% 67.14%
</TABLE>
- --------------------
* Constitutes less than 1%.
(1) Unless otherwise indicated, the address of all beneficial owners other
than Mr. Rafsky is in care of the Company. Mr. Rafsky's address is
1110 Centennial Road, Narberth, Pennsylvania 19072.
(2) Unless otherwise indicated, includes shares held directly by the
individual as well as by such individual's spouse, shares held in trust
and in other forms of indirect ownership over which shares the
individual effectively exercises sole voting and investment power and
shares which the named individual has a right to acquire pursuant to
the exercise of stock options within sixty days of December 1, 1997.
(3) Excludes 126,000 shares of Common Stock held by Linda R. Knox in trust
for the children of Linda R. and Thomas J. Knox, as to which he
disclaims beneficial ownership.
(4) All shares of Common Stock held in trust for the children of Linda R.
and Thomas J. Knox. Does not include 1,484,000 shares beneficially
owned by her husband, Thomas J. Knox, as to which shares she disclaims
beneficial ownership.
64
<PAGE>
CERTAIN RESTRICTIONS ON ACQUISITION OF
THE COMPANY AND THE BANK
Federal laws and regulations contain a number of provisions which
govern the acquisition of insured institutions such as the Bank and savings and
loan holding companies such as the Company. The Change in Bank Control Act
provides that no person, acting directly or indirectly or through or in concert
with one or more persons, may acquire control of a savings association unless
the OTS has been given 60 days' prior written notice and the OTS does not issue
a notice disapproving the proposed acquisition. In addition, certain provisions
of the HOLA provide that no company may acquire control of a thrift without the
prior approval of the OTS. Any company that acquires such control becomes a
"savings and loan holding company" subject to registration, examination and
regulation by the OTS.
Pursuant to applicable regulations, control of a savings association is
conclusively deemed to have been acquired by, among other things, the
acquisition of more than 25% of any class of voting stock of a savings
association or the ability to control the election of a majority of the
directors of an institution. Moreover, control is presumed to have been
acquired, subject to rebuttal, upon the acquisition of more than 10% of any
class of voting stock, or more than 25% of any class of stock, of a savings
association, where one or more enumerated "control factors" are also present in
the acquisition. The OTS may prohibit an acquisition of control if it finds,
among other things, that (i) the acquisition would result in a monopoly or
substantially lessen competition, (ii) the financial condition of the acquiring
person might jeopardize the financial stability of the savings association, or
(iii) the competence, experience or integrity of the acquiring person indicates
that it would not be in the interest of the depositors or the public to permit
the acquisition of control by such person. The foregoing restrictions do not
apply to the acquisition of the Company's capital stock by one or more
tax-qualified employee stock benefit plans, provided that the plan or plans do
not have beneficial ownership in the aggregate of more than 25% of any class of
equity security.
CERTAIN ANTI-TAKEOVER PROVISIONS IN
THE ARTICLES OF INCORPORATION AND BYLAWS
The Company is incorporated under the laws of the Commonwealth of
Pennsylvania. The Pennsylvania Business Corporation Law of 1988, as amended (the
"1988 BCL"), includes certain shareholder protection provisions, some of which
apply to the Company and four of which, relating to "Disgorgement by Certain
Controlling Shareholders," "Control Share Acquisitions," "Control Transactions"
and "Business Combinations," the Company has specifically opted out of pursuant
to an amendment to its Articles of Incorporation. In addition, the
Company has adopted other shareholder protection provisions in its Bylaws.
While the Boards of Directors of the Bank and the Company are not aware
of any effort that might be made to obtain control of the Company, the Board of
Directors, as discussed below, believes that it is appropriate to include
certain provisions as part of the Company's Articles of Incorporation to protect
the interests of the Company and its shareholders from hostile takeovers which
the Board of Directors might conclude are not in the best interests of the Bank,
the Company or the Company's shareholders. These provisions may have the effect
of discouraging a future takeover attempt which is not approved by the Board of
Directors but which individual shareholders may deem to be in their best
interests or in which shareholders may receive a substantial premium for their
shares over then current market prices. As a result, shareholders who might
desire to participate in such a transaction may not have an opportunity to do
so. Such provisions will also render the removal of the current Board of
Directors or management of the Company more difficult.
65
<PAGE>
The following discussion is a general summary of the material
provisions of the Articles of Incorporation, Bylaws and 1988 BCL that apply to
the Company and that may be deemed to have such an "anti-takeover" effect. The
description of these provisions is necessarily general and reference should be
made in each case to the Articles of Incorporation and Bylaws of the Company and
the 1988 BCL. For information regarding how to obtain a copy of these documents
without charge, see "Available Information."
Action by Written Consent of Shareholders
The Company's Articles of Incorporation and Bylaws allow a majority of
its shareholders to act by written consent, without a meeting, on any matter
required or permitted to be taken at a meeting of the shareholders with prompt
notice of such action given to those shareholders who have not consented.
Board Consideration of Certain Nonmonetary Factors in the Event of an Offer by
Another Party
The 1988 BCL permits the Board of Directors, committees of the Board of
Directors and individual directors, in evaluating a business combination or a
tender or exchange offer, to consider, in addition to the adequacy of the amount
to be paid in connection with any such transaction, certain specified factors
and any other factors the Board deems relevant, including (i) the effects of any
action upon shareholders, employees, suppliers, customers and creditors of the
corporation, (ii) the short-term and long-term interests of the corporation,
including benefits that may accrue to the corporation from its long-term plans
and the possibility that these interests may be best served by the continued
independence of the corporation, (iii) the resources, intent and conduct (past,
stated and potential) of any person seeking to acquire control of the
corporation and (iv) all other pertinent factors. Further, the Board of
Directors, committees of the Board and individual directors are not required, in
considering the best interests of the corporation or the effects of any action,
to regard any corporate interest or the interests of any particular group
affected by such action as a dominant or controlling interest or factor. The
consideration of the foregoing factors does not constitute a violation of the
applicable standard of care. Such provisions in the 1988 BCL, may put the Board
of Directors in a stronger position to oppose any proposed business combination,
tender or exchange offer if the Board concludes that the transaction would not
be in the best interest of the Company, even if the price offered is
significantly greater than the then market price of any equity security of the
Company.
Authorization of Preferred Stock
The Company's Articles of Incorporation authorize the issuance of up to
5,000,000 shares of preferred stock, which conceivably would represent an
additional class of stock required to approve any proposed acquisition. The
Company is authorized to issue preferred stock from time to time in one or more
series subject to applicable provisions of law, and the Board of Directors is
authorized to fix the designations, powers, preferences, dividends and relative
participating, optional and other special rights of such shares, including
voting rights (which could be multiple or as a separate class) and conversion
rights. Issuance of the preferred stock could adversely affect the relative
voting rights of holders of the Common Stock. In the event of a proposed merger,
tender offer or other attempt to gain control of the Company that the Board of
Directors does not approve, it might be possible for the Board of Directors to
authorize the issuance of a series of preferred stock with rights and
preferences that would impede the completion and, therefore, may deter such a
transaction. The Board of Directors has no present plans or understandings for
the issuance of any preferred stock and does not intend to issue any preferred
stock, except on terms which the Board of Directors deems to be in the best
interests of the Company and its shareholders. This preferred stock, none of
which has been issued by the Company, together with authorized but unissued
shares of Common Stock (the Articles of Incorporation authorize the issuance of
up to 20,000,000 shares of Common Stock), also could represent additional
capital required to be purchased by the acquiror.
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<PAGE>
Procedures for Shareholder Nominations
The Company's Bylaws provide that any shareholder desiring to make a
nomination for the election of directors at an annual meeting of shareholders
must submit written notice to the Chairman of the Board no later than 270 days
in advance of the anniversary date of the Company's proxy statement for the
Company's annual meeting of shareholders in the previous calendar year.
Amendment of Bylaws
The Company's Bylaws may only be amended by a majority vote of the
Company's Board of Directors with respect to those matters that are not by
statute committed expressly to the shareholders. The Company's Bylaws contain
numerous provisions concerning the Company's governance, such as fixing the
number of directors and determining the number of directors constituting a
quorum. By reducing the ability of a potential corporate raider to make changes
in the Company's Bylaws and to reduce the authority of the Board of Directors,
these provisions could have the effect of discouraging a tender offer or other
takeover attempt where the ability to make fundamental changes through Bylaw
amendments is an important element of the takeover strategy of the acquiror.
The Purpose of Anti-Takeover Provisions of the Company's Articles of
Incorporation and Bylaws
The Board of Directors of the Company believes that the provisions
described above reduce the Company's vulnerability to takeover attempts and
certain other transactions which have not been negotiated with and approved by
its Board of Directors. These provisions will also assist the Company in the
orderly deployment of the net proceeds of the Offering into productive assets.
The Board of Directors of the Company believe these provisions are in the best
interest of the Company and its shareholders. In the judgment of the Board of
Directors of the Company, it is in the best position to consider all relevant
factors and to negotiate for what is in the best interests of the shareholders
and the Company's other constituents. Accordingly, the Board of Directors of the
Company believes that it is in the best interest of the Company and its
shareholders to encourage potential acquirors to negotiate directly with the
Company's Board of Directors and that these provisions will encourage such
negotiations and discourage non-negotiated takeover attempts. It is also the
view of the Board of Directors that these provisions should not discourage
persons from proposing a merger or other transaction at prices reflective of the
true value of the Company and which is in the best interests of all
shareholders.
Attempts to acquire control of financial institutions and their holding
companies have become increasingly common. Takeover attempts which have not been
negotiated with and approved by the Board of Directors present to shareholders
the risk of a takeover on terms which may be less favorable than might otherwise
be available. A transaction which is negotiated and approved by the Board of
Directors, on the other hand, can be carefully planned and undertaken at an
opportune time in order to obtain maximum value for the Company and
shareholders, with due consideration given to matters such as the management and
business of the acquiring corporation and maximum strategic development of the
Company's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause great expense. Although a tender offer or
other takeover attempt may be made at a price substantially above then current
market prices, such offers are sometimes made for less than all the outstanding
shares of a target company. As a result, shareholders may be presented with the
alternative of partially liquidating their investment at a time that may be
disadvantageous, or retaining their investment in an enterprise which is under
different management and whose objectives may not be similar to those of the
remaining shareholders.
Despite the belief of the Company as to the benefits to shareholders of
these provisions of its Articles of Incorporation and Bylaws, these provisions
may also have the effect of discouraging a future takeover attempt which would
not be approved by the Company's Board, but pursuant to which the
67
<PAGE>
shareholders may receive a substantial premium for their shares over then
current market prices. As a result, shareholders who might desire to participate
in such a transaction may not have any opportunity to do so. Such provisions
will also render the removal of the Company's Board of Directors and management
more difficult and may tend to depress the Company's stock price, thus limiting
gains which might otherwise be reflected in price increases due to a potential
merger or acquisition. The Board of Directors, however, has concluded that the
potential benefits of these provisions outweigh the possible disadvantages.
Pursuant to applicable regulations, at any annual or special meeting of its
shareholders after the Offering, the Company may adopt additional Articles of
Incorporation provisions regarding the acquisition of its equity securities that
would be permitted to a Pennsylvania corporation.
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<PAGE>
DESCRIPTION OF THE CAPITAL STOCK
The Company is authorized to issue 5,000,000 shares of preferred stock,
$0.01 par value per share, and 20,000,000 shares of Common Stock, $0.01 par
value per share. There were 2,350,000 shares of Common Stock outstanding on
September 30, 1997, as adjusted to give effect to the two-for-one split of the
Common Stock effected in the form of a stock dividend. There are no outstanding
shares of preferred stock.
Common Stock
Dividends
The Company can pay dividends out of statutory surplus or from certain
net profits if, as and when declared by its Board. The payment of dividends by
the Company is subject to limitations which are imposed by law and applicable
regulation. See "Dividends" and "Supervision and Regulation." The holders of
Common Stock will be entitled to receive and share equally in such dividends as
may be declared by the Board out of funds legally available therefor. If the
Company issues preferred stock, the holders thereof may have a priority over the
holders of the Common Stock with respect to dividends.
Voting Rights
Each share of Common Stock has the same relative rights and is
identical in all respects to every other share of Common Stock. The holders of
Common Stock possess exclusive voting rights in the Company, except to the
extent that shares of preferred stock issued in the future may have voting
rights, if any. Each holder of Common Stock is entitled to one vote for each
share held of record on all matters submitted to a vote of holders of Common
Stock and is not permitted to cumulate votes in the election of the Company's
directors.
Liquidation
In the event of liquidation, dissolution or winding up of the Company,
the holders of its Common Stock would be entitled to receive, after payment or
provision for payment of all its debts and liabilities, all of the assets of the
Company available for distribution. If preferred stock is issued, the holders
thereof may have a priority over the holders of the Common Stock in the event of
liquidation or dissolution.
Preferred Stock
Under the Company's Articles of Incorporation, the Board of Directors
of the Company may, from time to time, authorize the issuance of up to 5,000,000
shares of preferred stock, in one or more series, with such provisions as to
voting rights, dividend rates and preferences, redemption and convertibility,
and such preferences, privileges and powers, and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions of such series of preferred stock, as shall be stated in the
resolution of the Board of Directors providing for the issuance of the preferred
stock. The preferred stock may rank prior to Common Stock as to dividend rights
or liquidation preferences, or both, and may have super, limited or any other
voting rights. No preferred stock is currently outstanding nor will any be
issued in the Offering.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Common Stock
is .
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The Company's Articles of Incorporation authorize the issuance of
5,000,000 shares of preferred stock and 20,000,000 shares of Common Stock. Upon
completion of the Offering, there will be no outstanding shares of preferred
stock and 3,500,000 shares of Common Stock (3,650,000 shares if the
Underwriters' over-allotment option is exercised in full).
All shares of Common Stock issued in the Offering will be available for
resale in the public market without restriction or further registration under
the Securities Act. As of December 1, 1997, there were 2,500,000 shares of the
Company's Common Stock outstanding, of which approximately 2,350,000 shares will
be eligible for sale 90 days after the date of this Prospectus pursuant to Rule
144 under the Securities Act, subject to volume, notice and manner of sale
limitations in that rule. In addition, an aggregate of 2,350,000 shares of
Common Stock are beneficially owned by the Company's executive officers and
directors. All of the Company's executive officers and directors have agreed
that for a period of 180 days from the date of this Prospectus, they will not
sell, offer for sale or take any action that may constitute a transfer of shares
of Common Stock. There are also 20,000 shares subject to outstanding options.
Although the sale of the shares issued upon exercise of options will be
restricted under Rule 144, the sale of any number of shares of Common Stock in
the public market following the Offering could have an adverse impact on the
then prevailing market price of the shares.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including a person who may be deemed to be an
"affiliate" of the Company as that term is defined under the Securities Act, is
entitled to sell, within any three-month period, a number of restricted shares
as to which at least one year has elapsed from the later of the acquisition of
such shares from the Company or an affiliate of the Company in an amount that
does not exceed the greater of (i) one percent of the then outstanding shares of
Common Stock (35,000 shares based upon 3,500,000 shares to be outstanding
immediately after the Offering), or (ii) if the Common Stock is quoted on the
Nasdaq National Market or a stock exchange, the average weekly trading volume of
the Common Stock during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain requirements as to the manner of sale,
notice, and the availability of current public information about the Company.
However, a person who is not deemed to have been an affiliate of the Company
during the 90 days preceding a sale by such person and who has beneficially
owned shares as to which at least two years has elapsed from the latter of the
acquisition of such shares from the Company or an affiliate of the Company, is
entitled to sell them without regard to the volume, manner of sale, or notice
requirements of Rule 144.
70
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement") dated December , 1997, between the Company and
Advest, Inc., as the Representative of the several underwriters named therein
(the "Underwriters"), the Company has agreed to sell to the Underwriters, and
the Underwriters have severally agreed to purchase from the Company, the
following respective number of shares of Common Stock at the public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus:
Underwriter: Number of Shares:
------------ -----------------
Advest, Inc.
---------
Total 1,000,000
=========
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the Common Stock offered hereby if any of such
Common Stock is purchased.
The Company has been advised by the Representative that the
Underwriters propose to offer the shares of Common Stock to the public at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to certain other dealers. After the Offering,
the public offering price, concession and reallowance to dealers may be changed
by the Representative. No such change shall affect the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus. In
addition, the Company has agreed to pay a financial advisory fee of $75,000 to
the Representative.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to an
additional 150,000 shares of Common Stock at the public offering price. To the
extent that the Underwriters exercise such option, the Company will be
obligated, pursuant to the option, to sell such Common Stock to the
Underwriters. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the Common Stock offered
hereby. If purchased, the Underwriters will offer such additional shares of
Common Stock on the same terms as those on which the 1,000,000 shares are being
offered.
The Company and its officers and directors (who beneficially own an
aggregate of 2,350,000 shares of Common Stock, or 70.15% of the outstanding
Common Stock after giving effect to the Offering) have agreed for a period of
180 days after the date of this Prospectus not to, without the prior written
consent of the Representative, directly or indirectly offer, sell, contract to
sell or otherwise dispose of, any shares of Common Stock or enter into
71
<PAGE>
any swap or other agreement or any transaction that transfers, in whole or in
part, the economic consequences of ownership of shares of Common Stock, whether
any such swap or other agreement is to be settled by delivery of shares of
Common Stock, other securities, cash or otherwise; except for the issuance of
shares of Common Stock upon the exercise of stock options or warrants or the
conversion of convertible securities outstanding on the date of the Underwriting
Agreement to the extent such stock options, warrants and convertible securities
are disclosed herein and except for the grant to employees of stock options to
purchase shares of Common Stock which are not exercisable within 180 days after
the date of this Prospectus.
The initial public offering price of the shares of Common
Stock offered hereby has been determined by negotiations between the Company and
the Representative based on certain factors, in addition to prevailing market
conditions, including the history and prospects for the industry in which the
Company competes, an assessment of the Company's management, the prospects for
the Company, an evaluation of the Company's assets, comparisons of the
relationships between market prices and book values of other financial
institutions of a similar size and asset quality, and other factors that were
deemed relevant. Such determination was not based upon any actual trading market
for the Common Stock; accordingly, there can be no assurance that shares of
Common Stock may be resold at or above the price to public.
The Representative intends to make a market in the Common
Stock, as permitted by applicable laws and regulations. The Representative is
not, however, obligated to make a market in the Common Stock, and any such
market-making activities may be discontinued at any time in the sole discretion
of the Representative.
The Representative has informed the Company that the
Underwriters do not expect to confirm sales of shares of the Common Stock
offered hereby to any accounts over which they exercise discretionary
authority.
In connection with the Offering, certain Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the Offering,
creating a syndicate short position. In addition, the Underwriters may bid for
and purchase the Common Stock in the open market to cover syndicate short
positions or to stabilize the price of the Common Stock. Finally, the
underwriting syndicate may reclaim selling concessions from syndicate members if
the syndicate repurchases previously distributed Common Stock in syndicate
covering transactions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in these
activities and may end any of these activities at any time.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
The Representative and certain of the other Underwriters may in the
future perform various services for the Company, including investment banking
services, for which they may receive customary fees.
VALIDITY OF SECURITIES
The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by Ballard Spahr Andrews & Ingersoll, LLP,
Philadelphia, Pennsylvania. Certain legal matters will be passed upon for the
Underwriters by Wolf, Block, Schorr and Solis-Cohen LLP, Philadelphia,
Pennsylvania.
72
<PAGE>
EXPERTS
The Consolidated Financial Statements as of June 30, 1996 and 1997 and
for each of the three fiscal years in the period ended June 30, 1997, included
in this Prospectus and in the Registration Statement, of which this Prospectus
forms a part, have been audited by Grant Thornton LLP, independent certified
public accountants, whose report thereon appears herein and in the Registration
Statement. Such financial statements are included in reliance upon the report of
Grant Thornton LLP, given upon the authority of such firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1 (the
"Registration Statement") under the Securities Act, with respect to the shares
of Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, including the exhibits and
schedules thereto. For further information with respect to the Company and the
shares of Common Stock offered hereby, reference is made to the Registration
Statement, including the exhibits and schedules thereto. Statements contained in
this Prospectus as to the contents of any contract or other document are not
necessarily complete and, in each instance where such contract or document is
filed as an exhibit to the Registration Statement, reference is made to the copy
of such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. The
Company will furnish to its shareholders annual reports containing audited
financial statements and will make available copies of quarterly reports for the
first three quarters of each fiscal year containing unaudited interim financial
information. Copies of the Registration Statement, including exhibits and
schedules thereto, filed therewith, may be inspected without charge at the
public reference facilities of the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can also be obtained at prescribed rates by writing to
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such material also may be accessed electronically by
means of the Commission's home page on the World Wide Web at http://www.sec.gov.
73
<PAGE>
Page
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997 (UNAUDITED),
AND JUNE 30, 1997 AND 1996 F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED) AND THE YEARS
ENDED JUNE 30, 1997, 1996 AND 1995 F-4
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) AND THE YEARS
ENDED JUNE 30, 1997, 1996 AND 1995 F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 AND THE YEARS ENDED JUNE
30, 1997, 1996 AND 1995 F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7
F-1
<PAGE>
Report of Independent Certified Public Accountants
--------------------------------------------------
Board of Directors
Crusader Holding Corporation
We have audited the accompanying consolidated balance sheets of
Crusader Holding Corporation and Subsidiary as of June 30, 1997 and 1996, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended June 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Crusader Holding Corporation and Subsidiary as of June 30, 1997 and 1996, and
the consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended June 30, 1997, in conformity
with generally accepted accounting principles.
/s/ Grant Thornton LLP
- -----------------------------
Grant Thornton LLP
Philadelphia, Pennsylvania
December 9, 1997
F-2
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30,
September 30, --------------------
1997 1997 1996
------------- ---- ----
(unaudited)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 684,000 $ 325,000 $ 1,197,000
Loans held for sale (estimated market value of $16,870,000,
$6,338,000 and $1,683,000 at September 30, 1997,
June 30, 1997 and 1996, respectively) 16,767,000 6,244,000 1,659,000
Investment securities available-for-sale 4,085,000 6,299,000 3,970,000
Mortgage-backed securities available-for-sale 16,755,000 16,044,000 18,127,000
Loans receivable, net 93,857,000 85,992,000 53,604,000
Accrued interest receivable 834,000 815,000 574,000
Other real estate owned 105,000 - 81,000
Premises and equipment, net 890,000 880,000 411,000
Deferred income taxes - 201,000 262,000
Other assets 561,000 293,000 1,421,000
------------ ------------ -----------
Total assets $134,538,000 $117,093,000 $81,307,000
============ ============ ===========
LIABILITIES
Deposits $110,625,000 $ 95,906,000 $59,624,000
Advances from Federal Home Loan Bank 4,350,000 8,950,000 9,500,000
Securities sold under agreements to repurchase 10,780,000 5,780,000 7,151,000
Shareholders' notes 3,238,000 2,990,000 2,918,000
Advances from borrowers for taxes and insurance 315,000 270,000 346,000
Other liabilities 1,295,000 233,000 209,000
------------ ------------ -----------
Total liabilities 130,603,000 114,129,000 79,748,000
------------ ------------ -----------
MINORITY INTEREST 64,000 69,000 47,000
------------ ------------ -----------
SHAREHOLDERS' EQUITY
Preferred stock - authorized, 5,000,000 shares of $0.01
par value; none outstanding - - -
Common stock - authorized, 20,000,000 shares of $0.01
par value; 2,350,000, 2,170,000 and 2,000,000 shares issued
and outstanding at September 30, 1997 and June 30, 1997
and 1996, respectively 23,500 10,850 10,000
Additional paid-in capital 2,317,000 2,065,900 1,814,750
Retained earnings (accumulated deficit) 1,517,500 864,250 (97,750)
Net unrealized gains (losses) on securities available-for-sale 13,000 (46,000) (215,000)
------------ ------------ -----------
Total shareholders' equity 3,871,000 2,895,000 1,512,000
------------ ------------ -----------
Total liabilities and shareholders' equity $134,538,000 $117,093,000 $81,307,000
============ ============ ===========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months
ended September 30, Year ended June 30,
------------------------ -------------------------------------
1997 1996 1997 1996 1995
----------- ---------- ---------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $2,415,000 $1,264,000 $6,413,000 $3,903,000 $2,724,000
Investment securities, mortgage-backed securities
and loans held for sale 403,000 402,000 1,506,000 1,070,000 1,049,000
---------- ---------- ---------- ---------- ----------
Total interest income 2,818,000 1,666,000 7,919,000 4,973,000 3,773,000
---------- ---------- ---------- ---------- ----------
INTEREST EXPENSE
Deposits 1,473,000 839,000 3,978,000 2,825,000 1,881,000
Borrowed funds 240,000 234,000 995,000 543,000 665,000
Shareholder notes 38,000 38,000 157,000 191,000 135,000
---------- ---------- ---------- ---------- ----------
Total interest expense 1,751,000 1,111,000 5,130,000 3,559,000 2,681,000
---------- ---------- ---------- ---------- ----------
Net interest income 1,067,000 555,000 2,789,000 1,414,000 1,092,000
PROVISION FOR LOAN LOSSES 15,000 11,000 58,000 42,000 30,000
---------- ---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 1,052,000 544,000 2,731,000 1,372,000 1,062,000
---------- ----------- ---------- ---------- ----------
NON-INTEREST INCOME
Service charges on deposit accounts and other fees 46,000 18,000 112,000 114,000 41,000
Conforming mortgage banking revenues 108,000 77,000 309,000 272,000 107,000
Non-interest income from Crusader Mortgage
Corporation 833,000 177,000 1,074,000 - -
Other 14,000 36,000 90,000 31,000 51,000
---------- ---------- ---------- ---------- ----------
Total non-interest income 1,001,000 308,000 1,585,000 417,000 199,000
---------- ----------- ---------- ----------- -----------
NON-INTEREST EXPENSES
Employee compensation and benefits 234,000 201,000 799,000 802,000 560,000
Data processing 26,000 18,000 93,000 55,000 53,000
Federal insurance premiums 13,000 327,000 375,000 112,000 81,000
Occupancy and equipment 75,000 69,000 294,000 268,000 242,000
Professional fees 16,000 14,000 86,000 71,000 91,000
Management fee to shareholders - - - - 24,000
Crusader Mortgage Corporation expenses 562,000 118,000 886,000 - -
Other operating 85,000 51,000 329,000 308,000 295,000
---------- ---------- ---------- ---------- ----------
Total non-interest expenses 1,011,000 798,000 2,862,000 1,616,000 1,346,000
---------- ----------- ---------- ---------- ----------
Income (loss) before income tax expense
(benefit) 1,042,000 54,000 1,454,000 173,000 (85,000)
INCOME TAX EXPENSE (BENEFIT) 358,000 19,000 480,000 61,000 (20,000)
---------- ---------- ---------- ---------- ----------
Income (loss) before minority interest 684,000 35,000 974,000 112,000 (65,000)
Minority interest 19,000 - 12,000 - -
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 665,000 $ 35,000 $ 962,000 $ 112,000 $ (65,000)
========== ========== ========== ========== ==========
Net income (loss) per share $ 0.31 $ 0.02 $ 0.46 $ 0.07 $ (0.05)
========== ========== ========== ========== ==========
Weighted average shares outstanding 2,170,000 2,000,000 2,083,333 1,600,000 1,400,000
========== ========== ========== ========== ==========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Consolidated Statement of Shareholders' Equity
Three months ended September 30, 1997 (unaudited) and years ended June 30, 1997,
1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Retained Net unrealized
earnings gains (losses) on Total
Common Additional (accumulated securities shareholders'
stock paid-in capital deficit) available-for-sale equity
-------- ---------------- ------------ -------------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1994 $ 250 $1,375,750 $ (138,000) $ - $1,238,000
Net loss - - (65,000) - (65,000)
Net unrealized gain on securities
available-for-sale - - - 24,000 24,000
------- ---------- ---------- --------- ----------
Balance at June 30, 1995 250 1,375,750 (203,000) 24,000 1,197,000
Issuance of Common Stock 3,000 439,000 - - 442,000
28 for 1 stock split 6,750 - (6,750) - -
Net income - - 112,000 - 112,000
Net unrealized loss on securities
available-for-sale - - - (239,000) (239,000)
------- ---------- ---------- --------- ----------
Balance at June 30, 1996 10,000 1,814,750 (97,750) (215,000) 1,512,000
Issuance of Common Stock 850 251,150 - - 252,000
Net income - - 962,000 - 962,000
Net unrealized gain on securities
available-for-sale - - - 169,000 169,000
------- ---------- ---------- --------- ----------
Balance at June 30, 1997 10,850 2,065,900 864,250 (46,000) 2,895,000
Net income - - 665,000 - 665,000
Issuance of Common Stock 900 251,100 - - 252,000
2 for 1 stock split 11,750 - (11,750) - -
Net unrealized gain on securities
available-for-sale - - - 59,000 59,000
------- ---------- ---------- --------- ----------
Balance at September 30, 1997 $23,500 $2,317,000 $1,517,500 $ 13,000 $3,871,000
======= ========== ========== ========= ==========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months
ended September 30, Year ended June 30,
------------------------- ---------------------------------------
1997 1996 1997 1996 1995
------------ ----------- ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 665,000 $ 35,000 $ 961,000 $ 112,000 $ (65,000)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities
Amortization of premiums and discounts on loans,
mortgage-backed securities and investments 77,000 127,000 222,000 92,000 48,000
Provision for loan losses 15,000 11,000 58,000 42,000 30,000
Net gain on sale of loans held for sale (105,000) (77,000) (309,000) (272,000) (107,000)
Depreciation and amortization of premises
and equipment 34,000 29,000 127,000 112,000 105,000
Proceeds from sale of loans held for sale 20,431,000 8,080,000 39,592,000 19,874,000 20,588,000
Originations of loans held for sale (30,849,000) (7,872,000) (43,868,000) (19,735,000) (21,317,000)
Increase in accrued interest receivable (19,000) (42,000) (241,000) (38,000) (151,000)
Decrease (increase) in deferred income taxes 127,000 45,000 74,000 (24,000) 20,000
Other, net 259,000 1,407,000 1,173,000 (1,001,000) (179,000)
------------ ----------- ------------ ------------ ------------
Net cash (used in) provided by
operating activities (9,365,000) 1,743,000 (2,211,000) (838,000) (1,028,000)
------------ ----------- ------------ ------------ ------------
INVESTING ACTIVITIES
Net increase in loans (7,760,000) (9,086,000) (32,725,000) (10,110,000) (19,210,000)
Purchase of investment securities available-for-sale - (1,000,000) (3,348,000) (1,000,000) (2,688,000)
Purchase of mortgage-backed securities available-for-sale (3,255,000) - (2,596,000) (14,027,000) (3,428,000)
Repayments of principal on investment securities
available-for-sale 80,000 152,000 1,014,000 3,267,000 225,000
Repayments of principal on mortgage-backed securities
available-for-sale 936,000 776,000 2,728,000 2,725,000 4,000
Repayments of principal on mortgage-backed securities
held-to-maturity - - - - 1,974,000
Proceeds from sale of mortgage-backed securities
available-for-sale 3,978,000 - 1,936,000 3,192,000 -
Proceeds from sale of property acquired through loan
foreclosure actions 105,000 77,000 337,000 59,000 56,000
Purchases of premises and equipment (24,000) (47,000) (596,000) (25,000) (269,000)
------------ ----------- ------------ ------------ ------------
Net cash used in investing activities (5,940,000) (9,128,000) (33,250,000) (15,919,000) (23,336,000)
------------ ----------- ------------ ------------ ------------
FINANCING ACTIVITIES
Net increase in deposits 14,719,000 6,757,000 36,260,000 12,088,000 20,350,000
Advances from Federal Home Loan Bank, net 400,000 50,000 (1,921,000) 4,554,000 2,695,000
Increase (decrease) in advance payments by
borrowers for taxes and insurance 45,000 (65,000) (75,000) (229,000) 310,000
Proceeds from shareholder's notes 248,000 - 73,000 876,000 1,090,000
Proceeds from issuance of Common Stock 252,000 - 252,000 442,000 -
------------ ----------- ------------ ------------ ------------
Net cash provided by financing activities 15,664,000 6,742,000 34,589,000 17,731,000 24,445,000
------------ ----------- ------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents 359,000 (643,000) (872,000) 974,000 81,000
Cash and cash equivalents at beginning of year 325,000 1,197,000 1,197,000 223,000 142,000
------------ ----------- ------------ ------------ ------------
Cash and cash equivalents at end of year $ 684,000 $ 554,000 $ 325,000 $ 1,197,000 $ 223,000
============ =========== ============= ============ ============
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Crusader Holding Corporation (the Company) is the holding company for its
wholly-owned subsidiary, Crusader Savings Bank (the Bank), a federally
chartered savings bank. See note B for additional information regarding
majority and wholly-owned subsidiaries of the Bank. The Bank provides
banking services to individual and corporate customers through its two
branches in Philadelphia County, Pennsylvania.
The Bank competes with other banking and financial institutions in its
primary markets. Commercial banks, savings banks, savings and loan
associations, mortgage bankers and brokers, credit unions and money market
funds actively compete for deposits and loans. Such institutions, as well as
consumer finance, mutual funds, insurance companies, and brokerage and
investment banking firms, may be considered competitors of the Bank with
respect to one or more of the services it renders.
The Bank is subject to regulations of certain state and federal agencies
and, accordingly, it is periodically examined by those regulatory
authorities. As a consequence of the extensive regulation of commercial
banking activities, the Bank's business is particularly susceptible to being
affected by state and federal legislation and regulations.
1. Basis of Financial Statement Presentation and Reporting Entity
--------------------------------------------------------------
The accounting and reporting policies of the Company conform with generally
accepted accounting principles and practices within the banking industry,
with respect to the Bank. All intercompany balances and transactions have
been eliminated. The accompanying consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiary, the Bank.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date
of the balance sheets and the reported amount of revenues and expenses
during the reported period. Therefore, actual results could differ from
those estimates.
The principal estimate that is susceptible to significant change in the near
term relates to the allowance for loan losses. The evaluation of the
adequacy of the allowance for loan losses includes an analysis of the
individual loans and overall risk characteristics and size of the different
loan portfolios, and takes into consideration current economic and market
conditions, the capability of specific borrowers to pay specific loan
obligations as well as current loan collateral values. However, actual
losses on specific loans, which also are encompassed in the analysis, may
vary from estimated losses.
The consolidated financial statements as of September 30, 1997 and for the
three months ended September 30, 1997 and 1996 are unaudited. In the opinion
of management, all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the financial position and
results of operations have been included. The results of operations for the
three months ended September 30, 1997 and 1996 are not necessarily
indicative of the results that may be attained for an entire fiscal year.
(Continued)
F-7
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
- --------------------------------------------------------------------------------
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting of
Comprehensive Income," which establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of financial statements. This statement also 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 is effective for fiscal years beginning after December 15,
1997. Earlier application is permitted. Reclassification of financial
statements for earlier periods provided for comparative purposes is
required. The Company does not anticipate that adoption of SFAS No. 130 will
have a material impact on the Company.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosure about Segments of an Enterprise and Related
Information" ("SFAS 131"), which establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that such enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. This statement also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. This statement requires the reporting of financial and
descriptive information about the enterprise's reportable operating
segments. This statement is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. The Company
does not anticipate that the adoption of SFAS 131 will have a material
impact on the Company's financial statements.
2. Financial Instruments
---------------------
The FASB issued SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," which requires all entities to disclose the estimated fair
value of their assets and liabilities considered to be financial
instruments. Financial instruments requiring disclosure consist primarily of
investment securities, mortgage-backed securities, loans, deposits and
borrowings.
3. Loans Held for Sale
-------------------
Included in loans held for sale are any loans which the Bank believes may be
involved in interest rate risk management or other decisions which might
reasonably result in such loans not being held until maturity. Any such
conforming loans are transferred to loans held for sale and valued at the
lower of aggregate cost or market, including considering of forward
commitments to sell, until ultimate disposition.
The FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," as amended by SFAS No.
127, which provides accounting guidance on transfers of financial assets,
servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996. The adoption of SFAS No. 125 did not have a
material impact on the Company's consolidated financial position or results
of operations.
(Continued)
F-8
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
- --------------------------------------------------------------------------------
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
4. Investment and Mortgage-Backed Securities
-----------------------------------------
Investments in securities are classified in one of two categories:
held-to-maturity and available-for-sale. Debt securities that the Bank has
the positive intent and ability to hold to maturity are classified as
held-to-maturity and are reported at amortized cost. As the Bank does not
engage in security trading, the balance of its debt securities and any
equity securities are classified as available-for-sale. Net unrealized gains
and losses for such securities, net of tax, are required to be recognized as
a separate component of shareholders' equity and excluded from the
determination of net income. Gains or losses on disposition are based on the
net proceeds and cost of the securities sold, adjusted for amortization of
premiums and accretion of discounts, using the specific identification
method.
5. Loans and Allowance for Loan Losses
-----------------------------------
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-off are stated at the amount of unpaid
principal and reduced by an allowance for loan losses. Interest on loans is
accrued and credited to operations based upon the principal amounts
outstanding. The allowance for loan losses is established through a
provision for possible loan losses charged to expenses. Loans are charged
against the allowance for loan losses when management believes that the
collectibility of the principal is unlikely. The allowance is an amount that
management believes will be adequate to absorb possible loan losses on
existing loans that may become uncollectible based on evaluations of the
collectibility of loans and prior loan loss experience. The evaluations take
into consideration such factors as changes in the nature and volume of the
loan portfolio, overall portfolio quality, review of specific problem loans
and current economic conditions that may affect the borrower's ability to
pay.
Management establishes reserves against interest accruals on loans when
principal and interest become 90 days or more past due and when management
believes, after considering economic and business conditions, collection
efforts and collateral, that the borrower's financial condition is such that
collection of interest is doubtful. Additionally, uncollectible interest on
loans that are contractually past due is charged off, or an allowance is
established based on management's periodic evaluation. The allowance is
established by a charge to interest income equal to all interest previously
accrued and income is subsequently recognized only to the extent that cash
payments are received until, in management's judgment, the borrower's
ability to make periodic interest and principal payments is back to normal,
in which case the loan is returned to accrual status.
The Bank adopted SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan," as amended by SFAS No. 118, "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures," on July 1, 1995. This new
standard requires that a creditor measure impairment based on the present
value of expected future cash flows discounted at the loan's effective
interest rate, except that as a practical expedient, a creditor may measure
impairment based on a loan's observable market price, or the fair value of
the collateral if the loan is collateral dependent. Regardless of the
measurement method, a creditor must measure impairment based on the fair
value of the collateral when the creditor determines that foreclosure is
probable. The adoption of SFAS No. 114, as amended by SFAS No. 118, did not
have a material impact on the Bank's financial condition or results of
operations.
(Continued)
F-9
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
- --------------------------------------------------------------------------------
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
6. Loan Fees
----------
The Bank defers loan fees, net of certain direct loan origination costs. The
balance is accreted into income as a yield adjustment over the life of the
loan using the interest method.
7. Other Real Estate Owned
-----------------------
Other real estate owned (OREO), representing property acquired through
foreclosure, is recorded at the estimated fair market value, less costs of
disposal. When property is acquired, the excess, if any, of the loan balance
over fair market value is charged to the allowance for possible loan losses.
Periodically thereafter, the asset is reviewed for subsequent declines in
the estimated fair market value. Subsequent declines, if any, and holding
costs, as well as gains and losses on subsequent sale, are included in the
consolidated statements of operations.
8. Premises and Equipment
----------------------
Premises and equipment are carried at cost. Depreciation and amortization
are generally computed on the straight-line method over the estimated useful
lives of the assets.
The FASB issued a new standard, SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which
provides guidance on when to recognize and how to measure impairment losses
of long-lived assets and certain identifiable intangibles and how to value
long-lived assets to be disposed of. At June 30, 1997, the Company and the
Bank had no such long-lived assets.
9. Income Taxes
------------
The Bank and its subsidiaries are included in the consolidated federal
income tax return of the Company. The Company is a party to a tax sharing
agreement with the Bank. Under the terms of the agreement, the Bank's share
of consolidated tax is computed on a separate company basis.
Under the liability method specified by SFAS No. 109, deferred tax assets
and liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities as measured by the enacted
tax rates which will be in effect when these differences reverse. Deferred
tax expense is the result of changes in deferred tax assets and liabilities.
The principal types of differences between assets and liabilities for
financial statement and tax return purposes are the allowance for loan
losses, deferred loan fees and interest reserves. The Company's effective
income tax rate differs from the federal effective rate primarily as a
result of state income taxes, net of federal benefit, lower rate brackets
and tax-exempt income.
10. Net Income (Loss) Per Share
---------------------------
Net income (loss) per share is computed based on the weighted average number
of common and common equivalent shares outstanding during each year. All
weighted average actual share or per share information in the financial
statements has been adjusted retroactively for the effect of stock
dividends. Supplemental earnings per share would have been $0.29 and $.47
for the quarter ended September 30, 1997 and the year ended June 30, 1997,
respectively, assuming that a sufficient number of shares of Common Stock
were issued at an assumed public offering price of $15 per share to permit
the Company to repay the debt to shareholders outstanding during the
respective periods with the proceeds from the sale of such shares.
(Continued)
F-10
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
- --------------------------------------------------------------------------------
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
10. Net Income (Loss) Per Share (Continued)
---------------------------
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share." SFAS
No. 128 establishes standards for computing and presenting earnings per
share (EPS) and applies to entities with publicly held common stock or
potential common stock. This statement simplifies the standards for
computing EPS previously found in Accounting Principles Board (APB) Opinion
No. 15, "Earnings per share," and makes them comparable to international EPS
standards. It replaces the presentation of primary EPS with a presentation
of basic EPS and requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of
the basic EPS computation to the numerator and denominator of the diluted
EPS computation. SFAS No. 128 is effective for financial statements issued
for periods endings after December 15, 1997, including interim periods;
earlier application is not permitted. This statement requires restatement of
all prior period EPS and diluted EPS under SFAS No. 128 and will not have a
material impact on the Company.
11. Supplemental Cash Flow Information
----------------------------------
The Company and the Bank consider cash on hand, amounts due from banks and
federal funds sold as cash equivalents. Generally, federal funds are
purchased and sold for one-day periods. Other supplemental cash flow
information is as follows:
<TABLE>
<CAPTION>
September 30, June 30,
-------------------------------- -----------------------------------------
1997 1996 1997 1996 1995
------------ ------------ ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash payments for interest $1,711,000 $1,066,000 $5,041,000 $3,292,000 $2,594,000
Cash payments for income taxes 160,000 19,000 - 82,000 -
Transfer of loans into property
acquired through loan
foreclosure actions 105,000 - 337,000 81,000 59,000
Transfer of investment securities
to available-for-sale - - - 2,032,000 451,000
Transfer of mortgage-backed
securities held-to-maturity to
mortgage-backed securities
available-for-sale - - - 7,106,000 1,353,000
</TABLE>
12. Advertising Costs
-----------------
It is the Company's and the Bank's policy to expense advertising costs in
the period in which they are incurred. Advertising expense for both the
three months ended September 30, 1997 and 1996 was approximately $6,000, and
for the years ended June 30, 1997, 1996 and 1995 was approximately $25,000,
$24,000 and $34,000, respectively.
(Continued)
F-11
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
- --------------------------------------------------------------------------------
13. Reclassification
-----------------
Certain prior year amounts have been reclassified to conform to the current
year presentation.
NOTE B - BANKING SUBSIDIARIES
The Bank has four majority-owned subsidiaries and two wholly-owned
subsidiaries. They are as follows:
1. Crusader Mortgage Corporation
------------------------------
In July 1996, the Bank formed Crusader Mortgage Corporation (CMC) for
pursuing the origination and acquisition for resale of non-conforming
mortgages. Initially, the Bank maintained a 51% controlling interest in CMC,
which was subsequently increased to 67.5% in September 1997 and 100%
effective November 1997.
The total revenue, income before income taxes and total assets for this
segment of the business is as follows:
<TABLE>
<CAPTION>
Bank CMC Consolidated
------------ ---------- ------------
<S> <C> <C> <C>
Three months ended September 30, 1997 (unaudited)
Total interest income and non-interest income $ 2,879,000 $ 940,000 $ 3,819,000
Income before income taxes 664,000 378,000 1,042,000
Total assets, end of period 133,773,000 765,000 134,538,000
Three months ended September 30, 1996 (unaudited)
Total interest income and non-interest income 1,777,000 197,000 1,974,000
Income before income taxes (25,000) 79,000 54,000
Total assets, end of period 88,518,000 185,000 88,703,000
Year ended June 30, 1997
Total interest income and non-interest income 8,322,000 1,182,000 9,504,000
Income before income taxes 1,058,000 396,000 1,454,000
Total assets, end of year 116,744,000 349,000 117,093,000
</TABLE>
2. Other
-----
Crusader Servicing Corporation, a 60% owned subsidiary that commenced
operations in August 1996, acquires, through auction, delinquent property
tax liens in various jurisdictions throughout the country, assuming a lien
position that is generally superior to any mortgage liens on the property
and obtaining certain foreclosure rights as defined by local statute. Quest
Holding Corporation, a wholly-owned subsidiary, periodically holds title to
the real estate holdings of the Bank acquired through foreclosure, pending
resale of such property. Asset Investment Corporation , a wholly-owned
subsidiary, holds the title to the Bank's multi-family and commercial loan
portfolios. Crusader Mortgage Corporation of Delaware, a 51% owned
subsidiary that commenced operations in October 1997, maintains a conforming
and nonconforming residential mortgage lending operation in Wilmington,
Delaware. National Chinese Mortgage, a 51% owned subsidiary that commenced
operations in December 1997, markets loans on an affinity group basis to the
U.S. Chinese community.
F-12
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
- --------------------------------------------------------------------------------
NOTE C - LOANS HELD FOR SALE
Loans held for sale are as follows:
<TABLE>
<CAPTION>
September 30, 1997
---------------------------------------------------------------
Gross Gross Fair
unrealized unrealized market
Cost gains losses value
----------- ---------- ----------- ---------
(unaudited)
<S> <C> <C> <C> <C>
First mortgage loans $16,767,000 $103,000 $ - $16,870,000
=========== ======== ========== ==========
June 30, 1997
---------------------------------------------------------------
Gross Gross Fair
unrealized unrealized market
Cost gains losses value
----------- ---------- ----------- ---------
First mortgage loans $ 6,244,000 $ 94,000 $ - $ 6,338,000
=========== ======== ========== ===========
June 30, 1996
---------------------------------------------------------------
Gross Gross Fair
unrealized unrealized market
Cost gains losses value
----------- ---------- ----------- ---------
First mortgage loans $ 1,659,000 $ 24,000 $ - $ 1,683,000
=========== ======== ========== ===========
</TABLE>
NOTE D - INVESTMENT SECURITIES
The amortized cost, unrealized gains and losses, and fair market value of
the Bank's available-for-sale and mortgage-backed securities are as follows:
<TABLE>
<CAPTION>
September 30, 1997
---------------------------------------------------------------
Gross Gross Fair
Amortized unrealized unrealized market
Cost gains losses value
----------- ---------- ----------- ---------
(unaudited)
<S> <C> <C> <C> <C>
Investment securities
U.S. Government agencies $ 3,302,000 $ - $ 3,000 $ 3,299,000
FHLB stock 786,000 - - 786,000
---------- ------ ---------- ----------
4,088,000 - 3,000 4,085,000
Mortgage-backed securities 16,732,000 65,000 42,000 16,755,000
---------- ------- ---------- ----------
$20,820,000 $ 65,000 $ 45,000 $20,840,000
=========== ======== =========== ===========
</TABLE>
(Continued)
F-13
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
- --------------------------------------------------------------------------------
NOTE D - INVESTMENT SECURITIES - Continued
<TABLE>
<CAPTION>
June 30, 1997
---------------------------------------------------------------
Gross Gross Fair
Amortized unrealized unrealized market
Cost gains losses value
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Investment securities
U.S. Government agencies $ 4,375,000 $ - $ 11,000 $ 4,364,000
SBA pools 1,119,000 - 7,000 1,112,000
FHLB stock 823,000 - - 823,000
---------- -------- ------- ----------
6,317,000 - 18,000 6,299,000
Mortgage-backed securities 16,095,000 38,000 89,000 16,044,000
---------- -------- ------- ----------
$22,412,000 $ 38,000 $107,000 $22,343,000
========== ========= ======== ===========
June 30, 1996
---------------------------------------------------------------
Gross Gross Fair
Amortized unrealized unrealized market
Cost gains losses value
----------- ---------- ----------- ---------
Investment securities
U.S. Government agencies $ 1,971,000 $ - $ 30,000 $ 1,941,000
SBA pools 1,556,000 - 2,000 1,554,000
FHLB stock 475,000 - - 475,000
---------- -------- ------- ----------
4,002,000 - 32,000 3,970,000
Mortgage-backed securities 18,432,000 4,000 309,000 18,127,000
---------- -------- ------- ----------
$22,434,000 $ 4,000 $341,000 $22,097,000
=========== ========= ======== ===========
</TABLE>
(Continued)
F-14
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
- --------------------------------------------------------------------------------
NOTE D - INVESTMENT SECURITIES - Continued
The amortized cost and fair market value of investment and mortgage-backed
securities, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right
to call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
September 30, 1997 June 30, 1997
----------------------------- ----------------------------
Available-for-sale Available-for-sale
----------------------------- ----------------------------
Fair Fair
Amortized market Amortized market
cost value cost value
----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Investment securities
Due in one year or less $ 600,000 $ 597,000 $ - $ -
Due after one year through five years 2,702,000 2,702,000 4,375,000 4,364,000
Due after five years through ten years - - 1,119,000 1,112,000
----------- ---------- ----------- -----------
3,302,000 3,299,000 5,494,000 5,476,000
Mortgage-backed securities 16,732,000 16,755,000 16,095,000 16,044,000
FHLB stock 786,000 786,000 823,000 823,000
----------- ----------- ----------- -----------
$20,820,000 $20,840,000 $22,412,000 $22,343,000
=========== =========== =========== ===========
</TABLE>
On November 15, 1995, the FASB issued a Special Report entitled "A Guide to
Implementation of Statement No. 115 on Accounting for Certain Investments in
Debt and Equity Securities." This guide allows enterprises to reassess the
appropriateness of the classification of all securities held. A one-time
reassessment can be made on one day between November 15, 1995 and December
31, 1995. Reclassifications from the held-to-maturity category that result
from this one-time reassessment will not call into question the intent of an
enterprise to hold other debt and equity securities to maturity in the
future.
Based on this Special Report, on December 31, 1995, management of the Bank
reclassified approximately $7,106,000 of investment and mortgage-backed
securities from the held-to-maturity category to the available-for-sale
category. The transfer was made to satisfy asset/liability management
objectives and provide an additional source of liquidity to originate and
purchase loans in 1996. The transfer was made at fair value and resulted in
an estimated net unrealized loss of approximately $41,000 and a decrease in
retained earnings of approximately $26,000, net of income taxes, based on
current market values.
F-15
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
- --------------------------------------------------------------------------------
NOTE E - MORTGAGE-BACKED SECURITIES
The amortized cost, unrealized gains and losses, and fair market values of
the Bank's available-for-sale securities are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1997
-----------------------------------------------------------------
Gross Gross Fair
Amortized unrealized unrealized market
cost gains losses value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Available-for-sale
FHLMC certificates $ 7,257,000 $47,000 $ 8,000 $ 7,296,000
GNMA certificates 4,039,000 18,000 3,000 4,054,000
FNMA certificates 5,436,000 - 31,000 5,405,000
---------- ------ ------ ----------
$16,732,000 $65,000 $42,000 $16,755,000
========== ====== ====== ==========
June 30, 1997
-----------------------------------------------------------------
Gross Gross Fair
Amortized unrealized unrealized market
cost gains losses value
----------- ---------- ---------- -----------
Available-for-sale
FHLMC certificates $ 7,601,000 $14,000 $ 47,000 $ 7,568,000
GNMA certificates 6,305,000 23,000 15,000 6,313,000
FNMA certificates 2,189,000 1,000 27,000 2,163,000
---------- ------ ------- ---------
$16,095,000 $38,000 $ 89,000 $16,044,000
========== ====== ======= ==========
June 30, 1996
-----------------------------------------------------------------
Gross Gross Fair
Amortized unrealized unrealized market
cost gains losses value
----------- ---------- ---------- -----------
Available-for-sale
FHLMC certificates $ 6,572,000 $ 4,000 $122,000 $ 6,454,000
GNMA certificates 9,462,000 - 133,000 9,329,000
FNMA certificates 2,398,000 - 54,000 2,344,000
---------- ------ ------- ---------
$18,432,000 $ 4,000 $309,000 $18,127,000
========== ====== ======= ==========
</TABLE>
Proceeds from the sale of mortgage-backed securities at September 30, 1997
were $3,978,000, and $1,936,000 and $3,192,000 at June 30, 1997 and 1996,
respectively. Gross gains realized on those sales for the three months
ended September 30, 1997 were $-0-, and for the years ended June 30, 1997
and 1996 were $20,000 and $50,000, respectively. There were no sales of
mortgage-backed securities for the three months ended September 30, 1996
and for the year ended June 30, 1995.
F-16
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
- --------------------------------------------------------------------------------
NOTE F - LOANS RECEIVABLE
Loans receivable are as follows:
<TABLE>
<CAPTION>
June 30,
September 30, -----------------------------
1997 1997 1996
------------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Residential one-to-four family mortgage loans $60,076,000 $54,493,000 $39,485,000
Multi-family mortgage loans 13,562,000 13,244,000 5,357,000
Construction loans 1,997,000 2,188,000 608,000
Commercial mortgage loans 15,270,000 14,817,000 7,616,000
Consumer loans 4,073,000 2,375,000 1,285,000
---------- ---------- ----------
Total loans 94,978,000 87,117,000 54,351,000
Loans in process (construction loans) (617,000) (774,000) (264,000)
Deferred loan fees and unearned discounts (17,000) 121,000 (53,000)
Allowance for possible loan losses (487,000) (472,000) (430,000)
---------- ---------- ----------
Net loans $93,857,000 $85,992,000 $53,604,000
========== ========== ==========
</TABLE>
The Bank had loans outstanding which were secured by real estate and/or
deposit accounts to directors and officers of $2,460,000 and $1,176,000 at
June 30, 1997 and 1996, respectively. Management of the Bank is of the
opinion that these performing loans were made in the ordinary course of
business and on substantially the same terms as those prevailing at the same
time for comparable transactions with unrelated parties and do not involve
more than normal risk of collectibility or present other unfavorable
features.
Included in loans receivable are non-accrual loans past due 90 days or more
in the amounts of $621,000 at September 30, 1997 and $745,000 and $593,000
at June 30, 1997 and 1996, respectively. If interest income had been
recorded on all non-accrual loans had they been current in accordance with
their original terms, income would have increased for the three months ended
September 30, 1997 and 1996 by approximately $20,000 and $14,000,
respectively, and for the years ended June 30, 1997, 1996 and 1995 by
approximately $57,000, $60,000 and $43,000, respectively.
Also included in loans receivable are loans past due 90 days or more and
accruing in the amount of $353,000 at September 30, 1997 and $353,000 and
$378,000 at June 30, 1997 and 1996, respectively, which have not been
classified as non-accrual due to management's belief that the loans are
well-secured and in the process of collection.
There are no impaired loans at September 30, 1997 and June 30, 1997 and
1996.
(Continued)
F-17
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
- --------------------------------------------------------------------------------
NOTE F - LOANS RECEIVABLE - Continued
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
Three months ended
September 30, Year ended June 30,
---------------------------- ------------------------------------------
1997 1996 1997 1996 1995
------------ ------------ ------------ ------------ --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $472,000 $430,000 $430,000 $388,000 $368,000
Provision for loan losses 15,000 11,000 58,000 42,000 30,000
Charge-offs - (1,000) (16,000) - (10,000)
------- ------- ------- ------- -------
Balance, end of year $487,000 $440,000 $472,000 $430,000 $388,000
======= ======= ======= ======= =======
</TABLE>
NOTE G - PREMISES AND EQUIPMENT
Premises and equipment are as follows:
<TABLE>
<CAPTION>
Estimated September 30, June 30,
useful lives 1997 1997 1996
---------------- ------------------ -------------- ---------
(unaudited)
<S> <C> <C> <C> <C>
Furniture, fixtures and equipment 5 to 10 years $908,000 $1,341,000 $869,000
Less accumulated depreciation (499,000) (461,000) (458,000)
------- --------- -------
$409,000 $ 880,000 $411,000
======= ======== =======
</TABLE>
Depreciation expense for the three months ended September 30, 1997 and 1996
was approximately $34,000 and $29,000, respectively, and for the years ended
June 30, 1997, 1996 and 1995 was approximately $127,000, $112,000 and
$105,000, respectively.
F-18
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
- --------------------------------------------------------------------------------
NOTE H - DEPOSITS
Deposits are as follows:
<TABLE>
<CAPTION>
June 30,
----------------------------------------------------
September 30, 1997 1997 1996
------------------------ ------------------------- ----------------------
Weighted Weighted Weighted
interest interest interest
rate Amount rate Amount rate Amount
--------- --------- --------- ---------- --------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Demand -% $ 2,433,000 -% $ 2,130,000 -% $ 1,312,000
Money market NOW
and Super NOW 4.02 9,883,000 3.92 9,994,000 4.36 7,744,000
Passbook and statement
savings 2.89 1,776,000 2.80 1,689,000 2.19 2,010,000
----------- ---------- ----------
14,092,000 13,813,000 11,066,000
Time deposits 5.80 96,533,000 5.70 82,100,000 5.63 48,587,000
----------- ---------- ----------
$110,625,000 $95,913,000 $59,653,000
=========== ========== ==========
</TABLE>
At September 30, 1997, the scheduled maturities of time deposits are as
follows:
1997 $47,546,000
1998 39,763,000
1999 6,422,000
2000 1,303,000
2001 1,299,000
2002 and thereafter 200,000
----------
$96,533,000
===========
Included in deposits as of September 30, 1997 and June 30, 1997 and 1996 are
deposits greater than $100,000 of approximately $20,889,000, $10,857,000 and
$5,963,000, respectively.
NOTE I - BORROWINGS
Advances from the Federal Home Loan Bank of Pittsburgh (FHLB), which
generally have maturities of less than one year, are as follows:
<TABLE>
<CAPTION>
June 30,
September 30, ----------------------------
1997 1997 1996
------------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Advances outstanding at end of period $ 4,350,000 $ 8,950,000 $ 9,500,000
Interest rate at end of period 5.71% 5.70% 5.55%
Approximate average amount outstanding 8,207,000 8,344,000 6,694,000
Maximum month-end balance 9,000,000 17,450,000 11,000,000
Approximate weighted average rate 5.95% 5.56% 5.80%
</TABLE>
(Continued)
F-19
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
- -------------------------------------------------------------------------------
NOTE I - BORROWINGS - Continued
Securities sold under agreements to repurchase are as follows:
<TABLE>
<CAPTION>
June 30,
September 30, -----------------------------
1997 1997 1996
------------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Repurchase agreements outstanding at end
of period $10,780,000 $ 5,780,000 $ 7,151,000
Interest rate at end of period 5.85% 5.90% 5.85%
Approximate average amount outstanding 8,065,000 8,923,000 2,647,000
Maximum month-end balance 10,780,000 10,431,000 7,151,000
Approximate weighted average rate 5.85% 5.95% 5.85%
</TABLE>
Outstanding long-term borrowings mature as follows:
1998 2,250,000
1999 4,160,000
2000 -0-
2001 -0-
2002 5,000,000
----------
11,660,000
==========
NOTE J - SHAREHOLDERS' NOTES
Sharesholders Notes consisted of loans payable to the Company's shareholders
as follows:
<TABLE>
<CAPTION>
June 30,
September 30, -----------------------------
1997 1997 1996
------------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Note payable in monthly interest only payments at 6% at September 30, 1997
and June 30, 1997 and 8.25% at June 30, 1996; the remaining principal
plus accrued interest is due and payable on July 1, 1998, unless
otherwise extended by the shareholder $ 3,238,000 $ 3,051,000 $ 2,918,000
========== ========== ==========
</TABLE>
Additionally, the Company paid a management fee to its shareholder totaling
$24,000 for the year ended June 30, 1995. There were no management fees paid to
its shareholders for the three months ended September 30, 1997 and 1996 for the
years ended June 30, 1997 and 1996.
F-20
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
NOTE K - INCOME TAXES
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
Three months ended
September 30, Year ended June 30,
------------------------ --------------------------------------
1997 1996 1997 1996 1995
------------ -------- ------------ ------------ --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Current
Federal $194,000 $12,000 $500,000 $62,000 $(42,000)
State 30,000 2,000 17,000 23,000 2,000
------- ------ ------- ------ -------
Total current 224,000 14,000 517,000 85,000 (40,000)
------- ------ ------- ------ -------
Deferred
Federal 134,000 5,000 (37,000) (24,000) 21,000
State - - - - (1,000)
------- ------ ------- ------ -------
Total deferred 134,000 5,000 (37,000) (24,000) 20,000
------- ------ ------- ------ -------
$358,000 $19,000 $480,000 $61,000 $(20,000)
======= ====== ======= ====== =======
</TABLE>
The reconciliation of the statutory federal income tax provision to the
actual tax provision is as follows:
<TABLE>
<CAPTION>
Three months ended
September 30, Year ended June 30,
------------------------ --------------------------------------
1997 1996 1997 1996 1995
------------ -------- ------------ ------------ --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statutory federal income tax $354,000 $18,000 $494,000 $59,000 $(29,000)
State income taxes, net of federal
impact 30,000 2,000 11,000 15,000 1,000
Low-rate brackets - - - (7,000) -
Tax-exempt income (5,000) - (13,000) (11,000) (14,000)
Other, net (21,000) (1,000) (12,000) 5,000 22,000
------- ------ ------- ------ -------
Income tax provision (benefit) $358,000 $19,000 $480,000 $61,000 $(20,000)
======= ====== ======= ====== =======
</TABLE>
(Continued)
F-21
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
- --------------------------------------------------------------------------------
NOTE K - INCOME TAXES - Continued
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
June 30,
September 30, -------------------------
1997 1997 1996
------------- -------- --------
(unaudited)
<S> <C> <C> <C>
Deferred tax assets
Deferred loan fees $ - $ 13,000 $ 17,000
Interest reserve 29,000 31,000 19,000
Provision for loan losses 129,000 123,000 106,000
Unrealized loss on securities available-for-sale - 23,000 121,000
Basis of property and equipment - 11,000 -
------- ------- -------
158,000 201,000 263,000
------- ------- -------
Deferred tax liabilities
Unrealized gain on securities available-for-sale 7,000 - -
Basis of property and equipment 9,000 - 1,000
Deferred loan fees 149,000 - -
------- ------- -------
165,000 - 1,000
------- ------- -------
Net deferred tax (liability) asset $ (7,000) $201,000 $262,000
======= ======= =======
</TABLE>
NOTE L - SHAREHOLDERS' EQUITY
On December 8, 1997, the Company's Board of Directors declared a two for
one stock split effected in the form of a stock dividend.
On December 8, 1997, the Company amended and restated its Articles of
Incorporation whereby the Company is authorized to issue 20,000,000 shares
of capital stock, par value $0.01 per share and 5,000,000 shares of
preferred stock, par value $0.01 per share.
Under the Company's amended Articles of Incorporation, the Board of
Directors of the Company may, from time to time, authorize the shares of
preferred stock, in one or more series, with such provisions as to voting
rights, dividend rates and preferences, redemption and convertibility, and
such preferences, privileges and powers, and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions of such series of preferred stock, as shall be stated in the
resolution of the Board of Directors providing for the issuance of the
preferred stock. The preferred stock may rank prior to common stock as to
dividend rights or liquidation preferences, or both, and may have full or
limited voting rights. No preferred stock is currently outstanding nor will
any be issued in the Offering.
On March 1, 1996, the Company's Board of Directors declared a twenty-eight
for one stock split effected in the form of a stock dividend.
F-22
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
- --------------------------------------------------------------------------------
NOTE M - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS
OF CREDIT RISK
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers
and to reduce its own exposure to fluctuations in interest rates. These
financial instruments include commitments to extend credit. Those
instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the consolidated statements
of financial condition. The contract amounts of those instruments reflect
the extent of the Bank's involvement in particular classes of financial
instruments. The Bank's exposure to credit loss in the event of
non-performance by the other party to the financial instrument for
commitments to extend credit is represented by the contractual amounts of
these instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments. Unless noted otherwise, the Bank does not require collateral or
other security to support financial instruments with credit risk.
Financial instruments, the contract amounts of which represent credit risk,
include commitments to originate loans of $7,560,000 and $9,027,000 at June
30, 1997 and 1996, respectively, as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------- ---------------------------
Fixed Variable Fixed Variable
rate rate rate rate
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
First mortgage loans $ 3,115,000 $ 3,194,000 $ 6,040,000 $ 1,647,000
Residential construction - 100,000 - 136,000
Commercial real estate and multi-family
mortgages - 1,151,000 - 1,204,000
---------- --------- --------- ----------
$ 3,115,000 $ 4,445,000 $ 6,040,000 $ 2,987,000
========== ========= ========= ==========
</TABLE>
Fees received in connection with these commitments have not been recognized
in income.
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 or other termination
clauses and may require payment of a fee. Since some of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of the
collateral obtained, if it is deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the borrower.
Collateral held generally includes residential and some commercial property.
The Bank's loan portfolio primarily consists of one-to-four family
residential real estate loans in the suburban Philadelphia area, primarily
Delaware, Montgomery, Philadelphia, Bucks and Chester counties in
Pennsylvania, as well as southern New Jersey and northern Delaware. The Bank
offers both fixed and adjustable rates of interest on these loans which have
amortization terms ranging to 30 years. The loans are generally originated
on the basis of up to 80% loan-to-value ratio, which has historically
provided the Bank with more than adequate collateral coverage in the event
of default. Nevertheless, the Bank, as with any lending institution, is
subject to the risk that residential real estate values in the primary
lending will deteriorate, thereby potentially impairing collateral values in
the primary lending area. However, management believes that residential real
estate values are presently stable in its primary lending area and that loan
loss allowances have been provided for in amounts commensurate with its
current perception of the foregoing risks in the portfolio.
F-23
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
- --------------------------------------------------------------------------------
NOTE N - COMMITMENTS AND CONTINGENCIES
1. Lease Commitments
-----------------
The Bank has entered into non-cancellable operating lease agreements for
both branch banking facilities. The lease terms range from 5 to 10 years.
The approximate minimum annual rental payments at June 30, 1997 under these
leases are as follows:
1998 $ 65,000
1999 65,000
2000 65,000
2001 65,000
2002 48,000
Thereafter 88,000
-----------
$ 396,000
===========
Rental expense amounted to $17,000 for the three months ended September 30,
1997 and 1996 and $67,000 for the years ended June 30, 1997, 1996 and 1995.
2. Other
-----
The Bank is party to certain claims and litigation arising in the ordinary
course of business. In the opinion of management, the resolution of such
claims and litigation will not materially impact the Bank's consolidated
financial position or results of operations. His employment is terminable
by the Company upon the occurrence of conduct involving fraud, deceit,
theft, dishonesty or certain other events enumerated in the agreement, and
is terminable by him upon written notice to the Company. Upon termination,
Mr. Levy is not permitted to compete with the Company or any subsidiary or
affiliate of the Company by soliciting its employees or soliciting business
from its customers or suppliers for a period of one year following such
termination.
3. Employment Contracts
--------------------
The Company has a five year employment agreement with its President as of
March 1, 1996. Under the terms of the agreement, he will devote
substantially all of his time and effort to conducting the business
activities of the Company as President and will receive an annual salary of
$150,000 for each of the five years of the agreement.
On December 8, 1997, the Bank's Board of Directors approved an employment
agreement with its President. Under the terms of the three-year agreement,
he will devote substantially all of his time and effort to conducting the
business activities of the Bank as President thereof and will receive an
annual salary of $100,000 with an 8% increase as of July 1, 1999. In
addition, he is eligible for an annual bonus of up to 30% of his annual
compensation. Upon termination from the Bank, he is not permitted to
compete with the Bank in any of its businesses in the relevant market areas
for such businesses for a specific period following such termination. If
his employment is prematurely terminated by the Bank without cause, he is
eligible to receive a severance payment equal to two times his annual
salary if such termination occurs in the initial year of the employment
agreement, and a severance payment equal to his annual salary if such
termination occurs during the second or third year of the employment
agreement. He received a grant options to purchase 20,000 shares in
December 1997 at a price of $12.00 per share and a grant options to
purchase 8,000 shares at the public offering price.
F-24
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
- --------------------------------------------------------------------------------
NOTE O - EMPLOYEE BENEFIT PLAN
The Bank has a 401(k) defined contribution plan covering all employees, as
defined under the plan document. Employees may contribute up to 15% of
compensation, as defined under the plan document. The Bank can make
discretionary contributions. The Bank contributed $4,000 and $3,000 for the
three months ended September 30, 1997 and 1996, respectively, $5,000 for the
years ended June 30, 1997 and 1996 and $4,000 for the year ended June 30,
1995.
NOTE P - STOCK OPTION PLAN
In fiscal years 1996 and 1997, grants of phantom option to purchase 27,100
shares were made to certain directors under a phantom stock option plan,
which plan only provided for a current payout upon a sale or disposition of
the Company. No compensation expense was recorded under the plan. In
December, 1997, these directors renounced their right to such phantom
options and received options to purchase an aggregate of 54,200 shares of
Common Stock at the Offering Price per share. (note U).
On July 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation," which contains a fair value-based method for
valuing stock-based compensation that entities may use, which measures
compensation cost at the grant date based on the fair value of the award.
Compensation is then recognized over the service period, which is usually
the vesting period. Alternatively, the standard permits entities to continue
accounting for employee stock options and similar equity instruments under
APB Opinion No. 25, "Accounting for Stock Issued to Employees." Entities
that continue to account for stock options using APB Opinion No. 25 are
required to make pro forma disclosures of net income and EPS, as if the fair
value-based method of accounting defined in SFAS No. 123 had been applied.
The Company's stock option plan is accounted for under APB Opinion No. 25.
NOTE Q - FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 requires disclosure of the estimated fair value of an entity's
assets and liabilities considered to be financial instruments. For the Bank,
as for most financial institutions, the majority of its assets and
liabilities are considered to be financial instruments as defined in SFAS
No. 107. However, many such instruments lack an available trading market as
characterized by a willing buyer and seller engaging in an exchange
transaction. Therefore, the Bank had to use significant estimations and
present value calculations to prepare this disclosure, as required by SFAS
No. 107. Accordingly, the information presented below does not purport to
represent the aggregate net fair value of the Bank.
Changes in assumptions or methodologies used to estimate fair values may
materially affect the estimated amounts. Also, management is concerned that
there may not be reasonable comparability between institutions due to the
wide range of permitted assumptions and methodologies in the absence of
active markets. This lack of uniformity gives rise to a high degree of
subjectivity in estimating financial instrument fair values.
Estimated fair values have been determined by the Bank using the best
available data and an estimation methodology suitable for each category of
financial instrument. The estimation methodologies used, the estimated fair
values, and recorded book balances at June 30, 1997 are outlined below.
(Continued)
F-25
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
- --------------------------------------------------------------------------------
NOTE Q - FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued
For cash and due from banks and federal funds sold, the recorded book value
of approximately $325,000 and $1,197,000 approximates fair value at June 30,
1997 and 1996, respectively. The estimated fair values of loans held for
sale, investment securities and mortgage-backed securities are based on
quoted market prices, if available. Estimated fair values are based on
quoted market prices of comparable instruments if quoted market prices are
not available.
The fair values of loans are estimated based on a discounted cash flow
analysis using interest rates currently offered for loans with similar terms
to borrowers of similar credit quality. The carrying value of accrued
interest approximates fair value.
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------------------------
1997 1996
------------------------------- --------------------------------
Carrying Estimated fair Carrying Estimated fair
amount value amount value
------------ -------------- ----------- ---------------
<S> <C> <C> <C> <C>
Loans held for sale $ 6,244,000 $ 6,338,000 $ 1,659,000 $ 1,683,000
Investment and mortgage-backed securities 22,343,000 22,343,000 22,097,000 22,097,000
Loans 87,117,000 88,266,000 54,351,000 55,994,000
</TABLE>
The estimated fair values of demand deposits (i.e., interest and
non-interest bearing checking accounts, passbook savings and certain types
of money market accounts) are, by definition, equal to the amount payable on
demand at the reporting date (i.e., their carrying amounts). The carrying
amounts of variable rate, fixed-term money market accounts and certificates
of deposit approximate their fair values at the reporting date. The fair
values of fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered to a schedule of aggregated expected monthly time deposit
maturities. The carrying amount of accrued interest payable approximates its
fair value.
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------------------------
1997 1996
------------------------------- --------------------------------
Carrying Estimated fair Carrying Estimated fair
amount value amount value
------------ -------------- ----------- ---------------
<S> <C> <C> <C> <C>
Time deposits $82,100,000 $81,103,000 $48,587,000 $49,004,000
</TABLE>
The fair values of advances from the FHLB and securities sold under
agreements to repurchase totalling $8,950,000 and $5,780,000, respectively,
at June 30, 1997 and $9,500,000 and $7,151,000, respectively, at June 30,
1996 are estimated to approximate their recorded book balances.
There was no material difference between the contract amount and the
estimated fair value of off-balance-sheet items which totalled approximately
$7,560,000 and $9,027,000 at June 30, 1997 and 1996, respectively, and
primarily comprise unfunded loan commitments which are generally priced at
market at the time of funding.
F-26
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
- --------------------------------------------------------------------------------
NOTE R - REGULATORY MATTERS
1. Dividends
---------
The payment of dividends by the Bank to the Company is prohibited unless the
Bank meets specific capital and earning requirements. In general, the
regulation divides savings banks into three tiers, according to their
ability to meet the current minimum capital requirements.
2. 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 possible 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 weightings
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 core capital (as defined in the regulations) to
risk-weighted assets, and of core capital to adjusted assets. Management
believes, as of September 30, 1997, that the Bank meets all capital adequacy
requirements to which it is subject.
As of September 30, 1997 and June 30, 1997, the most recent notification
from the Office of Thrift Supervision 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, core risk-based and core leverage ratios as set forth in the
table. There are no conditions or events since that notification that
management believes have changed the institution's category.
(Continued)
F-27
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
NOTE R - REGULATORY MATTERS - Continued
A summary of the Bank's capital amounts and ratios as of September 30, 1997
follows:
<TABLE>
<CAPTION>
To be well capitalized
Minimum under prompt
for capital corrective action
Actual adequacy purposes provisions
------------------------ ------------------- -----------------------
Ratio Amount Ratio Amount Ratio Amount
------- -------------- ------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shareholders' equity and
ratio to total assets 5.25% $ 7,107,000
Unrealized gain on available-
for sale securities, net of
tax (13,000)
Minority interest 64,000
--------------
Tangible capital and ratio to
adjusted total assets 5.29 $ 7,158,000 1.50% $ 2,030,000
============== ==========
Core capital and ratio to
adjusted total assets 5.29 $ 7,158,000 3.00 $ 4,060,000 5.00% $ 6,766,000
============== ========== ==========
Core capital and ratio to
risk-weighted assets 9.61 $ 7,158,000 6.00 $ 4,470,000
-------------- ==========
Allowance for loan and
lease losses 487,000
--------------
Supplementary capital 487,000
--------------
Total risk-based capital
and ratio to risk-weighted
assets (1) 10.26 $ 7,645,000 8.00 $ 5,960,000 10.00 $ 7,450,000
============== ========== ==========
Total assets $ 135,336,000
==============
Adjusted total assets $ 135,324,000
==============
Risk-weighted assets $ 74,496,000
==============
</TABLE>
(1) Does not reflect the interest rate risk component to the risk-based
capital requirement, the effective date of which has been postponed.
(Continued)
F-28
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
- --------------------------------------------------------------------------------
NOTE R - REGULATORY MATTERS - Continued
A summary of the Bank's capital amounts and ratios as of June 30, 1997
follows:
<TABLE>
<CAPTION>
To be well capitalized
Minimum under prompt
for capital corrective action
Actual adequacy purposes provisions
------------------------ ------------------- -----------------------
Ratio Amount Ratio Amount Ratio Amount
------- -------------- ------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shareholders' equity and
ratio to total assets 5.03% $ 5,885,000
Unrealized loss on available-
for sale securities, net of
tax 46,000
Minority interest 69,000
--------------
Tangible capital and ratio to
adjusted total assets 5.12 $ 6,000,000 1.50% $ 1,760,000
============== ==========
Core capital and ratio to
adjusted total assets 5.12 $ 6,000,000 3.00 $ 3,520,000 5.00% $ 5,867,000
============== ========== ==========
Core capital and ratio to
risk-weighted assets 10.02 $ 6,000,000 6.00 $ 7,040,000
-------------- ==========
Allowance for loan and
lease losses 472,000
--------------
Supplementary capital 472,000
--------------
Total risk-based capital
and ratio to risk-weighted
assets (1) 10.81 $ 6,472,000 8.00 $ 4,791,000 10.00 $ 5,989,000
============== ========== ==========
Total assets $ 117,072,000
==============
Adjusted total assets $ 117,118,000
==============
Risk-weighted assets $ 59,892,000
==============
</TABLE>
(1) Does not reflect the interest rate risk component to the risk-based
capital requirement, the effective date of which has been postponed.
F-29
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
- --------------------------------------------------------------------------------
NOTE R - REGULATORY MATTERS - Continued
A summary of the Bank's capital amounts and ratios as of June 30, 1996
follows:
<TABLE>
<CAPTION>
To be well capitalized
Minimum under prompt
for capital corrective action
Actual adequacy purposes provisions
------------------------ ------------------- -----------------------
Ratio Amount Ratio Amount Ratio Amount
------- -------------- ------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shareholders' equity and
ratio to total assets 5.45% $ 4,433,000
Unrealized loss on available-
for sale securities, net of
tax 215,000
Minority interest 49,000
------------
Tangible capital and ratio to
adjusted total assets 5.79 $ 4,697,000 1.50% $ 1,220,000
============ ===========
Core capital and ratio to
adjusted total assets 5.79 $ 4,697,000 3.00 $ 2,439,000 5.00% $ 4,065,000
============ =========== ==========
Core capital and ratio to
risk-weighted assets 12.72 $ 4,697,000 6.00 $ 4,878,000
------------ ==========
Allowance for loan and
lease losses 430,000
------------
Supplementary capital 430,000
------------
Total risk-based capital
and ratio to risk-weighted
assets (1) 13.89 $ 5,127,000 8.00 $ 2,953,000 10.00 $ 3,692,000
============= =========== ==========
Total assets $ 81,302,000
============
Adjusted total assets $ 81,087,000
============
Risk-weighted assets $ 36,915,000
============
</TABLE>
(1) Does not reflect the interest rate risk component to the risk-based
capital requirement, the effective date of which has been postponed.
NOTE S - FINAL SAIF LEGISLATION
On September 30, 1996, the Deposit Insurance Funds Act of 1996 (the Funds
Act) was signed into law which, among other things, imposed a special
one-time assessment to recapitalize the Savings Association Insurance Fund
(SAIF). As required by the Funds Act, the Federal Deposit Insurance
Corporation (FDIC) imposed a special assessment on SAIF-assessable deposits
held on March 31, 1995, payable November 27, 1996. The special assessment
was recognized as a tax-deductible expense in 1997. The Bank recorded a
special after-tax charge of $192,000 ($296,000 before-tax) as a result of
the FDIC special assessment.
F-30
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
- --------------------------------------------------------------------------------
NOTE T - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
The condensed financial information of the Company is as follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
September 30, ------------------------------
1997 1997 1996
------------------ --------------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Cash and due from banks - non-interest bearing $ 30,000 $ 7,000 $ 29,000
Investment in subsidiaries 7,094,000 5,930,000 4,432,000
Other assets - 41,000 23,000
---------- ---------- -----------
Total assets $ 7,124,000 $ 5,978,000 $ 4,484,000
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders Notes $ 3,238,000 $ 2,990,000 $ 2,918,000
Other liabilities 15,000 93,000 54,000
Shareholders' equity 3,871,000 2,895,000 1,512,000
---------- ---------- ----------
Total liabilities and shareholders' equity $ 7,124,000 $ 5,978,000 $ 4,484,000
========== ========== ==========
</TABLE>
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months
ended September 30, Year ended June 30,
---------------------------- ----------------------------------------
1997 1996 1997 1996 1995
------------ ------------ ------------ ------------ --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Income
Equity in undistributed net
income (loss) of subsidiary $ 663,000 $ 35,000 $ 988,000 $ 198,000 $ (10,000)
Non-interest income 56,000 56,000 236,000 292,000 174,000
----------- ----------- ---------- ---------- ----------
719,000 91,000 1,224,000 490,000 164,000
Other expenses 54,000 56,000 262,000 378,000 229,000
----------- ----------- ---------- ---------- ----------
Net income (loss) $ 665,000 $ 35,000 $ 962,000 $ 112,000 $ (65,000)
========== =========== ========== ========== ===========
</TABLE>
(Continued)
F-31
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
- --------------------------------------------------------------------------------
NOTE T - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY - Continued
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months
ended September 30, Year ended June 30,
---------------------------- --------------------------------------
1997 1996 1997 1996 1995
------------ ------------ ------------ ------------ --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 665,000 $ 35,000 $ 962,000 $ 112,000 $ (65,000)
Adjustments to reconcile net income
(loss) to net cash (used in)
provided by operating
activities
Decrease (increase) decrease in
other assets 41,000 19,000 (18,000) 31,000 (4,000)
(Decrease) increase in other
liabilities (78,000) 2,000 39,000 4,000 (69,000)
Other (1,000) (17,000) (17,000) 2,000 24,000
Equity in undistributed (income)
loss of subsidiary (663,000) (35,000) (988,000) (198,000) 10,000
---------- --------- ---------- ---------- -----------
Net cash (used in) provided
by operating activities (36,000) 4,000 (22,000) (49,000) (104,000)
---------- --------- ---------- ---------- -----------
Cash flows from investing activities
Investment in subsidiary (500,000) - (325,000) (1,318,000) (1,090,000)
---------- --------- ---------- ---------- -----------
Net cash used in investing
activities (500,000) - (325,000) (1,318,000) (1,090,000)
---------- --------- ---------- ---------- -----------
Cash flows from financing activities
Proceeds from shareholders Notes 248,000 - 73,000 948,000 1,090,000
Proceeds from issuance of Common Stock 311,000 252,000 442,000 -
---------- --------- ---------- ---------- -----------
Net cash provided by (used
in) financing activities 559,000 - 325,000 1,390,000 1,090,000
---------- --------- ---------- ---------- -----------
Net increase (decrease) in
cash and cash
equivalents 23,000 4,000 (22,000) 23,000 (104,000)
Cash and cash equivalents at
beginning of year 7,000 29,000 29,000 6,000 110,000
---------- --------- ---------- ---------- -----------
Cash and cash equivalents at
end of year $ 30,000 $ 33,000 $ 7,000 $ 29,000 $ 6,000
========= ========= ========== ========== ===========
</TABLE>
F-32
<PAGE>
CRUSADER HOLDING CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
NOTE U - PROPOSED PUBLIC OFFERING (UNAUDITED)
The Company anticipates a public offering in January 1998 of 1,000,000
shares (the Shares) of common stock, $0.01 value per share. The Shares may
be purchased separately and will be separately tradable immediately upon
issuance. The Company has granted to the underwriters of such offering a
30-day option to purchase up to an additional 150,000 shares of common
stock on the same terms and conditions as set forth above solely to cover
overallotments.
On December 8, 1997, the Board of Directors and shareholders have adopted a
Directors' Stock Option Plan (the Directors' Plan). Certain directors are
eligible to receive, at no cost to them, options under the Directors' Plan.
Options granted under the Directors' Plan are non-qualified stock options
(options that do not afford favorable tax treatment to recipients upon
compliance with certain restrictions pursuant to Section 422 of the Internal
Revenue Code but that normally result in tax deductions to the Company).
Options granted under the Directors' Plan are five-year options at the fair
market value of the common stock at the time of the grant . Options vest in
accordance with the terms of the grant. Upon termination from the Company,
except in cases of death, the option shares expire after 30 days. Option
shares may be paid in cash, shares of the common stock, or a combination of
both. An aggregate of 100,000 shares of common stock have been reserved
under the Directors' Plan.
On December 8, 1997, the Board of Directors and shareholders have adopted an
Employee Stock Option Plan (the Employee Plan). Employees are eligible to
receive, at no cost to them, options under the Employee Plan. Options
granted under the Employee Plan are non-qualified stock options (options
that do not afford favorable tax treatment to recipients upon compliance
with certain restrictions pursuant to Section 422 of the Internal Revenue
Code but that normally result in tax deductions to the Company). Options
granted under the Employee Plan are five-year options at the fair market
value of the common stock at the time of the grant. Options vest in
accordance with the terms of the grant. Upon termination from the Company,
except in cases of death, the option shares expire after 30 days. Option
shares may be paid in cash, shares of the common stock, or a combination of
both. An aggregate of 200,000 shares of common stock have been reserved
under the Employee Plan. On December 8, 1997, the Company granted options to
acquire an aggregate of 20,000 shares of common stock at an exercise price
of $12.00 per share to the President of the Bank.
F-33
<PAGE>
================================================================================
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained in this Prospectus in
connection with the Offering covered by this Prospectus. If given or made, such
information or representations must not be relied upon as having been authorized
by the Company or the Underwriters. This Prospectus does not constitute an offer
to sell or a solicitation of any offer to buy any securities offered hereby to
any person to whom it is unlawful to make such offer or solicitation in such
jurisdiction. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that there has
not been any change in the affairs of the Company since the date hereof.
____________________
TABLE OF CONTENTS
Page
----
Prospectus Summary........................................ 4
Risk Factors.............................................. 8
Use of Proceeds........................................... 13
Dividends................................................. 13
Capitalization............................................ 14
Dilution.................................................. 15
Selected Consolidated
Financial Data........................................... 16
Management's Discussion and Analysis
of Financial Condition and Results of
Operations............................................... 18
Business.................................................. 41
Supervision and Regulation................................ 48
Taxation.................................................. 56
Management................................................ 57
Certain Relationships and Related
Transactions............................................ 63
Security Ownership of Certain
Beneficial Owners and Management........................ 64
Certain Restrictions on Acquisition of
the Company and the Bank................................ 65
Certain Anti-Takeover Provisions in the
Articles of Incorporation and Bylaws.................... 65
Description of the Capital Stock.......................... 69
Shares Eligible for Future Sale........................... 70
Underwriting.............................................. 71
Validity of Securities.................................... 72
Experts................................................... 73
Available Information..................................... 73
Index to Consolidated Financial Statements................ F-1
Until , 1998 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This is in
addition to the obligations of dealers to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
================================================================================
<PAGE>
================================================================================
1,000,000 Shares
[LOGO]
CRUSADER
HOLDING
CORPORATION
Common Stock
____________________
PROSPECTUS
____________________
Advest, Inc.
January , 1998
================================================================================
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated amount of various expenses
in connection with the sale and distribution of the securities being registered:
SEC registration fee $ 5,428
NASD filing fee 2,340
Nasdaq National Market filing fee 23,250
Printing and engraving expenses 85,000
Legal fees and expenses
(including blue sky fees and expenses) 150,000
Accounting fees and expenses 75,000
Transfer agent fees 5,000
Miscellaneous 53,982
--------
Total $400,000
========
Item 14. Indemnification of Directors and Officers.
The Pennsylvania Business Corporation Law of 1988 authorizes the
Company to grant indemnities to directors and officers in terms sufficiently
broad to permit indemnification of such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933. The Company's Articles of Incorporation include the
following provisions:
Article VII
7.1 INDEMNIFICATION OF DIRECTORS, OFFICERS, AND OTHER PERSONS. The
Corporation shall indemnify any director, officer, employee or agent of the
Corporation or any of its subsidiaries who was or is an "authorized
representative" of the Corporation (which shall mean, for the purpose of this
Article, a director or officer of the Corporation, or a person serving at the
request of the Corporation as a director, officer, partner, fiduciary or trustee
of another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise) and who was or is a "party" (which shall include for
purposes of this Article the giving of testimony or similar involvement) or is
threatened to be made a party to any "proceeding" (which shall mean for purposes
of this Article any threatened, pending or completed action, suit, appeal or
other proceeding of any nature, whether civil, criminal, administrative or
investigative, whether formal or informal, and whether brought by or in the
right of the Corporation, its shareholders or otherwise) by reason of the fact
that such person was or is an authorized representative of the Corporation to
the fullest extent permitted by law, including without limitation
indemnification against expenses (which shall include for purposes of this
Article attorneys' fees and disbursements), damages, punitive damages,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such proceeding unless the
act or failure to act giving rise to the claim is finally determined by a court
to have constituted willful misconduct or recklessness. If an authorized
representative is not
II-1
<PAGE>
entitled to indemnification in respect of a portion of any liabilities to which
such person may be subject, the Corporation shall nonetheless indemnify such
person to the maximum extent for the remaining portion of the liabilities.
7.2 ADVANCEMENT OF EXPENSES. The Corporation shall pay the expenses
(including attorneys' fees and disbursements) actually and reasonably incurred
in defending a proceeding on behalf of any person entitled to indemnification
under Section 7.1 in advance of the final disposition of such proceeding upon
receipt of an undertaking by or on behalf of such person to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation as authorized in this Article and may pay such
expenses in advance on behalf of any employee or agent on receipt of a similar
undertaking. The financial ability of such authorized representative to make
such repayment shall not be prerequisite to the making of an advance.
7.3 EMPLOYEE BENEFIT PLANS. For purposes of this Article, the
Corporation shall be deemed to have requested an officer, director, employee or
agent to serve as fiduciary with respect to an employee benefit plan where the
performance by such person of duties to the Corporation also imposes duties on,
or otherwise involves services by, such person as a fiduciary with respect to
the plan; excise taxes assessed on an authorized representative with respect to
any transaction with an employee benefit plan shall be deemed "fines"; and
action taken or omitted by such person with respect to an employee benefit plan
in the performance of duties for a purpose reasonably believed to be in the
interest of the participants and beneficiaries of the plan shall be deemed to be
for a purpose which is not opposed to the best interests of the Corporation.
7.4 SECURITY FOR INDEMNIFICATION OBLIGATIONS. To further effect,
satisfy or secure the indemnification obligations provided herein or otherwise,
the Corporation may maintain insurance, obtain a letter of credit, act as
self-insurer, create a reserve, trust, escrow, cash collateral or other fund or
account, enter into indemnification agreements, pledge or grant a security
interest in any assets or properties of the Corporation, or use any other
mechanism or arrangement whatsoever in such amounts, at such costs, and upon
such other terms and conditions as the Board of Directors shall deem
appropriate.
7.5 RELIANCE UPON PROVISIONS. Each person who shall act as an
authorized representative of the Corporation shall be deemed to be doing so in
reliance upon the rights of indemnification provided by this Article.
7.6 AMENDMENT OR REPEAL. All rights of indemnification under this
Article shall be deemed a contract between the Corporation and the person
entitled to indemnification under this Article pursuant to which the Corporation
and each such person intend to be legally bound. Any repeal, amendment or
modification hereof shall be prospective only and shall not limit, but may
expand, any rights or obligations in respect of any proceeding whether commenced
prior to or after such change to the extent such proceeding pertains to actions
or failures to act occurring prior to such change.
7.7 SCOPE OF ARTICLE. The indemnification, as authorized by this
Article, shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
statute, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in an official capacity and as to action in any
other capacity while holding such office. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article shall continue as to
a person who has ceased to be an officer, director, employee or agent in respect
of matters arising prior to such time, and shall inure to the benefit of the
heirs, executors and administrators of such person.
II-2
<PAGE>
The Company maintains a policy of directors' and officers' liability
insurance.
Item 15. Recent Sales of Unregistered Securities.
Since August 1, 1994, the Registrant has issued and sold the following
unregistered securities:
1. On March 1, 1996, the Company issued an amended and restated
promissory note in the principal amount of $2,044,622 and issued 675,000 shares
of Common Stock to Thomas J. Knox, Chairman of the Board and Chief Executive
Officer of the Company.
2. On March 1, 1996, the Company issued an amended and restated
promissory note in the principal amount of $876,267 and issued 300,000 shares of
Common Stock to Bruce A. Levy, President and a director of the Company.
3. On December 31, 1996, the Company issued 42,000 shares of
Common Stock to Thomas J. Knox.
4. On December 31, 1996, the Company issued 18,000 shares of
Common Stock to Bruce A. Levy.
5. On January 31, 1997, the Company issued five exchangeable promissory
notes, each in the principal amount of $13,800, and issued 5,000 shares of
Common Stock, to each of Ronald L. Caplan, D. Walter Cohen, D.D.S., Daniel
DiLella, Joel S. Lawson III and Brian McAdams, each of whom is a director of the
Company.
6. On September 30, 1997, the Company issued promissory notes in the
principal amounts of $173,606 and $74,403, respectively, and issued 63,000 and
27,000 shares of Common Stock, respectively, to Thomas J. Knox and Bruce A.
Levy, respectively.
7. Effective November 30 1997, the Company issued 150,000 shares of
Common Stock to Jeffrey K. Rafsky.
8. On December 8, 1997, the Company granted options to purchase an
aggregate of 20,000 shares of Common Stock at an exercise price of $12.00 per
share to Joseph T. Crowley, President of the Bank.
The Company believes that the transactions described above were exempt
from registration under Sections 3(a)(9), 3(b) or 4(2) of the Securities Act
because the subject securities were, respectively, either (i) exchanged by the
issuer with its existing security holders exclusively, with no commission or
other remuneration being paid or given directly or indirectly for soliciting
such exchange; (ii) issued pursuant to a compensatory benefit plan pursuant to
Rule 701 under the Securities Act; or (iii) sold to a limited group of persons,
each of whom was believed to have been a sophisticated investor or had a
pre-existing business or personal relationship with the Company or its
management and was purchasing for investment without a view to further
distribution. Restrictive legends were
II-3
<PAGE>
placed on stock certificates evidencing the shares and/or agreements relating to
the right to purchase such shares described above.
Item 16. Exhibits and Financial Statement Schedules.
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C> <C>
1 Form of Underwriting Agreement.*
3.1 Amended and Restated Articles of Incorporation of the Registrant.
3.2 Amended and Restated Bylaws of the Registrant.
4.1 Form of certificate evidencing Common Stock of the Registrant.*
4.2(a) Subscription and Shareholders' Agreement, dated as of March 1, 1996, by and among the
Registrant, Thomas J. Knox and Bruce A. Levy.
4.2(b) Amendment of Shareholders' Agreement, dated January 31, 1997, among the Registrant, Thomas
J. Knox, Bruce A. Levy, Daniel DiLella, Joel S. Lawson III, Brian McAdams and Ronald
Caplan.
4.2(c) Joinder among the Registrant and D. Walter Cohen, dated
January 31, 1997, to Subscription and Shareholders' Agreement
dated March 1, 1996, as amended by Amendment of Shareholders'
Agreement dated January 31, 1997.
4.2(d) Form of Second Amendment of Shareholders' Agreement, among the Registrant, Thomas J. Knox,
Bruce A. Levy, Daniel DiLella, Joel S. Lawson III, Brian McAdams, Ronald Caplan and D.
Walter Cohen.
4.3 Amended and Restated Promissory Note, dated as of March 1, 1996, issued to Thomas J. Knox.
4.4 Amended and Restated Promissory Note, dated as of March 1, 1996, issued to Bruce A. Levy.
4.5 Exchangeable Promissory Note, dated as of January 31, 1997, issued to Daniel DiLella.
4 6 Exchangeable Promissory Note, dated as of September 30, 1997, issued to Thomas J. Knox.
4.7 Exchangeable Promissory Note, dated as of September 30, 1997, issued to Bruce A. Levy.
5 Opinion of Ballard Spahr Andrews & Ingersoll, LLP regarding legality of securities being
registered.*
10.1 Directors' Stock Option Plan.+
10.2 Employees Stock Option Plan.+
10.3 Employment Agreement, dated as of March 1, 1996, between the Registrant and Bruce A.
Levy.+
10.4 Employment Agreement, dated as of December 11, 1997, between Crusader Savings Bank,
FSB and Joseph T. Crowley.+
10.5 Management Agreement, dated as of March 1, 1996, between the
Registrant and Crusader Savings Bank, FSB.
10.6 Lease Agreement and Indenture of Lease, dated as of April 30,
1994, by Walnut Square Partners and Crusader Savings Bank,
FSB.
10.7 Lease Agreement, dated as of July 1, 1984, by Goldie Sabel and Crusader Savings Bank, FSB.
10.8 Agreement, dated as of November 30, 1997, among the Registrant, Crusader Savings Bank, FSB,
Crusader Mortgage Corporation and Jeffrey K. Rafsky.*
10.9(a) Letter Agreement, dated as of July 8, 1996, among Crusader Savings Bank, FSB and Robert W.
Stein.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.9(b) Letter Agreement, dated as of September 13, 1996, among Crusader Savings Bank, FSB and Gary Snyder.
10.9(c) Shareholders' Agreement, dated as of October 2, 1996, by and among Crusader Savings Bank,
FSB, Robert H. Stein, Gary Snyder and Crusader Servicing Corporation.
10.10(a) Letter Agreement, dated as of July 31, 1997, among Crusader Savings Bank, FSB and Michael
D. Kushner and Gregory K. Kushner.
10.10(b) Subscription and Shareholders' Agreement, dated as of September 16, 1997, by and among
Crusader Savings Bank, FSB, Michael D. Kushner, Gregory K. Kushner and Crusader Mortgage
Corporation of Delaware.
10.11(a) Letter Agreement, dated as of November 7, 1997, among Crusader Savings Bank, FSB and
Haiching Zhao, Ph.D.
10.11(b) Subscription and Shareholders' Agreement, dated as of Decemer 11, 1997, by and among
Crusader Savings Bank, FSB, Haiching Zhao, Ph.D. and National Chinese Mortgage Corporation.
15 Letter re: unaudited interim financial information.*
21 Subsidiaries of the Registrant.
23.1 Consent of Grant Thornton LLP
23.2 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included in Exhibit 5).*
24 Power of Attorney (included in signature page).
27 Financial Data Schedule.
</TABLE>
- -----------------------------------
+Constitutes a management contract or compensatory plan.
*To be filed by amendment.
Item 17. Undertakings.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The Registrant hereby undertakes to provide to the underwriter at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names required by the underwriter to permit
prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
II-5
<PAGE>
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of
Philadelphia, Commonwealth of Pennsylvania, on December 12, 1997.
CRUSADER HOLDING CORPORATION
By:/s/ BRUCE A. LEVY
-------------------------------
Bruce A. Levy
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Each person whose signature appears below in so signing also makes,
constitutes and appoints Bruce A. Levy and Thomas J. Knox and each of them, his
or her true and lawful attorney-in-fact, with full power of substitution, for
him or her in any and all capacities, to execute and cause to be filed with the
Securities and Exchange Commission any and all amendments and post-effective
amendments to this Registration Statement and any related registration statement
(and any and all amendments and post-effective amendments thereto) contemplated
by Rule 462 under the Securities Act of 1933, as amended, in each case with
exhibits thereto and other documents in connection therewith and hereby ratifies
and confirms all that said attorney-in-fact or his or her substitute or
substitutes may do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Bruce A. Levy President and Director December 12, 1997
- -------------------------------------- (principal executive officer)
Bruce A. Levy
/s/ Thomas J. Knox Chairman and Director December 12, 1997
- -------------------------------------- (principal executive officer)
Thomas J. Knox
/s/ Joseph T. Crowley Vice President, Secretary and December 12, 1997
- -------------------------------------- Treasurer (principal financial
Joseph T. Crowley and accounting officer)
/s/ Paul Bachow Director December 12, 1997
- --------------------------------------
Paul Bachow
/s/ Ronald L. Caplan Director December 12, 1997
- --------------------------------------
Ronald L. Caplan
/s/ D. Walter Cohen Director December 12, 1997
- --------------------------------------
D. Walter Cohen
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Daniel DiLella Director December 12, 1997
- --------------------------------------
Daniel DiLella
/s/ Linda R. Knox Director December 12, 1997
- --------------------------------------
Linda R. Knox
/s/ Joel S. Lawson III Director December 12, 1997
- --------------------------------------
Joel S. Lawson III
/s/ Brian McAdams Director December 12, 1997
- --------------------------------------
Brian McAdams
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
1 Form of Underwriting Agreement.*
3.1 Amended and Restated Articles of Incorporation of the Registrant.
3.2 Amended and Restated Bylaws of the Registrant.
4.1 Form of certificate evidencing Common Stock of the Registrant.*
4.2(a) Subscription and Shareholders' Agreement, dated as of March 1, 1996, by and among the
Registrant, Thomas J. Knox and Bruce A. Levy.
4.2(b) Amendment of Shareholders' Agreement, dated January 31, 1997, among the Registrant, Thomas
J. Knox, Bruce A. Levy, Daniel DiLella, Joel S. Lawson III, Brian McAdams and Ronald
Caplan.
4.2(c) Joinder among the Registrant and D. Walter Cohen, dated
January 31, 1997, to Subscription and Shareholders' Agreement
dated March 1, 1996, as amended by Amendment of Shareholders'
Agreement dated January 31, 1997.
4.2(d) Form of Second Amendment of Shareholders' Agreement, among the Registrant, Thomas J. Knox,
Bruce A. Levy, Daniel DiLella, Joel S. Lawson III, Brian McAdams, Ronald Caplan and D.
Walter Cohen.
4.3 Amended and Restated Promissory Note, dated as of March 1, 1996, issued to Thomas J. Knox.
4.4 Amended and Restated Promissory Note, dated as of March 1, 1996, issued to Bruce A. Levy.
4.5 Exchangeable Promissory Note, dated as of January 31, 1997, issued to Daniel DiLella.
4 6 Exchangeable Promissory Note, dated as of September 30, 1997, issued to Thomas J. Knox.
4.7 Exchangeable Promissory Note, dated as of September 30, 1997, issued to Bruce A. Levy.
5 Opinion of Ballard Spahr Andrews & Ingersoll, LLP regarding legality of securities being
registered.*
10.1 Directors' Stock Option Plan.+
10.2 Employees Stock Option Plan.+
10.3 Employment Agreement, dated as of March 1, 1996, between the Registrant and Bruce A.
Levy.+
10.4 Employment Agreement, dated as of December 11, 1997, between Crusader Savings Bank,
FSB and Joseph T. Crowley.+
10.5 Management Agreement, dated as of March 1, 1996, between the
Registrant and Crusader Savings Bank, FSB.
10.6 Lease Agreement and Indenture of Lease, dated as of April 30,
1994, by Walnut Square Partners and Crusader Savings Bank,
FSB.
10.7 Lease Agreement, dated as of July 1, 1984, by Goldie Sabel and Crusader Savings Bank, FSB.
10.8 Agreement, dated as of November 30, 1997, among the Registrant, Crusader Savings Bank, FSB,
Crusader Mortgage Corporation and Jeffrey K. Rafsky.*
10.9(a) Letter Agreement, dated as of July 8, 1996, among Crusader Savings Bank, FSB and Robert W.
Stein.
10.9(b) Letter Agreement, dated as of September 13, 1996, among Crusader Savings Bank, FSB and Gary Snyder.
10.9(c) Shareholders' Agreement, dated as of October 2, 1996, by and among Crusader Savings Bank,
FSB, Robert H. Stein, Gary Snyder and Crusader Servicing Corporation.
10.10(a) Letter Agreement, dated as of July 31, 1997, among Crusader Savings Bank, FSB and Michael
D. Kushner and Gregory K. Kushner.
10.10(b) Subscription and Shareholders' Agreement, dated as of September 16, 1997, by and among
Crusader Savings Bank, FSB, Michael D. Kushner, Gregory K. Kushner and Crusader Mortgage
Corporation of Delaware.
10.11(a) Letter Agreement, dated as of November 7, 1997, among Crusader Savings Bank, FSB and
Haiching Zhao, Ph.D.
10.11(b) Subscription and Shareholders' Agreement, dated as of December 11, 1997, by and among
Crusader Savings Bank, FSB, Haiching Zhao, Ph.D. and National Chinese Mortgage Corporation.
15 Letter re: unaudited interim financial information.*
21 Subsidiaries of the Registrant.
23.1 Consent of Grant Thornton LLP
23.2 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included in Exhibit 5).*
24 Power of Attorney (included in signature page).
27 Financial Data Schedule.
</TABLE>
- -----------------------------------
+Constitutes a management contract or compensatory plan.
*To be filed by amendment.
<PAGE>
Exhibit A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
CRUSADER HOLDING CORPORATION
In compliance with the requirements of 15 Pa.C.S. Section 1915,
relating to articles of amendment, the undersigned Pennsylvania business
corporation, desiring to amend and restate its Articles of Incorporation, hereby
states that:
1. The name of the corporation is: Crusader Holding
Corporation.
2. The address of the corporation's initial registered office
in this Commonwealth is: 1230 Walnut Street, Philadelphia,
Pennsylvania, Philadelphia County.
3. The corporation is incorporated under the provisions of the Business
Corporation Law of 1988, as amended.
4. The purpose of the corporation is and it shall have unlimited power to
engage in and to do any lawful act concerning any or all lawful
business for which corporations may be incorporated under the
Pennsylvania Business Corporation Law of 1988, as amended.
5. The term for which the corporation is to exist is perpetual.
6. The aggregate number of shares which the Corporation shall have the
authority to issue is 20,000,000 shares of Common Stock, par value
$0.01 per share and 5,000,000 shares of Preferred Stock, par value
$0.01 per share.
The board of directors shall have the full authority permitted by law
to divide the authorized and unissued shares of Preferred Stock into
classes or series, or both, and to determine for any such class or
series its designation and the number of shares of the class or series
and the voting rights, preferences, limitations, dividends and special
rights, if any, of the shares of the class or series.
The following is a description of each class or series of capital stock
that has been designated and a statement of the voting rights,
designations, preferences, limitations, and special rights granted to
or imposed upon the shares of each such class or series:
<PAGE>
A. COMMON STOCK
1. Voting Rights. Each holder of record of Common Stock shall
have the right to one vote for each share of Common Stock standing in
his name on the books of the Corporation.
2. Dividend Rights. The holders of shares of Common Stock
shall be entitled to receive dividends when and as declared by the
Board of Directors, but only out of funds legally available therefor.
7. A special meeting of the shareholders may be called by those members of
the board of directors or officers as specified in the bylaws of the
Corporation.
8. The shareholders of the Corporation shall not have the right to
cumulate their votes for the election of directors of the Corporation.
9. These articles of incorporation may be amended in the manner now or
hereafter prescribed by statute, and all rights conferred upon
shareholders herein are granted subject to this reservation.
10. Neither Section 2538(a) of the Pennsylvania Business
Corporation Law of 1988, as amended (15 Pa. C.S. ss. 2538(a)),
nor Subchapters E, F, G, or H of 15 Pa. C.S. Chapter 25, nor
any successor provisions shall be applicable to the
corporation.
11. The shareholders of the Corporation may authorize any action without a
meeting by less than unanimous consent with prompt notice of such
action given to those shareholders entitled to vote thereon who have
not consented.
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AMENDED AND RESTATED
BYLAWS OF
CRUSADER HOLDING CORPORATION
(a Pennsylvania corporation)
OFFICES
1.1 OFFICES. The registered office of the Corporation shall be
located at 1230 Walnut Street, Philadelphia, Pennsylvania, or at such other
place as the Board of Directors may from time to time determine.
1.2 ADDITIONAL OFFICES. The Corporation may also have offices
at such other places, both within and without the Commonwealth of Pennsylvania,
as the Board of Directors may from time to time determine or the business of the
Corporation may require.
SEAL
2.1 CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, PENNSYLVANIA". The corporate seal may be affixed and attested
but the affixation or attestation of the corporate seal shall not be necessary
for the due execution of any filing or any document or any other purpose by the
Corporation under the statutes.
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SHAREHOLDERS' MEETINGS
3.1 PLACE. Meetings of shareholders shall be held at the
principal office of the Corporation or at such other place, either within or
without the Commonwealth of Pennsylvania as the Board of Directors may from time
to time determine and as shall be stated in the notice of the meeting or in a
duly executed waiver of notice thereof.
3.2 ANNUAL MEETING. An annual meeting of shareholders for the
election of directors and the transaction of such other business as may properly
come before the meeting shall be held in each calendar year. The Board of
Directors shall, by resolution, set the date, time and place of the annual
meeting. If no date, time and place is set by the Board of Directors, the annual
meeting shall be held on the 15th day of November in each year, if not a legal
holiday under the laws of Pennsylvania, and, if a legal holiday, then on the
next succeeding business day at 2:00 P.M.
3.3 FAILURE TO HOLD ANNUAL MEETING. Failure to hold the annual
meeting at the designated time shall not work a dissolution of the Corporation
or affect otherwise valid corporate acts.
3.4 SPECIAL MEETINGS. Special meetings of shareholders may be
called at any time by the Chairman of the Board of Directors, the President, or
a majority of the Corporation's Board of Directors. At any time, upon written
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request of any person who has called a special meeting, it shall be the duty of
the Chairman of the Corporation to fix the time of the meeting which, if the
meeting is called by the Board of Directors, shall be held not more than 60 days
after the receipt of the request. If the Secretary neglects or refuses to fix
the time of the meeting, the person or persons calling the meeting may do so.
3.5 BUSINESS TRANSACTED AT SPECIAL MEETINGS OF SHAREHOLDERS.
Business transacted at all special meetings shall be confined to the subjects
stated in the notice and matters germane thereto.
3.6 NOTICE. Written notice, stating the place, day and hour of
each meeting of shareholders and, in the case of a special meeting, the general
nature of the business to be transacted, shall be given by, or at the direction
of, the Chairman of the Corporation to each shareholder of record entitled to
vote at the meeting at least five days prior to the day named for the meeting,
or ten days in the case of a meeting called to consider a fundamental change
under Chapter 19 of the Business Corporation Law of 1988, as amended. If the
Chairman neglects or refuses to give notice of a meeting, the person or persons
calling the meeting may do so.
3.7 QUORUM AND ADJOURNMENT. The presence, in person or by
proxy, of shareholders entitled to cast at least a majority of the votes that
all shareholders are entitled to cast on a particular matter to be acted upon at
the meeting shall
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constitute a quorum for the purposes of consideration and action on the matter.
Any regular or special meeting may be adjourned for such period and to such
place as the shareholders present and entitled to vote, in person or by proxy,
shall direct. If a meeting cannot be organized because a quorum has not
attended, those present may adjourn the meeting to such time and place as they
may determine. Notwithstanding the foregoing, (i) those shareholders entitled to
vote, by person or by proxy, who attend a meeting called for the election of
directors that has been previously adjourned for lack of a quorum, although less
than a quorum as fixed in this section, shall nevertheless constitute a quorum
for the purpose of electing directors and (ii) those shareholders entitled to
vote, by person or by proxy, who attend a meeting that has been previously
adjourned for one or more periods aggregating at least 15 days because of an
absence of a quorum, although less than a quorum as fixed in this section, shall
nevertheless constitute a quorum for the purpose of acting upon any matter set
forth in the notice of the meeting if the notice states that those shareholders
who attend the adjourned meeting shall nevertheless constitute a quorum for the
purpose of acting upon the matter.
3.8 TELEPHONE MEETINGS. Shareholders may participate in any
shareholders' meeting by conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other. Shareholders so participating will be deemed present at the meeting.
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3.9 ACTION BY SHAREHOLDERS. Any action required or permitted
to be taken at a meeting of the shareholders or of a class of shareholders may
be taken without a meeting, if, prior or subsequent to the action, a consent or
consents in writing, setting forth the action so taken, shall be signed by
shareholders who would have been entitled to cast the minimum number of votes
that would be necessary to authorize the action at a meeting at which all
shareholders entitled to vote thereon were present and voting. The consents
shall be filed with the Secretary of the Corporation. Prompt notice of the
action taken without a meeting by less than unanimous consent shall be given to
those shareholders who have not consented in writing.
3.10 PROXIES. Every shareholder entitled to vote at a meeting
of shareholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person to act for him by proxy. The
presence of, or vote or other action at a meeting of shareholders, or the
expression of consent or dissent to corporate action in writing, by a proxy of a
shareholder shall constitute the presence of, or vote or action by, or written
consent or dissent of the shareholder for the purposes of this paragraph. Where
two or more proxies of a
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shareholder are present, the Corporation shall, unless otherwise expressly
provided in the proxy or proxies, accept as the vote of all shares represented
thereby the vote cast by a majority of such proxies and, if a majority of the
proxies cannot agree whether the shares represented shall be voted or upon the
manner of voting the shares, the voting of the shares shall be divided equally
among those persons. Every proxy shall be executed in writing by the shareholder
or by his duly authorized attorney-in-fact and filed with the Secretary of the
Corporation. A proxy, unless coupled with an interest, shall be revocable at
will, notwithstanding any other agreement or any provision in the proxy to the
contrary, but the revocation of a proxy shall not be effective until written
notice thereof has been given to the Secretary of the Corporation. An unrevoked
proxy shall not be valid after three years from the date of the execution unless
a longer time is expressly provided therein. A proxy shall not be revoked by
death or incapacity of the maker unless, before the vote is counted or the
authority is exercised, written notice of the death or incapacity is given to
the Secretary of the Corporation.
3.11 VOTING. (a) Shares of the Corporation standing in the
name of a trustee or other fiduciary and shares held by an assignee for the
benefit of creditors or by a receiver may be voted by the trustee, fiduciary,
assignee or receiver. A shareholder whose shares are pledged shall be entitled
to vote the shares until the shares have been transferred into the name
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of the pledgee, or a nominee of the pledgee, but nothing in this paragraph shall
affect the validity of a proxy given by a pledgee or nominee. Where shares of
the Corporation are held jointly or as tenants in common by two or more persons,
as fiduciaries or otherwise: (i) if any or all of such persons is present in
person or by proxy, all of the shares standing in the names of such persons
shall be deemed to be represented for the purpose of determining a quorum and
the Corporation shall accept as the vote of all the shares the vote cast by a
majority of such persons, or, if only one, such person; and (ii) if the persons
are equally divided upon whether the shares held by them shall be voted or upon
the manner of voting the shares, the voting of the shares shall be divided
equally among the persons without prejudice to the right of the joint owners or
the beneficial owners thereof among themselves. If there has been filed with the
Secretary of the Corporation a copy, certified by an attorney at law to be
valid, of the agreement under which any shares are held or the instrument by
which the trust or estate was created or the order of court appointing them or
of any order of court directing the voting of the shares, the persons specified
as having such voting power in the latest document so filed (and only those
person) shall be entitled to vote the shares but only in accordance therewith.
(b) Any domestic or foreign corporation for profit or
not-for-profit that is a shareholder of the Corporation may vote by any of its
officers or agents, or by proxy appointed by any
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officer or agent, unless some other person is appointed as its general or
special proxy, by resolution of the board of directors of the corporation or a
provision of its articles or bylaws, a copy of which resolution or provision
certified to be correct by one of its officers has been filed with the Secretary
of the Corporation, in which case that person so appointed shall be entitled to
vote the shares.
3.12. JUDGES OF ELECTION. In advance of any meeting of
shareholders, the Board of Directors may appoint judges of election, who need
not be shareholders, to act at such meeting or any adjournment thereof. If
judges of election are not so appointed, the chairman of any such meeting may,
and on the request of any shareholder or his proxy, shall make such appointment
at the meeting. The number of judges shall be one or three. If appointed at a
meeting on the request of one or more shareholders or proxies, the majority of
shares present and entitled to vote shall determine whether one or three judges
are to be appointed. On request of the chairman of the meeting, or of any
shareholder or his proxy, the judges shall make a report in writing of any
challenge or question or matter determined by them, and execute a certificate of
any fact found by them. No person who is a candidate for office shall act as a
judge.
3.13 WRITTEN CONSENT. Any action required or permitted to be
taken at a meeting of the shareholders or of a class of shareholders may be
taken without a meeting upon the written consent shareholders who would have
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been entitled to cast the minimum number of votes that would be necessary to
authorize the action at a meeting at which all shareholders entitled to vote
thereon were present and voting.
3.14 SHAREHOLDERS LIST. The officer or agent having charge of
the transfer books for shares of the Corporation shall make a complete list of
the shareholders entitled to vote at any meeting of shareholders, arranged in
alphabetical order, with the address of and the number of shares held by each
such shareholder. The list shall be produced and kept open at the time and place
of each meeting of shareholders and shall be subject to the inspection of any
shareholder during the meeting for the purposes thereof.
DIRECTORS
4.1 BOARD OF DIRECTORS. Unless otherwise provided by law, all
powers of the Corporation shall be exercised by or under the authority of, and
the business and affairs of the Corporation shall be managed under the direction
of, a Board of Directors. The Board of Directors shall nominate a Chairman of
the Board of Directors who shall preside over all meetings of the Board of
Directors. The number of directors of the Corporation shall be set by resolution
of the Board.
4.2 ELECTION AND TERM OF OFFICE. Except as provided in these
bylaws, directors shall be elected by the shareholders. Each director shall be a
natural person of full age who need not be a resident of Pennsylvania or a
shareholder of the
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Corporation. Directors shall hold office for one year and until their successors
have been selected and qualified, or until their earlier death, resignation or
removal.
4.3 RESIGNATION, REMOVAL OF DIRECTORS. Any director may resign
at any time. Such resignation shall be in writing, but acceptance thereof shall
not be necessary to make it effective. Any director may be removed from office
at a meeting of shareholders, without assigning any cause by vote of the
shareholders entitled to cast at least a majority of the votes which all
shareholders would be entitled to cast at any annual election of directors. A
new director or directors may be elected at the same meeting. The Board of
Directors may declare vacant the office of a director if he is declared of
unsound mind by an order of court, or convicted of felony, or for any other
proper cause as may be established by the Board of Directors.
4.4 VACANCIES. Vacancies in the Board of Directors, including
vacancies resulting from an increase in the number of directors, shall be filled
by a majority of the remaining directors though less than a quorum but only as
recommended by the Nominating Committee of the Board of Directors, or by a sole
remaining director. A director selected to fill a vacancy shall serve for the
balance of the unexpired term.
4.5 ANNUAL MEETING. An annual meeting of the Board of
Directors shall be held each year as soon as practicable after the annual
meeting of shareholders, at the place where such meeting of shareholders was
held or at such other place as the
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Board of Directors may determine, for the purpose of organization of the Board,
election of officers and the transaction of any other business as may properly
be brought before the meeting. No notice of any kind of the annual meeting of
the Board of Directors need be given to either old or new directors.
4.6 REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held at such times and at such places as the directors may
determine from time to time. Notice of regular meetings need not be given.
4.7 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman or by a majority of the directors then
in office. Notice of every special meeting shall be given to each director not
later than the second day immediately preceding the day of such meeting in the
case of notice by mail or courier service, and not later than during the day
immediately preceding the day of such meeting in the case of notice delivered
personally or by telephone, telex, TWX or telecopier. Such notice shall state
the time and place of the meeting, but neither the business to be transacted at,
nor the purpose of, the meeting need be specified in the notice of such meeting.
4.8 TELEPHONE MEETINGS. The Board of Directors may participate
in meetings of the Board by conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other. Directors so participating will be deemed present at the meeting.
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4.9 QUORUM. A majority of the directors in office shall be
necessary to constitute a quorum for the transaction of business, and the acts
of a majority of the directors present and voting at a meeting shall be the acts
of the Board of Directors. If the number of the directors in office is even, 50
percent of the directors in office shall be necessary to constitute a quorum for
the transaction of business, and the acts of a majority of the directors present
and voting at a meeting shall be the acts of the Board of Directors.
4.10 UNANIMOUS CONSENT. Any action required or permitted to be
taken at a meeting of the directors may be taken without a meeting if, prior or
subsequent to the action, a consent or consents in writing setting forth the
action so taken shall be signed by all the directors in office and shall be
filed with the secretary of the Corporation.
4.11 PAYMENTS TO DIRECTORS. The directors may be reimbursed
for the expenses of attending Board meetings and committee meetings and may be
paid a fixed sum for attendance at each meeting or such other compensation for
their services as may, from time to time, be fixed by a majority of the
shareholders. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
4.12 SALARIES. The salaries and other compensation of officers
and assistants shall be fixed by the Board of Directors.
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4.13 LIABILITY OF DIRECTORS. A director of the Corporation
shall not be personally liable for monetary damages for any action taken, or any
failure to take any action, unless the director has breached or failed to
perform the duties of his office as provided for under Section 1713 of the
Pennsylvania Business Corporation Law of 1988, as amended, and the breach or
failure to perform constitutes self-dealing, willful misconduct or recklessness.
Any repeal, amendment, or modification of this Section shall be prospective only
and shall not increase, but may decrease a director's liability with respect to
actions or failures to act occurring prior to such change.
4.14 NOMINATIONS. Nominations for election to the Board of
Directors may be made by the Nominating Committee of the Board of Directors or
by any shareholder of any outstanding shares of the Corporation entitled to vote
for election of Directors. Nominations, other than those made by or on behalf of
the Board of Directors of the Corporation, shall be made in writing and shall be
delivered or mailed to the Chairman of the Corporation not later than 270 days
in advance of the anniversary date of the Corporation's proxy statement for the
Corporation's annual meeting of shareholders in the previous calendar year. Such
notification shall contain the following information to the extent known to the
notifying shareholder(s): (a) the name and address of each proposed nominee; (b)
the principal occupation of each proposed nominee; (c) the total number of
shares of the Corporation that will be voted for each proposed nominee by the
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notifying shareholder(s); (d) the name and residence address of the notifying
shareholder(s); (e) the number of shares of the Corporation owned by the
notifying shareholder(s); (f) such other information about each nominee proposed
by such shareholder(s) as would be required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission, had
the nominee been nominated, or intended to be nominated, by the Board of
Directors; and (g) the consent of each nominee to serve as a director of the
Corporation if so elected. Nominations not made in accordance herewith shall be
disregarded by the Chairman of the meeting and votes cast for such nominee shall
not be counted.
COMMITTEES
5.1 ESTABLISHMENT AND POWERS. The Board of Directors may, by
resolution adopted by a majority of the directors in office, establish
committees, including an Executive Committee, an Audit Committee, a Nominations
Committee and a Compensation Committee, to serve at the pleasure of the Board,
consisting in each case of one or more directors, and may designate one or more
directors as alternate members of such a committee. Any committee, to the extent
provided in the resolution by which it is established, shall have and may
exercise all of the powers and authority of the Board of Directors except that a
committee shall not have any power or authority as to the following:
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(a) The submission to shareholders of any action
requiring approval of shareholders under the Business Corporation Law
of 1988, as amended;
(b) The creation or filling of vacancies in the
Board of Directors;
(c) The adoption, amendment or repeal of these
bylaws;
(d) The amendment or repeal of any resolution of the
Board of Directors that by its terms is amendable or repealable only by
the Board of Directors; and
(e) Action on matters committed by a resolution of
the Board of Directors to another committee of the Board of Directors.
In the absence or disqualification of a member and alternate member or members
of a committee, the member or members of the committee present at any meeting
and not disqualified from voting, whether or not they constitute a quorum, may
unanimously appoint another director to act at the meeting in place of the
absent or disqualified member.
5.2 QUORUM. A majority of the directors appointed to a
committee shall constitute a quorum for the transaction of business, and the
acts of a majority of the directors appointed to a committee present and voting
at a meeting of the committee at which a quorum is present shall be the acts of
the committee.
5.3 MEETINGS AND NOTICES. A committee may, by
resolution and with the consent of the Chairman of the Board, fix
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regular meeting dates of which no notice need be given to members of the
committee. Special meetings of a committee may be held at the call of the
Chairman of the Board upon such notice as is provided in these bylaws for
special meetings of the Board of Directors. Any action required or permitted to
be taken at a meeting of the members of a committee may be taken without a
meeting if, prior or subsequent to the action, a consent or consents in writing
setting forth the action so taken shall be signed by all the members of the
committee and shall be filed with the secretary of the Corporation.
5.4 BOARD SUBMISSION. All action taken by the committees shall
be reported to the Board through the Chairman of the Board not later than the
next succeeding regular meeting of the Board.
OFFICERS
6.1 NUMBER. The officers of the Corporation shall be a
Chairman, President, a Secretary, and a Treasurer, or persons who shall act as
such, regardless of the name or title by which they may be designated, elected
or appointed, and, in addition, the Corporation may have one or more Vice
Presidents and such other officers and assistant officers as the Board of
Directors may elect. All officers shall be natural persons of full age. Any
number of offices may be held by the same person. Officers may but need not be
shareholders or members of the Board of Directors.
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6.2 ELECTION. The officers and assistant officers shall be
elected or appointed by the Board of Directors at its annual meeting, or as soon
thereafter as possible, and shall hold office for a term of one year and until
their successors are selected and qualified or until their earlier death,
resignation or removal by the Board of Directors.
6.3 VACANCIES. A vacancy by reason of death, resignation or
removal of any officer or assistant officer or by reason of the creation of a
new office may be filled by the Board of Directors.
6.4 GENERAL DUTIES. All officers and assistant officers, as
between themselves and the Corporation, shall have such authority and perform
such duties in the management of the Corporation as may be provided in these
bylaws and as may be determined by resolution of the Board of Directors not
inconsistent with these bylaws.
6.5 CHAIRMAN. The Chairman shall be the Chief Executive
Officer of the Corporation, shall have active executive management of its
operations and shall preside at all meetings of directors and shareholders.
6.6 PRESIDENT. The President shall have active management of
the Corporation's operations, subject, however to the control of the Board of
Directors. The President shall, in general, perform all duties incident to the
office of President and such other duties as may be assigned by the Board of
Directors.
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6.7 VICE PRESIDENTS. The Vice President, or if there shall be
more than one, the Vice Presidents in the order determined by the Board of
Directors, shall, in the absence or disability of the President, perform the
duties and exercise the powers of the President and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
6.8 SECRETARY. The Secretary shall be custodian of the books
and records of the Corporation other than those in the custody of the Treasurer.
The Secretary shall be custodian of the seal and is hereby authorized to affix
the seal to all documents, the execution and delivery of which are duly
authorized. The Secretary shall record the minutes of all meetings of
shareholders and of the Board of Directors and shall be responsible for the
giving of all notices of such meetings in accordance with these bylaws. The
Secretary shall, in general, perform such other duties as are incident to the
office of Secretary and as may be assigned by the Board of Directors or by the
Chairman or the President.
6.9 TREASURER. The Treasurer shall be the financial officer of
the Corporation. The Treasurer shall have charge and custody of, and be
responsible for, all funds of the Corporation and the books and records relating
to the same, and shall deposit all such funds in the name of the Corporation in
depositories selected by the Board of Directors. The Treasurer shall render to
the Chairman and the President and the Board of Directors,
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upon request, an account of all transactions taken as Treasurer and of the
financial condition of the Corporation. The Treasurer shall, in general, perform
such other duties as are incident to the office of Treasurer and as may be
assigned by the Board of Directors or by the Chairman or the President. The
Treasurer shall, if required to do so by the Board of Directors, furnish bond in
such form and amount and to cover such risks as the Board of Directors or the
Chairman may determine.
INDEMNIFICATION OF DIRECTORS, OFFICERS, AND OTHER PERSONS
7.1 INDEMNIFICATION OF DIRECTORS, OFFICERS, AND OTHER PERSONS.
The Corporation shall indemnify any director, officer, employee or agent of the
Corporation or any of its subsidiaries who was or is an "authorized
representative" of the Corporation (which shall mean, for the purpose of this
Article, a director or officer of the Corporation, or a person serving at the
request of the Corporation as a director, officer, partner, fiduciary or trustee
of another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise) and who was or is a "party" (which shall include for
purposes of this Article the giving of testimony or similar involvement) or is
threatened to be made a party to any "proceeding" (which shall mean for purposes
of this Article any threatened, pending or completed action, suit, appeal or
other proceeding of any nature, whether civil, criminal, administrative or
investigative, whether formal or informal, and whether brought by or in the
right of the
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Corporation, its shareholders or otherwise) by reason of the fact that such
person was or is an authorized representative of the Corporation to the fullest
extent permitted by law, including without limitation indemnification against
expenses (which shall include for purposes of this Article attorneys' fees and
disbursements), damages, punitive damages, judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such proceeding unless the act or failure to act giving rise to
the claim is finally determined by a court to have constituted willful
misconduct or recklessness. If an authorized representative is not entitled to
indemnification in respect of a portion of any liabilities to which such person
may be subject, the Corporation shall nonetheless indemnify such person to the
maximum extent for the remaining portion of the liabilities.
7.2 ADVANCEMENT OF EXPENSES. The Corporation shall pay the
expenses (including attorneys' fees and disbursements) actually and reasonably
incurred in defending a proceeding on behalf of any person entitled to
indemnification under Section 7.1 in advance of the final disposition of such
proceeding upon receipt of an undertaking by or on behalf of such person to
repay such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the Corporation as authorized in this Article and
may pay such expenses in advance on behalf of any employee or agent on receipt
of a similar undertaking. The financial ability of such authorized
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representative to make such repayment shall not be prerequisite
to the making of an advance.
7.3 EMPLOYEE BENEFIT PLANS. For purposes of this Article, the
Corporation shall be deemed to have requested an officer, director, employee or
agent to serve as fiduciary with respect to an employee benefit plan where the
performance by such person of duties to the Corporation also imposes duties on,
or otherwise involves services by, such person as a fiduciary with respect to
the plan; excise taxes assessed on an authorized representative with respect to
any transaction with an employee benefit plan shall be deemed "fines"; and
action taken or omitted by such person with respect to an employee benefit plan
in the performance of duties for a purpose reasonably believed to be in the
interest of the participants and beneficiaries of the plan shall be deemed to be
for a purpose which is not opposed to the best interests of the Corporation.
7.4 SECURITY FOR INDEMNIFICATION OBLIGATIONS. To further
effect, satisfy or secure the indemnification obligations provided herein or
otherwise, the Corporation may maintain insurance, obtain a letter of credit,
act as self-insurer, create a reserve, trust, escrow, cash collateral or other
fund or account, enter into indemnification agreements, pledge or grant a
security interest in any assets or properties of the Corporation, or use any
other mechanism or arrangement whatsoever in such amounts, at such costs, and
upon such other terms and conditions as the Board of Directors shall deem
appropriate.
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7.5 RELIANCE UPON PROVISIONS. Each person who shall act as an
authorized representative of the Corporation shall be deemed to be doing so in
reliance upon the rights of indemnification provided by this Article.
7.6 AMENDMENT OR REPEAL. All rights of indemnification under
this Article shall be deemed a contract between the Corporation and the person
entitled to indemnification under this Article pursuant to which the Corporation
and each such person intend to be legally bound. Any repeal, amendment or
modification hereof shall be prospective only and shall not limit, but may
expand, any rights or obligations in respect of any proceeding whether commenced
prior to or after such change to the extent such proceeding pertains to actions
or failures to act occurring prior to such change.
7.7 SCOPE OF ARTICLE. The indemnification, as authorized by
this Article, shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
statute, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in an official capacity and as to action in any
other capacity while holding such office. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article shall continue as to
a person who has ceased to be an officer, director, employee or agent in respect
of matters arising prior to such time, and shall inure to
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the benefit of the heirs, executors and administrators of such person.
FINANCIAL STATEMENTS TO SHAREHOLDERS
8.1 FINANCIAL STATEMENTS. Unless otherwise agreed between the
Corporation and a shareholder, the Corporation shall furnish to the shareholders
annual financial statements, including at least a balance sheet as of the end of
each fiscal year and a statement of income and expenses for the fiscal year. The
financial statements shall be prepared on the basis of generally accepted
accounting principles, if the Corporation prepares financial statements for the
fiscal year on that basis for any purpose, and may be consolidated statements of
the Corporation and one or more subsidiaries.
CORPORATE RECORDS
9.1 MINUTE BOOKS AND SHARE REGISTER. There shall be kept at
the registered office or principal place of business or the Corporation an
original or duplicate record of the proceedings of the shareholders and of the
directors, and the original or a copy of its bylaws, including all amendments or
alterations thereto to date, certified by the Secretary of the Corporation. At
the registered office, principal place of business or at the office of the
Corporation's transfer agent, an original or duplicate share register shall also
be kept giving the names of the shareholders (arranged in alphabetical order),
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and showing their respective addresses, the number and classes of shares held by
each, the number and date of certificates issued for the shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
9.2 INSPECTION OF CORPORATE DOCUMENTS. Every shareholder upon
written verified demand stating the purpose thereof, shall have the right to
examine, in person or by agent or attorney, at a reasonable time or times, for
any reasonable purpose, the share register, books or records of account, and
records of the proceedings of the shareholders and directors, and to make
extracts therefrom.
SHARE CERTIFICATES
10.1 SHARE CERTIFICATES. The share certificates, if any, of
the Corporation shall be numbered and registered in the share ledger and
transfer books of the Corporation, as they are issued. Every share certificate
may be executed by facsimile or otherwise on behalf of the Corporation in any
manner approved by the Board of Directors. In case any officer who has signed,
or whose facsimile signature has been placed upon any share certificate have
ceased to be such officer because of death, resignation or otherwise before the
certificate is issued, it may be issued by the Corporation with the same effect
as if the officer had not ceased to be such at the date of its issue.
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10.2 TRANSFER OF SHARES. Transfers of shares shall be made on
the books of the Corporation upon surrender of the certificates therefor,
endorsed by the person named in the certificate or by attorney, lawfully
constituted in writing. No transfer shall be made inconsistent with the
provisions of Article 8 of the Uniform Commercial Code, and its amendments and
supplement.
10.3 FIXING OF RECORD DATE. (a) The Board of Directors may fix
a time, not more than ninety days, prior to the date of any meeting of
shareholders, or the date fixed for the payment of any dividend or distribution,
or the date for the allotment of rights, or the date when any change or
conversion or exchange of shares will be made or go into effect, as a record
date for the determination of the shareholders entitled to notice of, or to vote
at, any such meeting, or entitled to receive payment of any such dividend or
distribution, or to receive any such allotment of rights, or to exercise the
rights in respect to any such change, conversion, or exchange of shares. In such
case, only such shareholders as shall be shareholders of record on the date so
fixed shall be entitled to notice of, or to vote at, such meeting, or to receive
payment of such dividend, or to receive such allotment of rights, or to exercise
such rights as the case may be, notwithstanding any transfer of any shares on
the books of this corporation after any record date fixed, as aforesaid. When a
determination of shareholders of record has been made as provided in this
paragraph for purposes of a meeting
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the determination shall apply to any adjournment thereof unless the Board of
Directors fixes a new record date for the adjourned meeting.
(b) If a record date is not fixed:
(1) The record date for determining shareholders
entitled to notice of to vote at a meeting of shareholders shall be at the close
of business on the day next preceding the day on which notice is given or, if
notice is waived, at the close of business on the date immediately preceding the
day on which the meeting is held.
(2) The record date for determining shareholders
entitled to express consent or dissent to corporate action in writing without a
meeting when prior action by the Board of Directors is not necessary, shall be
the close of business on the day on which the first written consent or dissent
is filed with the Secretary.
(3) The record date for determining shareholders for
any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
10.4 LOST SHARE CERTIFICATE. Any person claiming a share
certificate to be lost or destroyed shall make an affidavit or affirmation of
that fact and advertise the same in such manner as the Board of Directors may
require, and, upon request of the Corporation, shall give a bond of indemnity
with sufficient surety to protect the Corporation or any person injured by the
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issue of a new certificate from any liability or expense which it or they may
incur by reason of the original certificate remaining outstanding, whereupon a
new certificate may be issued of the same tenor and for the same number of
shares as the one alleged to be lost or destroyed, but always subject to the
approval of the Board of Directors.
10.5 DIVIDENDS. Subject to applicable law, the Board of
Directors may declare and pay dividends upon the outstanding shares of the
Corporation from time to time and to such extent as they deem advisable, in
cash, property or in shares of the Corporation.
10.6 PAYMENT OF DIVIDENDS. Before payment of any dividend
there may be set aside out of the net profits of the Corporation such sum or
sums as the directors, from time to time, in their absolute discretion, think
proper as a reserve fund to meeting contingencies, or for equalizing dividends,
or for repairing or maintaining any property of the Corporation, or for such
other purposes as the directors shall think conducive to the interests of the
Corporation, and the directors may abolish any such reserve in the manner in
which it was created.
NOTICES
11.1 NOTICE. Whenever written notice is required to be given
to any person by law, the Articles of Incorporation or these bylaws, it may be
given to such person either personally or by sending a copy thereof by first
class or express mail, postage
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prepaid, or by telegram (with messenger service specified), telex or TWX (with
answerback received) or courier service, charges prepaid, or by telecopier, to
the address (or the telex, TWX, telecopier or telephone number) appearing on the
books of the Corporation or, in the case of a director, to the address supplied
by the director to the Corporation for the purpose of notice. If the notice is
sent by mail, telegraph or courier service, it shall be deemed to have been
given to the person entitled thereto when deposited in the United States mail or
with a telegraph office or courier service for delivery to that person or, in
the case of telex or TWX, when dispatched or, in the case of telecopier, when
received. A notice of meeting shall specify the place, day and hour of the
meeting and, in the case of a special meeting of shareholders, the general
nature of the business to be transacted.
11.2 WAIVER OF NOTICE. Whenever any written notice is required
to be given under law, the Articles of Incorporation or these bylaws, a waiver
thereof in writing, signed by the person or persons entitled to the notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of the notice. Neither the business to be transacted at, nor the
purpose of, a meeting need be specified in the waiver of notice of the meeting.
Attendance of a person at any meeting shall constitute a waiver of notice of the
meeting except where a person attends a meeting for the express purpose of
objecting, at
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the beginning of the meeting, to the transaction of any business
because the meeting was not lawfully called or convened.
MISCELLANEOUS PROVISIONS
12.1 VALIDITY. Any note, mortgage, evidence of indebtedness,
contract or other document, or any assignment or endorsement thereof, executed
or entered into between the Corporation and any other person, when signed by the
Chairman, the President or any Vice President or the Secretary or the Treasurer
of the Corporation, or by such other officer or officers as the Board of
Directors may from time to time designate, shall be deemed to be properly
executed for and in behalf of the Corporation.
12.2 FISCAL YEAR. The fiscal year of the Corporation shall
begin on the first day of July of each year or on such other day as may be fixed
by resolution of the Board of Directors.
AMENDMENTS
13.1 These bylaws may be altered, amended or repealed and new
bylaws may be adopted by with respect to those matters that are not by statute
committed expressly to the shareholders, by the vote of a majority of the
directors of the Corporation present and voting at any duly organized meeting of
directors. In the case of a meeting of shareholders, written notice shall be
given to each shareholder that the purpose, or one of the
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purposes, of the meeting is to consider the adoption, amendment or repeal of the
bylaws, and a copy of the proposed amendment or a summary of the changes to be
effected thereby shall be included in, or enclosed with, the notice. No
alteration, amendment or repeal of these bylaws that limits indemnification
rights, increases the liability of directors or changes the manner or vote
required to make such alteration, amendment or repeal, shall be made except by
the affirmative vote of the shareholders entitled to cast at least a majority of
the votes which all shareholders are entitled to cast thereon.
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SUBSCRIPTION AND SHAREHOLDERS' AGREEMENT
THIS AGREEMENT is dated as of the 1st day of March, 1996, by
and among THOMAS KNOX, an individual ("Knox"), BRUCE LEVY, an individual
("Levy"), and CRUSADER HOLDING CORPORATION ("CHC") (Knox, Levy and any other
person who subsequently becomes a shareholder of CHC are sometimes hereinafter
collectively called the "Shareholders" or individually called a "Shareholder").
BACKGROUND
I. CHC was incorporated on April 12, 1988. As of the date
hereof, CHC is authorized to issue 500,000 shares of Class A common stock at a
par value of $0.01 or 500,000 shares of Class B common stock at a par value of
$0.01 (each a "Share" and, collectively, the "Shares") and 25,000 Shares are
issued and outstanding. All of the issued and outstanding Shares are currently
owned by Knox.
II. CHC is a bank holding company which owns one hundred
percent (100%) of the issued and outstanding stock of Crusader Savings Bank,
F.S.B., a federally chartered savings bank ("Crusader").
III. As of the date hereof, Crusader has approximately
$60,000,000 of assets ("Assets"). Crusader has capital of approximately
$3,285,000 (the "Capital") and is in conformity with existing regulatory
requirements respecting capitalization. Crusader has two branch locations, one
at 6526 Castor Avenue, and the other at 1230 Walnut Street, both in
Philadelphia. Crusader's financial performance as of the end of its most recent
fiscal quarter is reflected in the consolidated financial statements of CHC, a
copy of which is attached hereto and made a part hereof as Exhibit A (the
"Financial Statements").
IV. It is the intention of Knox, Levy and CHC for Levy to fund
$1,318,000 to CHC capital.
V. Knox, Levy and CHC intend to recapitalize CHC as follows:
(i) Knox will exchange his existing promissory notes for a new note(s) from CHC
in the principal amount of $2,044,622 (which includes all existing accrued
interest) and will be issued 675,000 shares of class A common stock of CHC, and
(ii) Levy will receive a convertible note from CHC in the amount of $1,318,000,
which note will be exchanged following OTS approval of Levy into a new note in
the amount of $876,267 and the issuance of 300,000 shares of class A common
stock of CHC, all as described below.
<PAGE>
VI. The parties recognize that such investment will require
regulatory approval of Levy to the extent that his investment exceeds 9.9% of
the issued and outstanding stock of CHC. It is the intention of the parties
hereto to proceed with application for such approval simultaneously with the
execution of this Agreement. The parties further acknowledge that the
withholding or refusal of such approval by the appropriate regulatory
authorities may, at the option of either Knox or Levy, result in the termination
of this Agreement.
VII. The parties desire to set forth their agreement as to the
issues of voting rights, dissolution preferences, restrictions on transfer of
stock, to provide for the continuity and maintenance of the proficient
management, control, and operation of the business of CHC and Crusader, and to
provide for certain other matters, all as set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants,
conditions and agreements herein contained, the parties hereto, each intending
to be legally bound hereby, agree as follows:
1. CHC Corporate Restructuring.
(a) Promptly following the execution of this
Agreement, CHC will amend its Articles of Incorporation, By-laws and other
applicable corporate documents (collectively, the "CHC Corporate Documents") in
order to provide for (i) the authorization to issue an additional 9,000,000
shares of $0.01 par value Class A common stock of CHC (collectively, the "Common
Stock" or "Shares"), and (ii) the issuance to each of Knox and Levy of certain
shares of the common stock of CHC (subject, in the case of Levy, to receipt of
regulatory approval of the same). Knox and Levy and their family members will
not participate in any phantom option plan established for officers or directors
of Crusader.
(b) The issuance to Levy of his pro rata share of the
common stock of CHC shall be expressly conditioned upon (i) receipt of all
appropriate regulatory approvals for the acquisition and issuance of the same
and (ii) the timely funding of the Levy Note (as hereinafter defined) as
hereinafter provided. Pending receipt by CHC of such approvals and the proceeds
of such funding, this Agreement shall be deemed a subscription obligation by
Levy to acquire such stock and an obligation by CHC to issue the same. Other
than as contemplated above with respect to Knox and Levy and other than the
agreement by Knox and Levy to allow certain Crusader directors to purchase up to
5% of the issued and outstanding common stock of CHC not
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later than April 30, 1996 at a price to be determined by Knox and Levy but which
will not be less than book value for the said stock, no additional common stock
of CHC will be issued by CHC to any third parties without the joint written
consent of Knox and Levy, and in any event, the issuance of such stock will be
conditioned upon compliance with all appropriate federal and state securities
laws and the obtaining of all applicable regulatory approvals.
(c) The holders of the issued and outstanding shares
of common stock shall be entitled to one vote per share on all matters requiring
shareholder approval under the CHC Corporate Documents. In addition, Knox, Levy
and an individual designated by Knox will be appointed by the Shareholders of
CHC as members of the Board of Directors of CHC.
(d) As soon as practicable following the date hereof,
Knox and Levy shall cause the CHC board of directors to adopt the provisions of
this Agreement applicable to it by resolution and, thereafter, to cause the CHC
Corporate Documents to be appropriately amended.
2. Crusader Corporate Restructuring.
(a) The independent Crusader board of directors shall
remain intact prospectively, except that Levy shall be appointed to the Board of
Directors. Knox shall vote for Levy's appointment to the Crusader Board of
Directors.
(b) As soon as practicable following the date hereof,
Knox and Levy shall recommend to the Crusader board of directors to adopt the
provisions of this Agreement applicable to it by resolution and, thereafter, to
cause the Crusader Corporate Documents to be appropriately amended.
3. Capitalization of CHC and Crusader to Fund Bank Business.
(a) Knox has outstanding a loan to CHC of $2,044,622
(inclusive of all accrued and unpaid interest) and Levy shall lend to CHC the
sum of $1,318,000 simultaneously with this Agreement. Such obligation shall be
currently funded by Levy on this date in an amount not less than $718,000. This
Agreement shall constitute a subscription obligation by Levy to CHC to
contribute the balance in three equal monthly installments, together with
one-half of one percent (1/2%) interest per month on the outstanding balance of
the subscription obligation. Pending OTS approval of Levy, Levy's loan shall be
evidenced by a convertible note bearing 4% interest per annum. Following OTS
approval, the loans shall be evidenced by (a) an amended and restated $2,044,622
Promissory Note executed by CHC
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in favor of Knox (the "Knox Note") and (b) a $876,267 Promissory Note executed
by CHC in favor of Levy (the "Levy Note"). The Knox Note and the Levy Note shall
sometimes collectively be referred to herein as the "Notes." The Notes shall
bear interest at the rate of 6% per annum, fixed, payable quarterly in arrears
until the date of repayment; provided, however, that such interest payments
shall be due only to the extent that such sums are available for payment
pursuant to all applicable federal banking regulations. The Notes shall be
prepayable in whole or in part, without penalty or premium. The Notes shall be
treated pari passu in payment, lien and collection, except as otherwise
expressly provided herein. The Notes shall have a maturity date of ten (10)
years. The Notes shall otherwise be in form and substance mutually acceptable to
CHC, Knox and Levy and shall conform in all respects to all applicable bank
regulatory requirements.
(b) CHC shall contribute the proceeds of the Notes
and stock as a capital contribution to Crusader.
(c) In the event that in the course of operating CHC
or Crusader, Knox and Levy jointly determine that additional capital is
necessary or advisable due to losses by CHC or Crusader, they shall jointly
determine the amount of additional capital to be contributed by Shareholders
ratably to CHC (which shall in turn be contributed to Crusader by CHC (each such
event, a "Capital Call")). There shall be no other mandatory Capital Calls on
Shareholders. Any Capital Contributions made hereunder shall be made by CHC to
Crusader following a direct funding to CHC by Shareholders of their respective
pro rata share of such Capital Call and the execution of an additional Note in
favor of each of Shareholders, as the case may be, which notes shall bear
interest at 12% per annum and which shall be convertible into common stock of
CHC for up to three (3) years following the issuance thereof. The amount of
stock that can be converted under such notes shall be an amount equal to the
principal balance of the said notes, together with all accrued and unpaid
interest thereon, divided by the per share book value of the common stock of CHC
at the time of the issuance of the notes.
4. Representations and Warranties of Levy. Levy hereby makes
the following representations and warranties to Knox and CHC, with knowledge of
their reliance thereon:
(a) Levy's decision to invest in CHC is based solely
upon his own investigation of CHC and Crusader and not upon any representations
or warranties of Knox, CHC or Crusader except as expressly set forth herein.
Levy has not been provided with any literature, sales materials or memoranda in
connection with his investment, but has been provided with full access to and
right to inspect the books and records of CHC and Crusader
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and has been provided with the right to conduct such other due diligence as Levy
has deemed necessary or desirable in order to evaluate the investment
opportunity described herein. Among the materials that Levy has inspected are
(i) the current year budget, (ii) the balance sheet and other financial
statements of CHC and Crusader, (iii) any existing nonperforming loans made by
Crusader, loan loss reserves, and-all loans which have been rated by Crusader as
substandard, in-substance foreclosure, or special mention and (iv) any loan
assets classified as OREO by Crusader.
(b) Levy is a qualified investor for purposes of any
applicable federal and state securities laws. Levy is a sophisticated investor
who is aware that his investment in CHC is a high risk transaction and that his
investment may be lost if the operation of CHC or Crusader as contemplated
herein is not successful. Levy acknowledges that CHC and Crusader are closely
held companies and, accordingly that his investment therein is illiquid and
there is no established market for the sale of his investment interest therein
and that the investment is reasonable in relation to his net worth. Levy further
acknowledges that the Shares have not been registered with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, or under any
applicable obligation to effect any such registrations. The sale or other
disposition of the shares is restricted as stated in this Agreement.
(c) Levy is acquiring the common stock of CHC for his
own account and for investment purposes, and not with a view for resale or
distribution thereof.
5. Representations and Warranties of Knox and CHC. Knox and
CHC hereby make the following representations and warranties to Levy, with
knowledge of his reliance thereon:
(a) CHC is duly organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania.
(b) Crusader is a duly chartered federal savings bank
and is duly organized, validly existing and in good standing under applicable
federal laws and regulations.
(c) CHC has full power and authority to enter into
and perform this Agreement. The execution and performance of this Agreement has
been duly authorized by the board of directors of CHC.
(d) To the best of their knowledge, there is no
pending or threatened litigation which has not been adequately disclosed and
reserved against on the financial statements of CHC and/or Crusader.
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(e) As of the date hereof, no third party has any
ownership interest in CHC or Crusader except as disclosed on the December 31,
1995 balance sheet of CHC.
(f) There are no tax liabilities, assessments, fees
or penalties in excess of $100,000 attributable to periods prior to December 31,
1995 that are unpaid or that may in the future be assessed against CHC or its
subsidiaries or affiliates as a result of an audit or otherwise, except as set
forth as a liability on the December 31, 1995 Financial Statements.
(g) To the best of their knowledge, the December 31
financial statements of CHC and Crusader are true and correct and there has been
no material adverse change in the financial condition of CHC or Crusader since
December 31, 1995.
(h) To the best of their knowledge there is no other
capitalization of CHC or Crusader other than as described herein as of this
date.
(i) The copies of the Articles of Incorporation and
Bylaws of CHC and Crusader delivered to Levy are true and correct copies of the
same.
(j) As of the date hereof, there are no outstanding
contracts, whether written or oral, between CHC and its subsidiaries and Knox or
his family members, other than as set forth herein or disclosed to Levy in
writing.
The foregoing representations and warranties shall survive for
a one year period from the date hereof, except that the representation set forth
in (f) above shall survive until the expiration of the applicable statute of
limitations with respect to each open tax year.
6. OTS and Other Regulatory Approvals. As soon as practicable
following the date hereof, Knox and Levy shall cause CHC to submit the
application for approval of Levy as a 30% owner of the common stock of CHC (the
"Application") to the Office of Thrift Supervision and all other applicable
federal or state regulatory authorities for review, comment and approval.
Thereafter Knox and Levy shall cause CHC to diligently pursue such approvals
expeditiously. Levy shall cooperate in all respects with the submission and
processing of the Application, including, without limitation, submission of all
supplemental materials necessary to be submitted with the Application or
requested subsequently by the appropriate regulatory authorities. Such materials
may include Levy's curriculum vitae, personal financial statements, tax returns
and/or those of any entity owned or controlled by Levy.
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7. Restrictions on Transfer and Issuance. Except as expressly
provided in this Agreement, no Shareholder shall sell, assign, transfer, give,
bequeath, devise, donate or otherwise dispose of, or pledge, deposit or
otherwise encumber, in any way or manner whatsoever, whether voluntarily or
involuntarily (a "Transfer"), any of the Shares now or hereafter owned (of
record or beneficially) by him without the express prior written consent of the
other Shareholders. Shareholders shall Transfer Shares only in accordance with
the provisions of this Agreement.
(a) Restrictions on Shareholders. Shareholders shall
not Transfer any Shares to any person except as expressly permitted herein. No
Transfer permitted by this Agreement shall be effective to vest any right, title
or ownership of Shares unless (i) the board of directors of CHC approves the
Transfer, having knowledge of the prospective transferee and (ii) the proposed
transferee agrees to become bound by the terms of this Agreement by signing a
counterpart hereof and delivering the same to the board of directors of CHC. For
purposes of this Agreement, "person" means any individual, partnership,
corporation, association, trust, estate, government or other entity.
(b) Restrictions on CHC. Except as expressly provided
in this Agreement, CHC shall not (i) cause or permit a Transfer of any Shares to
be made on its books, (ii) issue any shares of capital stock of CHC, whether by
original issue or in connection with the sale of shares now or hereafter held in
CHC's treasury, whether by sale, pursuant to a merger or otherwise, (iii) issue
any warrants, options or other rights to subscribe to or purchase additional
capital stock of CHC, (iv) create any securities, instruments or rights
convertible into capital stock of CHC, or (v) purchase, redeem or otherwise
acquire any shares of capital stock of CHC, unless any of the foregoing are
expressly permitted by the terms of this Agreement, subject in any event to the
rights of the Shareholders hereunder, if any.
8. Permitted Transfers. Subject to the restrictions contained
in paragraph 7(a) above, the other express provisions of this Agreement and
applicable law, (a) any Shareholder may Transfer his Shares to CHC or to any
existing Shareholder, or (b) any Shareholder may transfer by creation of trust
instruments, by will or other estate planning device his Shares to members of
his immediate family or (c) shares may be transferred by succession to a
guardian ad litem or other personal representative in the event of a disability
of a Shareholder, all without the prior consent thereto of CHC or of any other
Shareholder.
9. Optional Purchases by the Other Shareholders and
Redemptions by CHC. In the event of an occurrence described in subparagraph 9(a)
or (b) below with respect to a Shareholder, the
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other Shareholders shall have the right, but not the obligation, to purchase the
Shares owned by such Shareholder that are the subject of subparagraph 9(a) or
(b) below, in accordance with the terms set forth in Paragraph 10 below, while
CHC, if such other Shareholders fail to exercise such right to purchase such
Shares, shall have the right but not the obligation to purchase such Shares, in
accordance with the terms set forth in Paragraph 10 below. In the event that the
amount of Shares being sold exceed 20% of the aggregate shares held by the
selling Shareholder, in addition to the option set forth hereinbelow, all
Shareholders shall have the right to participate ratable with the selling
Shareholder by tendering the pro rata portion of their shares which shall be
included within the terms of the proposed sale, and in such event, the selling
Shareholder shall reduce the amount of his Shares to be sold by an equivalent
amount.
(a) Legal Proceedings Against Shareholders. The
parties agree that the interests of CHC and its Shareholders would be seriously
affected by any sale or disposition of any Shareholder's Shares by any legal or
equitable proceedings against such Shareholder, except as expressly permitted
herein. Accordingly, it is hereby covenanted and agreed that in the event that
(i) any Shareholder shall be adjudicated a bankrupt or make an assignment for
the benefit of creditors, or (ii) bankruptcy, insolvency, reorganization,
arrangement, debt, adjustment, liquidation or receivership proceedings in which
any Shareholder is alleged to be insolvent or unable to pay his debts as they
mature are instituted by or against such Shareholder and, if instituted against
such Shareholder, such Shareholder shall consent thereto or admit in writing the
material allegations of the petitions filed in said proceedings or said
proceedings shall remain undismissed for ninety days after commencement thereof,
or (iii) there is any entry of a decree or order for relief by a court having
jurisdiction in respect of any Shareholder in an involuntary case under the
federal bankruptcy laws against any Shareholder not dismissed within ninety days
or any Shareholder commences a voluntary case under such laws, or (iv) any of
the Shares of any Shareholder are attached and such attachment is not removed
within ninety days, or (v) any judgment is obtained in any legal or equitable
proceeding against any Shareholder, which judgment is not dismissed, stayed,
bonded or satisfied (other than by sale of the Shares) within ninety days of the
entry thereof or which is executed upon and the sale of any of such
Shareholder's Shares is contemplated or threatened under legal process as a
result of such judgment, or (vi) any execution process is issued against any
Shareholder or against any of his Shares and not dismissed, stayed, bonded or
satisfied within ninety days, or (vii) there is instituted by or against any
Shareholder any other form of legal proceeding or process by which any of the
Shares of such Shareholder may be sold, either voluntarily or involuntarily,
which is not dismissed within
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ninety days; provided, however, that an occurrence described in preceding
clauses (v) through (vii) shall not be deemed to have occurred if it resulted
from any legal proceeding between CHC and the Shareholders or between
Shareholders if such proceeding entails disputes of ownership relating to CHC or
the Shares.
(b) Voluntary Sale by a Shareholder. The voluntary
sale of Shares owned by any Shareholder which is a natural person.
10. Purchase Option Procedures in Case of Legal Proceedings or
Voluntary Sale. If any Shareholder shall at any time be subject to subparagraphs
9(a) or (b) above, the other Shareholders shall have options to purchase all of
such Shareholder's (the "Selling Shareholder") Shares and CHC shall have the
next option to redeem the Selling Shareholder's Shares as follows:
(a) Options of the Offeree Shareholders. Upon the
occurrence of an event described in Paragraph 9 above, the Selling Shareholder
shall so notify the other Shareholders and CHC. Upon receipt of such notice by
the other Shareholders ("Offeree Shareholders") from the Selling Shareholder
that an event under Paragraph 9 has occurred, the Selling Shareholder shall be
deemed to have offered in writing to sell all, but not less than all, of his
Shares to the Offeree Shareholders at the price and upon the terms set forth in
Paragraph 11 below. For a period of thirty days after such offer by the Selling
Shareholder to the Offeree Shareholders, the Offeree Shareholders shall have
options, exercisable by written notice to the Selling Shareholder with a copy to
CHC and to each of the other Offeree Shareholders, to accept the Selling
Shareholder's offer. Each Offeree Shareholder who shall exercise this option
shall agree, by doing so, to purchase that proportionate part of the Selling
Shareholder's Shares which the number of Shares owned by such Offeree
Shareholder bears to the total number of Shares owned by all Offeree
Shareholders (or in such other proportions as the Offeree Shareholders may agree
among themselves).
(b) Optional Redemption by CHC. In the event that one
or more of the Offeree Shareholders does not exercise his option in accordance
with subparagraph 10(a) above, CHC may provide the Selling Shareholder with a
notice of redemption of all of the Selling Shareholder's remaining Shares,
within a period of fifteen days following expiration of the thirty-day period
set forth in subparagraph 10(a), at the price and upon the terms set forth in
Paragraph 11 below.
(c) Acceptance of a Bona Fide Offer. If, at the end
of the option period described in subparagraph 10(a) above and the redemption
period set forth in the notice of redemption
9
<PAGE>
described in subparagraph 10(b) above, options have not been exercised by the
Offeree Shareholders to purchase all of the Selling Shareholder's Shares, and a
redemption by the CHC of all of the Selling Shareholder's Shares has not
occurred, then at the election of the Selling Shareholder, any Shares not so
purchased or redeemed may be offered for sale by the Selling Shareholder free
and clear of the options of the Shareholders and CHC set forth herein (but
otherwise subject to the restrictions on transferability contained in this
Agreement) for a period of sixty days thereafter, such sale to be for all, but
not less than all, of his Shares to a prospective purchaser at the price and
upon the terms and conditions set forth in such prospective purchaser's offer.
11. Purchase Price and Terms.
(a) Time and Place for Settlement. Settlement for the
purchase of Shares by CHC or by a Shareholder pursuant to the options granted in
or the redemption permitted by Paragraph 10 above shall be made within sixty
days following (i) the date of exercise of the last option exercised or (ii)
delivery of a notice of redemption within the fifteen-day period described in
subparagraph 10(b) above. All settlements for the purchase or redemption of
Shares shall, unless otherwise agreed to by all of the purchasers and sellers,
be held at the principal executive offices of CHC during regular business hours.
The precise date and hour of settlement shall be fixed by the purchaser or
purchasers and/or the board of directors of CHC with respect to redemptions
(within the time limits allowed by the provision of this Agreement) by notice in
writing to the Selling Shareholder given at least five days in advance of the
Settlement date specified. In the event that more than one purchaser is involved
in a settlement and the purchasers cannot agree on a precise time of settlement,
the precise time of settlement (within the time limits allowed by the provisions
of this Agreement) shall be fixed by the board of directors of CHC by five or
more days' written notice to the purchasers and seller on the sixtieth day
following the date of exercise of the last option or election exercised.
(b) Delivery of Stock Certificates. At settlement,
the stock certificate or certificates representing the Shares being sold shall
be delivered to the purchaser or purchasers and/or CHC, as appropriate, duly
endorsed for transfer or with executed stock powers attached, with any necessary
documentary and transfer tax stamps affixed by the seller. The Selling
Shareholder, if a personal representative of a Shareholder, shall, upon request
of a purchaser, provide prior to the date of settlement evidence reasonably
satisfactory to the purchaser of the seller's legal status as personal
representative
10
<PAGE>
of such Shareholder. The terms of payment shall be in cash or by certified
check.
(c) Purchase Price. The purchase price per Share
shall be equal to the adjusted book value thereof (net of the Notes) plus the
unpaid principal balance of the applicable Notes.
12. Copy of Agreement To Be Kept on File. CHC shall keep on
file at its principal executive offices, and will exhibit to any Shareholder or
his duly authorized representative at any and all reasonable times, an executed
copy of this Agreement and all amendments thereto.
13. Stock Certificates To Be Marked With Legend. All
certificates representing Shares now outstanding or hereafter issued by CHC
shall be marked with the following legend:
"This certificate and the shares represented hereby are held
subject to the terms, covenants and conditions of an agreement
by and among this Company and its then shareholders, as it may
be amended from time to time, and may not be transferred or
disposed of except in accordance with the terms and provisions
thereof. A copy of said agreement and all amendments thereto
is on file and may be inspected at the principal executive
offices of the Company."
CHC shall issue replacement stock certificates without the foregoing legend to
any Shareholder upon request following termination of this Agreement.
14. Term of Agreement. This Agreement shall terminate upon the
first to occur of the following events:
(a) the written agreement by all of the Shareholders
of CHC who are, at that time, bound by the terms of this Agreement;
(b) the dissolution, bankruptcy, or receivership of
CHC;
(c) the cessation of CHC's business, whether by sale
of assets, liquidation, or otherwise.
(d) In the event that CHC ceases to do business due
to liquidation, the Shareholder's agree that the net proceeds of liquidation
remaining after payment of all liabilities to third parties of CHC shall be
distributed as follows:
11
<PAGE>
(i) First, to repay in full the Notes;
(ii) Then, to redeem the common stock of
CHC.
15. Rights, Obligations and Remedies. Each Shareholder shall
assist in causing CHC to act so as to accomplish the corporate actions
contemplated by this Agreement. The rights and obligations under, and the
remedies to enforce, this Agreement are joint and several as to CHC and each of
its Shareholders with each being completely free to enforce any or all of the
rights or obligations under this Agreement against any of the others with or
without the concurrence or joinder of any of the others. The Shares are unique,
and recognizing that the remedy at law for any breach or threatened breach by a
party hereto of the covenants and agreements set forth in this Agreement would
be inadequate and that any such breach or threatened breach would cause such
immediate and permanent damage as would be irreparable and the exact amount of
which would be impossible to ascertain, the parties hereto agree that in the
event of any breach or threatened breach of any such covenant or agreement, in
addition to any and all other legal and equitable remedies which may be
available, any party hereto may specifically enforce the terms of this Agreement
and may obtain temporary and/or permanent injunctive relief without the
necessity of proving actual damage by reason of any breach or threatened breach
hereof and, to the extent permissible under the applicable statutes and rules of
procedure, a temporary injunction may be granted immediately upon the
commencement of any such suit and without notice.
16. Resignations. If any Selling Shareholder is an officer,
director, employee of or under a consulting agreement with CHC, he must, at the
request of the non-resigning members of the board of directors of CHC, submit to
the Secretary of CHC his resignation as an officer and/or director, as the case
may be, before the sale of his Shares becomes effective, and the Secretary is
hereby authorized to refuse to effect a transfer of the Selling Shareholder's
Shares on the books of CHC until such resignation as aforesaid is delivered to
said Secretary.
17. Subsequent Shareholders to Become Bound. Any person or
entity not an original signatory hereto who becomes a Shareholder (of record or
beneficially) shall be bound by all of the terms and provisions of this
Agreement. Before any person or entity not a party to this Agreement, including
any person or entity to whom transfers of Shares may be made hereunder, may be
entitled to be a Shareholder (of record or beneficially) of CHC, such person or
entity shall be required first to execute and deliver to CHC an agreement
pursuant to which such person or entity agrees to be bound by all of the terms
and conditions of this Agreement (as it may have then been amended), and the
12
<PAGE>
failure of any such person or entity so to do shall preclude such person or
entity from becoming a Shareholder (of record or beneficially) of CHC.
18. Entire Agreement; Amendment, Modification and Termination.
This Agreement contains the entire understanding among the parties hereto with
respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements and understandings, inducements or conditions,
express or implied, oral or written, except as herein contained. The express
terms hereof control and supersede any course of performance and/or usage of the
trade inconsistent with any of the terms hereof. This Agreement may be amended,
modified or terminated at any time or times by the unanimous agreement in
writing of CHC and its then Shareholders. No such amendment, modification or
termination, nor any termination pursuant to the terms hereof, shall affect the
right of any person or entity to receive, or the obligation of any person or
entity to pay, on the terms and conditions of this Agreement, the purchase price
for Shares sold pursuant to this Agreement prior to such amendment, modification
or termination, or the right or obligation of any person or entity to sell or
purchase Shares, on the terms and conditions of this Agreement, if the event
giving rise to such right or obligation to sell or purchase Shares has in fact
taken place prior to such amendment, modification or termination.
19. Indulgences, Waivers. Neither the failure nor any delay on
the part of any party to exercise any right, remedy, power or privilege under
this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or of any other right, remedy, power or privilege,
nor shall any waiver of any right, remedy, power or privilege with respect to
any occurrence be construed as a waiver of such right, remedy, power or
privilege with respect to any other occurrence. No waiver shall be effective
unless it is in writing and is signed by the party asserted to have granted such
waiver.
20. Controlling Law. This Agreement and all questions relating
to its validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be governed by
and construed in accordance with the laws of the Commonwealth of Pennsylvania,
notwithstanding any conflict-of-laws doctrines of such state or any other
jurisdiction to the contrary, and without the aid of any canon, custom or rule
of law requiring construction against the draftsman. Each Shareholder hereby
consents to the exclusive jurisdiction of the Courts of the Commonwealth of
Pennsylvania and the United States District Court for the Eastern District of
Pennsylvania in any and all actions, disputes or controversies relating to this
Agreement and irrevocably consents to the
13
<PAGE>
service of process by certified or registered mail, return receipt requested, to
such Shareholder at his address set forth in the books and records of CHC.
21. Notices. All notices, requests, demands and other
communications required or permitted under this Agreement shall be in writing
and shall be deemed to have been duly given, made and received only when
delivered (personally, by courier service such as Federal Express, or by other
messenger) or when deposited in the United States mails, registered or certified
mail, postage prepaid, return receipt requested, addressed if to any
Shareholder, to the most current residence address to such Shareholder reflected
in the books and records of CHC, and if to CHC, to the attention of the Chairman
of the board of directors. Any party may alter the address to which
communications or copies are to be sent by giving notice of such change of
address in conformity with the provisions of this paragraph for the giving of
notice.
22. Binding Nature of Agreement; No Assignment. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, personal representatives; successors and assigns, except that
no party may assign or transfer its rights or obligations under this Agreement.
23. Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
24. Paragraph Headings. The paragraph headings in this
Agreement are for convenience only; they form no part of this Agreement and
shall not affect its interpretation.
25. Gender. Words used herein, regardless of the number and
gender specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other general, masculine, feminine or
neuter, as the context indicates is appropriate.
26. Number of Days. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and holidays; provided, however, that if the final day of any time
period falls on a Saturday, Sunday or holiday on which Federal banks are or may
elect to be closed, then the final day shall be deemed to be the next day which
is not a Saturday, Sunday or such holiday.
14
<PAGE>
27. Arbitration. In the event that a dispute arises under the
terms of this Agreement, the parties hereto agree to resolve such dispute first
through arbitration before resorting to litigation. In such event, the dispute
shall be submitted to arbitration utilizing the prevailing rules and procedures
of the American Arbitration Association. The Arbitration shall be conducted in
Pennsylvania.
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement on the date first above written.
ATTEST: CRUSADER HOLDING COMPANY, a
Pennsylvania corporation
By:/s/ Bruce Levy By: /s/ Joseph T. Crowley
----------------- -------------------------
Title: Title: Vice President
[CORPORATE SEAL]
WITNESSES:
/s/ Joseph T. Crowley /s/ Thomas J. Knox
----------------- -------------------------
THOMAS KNOX
/s/ Joseph T. Crowley /s/ Bruce Levy
----------------- -------------------------
BRUCE LEVY
15
<PAGE>
AMENDMENT OF SHAREHOLDERS' AGREEMENT
THIS AMENDMENT is made as of this 31st day of January, 1997,
by and among CRUSADER HOLDING CORPORATION, a Pennsylvania corporation (the
"Company"), THOMAS KNOX ("Knox"), BRUCE LEVY ("Levy"), DANIEL DILELLA
("DiLella"), JOEL S. LAWSON, III ("Lawson"), BRIAN MCADAMS ("McAdams") and
RONALD CAPLAN ("Caplan").
Background
The Company, Knox and Levy (Knox and Levy sometimes,
individually, an "Initial Shareholder" and collectively, the "Initial
Shareholders") entered into a subscription and shareholders' agreement dated as
of March 1, 1996 (the "Shareholders' Agreement") pursuant to the terms of which,
inter alia, the Company was recapitalized, shares of the Company's class A
common stock, par value $.01 (the "Class A Common Stock") were issued to the
Initial Shareholders and promissory notes (the "Initial Notes") executed by the
Company were issued to the Initial Shareholders, all as more particularly
described therein.
On the date hereof, DiLella, Lawson, McAdams and Caplan (each,
an "Additional Shareholder" and collectively, the "Additional Shareholders") are
purchasing shares of the Class A Common Stock and are receiving promissory notes
(each, an "Additional Note" and collectively, the "Additional Notes") executed
by the Company. The Initial Shareholders and the Additional Shareholders are
sometimes individually referred to herein as a "Shareholder" and collectively as
the "Shareholders."
In conjunction with the purchase of shares of the Company's
Class A Common Stock as provided herein, the Additional Shareholders desire to
become bound by the terms and provisions of the Shareholders' Agreement. In
addition, all of the parties hereto desire to amend the Shareholders' Agreement
as provided herein.
Agreement
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. The Additional Shareholders hereby agree to be bound by all
of the terms and provisions of the Shareholders' Agreement, as amended hereby,
as though they executed the Shareholders' Agreement as of the date thereof.
Hereafter, (a) all references in the Shareholders' Agreement to "Shareholders"
shall be deemed to refer to the Initial Shareholders and the
<PAGE>
Additional Shareholders and (b) all references in the Shareholders' Agreement to
"Shares" shall be deemed to include the shares of the Company's Class A Common
Stock purchased by the Additional Shareholders on the date hereof. The
definitions of Initial Shareholder, Initial Shareholders, Additional Shareholder
and Additional Shareholders are hereby incorporated into the terms and
provisions of the Shareholders' Agreement. For purposes of this Amendment, the
term "Additional Shareholder" shall also include any other person who
subsequently becomes a shareholder of the Company.
2. The opening paragraph of Paragraph 7 of the Shareholders'
Agreement is hereby deleted in its entirety and replaced by the following:
7. Restrictions on Transfer and Issuance. Except as
expressly provided in this Agreement, no Shareholder shall
sell, assign, transfer, give, bequeath, devise, donate or
otherwise dispose of, or pledge, deposit or otherwise
encumber, in any way or manner whatsoever, whether voluntarily
or involuntarily (a "Transfer"), any of the Shares now or
hereafter owned (of record or beneficially) by him without the
express prior written consent of the Initial Shareholders.
Shareholders shall Transfer Shares only in accordance with the
provisions of this Agreement.
3. The first two lines of Paragraph 7(b) of the Shareholders'
Agreement are deleted in their entirety and replaced by the following: "Except
as expressly provided in this Agreement, or except with the prior written
consent of the Initial Shareholders, CHC shall not..."
4. Paragraph 8 of the Shareholders' Agreement is hereby
deleted in its entirety and replaced by the following:
8. Permitted Transfers. Subject to the restrictions
contained in paragraph 7(a) above, the other express
provisions of this Agreement and applicable law, (a) any
Shareholder may Transfer his Shares to CHC or to any existing
Shareholder, or (b) any Shareholder may Transfer by creation
of trust instruments, by will or other estate planning device
his Shares to members of his immediate family and (c) Shares
may be Transferred by succession to a guardian ad litem or
other personal representative in the event of a disability of
a Shareholder, all without the prior consent thereto of CHC or
of any other Shareholder, and (d) either Initial Shareholder
may Transfer his Shares to any other person or entity upon
receipt of the prior written consent thereto of the other
Initial
2
<PAGE>
Shareholder but without the prior consent thereto of CHC or of
any other Shareholder.
5. Paragraph 9(b) of the Shareholders' Agreement is hereby
deleted in its entirety and replaced by the following:
(b) Voluntary Sale by a Shareholder. The
voluntary sale of Shares owned by any Additional Shareholder
which is a natural person. A voluntary sale by either or both
of the Initial Shareholders of their respective Shares, or any
portion thereof, shall not be subject to the terms of this
Paragraph 9.
6. In the event that both of the Initial Shareholders agree to
sell all of their Shares to a third party, upon the request of the Initial
Shareholders, or either of them, the Additional Shareholders shall sell their
Shares to such third party on the same terms and conditions.
7. In the event any Additional Shareholder resigns or is asked
to resign from the Board of Directors of Crusader Bank, such Additional
Shareholder shall sell all of his Shares to the Company. The purchase price
shall be equal to the adjusted book value of such Shares (net of all outstanding
Initial Notes and Additional Notes) plus the unpaid principal balance of such
Additional Shareholder's Additional Note.
8. The Initial Shareholders represent and warrant to the
Additional Shareholders that, as of the date hereof,
(a) the Company is authorized to issue up to
10,000,000 shares of Class A Common Stock and 1,060,000 are issued and
outstanding;
(b) the Company is authorized to issue up to 500,000
class B common stock with a par value of $.01 and no such class B common stock
is issued and outstanding; and
(c) the aggregate principal amount outstanding under
the Initial Notes is $2,920,889.
9. Each Additional Shareholder hereby represents, warrants and
acknowledges to the Company, the Initial Shareholders and each other Additional
Shareholder as follows:
(a) The sale of the Additional Shares and the
issuance of the Additional Noes have not been registered under the Securities
Act of 1933, as amended (the "Securities Act") or registered or qualified under
any state securities laws ("Blue Sky Laws") and the Additional Shares and
Additional Notes cannot be sold or transferred without compliance with the
registration
3
<PAGE>
provisions of the Securities Act or any applicable Blue Sky Laws or without
compliance with available exemptions, if any, thereunder. Therefor, each
Additional Shareholder represents and warrants that (i) the Additional Shares
being acquired by him and the Additional Note being issued to him are being
acquired solely for his own account for investment, not as a nominee or agent,
and are not being acquired for subdivision, fractionalization, resale or
distribution and (ii) he has no contract, undertaking, agreement or arrangement
with any person or entity to sell, transfer or pledge to such person or entity
or anyone else all or any portion of the Additional Shares or the Additional
Notes being acquired by or issued to him and he has no present plans or
intentions to enter into any such contract, undertaking or arrangement.
(b) Each of the Additional Shareholders has served as
a member of the Board of Directors of Crusader Bank, which comprises the
Company's only current operating activity. In connection with the acquisition of
the Additional Shares and the issuance of the Additional Notes, no Additional
Shareholder has relied upon any representations or warranties of any director,
shareholder, officer, employee or agent of the Company or Crusader Bank, other
than as to the amount of the issued and outstanding shares of the Company's
stock and the aggregate principal amount outstanding under the Initial Notes.
(c) Each of the Additional Shareholders has conducted
his own due diligence regarding the economic consequences of his investment in
the Company and the Company has made available to him all appropriate books and
records of the Company and Crusader Bank in connection with such investment.
(d) Each of the Additional Shareholders acknowledges
that any and all management fees received by the Company from Crusader Bank
under that certain management agreement dated as of March 1, 1996 (the
"Management Agreement") executed by the Company and Crusader Bank, as it may be
amended from time to time, or dividends received by the Company in lieu of such
fees, inure exclusively to the benefit of the Initial Shareholders.
10. This Amendment may be executed in one or more counterparts
with the same effect as if all parties hereto had signed the same document. All
counterparts shall be construed together and shall constitute one Amendment.
11. All other terms and provisions of the Shareholders'
Agreement shall remain unchanged and in full force and effect.
4
<PAGE>
12. This Amendment shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the day and year first above written.
ATTEST: CRUSADER HOLDING COMPANY, a
Pennsylvania corporation
By:/s/ Joseph T. Crowley By:/s/ Thomas Knox
------------------------ -------------------------
Joseph T. Crowley, Thomas Knox, Chairman
Secretary
WITNESSES:
/s/ Bruce Levy /s/ Thomas Knox [SEAL]
- ---------------------------- ----------------------------------
THOMAS KNOX
/s/ Joseph T. Crowley /s/ Bruce Levy [SEAL]
- ---------------------------- ----------------------------------
BRUCE LEVY
/s/ Bruce Levy /s/ Daniel DiLella [SEAL]
- ---------------------------- ----------------------------------
DANIEL DILELLA
/s/ Bruce Levy /s/ Joel S. Lawson III [SEAL]
- ---------------------------- ----------------------------------
JOEL S. LAWSON, III
/s/ Bruce Levy /s/ Brian McAdams [SEAL]
- ---------------------------- ----------------------------------
BRIAN MCADAMS
/s/ Joseph T. Crowley /s/ Ronald Caplan [SEAL]
- ---------------------------- ----------------------------------
RONALD CAPLAN
5
<PAGE>
JOINDER
THIS JOINDER is made as of this 31st day of January, 1997 by
D. WALTER COHEN ("Cohen").
Background
On the date hereof, Cohen is purchasing from Crusader Holding
Corporation, a Pennsylvania corporation (the "Company") shares of the Company's
class A common stock, par value $0.1 (the "Class A Common Stock") and is
receiving a promissory note executed by the Company and made payable to the
order of Cohen. In connection with the purchase of Class A Common Stock by
Cohen, Cohen desires to become bound by the terms of that certain shareholders
agreement dated as of March 1, 1996 (the "Shareholders' Agreement") by and among
the Company and the then shareholders of the Company, as amended by an amendment
of shareholders' Agreement dated as of January 31, 1997 (the "Amendment").
Agreement
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, Cohen agrees as follows:
1. Cohen hereby agrees, for himself and his successors and
assigns, to be bound by all of the terms and provisions of the Shareholders'
Agreement and the Amendment, as though he executed the Shareholders Agreement
and the Amendment as of the date hereof. Cohen acknowledges and agrees that (a)
all references in the Amendment to "Additional Shareholders" shall include
Cohen, (b) all references in the Shareholders' Agreement to "Shareholders" shall
include Cohen, (c) all references in the Shareholders' Agreement and the
Amendment to "Shares" shall be deemed to include the shares of the Company's
Class A Common Stock purchased by Cohen on the date hereof and (d) all
references in the Amendment to the "Additional Notes" shall be deemed to include
the note being executed and delivered to Cohen by the Company as of the date
hereof.
2. Cohen hereby joins in each of the representations and
acknowledgments made in paragraph 9 of the Amendment as though the same were
repeated herein.
<PAGE>
IN WITNESS WHEREOF, Cohen has executed this Joinder as
of the day and year first above written,
WITNESS:
/s/ Bruce A. Levy /s/ D. Walter Cohen [SEAL]
- --------------------- -------------------
D. WALTER COHEN
2
<PAGE>
SECOND AMENDMENT OF SHAREHOLDERS' AGREEMENT
THIS AMENDMENT is made as of this ____ day of ________, 199_,
by and among CRUSADER HOLDING CORPORATION, a Pennsylvania corporation ("CHC"),
THOMAS J. KNOX ("Knox"), BRUCE A. LEVY ("Levy"), DANIEL DILELLA ("DiLella"),
JOEL S. LAWSON III ("Lawson"), BRIAN MCADAMS ("McAdams"), RONALD CAPLAN
("Caplan") and D. WALTER COHEN ("Cohen").
Background
CHC, Knox and Levy (Knox and Levy sometimes, individually, an
"Initial Shareholder" and collectively, the "Initial Shareholders") entered into
a subscription and shareholders' agreement dated as of March 1, 1996 (the
"Shareholders' Agreement") pursuant to the terms of which, inter alia, CHC was
recapitalized, shares of CHC's class A common stock, par value $.01 per share
(the "Class A Common Stock") were issued to the Initial Shareholders and
promissory notes executed by CHC were issued to the Initial Shareholders, all as
more particularly described therein.
On January 31, 1997, the Initial Shareholders, CHC and
DiLella, Lawson, McAdams and Caplan (each an "Additional Shareholder") entered
into an Amendment to the Shareholder Agreement (the "Amendment") pursuant to the
terms of which shares of Class A Common Stock were issued to DiLella, Lawson,
McAdams and Caplan and promissory notes executed by CHC were issued to DiLella,
Lawson, McAdams and Caplan, all as more particularly described therein.
On January 31, 1997 Cohen (an "Additional Shareholder" and,
together with DiLella, Lawson, McAdams and Caplan, the "Additional
Shareholders") entered into a Joinder Agreement, pursuant to the terms of which
Cohen agreed to be bound by the Shareholders' Agreement and the Amendment
thereto. The Initial Shareholders and the Additional Shareholders are sometimes
individually referred to herein as a "Shareholder" and collectively as the
"Shareholders."
The Shareholders and CHC now wish to amend the Shareholders'
Agreement to permit termination of the Shareholders' Agreement upon the closing
on an initial public offering.
Agreement
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, the parties hereto agree as follows:
<PAGE>
1. The Additional Shareholders hereby agree to be bound by all
of the terms and provisions of the Shareholders' Agreement and the Amendment, as
further amended hereby, as though they executed the Shareholders' Agreement as
of the date thereof. Hereafter, (a) all references in the Shareholders'
Agreement to "Shareholders" shall be deemed to refer to the Initial Shareholders
and the Additional Shareholders and (b) all references in the Shareholders'
Agreement to "Shares" shall be deemed to include the shares of CHC's Class A
Common Stock purchased by the Additional Shareholders. The definitions of
Initial Shareholder, Initial Shareholders, Additional Shareholder and Additional
Shareholders are hereby incorporated into the terms and provisions of the
Shareholders' Agreement. For purposes of this Amendment, the term "Additional
Shareholder" shall also include any other person who subsequently becomes a
shareholder of CHC.
2. Paragraph 14 of the Shareholders' Agreement is hereby
deleted in its entirety and replaced by the following:
14. Term of Agreement. This Agreement shall terminate
upon the first to occur of the following events:
(a) the written agreement by all of the Shareholders
of CHC who are, at that time, bound by the terms of this Agreement;
(b) the closing of the sale of shares of Class A
Common Stock, or such other shares of common stock with attributes
substantially similar to those of the Class A Common Stock, in a
initial public offering, which shall mean an underwritten public
offering (whether on a "best efforts" or "firm commitment" basis) for
the account of CHC of Class A Common Stock or securities convertible
into Class A Common Stock, where the aggregate sale price of the
securities included in such sale (after deduction of the underwriting
commissions, discounts and concessions) is at least $10,000,000;
(c) the dissolution, bankruptcy, or receivership of
CHC; or
(d) the cessation of CHC's business, whether by sale
of assets, liquidation, or otherwise.
(e) In the event that CHC ceases to do business due
to liquidation, the Shareholders agree that the net proceeds of
liquidation remaining after payment of all liabilities to third parties
of CHC shall be distributed as follows:
2
<PAGE>
(i) First, to repay in full the Notes;
(ii) Then, to redeem the common stock of
CHC.
3. This Amendment may be executed in one or more counterparts
with the same effect as if all parties hereto had signed the same document. All
counterparts shall be construed together and shall constitute one Amendment.
4. All other terms and provisions of the Shareholders'
Agreement shall remain unchanged and in full force and effect.
5. This Amendment shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the day and year first above written.
CRUSADER HOLDING CORPORATION, a
Pennsylvania corporation
By:__________________________
Thomas Knox, Chairman
-----------------------
THOMAS J. KNOX
-----------------------
BRUCE A. LEVY
-----------------------
DANIEL DILELLA
-----------------------
JOEL S. LAWSON III
-----------------------
BRIAN MCADAMS
-----------------------
RONALD CAPLAN
-----------------------
D. WALTER COHEN
4
<PAGE>
AMENDED AND RESTATED PROMISSORY NOTE
$2,044,622 March 1, 1996
FOR VALUE RECEIVED, CRUSADER HOLDING COMPANY, a Pennsylvania
corporation with an office at 520 S. Sydbury Lane, Wynnewood, Pennsylvania 19096
("Maker"), promises to pay to the order of THOMAS J. KNOX, an individual with a
mailing address of 520 S. Sydbury Lane, Wynnewood, Pennsylvania 19096 ("Payee"),
at such address of Payee or at such other place as Payee may designate from time
to time in writing, the principal sum of Two Million Forty-Four Thousand Six
Hundred Twenty-Two Dollars ($2,044,622). This Amended and Restated Promissory
Note amends, restates and supersedes in their entirety all prior notes executed
by Maker in favor of Payee.
1. Interest Rate.
(a) The principal sum outstanding from time to time
hereunder shall bear interest at an annual rate at all times equal to six
percent (6%). The annual interest rate shall be calculated on the basis of a
360-day year and the actual number of days elapsed.
(b) Notwithstanding anything to the contrary
contained herein or in any other document executed in connection with the Loan,
the effective rate of interest hereunder shall not exceed the maximum effective
rate of interest permitted by applicable law or regulation. Payee hereby agrees
not to collect knowingly any interest from Maker in the form of fees or
otherwise which will render the Loan usurious. In the event that such interest
would be usurious in Payee's opinion, Payee reserves the right to reduce the
interest payable by Maker. This provision shall survive the repayment of this
Note.
2. Payments of Principal and Interest.
(a) Interest only on the principal sum outstanding
under this Note shall be payable in arrears on each June 1, September 1,
December 1 and March 1 during the term of this Note (each, an "Interest Payment
Date"), commencing on June 1, 1996; provided, however, that such interest
payments shall be due only to the extent that such sums are available for
payment pursuant to all applicable federal banking regulations. In the event
such sums are not so available for payment on any Interest Payment Date, the
payments due under this paragraph shall accrue and be payable, again if sums are
available as aforesaid, on the
<PAGE>
next regularly scheduled Interest Payment Date or on the Maturity Date (as
hereafter defined), if applicable.
(b) The unpaid principal balance then outstanding
hereunder together with all accrued and unpaid interest shall become due and
payable on March 1, 2006 ("Maturity Date").
3. Prepayments. Maker shall have the right to prepay all or
any portion of the unpaid principal balance of this Note, without penalty or
premium, provided that any prepayments received by Payee shall be applied first
to accrued and unpaid interest, then to the payment of all other sums then due
hereunder, and then to installments of principal due and payable hereunder in
the inverse order of their maturities. Any acceptance of any such prepayment
when there is an event of default in existence hereunder shall not constitute a
waiver, release or accord and satisfaction thereof or of any rights with respect
thereto by Payee.
4. Events of Default. In addition to any other event referred
to herein, the occurrence of which, by the terms hereof, constitutes an event of
default hereunder, the occurrence of any one or more of the following events
shall, at the option of Payee, constitute an event of default hereunder:
(a) Maker shall fail to make any payment of principal
and/or interest due to Payee under this Note within fifteen (15) days after
receipt of written notice from Payee that the same is due and payable, whether
at maturity or by acceleration or otherwise;
(b) Except as otherwise provided for in this Note,
Maker shall fail to observe or perform any of the covenants or agreements on its
part to be observed or performed under this Note within thirty (30) days after
receipt of written notice from Payee of such non-compliance;
(c) Any representation or warranty of Maker under
this Note shall be untrue in any material respect;
(d) Maker shall apply for or consent to the
appointment of a receiver, trustee or liquidator of itself or any of its
property, admit in writing its inability to pay its debts as they mature, make a
general assignment for the benefit of creditors, be adjudicated a bankrupt,
insolvent or file a voluntary petition in bankruptcy, or a petition or an answer
seeking reorganization or an arrangement with creditors or to take advantage of
any bankruptcy, reorganization, insolvency, readjustment of debt dissolution or
liquidation law or statute, or an answer admitting the material allegations of a
petition filed against it in any proceeding under any such law, or if
2
<PAGE>
action shall be taken by Maker for the purpose of effecting any
of the foregoing; or
(e) Any order, judgment or decree shall be entered by
any court of competent jurisdiction, approving a petition seeking reorganization
of Maker or all or a substantial part of the assets of Maker, or appointing a
receiver, sequestrator, trustee or liquidator of Maker or any of its property,
and such order, judgment or decree shall continue unstayed and in effect for any
period of sixty (60) days.
5. Remedies. Upon the occurrence of any event of default that
continues beyond the expiration of applicable notice and grace periods set forth
herein, then the entire unpaid principal sum hereunder plus all interest accrued
thereon plus all other sums due and payable to Payee hereunder shall, at the
option of Payee, become due and payable immediately without presentment, demand,
notice of nonpayment, protest, notice of protest or other notice of dishonor,
all of which are hereby expressly waived by Maker; provided, however, that Payee
shall only be entitled to collect any of the aforesaid sums if, at the time of
such collection, such sums are available for payment pursuant to all applicable
federal banking regulations.
6. Severability. In the event that for any reason one or more
of the provisions of this Note or their application to any person or
circumstance shall be held to be invalid, illegal or unenforceable in any
respect or to any extent, such provisions shall nevertheless remain valid, legal
and enforceable in all such other respects and to such extent as may be
permissible. In addition, any such invalidity, illegality or unenforceability
shall not affect any other provisions of this Note, but this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
7. Heirs, Successors and Assigns. This Note inures to the
benefit of Payee and binds Maker, and their respective heirs, successors and
assigns, and the words "Payee" and "Maker" whenever occurring herein shall be
deemed and construed to include such respective heirs, successors and assigns.
8. Notices. All notices required to be given to any of the
parties hereunder shall be in writing and shall be deemed to have been
sufficiently given for all purposes when presented personally to such party or
sent recognized overnight courier or by certified or registered mail, return
receipt requested, to such party at its address set forth below:
Maker: Crusader Holding Corporation
520 S. Sydbury Lane, Wynnewood,
Pennsylvania 19096
Attention: Mr. Thomas J. Knox
Chairman
Payee: Thomas J. Knox
520 S. Sydbury Lane, Wynnewood,
Pennsylvania 19096
3
<PAGE>
Such notice shall be deemed to be given when received if delivered personally or
by overnight courier, or two (2) days after the date mailed if sent by certified
or registered mail. Any notice of any change in such address shall also be given
in the manner set forth above. Whenever the giving of notice is required, the
giving of such notice may be waived in writing by the party entitled to receive
such notice.
9. Definitions; Number and Gender. In the event Maker consists
of more than one person or entity, the obligations and liabilities hereunder of
each of such persons and entities shall be joint and several and the word
"Maker" shall mean all or some or any of them. For purposes of this Note, the
singular shall be deemed to include the plural and the neuter shall be deemed to
include the masculine and feminine, as the context may require.
10. Captions. The captions or headings of the paragraphs in
this Note are for convenience only and shall not control or affect the meaning
or construction of any of the terms or provisions of this Note.
11. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, Maker has executed this Promissory Note
the day and year first above written.
ATTEST: CRUSADER HOLDING CORPORATION, a
Pennsylvania Corporation
By /s/ Joseph T. Crowley By /s/ Thomas J. Knox
--------------------------- ----------------------------
Joseph T. Crowley, Thomas J. Knox, Chairman
Secretary
4
<PAGE>
EXHIBIT 4.4
AMENDED AND RESTATED PROMISSORY NOTE
$876,267 March 1, 1996
FOR VALUE RECEIVED, CRUSADER HOLDING COMPANY, a Pennsylvania
corporation with an office at 520 S. Sydbury Lane, Wynnewood, Pennsylvania
19096 ("Maker"), promises to pay to the order of BRUCE LEVY, an individual with
a mailing address of 1017 Lindsay Lane, Rydal, Pennsylvania 19046 ("Payee"), at
such address of Payee or at such other place as Payee may designate from time
to time in writing, the principal sum of Eight Hundred Seventy-Six Thousand Two
Hundred Sixty-Seven Dollars ($876,267). This Amended and Restated Promissory
Note amends, restates and supersedes in their entirety all prior notes executed
by Maker in favor of Payee.
1. Interest Rate.
(a) The principal sum outstanding from time to time hereunder
shall bear interest at an annual rate at all times equal to six percent (6%).
The annual interest rate shall be calculated on the basis of a 360-day year and
the actual number of days elapsed.
(b) Notwithstanding anything to the contrary contained herein or
in any other document executed in connection with the Loan, the effective rate
of interest hereunder shall not exceed the maximum effective rate of interest
permitted by applicable law or regulation. Payee hereby agrees not to collect
knowingly any interest from Maker in the form of fees or otherwise which will
render the Loan usurious. In the event that such interest would be usurious in
Payee's opinion, Payee reserves the right to reduce the interest payable by
Maker. This provision shall survive the repayment of this Note.
2. Payments of Principal and Interest.
(a) Interest only on the principal sum outstanding under this
Note shall be payable in arrears on each June 1, September 1, December 1 and
March 1 during the term of this Note (each, an "Interest Payment Date"),
commencing on June 1, 1996; provided, however, that such interest payments
shall be due only to the extent that such sums are available for payment
pursuant to all applicable federal banking regulations. In the event such sums
are not so available for payment on any Interest Payment Date, the payments due
under this paragraph shall accrue and be payable, again if sums are available
as aforesaid, on the
<PAGE>
next regularly scheduled Interest Payment Date or on the Maturity Date (as
hereafter defined), if applicable.
(b) The unpaid principal balance then outstanding hereunder
together with all accrued and unpaid interest shall become due and payable on
March 1, 2006 ("Maturity Date").
3. Prepayments. Maker shall have the right to prepay all or any
portion of the unpaid principal balance of this Note, without penalty or
premium, provided that any prepayments received by Payee shall be applied first
to accrued and unpaid interest, then to the payment of all other sums then due
hereunder, and then to installments of principal due and payable hereunder in
the inverse order of their maturities. Any acceptance of any such prepayment
when there is an event of default in existence hereunder shall not constitute a
waiver, release or accord and satisfaction thereof or of any rights with
respect thereto by Payee.
4. Events of Default. In addition to any other event referred to
herein, the occurrence of which, by the terms hereof, constitutes an event of
default hereunder, the occurrence of any one or more of the following events
shall, at the option of Payee, constitute an event of default hereunder:
(a) Maker shall fail to make any payment of principal and/or
interest due to Payee under this Note within fifteen (15) days after receipt of
written notice from Payee that the same is due and payable, whether at maturity
or by acceleration or otherwise;
(b) Except as otherwise provided for in this Note, Maker shall
fail to observe or perform any of the covenants or agreements on its part to be
observed or performed under this Note within thirty (30) days after receipt of
written notice from Payee of such non-compliance;
(c) Any representation or warranty of Maker under this Note
shall be untrue in any material respect;
(d) Maker shall apply for or consent to the appointment of a
receiver, trustee or liquidator of itself or any of its property, admit in
writing its inability to pay its debts as they mature, make a general
assignment for the benefit of creditors, be adjudicated a bankrupt, insolvent
or file a voluntary petition in bankruptcy, or a petition or an answer seeking
reorganization or an arrangement with creditors or to take advantage of any
bankruptcy, reorganization, insolvency, readjustment of debt dissolution or
liquidation law or statute, or an answer admitting the material allegations of
a petition filed against it in any proceeding under any such law, or if
2
<PAGE>
action shall be taken by Maker for the purpose of effecting any of the
foregoing; or
(e) Any order, judgment or decree shall be entered by any court
of competent jurisdiction, approving a petition seeking reorganization of Maker
or all or a substantial part of the assets of Maker, or appointing a receiver,
sequestrator, trustee or liquidator of Maker or any of its property, and such
order, judgment or decree shall continue unstayed and in effect for any period
of sixty (60) days.
5. Remedies. Upon the occurrence of any event of default that
continues beyond the expiration of applicable notice and grace periods set forth
herein, then the entire unpaid principal sum hereunder plus all interest accrued
thereon plus all other sums due and payable to Payee hereunder shall, at the
option of Payee, become due and payable immediately without presentment, demand,
notice of nonpayment, protest, notice of protest or other notice of dishonor,
all of which are hereby expressly waived by Maker; provided, however, that Payee
shall only be entitled to collect any of the aforesaid sums if, at the time of
such collection, such sums are available for payment pursuant to all applicable
federal banking regulations.
6. Severability. In the event that for any reason one or more of the
provisions of this Note or their application to any person or circumstance shall
be held to be invalid, illegal or unenforceable in any respect or to any extent,
such provisions shall nevertheless remain valid, legal and enforceable in all
such other respects and to such extent as may be permissible. In addition, any
such invalidity, illegality or unenforceability shall not affect any other
provisions of this Note, but this Note shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.
7. Heirs, Successors and Assigns. This Note inures to the benefit of
Payee and binds Maker, and their respective heirs, successors and assigns, and
the words "Payee" and "Maker" whenever occurring herein shall be deemed and
construed to include such respective heirs, successors and assigns.
8. Notices. All notices required to be given to any of the parties
hereunder shall be in writing and shall be deemed to have been sufficiently
given for all purposes when presented personally to such party or sent
recognized overnight courier or by certified or registered mail, return receipt
requested, to such party at its address set forth below:
3
<PAGE>
Maker: Crusader Holding Corporation
520 S. Sydbury Lane, Wynnewood,
Pennsylvania 19096
Attention: Mr. Thomas J. Knox
Chairman
Payee: Bruce Levy
1017 Lindsay Lane, Rydal,
Pennsylvania 19046
Such notice shall be deemed to be given when received if delivered personally or
by overnight courier, or two (2) days after the date mailed if sent by certified
or registered mail. Any notice of any change in such address shall also be given
in the manner set forth above. Whenever the giving of notice is required, the
giving of such notice may be waived in writing by the party entitled to receive
such notice.
9. Definitions; Number and Gender. In the event Maker consists of more
than one person or entity, the obligations and liabilities hereunder of each of
such persons and entities shall be joint and several and the word "Maker" shall
mean all or some or any of them. For purposes of this Note, the singular shall
be deemed to include the plural and the neuter shall be deemed to include the
masculine and feminine, as the context may require.
10. Captions. The captions or headings of the paragraphs in this Note
are for convenience only and shall not control or affect the meaning or
construction of any of the terms or provisions of this Note.
11. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, Maker has executed this Promissory Note the day
and year first above written.
ATTEST: CRUSADER HOLDING CORPORATION, a
Pennsylvania Corporation
By /s/ Joseph T. Crowley By /s/ Thomas J. Knox
------------------------- --------------------------
Joseph T. Crowley, Thomas J. Knox, Chairman
Secretary
4
<PAGE>
EXCHANGEABLE PROMISSORY NOTE
$13,800 January 31, 1997
FOR VALUE RECEIVED, CRUSADER HOLDING COMPANY, a Pennsylvania
corporation with an office at 520 S. Sydbury Lane, Wynnewood, Pennsylvania 19096
("Maker"), promises to pay to the order of DANIEL DILELLA, an individual with a
mailing address of 517 Fishers Road, Bryn Mawr, Pennsylvania 19010 ("Payee"), at
such address of Payee or at such other place as Payee may designate from time to
time in writing, the principal sum of Thirteen Thousand Eight Hundred Dollars
($13,800).
1. Interest Rate.
(a) The principal sum outstanding from time to time
hereunder shall bear interest at the rate of 6% per annum. The annual interest
rate shall be calculated on the basis of a 360-day year and the actual number of
days elapsed.
(b) Notwithstanding anything to the contrary contained
herein or in any other document executed in connection with the Loan, the
effective rate of interest hereunder shall not exceed the maximum effective rate
of interest permitted by applicable law or regulation. Payee hereby agrees not
to collect knowingly any interest from Maker in the form of fees or otherwise
which will render the Loan usurious. In the event that such interest would be
usurious in Payee's opinion, Payee reserves the right to reduce the interest
payable by Maker. This provision shall survive the repayment of this Note.
2. Payments of Principal and Interest.
(a) Interest only on the principal sum outstanding under
this Note shall be payable in arrears on each March 1, June 1, September 1, and
December 1 during the term of this Note (each, an "Interest Payment Date"),
commencing on March 1, 1997; provided, however, that such interest payments
shall be due only (i) to the extent that Maker has cash available to make such
payments (for purposes hereof, any and all management fees received by Maker
from Crusader Bank pursuant to the Management Agreement dated as of March 1,
1996 between Maker and Crusader Bank, as the same may be amended from time to
time, will not be included within the calculation of cash available to make such
payments), (ii) to the extent that interest is paid by Maker on any Interest
Payment Date to all other shareholders of the Company holding promissory notes
issued by the Company, in which event the interest paid will be on a pro rata
basis, and (iii) to the extent that such sums are available for payment pursuant
to all applicable federal banking regulations.
<PAGE>
(b) The unpaid principal balance then outstanding hereunder
shall become due and payable on December 31, 2006 ("Maturity Date").
3. Prepayments. Maker shall have the right to prepay all or
any portion of the unpaid principal balance of this Note, without penalty or
premium, provided that any prepayments received by Payee shall be applied first
to unpaid interest, and then to installments of principal due and payable
hereunder in the inverse order of their maturities. Any acceptance of any such
prepayment when there is an event of default in existence hereunder shall not
constitute a waiver, release or accord and satisfaction thereof or of any rights
with respect thereto by Payee.
4. Exchange.
(a) Maker shall have the right, at any time following the
date hereof, to exchange the principal then outstanding under this Note for
class A common stock of Maker at an exchange price equal to the adjusted book
value of such stock as of the date of the exchange. Maker shall exercise this
right only in the event that it enters into an agreement with Thomas Knox and
Bruce Levy to exchange their outstanding notes on the same basis.
(b) Upon exchange of this Note, Maker at its expense shall
cause to be issued in Payee's name and delivered to Payee, a certificate or
certificates for the amount of class A common stock to which Payee shall be
entitled upon exchange hereunder.
5. Events of Default. In addition to any other event referred
to herein, the occurrence of which, by the terms hereof, constitutes an event of
default hereunder, the occurrence of any one or more of the following events
shall, at the option of Payee, constitute an event of default hereunder:
(a) Maker shall fail to make any payment of principal
and/or interest due to Payee under this Note within fifteen (15) days after
receipt of written notice from Payee that the same is due and payable, whether
at maturity or by acceleration or otherwise;
(b) Except as otherwise provided for in this Note, Maker
shall fail to observe or perform any of the covenants or agreements on its part
to be observed or performed under this Note within thirty (30) days after
receipt of written notice from Payee of such non-compliance;
2
<PAGE>
(c) Any representation or warranty of Maker under this Note
shall be untrue in any material respect;
(d) Maker shall apply for or consent to the appointment of
a receiver, trustee or liquidator of itself or any of its property, admit in
writing its inability to pay its debts as they mature, make a general assignment
for the benefit of creditors, be adjudicated a bankrupt, insolvent or file a
voluntary petition in bankruptcy, or a petition or an answer seeking
reorganization or an arrangement with creditors or to take advantage of any
bankruptcy, reorganization, insolvency, readjustment of debt dissolution or
liquidation law or statute, or an answer admitting the material allegations of a
petition filed against it in any proceeding under any such law, or if action
shall be taken by Maker for the purpose of effecting any of the foregoing; or
(e) Any order, judgment or decree shall be entered by any
court of competent jurisdiction, approving a petition seeking reorganization of
Maker or all or a substantial part of the assets of Maker, or appointing a
receiver, sequestrator, trustee or liquidator of Maker or any of its property,
and such order, judgment or decree shall continue unstayed and in effect for any
period of sixty (60) days.
6. Remedies. Upon the occurrence of any event of default that
continues beyond the expiration of applicable notice and grace periods set forth
herein, then the entire unpaid principal sum hereunder shall, at the option of
Payee, become due and payable immediately without presentment, demand, notice of
nonpayment, protest, notice of protest or other notice of dishonor, all of which
are hereby expressly waived by Maker; provided, however, that Payee shall only
be entitled to collect any of the aforesaid sums if, and at the time of such
collection, such sums are available for payment pursuant to all applicable
federal banking regulations.
7. Severability. In the event that for any reason one or more
of the provisions of this Note or their application to any person or
circumstance shall be held to be invalid, illegal or unenforceable in any
respect or to any extent, such provisions shall nevertheless remain valid, legal
and enforceable in all such other respects and to such extent as may be
permissible. In addition, any such invalidity, illegality or unenforceability
shall not affect any other provisions of this Note, but this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
8. Heirs Successors and Assigns. This Note inures to the
benefit of Payee and binds Maker, and their respective heirs,
3
<PAGE>
successors and assigns, and the words "Payee" and "Maker" whenever occurring
herein shall be deemed and construed to include such respective heirs,
successors and assigns.
9. Notices. All notices required to be given to any of the
parties hereunder shall be in writing and shall be deemed to have been
sufficiently given for all purposes when presented personally to such party or
sent recognized overnight courier or by certified or registered mail, return
receipt requested, to such party at its address set forth below:
Maker: Crusader Holding Corporation
520 S. Sydbury Lane
Wynnewood, Pennsylvania 19096
Attention: Mr. Thomas J. Knox
Chairman
Payee: Daniel Dilella
517 Fishers Road
Bryn Mawr, Pennsylvania 19010
Such notice shall be deemed to be given when received if delivered personally or
by overnight courier, or two (2) days after the date mailed if sent by certified
or registered mail. Any notice of any change in such address shall also be given
in the manner set forth above. Whenever the giving of notice is required, the
giving of such notice may be waived in writing by the party entitled to receive
such notice.
10. Definitions; Number and Gender. In the event Maker
consists of more than one person or entity, the obligations and liabilities
hereunder of each of such persons and entities shall be joint and several and
the word "Maker" shall mean all or some or any of them. For purposes of this
Note, the singular shall be deemed to include the plural and the neuter shall be
deemed to include the masculine and feminine, as the context may require.
11. Captions. The captions or headings of the paragraphs in
this Note are for convenience only and shall not control or affect the meaning
or construction of any of the terms or provisions of this Note.
12. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
4
<PAGE>
IN WITNESS WHEREOF, Maker has executed this Promissory Note
the day and year first above written.
ATTEST: CRUSADER HOLDING CORPORATION, a
Pennsylvania corporation
By /s/ Joseph T. Crowley By /s/ Thomas J. Knox
--------------------------- ----------------------------
Joseph T. Crowley, Thomas J. Knox, Chairman
Secretary
5
<PAGE>
SCHEDULE TO EXCHANGEABLE PROMISSORY NOTE BY CRUSADER
HOLDING CORPORATION IN FAVOR OF DANIEL DILELLA
DATED JANUARY 31, 1997
On January 31, 1997, the same date on which Crusader Holding Corporation (the
"Registrant") issued the Exchangeable Promissory Note to Daniel Dilella
("Promissory Note I"), the Registrant also issued identical promissory notes to
D. Walter Cohen ("Promissory Note II"), Joel S. Lawson III ("Promissory Note
III"), Brian McAdams ("Promissory Note IV") and Ronald Caplan ("Promissory Note
V"). Promissory Note I, II, III, IV and V are identical except for the
respective addresses of the recipient of each of Promissory Note I, II, III, IV
and V.
6
<PAGE>
EXCHANGEABLE PROMISSORY NOTE
$173,606 September 30, 1997
FOR VALUE RECEIVED, CRUSADER HOLDING COMPANY, a Pennsylvania
corporation with an office at 520 S. Sydbury Lane, Wynnewood, Pennsylvania 19096
("Maker"), promises to pay to the order of THOMAS J. KNOX, an individual with a
mailing address of 520 S. Sydbury Lane, Wynnewood, Pennsylvania 19096 ("Payee"),
at such address of Payee or at such other place as Payee may designate from time
to time in writing, the principal sum of One Hundred Seventy-Three Thousand Six
Hundred and Six Dollars ($173,606).
1. Interest Rate.
(a) The principal sum outstanding from time to time
hereunder shall bear interest at the rate of 6% per annum. The annual interest
rate shall be calculated on the basis of a 360-day year and the actual number of
days elapsed.
(b) Notwithstanding anything to the contrary
contained herein or in any other document executed in connection with the Loan,
the effective rate of interest hereunder shall not exceed the maximum effective
rate of interest permitted by applicable law or regulation. Payee hereby agrees
not to collect knowingly any interest from Maker in the form of fees or
otherwise which will render the Loan usurious. In the event that such interest
would be usurious in Payee's opinion, Payee reserves the right to reduce the
interest payable by Maker. This provision shall survive the repayment of this
Note.
2. Payments of Principal and Interest.
(a) Interest only on the principal sum outstanding
under this Note shall be payable in arrears on each March 1, June 1, September
1, and December 1 during the term of this Note (each, an "Interest Payment
Date"), commencing on December 1, 1997; provided, however, that such interest
payments shall be due only (i) to the extent that Maker has cash available to
make such payments (for purposes hereof, any and all management fees received by
Maker from Crusader Bank pursuant to the Management Agreement dated as of March
1, 1996 between Maker and Crusader Bank, as the same may be amended from time to
time, will not be included within the calculation of cash available to make such
payments), (ii) to the extent that interest is paid by Maker on any Interest
Payment Date to all other shareholders of the Company holding promissory notes
issued by the Company, in which event the interest paid will be on a pro rata
basis, and (iii) to the extent that such sums are available for payment pursuant
to all applicable federal banking regulations.
<PAGE>
(b) The unpaid principal balance then outstanding
hereunder shall become due and payable on September 30, 2007 ("Maturity Date").
3. Prepayments. Maker shall have the right to prepay all or
any portion of the unpaid principal balance of this Note, without penalty or
premium, provided that any prepayments received by Payee shall be applied first
to unpaid interest, and then to installments of principal due and payable
hereunder in the inverse order of their maturities. Any acceptance of any such
prepayment when there is an event of default in existence hereunder shall not
constitute a waiver, release or accord and satisfaction thereof or of any rights
with respect thereto by Payee.
4. Exchange.
(a) Maker shall have the right, at any time following
the date hereof, to exchange the principal then outstanding under this Note for
class A common stock of Maker at an exchange price equal to the adjusted book
value of such stock as of the date of the exchange. Maker shall exercise this
right only in the event that it enters into an agreement with Thomas Knox and
Bruce Levy to exchange their outstanding notes on the same basis.
(b) Upon exchange of this Note, Maker at its expense
shall cause to be issued in Payee's name and delivered to Payee, a certificate
or certificates for the amount of class A common stock to which Payee shall be
entitled upon exchange hereunder.
5. Events of Default. In addition to any other event referred
to herein, the occurrence of which, by the terms hereof, constitutes an event of
default hereunder, the occurrence of any one or more of the following events
shall, at the option of Payee, constitute an event of default hereunder:
(a) Maker shall fail to make any payment of principal
and/or interest due to Payee under this Note within fifteen (15) days after
receipt of written notice from Payee that the same is due and payable, whether
at maturity or by acceleration or otherwise;
(b) Except as otherwise provided for in this Note,
Maker shall fail to observe or perform any of the covenants or agreements on its
part to be observed or performed under this Note within thirty (30) days after
receipt of written notice from Payee of such non-compliance;
2
<PAGE>
(c) Any representation or warranty of Maker under
this Note shall be untrue in any material respect;
(d) Maker shall apply for or consent to the
appointment of a receiver, trustee or liquidator of itself or any of its
property, admit in writing its inability to pay its debts as they mature, make a
general assignment for the benefit of creditors, be adjudicated a bankrupt,
insolvent or file a voluntary petition in bankruptcy, or a petition or an answer
seeking reorganization or an arrangement with creditors or to take advantage of
any bankruptcy, reorganization, insolvency, readjustment of debt dissolution or
liquidation law or statute, or an answer admitting the material allegations of a
petition filed against it in any proceeding under any such law, or if action
shall be taken by Maker for the purpose of effecting any of the foregoing; or
(e) Any order, judgment or decree shall be entered by
any court of competent jurisdiction, approving a petition seeking reorganization
of Maker or all or a substantial part of the assets of Maker, or appointing a
receiver, sequestrator, trustee or liquidator of Maker or any of its property,
and such order, judgment or decree shall continue unstayed and in effect for any
period of sixty (60) days.
6. Remedies. Upon the occurrence of any event of default that
continues beyond the expiration of applicable notice and grace periods set forth
herein, then the entire unpaid principal sum hereunder shall, at the option of
Payee, become due and payable immediately without presentment, demand, notice of
nonpayment, protest, notice of protest or other notice of dishonor, all of which
are hereby expressly waived by Maker; provided, however, that Payee shall only
be entitled to collect any of the aforesaid sums if, and at the time of such
collection, such sums are available for payment pursuant to all applicable
federal banking regulations.
7. Severability. In the event that for any reason one or more
of the provisions of this Note or their application to any person or
circumstance shall be held to be invalid, illegal or unenforceable in any
respect or to any extent, such provisions shall nevertheless remain valid, legal
and enforceable in all such other respects and to such extent as may be
permissible. In addition, any such invalidity, illegality or unenforceability
shall not affect any other provisions of this Note, but this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
8. Heirs Successors and Assigns. This Note inures to the
benefit of Payee and binds Maker, and their respective heirs,
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successors and assigns, and the words "Payee" and "Maker" whenever occurring
herein shall be deemed and construed to include such respective heirs,
successors and assigns.
9. Notices. All notices required to be given to any of the
parties hereunder shall be in writing and shall be deemed to have been
sufficiently given for all purposes when presented personally to such party or
sent recognized overnight courier or by certified or registered mail, return
receipt requested, to such party at its address set forth below:
Maker: Crusader Holding Corporation
520 S. Sydbury Lane
Wynnewood, Pennsylvania 19096
Attention: Mr. Thomas J. Knox
Chairman
Payee: Thomas J. Knox
520 S. Sydbury Lane
Wynnewood, Pennsylvania 19096
Such notice shall be deemed to be given when received if delivered personally or
by overnight courier, or two (2) days after the date mailed if sent by certified
or registered mail. Any notice of any change in such address shall also be given
in the manner set forth above. Whenever the giving of notice is required, the
giving of such notice may be waived in writing by the party entitled to receive
such notice.
10. Definitions; Number and Gender. In the event Maker
consists of more than one person or entity, the obligations and liabilities
hereunder of each of such persons and entities shall be joint and several and
the word "Maker" shall mean all or some or any of them. For purposes of this
Note, the singular shall be deemed to include the plural and the neuter shall be
deemed to include the masculine and feminine, as the context may require.
11. Captions. The captions or headings of the paragraphs in
this Note are for convenience only and shall not control or affect the meaning
or construction of any of the terms or provisions of this Note.
12. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
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IN WITNESS WHEREOF, Maker has executed this Promissory Note
the day and year first above written.
ATTEST: CRUSADER HOLDING CORPORATION, a
Pennsylvania corporation
By /s/ Johseph T. Crowley By /s/ Bruce A. Levy
-------------------------- --------------------------
Joseph T. Crowley, Bruce A. Levy, President
Secretary
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EXCHANGEABLE PROMISSORY NOTE
$74,403 September 30, 1997
FOR VALUE RECEIVED, CRUSADER HOLDING COMPANY, a Pennsylvania
corporation with an office at 520 S. Sydbury Lane, Wynnewood, Pennsylvania 19096
("Maker"), promises to pay to the order of BRUCE A. LEVY, an individual with a
mailing address of 1017 Lindsay Lane, Rydal, Pennsylvania 19046 ("Payee"), at
such address of Payee or at such other place as Payee may designate from time to
time in writing, the principal sum of Seventy-Four Thousand Four Hundred and
Three Dollars ($74,403).
1. Interest Rate.
(a) The principal sum outstanding from time to time
hereunder shall bear interest at the rate of 6% per annum. The annual interest
rate shall be calculated on the basis of a 360-day year and the actual number of
days elapsed.
(b) Notwithstanding anything to the contrary
contained herein or in any other document executed in connection with the Loan,
the effective rate of interest hereunder shall not exceed the maximum effective
rate of interest permitted by applicable law or regulation. Payee hereby agrees
not to collect knowingly any interest from Maker in the form of fees or
otherwise which will render the Loan usurious. In the event that such interest
would be usurious in Payee's opinion, Payee reserves the right to reduce the
interest payable by Maker. This provision shall survive the repayment of this
Note.
2. Payments of Principal and Interest.
(a) Interest only on the principal sum outstanding
under this Note shall be payable in arrears on each March 1, June 1, September
1, and December 1 during the term of this Note (each, an "Interest Payment
Date"), commencing on December 1, 1997; provided, however, that such interest
payments shall be due only (i) to the extent that Maker has cash available to
make such payments (for purposes hereof, any and all management fees received by
Maker from Crusader Bank pursuant to the Management Agreement dated as of March
1, 1996 between Maker and Crusader Bank, as the same may be amended from time to
time, will not be included within the calculation of cash available to make such
payments), (ii) to the extent that interest is paid by Maker on any Interest
Payment Date to all other shareholders of the Company holding promissory notes
issued by the Company, in which event the interest paid will be on a pro rata
basis, and (iii) to the extent that such sums are available for payment pursuant
to all applicable federal banking regulations.
<PAGE>
(b) The unpaid principal balance then outstanding
hereunder shall become due and payable on September 30, 2007 ("Maturity Date").
3. Prepayments. Maker shall have the right to prepay all or
any portion of the unpaid principal balance of this Note, without penalty or
premium, provided that any prepayments received by Payee shall be applied first
to unpaid interest, and then to installments of principal due and payable
hereunder in the inverse order of their maturities. Any acceptance of any such
prepayment when there is an event of default in existence hereunder shall not
constitute a waiver, release or accord and satisfaction thereof or of any rights
with respect thereto by Payee.
4. Exchange.
(a) Maker shall have the right, at any time following
the date hereof, to exchange the principal then outstanding under this Note for
class A common stock of Maker at an exchange price equal to the adjusted book
value of such stock as of the date of the exchange. Maker shall exercise this
right only in the event that it enters into an agreement with Thomas Knox and
Bruce Levy to exchange their outstanding notes on the same basis.
(b) Upon exchange of this Note, Maker at its expense
shall cause to be issued in Payee's name and delivered to Payee, a certificate
or certificates for the amount of class A common stock to which Payee shall be
entitled upon exchange hereunder.
5. Events of Default. In addition to any other event referred
to herein, the occurrence of which, by the terms hereof, constitutes an event of
default hereunder, the occurrence of any one or more of the following events
shall, at the option of Payee, constitute an event of default hereunder:
(a) Maker shall fail to make any payment of principal
and/or interest due to Payee under this Note within fifteen (15) days after
receipt of written notice from Payee that the same is due and payable, whether
at maturity or by acceleration or otherwise;
(b) Except as otherwise provided for in this Note,
Maker shall fail to observe or perform any of the covenants or agreements on its
part to be observed or performed under this Note within thirty (30) days after
receipt of written notice from Payee of such non-compliance;
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(c) Any representation or warranty of Maker under
this Note shall be untrue in any material respect;
(d) Maker shall apply for or consent to the
appointment of a receiver, trustee or liquidator of itself or any of its
property, admit in writing its inability to pay its debts as they mature, make a
general assignment for the benefit of creditors, be adjudicated a bankrupt,
insolvent or file a voluntary petition in bankruptcy, or a petition or an answer
seeking reorganization or an arrangement with creditors or to take advantage of
any bankruptcy, reorganization, insolvency, readjustment of debt dissolution or
liquidation law or statute, or an answer admitting the material allegations of a
petition filed against it in any proceeding under any such law, or if action
shall be taken by Maker for the purpose of effecting any of the foregoing; or
(e) Any order, judgment or decree shall be entered by
any court of competent jurisdiction, approving a petition seeking reorganization
of Maker or all or a substantial part of the assets of Maker, or appointing a
receiver, sequestrator, trustee or liquidator of Maker or any of its property,
and such order, judgment or decree shall continue unstayed and in effect for any
period of sixty (60) days.
6. Remedies. Upon the occurrence of any event of default that
continues beyond the expiration of applicable notice and grace periods set forth
herein, then the entire unpaid principal sum hereunder shall, at the option of
Payee, become due and payable immediately without presentment, demand, notice of
nonpayment, protest, notice of protest or other notice of dishonor, all of which
are hereby expressly waived by Maker; provided, however, that Payee shall only
be entitled to collect any of the aforesaid sums if, and at the time of such
collection, such sums are available for payment pursuant to all applicable
federal banking regulations.
7. Severability. In the event that for any reason one or more
of the provisions of this Note or their application to any person or
circumstance shall be held to be invalid, illegal or unenforceable in any
respect or to any extent, such provisions shall nevertheless remain valid, legal
and enforceable in all such other respects and to such extent as may be
permissible. In addition, any such invalidity, illegality or unenforceability
shall not affect any other provisions of this Note, but this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
8. Heirs Successors and Assigns. This Note inures to the
benefit of Payee and binds Maker, and their respective heirs,
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successors and assigns, and the words "Payee" and "Maker" whenever occurring
herein shall be deemed and construed to include such respective heirs,
successors and assigns.
9. Notices. All notices required to be given to any of the
parties hereunder shall be in writing and shall be deemed to have been
sufficiently given for all purposes when presented personally to such party or
sent recognized overnight courier or by certified or registered mail, return
receipt requested, to such party at its address set forth below:
Maker: Crusader Holding Corporation
520 S. Sydbury Lane
Wynnewood, Pennsylvania 19096
Attention: Mr. Thomas J. Knox
Chairman
Payee: Bruce A. Levy
1017 Lindsay Lane
Rydal, Pennsylvania 19046
Such notice shall be deemed to be given when received if delivered personally or
by overnight courier, or two (2) days after the date mailed if sent by certified
or registered mail. Any notice of any change in such address shall also be given
in the manner set forth above. Whenever the giving of notice is required, the
giving of such notice may be waived in writing by the party entitled to receive
such notice.
10. Definitions; Number and Gender. In the event Maker
consists of more than one person or entity, the obligations and liabilities
hereunder of each of such persons and entities shall be joint and several and
the word "Maker" shall mean all or some or any of them. For purposes of this
Note, the singular shall be deemed to include the plural and the neuter shall be
deemed to include the masculine and feminine, as the context may require.
11. Captions. The captions or headings of the paragraphs in
this Note are for convenience only and shall not control or affect the meaning
or construction of any of the terms or provisions of this Note.
12. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
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IN WITNESS WHEREOF, Maker has executed this Promissory Note
the day and year first above written.
ATTEST: CRUSADER HOLDING CORPORATION, a
Pennsylvania corporation
By /s/ Joseph T. Crowley By /s/ Thomas J. Knox
------------------------- ---------------------------
Joseph T. Crowley, Thomas J. Knox, Chairman
Secretary
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CRUSADER HOLDING CORPORATION
DIRECTOR STOCK OPTION PLAN
ARTICLE I
Purpose
The purpose of the Director Stock Option Plan (the "Plan") is
to enable Crusader Holding Corporation (the "Company") to offer to certain
members of its Board of Directors options to acquire equity interests in the
Company, thereby attracting, retaining and rewarding such persons, and
strengthening the mutuality of interests between such persons and the Company's
shareholders.
ARTICLE II
Definitions
For purposes of the Plan, the following terms shall have the
following meanings:
2.1 "Administrator" shall mean the Board or, if the Board has
delegated its responsibility to administer the Plan pursuant to Section 3.1, the
committee of the Board to which such responsibility has been delegated.
2.2 "Annual Stock Options" shall mean any Stock Option to
purchase shares of Common Stock granted under Section 6.2 of the Plan.
2.3 "Board" shall mean the Board of Directors of the Company.
2.4 "Change of Control" shall mean the occurrence of any one
of the following: (i) the Company enters into an agreement of reorganization,
merger or consolidation, (ii) the Company sells substantially all its assets to
a purchaser, or (iii) shares of stock of the Company representing in excess of
50% of the total combined voting power of all outstanding classes of stock of
the Company are acquired, in one transaction or a series of transactions, by a
single purchaser or group of related purchasers (other than Thomas J. Knox or
Bruce A. Levy or any of their associates or affiliates (as such terms are
defined in Rule 12b-2 under the Securities Exchange Act of 1934) or any group of
purchasers that includes Thomas J. Knox or Bruce A. Levy or any of their
associates or affiliates), in any case other than in a transaction in which the
Company or a subsidiary of the Company is the surviving corporation or the
purchaser.
<PAGE>
2.5 "Code" shall mean the Internal Revenue Code of 1986, as
amended.
2.6 "Common Stock" shall mean the Common Stock, par value $.01
per share, of the Company.
2.7 "Director" shall mean a member of the Board.
2.8 "Effective Date" shall mean the date on which the Plan is
adopted by the Board.
2.9 "Fair Market Value" for purposes of the Plan, unless
otherwise required by any applicable provision of the Code or any regulations
issued thereunder, shall mean, as of any date, the average of the high and low
sales prices of a share of Common Stock as reported on the principal national
securities exchange on which the Common Stock is listed or admitted to trading,
or, if not listed or traded on any such exchange, on the Nasdaq Stock Market
("Nasdaq"), or, if such sales prices are not available, the average of the bid
and asked prices per share reported on Nasdaq, or, if such quotations are not
available, the fair market value as determined by the Board, which determination
shall be conclusive.
2.10 "Non-Employee Director" shall mean a Director who is not
an employee of the Company or any of its subsidiaries.
2.11 "Participant" shall mean a Director to whom an Option has
been granted under the Plan.
2.12 "Public Offering Date" shall mean the date on which the
Registration Statement is declard effective by the Securities and Exchange
Commission.
2.13 "Registration Statement" shall mean the Registration
Statement on Form S-1 for the Company's initial public offering of its Common
Stock.
2.14 "Replacement Stock Option" shall mean any Stock Option to
purchase shares of Common Stock granted under Section 6.1 of the Plan.
2.15 "Stock Option" or "Option" shall mean any option to
purchase shares of Common Stock granted pursuant to Article VI of the Plan.
ARTICLE III
Administration
3.1 The Administrator. The Plan shall be administered and
interpreted by the Board; provided, however, that the Board may delegate this
responsibility to a committee comprised of two or more members of the Board.
3.2 Guidelines. Subject to Article VII hereof, the
Administrator shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any Option granted under
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the Plan (and any agreements relating thereto); and to otherwise supervise the
administration of the Plan. The Administrator may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or in any Option in the
manner and to the extent it shall deem necessary to carry the Plan into effect.
Notwithstanding the foregoing, no action of the Administrator under this Section
3.2 shall impair the rights of any Participant without the Participant's
consent, unless otherwise required by law.
3.3 Decisions Final. Any decision, interpretation or other
action made or taken in good faith by the Administrator arising out of or in
connection with the Plan shall be final, binding and conclusive on the Company,
all officers, employees and consultants, and their respective heirs, executors,
administrators, successors and assigns.
ARTICLE IV
Share Limitation
4.1 Shares. The maximum aggregate number of shares of Common
Stock that may be issued under the Plan is 100,000 (subject to increase or
decrease pursuant to Section 4.2), which may be either authorized and unissued
shares of Common Stock or issued Common Stock reacquired by the Company. If any
Option granted under the Plan shall expire, terminate or be cancelled for any
reason without having been exercised in full, the number of unpurchased shares
shall again be available for the purposes of the Plan.
4.2 Changes. In the event of any merger, reorganization,
consolidation, recapitalization, dividend (other than a regular cash dividend),
stock split, or other change in corporate structure affecting the Common Stock,
such substitution or adjustment shall be made in the maximum aggregate number of
shares that may be issued under the Plan, and the number and option price of
shares subject to outstanding Options, as may be determined to be appropriate by
the Board, in its sole discretion, provided that the number of shares subject to
any Option shall always be a whole number.
ARTICLE V
Eligibility
5.1 Replacement Options. All Non-Employee Directors who hold
phantom stock options under the Company's Phantom Stock Option Plan are eligible
to be granted Replacement Stock Options under the Plan.
5.2 Annual Options. All Non-Employee Directors are
eligible to be granted Annual Stock Options under the Plan.
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ARTICLE VI
Grant of Stock Options
6.1 Replacement Stock Options. Replacement Stock Options shall
be granted on the Public Offering Date to any person eligible under Section 5.1
who has, on or befor such date, surrendered all phantom stock options granted to
him under the Company's Phantom Stock Option Plan, and disclaimed all rights
thereunder. The number of shares of Common Stock subject to such Replacement
Stock Options shall be as follows:
Paul Bachow - 3,800 shares
Ronald Caplan - 14,000 shares
D. Walter Cohen - 10,200 shares
Daniel DiLella - 7,200 shares
Joel S. Lawson, III - 11,600 shares
Brian McAdams - 7,400 shares
6.2 Annual Stock Options. (a) On the Public Offering Date,
each Non-Employee Director shall be granted an Annual Stock Option to purchase
shares of Common Stock as follows: (i) if the Non-Employee Director serves on
one or more committees of the Board, the number of shares of Common Stock
subject to such Annual Stock Option shall be 1,000 shares, and (ii) if the
Non-Employee Director does not serve on any committees of the Board, the number
of shares of Common Stock subject to such Annual Stock Option shall be 500
shares.
(b) Thereafter, for as long as the Plan remains
in effect, each Non-Employee Director shall be granted an Annual Stock Option
each year on the date of the Company's Annual Meeting of Shareholders. The
number of shares of Common Stock subject to such Annual Stock Options shall be
determined as follows: (i) if the Non-Employee Director serves on one or more
committees of the Board, by dividing $15,000 by the Fair Market Value of a share
of Common Stock on the date of grant, and rounding up to the next higher whole
number, and (ii) if the Non- Employee Director does not serve on any committees
of the Board, by dividing $7,500 by the Fair Market Value of a share of Common
Stock on the date of grant, and rounding up to the next higher whole number.
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6.3 Terms of Options. Options granted under the Plan shall be
subject to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the Plan, as the
Administrator shall deem desirable:
(a) Stock Option Certificate. Each Stock Option
shall be evidenced by, and subject to the terms of, a Stock Option Certificate
executed by the Company. The Stock Option Certificate shall specify the number
of shares of Common Stock subject to the Stock Option, the option price, the
option term, and the other terms and conditions applicable to the Stock Option.
(b) Option Price. The option price per share of
Common Stock purchasable upon exercise of Replacement Stock Options and Annual
Stock Options granted under Section 6.2(a) shall be the initial public offering
price as set forth in the Registration Statement. The opton price per share of
Common Stock purchasable upon exercise of all Annual Stock Options granted under
Section 6.2(b) shall be equal to 100% of the Fair Market Value of a share of
Common Stock on the date the Option is granted, except that, for Stock Options
granted.
(c) Option Term. The term of each Stock Option
shall be five years.
(d) Exercisability. Replacement Stock Options
shall be fully exercisable six months after the date of grant and Annual Stock
Options shall become fully exercisable on the first anniversary of the date of
grant; provided, however, that the Administrator may waive such vesting
provision, in whole or in part, at any time after the date of grant, based on
such factors as the Administrator shall deem appropriate in its sole discretion.
(e) Method of Exercise. Subject to any
applicable vesting provision, Stock Options may be exercised in whole or in part
at any time during the option term by delivering to the Company written notice
of exercise specifying the number of shares of Common Stock to be purchased and
the aggregate option price therefor. The notice of exercise shall be accompanied
by payment in full of the option price and, if requested by the Company, by the
representation described in Section 9.2. Payment of the option price may be made
(i) in cash or by check payable to the Company, (ii) to the extent determined by
the Administrator on or after the date of grant, in shares of Common Stock duly
owned by the Participant (and for which the Participant has good title, free and
clear of any liens and encumbrances) or (iii) to the extent determined by the
Administrator on or after the date of grant, by reduction in the number of
shares of Common Stock issuable upon such exercise, based, in each case, on the
Fair Market Value of the Common Stock on the last business day preceding the
date of exercise. Upon payment in full of the option price and satisfaction of
the other conditions provided herein, a stock certificate representing the
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number of shares of Common Stock to which the Participant is entitled shall be
issued and delivered to the Participant.
(f) Death. If a Participant ceases to be a
Director by reason of death, any Stock Option held by such Participant on the
date of death shall immediately become fully exercisable and may thereafter be
exercised by the legal representative of the Participant's estate until the
earlier of one year after the date of the Participant's death or the expiration
of the stated term of such Stock Option.
(g) Disability. If a Participant ceases to be a
Director by reason of disability, any Stock Option held by such Participant on
such date shall immediately become fully exercisable and may thereafter be
exercised by the Participant until the earlier of one year after such date or
the expiration of the stated term of such Stock Option. If the Participant dies
during such one-year period, any unexercised Stock Options held by the
Participant at the time of death may thereafter be exercised by the legal
representative of the Participant's estate until the earlier of one year after
the date of the Participant's death or the expiration of the option term of such
Stock Option.
(h) Termination of Board Service. If a
Participant ceases to be a Director by reason of retirement or for any reason
other than death or disability, any Stock Option held by such Participant which
was exercisable on such date may thereafter be exercised by the Participant
until the earlier of thirty (30) days after such date or the expiration of the
stated term of such Stock Option, and any Stock Option not exercisable on the
date on which the Participant ceased to be a Director shall be forfeited.
(i) Change of Control. In the event of a Change
of Control, all outstanding Stock Options shall immediately become fully
exercisable, and upon payment by the Participant of the option price (and, if
requested, delivery of the representation described in Section 9.2), a stock
certificate representing the Common Stock covered thereby shall be issued and
delivered to the Participant.
(j) Non-Transferability of Options. No Stock
Option shall be transferrable by the Participant otherwise than by will or by
the laws of descent and distribution, to the extent consistent with the terms of
the Plan and the Option, and all Stock Options shall be exercisable, during the
Participant's lifetime, only by the Participant.
(k) Extension of Exercise Periods. The
Administrator may, at any time, extend the exercise period applicable to a
Participant who ceases to be a Director for any reason, based on such factors as
the Administrator, in its discretion, shall deem appropriate, provided that the
exercise
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period may not extend beyond the expiration of the stated term of
the Option.
6.3 Rights as Shareholder. A Participant shall not be deemed
to be the holder of Common Stock, or to have any of the rights of a holder of
Common Stock, with respect to shares subject to an Option, unless and until the
Option is exercised and a stock certificate representing such shares of Common
Stock is issued to the Participant.
ARTICLE VII
Termination or Amendment
7.1 Termination or Amendment of Plan. The Board may at any
time amend, discontinue or terminate the Plan or any part thereof (including any
amendment deemed necessary to ensure that the Company may comply with any
regulatory requirement referred to in Article IX); provided, however, that,
unless otherwise required by law, the rights of a Participant with respect to
Options granted prior to such amendment, discontinuance or termination may not
be impaired without the consent of such Participant and, provided further, that
the Company will seek the approval of the Company's shareholders for any
amendment if such approval is necessary to comply with the Code, Federal or
state securities law or any other applicable rules or regulations.
7.2 Amendment of Options. The Board may amend the terms of any
Option previously granted, prospectively or retroactively, but, subject to
Article IV, no such amendment or other action by the Board shall impair the
rights of any holder without the holder's consent.
ARTICLE VIII
Unfunded Plan
8.1 Unfunded Status. The Plan is intended to constitute an
"unfunded" plan for incentive compensation. With respect to any payment not yet
made to a Participant by the Company, nothing contained herein shall give any
such Participant any rights that are greater than those of a general creditor of
the Company.
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ARTICLE IX
General Provisions
9.1 Nonassignment. Except as otherwise provided in the Plan,
any Option granted hereunder and the rights and privileges conferred thereby may
not be sold, transferred, assigned, pledged or hypothecated in any way (whether
by operation of law or otherwise), and shall not be subject to execution,
attachment or similar process. Upon any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of an Option, right or privilege contrary to
the provisions hereof, or upon the levy of any attachment or similar process
thereon, such Option and the rights and privileges conferred thereby shall
immediately terminate and the Option shall immediately be forfeited to the
Company.
9.2 Legend. The Company may require each person acquiring
shares upon exercise of an Option to represent to the Company in writing that
the Participant is acquiring the shares without a view to the distribution
thereof. The stock certificates representing such shares may include any legend
which the Company deems appropriate to reflect any restrictions on transfer.
All certificates representing shares of Common Stock delivered
under the Plan shall be subject to such stock transfer orders and other
restrictions as the Company may deem advisable under the rules, regulations and
other requirements of the Securities and Exchange Commission, any stock exchange
or stock market upon which the Common Stock is then listed or traded, any
applicable Federal or state securities law, and any applicable corporate law,
and the Company may cause a legend or legends to be put on any such certificates
to make appropriate reference to such restrictions.
9.3 Other Plans. Nothing contained in the Plan shall prevent
the Company from adopting other or additional compensation arrangements, and
such arrangements may be either generally applicable or applicable only in
specific cases.
9.4 No Right to Service. Neither the Plan nor the grant of any
Option shall give any Director the right to continue as a member of the Board or
obligate the Company to nominate any Director for re-election by the Company's
shareholders.
9.5 Withholding of Taxes. The Company shall have the right to
reduce the number of shares of Common Stock otherwise deliverable upon exercise
of an Option by an amount that would have a Fair Market Value equal to the
amount of all Federal, state and local taxes required to be withheld, or to
deduct the amount of such taxes from any cash payment otherwise to be made to
the Participant, pursuant to the Plan or otherwise. In
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connection with such withholding, the Company may make such arrangements as are
consistent with the Plan as it may deem appropriate.
9.6 Listing and Other Conditions.
(a) If the Common Stock is listed on a national
securities exchange or Nasdaq, the issuance of any shares of Common Stock upon
exercise of an Option shall be conditioned upon such shares being listed on such
exchange or Nasdaq. The Company shall have no obligation to issue any shares of
Common Stock unless and until such shares are so listed, and the right to
exercise any Option shall be suspended until such listing has been effected.
(b) If at any time counsel to the Company shall
be of the opinion that any sale or delivery of shares of Common Stock upon
exercise of an Option is or may in the circumstances be unlawful or result in
the imposition of excise taxes under the statutes, rules or regulations of any
applicable jurisdiction, the Company shall have no obligation to make such sale
or delivery, or to make any application or to effect or to maintain any
qualification or registration under the Securities Act of 1933, as amended, or
otherwise with respect to shares of Common Stock or Options, and the right to
exercise any Option shall be suspended until, in the opinion of such counsel,
such sale or delivery shall be lawful or shall not result in the imposition of
excise taxes.
(c) Upon termination of any period of suspension
under this Section 9.6, any Option affected by such suspension which shall not
then have expired or terminated shall be reinstated as to all shares available
before such suspension and as to shares which would otherwise have become
available during the period of such suspension, but no such suspension shall
extend the term of any Option.
9.7 Governing Law. The Plan and actions taken in connection
herewith shall be governed and construed in accordance with the laws of the
Commonwealth of Pennsylvania without regard to the conflict of law principles
thereof.
9.8 Construction. Wherever any words are used in the Plan in
the masculine gender they shall be construed as though they were also used in
the feminine gender in all cases where they would so apply, and wherever any
words are used herein in the singular form they shall be construed as though
they were also used in the plural form in all cases where they would so apply.
9.9 Liability of the Board. No member of the Board
nor any employee of the Company or any of its subsidiaries shall
be liable for any act or action hereunder, whether of omission or
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commission, by any other member of the Board or employee or by any agent to whom
duties in connection with the administration of the Plan have been delegated or,
except in circumstances involving bad faith, gross negligence or fraud, for
anything done or omitted to be done by himself.
9.10 Costs. The Company shall bear all expenses incurred in
administering the Plan, including expenses related to the issuance of Common
Stock upon exercise of Options.
9.11 Severability. If any part of the Plan shall be determined
to be invalid or void in any respect, such determination shall not affect,
impair, invalidate or nullify the remaining provisions of the Plan which shall
continue in full force and effect.
9.12 Successors. The Plan shall be binding upon and inure to
the benefit of any successor or successors of the Company.
9.13 Headings. Article and section headings contained in the
Plan are included for convenience only and are not to be used in construing or
interpreting the Plan.
ARTICLE X
Term of Plan
10.1 Effective Date. The Plan shall be effective as of the
Effective Date.
10.2 Termination Date. Unless sooner terminated, the Plan
shall terminate ten years after the Effective Date and no Options may be granted
thereafter. Termination of the Plan shall not affect Options granted before such
date.
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CRUSADER HOLDING CORPORATION
EMPLOYEE STOCK OPTION PLAN
ARTICLE I
Purpose
The purpose of the Employee Stock Option Plan (the "Plan") is
to enable Crusader Holding Corporation (the "Company") to offer to certain of
its officers, employees and consultants options to acquire equity interests in
the Company, thereby attracting, retaining and rewarding such persons, and
strengthening the mutuality of interests between such persons and the Company's
shareholders.
ARTICLE II
Definitions
For purposes of the Plan, the following terms shall have the
following meanings:
2.1 "Administrator" shall mean the Board or, if the Board has
delegated its responsibility to administer the Plan pursuant to Section 3.1, the
committee of the Board to which such responsibility has been delegated.
2.2 "Board" shall mean the Board of Directors of the Company.
2.3 "Change of Control" shall mean the occurrence of any one of
the following: (i) the Company enters into an agreement of reorganization,
merger or consolidation, (ii) the Company sells substantially all its assets to
a purchaser, or (iii) shares of stock of the Company representing in excess of
50% of the total combined voting power of all outstanding classes of stock of
the Company are acquired, in one transaction or a series of transactions, by a
single purchaser or group of related purchasers (other than Thomas J. Knox or
Bruce A. Levy or any of their associates or affiliates (as such terms are
defined in Rule 12b-2 under the Securities Exchange Act of 1934) or any group of
purchasers that includes Thomas J. Knox or Bruce A. Levy or any of their
associates or affiliates), in any case other than in a transaction in which the
Company or a subsidiary of the Company is the surviving corporation or the
purchaser.
2.4 "Code" shall mean the Internal Revenue Code of 1986, as
amended.
<PAGE>
2.5 "Common Stock" shall mean the Common Stock, par value $.01
per share, of the Company.
2.6 "Disability" shall mean a disability that results in a
Participant's Termination of Employment with the Company, as determined pursuant
to standard Company procedures.
2.7 "Effective Date" shall mean the date on which the Plan is
adopted by the Board.
2.8 "Fair Market Value" for purposes of the Plan, unless
otherwise required by any applicable provision of the Code or any regulations
issued thereunder, shall mean, as of any date, the average of the high and low
sales prices of a share of Common Stock as reported on the principal national
securities exchange on which the Common Stock is listed or admitted to trading,
or, if not listed or traded on any such exchange, on the Nasdaq Stock Market
("Nasdaq"), or, if such sales prices are not available, the average of the bid
and asked prices per share reported on Nasdaq, or, if such quotations are not
available, the fair market value as determined by the Board, which determination
shall be conclusive.
2.09 "Participant" shall mean an officer, employee or
consultant to whom an Option has been granted under the Plan.
2.10 "Stock Option" or "Option" shall mean any option to
purchase shares of Common Stock granted pursuant to Article VI of the Plan.
2.11 "Termination of Employment" shall mean, as appropriate,
(a) the termination of a Participant's employment with the Company and its
subsidiaries for reasons other than a military or personal leave of absence
granted by the Company or (b) termination of a Participant's consulting
relationship with the Company and its subsidiaries.
ARTICLE III
Administration
3.1 The Administrator. The Plan shall be administered and
interpreted by the Board; provided, however, that the Board may delegate this
responsibility to a committee comprised of two or more members of the Board.
3.2 Awards. The Administrator shall have full authority to
grant, pursuant to the terms of the Plan, Stock Options to persons eligible
under Article V. In particular, the Administrator shall have the authority:
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(a) to select the officers, employees and
consultants to whom Stock Options may from time to time be granted;
(b) to determine whether and to what extent
Stock Options are to be granted to one or more officers, employees and
consultants eligible to receive Options under Article V;
(c) to determine the number of shares of Common
Stock to be covered by each Option granted pursuant to Article
VI; and
(d) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Option granted under Article VI
(including, but not limited to, the option price, the option term, installment
exercise or waiting period provisions and provisions relating to the waiver or
acceleration thereof).
3.3 Guidelines. Subject to Article VII hereof, the
Administrator shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any Option granted under the Plan (and any agreements relating
thereto); and to otherwise supervise the administration of the Plan. The
Administrator may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or in any Option in the manner and to the extent it
shall deem necessary to carry the Plan into effect. Notwithstanding the
foregoing, no action of the Administrator under this Section 3.3 shall impair
the rights of any Participant without the Participant's consent, unless
otherwise required by law.
3.4 Decisions Final. Any decision, interpretation or other
action made or taken in good faith by the Administrator arising out of or in
connection with the Plan shall be final, binding and conclusive on the Company,
all officers, employees and consultants, and their respective heirs, executors,
administrators, successors and assigns.
ARTICLE IV
Share Limitation
4.1 Shares. The maximum aggregate number of shares of Common
Stock that may be issued under the Plan is 200,000 (subject to increase or
decrease pursuant to Section 4.3), which may be either authorized and unissued
shares of Common Stock or issued Common Stock reacquired by the Company. If any
Option granted under the Plan shall expire, terminate or be cancelled for any
reason without having been exercised in full, the number of unpurchased shares
shall again be available for the purposes of the Plan.
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4.2 Individual Limit. No Participant may be granted Options
covering more than 50,000 shares of Common Stock (subject to increase or
decrease pursuant to Section 4.3) during any calendar year.
4.3 Changes. In the event of any merger, reorganization,
consolidation, recapitalization, dividend (other than a regular cash dividend),
stock split, or other change in corporate structure affecting the Common Stock,
such substitution or adjustment shall be made in the maximum aggregate number of
shares that may be issued under the Plan, the maximum number of shares with
respect to which Options may be granted to any individual during any year, and
the number and option price of shares subject to outstanding Options, as may be
determined to be appropriate by the Board, in its sole discretion, provided that
the number of shares subject to any Option shall always be a whole number.
ARTICLE V
Eligibility
5.1 Employees. Officers and other employees of the Company and
its subsidiaries are eligible to be granted Stock Options under the Plan.
5.2 Consultants. Consultants of the Company and its
subsidiaries are eligible to be granted Stock Options under the Plan.
ARTICLE VI
Grant of Stock Options
6.1 Grants. The Administrator shall have the authority to grant
Stock Options to any person eligible under Article V. Stock Options granted
under this Plan are not intended to be "incentive stock options" within the
meaning of Section 422 of the Code.
6.2 Terms of Options. Options granted under the Plan shall be
subject to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the Plan, as the
Administrator shall deem desirable:
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(a) Stock Option Certificate. Each Stock Option
shall be evidenced by, and subject to the terms of, a Stock Option Certificate
executed by the Company. The Stock Option Certificate shall specify the number
of shares of Common Stock subject to the Stock Option, the option price, the
option term, and the other terms and conditions applicable to the Stock Option.
(b) Option Price. The option price per share of
Common Stock purchasable upon exercise of a Stock Option shall be determined by
the Administrator at the time of grant, but shall not be less than 100% of the
Fair Market Value of a share of Common Stock on the date the Option is granted.
(c) Option Term. The term of each Stock Option
shall be fixed by the Administrator at the time of grant, but no Stock Option
shall be exercisable more than ten years after the date it is granted.
(d) Exercisability. Stock Options shall be
exercisable at such time or times and subject to such terms and conditions as
shall be determined by the Administrator at the time of grant; provided,
however, that the Administrator may waive any installment exercise or waiting
period provisions, in whole or in part, at any time after the date of grant,
based on such factors as the Administrator shall deem appropriate in its sole
discretion.
(e) Method of Exercise. Subject to such
installment exercise and waiting period provisions as may be imposed by the
Administrator, Stock Options may be exercised in whole or in part at any time
during the option term by delivering to the Company written notice of exercise
specifying the number of shares of Common Stock to be purchased and the
aggregate option price therefor. The notice of exercise shall be accompanied by
payment in full of the option price and, if requested by the Company, by the
representation described in Section 9.2. Payment of the option price may be made
(i) in cash or by check payable to the Company, (ii) to the extent determined by
the Administrator on or after the date of grant, in shares of Common Stock duly
owned by the Participant (and for which the Participant has good title, free and
clear of any liens and encumbrances) or (iii) to the extent determined by the
Administrator on or after the date of grant, by reduction in the number of
shares of Common Stock issuable upon such exercise, based, in each case, on the
Fair Market Value of the Common Stock on the last business day preceding the
date of exercise. Upon payment in full of the option price and satisfaction of
the other conditions provided herein, a stock certificate representing the
number of shares of Common Stock to which the Participant is entitled shall be
issued and delivered to the Participant.
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(f) Death. Unless otherwise determined by the
Administrator on or after the date of grant, in the event of a Participant's
Termination of Employment by reason of death, all Stock Options held by such
Participant which was exercisable on the date of death shall become fully
exerciseable and may thereafter be exercised by the legal representative of the
Participant's estate until the earlier of one year after the date of the
Participant's death or the expiration of the stated term of such Stock Option.
(g) Disability. Unless otherwise determined by
the Administrator on or after the date of grant, in the event of a Participant's
Termination of Employment by reason of Disability, any Stock Option held by such
Participant that was exercisable on the date of such Termination of Employment
may thereafter be exercised by the Participant until the earlier of one year
after such date or the expiration of the stated term of such Stock Option, and
any Stock Option not exercisable on the date of Termination of Employment shall
be forfeited. If the Participant dies during such one-year period, any
unexercised Stock Options held by the Participant at the time of death may
thereafter be exercised by the legal representative of the Participant's estate
until the earlier of one year after the date of the Participant's death or the
expiration of the option term of such Stock Option.
(h) Termination of Employment. Unless otherwise
determined by the Administrator on or after the date of grant, in the event of a
Participant's Termination of Employment by reason of retirement or for any
reason other than death or Disability, any Stock Option held by such Participant
which was exercisable on the date of such Termination of Employment may
thereafter be exercised by the Participant until the earlier of thirty (30) days
after such date or the expiration of the stated term of such Stock Option, and
any Stock Option not exercisable on the date of Termination of Employment shall
be forfeited.
(i) Change of Control. In the event of a Change
of Control, all outstanding Stock Options shall immediately become fully
exercisable, and upon payment by the Participant of the option price (and, if
requested, delivery of the representation described in Section 9.2), a stock
certificate representing the Common Stock covered thereby shall be issued and
delivered to the Participant.
(j) Non-Transferability of Options. No Stock
Option shall be transferrable by the Participant otherwise than by will or by
the laws of descent and distribution, to the extent consistent with the terms of
the Plan and the Option, and all Stock Options shall be exercisable, during the
Participant's lifetime, only by the Participant.
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6.3 Rights as Shareholder. A Participant shall not be deemed to
be the holder of Common Stock, or to have any of the rights of a holder of
Common Stock, with respect to shares subject to an Option, unless and until the
Option is exercised and a stock certificate representing such shares of Common
Stock is issued to the Participant.
ARTICLE VII
Termination or Amendment
7.1 Termination or Amendment of Plan. The Board may at any time
amend, discontinue or terminate the Plan or any part thereof (including any
amendment deemed necessary to ensure that the Company may comply with any
regulatory requirement referred to in Article IX); provided, however, that,
unless otherwise required by law, the rights of a Participant with respect to
Options granted prior to such amendment, discontinuance or termination may not
be impaired without the consent of such Participant and, provided further, that
the Company will seek the approval of the Company's shareholders for any
amendment if such approval is necessary to comply with the Code, Federal or
state securities law or any other applicable rules or regulations.
7.2 Amendment of Options. The Board may amend the terms of any
Option previously granted, prospectively or retroactively, but, subject to
Article IV, no such amendment or other action by the Board shall impair the
rights of any holder without the holder's consent.
ARTICLE VIII
Unfunded Plan
8.1 Unfunded Status. The Plan is intended to constitute an
"unfunded" plan for incentive compensation. With respect to any payment not yet
made to a Participant by the Company, nothing contained herein shall give any
such Participant any rights that are greater than those of a general creditor of
the Company.
ARTICLE IX
General Provisions
9.1 Nonassignment. Except as otherwise provided in the Plan,
any Option granted hereunder and the rights and privileges conferred thereby may
not be sold, transferred, assigned, pledged or hypothecated in any way (whether
by operation of law or otherwise), and shall not be subject to
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<PAGE>
execution, attachment or similar process. Upon any attempt to transfer, assign,
pledge, hypothecate or otherwise dispose of an Option, right or privilege
contrary to the provisions hereof, or upon the levy of any attachment or similar
process thereon, such Option and the rights and privileges conferred thereby
shall immediately terminate and the Option shall immediately be forfeited to the
Company.
9.2 Legend. The Company may require each person acquiring
shares upon exercise of an Option to represent to the Company in writing that
the Participant is acquiring the shares without a view to the distribution
thereof. The stock certificates representing such shares may include any legend
which the Company deems appropriate to reflect any restrictions on transfer.
All certificates representing shares of Common Stock delivered
under the Plan shall be subject to such stock transfer orders and other
restrictions as the Company may deem advisable under the rules, regulations and
other requirements of the Securities and Exchange Commission, any stock exchange
or stock market upon which the Common Stock is then listed or traded, any
applicable Federal or state securities law, and any applicable corporate law,
and the Company may cause a legend or legends to be put on any such certificates
to make appropriate reference to such restrictions.
9.3 Other Plans. Nothing contained in the Plan shall prevent
the Company from adopting other or additional compensation arrangements, and
such arrangements may be either generally applicable or applicable only in
specific cases.
9.4 No Right to Employment. Neither the Plan nor the grant of
any Option shall give any Participant or other officer, employee or consultant
any right with respect to continuance of employment or consulting relationship,
as the case may be, with the Company or any subsidiary, nor shall the Plan
impose any limitation on the right of the Company or any subsidiary by which a
Participant is employed to terminate a Participant's employment or consulting
relationship at any time.
9.5 Withholding of Taxes. The Company shall have the right to
reduce the number of shares of Common Stock otherwise deliverable upon exercise
of an Option by an amount that would have a Fair Market Value equal to the
amount of all Federal, state and local taxes required to be withheld, or to
deduct the amount of such taxes from any cash payment otherwise to be made to
the Participant, pursuant to the Plan or otherwise. In connection with such
withholding, the Company may make such arrangements as are consistent with the
Plan as it may deem appropriate.
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9.6 Listing and Other Conditions.
(a) If the Common Stock is listed on a national
securities exchange or Nasdaq, the issuance of any shares of Common Stock upon
exercise of an Option shall be conditioned upon such shares being listed on such
exchange or Nasdaq. The Company shall have no obligation to issue any shares of
Common Stock unless and until such shares are so listed, and the right to
exercise any Option shall be suspended until such listing has been effected.
(b) If at any time counsel to the Company shall
be of the opinion that any sale or delivery of shares of Common Stock upon
exercise of an Option is or may in the circumstances be unlawful or result in
the imposition of excise taxes under the statutes, rules or regulations of any
applicable jurisdiction, the Company shall have no obligation to make such sale
or delivery, or to make any application or to effect or to maintain any
qualification or registration under the Securities Act of 1933, as amended, or
otherwise with respect to shares of Common Stock or Options, and the right to
exercise any Option shall be suspended until, in the opinion of such counsel,
such sale or delivery shall be lawful or shall not result in the imposition of
excise taxes.
(c) Upon termination of any period of suspension
under this Section 9.6, any Option affected by such suspension which shall not
then have expired or terminated shall be reinstated as to all shares available
before such suspension and as to shares which would otherwise have become
available during the period of such suspension, but no such suspension shall
extend the term of any Option.
9.7 Governing Law. The Plan and actions taken in connection
herewith shall be governed and construed in accordance with the laws of the
Commonwealth of Pennsylvania without regard to the conflict of law principles
thereof.
9.8 Construction. Wherever any words are used in the Plan in
the masculine gender they shall be construed as though they were also used in
the feminine gender in all cases where they would so apply, and wherever any
words are used herein in the singular form they shall be construed as though
they were also used in the plural form in all cases where they would so apply.
9.9 Liability of the Board. No member of the Board nor any
employee of the Company or any of its subsidiaries shall be liable for any act
or action hereunder, whether of omission or commission, by any other member of
the Board or employee or by any agent to whom duties in connection with the
administration of the Plan have been delegated or, except in circumstances
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involving bad faith, gross negligence or fraud, for anything done or omitted to
be done by himself.
9.10 Costs. The Company shall bear all expenses incurred in
administering the Plan, including expenses related to the issuance of Common
Stock upon exercise of Options.
9.11 Severability. If any part of the Plan shall be determined
to be invalid or void in any respect, such determination shall not affect,
impair, invalidate or nullify the remaining provisions of the Plan which shall
continue in full force and effect.
9.12 Successors. The Plan shall be binding upon and inure to
the benefit of any successor or successors of the Company.
9.13 Headings. Article and section headings contained in the
Plan are included for convenience only and are not to be used in construing or
interpreting the Plan.
ARTICLE X
Term of Plan
10.1 Effective Date. The Plan shall be effective as of the
Effective Date.
10.2 Termination Date. Unless sooner terminated, the Plan
shall terminate ten years after the Effective Date and no Options may be granted
thereafter. Termination of the Plan shall not affect Options granted before such
date.
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of March 1, 1996 by and between
CRUSADER HOLDING CORPORATION, a Pennsylvania corporation (the "Company"), and
BRUCE LEVY (the "Employee").
1. Employment, Duties and Acceptance.
1.1 The Company, which has been engaged by Crusader
Savings Bank, FSB, a federally chartered savings bank (the "Bank"), to oversee
its banking business (the "Business") and oversee the services provided by
Company under a certain Management Agreement dated this date between Company and
the Bank, hereby agrees to employ the Employee for the Term (as hereinafter
defined) to devote substantially all his business time to the Company as
President thereof, and to perform such duties as Employee shall reasonably be
directed to perform by the Board of Directors or the Chief Executive Officer.
The Employee agrees to abide by all rules and policies of the Company as they
are adopted and changed from time to time with prior notice to the Employee.
1.2 The Employee hereby accepts such employment and
agrees to render the services described above.
2. Term of Employment. Subject to the provisions of Section 4
of this Agreement, the term of the Employee's employment under this Agreement
(the "Term") shall commence on the date of this Agreement and continue for a
period of five (5) years.
3. Compensation.
3.1 The Employee shall be entitled to an annual
salary of $150,000, payable monthly in equal installments of $12, 500.
3.2 The Company shall, at its expense, provide all
materials reasonably necessary for Employee to perform the services required by
this Agreement during the Term. Upon presentation of expense statements or
vouchers and such other supporting information as the Company may reasonably
require under established Company policy, the Employee will be entitled to
reimbursement for the cost of any such materials actually purchased by the
Employee with his own funds.
3.3 The Employee shall be entitled to four (4) weeks
annual paid vacation time.
<PAGE>
3.4 The Employee shall participate in any employee
fringe benefits programs offered by the Company or the Bank to the extent that
all officers of Company participate in such programs (or decline to so
participate).
4. Termination.
4.1 This Agreement is subject to termination as
follows:
(a) If the Employee shall die during the
Term, this Agreement shall automatically terminate.
(b) If during the Term the Employee shall
become physically or mentally disabled, whether totally or partially, so that he
is unable substantially to perform his services hereunder for a period of three
(3) consecutive months, the Company may, by written notice to the Employee,
terminate the Term of the Employee's employment hereunder. Notwithstanding such
disability, the Company shall continue to pay the Employee the compensation
provided for hereunder, if any, up to and including the last day of the calendar
month in which such termination occurs.
(c) The Company may, by written notice to
the Employee, terminate the Term of Employee's employment hereunder upon the
occurrence of any of the following events: (i) the Employee engages in conduct
involving deceit, fraud, theft or other dishonesty; (ii) the Employee engages in
willful misconduct; (iii) the Employee fails or refuses to properly follow in
any material respect the lawful directions of the Board of Directors which
failure or refusal is not corrected within thirty (30) days following receipt of
written notice of such failure or refusal; (iv) the Employee materially breaches
or fails to perform his obligations under this Agreement which breach or failure
is not corrected within thirty (30) days following receipt of written notice of
such breach or failure; or (v) the Employee is convicted of a felony.
(d) The Employee may, by written notice to
the Company, terminate the Term of Employee's employment hereunder in the event
the Company fails to comply with any of its obligations to the Employee
hereunder.
4.2 Notwithstanding the termination of this Agreement
pursuant to the terms of this Section 4, and notwithstanding anything to the
contrary that may be contained herein, the Employee shall be entitled to all
compensation required to be paid by the Company under this Agreement, if any,
the right to which shall have accrued prior to the date of any such termination,
regardless of the fact that actual payment
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thereof may be due and owing to the Employee after such termination date.
5. Restrictive Covenants.
5.1 Upon termination of Employee's employment, the
Employee hereby agrees that he shall not, for a period of one (1) year following
such termination, directly or indirectly, without the express written consent of
the Company, (a) solicit the Company's employees to terminate their employment
with the Company and/or any subsidiary or affiliate of the Company, or (b)
solicit business from customers or suppliers then under contract with the
Company and/or any subsidiary or affiliate of the Company.
5.2 If any of the covenants contained in this Section
5, or any part thereof, are hereafter construed to be invalid or unenforceable,
the same shall not affect the remainder of the covenant or covenants, which
shall be given full effect, without regard to the invalid portions. If any of
the covenants contained in this Section 5, or any part thereof, are held to be
unenforceable because of the duration of such provision on the scope of the
subject matter thereof or the area covered thereby, the parties hereto agree
that the court making such determination shall have the power to reduce the
duration, scope and/or area of such provision and, in its reduced form, said
provision shall thus be enforceable.
6. Employee Representation. The Employee hereby represents and
warrants that his employment by the Company will not cause him to be in
violation of any non-competition or restrictive covenant which would, if
enforceable, restrict his ability to continue as an employee of the Company and
to perform his duties hereunder.
7. Notices. All notices, requests, consents and other
communications, required or permitted to be given hereunder, shall be in writing
and shall be deemed to have been duly given if delivered personally, or mailed
first-class, postage prepaid, by registered or certified mail (notices sent by
mail shall be deemed to have been given on the date sent), as follows (or to
such other address as either party shall designate by notice in writing to the
other in accordance herewith):
If to the
Company: Crusader Holding Corporation
520 S. Sydbury Lane
Wynnewood, Pennsylvania 19096
Attention: Mr. Thomas J. Knox,
Chairman
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If to the
Employee: Bruce Levy
1017 Lindsay Lane
Rydal, Pennsylvania 19046
8. General.
8.1 This Agreement shall be governed by and construed
and enforced in accordance with the laws of the Commonwealth of Pennsylvania.
8.2 The article and section headings contained herein
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
8.3 This Agreement, and the Employee's rights and
obligations hereunder, are personal and may not be assigned by the Employee. The
Company may assign its rights, together with its obligations, hereunder in
connection with any sale, transfer or other disposition of all or substantially
all of its business or assets; in any event the obligations of the Company
hereunder shall be binding on its successors or assigns, whether by merger,
consolidation or acquisition of all or substantially all of its business or
assets.
8.4 This Agreement may be amended, modified,
superseded, cancelled, renewed or extended and the terms or covenants hereof may
be waived, only by a written instrument executed by both of the parties hereto,
or in the case of a waiver, by the party waiving compliance. The failure of
either party at any time or times to require performance of any provision hereby
shall in no manner affect the right at a later time to enforce the same. No
waiver by either party of the breach of any term or covenant contained in this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be, or construed as, a further or continuing waiver of any such
breach, or a waiver of the breach of any other term or covenant contained in
this Agreement.
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IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound, have executed this Agreement as of the date first above written.
ATTEST: CRUSADER HOLDING CORPORATION,
a Pennsylvania corporation
By: /s/ Joseph T. Crowley By: /s/ Thomas Knox
- ------------------------------- ----------------------------
Title: Vice President Thomas Knox, Chairman
WITNESS:
/s/ Joseph T. Crowley /s/ Bruce Levy [SEAL]
- ------------------------------- ----------------------------
BRUCE LEVY
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of December 11, 1997 by and
between CRUSADER SAVINGS BANK, FSB, a federally chartered savings bank (the
"Bank"), and JOSEPH T. CROWLEY (the "Employee").
1. Employment, Duties and Acceptance.
1.1 The Bank, which has engaged Crusader Holding
Corporation, a Pennsylvania Corporation (the "Company"), to oversee the Bank's
business, hereby agrees to employ the Employee for the Term (as hereinafter
defined) to devote substantially all his business time to the Bank as President
thereof, and to perform such duties as Employee shall reasonably be directed to
perform by the Board of Directors of the Bank (the "Board") or the President of
the Company. The Employee agrees to abide by all rules and policies of the Bank
as they are adopted and changed from time to time with prior notice to the
Employee.
1.2 The Employee hereby accepts such employment
and agrees to render the services described above.
2. Term of Employment.
2.1 Subject to the provisions of Section 4 of
this Agreement, the term of the Employee's employment under this Agreement (the
"Term") shall commence on the date of this Agreement and continue for a period
of three (3) years.
2.2 At the completion of the Term, the agreement
shall renew automatically from year to year (each year subsequent to the
completion of the Term, a "Renewal Term"), unless either party provides notice
otherwise to the other party, in accordance with Section 8 hereof, sixty (60)
days in advance of the completion of the Term or any Renewal Term.
3. Compensation.
3.1 The Employee shall be entitled to an annual
salary of $100,000, payable bi-weekly or on such other payroll cycle the Bank
uses for its employees.
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3.2 (a) The Employee shall be entitled to an
eight (8) percent increase in his annual salary effective as of July 1, 1999.
(b) The Employee shall be entitled to a six
(6) percent increase in his annual salary at the beginning of the first Renewal
Term and a four (4) percent increase in his annual salary at the beginning of
each subsequent Renewal Term.
3.3 The Employee shall be entitled to receive an
annual bonus in such amount and on such other terms as may be determined by the
Board in its sole discretion.
3.4 The Bank shall, at its expense, provide all
materials reasonably necessary for Employee to perform the services required by
this Agreement during the Term. Upon presentation of expense statements or
vouchers and such other supporting information as the Bank may reasonably
require under established Bank policy, the Employee will be entitled to
reimbursement for the cost of any such materials actually purchased by the
Employee with his own funds.
3.5 The Employee shall be entitled to a monthly
automobile allowance of $500 during the Term or any Renewal Term.
3.6 The Employee shall be entitled to four (4)
weeks annual paid vacation time.
3.7 The Employee shall participate in any
employee fringe benefit programs offered by the Company or the Bank to the
extent that all officers of the Bank participate in such programs (or decline to
so participate).
4. Termination.
4.1 This Agreement is subject to termination as
follows:
(a) If the Employee shall die during the
Term, this Agreement shall automatically terminate.
(b) If during the Term the Employee shall
become physically or mentally disabled, whether totally or partially, so that he
is unable substantially to perform his services hereunder for a period of three
(3) consecutive months, the Bank may, by written notice to the Employee,
terminate the Term of the Employee's employment hereunder. Notwithstanding such
disability, the Bank shall continue to pay the Employee the
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compensation provided for hereunder, if any, up to and including the last day of
the calendar month in which such termination occurs.
(c) The Bank may, by written notice to the
Employee, terminate the Term or any Renewal Term of Employee's employment
hereunder upon the occurrence of any of the following events, which events shall
constitute "Cause" for termination: (i) the Employee engages in conduct
involving deceit, fraud, theft or other dishonesty; (ii) the Employee engages in
willful misconduct; (iii) the Employee fails or refuses to properly follow in
any material respect the lawful directions of the Board or the President of the
Company, which failure or refusal is not corrected within thirty (30) days
following receipt of written notice of such failure or refusal; (iv) the
Employee materially breaches or fails to perform his obligations under this
Agreement which breach or failure is not corrected within thirty (30) days
following receipt of written notice of such breach or failure; or (v) the
Employee is convicted of a felony.
4.2 Notwithstanding the termination of this
Agreement pursuant to the terms of this Section 4, and notwithstanding anything
to the contrary that may be contained herein, the Employee shall be entitled to
all compensation required to be paid by the Bank under this Agreement, if any,
the right to which shall have accrued prior to the date of any such termination,
regardless of the fact that actual payment thereof may be due and owing to the
Employee after such termination date.
5. Severance Compensation.
5.1 In the event the Bank shall terminate the
Employee without "Cause", as defined in Section 4.1(c) hereof, the Employee
shall be entitled to severance compensation ("Severance Compensation") as
follows:
(a) If the Employee is terminated during the
first (1st) year of the Term, the Employee shall receive ongoing Severance
Compensation in the amount equal to the salary of the Employee at the time of
termination for two (2) years following the termination date;
(b) If the Employee is terminated during the
second (2nd) or third (3rd) year of the Term or during any Renewal Term, the
Employee shall receive ongoing Severance Compensation in the amount equal to the
salary of the Employee at the time of termination for one (1) year; and
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(c) If the Employee is terminated at the
completion of the third (3rd) year of the Term or any Renewal Term, the Employee
shall receive Severance Compensation in the amount of the annual salary of the
Employee at the time of termination for six (6) months.
5.2 Severance Compensation shall be paid in bi-
weekly or, at the Bank's option, semi-monthly installments.
5.3 Notwithstanding anything to the contrary that
may be contained herein, the Bank shall discontinue any Severance Compensation
provided for herein if the Employee violates any provision of Section 6 hereof.
6. Restrictive Covenants.
6.1 Upon termination of Employee's employment,
the Employee hereby agrees that he shall not, for a period set forth in Section
6.2 hereof following such termination, directly or indirectly, without the
express written consent of the Bank: (a) engage as an agent, employee, partner,
officer, director, stockholder, proprietor, owner or otherwise for any person,
firm, corporation or organization in any aspect of the business of the Bank or
the Company in the relevant market area of the Bank; (b) solicit the Bank's or
the Company's employees to terminate their employment with the Company, the
Bank, and/or any subsidiary or affiliate of the Bank or Company, or (c) solicit
business from customers or suppliers then under contract with the Bank or the
Company and/or any subsidiary or affiliate of the Bank or the Company.
6.2 (a) If the Employee is terminated during the
first (1st) year of the Term, Section 6.1 shall apply for a
period of two (2) years;
(b) If the Employee is terminated during any
other year of the Term or any Renewal Term, or at the end of the Term or any
Renewal Term, Section 6.1 shall apply for a period of one (1) year; and
(c) Notwithstanding anything to the contrary
that may be contained herein, if the Bank shall terminate the Employee without
"Cause", as defined in Section 4.1(c) hereof, Section 6.1 shall apply for a
period of six (6) months.
6.4 If any of the covenants contained in this
Section 6, or any part thereof, are hereafter construed to be invalid or
unenforceable, the same shall not affect the remainder
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of the covenant or covenants, which shall be given full effect, without regard
to the invalid portions. If any of the covenants contained in this Section 6, or
any part thereof, are held to be unenforceable because of the duration of such
provision on the scope of the subject matter thereof or the area covered
thereby, the parties hereto agree that the court making such determination shall
have the power to reduce the duration, scope and/or area of such provision and,
in its reduced form, said provision shall thus be enforceable.
7. Employee Representation. The Employee hereby represents and
warrants that his employment by the Company will not cause him to be in
violation of any non-competition or restrictive covenant which would, if
enforceable, restrict his ability to continue as an employee of the Company and
to perform his duties hereunder.
8. Notices. All notices, requests, consents and other
communications, required or permitted to be given hereunder, shall be in writing
and shall be deemed to have been duly given if delivered personally, or mailed
first-class, postage prepaid, by registered or certified mail (notices sent by
mail shall be deemed to have been given on the date sent), as follows (or to
such other address as either party shall designate by notice in writing to the
other in accordance herewith):
If to the
Bank: Crusader Savings Bank
c/o Crusader Holding Corporation
1230 Walnut Street
Philadelphia, Pennsylvania 19107
Attention: Bruce A. Levy
President
If to the
Employee: Joseph T. Crowley
2 Jessica Way
Media, PA 19063
9. General.
9.1 This Agreement shall be governed by and
construed and enforced in accordance with the laws of the
Commonwealth of Pennsylvania.
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9.2 The article and section headings contained
herein are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.
9.3 This Agreement, and the Employee's rights and
obligations hereunder, are personal and may not be assigned by the Employee. The
Bank may assign its rights, together with its obligations, hereunder in
connection with any sale, transfer or other disposition of all or substantially
all of its business or assets; in any event the obligations of the Bank
hereunder shall be binding on its successors or assigns, whether by merger,
consolidation or acquisition of all or substantially all of its business or
assets.
9.4 This Agreement may be amended, modified,
superseded, cancelled, renewed or extended and the terms or covenants hereof may
be waived, only by a written instrument executed by both of the parties hereto,
or in the case of a waiver, by the party waiving compliance. The failure of
either party at any time or times to require performance of any provision hereby
shall in no manner affect the right at a later time to enforce the same. No
waiver by either party of the breach of any term or covenant contained in this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be, or construed as, a further or continuing waiver of any such
breach, or a waiver of the breach of any other term or covenant contained in
this Agreement.
IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound, have executed this Agreement as of the date first above written.
CRUSADER SAVINGS BANK, FSB
By: /s/ Jeff Hanusin
------------------------------
Name: Jeff Hanusin
Title: Vice President-Treasure
/s/ JOSEPH T. CROWLEY
-------------------------------
JOSEPH T. CROWLEY
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MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT is made as of March 1, 1996, by and
between CRUSADER SAVINGS BANK, FSB, a federally chartered savings bank ("Bank"),
and CRUSADER HOLDING CORPORATION, a Pennsylvania corporation ("Manager").
Background
Bank is a Federal savings bank chartered under Section 5 of
the Home Owners' Loan Act (the "Federal Act") and exercises all of the powers
conferred thereby in the operation of its business (the "Business"). A Federal
Stock Charter was issued to Bank with an effective date of June 29, 1993 (the
"Bank's Charter"). Manager is the sole shareholder of Bank. Bank desires to
retain Manager to provide certain services for the benefit of the Bank as set
forth herein, all subject to the terms and conditions of this Agreement.
Agreement
NOW THEREFORE, in consideration of the mutual promises
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
ARTICLE I
MANAGEMENT SERVICES
1.1 Management services. Manager agrees to provide certain
services to the Bank, including, without limitation, the appointment of an
officer of Manager to serve as Chairman of the Board of Directors of the Bank,
the appointment of a second officer of Manager to serve as a member of the said
Board of Directors, the appointment of one or more of its officers to serve on
the Bank's Loan, Compensation or any other committees or subcommittees created
by the Board of Directors and the provision of advisory services to the existing
officers of the Bank, including (i) development of additional business lines for
the Bank within applicable regulatory limitations, (ii) supervision of newly
developed business lines of the Bank and (iii) development of marketing
strategies to enhance the profitability of the existing and all future business
lines of the Bank.
1.2 Other Matters. Manager and Bank agree that Manager's
relationship to Bank is that of an independent contractor, that Manager is not
an agent of Bank and that neither Manager nor Bank will represent to anyone that
Manager's relationship to Bank is other than that of an independent contractor.
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ARTICLE II
MANAGER'S COMPENSATION
2.1 Expense Reimbursement. Bank shall reimburse Manager for
all direct expenses of managing and operating the Business, if any, which
Manager incurs on Bank's behalf and which are approved by Bank. Direct expenses
shall not include expenses incurred by Manager at its general offices and shall
not include the salaries of Manager's employees engaged in the conduct of its
obligations to Bank hereunder. Notwithstanding the foregoing, Manager shall have
no obligation to advance its own funds for Bank's account.
2.2 Management Fees. Bank shall pay Manager a monthly base
management fee for services rendered during each calendar month (or portion
thereof) during the term of this Agreement hereunder equal to $18,500 (the
"Management Fee"). The Management Fee shall be due and payable on or before the
tenth (10th) day of the calendar month for which such fee is earned.
ARTICLE III
TERM AND TERMINATION
3.1 Term. The initial term of this Agreement shall commence on
the date hereof and terminate on the date occurring thirty (30) days following
receipt of written notice from one party to the other party of such party's
intent to terminate this Agreement; provided, however, that any such notice
shall not be effective during the first year of the term of this Agreement
except that Bank may terminate this Agreement at any time for "cause" by giving
Manager thirty (30) days' prior written notice. In the absence of any such
notice, the term of this Agreement shall continue on a year-to-year basis under
the same terms and conditions unless and until terminated in accordance with the
terms of this paragraph.
3.2 Cause.
(a) Without limitation, "cause" shall include the
following:
(i) (1) the failure of Manager to comply with
the material terms and conditions of this Agreement, which is not corrected
within thirty (30) days following receipt of written notice of such failure from
Bank to Manager, (2) the failure of Manager to follow any written direction
consistent with the terms and provisions of this Agreement delivered by Bank to
Manager which is not corrected within thirty (30) days following receipt of
written notice of such failure given by Bank to Manager, (3) the making of any
intentionally false or misleading statement of fact by Manager to Bank, or (4)
gross negligence committed by
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Manager in carrying out the Manager's responsibilities outlined in this
Agreement.
(ii) At the option of Bank, a sale of the
Business.
(iii) If a receiver, liquidator or trustee for
Manager shall be appointed by court order, or a bona fide petition shall be
filed against Manager under any bankruptcy, reorganization or insolvency law and
shall not be dismissed within one hundred twenty (120) days after such
appointment or filing, or Manager shall file a petition in voluntary bankruptcy
or for reorganization under any bankruptcy, reorganization or insolvency law, or
Manager shall make an assignment for the benefit of creditors.
(b) Termination of this Agreement shall not release either
party from its liability hereunder for the period prior to termination. Upon
termination of this Agreement, (i) Bank agrees to pay Manager all amounts then
owed by Bank to Manager under this Agreement; (ii) Manager shall deliver to Bank
any monies due Bank under this Agreement but received by Manager after its
termination; (iii) Manager shall deliver to Bank all materials and supplies,
originals of books and records, keys, contracts and documents, and such other
accountings, papers and records pertaining to this Agreement and Manager's
obligations hereunder; and (iv) Manager shall assign as directed by Bank such
existing contracts relating to the operation and maintenance of the Business as
Bank shall require.
ARTICLE IV
MISCELLANEOUS
4.1 Notices. Any notice to be given or to be served upon any
party hereto shall be in writing and shall be given by certified or registered
mail or overnight express, but shall be deemed to have been given and received
on the third day after attempted delivery in the case of Certified or Registered
mail and on the date shown on verified receipt in the case of overnight express.
If notice is given in some manner other than as above specified, it shall be
deemed to have been given when delivered to and received by the party to whom it
is addressed. Such notices shall be given to the parties hereto at the following
addresses:
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If to Bank:
Crusader Savings Bank, FSB
1230 Walnut Street
Philadelphia, Pennsylvania 19107
Attention: Mr. Joseph T. Crowley, President
If to Manager:
Crusader Holding Corporation
1230 Walnut Street
Philadelphia, Pennsylvania 19107
Attention: Mr. Thomas J. Knox, Chairman
Either party shall have the right to change its address for notices hereunder to
any other location or to add additional addresses for notice hereunder by the
giving of written notice to the party in the manner set forth herein above.
4.2 Miscellaneous.
(a) This Agreement shall constitute the entire agreement
between the parties hereto and no modification hereof shall be effective unless
made by an agreement in writing executed by the parties hereto.
(b) Nothing contained in this Agreement shall constitute
or be deemed to be or create a partnership or joint venture between Bank, its
successors or assigns, on the one part, and Manager, its successors or assigns,
on the other part.
(c) Neither this Agreement nor any part hereof nor any
service, relationship or other matter alluded to herein shall inure to the
benefit of any third party, to any trustee in bankruptcy, to any assignee for
the benefit of creditors, to any receiver by reason of insolvency, to any other
fiduciary or officer representing a bankrupt or insolvent estate of either
party, or to the creditors or claimants of such an estate. Without limiting the
generality of the foregoing, it is agreed that insolvency or bankruptcy of
either party hereto shall, at the option of the other party, void all rights of
such insolvent or bankrupt party hereunder (or so many of such rights as the
other party shall elect to void).
(d) Manager shall not, without Bank's prior written
approval, assign any of its rights or obligations under this Agreement.
Notwithstanding the provisions of paragraph (c) above, Bank may assign its
rights and obligations under this Agreement to any successor to the Business,
and Bank shall be relieved of all liability accruing after the effective date of
any such assignment.
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(e) If any one or more of the provisions of this
Agreement, or the applicability of any such provisions to a specific situation
shall be held invalid or unenforceable, then such provision shall be modified to
the minimum extent necessary to make it or its application valid or enforceable,
and the validity and enforceability of all other provisions of this Agreement
and all other applications of such provisions shall not be affected thereby.
(f) Unless the context clearly requires otherwise, the
singular number herein shall include the plural, the plural number shall include
the singular, and any gender shall include all genders. The titles and captions
used herein shall not affect the construction of this Agreement.
(g) This Agreement shall be governed by, and construed in
accordance with, the laws of the Commonwealth of Pennsylvania.
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IN WITNESS WHEREOF, the parties hereto, by their duly
authorized officers, has executed his Agreement as of the and year first above
written.
BANK:
CRUSADER SAVINGS BANK, FSB
By: /s/ Josheph T. Crowley
-------------------------------------
Joseph T. Crowley, President
MANAGER:
CRUSADER HOLDING CORPORATION
By: /s/ Thomas J. Knox
-------------------------------------
Thomas J. Knox, Chairman
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INDENTURE OF LEASE
This Indenture of Lease, made on the 30th day of April, 1994,
by WALNUT SQUARE PARTNERS, a Pennsylvania limited partnership with an address at
c/o Philadelphia Management Co., 1728 Spruce Street, Philadelphia, Pennsylvania
19107 (hereinafter called "Landlord") and CRUSADER SAVINGS BANK, FSB with an
address at 6526 Castor Avenue, Philadelphia, Pennsylvania 19149 (hereinafter
called "Tenant").
WITNESSETH:
A. Demised Premises.
Landlord hereby leases to Tenant and Tenant hereby rents from
Landlord the premises (hereinafter called the "Demised Premises") designated on
the attached plan (Exhibit "A"), now erected or hereafter to be erected as a
part of the Real Property located at 13th and Walnut Streets, Philadelphia,
Pennsylvania 19109. The term "Real Property" shall mean (1) the real estate
described or depicted in Exhibit A hereof, (2) such contiguous real estate as
Landlord may from time to time designate in writing as being included in the
Real Property, and (3) all buildings and improvements previously, now or
hereafter constructed on the land included in such real estate plus all
alterations thereto. The Demised Premises are approximately 6,000 rentable
square feet.
The Demised Premises are described on Exhibit A, together with
the right to the non-exclusive use, in common with others entitled to use same,
of the common areas as may be provided by Landlord from time to time, subject
however to the terms and conditions of this Indenture of Lease and Lease
Agreement attached hereto and made part hereof (hereinafter collectively
referred to as "Lease"), and to reasonable rules and regulations for the use
thereof as prescribed from time to time by the Landlord.
B. Length of Term.
The term of this Lease and Tenant's obligation to pay rent and
occupy the Demised Premises in accordance with the terms of this Lease shall
commence on the earlier of the following dates (such earlier date being
hereinafter called the "Commencement Date"): (1) September 30, 1994 or; (2) the
date on which Tenant shall first open the Demised Premises for business with the
public. The term shall be for a period of Ten (10) years, plus the period, if
any, between the Commencement Date, if it falls on a day other than the first
day of the month, and the first day of the first calendar month in the term.
<PAGE>
C. Fixed Minimum Rent.
Tenant shall pay to Landlord a guaranteed base rent ("Fixed
Minimum Rent") equal to $48,000 per annum payable in monthly installments of
$4,000 each. Each such installment shall be due and payable on or before the
tenth day of each calendar month in the term of this Lease, in advance, at the
address set forth above or at such other place as may be designated by Landlord
from time to time. In the event that the Commencement Date of the term of this
Lease shall be a day other than the first day of a calendar month, Tenant's
first payment of Fixed Minimum Rent shall be prorated for the fractional month
between the Commencement Date and the first day of the first full calendar month
in the term hereof, on a per diem basis (calculated on a thirty (30) day month).
D. Cost of Maintenance and Operation etc.
In addition to the said base rent, Tenant shall pay to
Landlord the actual expenses incurred on account of separately submetered heat
and electric service respecting the Demised Premises. All other utility costs,
maintenance costs, real estate taxes and all other costs of any nature
whatsoever shall be borne by Landlord.
E. Use of Premises.
Tenant shall use the Demised Premises solely for the purpose
of conducting the business of a federal savings bank institution and related
accessory uses.
F. Additional Rent.
The Tenant shall pay as additional rent any money required to
be paid pursuant to this Lease, whether or not the same be designated
"additional rent."
G. Security Deposit.
Tenant, contemporaneously with the execution of this Indenture
of Lease, has deposited with Landlord the sum of Four Thousand Dollars ($4,000),
receipt of which is hereby acknowledged by Landlord, which deposit is now the
property of the Landlord and is to be held as security for the faithful
performance by Tenant of all the terms, covenants and conditions of this Lease.
H. Lease Documents.
In addition to this Indenture of Lease, this Lease shall for
all purposes be deemed to include as though set out in full within this
Indenture of Lease all exhibits attached hereto.
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I. Landlord's Work Letter.
Landlord shall fund the Tenant Improvements contemplated by
Exhibit B attached hereto in an amount equal to $50,000. Such contribution may
be utilized by Tenant to offset its overall construction cost, and/or for the
purchase of furniture, furnishings, fixtures and equipment and/or for soft
costs, including architectural and legal services related to this Lease or the
Demised Premises.
J. Conditions To Effectiveness of Tenant's Obligation.
Tenant's obligations under this lease shall be expressly
conditioned upon Tenant's receipt of all appropriate federal and state banking
regulatory approvals for the location of the bank branch contemplated by this
Lease.
IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound, have caused this Indenture of Lease to be duly executed the day
and year first above written.
WITNESS: Landlord:
WALNUT SQUARE PARTNERS, a
Pennsylvania limited Partnership
By: [Illegible]
- -------------------------------- -------------------------------
ATTEST: Tenant:
CRUSADER SAVINGS BANK, FSB
By: By: /s/ Joseph T. Crowley
----------------------------- -------------------------------
Title: Title:
[CORPORATE SEAL]
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LEASE AGREEMENT
ARTICLE I
TERM
Section 1.01. Confirmation of the Term.
(a) The period commencing on the date hereof and terminating on the date
immediately prior to the Commencement Date is herein referred to as the
"Tenant Fit-Out Period," and the period from the Commencement Date to
the date of the expiration or earlier termination of this Lease shall
be referred to herein as the "Term."
(b) At any time during the Term hereof, the parties shall execute and
deliver to each other, at the request of either party, an estoppel
certificate in form and substance satisfactory to both parties hereto.
(c) This Lease and the tenancy hereby created shall cease and determine at
the end of the term hereof without the necessity of any notice from
Landlord or Tenant to terminate the same, excepting that if Tenant
shall give Landlord notice of its intent to renew as herein set forth,
this Lease shall remain in full force and effect for the appropriate
renewal term.
Section 1.02. Renewal of Term.
Tenant shall have two (2) successive five (5) year options to renew the
term of the Lease, each option exercisable on at least ninety (90) days prior
written notice to Landlord of Tenant's intention to renew. The terms of the
Lease shall remain in full force and effect during each renewal term except that
rent for the first renewal term shall be increased to $60,000 per annum and rent
for the second renewal term shall be increased to $72,000 per annum.
ARTICLE II
REAL ESTATE TAXES
Section 2.01. Taxes.
Landlord hereby covenants and agrees to timely pay when due all real
estate taxes, assessments and governmental charges, including, without
limitation, the Philadelphia Business, Use and Occupancy Tax (hereinafter
collectively called "taxes" or "real estate taxes") which may be levied or
assessed by any lawful authority against the Real Property or the Demised
Premises.
<PAGE>
ARTICLE III
CONSTRUCTION OF DEMISED PREMISES
Section 3.01. Construction.
Landlord shall at its cost and expense construct the improvements to
the Demised Premises as described on Exhibit "B" attached hereto. Landlord
represents and warrants to tenant that the improvements described on Exhibit "B"
can be completed within the $50,000 work letter to be provided by Landlord.
Accordingly, cost overruns shall be borne by Landlord, excepting only change
orders approved in writing by Tenant which increase the cost of the said work
letter, in which event, Tenant shall reimburse Landlord for such costs and
expense over and above Landlord's work letter contribution of $50,000 arising as
a result of the said approved change order.
Section 3.02. Facilities.
All facilities furnished by Landlord in or near the Real Property
including loading docks, pedestrian sidewalks, corridors, ramps, landscaped
areas, exterior stairways, comfort stations and other areas and improvements
provided by Landlord for the general use, in common with others, of Tenant, its
officers, agents, employees and customers, shall at all times be subject to the
exclusive control and management of Landlord. Landlord shall have the right from
time to time to establish, modify and enforce reasonable rules and regulations
with respect to all facilities and areas mentioned in this section and to police
the same. Landlord will operate and maintain the common facilities referred to
above in such manner consistent with industry standards as Landlord, in its
reasonable discretion, shall determine from time to time.
ARTICLE IV
CONDUCT OF BUSINESS BY TENANT
Section 4.01. Use of Premises.
Tenant shall occupy the Demised Premises promptly upon the commencement
of the term hereof and thereafter shall continuously conduct in the Demised
Premises the business herein permitted. Tenant will not use or permit or suffer
the use of the Demised Premises for any other business or other purpose. The
authorization of the use of the premises for the business purpose set forth
herein shall not constitute a representation by Landlord that any particular use
of the premises is now or will continue to be permitted under applicable laws or
regulations.
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Section 4.02. Additional Use of the Premises.
Tenant covenants and agrees that Tenant at its own cost and expense:
(a) Will keep the Demised Premises clean and will maintain the rest of the
Demised Premises in a clean, orderly and sanitary condition;
(b) Will keep all mechanical apparatus free of vibration and noise which
may be transmitted beyond the confines of the Demised Premises;
(c) Will not permit the parking or delivery vehicles to interfere with the
use of any driveway, walk, parking area, or other Common Areas in the
Real Property.
Section 4.03. Rules and Regulations.
Landlord reserves the right from time to time to adopt and promulgate
reasonable rules and regulations applicable to the Demised Premises and the Real
Property and to amend and supplement such rules and regulations. Notice of such
rules and regulations and of any amendment and supplements thereto shall be
given to Tenant and Tenant agrees thereupon to comply with and observe all such
rules and regulations, provided that the same shall be applied uniformly to
substantially all Tenants of the Real Property and further provided that such
rules do not substantially increase Tenant's obligations hereunder.
Section 4.04. Landlord's Services.
Landlord shall provide regular janitorial service with regard to the
Demised Premises in accordance with the schedule attached hereto as Exhibit C.
Landlord shall also provide snow removal and maintenance services with respect
to the Common Areas, including any parking facilities at its sole expense.
Landlord shall also provide at its expense regular trash pickup services for the
Demised Premises.
ARTICLE V
COMMON AREAS
Section 5.01. Definition; Control.
All areas, space, facilities, equipment, and signs for the common and
joint use and benefit of Landlord, Tenant and other Tenants and occupants of the
Real Property, and their respective employees, agents, subtenants, licensees,
customers and other invitees, are collectively referred to herein as "Common
Area." All Common Areas in or about the Real Property shall be subject to the
non-exclusive control of Landlord. Landlord shall operate,
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manage, equip, police, light, surface and maintain the Common Areas all in such
manner as Landlord, consistent with standard commercial practice for buildings
of like nature with the Real Property and in its reasonable discretion, may,
from time to time determine. Landlord hereby expressly reserves the right from
time to time to police and maintain security for the Common Areas; to use and
allow others to use the Common Areas for any purpose; to close temporarily all
or any portion of the Common Areas for the purpose of making repairs, changes or
alterations thereto or performing necessary maintenance in connection with any
emergency, in connection with closings resulting from adverse weather conditions
or for any other purpose whatsoever, whether such purpose is similar or
dissimilar to the foregoing; to discourage non-customer parking; to establish,
modify and enforce reasonable rules and regulations with respect to the Common
Areas and the use to be made thereof. For the Term hereof, Tenant is hereby
given the license in common with all others to whom Landlord has or may
hereafter grant rights to use, the Common Areas as they may from time to time
exist.
Section 5.02. Expenses.
Landlord will at its expense operate and maintain or cause to be
operated and maintained the Common Areas and the Real Property. For the purposes
of this Lease, "Operating Costs" shall be those costs of operating and
maintaining the Common Areas and the Real Property of which the Demised Premises
forms a part in a manner deemed by Landlord to be reasonable and appropriate
including, but not limited to, all costs and expenses, whether expended or
incurred of repairing, lighting, cleaning, painting, and maintaining (including,
but not limited to, preventative maintenance), all costs of Landlord's insurance
policies (including, but not limited to, fire insurance with extended coverage
and liability insurance covering personal injury, deaths and property damage,
all such policies to be with companies and in such limits as reasonably selected
by Landlord); removing snow, ice, rubbish and debris; inspecting, policing,
providing security and regulating traffic; repairing and/or replacing of paving,
curbs, walkways, landscaping, drainage, on-site water lines, sanitary sewer
lines, storm water lines, electrical lines and other equipment serving the
property on which the Real Property or any part thereof is constructed or is to
be constructed; heating, ventilating and air-conditioning systems including the
furnishing of electricity therefor; and the gross compensation of all
non-management personnel required to supervise and accomplish the foregoing.
Operating Costs shall not include building depreciation or the cost of any
capital improvements to the Real Property or Demised Premises.
Section 5.03. Operating Costs.
(a) The costs of all Operating Costs shall be borne by Landlord. Tenant
agrees to pay for the cost of any heating and electric costs consumed
by Tenant at the Demised Premises as evidenced by separate submetering
installed in the Demised Premises.
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(b) Tenant's obligations under this Section 5.03 shall survive the
expiration or earlier termination of the term of this Lease.
ARTICLE VI
SIGNS; AWNINGS, CANOPIES; FIXTURES; ALTERATIONS
Section 6.01. Signs, Awnings and Canopies.
(a) Tenant shall obtain the prior written consent of Landlord to any
signage requests, which consent shall not be unreasonably withheld or
delayed. Landlord shall approve such requests in time prior to the
Commencement Date so that the municipal approvals contemplated by this
Lease can be timely obtained.
(b) Tenant shall not paint or decorate any part of the exterior of the
Demised Premises, or any part of the Demised Premises which shall be
visible from the exterior thereof, other than as set forth on Exhibit B
without first obtaining Landlord's written approval.
Section 6.02. Trade Fixtures.
All trade fixtures installed by Tenant in the Demised Premises shall be
removed by Tenant upon the expiration or sooner termination of this Lease. Any
other fixtures affixed to the premises in any manner whatsoever shall become the
property of the Landlord at the expiration or sooner termination of the term of
this Lease or any renewal or extension thereof (hereinafter called "Termination
Date"). Carpeting, wall-mounted fixtures, track lights and the track, and sinks
shall all be considered to be affixed. Any free-standing fixtures shall be at
all times the property of the Tenant and shall be removable at the Termination
Date provided Tenant is not in default of this Lease. Tenant shall, at
Landlord's option, remove any and all fixtures, whether affixed or
free-standing, and Tenant shall do so not later than the Termination Date, and
further, Tenant shall restore the premises to the same good order and condition
they were in at the commencement of the term hereof, reasonable wear and tear
excepted.
Section 6.03. Alterations.
Tenant shall not make or cause to be made any material alterations,
additions or improvements in the Demised Premises without first obtaining
Landlord's written approval and consent, which consent will not be unreasonably
withheld or delayed. Tenant shall present to the Landlord plans and
specifications for such material alterations, additions, improvements or changes
at the time approval is sought.
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Section 6.04. Survival.
The provisions of this Article shall survive the expiration or earlier
termination of the term of this Lease.
ARTICLE VII
MAINTENANCE AND REPAIR; SURRENDER OF DEMISED PREMISES
Section 7.01. Repairs and Maintenance by Tenant.
Tenant shall at all times at its own expense keep and maintain the
Demised Premises, and all partitions, doors, fixtures, signs, equipment and
appurtenances thereof in good order and repair, and in a neat, safe, clean and
orderly condition and shall make such non-structural repairs to the Demised
Premises as may be necessary to accomplish the foregoing.
Section 7.02. Structural Repairs.
Structural portions of the Real Property and the Demised Premises,
including the roof of the Real Property and Demised Premises and including all
mechanical, plumbing, electrical, HVAC and other utility systems located at or
in the Real Property shall be maintained and repaired by Landlord. Tenant shall
give Landlord notice specifying the need for and nature of such repairs.
Section 7.03. Surrender of Premises.
At the expiration of or earlier termination of the Term of this Lease,
Tenant shall peaceably surrender the Demised Premises in the same condition
including, but not limited to, the same conditions of cleanliness as the Demised
Premises were in upon the commencement of the Term of this Lease, ordinary wear
and tear and insurable hazard excepted, and Tenant shall surrender all keys for
the Demised Premises to Landlord at the place then fixed for the payment of rent
and shall notify Landlord in writing of all combinations of locks, safes and
vaults, if any, in the Demised Premises. Tenant's obligation to observe and
perform the covenants set forth in this Section 7.03 shall survive the
expiration or earlier termination of the term of this Lease.
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ARTICLE VIII
INDEMNIFICATION; SUBROGATION
Section 8.01. Indemnification and Waiver of Claims.
(a) Tenant will defend and will indemnify Landlord and its agents, partners
and employees and save them harmless from and against any and all
claims, actions, damages, liability and expense (including, but not
limited to, attorney's fees and disbursements) in connection with the
loss of life, personal injury or damage to property or business arising
from, related to, or in connection with the occupancy of the premises
or any part of Landlord's property or the Real Property or occasioned
wholly or in part by act or omission of Tenant, its contractors,
subcontractors, Subtenants, invitees, licensees or concessionaires, or
its or their respective agents, servants or employees. Tenant shall
not, however, be liable for damages or injury occasioned by the
negligence or willful acts of Landlord, or its agents, partners,
employees, or servants, or from any damage or injury arising from
perils insured against by Tenant or Landlord.
(b) Tenant shall also pay all costs, expenses and reasonable attorney's
fees that may be expended or incurred by Landlord in successfully
enforcing the covenants and agreements of this Lease. The provisions of
this Section 8.01 shall survive the termination or earlier expiration
of the term of this Lease.
(c) Unless such damage is caused by the negligent acts or omissions of
Landlord, or its agents, partners, servants, contractors and employees,
neither Landlord nor its agents, servants, partners, employees or
contractors shall be liable for, and Tenant, in consideration of
Landlord's execution of this Lease, hereby releases all claims for loss
of life, personal injury or damage to property or business sustained by
Tenant or any person claiming through Tenant, resulting from any fire,
accident, occurrence or condition in or upon the Real Property or any
part thereof (including, without limitation, the Demised Premises and
the building of which the same is a part).
Section 8.02. Waiver of Subrogation.
In the event the Demised Premises or its contents are damaged or
destroyed by fire or other insured casualty, (a) Landlord, to the extent of the
coverage of Landlord's policies of fire insurance with extended coverage
endorsements, hereby waives its rights, if any, against Tenant with respect to
such damage or destruction, even if said fire or other casualty shall have been
caused, in whole or in part, by the negligence of Tenant, its agents, servants
or employees, and (b) Tenant, to the extent of the coverage of Tenant's policies
of fire insurance with extended coverage, hereby waives its rights, if any,
against Landlord with respect to such damage or destruction; provided, however,
such waivers of subrogation shall
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only be effective with respect to loss or damage occurring during such time as
Landlord's or Tenant's policies of fire insurance with extended coverage
endorsements (as the case may be) shall contain a clause or endorsement
providing in substance that the aforesaid waiver of subrogation shall not
prejudice the type and amount of coverage under such policies or the right of
Landlord or Tenant (as the case may be) to recover thereunder.
ARTICLE IX
INSURANCE
Section 9.01. Insurance.
(a) Tenant will keep in force, in companies licensed to do business in the
state where the Real Property is located, at Tenant's expense, at all
times during the term of this Lease, and during such other times as
Tenant occupies the Demised Premises or any part thereof:
(1) Public liability insurance with respect to the Demised
Premises and the business operated by Tenant and any
employees and invitees of Tenant in or from the Demised
Premises with minimum limits of Five Hundred Thousand
($500,000.00) Dollars on account of bodily injuries to or
death of one person and One Million ($1,000,000.00) Dollars
on account of bodily injuries to or death of more than one
person as the result of any one accident or disaster, and
property damage insurance with minimum limits of One
Hundred Thousand ($100,000.00) Dollars. Tenant shall also
keep in force, at its own expense, worker's compensation or
similar insurance affording statutory coverage and
containing statutory limits.
(2) Fire insurance, with standard broad form extended coverage
endorsement covering (a) all of Tenant's stock in trade,
trade fixtures, furniture, furnishings, such equipment as
is not affixed to the Demised Premises and signs, and (b)
Tenant's interest in all of the improvements and
betterments installed in the premises by Tenant, in each
case covering replacement value of the foregoing items.
(3) Such other types of insurance and such additional amounts
of insurance as, in Landlord's judgement, are necessitated
by good business practice.
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(b) Upon request, Tenant will deposit with Landlord policies of insurance
required by the provisions of this Section 9.01 or certificates
thereof, together with satisfactory evidence of the payment of the
required premium or premiums thereof. The insurance required hereby may
be maintained by means of a policy or policies of blanket insurance so
long as the provisions of this Section are fully satisfied.
(c) Landlord shall keep the Real Property including all Common Areas
insured on a replacement value basis for all risk hazards and shall
maintain primary public liability insurance for the Building and all
common areas of at least Three Million Dollars ($3,000,000,000) in the
aggregate and per occurrence.
Section 9.02. Insurance Provisions.
All policies of insurance required to be carried by Landlord or Tenant
by Section 9.01 hereof shall provide that the policy shall not be subject to
cancellation, termination or change except after thirty (30) days prior written
notice to Landlord or Tenant, as applicable, and shall name Landlord and Tenant,
as applicable, as an additional insured as its interest may appear.
Section 9.03. Effect on Insurance.
(a) Tenant will not do, omit to do, or suffer to be done or keep or suffer
to be kept anything in, upon or about the Demised Premises which will
violate the provisions of Landlord's policies insuring against loss or
damage by fire or other hazards (including, but not limited to, public
liability), which will adversely affect Landlord's fire or liability
insurance premium rating or which will prevent Landlord from procuring
such policies in companies acceptable to Landlord, provided Tenant is
first given adequate notice of the requirements of such policies.
(b) If Tenant shall not comply with its covenants made in this Section,
Landlord in addition to Landlord's other remedies hereunder may (but
shall not be obligated to) cause insurance, as aforesaid, to be issued,
and in such event Tenant agrees to pay the premium for such insurance
as additional rent promptly upon Landlord's demand, or Landlord, at its
option, may treat such failure to comply as an Event of Default.
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ARTICLE X
UTILITIES
Section 10.01. Utilities.
Tenant shall be responsible for and promptly pay all charges at the
rates set forth elsewhere in this Lease for heat and electricity used or
consumed in the Demised Premises based upon the direct metering of such
consumption installed in the Demised Premises at Landlord's sole expense, said
responsibility commencing on the Commencement Date. The cost of consumption of
other non-metered utilities consumed at the Real Property shall be borne by
Landlord.
Section 10.02. Operation of Heating and Air-Conditioning.
Tenant must operate heating and cooling equipment in accordance with
Landlord's reasonable criteria and must maintain such temperatures in the
Demised Premises as will prevent the freezing or bursting of pipes and the
draining of heated and chilled air from any enclosed sections of the Real
Property.
ARTICLE XI
ESTOPPEL CERTIFICATE; SUBORDINATION; ATTORNMENT
Section 11.01. Execution of Estoppel Certificate.
At any time, and from time to time, upon the written request of
Landlord or any mortgagee, Tenant, within twenty (20) days of the date of such
written request, agrees to execute and deliver to Landlord and/or such
mortgagee, without charge and in form satisfactory to Landlord and/or such
mortgagee, a written estoppel statement confirming the then existing status of
the Lease in form and substance reasonably satisfactory to Landlord and tenant.
Section 11.02. Subordination, Non-Disturbance and Attornment.
Tenant agrees: (a) that, provided that any holder of any Mortgage
agrees not to disturb the tenancy of Tenant so long as Tenant is not in default
of this Lease, this Lease is, and all of Tenant's rights hereunder are and shall
always be, subject and subordinate to any first mortgage (collectively called
"Mortgage") that now exist, or may hereafter be placed upon the Demised Premises
or the Real Property or any part thereof and to all advances made or to be made
thereunder and to the interest thereon, and all renewals, replacements,
notifications, consolidations, or extensions thereof; and (b) that if the holder
of any such Mortgage ("Mortgagee") or if the purchaser at any foreclosure sale
or at any sale under a
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power of sale contained in any Mortgage shall at its sole option so request,
Tenant will attorn to, and recognize such Mortgagee or purchaser, as the case
may be, as Landlord under this Lease for the balance then remaining of the term
of this Lease, subject to all terms of this Lease; and (c) that the aforesaid
provisions shall be self operative and no further instrument or document shall
be necessary unless required by any such Mortgagee or purchaser.
ARTICLE XII
ASSIGNMENT AND SUBLETTING
Section 12.01. Assignment and Subletting.
(a) Tenant shall not voluntarily, involuntarily, or by operation of law,
assign, transfer, mortgage or otherwise encumber (herein collectively
referred to as an "assignment") this Lease or any interest of Tenant
herein, in whole or in part, nor sublet the whole or any part of the
Demised Premises, nor permit the Demised Premises or any part thereof
to be used or occupied by others, without first obtaining in each and
every instance the prior written consent of Landlord, which consent
shall not be unreasonably withheld or delayed. Notwithstanding the
foregoing, Tenant shall have the right without the consent of Landlord
to assign this lease to a lending institution of equal or better asset
size. If this Lease or any interest of Tenant herein be assigned or if
the whole or any part of the Demised Premises be sublet or used or
occupied by others, after having obtained Landlord's prior written
consent thereto, Tenant shall nevertheless remain fully liable for the
full performance of all obligations under this Lease to be performed by
Tenant, and Tenant shall not be released therefrom in any manner,
excepting only an assignment to a lending institution as described
above whereupon following such assignment by Tenant and the assumption
of this Lease by the said lending institution, Tenant shall be released
from its liabilities under this Lease.
(b) If at any time during the term of this Lease any part or all of the
corporate shares of Tenant, or of a parent corporation of which the
Tenant is a direct or indirect subsidiary, shall be transferred by
sale, assignment, bequest, inheritance, operation of law or other
disposition so as to result in a change in the present affective voting
control of Tenant or of such parent corporation by the person or
persons owning or controlling a majority of the shares of Tenant or of
such parent corporation on the date of this Lease, Tenant shall
promptly notify Landlord in writing of such change, and such change in
voting control shall constitute an assignment of this Lease for all
purposes of this Section; provided, however, that this provision shall
not apply in the event that over fifty (50%) percent of the voting
power of the Tenant corporation or of such parent corporation is held
by fifty (50) or more unrelated shareholders or
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distributors to such number of unrelated shareholders in a public
distribution of securities.
ARTICLE XIII
DESTRUCTION OF DEMISED PREMISES
Section 13.01. Total or Partial Destruction.
(a) If the Demised Premises shall be damaged by fire or other casualty
covered by Landlord's policies of fire and broad form extended coverage
insurance but are not thereby rendered untenantable in whole or in
part, subject to the limitations hereafter set forth, Landlord, at its
own expense, shall cause such damage to be repaired, and the rent shall
be abated pending completion of such repairs. If the Demised Premises
shall be damaged or destroyed by a fire or casualty not covered by
Landlord's policies of fire and broad form extended coverage insurance
and the Landlord, at its option, decides not to repair and restore the
premises, Landlord shall have the right, to be exercised by notice in
writing delivered to Tenant within sixty (60) days from and after the
occurrence of such damage or destruction, to cancel and terminate this
Lease. Either party shall have the right, to be exercised by notice in
writing, delivered to the other within thirty (30) days from and after
any occurrence which renders the premises wholly untenantable to cancel
this Lease, if said destruction of the premises occurs within the last
two (2) years of the term of this Lease or if repairs to the Demised
Premises shall take in excess of One Hundred Twenty (120) days to
complete, said cancellation to take effect ninety (90) days from and
after the receipt of such notice by the other party, and in such event
this Lease and the tenancy hereby created shall cease as of the
aforesaid date (except that such cancellation shall not affect the
obligations of the parties which have accrued theretofore and remain
unpaid), the rent to be adjusted as of such date.
(b) Tenant covenants that it will give notice to Landlord of any accident
or damage, whether such damage is caused by insured or uninsured
casualty, occurring in, on or about the Demised Premises within
seventy-two (72) hours after Tenant has or actual knowledge of the
occurrence of such accident or damage.
Section 13.02. Partial Destruction of Real Property.
In the event that fifty (50%) percent or more of the rentable square
feet of the Real Property or the Demised Premises shall be damaged or
destroyed by fire or other cause notwithstanding that the Demised
Premises may be unaffected by such fire or other cause, Landlord or
Tenant shall have the right, to be exercised by notice in writing
delivered to the other within sixty (60) days after said occurrence, to
cancel and terminate this Lease. Upon
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the giving of such notice, the term of this Lease shall expire by lapse of time
upon the fifteenth (15th) day after such notice is given and Tenant shall vacate
the Demised Premises and surrender the same to Landlord.
ARTICLE XIV
EMINENT DOMAIN
Section 14.01. Total Condemnation.
If the whole of the Demised Premises shall be taken by any public or
quasi-public authority under the power of eminent domain, condemnation or
expropriation or in the event of conveyance in lieu thereof, then this Lease
shall terminate as of the date on which possession of the Demised Premises is
required to be surrendered to the condemning authority, and Tenant shall have no
claim against Landlord or the condemning authority for the value of the
unexpired term of this Lease, but may make claims that Tenant may be entitled to
under Pennsylvania law for moving expenses.
Section 14.02. Partial Condemnation.
If any part of the Demised Premises or the Real Property shall be
partially taken or conveyed and if such partial taking or conveyance shall
render the Demised Premises unsuitable for the business of the Tenant, then the
term of this Lease shall cease and terminate as of the date on which possession
of the Demised Premises is required to be surrendered to the condemning
authority and Tenant shall have no claim against Landlord or the condemning
authority for the value of any unexpired term of this Lease, but may make claims
that Tenant may be entitled to under Pennsylvania law for moving expenses. In
the event such partial taking or conveyance is not extensive enough to render
the Demised Premises unsuitable for the business of Tenant, this Lease shall
continue in full force and effect except that the rent shall be abated in the
same proportion that the rentable quare feet of the Demised Premises so taken or
conveyed bears to area immediately prior to such taking or conveyance, such
reduction commencing as of the date Tenant is required to surrender possession
of such portion. Landlord shall promptly restore the Demised Premises or Real
Property, to the extent of condemnation proceeds available for such purpose, as
nearly as practicable to a condition comparable to their condition at the time
of such condemnation less the portion lost in the taking or conveyance and
Tenant shall promptly make all necessary repairs, restoration and alterations of
Tenant's fixtures, equipment and furnishings and shall promptly re-enter the
Demised Premises and commence doing business in accordance with the provisions
of this Lease.
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ARTICLE XV
BANKRUPTCY; LANDLORD'S REMEDIES AND DAMAGES
Section 15.01. Bankruptcy.
If there shall be filed against Tenant, in any court, pursuant to any
statute either of the United States or of any state, a petition in bankruptcy or
insolvency or for reorganization or for the appointment of a receiver or trustee
of all or any portion of Tenant's property, and if, within ninety (90) days
thereof, Tenant or such guarantor or surety fails to secure a discharge thereof,
or if Tenant shall voluntarily file any such petition or make an assignment for
the benefit of creditors or petition for or enter into such an arrangement, this
Lease, at the option of Landlord, may be cancelled or terminated, in which event
neither Tenant nor any person claiming through or under Tenant by virtue of any
statute or of an order of any court shall be entitled to acquire or remain in
possession of the Demised Premises, as the case may be, and Landlord shall have
no further liability hereunder to Tenant or such person, and Tenant or any such
person shall forthwith quit and surrender the Demised Premises. If this Lease
shall be so cancelled or terminated, Landlord, in addition to the other rights
and remedies of Landlord under Article XVII hereof, or contained elsewhere in
this Lease, or by virtue of any statute or rule of law, may retain as liquidated
damages any rent, security deposit and any other money received by Landlord from
Tenant or others on behalf of Tenant as Landlord's sole remedy for such
occurrence by Tenant.
Section 15.02. Damages.
It is stipulated and agreed that in the event of the cancellation or
termination of this Lease pursuant to Section 15.01 hereof, Landlord shall
forthwith, notwithstanding any other provision of this Lease to the contrary, be
entitled to recover from Tenant the Termination Fee set forth in Section 16.02
below.
ARTICLE XVI
EVENTS OF DEFAULT; LANDLORD'S REMEDIES
Section 16.01. Events of Default.
The following shall constitute Events of Default:
(a) If Tenant defaults in the payment of any sum of money when due and such
default shall continue for ten (10) days after the date of written
notice from Landlord or Tenant.
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(b) Except as to acts, defaults, omissions and/or occurrences
characterized, defined, denoted, or identified in this Lease as
Deliberate Events of Default, if Tenant defaults in fulfilling any of
the other covenants of this Lease on Tenant's part to be performed
hereunder and such default shall continue for the period within which
performance is required to be made by specific provision of this Lease,
or, if no such period is so provided, for thirty (30) days after the
date of written notice from Landlord to Tenant specifying the nature of
said default, or, if the default so specified shall be of such a nature
that the same cannot be reasonably cured or remedied within said thirty
(30) day period, if Tenant shall not in good faith have commenced the
curing or remedying of such default within such thirty (30) day period
and shall not thereafter diligently proceed therewith to completion.
(c) Any event described in Section 15.01.
Section 16.02. Termination.
Upon or after the occurrence of any one or more of such Event of
Default, if the term shall not have commenced, Landlord may immediately cancel
this Lease by written notice to Tenant, or if the term shall have commenced,
Landlord may serve upon Tenant a written notice that this Lease and the term
will terminate on a date to be specified therein, which shall not be less than
thirty (30) days after the date of such notice. Upon the date specified in the
aforesaid notice of termination this Lease and the term hereof shall terminate
and come to an end as fully and completely as if such date were the day herein
definitely fixed for the end and expiration of this Lease and such term, of law,
or decision of any court to the contrary, Tenant shall remain liable as set
forth hereinafter. Notwithstanding the foregoing, Tenant shall, at any time
following the first year of the Term of this Lease, have the right to terminate
this Lease upon three (3) months prior written notice of its intention to
terminate. Such termination shall be effective on the date occurring ninety (90)
days from the date of such notice (the "Termination Date"). On the Termination
Date, the Tenant shall pay to Landlord a Termination Fee equal to the
unamortized portion of the Landlord's contribution to Tenant Improvements (as
set forth on Exhibit B) divided by one hundred twenty (120) months, multiplied
by the amount of months remaining in the unexpired term of the Lease. There
shall be no Termination Fee due and owing to Landlord if the foregoing events
occur in any renewal term.
Section 16.03. Right of Possession.
Upon or after any one or more Events of Default; or if the notice
provided for above in Section 16.02 hereof shall have been given and this Lease
shall be terminated; then, in all or any of such events, in addition to, and not
in lieu of, all other remedies of Landlord, Landlord may re-enter the Demised
Premises, either by summary legal proceedings and dispossess Tenant and the
legal representative of Tenant or other occupant of the Demised
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Premises, and repossess and enjoy the Demised Premises, together with all
alterations, additions and improvements, all without being liable to prosecution
or damages therefor.
Section 16.04. Additional Remedies of Landlord.
(a) In the event of any Event of Default and/or dispossession by summary
proceedings, in addition to, and not in lieu of, all other remedies
which Landlord has under this Lease, at law or in equity Landlord shall
be entitled to recover damages from the Tenant not in excess of the
Termination Fee.
(b) In the event of a breach or threatened breach by Tenant of any of the
covenants or provisions hereof, Landlord shall have the right of
injunction and the right to invoke any remedy allowed at law or in
equity as if re-entry, summary proceedings and other remedies were not
herein provided for. Mention in this Lease of any particular remedy
shall not preclude Landlord from any other remedies under this Lease,
now or hereafter existing at law or in equity or by statute.
ARTICLE XVII
SECURITY DEPOSIT
Section 17.01. Security Deposit.
(a) Landlord acknowledges receipt from Tenant of the sum set forth in
paragraph I of the Indenture of Lease to be held as security for the
payment of any rent and all other sums of money payable by Tenant under
this Lease and for the faithful performance of all covenants of Tenant
hereunder, the amount of such security deposit, without interest, shall
be refunded to Tenant after termination of the term of this Lease,
provided Tenant shall have made all such payments and performed all
such covenants. Upon any default by Tenant hereunder, all or part of
such security deposit may, at Landlord's sole option, be applied on
account of such default, and thereafter Tenant shall restore the
resulting deficiency in such security deposit, upon demand.
(b) Landlord may deliver the security deposit to any purchaser of
Landlord's interest in the Demised Premises, in the event that such
interest be sold, and thereupon Landlord shall be discharged from any
further liability with respect to such security deposit, and Tenant
agrees to look solely to such purchaser for the return of such security
deposit.
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ARTICLE XVIII
MISCELLANEOUS
Section 18.01. Access by Landlord.
Landlord may at all reasonable times during the term of this Lease
enter to inspect the Demised Premises and/or may show the Demised Premises and
building to others. Any time within one (1) year immediately preceding the
expiration of the term of this Lease, Landlord shall have the right to display
on the exterior of the Demised Premises (but not so as to unreasonably obstruct
the view thereof or access thereto) the customary "For Rent" sign and during
such period Landlord may show the premises to prospective Tenants. Landlord also
reserves the right after notice of intention to so enter (except that in the
event of an emergency, no notice shall be required) to enter the premises at any
time and from time to time to make such repairs, additions or alterations as it
may deem necessary for the safety, improvement or preservation thereof, or of
the building in which the Demised Premises is contained.
Section 18.02. Holding Over.
Should Tenant hold over in possession of the Demised Premises after the
expiration of the term hereof without the execution of a new Lease agreement or
extension or renewal agreement, Tenant, at the option of Landlord, shall be
deemed to be occupying the Demised Premises from month to month, subject to such
occupancy being terminated by either party upon at least thirty (30) days'
written notice, at the rental, including, but not limited to, Fixed Minimum Rent
equal to 120% of the rent reserved hereunder.
Section 18.03. Successors.
All rights, obligations and liabilities herein given to, or imposed
upon, the respective parties hereto shall extend to and bind the several
respective heirs, executors, administrators, trustees, receivers, legal
representatives, successors and assigns of the said parties; and if there shall
be more than one Tenant, they shall all be bound jointly and severally by the
terms, covenants and agreements herein.
Section 18.04. Quiet Enjoyment.
So long as Tenant shall pay the rents herein provided within the
respective times provided therefor, and provided and so long as Tenant observes
and performs all the covenants, terms and conditions on Tenant's part to be
observed and performed, Tenant shall peaceably and quietly hold and enjoy the
Demised Premises for the term hereby demised without hindrance or interruption
by Landlord or any other person or persons lawfully
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claiming by, through or under Landlord, subject, nevertheless, to the terms and
conditions of this Lease.
Section 18.05. Waiver.
The waiver by Landlord of any breach of any term, covenant or condition
herein contained shall not be deemed to be a waiver or any subsequent breach of
the same or a waiver of any other term, covenant or condition herein contained.
The subsequent acceptance by Landlord of rent due hereunder or any or all other
monetary obligations of Tenant hereunder, whether or not denoted as rent
hereunder, shall not be deemed to be a waiver of any preceding breach by Tenant
of any term, covenant or condition of this Lease, other than the failure of
Tenant to make the particular payment so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of acceptance of such rent. No
covenant, term or condition of this Lease shall be deemed to have been waived by
Landlord, unless such waiver be in writing and executed by Landlord.
Section 18.06. Custom and Usage.
Any law, usage or custom to the contrary notwithstanding, Landlord
shall have the right at all times to enforce the covenants and conditions of
this Lease in strict accordance with the terms hereof, notwithstanding any
conduct or custom on the part of the Landlord in refraining from so doing at any
time or times with respect to the Tenant hereunder or with respect to other
Tenants of the Real Property. The failure of Landlord at any time or times to
enforce its rights under said covenants and provisions strictly in accordance
with the same shall not be construed as having created a custom in any way or
manner contrary to the specific terms, provisions and covenants of this Lease or
as having in any way or manner modified the same.
Section 18.07. Accord and Satisfaction.
No endorsement or statement on any check or any letter accompanying any
check or payment as rent shall be deemed an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance of such rent or pursue any other remedy provided in this
Lease, at law or in equity.
Section 18.08. Entire Agreement.
The Indenture of Lease, the Lease Agreement, the Exhibits, if any, set
forth all the covenants, promises, agreements, conditions and understandings
between Landlord and Tenant concerning the Demised Premises and there are no
covenants, promises, agreements, conditions or understandings, either oral or
written, between them other than as herein set forth. All prior communications,
negotiations, arrangements, representations, agreements and
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understandings, whether oral, written or both, between the parties hereto, and
their representatives, are merged herein and extinguished, this Lease
superseding and cancelling the same. Except as herein otherwise provided, no
subsequent alteration, amendment, change or addition to this Lease shall be
binding upon Landlord or Tenant unless reduced to writing and executed by the
party against which such subsequent alteration, amendment, change or
modification is to be enforced.
Section 18.09. No Partnership.
Landlord does not, in any way or for any purpose, become a partner of
Tenant in the conduct of its business, or otherwise, or joint venturer or a
member of a joint enterprise with Tenant.
Section 18.10. Notices.
All payments of rent and any and all other monetary obligations of
Tenant accruing hereunder, whether or not denoted as rents, shall be paid to:
Philadelphia Management Co., 1728 Spruce Street, Philadelphia, Pennsylvania
19107, Attention: Mr. Ronald Caplan, until Tenant is notified otherwise in
writing, and all notices given to Landlord hereunder shall be in writing and
forwarded to it at such address, postage prepaid, by registered or certified
mail, return receipt requested. All notices to Tenant shall be forwarded to it
at the address set forth in the Indenture of Lease until Landlord is notified
otherwise in writing, by postage prepaid, registered or certified mail, return
receipt requested or by delivery in person and in the event of a delivery in
person, the affidavit of the person making such delivery shall be conclusive
proof of the delivery and of the date and time of such delivery. All notices
shall be deemed to have been given on the date when deposited in the mail
receptacles maintained by the corporation which has been charted by the United
States Government to operate and deliver the mail as aforesaid or, in the case
of notices, delivered in person to Tenant, when so delivered. Notices by the
Landlord may be given on its behalf by any agent or attorney for Landlord.
Section 18.11. Captions and Index.
The captions and index appearing in this Lease are inserted only as a
matter of convenience and in no way define, limit, construe or describe the
scope or intent of such sections or articles of this Lease nor in any way affect
this Lease.
Section 18.12. Tenant Defined; Use of Pronoun.
The word "Tenant" shall be deemed and taken to mean each and every
person or party mentioned as a Tenant herein, be the same one or more; and if
there shall be more than one Tenant, any notice required or permitted by the
terms of this Lease may be given
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by or to any one thereof, and shall have the same force and effect as if given
by or to all thereof. The use of the neuter singular pronoun to refer to
Landlord or Tenant shall be deemed a proper reference even though Landlord or
Tenant may be an individual, a partnership, a corporation, or a group of two or
more individuals or corporations. The necessary grammatical changes required to
make the provisions of this Lease apply in the plural number where there is more
than one Landlord or Tenant and to either corporations, associations,
partnerships or individuals, males or females, shall in all instances be assumed
as though in each case fully expressed.
Section 18.13. Partial Invalidity; Separate Covenants.
If any term, covenant or condition of this Lease or the application
thereof to any person or circumstance shall to any extent be invalid or
unenforceable, the remainder of this Lease or the application of such term,
covenant or condition to persons or circumstances other than those as to which
it is held invalid or unenforced to the fullest extent permitted by law.
Furthermore, each covenant, agreement, obligation and other provision contained
in this Lease is, and shall be deemed and construed as a separate and
independent covenant of the party bound by, undertaking or making the same, and
not dependent on any other provision of this Lease unless expressly so provided.
Section 18.14. Recording.
Tenant shall not record this Lease without the written consent of
Landlord. If Landlord requests, the parties shall execute and acknowledge a
short form of Lease for recording purposes which shall be recorded at Landlord's
expense.
Section 18.15. Brokerage Commission.
Tenant represents and warrants to Landlord that Tenant has had no
dealing, negotiations or communications with respect to the premises, the Real
Property or this transaction with any other broker or finder except Philadelphia
Management Co., whose commission, if any, is the responsibility of Landlord.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
WITNESS: Landlord:
WALNUT SQUARE PARTNERS, a
Pennsylvania limited partnership
By: [Illegible]
- ---------------------------------- --------------------------------
ATTEST: Tenant:
CRUSADER SAVINGS BANK, FSB
By: By: /s/ Joseph T. Crowley
-------------------------------- --------------------------------
Title: Title: President
[CORPORATE SEAL]
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EXHIBIT A
DESCRIPTION OF REAL PROPERTY AND DEMISED PREMISES
6,000 +/- square feet of office space on the first and second floors of
apartment building located at 1230 Walnut Street and known as Walnut Square
Apartments.
A-1
<PAGE>
LEASE
THIS AGREEMENT OF LEASE, dated the 1st day of July, 1984 by and between
GOLDIE SABEL ("Lessor") and CRUSADER SAVINGS & LOAN ASSOCIATION, a state
chartered Pennsylvania savings and loan association ("Lessee").
W I T N E S S E T H :
ARTICLE 1
DEMISED PREMISES--TERM OF LEASE
Section 1.01. That Lessor, for and in consideration of the rents,
covenants and agreements hereinafter reserved, mentioned and contained on the
part of Lessee, its successors and assigns, to be paid, kept, observed and
performed, has leased, rented, let and demised, and by these presents does
lease, rent, let and demise, unto Lessee, and Lessee does hereby take and hire,
upon and subject to the conditions and limitations hereinafter expressed:
The premises situate at 6526 Castor Avenue, Philadelphia,
Pennsylvania and more particularly described on Exhibit "A" hereto attached,
together with the building and improvements erected thereon and together with
all and singular the ways, easements, rights, privileges and appurtenances to
the same belonging or in any wise appertaining, and all the estate, right,
title, interest and claim, either at law or in equity, or otherwise of Lessor
of, in, to or out of said premises.
Said premises, together with the said building, improvements,
ways, estate, and all fixtures and equipment owned by Lessor which shall be
upon, located or used in the operation of the said premises, constitute and are
hereinafter referred to as the "Demised Premises".
Section 1.02. TO HAVE AND TO HOLD the Demised Premises, unto Lessee,
its successors and assigns, subject to the terms, covenants and agreements
hereof for the term commencing on the date hereof (the "Commencement Date") and
ending upon the expiration of five (5) years from the Banking Approval Date
(hereinafter defined), unless this Lease shall be extended or sooner terminate
as hereinafter set forth; provided, however, that Lessee's obligations hereunder
solely for the payment of minimum rent shall be deemed to have commenced on
March 15, 1984.
Section 1.03. This Lease is made upon the following terms, all of which
Lessor and Lessee, with respect to the same on their
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respective parts to be accepted, kept, observed and performed, covenant and
agree to accept, keep, observe and perform.
ARTICLE 2
RENT
Section 2.01. Lessee covenants and agrees to pay Lessor in such coin or
currency of the United States of America as at the time shall be legal tender
for the payment of public and private debts, at the address specified in Section
20.01 of this Lease, minimum rent at the rates hereinafter specified:
PAYMENT PERIOD MINIMUM MONTHLY/YEARLY RENTAL
-------------- -----------------------------
(a) March 15, 1984 until the
Banking Approval Date $600.00 per month
(b) First (1st) and second (2nd)
Lease Years (hereinafter defined) $12,000 per year
(c) Third (3rd) and fourth (4th)
Lease Years $12,600.00 per year
(d) Fifth (5th) Lease Year $13,200.00 per year
The minimum annual rent shall be paid, in advance, in equal monthly
installments. Lessee's obligation to pay minimum rent hereunder shall be deemed
to have commenced on March 15, 1984. The first monthly installment of rent,
together with all rent accrued from March 15, 1984 through the Commencement
Date, shall be due on the Commencement Date and succeeding installments shall be
paid on the first day of each successive month of the term hereof thereafter,
pro rated, if necessary, for partial months occurring at the commencement and at
the end of the term hereof. Said minimum annual rent is herein sometimes
referred to as "net rent".
Section 2.02. The "Banking Approval Date" shall be the earlier to occur
of (i) the date upon which Lessee shall have received all required approvals for
the establishment of a branch banking office in the Demised Premises, given
without condition, from the Pennsylvania Department of Banking, the Federal Home
Loan Bank System, and all other applicable governmental authorities
(collectively, the "Banking Agencies"), or (ii) the Termination Date
(hereinafter defined). A "Lease Year" shall mean each consecutive twelve (12)
month period during the term or any renewal hereof commencing on the Banking
Approval Date.
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Section 2.03. The minimum annual rent shall be paid to Lessor by Lessee
without notice or demand except as may be provided in this Lease. Lessee shall
also pay without notice, except as may be provided in this Lease, as additional
rent, all sums, costs, charges, expenses, obligations, reimbursements and other
payments which Lessee in any of the provisions of this Lease agrees to pay or
which Lessee agrees are to be at the expense of Lessee, and, in the event of
non-payment thereof, Lessor shall have, in addition to all other rights and
remedies, all the rights and remedies provided herein and by law in the case of
non-payment of the net rent.
Section 2.04. Lessee is granted the right to extend the term of this
Lease for two consecutive terms of five (5) years, the first five (5) year
renewal being called the "First Renewal Term" and the second five (5) year
renewal being called the "Second Renewal Term", provided (a) Lessee is not in
default at the time of exercise of such right, and (b) Lessee gives notice of
its exercise of such right at least one hundred eighty (180) days prior to the
expiration of the term hereof or the First Renewal Term, as the case may be. The
First Renewal Term and Second Renewal Term shall be upon the same terms,
conditions and rentals, except (i) Lessee shall have only one (1) right of
renewal remaining after Lessee's exercise of its right to extend the term hereof
for the First Renewal Term and shall have no further right of renewal after the
Lessee's exercise of its right to extend the term hereof for the Second Renewal
Term, and (ii) rather than the base year of 1984 used in Section 3.01 hereof to
calculate the additional rent payable on account of real estate tax increases,
during such renewal terms the base year for such purposes shall be the calendar
year in which the first day of the First Renewal Term or Second Renewal Term, as
the case may be, falls, and (iii) the minimum annual rental payable during the
First Renewal Term or Second Renewal Term, as the case may be, shall be
calculated as hereinafter set forth:
Commencing at the beginning of the sixth (6th) Lease Year and for each
ensuing Lease Year in the First Renewal Term or Second Renewal Term, as the case
may be, the minimum annual rent shall be adjusted for each Lease Year to an
amount equal to the sum derived by multiplying Thirteen Thousand Two Hundred
Dollars ($13,200.00), the minimum annual rent in effect at the commencement of
the fifth (5th) Lease Year, by a fraction, the numerator of which shall be the
average of the Index (hereinafter defined) figures published for each of the
sixty (60) consecutive calendar months ending with the calendar month most
recently prior to the first (1st) day of the respective Lease Year for which the
adjustment is to be made, and the denominator of which fraction shall be the
corresponding Index figure published most recently prior to the Commencement
Date. The sum so derived shall be the minimum annual rent to be paid by Lessee
during the ensuing Lease Year and one-twelfth (1/12) of such sum, determined as
aforesaid, shall be the monthly installment of the minimum annual rent. The
minimum annual rent as so adjusted shall continue as the minimum annual rent
payable during the ensuing Lease Year for which the annual adjustment is made,
until the next annual adjustment is made as hereinabove provided. In no event
shall the minimum annual rent as adjusted for any Lease
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Year, commencing on or after the sixth (6th) Lease Year, be less than the
minimum annual rent in effect at the commencement of the fifth (5th) Lease Year.
The term "Consumer Price Index", for purposes hereof, is defined to
mean the index now known as the "United States Bureau of Labor Statistics,
Consumer Price Index for Urban Wage Earners and Clerical Workers", all items,
for Philadelphia, Pennsylvania, Standard Metropolitan Statistical Area
(1967=100), herein referred to as the "Index", or the most nearly comparable
successor to the Index published by the United States Bureau of Labor
Statistics, appropriately adjusted. If such Index is discontinued with no
comparable successor thereto, then, in such event, the parties shall endeavor to
agree upon a substitute formula for computing the aforesaid rental increases
under this Section 2.04. If they cannot agree within thirty (30) days after the
occurrence of such event, then the matter shall be determined by arbitration
conducted by the American Arbitration Association in the City of Philadelphia in
accordance with its rules then prevailing. In any such arbitration, the
arbitrator shall be required to render, and furnish to Lessor and Lessee,
written findings of fact and conclusions of law. Each Party shall bear its own
costs of arbitration and divide equally any arbitrator's fees. In the event of
such a dispute as to such substitute formula, rent then in effect shall continue
to be paid pending determination thereof, and any adjustment in rent shall be
applied retroactively to the beginning of the period for which Lessor and Lessee
shall have been unable to agree upon the appropriate basis for adjustment.
ARTICLE 3
PAYMENT OF TAXES AND UTILITIES
Section 3.01. For and with respect to each calendar year within which
the term of this Lease (and any renewal or extension thereof) falls, Tenant
shall pay, as additional rent, the excess, if any, of the Taxes (hereinafter
defined) for such year over the Taxes for the calendar year 1984. Such
additional rent shall be prorated on a per-diem basis for any partial calendar
year included within the beginning and end of the term. Such additional rent
shall be paid during each calendar year within thirty (30) days after Lessor's
delivery to Lessee of the bill therefor issued by the appropriate governmental
authority. Lessor agrees to deliver such bill to Lessee promptly upon Lessor's
receipt thereof.
Section 3.02. The term "Taxes" shall mean all real estate taxes imposed
upon the Demised Premises. Nothing herein contained shall require Lessee to pay
municipal, state, or
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federal income or gross receipts or excess profits taxes assessed against
Lessor, or municipal, state, or federal capital levy, estate succession,
inheritance or transfer taxes of Lessor, or corporation franchise taxes imposed
upon any corporate owner of the fee of the Demised Premises. If Lessor shall
receive a refund of Taxes for any period in which Lessee has paid additional
rent on account thereof, then Lessor shall promptly notify Lessee thereof and
either pay to Lessee or permit Lessee to credit against subsequent payments of
rent hereunder, the amount of such refund, after deducting from the total refund
the costs and expenses of Lessor, if any, in obtaining such refund.
Section 3.03. Lessee shall have the right to contest the amount or
validity, in whole or in part, of any Taxes by appropriate proceedings
diligently conducted in good faith, in which event, notwithstanding the
provisions of Section 3.01 hereof, Lessee may postpone or defer payment of such
Taxes if neither the Demised Premises nor any part thereof would by reason of
such postponement or deferment be in danger of being forfeited or lost. Pending
the disposition of such proceedings, Lessee shall, upon request of Lessor,
deposit the amount of such Taxes in controversy and all interest and penalties
that may be charged by reason of such non-payment with an escrowee reasonably
acceptable to Lessor, to be paid out as may be ordered in such proceedings. The
escrowed amounts not so required shall be returned to Lessee with interest, if
any, accrued thereon.
Section 3.04. Lessor shall not be required to join in any proceedings
referred to in Section 3.04 hereof unless the provisions of any law, rule or
regulation, at the time in effect shall require that such proceedings be brought
by or in the name of Lessor, in which event Lessor shall join in such
proceedings or permit the same to be brought in its name upon compliance with
such conditions as Lessor may reasonably require. Lessor shall not ultimately be
subjected to any liability for the payment of any fees, including reasonable
counsel fees, costs or expenses in connection with such proceedings. Lessee
agrees to pay all such fees, including reasonable counsel fees, costs and
expenses or, on demand, to make reimbursement to Lessor for such payment.
Section 3.05. Lessee further agrees to pay as additional rent all
charges for water consumed upon the Demised Premises, all sewer rental or
charges for use of sewers, sewage systems and sewage treatment works servicing
the Demised Premises and all charges for repairs to the water meter on the
Demised Premises, promptly after the same become due.
Section 3.06. Lessee shall be solely responsible for the payment of any
charges for any other utilities or fuels used or consumed on the Demised
Premises, including, but not limited to electricity, gas and/or oil.
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ARTICLE 4
SURRENDER
Section 4.01. Lessee shall and will on the last day of the term hereof
or upon any earlier termination of this Lease, or upon any entry or re-entry by
Lessor upon the Demised Premises pursuant to Article 18 hereof, well and truly
surrender and deliver up the Demised Premises into the possession and use of
Lessor in good order, condition and repair, reasonable wear and tear damage by
fire and other casualty excepted.
ARTICLE 5
INSURANCE
SECTION 5.01. Lessee, at its sole cost and expense, shall purchase and
maintain during the entire term of this Lease and any renewals hereof
comprehensive bodily injury and property damage liability insurance against
claims for bodily injury, death or property damage, occurring in, on or about
the Demised Premises, naming the Lessor and the Lessee as the insureds, such
insurance to afford minimum protection of not less than One Million Dollars
($1,000,000) combined single limit coverage during the term of this Lease. Such
liability insurance shall be effected under a valid and enforceable policy
issued by an insurer of recognized responsibility which is licensed to do
business in the Commonwealth of Pennsylvania and may be effected under a blanket
policy. On or before the Commencement Date, and thereafter not less than thirty
(30) days prior to the expiration dates of the expiring policies theretofore
furnished pursuant to this Article 5, Lessee shall deliver to Lessor a
certificate of such policy, bearing notations evidencing the payment of premiums
or accompanied by other evidence of such payment. Such policy shall, to the
extent obtainable, have attached thereto an endorsement that such policy shall
not be cancelled, terminated, or materially changed without at least thirty (30)
days prior written notice to the Lessor. Lessee shall also maintain at all times
during the term or any renewals hereof insurance against risk, loss or damage by
fire or other casualty to Lessee's trade fixtures and equipment.
Section 5.02. Lessor, at its sole cost and expense, shall keep the
Demised Premised insured throughout the term or any renewals of this Lease
against loss or damage by fire and against loss or damage by such other risks
now or hereafter embraced by "Extended Coverage", so called, in an amount not
less than one hundred percent (100%) of the replacement value of the building
and other improvements upon or in the Demised Premises, excluding
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Lessee's personal property, trade fixtures and improvements, additions or
alterations in, to or of the Demised Premises made by Lessee.
Section 5.03. Lessee hereby covenants and agrees that it will not do or
suffer to be done, any act, manner or thing objectionable to the fire insurance
companies whereby the fire insurance maintained by Lessor and now in force or
hereafter placed on the Demised Premises shall become void or suspended;
provided, however, in the event Lessee shall sublet the Demised Premises or
assign this Lease, and such sublessee's or assignee's use of the Demised
Premises is such that the Demised Premises shall be rated as a more hazardous
risk than at the Commencement Date, then Lessee shall pay to Lessor as
additional rent all increases in premiums on fire insurance carried by Lessor
insuring the Demised Premises.
ARTICLE 6
LESSOR'S RIGHT TO PERFORM LESSEE'S COVENANTS
Section 6.01. If Lessee shall at any time fail to pay any Taxes, take
out, pay for, maintain and deliver the liability insurance policies provided for
in Article 5 hereof, or shall fail to make the repairs required by Section 7.01
hereof, then Lessor, after thirty (30) days notice to Lessee (or without notice
in case of an emergency) and without waiving, or releasing Lessee from, any
obligation of Lessee contained in this Lease, may, but shall be under no
obligation to: (a) pay such Taxes; or (b) take out, pay for and maintain such
liability insurance policies; or (c) perform such repairs.
Section 6.02. All sums so paid by Lessor and all costs and expenses,
including reasonable attorney's fees, incurred by Lessor in connection with the
performance thereof shall be paid by Lessee to Lessor on demand.
ARTICLE 7
REPAIR AND MAINTENANCE OF THE DEMISED PREMISES
Section 7.01. Throughout the term of this Lease, Lessee, at its sole
cost and expense, shall take good care of the Demised Premises and shall keep
the same in good order and condition, excepting ordinary wear and tear, damage
by fire or other casualty and make all necessary repairs (including
replacements) thereto, except as set forth in Section 7.03 hereof.
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Section 7.02. Lessee shall maintain the sidewalks adjoining the Demised
Premises in a clean and orderly condition, free of dirt, rubbish, snow, ice, and
unlawful obstructions.
Section 7.03. Lessor shall maintain, keep in good order and condition
and replace if necessary, all structural portions of the Demised Premises,
including, but not limited to, the exterior walls, floors, roof, foundation and
load bearing columns and beams of the building situate thereon and shall make
all repairs, which may be needed and replacements, if necessary, to the heating
system servicing the Demised Premises.
Section 7.04. Any repairs, replacements, renewals and additions and/or
labor or materials performed or furnished in, on or about the Demised Premises
by either Lessor or Lessee shall be performed in compliance with the
Requirements (hereinafter defined).
ARTICLE 8
COMPLIANCE WITH LAWS, ORDINANCES AND REGULATIONS
Section 8.01. Throughout the term of this Lease, Lessee, at its sole
cost and expense, shall comply with all present and future laws, ordinances,
orders, rules, regulations and requirements of all federal, state, and municipal
governments, courts, departments, commissions, boards, any national or local
insurance rating bureau (collectively, the "Requirements") which may be
applicable to the Lessee or to its use or manner of use of the Demised Premises,
or any part thereof; provided, however, Lessee shall have no obligation to make
any structural changes, additions or improvements required by any Requirements
unless the same shall have been caused by Lessee's acts.
Section 8.02. Lessor covenants, warrants and represents that as of the
date of this Lease the Demised Premises are in compliance with all Requirements
(a) with the exception of violations noted by the City of Philadelphia requiring
the installation of (i) a "Class B Fire Alarm System") and (ii) an approved dry
chemical carbon dioxide fire extinguisher (collectively, the "Violations"), and
(b) with the following possible exceptions: (i) fuse box located above a sink;
(ii) lack of emergency lighting and exit signs; and (iii) lack of solid rear
door. Lessor further represents and warrants that as of the date of this Lease,
(a) the contemplated use of the Demised Premises as a branch office of a savings
and loan association offering related financial services is in compliance with
the zoning laws and ordinances pertaining thereto and may be so used as a matter
of right, and (b) except with respect to the Violations, there is no outstanding
notice of any uncorrected
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violation of any Requirement; provided, however, in the event Lessor's
representation and warranty as to the contemplated use of the Demised Premises
is incorrect, Lessee's sole remedy shall be to terminate this Lease upon notice
to Lessor.
Section 8.03. Lessee shall have the right, after prior notice to
Lessor, to contest by appropriate legal proceedings, diligently conducted in
good faith, in the name of Lessee or Lessor or both, without cost or expense to
Lessor, the validity or application of any Requirement, subject to the
following:
(a) If by the terms of any such Requirement, compliance
therewith pending the prosecution of any such proceeding may legally be
delayed without the incurrence of any lien, charge, liability or
penalty of any kind against the Demised Premises and without subjecting
Lessor to any liability, civil or criminal, for failure so to comply
therewith, Lessee may delay compliance therewith until the final
determination of such proceeding.
(b) If any lien, charge or civil liability would be incurred
by reason of such delay, Lessee nevertheless, with the prior consent of
Lessor, which consent shall not be unreasonably withheld or delayed,
may contest as aforesaid and delay as aforesaid, provided that such
delay would not subject Lessor to criminal liability and Lessee (1)
furnishes to Lessor security, reasonably satisfactory to Lessor against
any loss or injury by reason of such contest or delay, and (2)
prosecutes the contest with due diligence and in good faith.
Lessor shall, at Lessee's sole cost and expense, execute and deliver
any appropriate papers which may be necessary or proper to permit Lessee to
contest the validity or application of any such Requirement.
ARTICLE 9
CHANGES, ALTERATIONS AND IMPROVEMENTS
Section 9.01. Lessee shall have the right at any time and from time to
time during the term of this Lease to make, at its sole cost and expense,
changes, improvements, additions or alterations in, to or of the Demised
Premises. Lessee shall make no structural change or alteration without the prior
consent of the Lessor, which consent shall not be unreasonably withheld or
delayed; provided, however, Lessee shall have the right, without the consent of
Lessor, to install a "pick-up box" and an automatic teller machine in the walls
of the Demised Premises and to make any structural changes or alterations
reasonably
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necessary to install a bank vault in the Demised Premises. All alterations,
improvements, additions or fixtures shall remain upon the Demised Premises at
the expiration or sooner determination of this Lease and become the property of
Lessor, or, at Lessee's option, Lessee shall have the right to remove any of the
same provided that Lessee shall repair any damage to the Demised Premises caused
by their removal; provided, however, if and to the extent installed in the
Demised Premises, Lessee shall in all events remove the vault, "pick-up box" and
automatic teller machine therefrom. Notwithstanding anything to the contrary
contained herein, Lessee shall have the right, without Lessor's consent, to
remove any and all of its equipment and trade fixtures, together with any of
Lessee's personal property, from the Demised Premises at any time during the
term of this Lease or at the expiration or earlier termination thereof.
Section 9.02. Lessee shall have the right to erect signs on the
exterior walls of the Demised Premises, provided such signs comply with the
Requirements. Lessee shall remove such signs at the expiration or earlier
termination of this Lease and shall repair any damage to the Demised Premises
caused by such removal.
ARTICLE 10
DISCHARGE OF LIENS
Section 10.01. If any mechanic's, laborer's or materialmen's lien shall
at the time be filed against the Demised Premises or any part thereof on account
of labor or material furnished or claimed to have been furnished to Lessee,
Lessee, within thirty (30) days after notice of the filing thereof, shall cause
the same to be discharged of record by payment, deposit, bond, order of a court
of competent jurisdiction or otherwise.
Section 10.03. Nothing in this Lease contained shall be deemed or
construed in any way as constituting the consent or request of Lessor, express
or implied, by inference or otherwise, to any contractor, sub-contractor,
laborer or materialman for the performance of any labor or the furnishing of any
materials for any specific improvement, alteration to, or repair of the Demised
Premises or any part thereof or the demolition or the replacement of the Demised
Premises or any part thereof.
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ARTICLE 11
NO WASTE
Section 11.01. Lessee shall not do or suffer any waste or damage,
disfigurement or injury to the Demised Premises or any part thereof.
ARTICLE 12
USE OF DEMISED PREMISES
Section 12.01. Lessee shall use the Demised Premises as and for any
legal use. Lessee shall not use or allow the Demised Premises or any part
thereof to be used or occupied for any unlawful purpose or in violation of any
laws and shall not suffer any acts to be done or any condition to exist on the
Demised Premises or any part thereof or any article to be brought thereon, which
may be dangerous, unless safeguarded as required by law, or which may, in law,
constitute a nuisance, public or private, or which may make void any insurance
then in force with respect thereto.
ARTICLE 13
ENTRY ON DEMISED PREMISED BY LESSOR, ETC.
Section 13.01. In addition to Lessor's right of entry under any other
provision of this Lease, Lessee shall permit Lessor and its authorized
representatives to enter the Demised Premises at all reasonable times for the
purpose of (a) inspecting the same, (b) making any repairs thereto required
hereby on the part of Lessor, or (c) performing any work therein that may be
necessary by reason of (i) Lessee's failure to make any repairs as may be
required hereby on the part of Lessee, and (ii) Lessee's failure to have
commenced the same within thirty (30) days after written notice from Lessor or
without notice in case of an emergency.
Section 13.02. Lessor shall not be liable for inconvenience, annoyance
or disturbance by reason of making such repairs or the performance of any such
work, or on account of bringing materials, tools, supplies and equipment into or
through the Demised Premises during the course thereof, provided, however, that
in making any such repairs or performing any such work Lessor shall proceed at
reasonable hours and with a minimum of inconvenience to the Lessee.
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Section 13.03. Lessor shall have the right to enter the Demised
Premises during Lessee's usual business hours for the purpose of showing the
same to prospective purchasers.
ARTICLE 14
INDEMNIFICATION OF LESSOR
Section 14.01. Notwithstanding any provision to the contrary contained
in this Lease, Lessee shall indemnify and save harmless Lessor against and from
all liabilities, obligations, damages, penalties, claims, costs, charges and
expenses, including reasonable attorneys' fees and disbursements, which may be
imposed upon, incurred by or asserted against Lessor by reason of any of the
following occurring during the term of this Lease and not arising from, under or
in connection with any act or negligence on the part of Lessor, its agents,
employees or independent contractors or from Lessor's failure to observe and
perform any of the terms or provisions contained herein on Lessor's part to be
observed and performed:
(a) any work or thing done in, on or about the Demised
Premises or any part thereof by Lessee;
(b) any use, non-use, possession, occupation,
condition, cooperation, maintenance or management of the
Demised Premises or any part thereof;
(c) any negligence on the part of Lessee or any of its agents,
contractors, servants, employees, licensees, or invitees;
(d) any accident, injury or damage to any person or property
occurring in, on or about the Demised Premises or any part thereof;
(e) any failure on the part of Lessee to keep, observe and
perform any of the terms, covenants, agreements, provisions,
conditions, or limitations contained in this Lease on Lessee's part to
be kept, observed and performed.
In the event that the Lessor shall receive notice of any claim
for which the Lessee shall be required, pursuant to this Lease, to indemnify the
Lessor, then the Lessor shall promptly give notice to the Lessee of such claim
and Lessee shall be permitted (but shall not be required) to defend such claim
through counsel it selects. The Lessor shall fully cooperate with the Lessee in
the defense of any indemnified claim. The Lessee shall have the right to
compromise or settle any such claim at the Lessee's sole expense without the
consent of the
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Lessor. The Lessor shall have no right to settle any such claim,
provided that Lessee shall be engaged in the defense thereof.
Section 14.02. Notwithstanding anything herein contained to the
contrary, to the extent of the face amount of their respective insurance
coverages, the Lessor and Lessee do each hereby release the other from any and
all liability for any loss or damage to their respective properties caused by
fire or any of the other casualties covered by the risks included in extended
coverage insurance. This limited mutual release is given notwithstanding that
such fire or other casualty shall have resulted from the act, omission or
negligence of Lessor or Lessee or their respective agents, employees, licensees
or contractors. Lessor and Lessee agree to cause their respective insurance
policies covering the Demised Premises and its contents to contain an
appropriate endorsement whereby the insurer agrees that the insurance policy and
coverage will not be invalidated by reason of the foregoing waiver of the right
of recovery against Lessor or Lessee, respectively, for loss occurring to the
properties or to the persons covered by such policies, and whereby such insurers
also waive any right to subrogation against the Lessor and Lessee (as the case
may be). Each party shall, upon request, promptly deliver to the other a
certificate evidencing such waiver of subrogation by the insurer. The provisions
of this Section 14.02 shall not be operative during any period of time when such
"waiver of subrogation" feature is not available from insurance companies
licensed to do business in the Commonwealth of Pennsylvania.
ARTICLE 15
DAMAGE OR DESTRUCTION
Section 15.01. In the event of damage to or destruction of the Demised
Premises by fire or other casualty, this Lease shall not terminate but the
Demised Premises shall be promptly and fully repaired by Lessor, at its sole
cost and expense, subject, however, to the following terms and conditions. If
the Demised Premises are so damaged or rendered unusable by fire or other
casualty to the extent that, in the opinion of the Architect (hereinafter
defined), such damage cannot be repaired and the Demised Premises restored and
rendered completely usable within six (6) months of the commencement of
restoration, then in such event, Lessor may elect, upon notice to Lessee given
within thirty (30) days from the date of such casualty, to terminate this Lease
as of the date specified in such notice, which date shall not be more than
thirty (30) days thereafter, and the rental payable hereunder shall be
proportionately paid up to the time of such casualty and thereafter cease. If
the Demised Premises are so damaged or rendered unusable by fire or other
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casualty that the damage thereto can, in the opinion of the Architect, be
repaired and the Demised Premises rendered completely usable within six (6)
months of the commencement of restoration, or if Lessor shall have failed to
terminate this Lease pursuant to the preceding sentence, then the damage to the
Demised Premises shall be promptly repaired and the Demised Premises restored
and rendered completely usable by and at the sole expense of Lessor and rental
payable hereunder, until such repairs shall be completed, shall proportionately
abate from the date following such casualty according to the portion of the
Demised Premises which remains unusable until the date when the Demised Premises
have been repaired, restored and rendered completely usable by Lessor. Lessor
shall not be obligated to repair, restore or rebuild any of Lessee's personal
property or any alterations, additions or improvements made by Lessee. In the
event that the Demised Premises shall not be rendered completely usable and/or
repaired and restored by Lessor to their condition prior to such damage within
one hundred eighty (180) days of any such casualty, Lessee shall have the right,
exercisable by notice to Lessor, to terminate this Lease upon the date specified
in such notice.
Notwithstanding anything to the contrary contained in this Article 15,
if the Demised Premises shall be damaged by fire or other casualty occurring
during the fifth (5th) or tenth (10th) Lease Years and (a) the cost to Lessor of
performing its obligations under this Section 15.01 shall exceed Thirty Thousand
Dollars ($30,000) in the fifth (5th) Lease Year or Fifty Thousand Dollars
($50,000.00) in the tenth (10th) Lease Year, as the case may be, as estimated by
the Architect, then unless Lessee shall have theretofore exercised its right
contained in Section 2.04 hereof to extend the term of this Lease for the First
Renewal Term or Second Renewal Term, as the case may be, or unless within thirty
(30) days following the giving of the Architect's estimate of the cost of repair
or restoration Lessee shall exercise such right (the period in which Lessee may
exercise such right being extended, if necessary, for thirty (30) days from the
giving of such Architect's estimate), Lessor shall have the right, exercisable
upon notice to Lessee, given not more than forty-five (45) days following the
giving of Architect's estimate to terminate this Lease, or (b) in the event
Lessor shall not have so elected to terminate this Lease, if the cost to Lessee
of repairing or restoring its leasehold improvements to their condition
preceding such casualty shall exceed Ten Thousand Dollars ($10,000) in the fifth
(5th) Lease Year or Sixteen Thousand Dollars ($16,000.00) in the tenth (10th)
Lease Year, as the case may be, as estimated by the Architect, Lessee shall have
the right, exercisable upon notice to Lessor given not more than sixty (60) days
following the giving of such Architect's estimate, to terminate this Lease. The
respective estimates to be made by the Architect shall be rendered together with
the
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opinions of the Architect set forth in the preceding paragraph. If either Lessor
or Lessee shall elect to terminate this Lease, this Lease shall terminate as of
the date specified in such notice, which date shall not be more than thirty (30)
days thereafter and rental payable hereunder shall be proportionately paid up to
the time of such casualty and thereafter cease.
Upon any termination of the Lease as provided in this Section 15.01,
the rent, taking into account any abatements as aforesaid, shall be adjusted to
the termination date.
Section 15.02. Upon the occurrence of damage to or destruction of the
Demised Premises by fire or other casualty, Lessee shall promptly give notice
thereof to Lessor. Within five (5) days of such fire or other casualty, the
parties shall designate a licensed architect (the "Architect") practicing in the
City of Philadelphia mutually satisfactory to Lessor and Lessee and having not
less than fifteen (15) years continuous experience to make the determinations on
the part of the Architect specified above. If the parties shall be unable to
designate the Architect within five (5) days of such fire or other casualty,
then the Architect shall be designated by the President Judge of the Court of
Common Pleas for Philadelphia County. The parties shall divide equally the fees
of the Architect. The determinations of the Architect shall be given to the
parties within twenty (20) days of the date of such casualty in the manner
provided in Section 20.01 hereof for the giving of notices.
ARTICLE 16
CONDEMNATION
Section 16.01. In the event the Demised Premises or any part thereof
shall be taken or condemned for a public or quasi-public use, or a deed shall be
given in lieu thereof, net rent shall abate to reflect the reduction in value of
the Demised Premises thereafter. In the event the parties shall be unable to
agree on the reduction in value of the Demised Premises, either party may submit
such dispute to arbitration conducted in the City of Philadelphia by the
American Arbitration Society in accordance with its rules then prevailing. In
any such arbitration, the arbitrator shall be required to render and furnish to
Lessor and Lessee, written findings of fact and conclusions of law. Each party
shall bear its own costs of arbitration and divide equally any arbitrator's
fees.
Section 16.02. If (a) the whole of the Demised Premises shall be taken
or condemned (which terms as used in this Article 16 shall include a voluntary
conveyance in lieu of an actual
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taking or condemnation) in any eminent domain, condemnation, compulsory
acquisition or like proceeding by any competent authority for any public or
quasi-public use or purpose, or (b) such portion thereof shall be taken or
condemned, as in the opinion of Lessee, reasonably exercised, shall have a
material adverse effect on Lessee's use and enjoyment of the Demised Premises,
and upon notice thereof from Lessee to Lessor, then the term of this Lease shall
terminate as of the date such authority takes possession of the Demised Premises
pursuant to such taking or condemnation.
Section 16.03. If only a part of the Demised Premises shall be taken or
condemned and upon the taking or condemnation of such part Lessee has not
elected to terminate this Lease, Lessor, at its sole cost and expense, shall
restore the Demised Premises as nearly as practical to its condition existing
prior to such taking.
Section 16.04. Lessee hereby waives any loss, damages, or claims
therefor, resulting from the exercise of the power of eminent domain, whether
such loss or damage results from the taking or condemnation of part or all of
the Demised Premises, except that Lessee may claim against the condemning
authority any damages payable to tenants or lessees under the Pennsylvania
Eminent Domain Code or other applicable law, but in no event shall Lessee make
any claim against Lessor, or the condemning authority or any party having an
interest in the Demised Premises which will result in the diminution or
reduction in the award otherwise payable to Lessor for the taking of the Demised
Premises.
ARTICLE 17
MORTGAGES, ASSIGNMENTS, SUBLEASES AND
TRANSFERS OF LESSEE'S INTEREST
Section 17.01. Lessee shall have the right to assign its leasehold
interest under this Lease or to sublease all or any part of the Demised Premises
without the consent of Lessor. No assignment or subletting shall relieve Lessee
from any obligation or liability under this Lease and any assignment of this
Lease or sublease of all or part of the Demised Premises shall be subject to the
terms of this Lease. Lessee shall not mortgage its interest under this Lease
without the consent of the Lessor, which consent shall not be unreasonably
withheld or delayed.
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ARTICLE 18
CONDITIONAL LIMITATIONS -- DEFAULT PROVISIONS
Section 18.01. Any one or more of the following events shall constitute
an event of default ("Event of Default") under this Lease:
(a) if default shall be made in the due and punctual payment
of any net rent or additional rent payable under this Lease or any part
hereof when and as the same shall become due and payable, and such
default shall continue for a period of ten (10) days after notice
thereof from Lessor to Lessee;
(b) if default shall be made by Lessee in keeping, observing
or performing any of the terms, covenants or conditions contained in
this Lease on Lessee's part to be kept, observed or performed, other
than those referred to in the foregoing subdivision (a) and such
default shall continue for a period of thirty (30) days after notice
thereof from Lessor to Lessee, or in the case of such a default or a
contingency which cannot with reasonable diligence be cured within such
thirty (30) day period from Lessor's notice, Lessee shall fail to
promptly commence to cure the same and thereafter to prosecute the
curing of the same with reasonable diligence (it being intended that in
connection with a default which is not susceptible of being cured with
reasonable diligence within such thirty (30) day period from Lessor's
notice, that the time afforded to Lessee to cure the same shall be
extended for such a period as may be necessary for the curing thereof);
(c) Lessee shall file a petition in bankruptcy or for
reorganization or for an arrangement pursuant to any present or future
federal bankruptcy act or under any similar federal or state law, or
shall be adjudicated a bankruptcy or insolvent or shall make an
assignment for the benefit of Lessee's creditors or shall admit in
writing its inability to pay its debts generally as they become due;
(d) A petition proposing the adjudication of Lessee as a
bankrupt or its reorganization under federal or state law shall be
filed in any court and such petition shall not be discharged or denied
within one hundred twenty (120) days after the filing thereof;
(e) A receiver, trustee or liquidator of Lessee or of all or
substantially all of the Lessee's assets shall be appointed in any
proceeding brought by Lessee, or if any such receiver, trustee or
liquidator shall be appointed in
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any proceeding brought against Lessee and shall not be discharged
within one hundred twenty (120) days after such appointment, or if
Lessee shall consent to or acquiesce in such appointment;
(f) The estate or interest of Lessee in the Demised Premises
or any part thereof shall be levied upon or attached in any proceeding
and such process shall not be vacated or discharged within one hundred
twenty (120) days after such levy or attachment; or
(g) The Demised Premises shall be vacated or abandoned by
Lessee.
Section 18.02. Lessor at any time during the continuance of any Event
of Default may, at its option, give notice to Lessee specifying such Event of
Default or events of default and stating that this Lease and the term hereby
demised shall expire and terminate on the date specified in such notice, which
shall be at least fifteen (15) days after the giving of such notice, and upon
the date specified in such notice, this Lease and the term hereby demised and
all rights of Lessee under this Lease shall expire and terminate. Upon such
termination, Lessee shall quit and peacefully surrender the Demised Premises to
Lessor and Lessor may, without further notice, re-enter the Demised Premises and
possess and repossess itself thereof, by summary proceedings or ejectment, may
dispossess Lessee and remove Lessee and all other persons and property from the
Demised Premises and may have, hold and enjoy the Demised Premises. Lessor, at
its option, shall forthwith be entitled to recover from Lessee, in lieu of all
other claims for damages on account of such termination and in addition to all
amounts due and owing hereunder by Lessee to Lessor at the date of such
termination, as and for liquidated damage, an amount equal to the excess of all
rents reserved hereunder for the unexpired portion of the term of this Lease
then in effect discounted at a rate per annum equal to the discount rate then in
effect at the Federal Reverse Bank for the Federal Reserve District in which the
Demised Premises are located, to the then present worth, over the fair rental
value of the Demised Premises at the time of such termination for such unexpired
portion as the same may be proved by Lessee, discounted at a like rate. Nothing
herein contained shall limit or prejudice the right of Lessor, in any bankruptcy
or reorganization or insolvency proceeding, to prove for and obtain as
liquidated damages by reason of such termination an amount equal to the maximum
allowed by any bankruptcy or reorganization or insolvency proceedings, or to
prove for and obtain as liquidated damages by reason of such termination, an
amount equal to the maximum allowed by any statute or rule of law whether such
amount shall be greater or less than the excess referred to above.
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Section 18.03. At any time or from time to time after any such
termination, Lessor may relet the Demised Premises or any part thereof in the
name of Lessor for such term or terms (which may be greater or less than the
period which would otherwise have constituted the balance of the term of this
Lease) and on such conditions as Lessor, in its reasonable discretion, may
determine and may collect and receive the rents therefor.
Section 18.04. In the event of any such expiration or termination,
whether or not the Demised Premises or any part thereof shall have been relet,
Lessee shall pay to the Lessor (in lieu of and as an alternative remedy to the
liquidated damages set forth in Section 18.02) a sum equal to the net rent and
the additional rent required to be paid by Lessee up to the time of such
expiration or termination of this Lease, and thereafter Lessee, until the end of
what would have been the term of this Lease in the absence of such termination,
shall be liable to Lessor for, and shall pay to Lessor as the same becomes due:
(a) the equivalent of the amount of such net rent and the
additional rent which would be payable under this Lease by Lessee if
this Lease were still in effect, less
(b) the net proceeds of any reletting effected pursuant to the
provisions of Section 18.04 hereof, after deducting Lessor's reasonable
expenses incurred in putting the Demised Premises in good condition,
but only to the extent Lessee would be obligated to do so upon
expiration of the term hereof, and such other reasonable expenses of
Lessor in connection with such reletting, including, without
limitation, all repossession costs, brokerage commissions, and the
reasonable fees and disbursements of Lessor's attorneys.
Lessor shall be required to take such action as shall be necessary to mitigate
its damages hereunder, including, but not limited to, reletting the Demised
Premises.
Section 18.05. Lessor and Lessee, so far as permitted by law, hereby
waive trial by jury in any action, proceeding or counterclaim brought by either
of the parties hereto against the other on any matter whatsoever arising out of
or in any way connected with this Lease, the relationship of Lessor and Lessee,
Lessee's use of occupancy of said Premises or any claim of injury or damage. The
terms "enter", "re-enter", "entry", or "re-entry", as used in this Lease are not
restricted to their technical legal meaning.
Section 18.06. No failure by Lessor or by Lessee to insist upon the
strict performance of any term or agreement of this Lease or to exercise any
right or remedy consequent upon a breach
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thereof, and no acceptance by Lessor of full or partial rent during the
continuance of any such breach, shall constitute a waiver of any such breach or
of such term or agreement. No term or agreement of this Lease to be kept,
observed or performed by Lessor or by Lessee, and no breach thereof, shall be
waived, altered or modified except by a written instrument executed by Lessor or
by Lessee, as the case may be. No waiver of any breach shall affect or alter
this Lease, but each and every term or agreement of this Lease shall continue in
full force and effect with respect to any other then existing or subsequent
breach thereof.
ARTICLE 19
INVALIDITY OF PARTICULAR PROVISIONS
Section 19.01. If any provision of this Lease or the application
thereof to any person or situation shall, to any extent, be held invalid or
unenforceable, the remainder of this Lease, and the application of such
provision to persons or situations other than those as to which it shall have
been held invalid or unenforceable, shall not be affected thereby, and shall
continue valid and be enforceable to the fullest extent permitted by law.
ARTICLE 20
NOTICES
Section 20.01. All notices, demands or requests required or desired to
be given hereunder by either party shall be in writing and shall be deemed to
have been properly served or given if sent by United States registered mail,
return receipt requested, postage prepaid, addressed as follows:
(a) If to Lessee, to the attention of Mr. John Przybylski,
President, Crusader Savings & Loan Association, 1084 East Lancaster
Avenue, Rosemont, PA 19010, with a copy to Michael D. Foxman, Esq.,
Blank, Rome, Comisky & McCauley, 1200 Four Penn Center Plaza,
Philadelphia, PA 19103;
(b) If to Lessor, to #1113, Kennedy House, 1901 J.F.K.
Boulevard, Philadelphia, PA 19103, with a copy to Peter S. Friedman,
Esq., Suite 200, 180 Old York Road, Jenkintown, PA 19046.
Either party may by like notice designate from time to time a new
address within the continental limits of the United States or party to whose
attention such notice shall be directed.
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ARTICLE 21
QUIET ENJOYMENT--CONVEYANCE BY LESSOR
Section 21.01. Lessor covenants and warrants that Lessor has the full
right, power and authority to enter into this Lease for the full term and any
renewals thereof and it is lawfully seized of the Demised Premises in fee
simple. Lessee, upon paying the net rent and all additional rent herein provided
for and keeping, observing and performing all the terms and agreements of this
Lease on Lessee's part to be kept, observed and performed, shall quietly have
and enjoy the Demised Premises during the term of this Lease without hindrance
or molestation by anyone lawfully claiming by, under or through Lessor.
Section 21.02. In the event Lessor shall desire to sell the Demised
Premises, then Lessor shall give written notice thereof (hereinafter called
"Offering Notice") to Lessee. Said Offering Notice shall contain:
(i) a detailed description of all of the terms and
conditions of such proposed sale, together with copies of the proposed
agreement of sale and all exhibits thereto and any other documentation
evidencing such terms and conditions; and
(ii) an offer to sell the Demised Premises to Lessee
upon the same terms and conditions.
The Lessee shall be entitled to purchase the Demised Premises on the
term set forth in the Offering Notice. The Lessee shall have a period of twenty
(20) days within which to agree in writing to so purchase the Demised Premises.
If the Lessee fails to agree to purchase the Demised Premises within such time
period, the Lessor shall have the right to effectuate such a sale upon terms no
less favorable to Lessor than those offered to Lessee within a period of one
hundred twenty (120) days after the expiration of the twenty (20) day period
referred to above, and upon completion of such sale upon such terms, Lessee's
right of first refusal under this Section 21.02 shall cease and terminate. In
the event of any change favorable to the purchaser in the terms and conditions
of the offer, notice thereof and opportunity to purchase shall again be given by
Lessor to Lessee in accordance with the terms set forth above. If Lessor shall
not have completed such sale within said one hundred twenty (120) day period,
Lessee's rights under this Section 21.03 shall remain in full force and effect
and Lessor shall not sell the Demised Premises without first complying with its
provisions.
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ARTICLE 22
SUBORDINATION
Section 22.01. Subject to the provisions of Section 22.03 hereof, this
Lease is and shall be subject and subordinate to any mortgage or deed of trust
(collectively "Fee Mortgages") hereafter placed upon the Demised Premises and to
any future modifications, consolidations, replacements, extensions and renewals
thereof and all amendments and supplements thereto. Notwithstanding such
subordination, as aforesaid, this Lease, except as otherwise hereinafter
provided, shall not terminate or be divested by foreclosure or other default
proceedings under said Fee Mortgages, or obligations secured thereby, and Lessee
shall attorn to and recognize the mortgagee, trustee or the purchaser at the
foreclosure sale in the event of such foreclosure or other default proceeding
pursuant to a Fee Mortgage as Lessee's landlord for the balance of the term of
this Lease, subject to all of the terms and provisions hereof.
Section 22.02. Notwithstanding the subordination provisions hereinabove
set forth, the beneficiary of such subordination provisions may elect to have
any Fee Mortgage subject and subordinate to this Lease and Lessee's leasehold
estate hereunder.
Section 22.03. Subordination of this Lease as set forth above shall be
conditioned upon the execution and delivery by the holder of any Fee Mortgage of
a subordination, nondisturbance and attornment agreement, in form and substance
reasonably satisfactory to Lessee, containing such holder's agreement (i) that
the rights of Lessee hereunder and its possession of the Demised Premises shall
not be affected by reason of foreclosure or other default proceedings, and (ii)
proceeds of insurance shall be applied to the repair and restoration required on
the part of Lessor as set forth in Article 15 of this Lease and condemnation
proceeds shall be applied to the restoration required on the part of Lessor as
set forth in Article 16 of this Lease.
ARTICLE 23
COOPERATION OF LESSEE
Section 23.01. Lessee agrees at any time and from time to time upon not
less than twenty (20) days prior notice by Lessor to execute, acknowledge and
deliver to Lessor a statement in writing certifying that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that the Lease is in full force and effect as modified and stating the
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modifications), and stating whether or not Lessor is in default in keeping,
observing or performing any term, covenant, agreement, provision, condition or
limitation contained in this Lease and, if in default, specifying each such
default, it being intended that any such statement delivered pursuant to this
Section 23.01 may be relied upon by the Lessor or any prospective purchaser of
the Demised Premises or any mortgagee thereof or any assignee of any such
mortgagee.
ARTICLE 26
COVENANTS TO RUN WITH THE LAND
Section 26.01. The terms, covenants, agreements, provisions,
conditions, and limitations herein contained shall be construed as covenants
running with the land and shall bind and inure to the benefit of Lessor, Lessee
and their respective heirs, administrators, executors, successors and assigns.
ARTICLE 27
MISCELLANEOUS
Section 27.01. This Lease sets forth all the promises, agreements,
conditions and understandings between Lessor and Lessee relative to the Demised
Premises. There are no promises, agreements, conditions or understandings,
either oral or written, between them other than are herein set forth. No
subsequent alteration, amendment, change or addition to this Lease shall be
binding upon Lessor or Lessee unless reduced to writing and signed by them.
Section 27.02. The captions of this Lease are for convenience and
reference only and in no way define, limit or describe the scope or intent of
this Lease nor in any way affect this Lease.
Section 27.03. At Lessee's request, Lessor shall promptly execute,
acknowledge and deliver to Lessee a memorandum of this Lease, setting forth the
items of information required by applicable law, to be filed by Lessee in the
appropriate public office. Upon termination of this Lease, Lessee shall execute,
acknowledge and deliver to Lessor a release or other instrument necessary to
discharge such memorandum of record.
Section 27.04. The fee title of Lessor and the leasehold estate of the
Lessee shall at all times be separate and apart, and shall in no event be
merged, notwithstanding the fact that this Lease or the leasehold estate created
hereby, or any
23
<PAGE>
interest in either thereof, may be held directly or indirectly by or for the
account of any person who shall own the fee estate in the Demised Premises and
Lessee's interest in the Lease; and no such merger of estates shall occur by
operation of law, or otherwise, unless and until all persons at the time having
any interest in the fee estate and all persons having any interest in the Lease
or the leasehold estate, shall join in the execution of a written instrument
effecting such merger of estates.
Section 27.05. Whenever a period of time is herein provided for either
party to do or perform any act or thing, there shall be excluded from the
computation of such period of time, any delays due to strikes, riots, acts of
God, shortages of labor, or any cause or causes, whether similar to or
dissimilar from those enumerated, beyond the parties' reasonable control or the
reasonable control of their agents, servants, employees and any contractor
engaged by them to perform work in connection with this Lease.
Section 27.06. Simultaneously with the execution of this Lease, Lessee
shall deposit with Lessor the sum of One Thousand Dollars ($1,000.00) as a
security deposit. Such security deposit shall be held by Lessor in an interest
bearing account satisfactory to Lessee and shall be considered as security for
the payment and performance by Lessee of all of Lessee's obligations under this
Lease. Within ten (10) days after the expiration or earlier termination of the
term hereof, and provided that Lessee is not in default under the terms hereof,
Lessor shall refund such security deposit to Lessee, together with all
accumulated and unpaid interest, less such portion thereof as Lessor shall have
applied to make good any default by Lessee with respect to any of Lessee's
obligations under this Lease. Interest on such security deposit shall be paid to
Lessee yearly.
Section 27.07. Lessor shall be solely responsible for and shall pay any
commissions, fees or other charges (including expenses) which may be payable to
any broker or finder in connection with this Lease or the purchase of the
Demised Premises pursuant to Section 21.02 hereof. Lessee warrants that it has
dealt with no broker in connection with this Lease other than Triangle Realty &
Management Company.
Section 27.08. Notwithstanding anything to the contrary contained in
the Lease, Lessee shall have the right, exercisable at any time upon notice to
Lessor given prior to the date (the "Termination Date") which is one hundred
(100) days from the date hereof, to terminate this Lease as of a date not later
than five (5) days from the date of such notice if (a) Lessee shall fail to
obtain all required approvals for Lessee's establishment of a branch banking
office in the Demised Premises, given without
24
<PAGE>
condition, from the Banking Agencies, on or before the date which is ninety (90)
days from the date hereof, or (b) any Banking Agency shall deny Lessee's request
to establish such branch banking office in the Demised Premises. In the absence
of such notice of termination, this Lease shall continue in full force and
effect as if the contingency provided in this Section 27.08 was not a part of
this Lease. Lessee agrees to pay to Lessor nonrefundable minimum rent in the
amount set forth above through the date of such termination. Lessee agrees to
promptly file any and all applications with supporting documentation required to
obtain such approvals from the Banking Agencies and to diligently pursue
securing such approvals thereafter.
Section 27.09. Lessee acknowledges that a portion of the second floor
of the Demised Premises known as apartment B, consisting of five (5) rooms and
one (1) bath (the "Occupied Space") is occupied by certain individuals. Lessor
represents and warrants that such occupancy arose pursuant to the sublease dated
June 1, 1982 between Triangle Realty & Management Co., as agent for a previous
tenant of the Demised Premises, and Charles Patchell and Cara Patchell, his wife
(the "Patchells"), (b) the prime lease giving rise to the Patchells' occupancy
has terminated and such prime tenant has vacated the Demised Premises, (c) the
Patchells occupy the Occupied Space as tenants from month-to-month, (d) there
are no other leases, agreements or rights of occupancy with the Patchells or any
other individual affecting the Demised Premises, and (e) there are no other
tenants or occupants of the Demised Premises or any part thereof. Lessor agrees
that Lessee shall have no responsibility, liability or obligation whatsoever
from, under or with respect to the Occupied Space or the occupants thereof,
including, but not limited to, providing any services, utilities, maintenance or
repairs with respect to the Occupied Space and Lessor agrees to assume the sole
liability and responsibility therefore (as if the Occupied Space did not form a
part of the Demised Premises) until such time as possession thereof shall be
delivered to Lessee free of such tenants or occupants.
Lessor, for herself, her heirs, executors, administrators and assigns
does hereby release, relieve and discharge Lessee, its successors and assigns of
and from and Lessor agrees to indemnify and save Lessee harmless from and
against any and all liabilities, obligations, damages, penalties, claims, costs,
charges and expenses, including reasonable attorneys' fees and disbursements,
which may be imposed upon, incurred by or asserted against Lessee from, under or
in connection with the Occupied Space, or any use or occupancy thereof,
including, but not limited to, reimbursement of an equitable portion of any
additional rent payable by Lessee on account of Taxes, liability insurance, or
utilities consumed in the Occupied Space which are not separately metered from
the remainder of the Demised
25
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Premises, until such time as possession of the Occupied Space shall be delivered
to Lessee free of such tenants or occupants. The indemnity of Lessor set forth
in the preceding sentence shall survive any expiration or termination of this
Lease.
Lessor agrees that at her sole cost and expense (and at no cost or
expense to Lessee) she shall promptly take or cause to be taken the necessary
and appropriate action, including, but not limited to, the institution of the
necessary proceedings for recovery of possession of the Occupied Space, as shall
be necessary or appropriate to remove any occupants from possession thereof and
deliver the Occupied Space to Lessee free of any tenancies or rights of
occupancy and to prosecute the same with due diligence. In the event possession
of the Occupied Space has not been delivered to Lessee on or before the
Termination Date free and clear of any tenancies or occupancies, then, (i)
Lessee shall have the right to terminate this Lease at any time prior to such
delivery to Lessee of possession of the Occupied Space, and (ii) without
limitation of such right of termination, until such time as possession thereof
shall be delivered to Lessee, the minimum rent payable hereunder shall be
reduced to One Hundred Dollars ($100) per month. In the event Lessor shall
deliver occupancy of the Occupied Space to Lessee prior to the Termination Date
and Lessee shall thereafter terminate this Lease pursuant to Section 27.08
hereof, then, upon such termination, Lessee shall pay to Lessor an amount equal
to Five Hundred Fifty dollars ($550.).
Section 27.10. Upon request of Lessee, Lessor shall promptly execute,
acknowledge and deliver to the title insurance company (the "Title Company")
insuring Lessee's estate in the Demised Premises the Title Company's customary
form of seller's affidavit, together with such documentary evidence as the Title
Company may reasonably require to remove any exception taken on account of real
estate taxes, water and sewer rents, federal or Pennsylvania estate or
inheritance taxes, the death of Nathan Sabel and, to the extent removable by
Lessor by the provision of such documentary evidence, if and to the extent in
the possession of Lessor, any other exception taken by the Title Company to
Lessee's title.
Section 27.11. This Lease shall be construed and enforced in accordance
with the law of the Commonwealth of Pennsylvania.
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<PAGE>
IN WITNESS WHEREOF, the Lessor and Lessee have each caused this Lease
to be executed on the day and year first above written.
LESSOR:
--------------------------------------
GOLDIE SABEL
LESSEE:
CRUSADER SAVINGS & LOAN ASSOCIATION
By:/s/ John G. Przybylski
------------------------------------
John G. Przybylski, President
Attest: [illegile]
---------------------------------------
, Secretary
27
<PAGE>
EXHIBIT "A"
ALL THAT CERTAIN lot or piece of ground with the buildings and
improvements thereon erected SITUATE in the 53rd Ward of the City of
Philadelphia, described according to a Survey and Plan thereof made by Philip H.
Horn, Surveyor and Regulator of the 8th District on November 19, 1959 described
as follows to wit:-
BEGINNING at a point of intersection of the Northwesterly side of
Castor Avenue (One Hundred feet wide) and the Southwesterly side of Gilham
Street (Forty feet wide) thence extending along the Northwesterly side of Castor
Avenue South Thirty-eight degrees Sixteen minutes Forty-four seconds West
Twenty-eight feet to a point, thence extending North Fifty-two degrees Eighteen
minutes, Seven seconds West partly passing through the party wall between this
premises and the premises adjoining on the Southwest and crossing the bed of a
Fourteen feet wide driveway which extends Southwestwardly into Greeby Street
(Forty feet wide) and Northeastwardly into Gilham Street Ninety feet Five
and-one-quarter inches to a point on the Northwesterly side of aforesaid
Fourteen feet wide driveway, thence extending along the Northwesterly side of
aforesaid Fourteen feet wide driveway North Thirty-eight degrees Sixteen minutes
Forty-four seconds East Twenty-eight feet to a point on the Southwesterly side
of Gilham Street, thence extending along the Southwesterly side of Gilham Street
South Fifty-two degrees Eighteen minutes Seven seconds East crossing the head of
aforesaid Fourteen feet wide driveway Ninety feet Five and one-quarter inches to
a point of intersection of the Southwesterly side of Gilham Street and the
Northwesterly side of Castor Avenue, the first mentioned point and place of
beginning.
Being 6526 Castor Avenue.
BEING, inter alia, the same premises which Max Wm. Korman, Samuel J.
Korman and Sarah R. Moss, Trustees under Deed of Trust dated May 20, 1947, by
Indenture dated February 15, 1960 and recorded in the Office of the Recorder of
Deeds for Philadelphia County in Book C.A.B. 1289, page 537 granted and conveyed
unto Nathan Sabel and Goldie G. Sabel, his wife, in fee.
TOGETHER with the free and common use, right, liberty and privilege of
the aforesaid driveway as and for a passageway, automobile driveway and
watercourse at all times hereafter.
A-1
<PAGE>
Crusader Bank
Since 1943
July 8, 1996
Mr. Robert W. Stein
8228 Forest Avenue
Elkins Park, PA 19027
Dear Robert:
This letter will set forth our proposed arrangement with respect to the
establishment of Crusader Servicing Corporation (CSC). CSC will be structured as
a C corporation, unless we jointly agree to structure it as a limited liability
company.
1. CSC will purchase and service delinquent municipality receivables for
property taxes and related charges evidenced by Tax Certificates.
Crusader will own 60% of the stock of CSC and you will own 40%.
2. Initially, CSC will focus on the purchase of Tax
Certificates in New Jersey, although it is intended that we
will explore other jurisdictions that provide similar
opportunities to purchase Tax Certificates. In general, by
purchasing a Tax Certificate, we inherit the right of the
municipality, which essentially has a first priority
position on the underlying property, paramount to all prior
and subsequent liens, except subsequent municipal liens and
Federal Tax liens. This priority position is realized
through a strict foreclosure proceeding (which may be
commenced two years after the purchase of the Certificates),
under which all other liens are automatically extinguished.
The sale of Tax Certificates in New Jersey is conducted
through live auctions by each municipality annually. Tax
Certificates are generally sold at face value, with the
bidding determining the interest rate the Certificate holder
will realize if the property owner or other lien holder
redeems the Certificate prior to strict foreclosure
proceedings. The interest rate bidding starts at 18%.
There are approximately 550 municipalities in New Jersey
with an estimated aggregate of $130 million of Tax
Certificates sold annually. Upon purchase of a Tax
<PAGE>
Page 2
Certificate, the holder also has the right to pay any subsequent unpaid
taxes on the property.
3. In accordance with the development of mutually agreeable
standards for the purchase of Tax Certificates, as updated
from time to time, Crusader will fund Tax Certificates
purchased by CSC at a cost to CSC equal to the prevailing
bank prime lending rate, as reported from time to time in
the Wall Street Journal, or such similar publication if the
Wall Street Journal is discontinued. Such funding shall be
in the form of a line of credit made available to CSC as set
forth in an executed commitment letter, a copy of which is
attached hereto.
4. We will initially capitalize CSC with $10,000, with each of us funding
in proportion to our capital stock interests. We will also enter into a
Shareholders Agreement which, among other things, will set forth our
ongoing responsibility to fund further capital and operating needs of
CSC.
5. CSC will operate its offices at 1231 Walnut Street. CSC will be
responsible for its own operating expenses. To the extent it shares in
the utilization of Crusader overhead resources (e.g. phones, copier,
etc.), Crusader reserves the right to allocate its actual expenses to
CSC in connection therewith. This will allow CSC to operate at a
significantly lower cost basis in its early stages.
6. Both parties will earn compensation from CSC in proportion
to their capital interests. Compensation may take the form
of salaries, management or consulting fees or benefits.
Compensation amounts will be determined by a vote of the
shareholders holding 2/3 of the equity interest in CSC ("2/3
Shareholder Vote") with the intention of making CSC as
profitable as possible. Stein's compensation will include a
designated monthly salary determined by a 2/3 Shareholder
Vote e.g. $1,000, in addition to health benefits. Stein and
CSC will execute an employment agreement reflecting such
compensation.
7. The intention of this arrangement is that we are combining
Crusader's access to funds with your experience in
purchasing Tax Certificates and ongoing commitment to CSC's
operations. Accordingly, Crusader agrees not to undertake
any action to terminate your position with CSC other than
for Cause. In addition, the by-laws of CSC will provide for
a required 2/3 Shareholder Vote to effectuate the sale of
CSC or all or substantially all of its assets. You agree
that during the period you maintain your ownership position
with CSC and for a two year period thereafter, you will not
initiate a purchase of any Tax Certificates for your own
<PAGE>
Page 3
account or for the account of others without first offering such Tax
Certificates to CSC, absent the express written permission of Crusader.
This restriction shall not apply to the purchase of Tax Certificates of
less than $500 each for your own account or that of your family
members. You also agree to use your best efforts to make CSC a
profitable entity in accordance with the agreed upon standards for the
purchase of Tax Certificates.
For purposes hereof, Cause shall include the following events: (i) the
employee engages in conduct involving deceit, fraud, theft or other
dishonesty; (ii) the employee engages in willful misconduct or
willfully fails to perform his obligations pursuant to this
arrangement; or (iii) the employee is convicted of a felony.
8. Upon the mutual execution of this letter, if Crusader
unilaterally elects not to proceed with the formation of CSC
prior to August 1, 1996, or if you elect to proceed with the
purchase of Tax Certificates for any other party, the party
so electing shall be responsible to make a consulting
payment to the other party in the amount of $10,000, which
$10,000 shall constitute a reasonable estimate of the costs
to the respective parties hereto of expenses incurred
through August 1, 1996.
Robert, I believe this properly sets forth the details we discussed regarding
the formation and operation of CSC. We are excited about the opportunity to work
with you to build a successful venture. Please indicate your agreement with this
arrangement by signing in the space provided below.
Very truly yours,
/s/ Joseph T. Crowley
Joseph T. Crowley
President
Accepted and Agreed to:
/s/ Robert W. Stein 7/8/96
- ------------------- ------
Robert W. Stein Date
<PAGE>
Crusader Bank
Since 1943
September 13, 1996
Mr. Gary Snyder
8324 Brookside Road
Elkins Park, PA 19027
Dear Gary:
This letter will set forth our proposed arrangement with respect to the
establishment of Crusader Servicing Corporation (CSC). CSC will be structured as
a C corporation, unless we jointly agree to structure it as a limited liability
company.
1. CSC will purchase and service delinquent municipality receivables for
property taxes and related charges evidenced by Tax Certificates.
Crusader will own 60% of the stock of CSC and you and Robert Stein will
each own 40%.
2. Initially, CSC will focus on the purchase of Tax Certificates in New
Jersey, although it is intended that we will explore other
jurisdictions that provide similar opportunities to purchase Tax
Certificates.
3. In accordance with the development of mutually agreeable
standards for the purchase of Tax Certificates, as set forth
on Exhibit A and as updated from time to time, Crusader will
fund Tax Certificates purchased by CSC at a cost to CSC
equal to the prevailing bank prime lending rate, as reported
from time to time in the Wall Street Journal, or such
similar publication if the Wall Street Journal is
discontinued. Such funding shall be in the form of a line
of credit made available to CSC as set forth in an executed
commitment letter, a copy of which is attached hereto.
4. We will initially capitalize CSC with $20,000, with each of us funding
in proportion to our capital stock interests. We will also enter into a
Shareholders Agreement which, among
<PAGE>
Mr. Gary Snyder
September 13, 1996
Page 2
other things, will set forth our ongoing responsibility to fund further
capital and operating needs of CSC.
5. CSC will operate its offices at 1230 Walnut Street. CSC will be
responsible for its own operating expenses. To the extent it materially
shares in the utilization of Crusader overhead resources (e.g. phones,
copier, etc.), Crusader reserves the right to allocate its actual
expenses to CSC in connection therewith. This will allow CSC to operate
at a significantly lower cost basis in its early stages.
6. Each of the parties will earn compensation from CSC in proportion to
their capital interests. Compensation may take the form of salaries,
management or consulting fees or benefits. CSC will provide single
health care coverage to Snyder and Stein, and the cost thereof will be
treated as an expense of CSC, not as compensation. Compensation amounts
will be determined by a vote of the shareholders holding 81% of the
equity interest in CSC with the intention of making CSC as profitable
as possible.
7. The intention of this arrangement is that we are combining Crusader's
access to funds with your and Robert's experience in purchasing Tax
Certificates and ongoing commitment to CSC's operations. Accordingly,
Crusader agrees not to undertake any action to terminate your position
with CSC other than for Cause. In addition, the by-laws of CSC will
provide for a required 81% shareholder vote to effectuate the sale of
CSC or all or substantially all of its assets. You agree that during
the period you maintain your ownership position with CSC and for a two
month period thereafter, you will not initiate a purchase of any Tax
Certificates for your own account or for the account of others without
first offering such Tax Certificates to CSC, absent the express written
permission of Crusader. This restriction shall not apply to the
purchase of Tax Certificates of less than $500 each for your own
account or that of your family members. You also agree to use your best
efforts to make CSC a profitable entity in accordance with the agreed
upon standards for the purchase of Tax Certificates.
For purposes hereof, Cause shall include the following events: (i) the
employee engages in conduct involving deceit, fraud, theft or other
dishonesty; (ii) the employee engages in willful misconduct or
willfully fails to perform his obligations pursuant to this
arrangement; or (iii) the employee is convicted of a felony.
<PAGE>
Mr. Gary Snyder
September 13, 1996
Page 3
8. During the course of this arrangement, you and Stein will be pursuing
the acquisition of Tax Certificates for CSC's benefit. At any time, you
or Stein may elect to separately account for and benefit from your
future production in separate divisions of CSC as mutually agreed by
the parties at that time; or you or Stein may unilaterally elect to
each have your future acquisitions conducted through separate
corporations of which you will each own 40% and Crusader will own 60%.
Any such change will not affect the current portfolio of Tax
Certificates held by CSC at that time.
Gary, I believe this properly sets forth the details we discussed regarding the
formation and operation of CSC. We are excited about the opportunity to work
with you to build a successful venture. Please indicate your agreement with this
arrangement by signing in the space provided below.
Very truly yours,
/s/ Joseph T. Crowley
Joseph T. Crowley
President
Accepted and Agreed to:
/s/ Gary Synder 10/2/97
- -------------------- ----------
Gary Snyder Date
<PAGE>
SHAREHOLDERS' AGREEMENT
THIS AGREEMENT is dated as of the 2nd day of October, 1996, by
and among ROBERT W. STEIN, an individual ("Stein"), GARY SNYDER, an individual
("Snyder"), CRUSADER BANK, FSB ("Crusader") and CRUSADER SERVICING CORPORATION
("CSC") (Crusader, Stein and any other person who subsequently becomes a
shareholder of CSC are sometimes hereinafter collectively called the
"Shareholders" or individually called a "Shareholder").
BACKGROUND
I. CSC was incorporated on July 30, 1996. As of the date
hereof, CSC is authorized to issue 1,000 shares of common stock at a par value
of $1.00 (the "Shares") and no Shares are issued and outstanding.
II. Stein and Snyder are experienced in the
identification, lien searching, purchase and collection of
delinquent property tax certificates.
III. Crusader, Stein and Snyder desire to create a business to
purchase and service delinquent property tax certificates to be conducted by
CSC.
IV. It is the intention of the parties hereto for Crusader to
fund $12,000 and Stein and Snyder to each fund $4,000 of capital to CSC.
V. In connection with such capital contributions, CSC will
issue 120 shares of common stock to Crusader and 40 shares of common stock to
each of Stein and Snyder.
VI. The parties desire to set forth their agreement as to the
issues of restrictions on transfer of stock, to provide for the continuity and
maintenance of the management, control, and operation of the business of CSC,
and to provide for certain other matters, all as set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants,
conditions and agreements herein contained, the parties hereto, each intending
to be legally bound hereby, agree as follows:
1. CSC Stock Issuance.
(a) Promptly following the execution of this Agreement and
the funding of the specified capital contributions
<PAGE>
by Crusader and Stein, CSC will issue 120 shares of common stock to Crusader and
40 shares of common stock to each of Stein and Snyder.
(b) The By-laws of CSC will provide for a five person Board
of Directors. The initial Board shall consist of Stein, Snyder, Joseph T.
Crowley, Jeffrey T. Hanuscin and Bruce A. Levy.
(c) In the event that the capital of CSC shall fall below
$1,000 at any time, Crusader, Stein and Snyder shall ratably contribute the
amount of additional capital necessary to bring the capital of CSC to $1,000
(each such event, a "Capital Call"). In the event that a Capital Call is
required, each party shall fund its respective pro rata share of the Capital
Call within thirty (30) days following the request therefor. In the event that
either party fails to timely fund its respective pro rata share of such Capital
Call as outlined above, the other may fund such pro rata share on behalf of the
non-contributing party. Such contribution shall be deemed to be a loan by the
contributing party to the non-contributing party. Such loan shall be due and
payable within thirty (30) days following the date of contribution, together
with interest at twelve percent (12%) per annum. If such sums are not then paid
when due, the contributing party shall, in addition to other remedies at law or
in equity, be automatically entitled, without the consent of the
non-contributing party, to the issuance by CSC of a note bearing interest at 12%
per annum, payable quarterly, and which shall be convertible into common stock
of CSC for up to three (3) years following the issuance thereof. The amount of
stock that can be converted under such notes shall be an amount equal to the
principal balance of the said notes, together with all accrued and unpaid
interest thereon, divided by the per share book value of the common stock of CSC
at the time of the issuance of the notes.
(d) Stein and Snyder each agrees to use his best efforts to
make CSC a profitable entity in accordance with the mutually agreed upon
standards for the purchase of Tax Certificates.
2. Representations and Warranties of Stein and Snyder. Stein
and Snyder each hereby makes the following representations and warranties to
Crusader and CSC, with knowledge of their reliance thereon:
(a) Each of Stein's and Snyder's, as the case may be,
decision to invest in CSC is based solely upon his own investigation of CSC and
Crusader and not upon any representations or warranties of CSC or Crusader
except as expressly set forth herein.
2
<PAGE>
(b) Stein and Snyder each acknowledges that CSC is a
closely held company and, accordingly that his investment therein is illiquid
and there is no established market for the sale of his investment interest
therein. Each party further acknowledges that the Shares have not been
registered with the Securities and Exchange Commission under the Securities Act
of 1933, as amended, nor is CSC under any applicable obligation to effect any
such registrations. The sale or other disposition of the shares is restricted as
stated in this Agreement.
(c) Each of Stein and Snyder is acquiring the common stock
of CSC for his own account and for investment purposes, and not with a view for
resale or distribution thereof.
3. Representations and Warranties of Crusader. Crusader and
CSC hereby make the following representations and warranties to each of Stein
and Snyder, with knowledge of his reliance thereon:
(a) Crusader is a duly chartered federal savings bank and
is duly organized, validly existing and in good standing under applicable
federal laws and regulations.
(b) Crusader and CSC have full power and authority to enter
into and perform this Agreement.
(c) Crusader representatives attended a meeting on June 4,
1996 with a representative of the Office of Thrift Supervision ("OTS") and
disclosed that Crusader, or an operating subsidiary of Crusader, intended to
purchase delinquent property tax certificates in New Jersey. The OTS
representative did not disclose any adverse regulatory action that would result
from such activity, except for the potential adverse impact of any real estate
acquired through foreclosure on Crusader's capital requirements. Crusader did
not request any written advice from the OTS with respect to its position on this
activity.
4. Restrictions on Transfer and Issuance. Except as expressly
provided in this Agreement, no Shareholder shall sell, assign, transfer, give,
bequeath, devise, donate or otherwise dispose of, or pledge, deposit or
otherwise encumber, in any way or manner whatsoever, whether voluntarily or
involuntarily (a "Transfer"), any of the Shares now or hereafter owned (of
record or beneficially) by him without the express prior written consent of the
other Shareholders. Shareholders shall Transfer Shares only in accordance with
the provisions of this Agreement.
(a) Restrictions on Shareholders. No Transfer permitted by
this Agreement shall be effective to vest any right, title or ownership of
Shares unless (i) the board of directors of CSC approves the Transfer, having
knowledge of the prospective
3
<PAGE>
transferee and (ii) the proposed transferee agrees to become bound by the terms
of this Agreement by signing a counterpart hereof and delivering the same to the
board of directors of CSC. For purposes of this Agreement, "person~ means any
individual, partnership, corporation, association, trust, estate, government or
other entity.
(b) Restriction on CSC. Except as expressly provided in
this Agreement, CSC shall not (i) cause or permit a Transfer of any Shares to be
made on its books, (ii) issue any shares of capital stock of CSC, whether by
original issue or in connection with the sale of shares now or hereafter held in
CSC's treasury, whether by sale, pursuant to a merger or otherwise, (iii) issue
any warrants, options or other rights to subscribe to or purchase additional
capital stock of CSC, (iv) create any securities, instruments or rights
convertible into capital stock of CSC, or (v) purchase, redeem or otherwise
acquire any shares of capital stock of CSC, unless any of the foregoing are
expressly permitted by the terms of this Agreement, subject in any event to the
rights of the Shareholders hereunder, if any.
5. Permitted Transfers. Subject to the restrictions contained
in paragraph 4(a) above, the other express provisions of this Agreement and
applicable law, (a) any Shareholder may Transfer his Shares to CSC or to any
existing Shareholder, or (b) Crusader may Transfer its shares to an Affiliate
without other Shareholder consent or to any related party with other Shareholder
prior consent, which such consent shall not be unreasonably withheld, or (c) any
Shareholder may transfer by creation of trust instruments, by will or other
estate planning device his Shares to members of his immediate family or (d)
shares may be transferred by succession to a guardian ad litem or other personal
representative in the event of a disability of a Shareholder, all without the
prior consent thereto of CSC or of any other Shareholder. For purposes of this
subparagraph, an Affiliate shall mean any person or entity with at least 80%
common voting ownership with Crusader, including constructive ownership.
6. Optional Purchases by the Other Shareholders and
Redemptions by CSC. In the event of an occurrence described in subparagraph 6(a)
or (b) below with respect to a Shareholder, the other Shareholders shall have
the right, but not the obligation, to purchase the Shares owned by such
Shareholder that are the subject of subparagraph 6(a) or (b) below, in
accordance with the terms set forth in Paragraph 9 below, while CSC, if such
other Shareholders fail to exercise such right to purchase such Shares, shall
have the right but not the obligation to purchase such Shares, in accordance
with the terms set forth in Paragraph 7 below.
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(a) Legal Proceedings Against Shareholders. The parties
agree that the interests of CSC and its Shareholders would be seriously affected
by any sale or disposition of any Shareholder's Shares by any legal or equitable
proceedings against such Shareholder, except as expressly permitted herein.
Accordingly, it is hereby covenanted and agreed that in the event that (i) any
Shareholder shall be adjudicated a bankrupt or make an assignment for the
benefit of creditors, or (ii) bankruptcy, insolvency, reorganization,
arrangement, debt, adjustment, liquidation or receivership proceedings in which
any Shareholder is alleged to be insolvent or unable to pay his debts as they
mature are instituted by or against such Shareholder and, if instituted against
such Shareholder, such Shareholder shall consent thereto or admit in writing the
material allegations of the petitions filed in said proceedings or said
proceedings shall remain undismissed for ninety days after commencement thereof,
or (iii) there is any entry of a decree or order for relief by a court having
jurisdiction in respect of any Shareholder in an involuntary case under the
federal bankruptcy laws against any Shareholder not dismissed within ninety days
or any Shareholder commences a voluntary case under such laws, or (iv) any of
the Shares of any Shareholder are attached and such attachment is not removed
within ninety days, or (v) any judgment is obtained in any legal or equitable
proceeding against any Shareholder, which judgment is not dismissed, stayed,
bonded or satisfied (other than by sale of the Shares) within ninety days of the
entry thereof or which is executed upon and the sale of any of such
Shareholder's Shares is contemplated or threatened under legal process as a
result of such judgment, or (vi) any execution process is issued against any
Shareholder or against any of his Shares and not dismissed, stayed, bonded or
satisfied within ninety days, or (vii) there is instituted by or against any
Shareholder any other form of legal proceeding or process by which any of the
Shares of such Shareholder may be sold, either voluntarily or involuntarily,
which is not dismissed within ninety days; provided, however, that an occurrence
described in preceding clauses (v) through (vii) shall not be deemed to have
occurred if it resulted from any legal proceeding between CSC and the
Shareholders or between Shareholders if such proceeding entails disputes of
ownership relating to CSC or the Shares.
(b) Voluntary Sale by a Shareholder. The voluntary sale of
Shares owned by any Shareholder.
7. Purchase Option Procedures in Case of Legal Proceedings or
Voluntary Sale. If any Shareholder shall at any time be subject to subparagraphs
6(a) or (b) above, the other Shareholders shall have options to purchase all of
such Shareholder's (the "Selling Shareholder") Shares and CSC shall have the
next option to redeem the Selling Shareholder's Shares as follows:
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(a) Options of the Offeree Shareholders. Upon the
occurrence of an event described in Paragraph 7 above, the Selling Shareholder
shall so notify the other Shareholders and CSC. Upon receipt of such notice by
the other Shareholders ("Offeree Shareholders") from the Selling Shareholder
that an event under Paragraph 6 has occurred, the Selling Shareholder shall be
deemed to have offered in writing to sell all, but not less than all, of his
Shares to the Offeree Shareholders at the price and upon the terms set forth in
Paragraph 8 below. For a period of thirty days after such offer by the Selling
Shareholder to the Offeree Shareholders, the Offeree Shareholders shall have
options, exercisable by written notice to the selling Shareholder with a copy to
CSC and to each of the other Offeree Shareholders, to accept the Selling
Shareholder's offer. Each Offeree Shareholder who shall exercise this option
shall agree, by doing so, to purchase that proportionate part of the Selling
Shareholder's Shares which the number of Shares owned by such Offeree
Shareholder bears to the total number of Shares owned by all Offeree
Shareholders (or in such other proportions as the Offeree Shareholders may agree
among themselves).
(b) Optional Redemption by CSC. In the event that one or
more of the Offeree Shareholders does not exercise his option in accordance with
subparagraph 7(a) above, CSC may provide the Selling Shareholder with a notice
of redemption of all of the Selling Shareholder's remaining Shares, within a
period of fifteen days following expiration of the thirty day period set forth
in subparagraph 7(a), at the price and upon the terms set forth in Paragraph 8
below.
(c) Acceptance of a Bona Fide Offer. If, at the end of the
option period described in subparagraph 7(a) above and the redemption period set
forth in the notice of redemption described in subparagraph 7(b) above, options
have not been exercised by the Offeree Shareholders to purchase all of the
Selling Shareholder's Shares, and a redemption by CSC of all of the Selling
Shareholder's Shares has not occurred, then at the election of the Selling
Shareholder, any Shares not so purchased or redeemed may be offered for sale by
the Selling Shareholder free and clear of the options of the Shareholders and
CSC set forth herein (but otherwise subject to the restrictions on
transferability contained in this Agreement) for a period of sixty days
thereafter, such sale to be for all, but not less than all, of his Shares to a
prospective purchaser at the price and upon the terms and conditions set forth
in such prospective purchaser's offer.
(d) Notwithstanding anything herein to the contrary, in the
event of Stein's or Snyder's death or total and permanent disability (as defined
for Social Security purposes), or the termination of Stein's or Snyder's
employment by CSC for
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cause, CSC shall be required to purchase such party's shares of CSC and such
party shall be required to sell his shares of CSC to CSC in accordance with the
price and terms set forth in Paragraph 8 hereunder.
8. Purchase Price and Terms.
(a) Time and Place for Settlement. Settlement for the
purchase of Shares by CSC or by a Shareholder pursuant to the options granted in
or the redemption permitted by Paragraph 7 above shall be made within sixty days
following (i) the date of exercise of the last option exercised or (ii) delivery
of a notice of redemption within the fifteen-day period described in
subparagraph 7(b) above. All settlements for the purchase or redemption of
Shares shall, unless otherwise agreed to by all of the purchasers and sellers,
be held at the principal executive offices of CSC during regular business hours.
The precise date and hour of settlement shall be fixed by the purchaser or
purchasers and/or the board of directors of CSC with respect to redemptions
(within the time limits allowed by the provision of this Agreement) by notice in
writing to the Selling Shareholder given at least five days in advance of the
Settlement date specified. In the event that more than one purchaser is involved
in a settlement and the purchasers cannot agree on a precise time of settlement,
the precise time of settlement (within the time limits allowed by the provisions
of this Agreement) shall be fixed by the board of directors of CSC by five or
more days' written notice to the purchasers and seller on the sixtieth day
following the date of exercise of the last option or election exercised.
(b) Delivery of Stock Certificates. At settlement, the
stock certificate or certificates representing the Shares being sold shall be
delivered to the purchaser or purchasers and/or CSC, as appropriate, duly
endorsed for transfer or with executed stock powers attached, with any necessary
documentary and transfer tax stamps affixed by the seller. The Selling
Shareholder, if a personal representative of a Shareholder, shall, upon request
of a purchaser, provide prior to the date of settlement evidence reasonably
satisfactory to the purchaser of the seller's legal status as personal
representative of such Shareholder. The terms of payment shall be in cash or by
certified check.
(c) Purchase Price. The purchase price per Share shall be
equal to the fair market value thereof. The fair market value shall be
determined jointly by the parties. In the event the parties are unable to agree
on the fair market value, it shall be determined by an independent appraiser
experienced in the valuation of financial service entities and the valuation of
delinquent property tax certificates. Such appraiser shall be
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mutually agreed upon by and between all Shareholders of CSC, or failing an
agreement, the Selling Shareholder and the purchaser will each choose its own
appraiser who will then select the appraiser to determine fair market value.
9. Copy of Agreement To Be Kept on File. CSC shall keep on
file at its principal executive offices, and will exhibit to any Shareholder or
his duly authorized representative at any and all reasonable times, an executed
copy of this Agreement and all amendments thereto.
10. Stock Certificates to Be marked With Legend. All
certificates representing Shares now outstanding or hereafter issued by CSC
shall be marked with the following legend:
"This certificate and the shares represented hereby are held
subject to the terms, covenants and conditions of an agreement
by and among this Company and its then shareholders, as it may
be amended from time to time, and may not be transferred or
disposed of except in accordance with the terms and provisions
thereof. A copy of said agreement and all amendments thereto
is on file and may be inspected at the principal executive
offices of the Company."
CSC shall issue replacement stock certificates without the foregoing legend to
any Shareholder upon request following termination of this Agreement.
11. Term of Agreement. This Agreement shall terminate upon the
first to occur of the following events:
(a) the written agreement by all of the Shareholders of CSC
who are, at that time, bound by the terms of this Agreement;
(b) the dissolution, bankruptcy, or receivership of CSC; or
(c) the cessation of CSC's business, whether by sale of
assets, liquidation, or otherwise.
12. Rights, Obligations and Remedies. Each Shareholder shall
assist in causing CSC to act so as to accomplish the corporate actions
contemplated by this Agreement. The rights and obligations under, and the
remedies to enforce, this Agreement are joint and several as to CSC and each of
its Shareholders with each being completely free to enforce any or all of the
rights or obligations under this Agreement against any of the others with
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<PAGE>
or without the concurrence or joinder of any of the others. The Shares are
unique, and recognizing that the remedy at law for any breach or threatened
breach by a party hereto of the covenants and agreements set forth in this
Agreement would be inadequate and that any such breach or threatened breach
would cause such immediate and permanent damage as would be irreparable and the
exact amount of which would be impossible to ascertain, the parties hereto agree
that in the event of any breach or threatened breach of any such covenant or
agreement, in addition to any and all other legal and equitable remedies which
may be available, any party hereto may specifically enforce the terms of this
Agreement and may obtain temporary and/or permanent injunctive relief without
the necessity of proving actual damage by reason of any breach or threatened
breach hereof and, to the extent permissible under the applicable statutes and
rules of procedure, a temporary injunction may be granted immediately upon the
commencement of any such suit and without notice.
13. Resignations. If any Selling Shareholder is an officer,
director, employee of or under a consulting agreement with CSC, he must, at the
request of the non-resigning members of the board of directors of CSC, submit to
the Secretary of CSC his resignation as an officer and/or director, as the case
may be, before the sale of his Shares becomes effective, and the Secretary is
hereby authorized to refuse to effect a transfer of the Selling Shareholder's
Shares on the books of CSC until such resignation as aforesaid is delivered to
said Secretary.
14. Subsequent Shareholders to Become Bound. Any person or
entity not an original signatory hereto who becomes a Shareholder (of record or
beneficially) shall be bound by all of the terms and provisions of this
Agreement. Before any person or entity not a party to this Agreement, including
any person or entity to whom transfers of Shares may be made hereunder, may be
entitled to be a Shareholder (of record or beneficially) of CSC, such person or
entity shall be required first to execute and deliver to CSC an agreement
pursuant to which such person or entity agrees to be bound by all of the terms
and conditions of this Agreement (as it may have then been amended), and the
failure of any such person or entity so to do shall preclude such person or
entity from becoming a Shareholder (of record or beneficially) of CSC.
15. Entire Agreement; Amendment, Modification and Termination.
This Agreement contains the entire understanding among the parties hereto with
respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements and understandings, inducements or conditions,
express or implied, oral or written, except as herein contained. The express
terms hereof control and supersede any course of performance and/or usage of the
trade inconsistent with any of the terms
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hereof. This Agreement may be amended, modified or terminated at any time or
times by the unanimous agreement in writing of CSC and its then Shareholders. No
such amendment, modification or termination, nor any termination pursuant to the
terms hereof, shall affect the right of any person or entity to receive, or the
obligation of any person or entity to pay, on the terms and conditions of this
Agreement, the purchase price for Shares sold pursuant to this Agreement prior
to such amendment, modification or termination, or the right or obligation of
any person or entity to sell or purchase Shares, on the terms and conditions of
this Agreement, if the event giving rise to such right or obligation to sell or
purchase Shares has in fact taken place prior to such amendment, modification or
termination.
16. Indulgences, Waivers. Neither the failure nor any delay on
the part of any party to exercise any right, remedy, power or privilege under
this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or of any other right, remedy, power or privilege,
nor shall any waiver of any right, remedy, power or privilege with respect to
any occurrence be construed as a waiver of such right, remedy, power or
privilege with respect to any other occurrence. No waiver shall be effective
unless it is in writing and is signed by the party asserted to have granted such
waiver.
17. Controlling Law. This Agreement and all questions relating
to its validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be governed by
and construed in accordance with the laws of the Commonwealth of Pennsylvania,
notwithstanding any conflict-of-laws doctrines of such state or any other
jurisdiction to the contrary, and without the aid of any canon, custom or rule
of law requiring construction against the draftsman. Each Shareholder hereby
consents to the exclusive jurisdiction of the Courts of the Commonwealth of
Pennsylvania and the United States District Court for the Eastern District of
Pennsylvania in any and all actions, disputes or controversies relating to this
Agreement and irrevocably consents to the service of process by certified or
registered mail, return receipt requested, to such Shareholder at his address
set forth in the books and records of CSC.
18. Notices. All notices, requests, demands and other
communications required or permitted under this Agreement shall be in writing
and shall be deemed to have been duly given, made and received only when
delivered (personally, by courier service such as Federal Express, or by other
messenger) or when deposited in the United States mails, registered or certified
mail, postage prepaid, return receipt requested, addressed if to any
Shareholder, to the most current residence address to such
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Shareholder reflected in the books and records of CSC, and if to CSC, to the
attention of the Chairman of the board of directors. Any party may alter the
address to which communications or copies are to be sent by giving notice of
such change of address in conformity with the provisions of this paragraph for
the giving of notice.
19. Binding Nature of Agreement; No Assignment. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns, except that
no party may assign or transfer its rights or obligations under this Agreement,
other than the permitted assignment by Crusader, at Crusader's option, of its
interest in CSC to an affiliated company or related party of Crusader.
20. Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
21. Paragraph Headings. The paragraph headings in this
Agreement are for convenience only; they form no part of this Agreement and
shall not affect its interpretation.
22. Gender. Words used herein, regardless of the number and
gender specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other general, masculine, feminine or
neuter, as the context indicates is appropriate.
23. Number of Days. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and holidays; provided, however, that if the final day of any time
period falls on a Saturday, Sunday or holiday on which Federal banks are or may
elect to be closed, then the final day shall be deemed to be the next day which
is not a Saturday, Sunday or such holiday.
24. Arbitration. In the event that a dispute arises under the
terms of this Agreement, the parties hereto agree to resolve such dispute first
through arbitration before resorting to litigation. In such event, the dispute
shall be submitted to arbitration utilizing the prevailing rules and procedures
of the American Arbitration Association. The Arbitration shall be conducted in
Pennsylvania.
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement on the date first above written.
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ATTEST: CRUSADER SERVICING CORPORATION, a
Pennsylvania corporation
By: /s/ Joseph T. Crowley By: /s/ Robert W. Stein
-------------------------- --------------------------
Title: Secretary Title: President
[CORPORATE SEAL]
CRUSADER BANK, FSB,
By: [illegible] By: /s/ Joseph T. Crowley
-------------------------- --------------------------
Title: Secretary Title: President
[CORPORATE SEAL]
WITNESSED:
/s/ Gary Snyder /s/ Robert W. Stein
- ------------------------ -------------------------
ROBERT W. STEIN
WITNESSED:
/s/ Robert W. Stein /s/ Gary Snyder
- ------------------------ -------------------------
GARY SNYDER
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Crusader Bank
Since 1943
July 31, 1997
Mr. Michael D.Kushner
Mr. Gregory K. Kushner
Merit Financial Services, Inc.
1003 Delaware Ave.
Suite 101
Wilmington, DE 19806
Dear Gentlemen:
This letter will set forth our agreement with respect to the establishment and
operation of Crusader Mortgage Corporation of Delaware (CMC):
1. CMC will operate as a retail originator of conforming and
non-conforming residential mortgages. You will each own 24.5% of the
stock of CMC and Crusader, or its assignee, will own 51%.
2. In accordance with the development of mutually agreeable underwriting
standards, Crusader will agree to originate and fund or broker all
loans underwritten by CMC. Crusader will not charge CMC for the
warehousing of the loans, but will retain the interest earned in
connection therewith. CMC may designate whether the loan is to be
retained by Crusader based on the pricing set forth in its current rate
schedule, or whether the loan is to be sold to a third party investor,
subject to Crusader's ability to enter into an agreement with such
investor satisfactory to Crusader. If retained by Crusader, Crusader
will pass along any proceeds due CMC at that time. If the loan is to be
sold to an investor, Crusader will pass along any proceeds due CMC upon
receipt of such proceeds. CMC will be responsible for any losses
incurred in connection with the loans.
3. We will initially capitalize CMC in proportion to our capital stock
interests based on the projected operating shortfalls before CMC is
able to consistently generate positive cash flow. Such initial
capitalization is anticipated to total $5,000. We will also enter into
a Shareholders Agreement which, among other things, will set forth our
ongoing responsibility to fund further capital and operating needs of
CMC.
<PAGE>
Page 2
4. CMC will operate its offices at 1003 Delaware Avenue and will be
responsible for its own operating expenses. To the extent CMC requests
Crusader to perform services on its behalf, e.g. payroll, participation
in benefit plans, accounting, Crusader will pass along its actual
direct costs associated therewith.
5. Your compensation will be payable through bi-weekly salaries.
Crusader's compensation will be payable in the form of a management
fee. The aggregate compensation to the two of you and the compensation
to Crusader will be paid equally except that during the first 12 months
of operation, you will be entitled to a combined bonus equal to 50% of
the first $10,000 of monthly earnings (net of any prior month
losses).The initial combined level of compensation (excluding the
special first year bonus) will be set at $ 10,000 per month. This
amount may be increased in accordance with the available cash flow of
CMC by mutual agreement of the parties. In general, the intention of
CMC will be to distribute its full earnings absent what is necessary to
fund ongoing operating expenses.
Gentlemen, I believe this properly sets forth the details we discussed regarding
the formation and operation of CMC. We are excited about the opportunity to work
with you to build a successful mortgage origination operation.
Please indicate your acceptance of this agreement by signing in the space
provided below.
Very truly Yours,
/s/ Joseph T. Crowley
Joseph T. Crowley
President
:mtp
Accepted and Agreed to:
/s/ Michael D. Kushner 8-21-97 /s/ Gregory K. Kushner 8-21-97
- ----------------------- -------- ----------------------- ----------
Michael D. Kushner Date Gregory K. Kushner Date
<PAGE>
SUBSCRIPTION AND SHAREHOLDERS' AGREEMENT
THIS AGREEMENT is dated as of the 16th day of September, 1997, by and
among MICHAEL D. KUSHNER, an individual, ("M. Kushner"), GREGORY K. KUSHNER, an
individual ("G. Kushner"), CRUSADER BANK, FSB ("Crusader") and CRUSADER MORTGAGE
CORPORATION OF DELAWARE ("CMC") (Crusader, M. Kushner, G. Kushner and any other
person who subsequently becomes a shareholder of CMC are sometimes hereinafter
collectively called the "Shareholders" or individually called a "Shareholder").
BACKGROUND
I. CMC was incorporated on September 15, 1997. As of the date hereof,
CMC Is authorized to issue 1,000 shares of common stock at a par value of $1.00
(the "Shares") and no shares are issued and outstanding.
II. M. Kushner and G. Kushner are experienced in the marketing,
origination, underwriting and processing of conforming and non-conforming
residential mortgage loans.
III. Crusader, M. Kushner and G. Kushner desire to create a retail
conforming and non-conforming residential mortgage loan business to be conducted
in Delaware and such other areas as are mutually agreed upon by the parties. It
is understood by the parties that CMC's activities will represent an additional
business venture for Crusader and shall not represent a substitute or
contravention of Crusader's existing business.
IV. It is the intention of the parties hereto for Crusader to fund
$2,550 and M. Kushner and G. Kushner to each fund $1,225 of capital to CMC.
V. In connection with such capital contributions, CMC will issue 510
shares of common stock to Crusader and 245 shares of common stock to each of M.
Kushner and G. Kushner.
VI. The parties desire to set forth their agreement as to the issues of
restrictions on transfer of stock, to provide for the continuity and maintenance
of the management, control, and operation of the business of CMC, and to provide
for certain other matters, all as set forth herein.
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants, conditions
and agreements herein contained, the parties hereto, each intending to be
legally bound hereby, agree as follows:
1. CMC Stock Issuance.
(a) Promptly following the execution of this Agreement and the
funding of the specified capital contributions by the parties, CMC will issue
510 shares of common stock to Crusader and 245 shares of common stock to each of
M. Kushner and G. Kushner.
(b) The By-laws of CMC will be amended to provide for a five person
Board of Directors. The initial Board shall consist of M. Kushner, G. Kushner
Jeffrey K. Rafsky, Joseph T. Crowley, and Bruce A. Levy.
(c) In the event that in the course of operating CMC, Crusader, M.
Kushner and G. Kushner jointly determine that additional capital is necessary or
advisable, they shall jointly determine the amount of additional capital to be
contributed by Shareholders ratably to CMC (each such event, a "Capital Call"),
provided that a Capital Call shall be mandatory if the capital shall be less
than $5,000 at any time. In the event that a Capital Call is required, each
party shall fund its respective pro rata share of the Capital Call within ten
(10) days following the request therefor. In the event that any party fails to
timely fund its respective pro rata share of such Capital Call as outlined
above, the others may fund such pro rata share on behalf of the non-contributing
party. Such contribution shall be deemed to be a loan by the contributing
party(s) to the non-contributing party. Such loan shall be due and payable
within thirty (30) days following the date of contribution, together with
interest at fifteen percent ( 15%) per annum. If such sums are not then paid
when due, the contributing party(s) shall, in addition to other remedies at law
or in equity, be automatically entitled, without the consent of the
noncontributing party, for as long as any amounts are outstanding under the
loan, to the receipt of payment by CMC of any compensation or any distributions
of income that would otherwise be payable to the non-contributing party by CMC
or to any distributions resulting from the sale or liquidation of the
non-contributing party's interest in CMC.
2. M. Kushner and G. Kushner each agrees to dedicate his full business
time and effort to the development and operation of CMC's business and during
the period in which he maintains an ownership position in CMC and for a
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<PAGE>
period of three months thereafter, will not solicit, place or refer any mortgage
loans except on behalf of CMC, nor will he accept any compensation in connection
with the placement of any mortgage loans, other than through CMC.
Notwithstanding the foregoing, M. Kushner and G. Kushner shall not be restricted
from maintaining their ownership position in either Brandywine, LLC or Merit
Financial Corporation, provided no loans that could be placed with CMC are
referred by either party to Brandywine, LLC, Merit Financial Corporation or
Premier Mortgage, and shall not be restricted from operating an insurance sales
agency, provided their participation in such agency does not materially
interfere with their responsibilities to CMC. To the extent either M Kushner or
G. Kushner refers any mortgage loans to CMC during the three month period
following the termination of his ownership position in CMC and such loan was not
determined by CMC to be a pipeline loan, CMC shall pay such party a placement
fee consistent with the fee it would pay a third-party loan officer or other
referring party at that time.
3. Representations and Warranties of M.Kushner and G. Kushner. M.
Kushner and G. Kushner each hereby makes the following representations and
warranties to Crusader and CMC, with knowledge of their reliance thereon:
(a) Each of M. Kushner's and G. Kushner's decision to invest in CMC
is based solely upon his own investigation of CMC and Crusader and not upon any
representations or warranties of CMC or Crusader except as expressly set forth
herein.
(b) Each of the parties is a qualified investor for purposes of any
applicable federal and state securities laws. Each of the parties, is a
sophisticated investor who is aware that his investment in CMC is a high risk
transaction and that his investment may be lost if the operation of CMC is not
successful. Each party acknowledges that CMC is a closely held company and,
accordingly that his investment therein is illiquid and there is no established
market for the sale of his investment interest therein and that the investment
is reasonable in relation to his net worth. Each party further acknowledges that
the Shares have not been registered with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, nor is CMC under any applicable
obligation, to effect any such registrations. The sale or other disposition of
the shares is restricted as stated in this Agreement.
(c) Each of M. Kushner and G. Kushner is acquiring the common stock
of CMC for his own account and for investment purposes, and not with a view for
resale or distribution thereof.
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4. Representations and Warranties of Crusader. Crusader and CMC hereby
make the following representations and warranties to each of M. Kushner and G.
Kushner, with knowledge of his reliance thereon:
(a) Crusader is a duly chartered federal savings bank and is duly
organized, validly existing and in good standing under applicable federal laws
and regulations.
(b) Crusader and CMC have full power and authority to enter into and
perform this Agreement.
(c) To the best of their knowledge, there is no pending or
threatened litigation against Crusader.
5. Restrictions on Transfer and Issuance. Except as expressly provided
in this Agreement, no Shareholder shall sell, assign, transfer, give, bequeath,
devise, donate or otherwise dispose of, or pledge, deposit or otherwise
encumber, in any way or manner whatsoever, whether voluntarily or involuntarily
(a "Transfer"), any of the Shares now or hereafter owned (of record or
beneficially) by him without the express prior written consent of the other
Shareholders. Shareholders shall Transfer Shares only in accordance with the
provisions of this Agreement.
(a) Restrictions on Shareholders. Shareholders shall not Transfer
any Shares to any person except as expressly permitted herein. No Transfer
permitted by this Agreement shall be effective to vest any right, title or
ownership of Shares unless (i) the board of directors of CMC approves the
Transfer, having knowledge of the prospective transferee and (ii) the proposed
transferee agrees to become bound by the terms of this Agreement by signing a
counterpart hereof and delivering the same to the board of directors of CMC. For
purposes of this Agreement, "person" means any individual, partnership,
corporation, association, trust, estate, government or other entity.
(b) Restriction on CMC. Except as expressly provided in this
Agreement, CMC shall not (i) cause or permit a Transfer of any Shares to be made
on its books, (ii) issue any shares of capital stock of CMC, whether by original
issue or in connection with the sale of shares now or hereafter held in CMC's
treasury, whether by sale, pursuant to a merger or otherwise, (iii) issue any
warrants, options or other rights to subscribe to or purchase additional capital
stock of CMC, (iv) create any securities, instruments or rights convertible into
capital stock of CMC, or (v) purchase, redeem or otherwise acquire any shares of
capital stock of CMC, unless any of the foregoing are expressly permitted by the
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terms of this Agreement, subject in any event to the rights of the Shareholders
hereunder, if any.
6. Permitted Transfers. Subject to the restrictions contained in
paragraph 5 (a) above, the other express provisions of this Agreement and
applicable law, (a) any Shareholder may Transfer his Shares to CMC or to any
existing Shareholder, or (b) Crusader may Transfer its shares to an affiliated
company or related party, or (c) any Shareholder may transfer by creation of
trust instruments, by will or other estate planning device his Shares to members
of his immediate family or (d) shares may be transferred by succession to a
guardian ad litem or other personal representative in the event of a disability
of a Shareholder, all without the prior consent thereto of CMC or of any other
Shareholder.
7. Optional Purchases by the Other Shareholders and Redemptions by CMC.
In the event of an occurrence described in subparagraph 8(a) or (b) below with
respect to a Shareholder, the other Shareholders shall have the right, but not
the obligation, to purchase the Shares owned by such Shareholder that are the
subject of subparagraph 7(a) or (b) below, in accordance with the terms set
forth in Paragraph 8 below, while CMC, if such other Shareholders fail to
exercise such right to purchase such Shares, shall have the right but not the
obligation to purchase such Shares, in accordance with the terms set forth in
Paragraph 8 below.
(a) Legal Proceedings Against Shareholders. The parties agree that
the interests of CMC and its Shareholders would be seriously affected by any
sale or disposition of any Shareholder's Shares by any legal or equitable
proceedings against such Shareholder, except as expressly permitted herein.
Accordingly, the right to purchase Shares set forth in this Paragraph 7 shall
become effective in the event that (i) any Shareholder shall be adjudicated a
bankrupt or make an assignment for the benefit of creditors, or (ii) bankruptcy,
insolvency, reorganization, arrangement, debt, adjustment, liquidation or
receivership proceedings in which any Shareholder is alleged to be insolvent or
unable to pay his debts as they mature are instituted by or against such
Shareholder and, if instituted against such Shareholder, such Shareholder shall
consent thereto or admit in writing the material allegations of the petitions
filed in said proceedings or said proceedings shall remain undismissed for
ninety days after commencement thereof, or (iii) there is any entry of a decree
or order for relief by a court having jurisdiction in respect of any Shareholder
in an involuntary case under the federal bankruptcy laws against any Shareholder
not dismissed within ninety days or any Shareholder commences a voluntary case
under such laws, or (iv) any of the Shares of any Shareholder are attached and
such attachment is not removed within ninety days, or (v) any judgment is
obtained in any legal or equitable proceeding
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against any Shareholder, which judgment is not dismissed, stayed, bonded or
satisfied (other than by sale of the Shares) within ninety days of the entry
thereof or which is executed upon and the sale of any of such Shareholder's
Shares is contemplated or threatened under legal process as a result of such
judgment, or (vi) any execution process is issued against any Shareholder or
against any of his Shares and not dismissed, stayed, bonded or satisfied within
ninety days; provided, however, that an occurrence described in preceding
clauses (v) through (vi) shall not be deemed to have occurred if it resulted
from any legal proceeding between CMC and the Shareholders or between
Shareholders if such proceeding entails disputes of ownership relating to CMC or
the Shares.
(b) Voluntary Sale by a Shareholder. The execution of an agreement
for the voluntary sale of Shares owned by any Shareholder.
8. Purchase Option Procedures in Case of Legal Proceedings or Voluntary
Sale. If any Shareholder shall at any time be subject to subparagraphs 7(a) or
(b) above, the other Shareholders shall have options to purchase all of such
Shareholder's (the "Selling Shareholder") Shares and CMC shall have the next
option to redeem the Selling Shareholder's Shares as follows:
(a) Options of the Offeree Shareholders. Upon the occurrence of an
event described in Paragraph 7 above, the Selling Shareholder shall so notify
the other Shareholders and CMC. Upon receipt of such notice by the other
Shareholders ("Offeree Shareholders") from the Selling Shareholder that an event
under Paragraph 9 has occurred, the Selling Shareholder shall be deemed to have
offered in writing to sell all, but not less than all, of his Shares to the
Offeree Shareholders at the price and upon the terms set forth in Paragraph 9
below. For a period of thirty days after such offer by the Selling Shareholder
to the Offeree Shareholders, the Offeree Shareholders shall have options,
exercisable by written notice to the selling Shareholder with a copy to CMC and
to each of the other Offeree Shareholders, to accept the Selling Shareholder's
offer. Each Offeree Shareholder who shall exercise this option shall agree, by
doing so, to purchase that proportionate part of the Selling Shareholder's
Shares which the number of Shares owned by such Offeree Shareholder bears to the
total number of Shares owned by all Offeree Shareholders (or in such other
proportions as the Offeree Shareholders may agree among themselves).
(b) Optional Redemption by CMC. In the event that one or more of the
Offeree Shareholders does not exercise his option in accordance with
subparagraph 8(a) above, CMC may provide the Selling Shareholder with a notice
of redemption of all of the Selling Shareholder's remaining Shares, within a
period
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of fifteen days following expiration of the thirty-day period set forth in
subparagraph 8(a), at the price and upon the terms set forth in Paragraph 9
below.
(c) Acceptance of a Bona Fide Offer. If, at the end of the option
period described in subparagraph 8(a) above and the redemption period set forth
in the notice of redemption described in subparagraph 8(b) above, options have
not been exercised by the Offeree Shareholders to purchase all of the Selling
Shareholder's Shares, and a redemption by CMC of all of the Selling
Shareholder's Shares has not occurred, then at the election of the Selling
Shareholder, any Shares not so purchased or redeemed may be offered for sale by
the Selling Shareholder free and clear of the options of the Shareholders and
CMC set forth herein (but otherwise subject to the restrictions on
transferability contained in this Agreement) for a period of sixty days
thereafter, such sale to be for all, but not less than all, of his Shares to a
prospective purchaser at the price and upon the terms and conditions set forth
in such prospective purchaser's offer.
9. Purchase Price and Terms.
(a) Time and Place for Settlement. Settlement for the purchase of
Shares by CMC or by a Shareholder pursuant to the options granted in or the
redemption permitted by Paragraph 8 above shall be made within sixty days
following (i) the date of exercise of the last option exercised or (ii) delivery
of a notice of redemption within the fifteen-day period described in
subparagraph 8(b) above. All settlements for the purchase or redemption of
Shares shall, unless otherwise agreed to by all of the purchasers and sellers,
be held at the principal executive offices of CMC during regular business hours.
The precise date and hour of settlement shall be fixed by the purchaser or
purchasers and/or the board of directors of CMC with respect to redemptions
(within the time limits allowed by the provision of this Agreement) by notice in
writing to the Selling Shareholder given at least five days in advance of the
Settlement date specified. In the event that more than one purchaser is involved
in a settlement and the purchasers cannot agree on a precise time of settlement,
the precise time of settlement (within the time limits allowed by the provisions
of this Agreement) shall be fixed by the board of directors of CMC by five or
more days' written notice to the purchasers and seller on the sixtieth day
following the date of exercise of the last option or election exercised.
(b) Delivery of Stock Certificates. At settlement, the stock
certificate or certificates representing the Shares being sold shall be
delivered to the purchaser or purchasers and/or CMC, as appropriate, duly
endorsed for transfer or with executed stock powers attached, with any necessary
documentary and transfer tax stamps affixed by the seller. The Selling
Shareholder, if a personal
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representative of a Shareholder, shall, upon request of a purchaser, provide
prior to the date of settlement evidence reasonably satisfactory to the
purchaser of the seller's legal status as personal representative of such
Shareholder. The terms of payment shall be in cash or by certified check.
(c) Purchase Price. The purchase price per Share shall be equal to
the book value thereof, plus the proportional value of the loan pipeline as
agreed upon by the parties. If the parties cannot agree on the value of the
pipeline, the value shall be determined 90 days after settlement based on the
actual proceeds by CMC through that date with respect thereto, net of a
processing and servicing fee equal to 40% of such proceeds. In such event,
payment of the purchase price attributable to the value of the loan pipeline
shall be made 105 days after the settlement date.
10. Copy of Agreement To Be Kept on File. CMC shall keep on file at
its principal executive offices, and will exhibit to any Shareholder or his duly
authorized representative at any and all reasonable times, an executed copy of
this Agreement and all amendments thereto.
11. Stock Certificates to Be marked With Legend. All certificates
representing Shares now outstanding or hereafter issued by CMC shall be marked
with the following legend:
"This certificate and the shares represented hereby are held subject to
the terms, covenants and conditions of an agreement by and among this
Company and its then shareholders, as it may be amended from time to
time, and may not be transferred or disposed of except in accordance
with the terms and provisions thereof. A copy of said agreement and all
amendments thereto is on file and may be inspected at the principal
executive offices of the Company."
CMC shall issue replacement stock certificates without the foregoing legend to
any Shareholder upon request following termination of this Agreement.
12. Term of Agreement. This Agreement shall terminate upon the first to
occur of the following events:
(a) the written agreement by all of the Shareholders of CMC who are,
at that time, bound by the terms of this Agreement;
(b) the dissolution, bankruptcy, or receivership of CMC; or
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(c) the cessation of CMC's business, whether by sale of assets,
liquidation, or otherwise.
13. Rights, Obligations and Remedies. Each Shareholder shall assist in
causing CMC to act so as to accomplish the corporate actions contemplated by
this Agreement. The rights and obligations under, and the remedies to enforce,
this Agreement are joint and several as to CMC and each of its Shareholders with
each being completely free to enforce any or all of the rights or obligations
under this Agreement against any of the others with or without the concurrence
or joinder of any of the others. The Shares are unique, and recognizing that the
remedy at law for any breach or threatened breach by a party hereto of the
covenants and agreements set forth in this Agreement would be inadequate and
that any such breach or threatened breach would cause such immediate and
permanent damage as would be irreparable and the exact amount of which would be
impossible to ascertain, the parties hereto agree that in the event of any
breach or threatened breach of any such covenant or agreement, in addition to
any and all other legal and equitable remedies which may be available, any party
hereto may specifically enforce the terms of this Agreement and may obtain
temporary and/or permanent injunctive relief without the necessity of proving
actual damage by reason of any breach or threatened breach hereof and, to the
extent permissible under the applicable statutes and rules of procedure, a
temporary injunction may be granted immediately upon the commencement of any
such suit and without notice.
14. Resignations. If any Selling Shareholder, or, in the case of a
corporate or LLC shareholder, any shareholder or director of the Selling
Shareholder is an officer, director, employee of or under a consulting agreement
with CMC, he must, at the request of the non-resigning members of the board of
directors of CMC, submit to the Secretary of CMC his resignation as an officer
and/or director, as the case may be, before the sale of his Shares becomes
effective, and the Secretary is hereby authorized to refuse to effect a transfer
of the Selling Shareholder's Shares on the books of CMC until such resignation
as aforesaid is delivered to said Secretary.
15. Subsequent Shareholders to Become Bound. Any person or entity not
an original signatory hereto who becomes a Shareholder (of record or
beneficially) shall be bound by all of the terms and provisions of this
Agreement. Before any person or entity not a party to this Agreement, including
any person or entity to whom transfers of Shares may be made hereunder, may be
entitled to be a Shareholder (of record or beneficially) of CMC, such person or
entity shall be required first to execute and deliver to CMC an agreement
pursuant to which such person or entity agrees to be bound by all of the terms
and conditions of this Agreement (as it may have then been amended), and the
failure of any such person
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or entity so to do shall preclude such person or entity from becoming a
Shareholder (of record or beneficially) of CMC.
16. Entire Agreement; Amendment, Modification and Termination. This
Agreement contains the entire understanding among the parties hereto with
respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements and understandings, inducements or conditions,
express or implied, oral or written, except as herein contained or as contained
in the letter agreement dated July 9, 1997, a copy of which is attached hereto
as exhibit A. The express terms hereof control and supersede any course of
performance and/or usage of the trade inconsistent with any of the terms hereof.
This Agreement may be amended, modified or terminated at any time or times by
the unanimous agreement in writing of CMC and its then Shareholders. No such
amendment, modification or termination, nor any termination pursuant to the
terms hereof, shall affect the right of any person or entity to receive, or the
obligation of any person or entity to pay, on the terms and conditions of this
Agreement, the purchase price for Shares sold pursuant to this Agreement prior
to such amendment, modification or termination, or the right or obligation of
any person or entity to sell or purchase Shares, on the terms and conditions of
this Agreement, if the event giving rise to such right or obligation to sell or
purchase Shares has in fact taken place prior to such amendment, modification or
termination.
17. Indulgences, Waivers. Neither the failure nor any delay on the part
of any party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
18. Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be governed by
and construed in accordance with the laws of the Commonwealth of Pennsylvania.
Each Shareholder hereby consents to the exclusive jurisdiction of the Courts of
the Commonwealth of Pennsylvania and the United States District Court for the
Eastern District of Pennsylvania in any and all actions, disputes or
controversies relating to this Agreement and irrevocably consents to the service
of process by certified or registered mail, return receipt requested, to such
Shareholder at his address set forth in the books and records of CMC.
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19. Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received only when delivered
(personally, by courier service such as Federal Express, or by other messenger)
or when deposited in the United States mails, registered or certified mail,
postage prepaid, return receipt requested, addressed if to any Shareholder, to
the most current residence address to such Shareholder reflected in the books
and records of CMC, and if to CMC, to the attention of the Chairman of the board
of directors. Any party may alter the address to which communications or copies
are to be sent by giving notice of such change of address in conformity with the
provisions of this paragraph for the giving of notice.
20. Binding Nature of Agreement; No Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, personal representatives, successors and assigns, except that no party
may assign or transfer its rights or obligations under this Agreement, other
than the permitted assignment by Crusader, at Crusader's option, of its interest
in CMC to an affiliated company or related party of Crusader.
21. Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
22. Paragraph Headings. The paragraph headings in this Agreement are
for convenience only; they form no part of this Agreement and shall not affect
its interpretation.
23. Gender. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other general, masculine, feminine or neuter, as the
context indicates is appropriate.
24. Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays and
holidays; provided, however, that if the final day of any time period falls on a
Saturday, Sunday or holiday on which Federal banks are or may elect to be
closed, then the final day shall be deemed to be the next day which is not a
Saturday, Sunday or such holiday.
25. Arbitration. In the event that a dispute arises under the terms of
this Agreement, the parties hereto agree to resolve such dispute through
arbitration. In
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such event, the dispute shall be submitted to arbitration utilizing the
prevailing rules and procedures of the American Arbitration Association. The
Arbitration shall be conducted in Pennsylvania.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement on
the date first above written.
ATTEST: CRUSADER MORTGAGE CORPORATION OF
DELAWARE, a Delaware Corporation
By: /s/ Bruce A. Levy By: /s/ Gregory K. Kushner V.P.
---------------------------- --------------------------------
Title: Title:
[CORPORATE SEAL]
CRUSADER BANK, FSB
By: /s/ Bruce A. Levy By:/s/ Joseph T. Crowley
---------------------------- ---------------------------------
Title: Director Joseph T. Crowley, President
[CORPORATE SEAL]
WITNESSED:
[illegible] /s/ Michael D. Kushner
- ------------------------- -----------------------------
MICHAEL D. KUSHNER
[illegible] /s/ Gregory K. Kushner
- ------------------------- -----------------------------
GREGORY K. KUSHNER
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Crusader Bank
Since 1943
November 7, 1997
Dr. Haiching Zhao, Ph.D.
President
National Chinese Service Corporation
5335 Wisconsin Ave, N.W.
Suite 440
Washington, DC 20015-2034
Dear Haiching:
This letter will set forth our agreement with respect to the establishment and
operation of National Chinese Mortgage Corporation ("NCM").
1. NCM will operate as a retail originator, processor and
underwriter of conforming and non-conforming residential
mortgages, utilizing FNMA Desktop Underwriting Software in
connection with such loans where it is applicable. You or,
at your option subject to the provisions of the Subscription
and Shareholders' Agreement, NCS will own 49% of the stock
of NCM and Crusader, or its affiliate assignee, will own 51%
of the stock of NCM.
2. In accordance with the development and application of
mutually agreeable underwriting standards, Crusader will
originate and fund all loans underwritten by NCM (the
"Loans"). It is contemplated that NCM will primarily market
to the membership base of National Chinese Service
Corporation ("NCS"), and that FNMA will incorporate certain
underwriting variances into its Desktop Underwriting
Software that are necessary to effectively market
residential mortgages to NCS' membership. Until July 1,
1998, the financial arrangements among NCM, NCS and Crusader
with respect to any Loans originated will be as follows:
a. For all conforming credit loans (i.e. conforming loans
sold to FNMA and jumbo loans sold to FNMA conduits),
NCM will be responsible for and bear all costs of
origination and processing of the Loans. In connection
with the funding of each Loan, Crusader will retain a
funding fee equal to .25% of the principal balance of
the Loan, plus an underwriting review fee of $375.
Crusader will pay NCM the balance of its proceeds from
<PAGE>
the sale of any Loans, plus the service premiums
available based on the volume delivered.
b. For all nonconforming credit loans, Crusader will be
responsible for the underwriting of the Loans, and will
provide NCS with necessary assistance in the processing of the
Loans. Crusader will pass along to NCM 1% of the principal
balance of any nonconforming credit Loans it generates that
are referred by NCS.
c. NCM will contract with NCS for the processing and marketing of
Loans, and will compensate NCS with a fee equal to 1% of the
principal balance of any Loans it generates, but not to exceed
the actual proceeds realized by NCM in connection with the
sale of the Loans. Such calculation shall be made on a monthly
basis.
3. Effective July 1, 1998, the parties will review the foregoing financial
arrangements and, if appropriate, modify them going forward to comply
with the underlying intention that the parties will share in the
profits generated from NCM's activities in proportion to our capital
stock interests.
4. Crusader will provide NCM with a daily rate sheet that
reflects a par rate equal to the then current FNMA window
gross yield, for FNMA eligible loans, and prevailing rates
for other programs offered. The parties will mutually agree
on a methodology and procedures for the development of a
retail rate sheet that incorporates such yields. Customers
will have the ability to buy down rates in accordance with
established guidelines. Crusader will structure with NCM a
mutually agreeable procedure with respect to the locking of
rates by customers and in the secondary market. NCM will be
responsible to Crusader for any losses incurred in
connection with its Loans, whether due to default or
otherwise, and will be required to repurchase any Loans sold
by Crusader that Crusader is required to repurchase.
5. As an inducement for Crusader to undertake this venture, you
will purchase and maintain FNMA's Desktop Underwriter
Software at the necessary locations on Crusader's behalf.
Also, you will maintain a processor on your staff who will
be responsible for the processing and documentation of NCM's
loans, and you will purchase and maintain at the necessary
locations the Genesis Software and an electronic link with
our origination and accounting systems for the origination
of NCM's loans. Alternatively, to the extent we mutually
agree to have Crusader perform any of these functions, we
will pass along the actual cost associated therewith.
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6. We will initially capitalize NCM in the amount of $5,000, such amount
to be funded by us in proportion to our respective capital stock
interests. We will also enter into a Shareholders Agreement which,
among other things, will set forth our ongoing responsibility to fund
further capital and operating shortfalls of NCM.
Haiching, I believe this properly sets forth the details we discussed regarding
the formation and operation of NCM. We are excited about the opportunity to work
with you to build a successful mortgage origination operation.
Please indicate your acceptance of this agreement by signing in the space
provided below.
Very truly yours,
/s/ Joseph T. Crowley
Joseph T. Crowley
President
Accepted and Agreed to:
/s/ Haiching Zhao 11/12/97
- ----------------- --------
Dr. Haiching Zhao Date
3
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SUBSCRIPTION AND SHAREHOLDERS' AGREEMENT
THIS AGREEMENT is dated as of the 11th day of December, 1997,
by and among DR. HAICHING ZHAO, an individual, ("Zhao"), CRUSADER BANK, FSB
("Crusader") and NATIONAL CHINESE MORTGAGE CORPORATION ("NCM") (Crusader, Zhao
and any other person who subsequently becomes a shareholder of NCM are
sometimes hereinafter collectively called the "Shareholders" or individually
called a "Shareholder").
BACKGROUND
I. NCM was incorporated on November 17, 1997. As of the date
hereof, NCM Is authorized to issue 1,000 shares of common stock at a par value
of $1.00 (the "Shares") and no shares are issued and outstanding.
II. Zhao owns 100% of the outstanding capital stock of
National Chinese Service Corporation ("NCS"). Zhao and NCS have substantial
experience in the marketing of financial services products to Chinese nationals
now residing in the United States.
III. Crusader and Zhao desire to create a retail conforming
and nonconforming residential mortgage loan business targeted to the membership
base of NCS. It is understood by the parties that NCM's activities will
represent an additional business venture for Crusader and shall not represent a
substitute or contravention of Crusader's existing business.
IV. It is the intention of the parties hereto for Crusader to
fund $2,550 and Zhao to fund $2,450 of capital to NCM.
V. In connection with such capital contributions, NCM will
issue 102 shares of common stock to Crusader and 98 shares of common stock to
Zhao.
VI. The parties desire to set forth their agreement as to the
issues of restrictions on transfer of stock, to provide for the continuity and
maintenance of the management, control, and operation of the business of NCM,
and to provide for certain other matters, all as set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants,
conditions and agreements herein contained, the
<PAGE>
parties hereto, each intending to be legally bound hereby, agree as follows:
1. NCM Stock Issuance.
(a) Promptly following the execution of this
Agreement and the funding of the specified capital contributions by the parties,
NCM will issue 102 shares of common stock to Crusader and 98 shares of common
stock to Zhao.
(b) The By-laws of NCM, a copy of which is attached
hereto, will at all times be satisfactory in form and substance to the parties.
The parties shall vote their shares of common stock of NCM so as to cause the
initial Board to consist of Zhao, Joseph T. Crowley, and Bruce A. Levy.
(c) In the event that in the course of operating NCM,
Crusader and Zhao jointly determine that additional capital is necessary or
advisable, they shall jointly determine the amount of additional capital to be
contributed by Shareholders ratably to NCM (each such event, a "Capital Call");
provided that a Capital Call shall be mandatory if the capital shall be less
than $5,000 at any time. In the event that a Capital Call is required, each
party shall fund its respective pro rata share of the Capital Call within ten
(10) days following the request therefor. In the event that any party fails to
timely fund its respective pro rata share of such Capital Call as outlined
above, the others may fund such pro rata share on behalf of the non-contributing
party. Such contribution shall be deemed to be a loan by the contributing
party(s) to the non-contributing party. Such loan shall be due and payable
within thirty (30) days following the date of contribution, together with
interest at fifteen percent (15%) per annum. If such sums are not then paid when
due, the contributing party(s) shall, in addition to other remedies at law or in
equity, be automatically entitled, without the consent of the non-contributing
party, for as long as any amounts are outstanding under the loan, to the receipt
of payment by NCM of any compensation or any distributions that would otherwise
be payable to the non-contributing party by NCM or to any distributions
resulting from the sale or liquidation of the non-contributing party's interest
in NCM. In the event a Shareholder transfers its shares of NCM, the transferring
Shareholder shall still be responsible to reimburse NCM for its pro rata share
of any losses or cash shortfalls incurred by NCM with respect to any losses or
required repurchase of any loans originated by Crusader on behalf of NCM during
the period that the Shareholder held an interest in NCM. The Shareholder's pro
rata share shall be determined based on its ownership interest at the time of
origination of the loan.
2
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2. Zhao agrees that during the period in which he or NCS
maintains an ownership position in NCM, he will not, and he will cause NCS to
not solicit, place or refer any mortgage loans except on behalf of NCM, nor will
he accept or allow NCS to accept any compensation in connection with the
placement of any mortgage loans, other than through NCM. In the event Zhao no
longer maintains an ownership position in NCM, the restrictions on Zhao set
forth in this Paragraph shall continue until the later of (a) one year from the
date of execution of this Agreement and (b) the date on which Crusader has, on a
cumulative basis, funded 750 loans pursuant to this Agreement; except Zhao shall
have the option of avoiding such restrictions prior to the date set forth in
this sentence by agreeing to pay Crusader $500 on each of the first 500 loans he
or NCS solicits, places or refers on behalf of a party other than NCM, or with
respect to which he or NCS receives compensation from a party other than NCM.
3. Representations and Warranties of Zhao. Zhao hereby makes
the following representations and warranties to Crusader and NCM, with knowledge
of their reliance thereon:
(a) Zhao's decision to invest in NCM is based solely
upon his own investigation of NCM and Crusader and not upon any representations
or warranties of NCM or Crusader except as expressly set forth herein.
(b) Zhao acknowledges that NCM is a closely held
company and, accordingly that his investment therein is illiquid and there is no
established market for the sale of his investment interest therein. Zhao further
acknowledges that the Shares have not been registered with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, nor is NCM
under any applicable obligation to effect any such registrations. The sale or
other disposition of the shares is restricted as stated in this Agreement.
(c) Zhao is acquiring the common stock of NCM for his
own account and for investment purposes, and not with a view for resale or
distribution thereof.
4. Representations and Warranties of Crusader. Crusader and
NCM hereby make the following representations and warranties to Zhao, with
knowledge of his reliance thereon:
(a) Crusader is a duly chartered federal savings bank
and is duly organized, validly existing and in good standing under applicable
federal laws and regulations.
(b) Crusader and NCM have full power and authority to
enter into and perform this Agreement.
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(c) To the best of their knowledge, there is no
pending or threatened litigation against Crusader or NCM.
(d) NCM is a newly formed corporation and has not
incurred any liabilities, direct, indirect or contingent.
5. Restrictions on Transfer and Issuance. Except as expressly
provided in this Agreement, no Shareholder shall sell, assign, transfer, give,
bequeath, devise, donate or otherwise dispose of, or pledge, deposit or
otherwise encumber, in any way or manner whatsoever, whether voluntarily or
involuntarily (a "Transfer"), any of the Shares now or hereafter owned (of
record or beneficially) by him without the express prior written consent of the
other Shareholders. Shareholders shall Transfer Shares only in accordance with
the provisions of this Agreement.
(a) Restrictions on Shareholders. Shareholders shall
not Transfer any Shares to any person except as expressly permitted herein. No
Transfer permitted by this Agreement shall be effective to vest any right, title
or ownership of Shares unless (i) the board of directors of NCM approves the
Transfer, having knowledge of the prospective transferee and (ii) the proposed
transferee agrees to become bound by the terms of this Agreement by signing a
counterpart hereof and delivering the same to the board of directors of NCM. For
purposes of this Agreement, "person" means any individual, partnership,
corporation, association, trust, estate, government or other entity.
(b) Restriction on NCM. Except as expressly provided
in this Agreement, NCM shall not (i) cause or permit a Transfer of any Shares to
be made on its books, (ii) issue any shares of capital stock of NCM, whether by
original issue or in connection with the sale of shares now or hereafter held in
NCM's treasury, whether by sale, pursuant to a merger or otherwise, (iii) issue
any warrants, options or other rights to subscribe to or purchase additional
capital stock of NCM, (iv) create any securities, instruments or rights
convertible into capital stock of NCM, or (v) purchase, redeem or otherwise
acquire any shares of capital stock of NCM, unless any of the foregoing are
expressly permitted by the terms of this Agreement, subject in any event to the
rights of the Shareholders hereunder, if any.
6. Permitted Transfers. Subject to the restrictions contained
in paragraph 5 (a) above, the other express provisions of this Agreement and
applicable law, (a) any Shareholder may Transfer its Shares to NCM or to any
existing Shareholder, or (b) Crusader may Transfer its Shares to an affiliated
company, or (c) Zhao may Transfer his Shares to NCS, provided Zhao agrees, in a
form satisfactory to Crusader, to remain personally liable for the performance
of NCS' obligations pursuant to Paragraphs 1 and
4
<PAGE>
2 of this Agreement, or (d) any Shareholder may transfer by creation of trust
instruments, by will or other estate planning device his Shares to members of
his immediate family or (e) shares may be transferred by succession to a
guardian ad litem or other personal representative in the event of a disability
of a Shareholder, all without the prior consent thereto of NCM or of any other
Shareholder.
7. Optional Purchases by the Other Shareholders and
Redemptions by NCM. In the event of an occurrence described in subparagraph 7(a)
or (b) below with respect to a Shareholder, the other Shareholders shall have
the right, but not the obligation, to purchase the Shares owned by such
Shareholder that are the subject of such event or occurrence, in accordance with
the terms set forth in Paragraph 8 below; if such other Shareholders fail to
exercise such right to purchase such Shares, NCM shall have the right but not
the obligation to purchase such Shares, in accordance with the terms set forth
in Paragraph 8 below.
(a) Legal Proceedings Against Shareholders. The
parties agree that the interests of NCM and its Shareholders would be seriously
affected by any sale or disposition of any Shareholder's Shares by any legal or
equitable proceedings against such Shareholder, except as expressly permitted
herein. Accordingly, the right to purchase Shares set forth in this Paragraph 7
shall become effective in the event that (i) any Shareholder shall be
adjudicated a bankrupt or make an assignment for the benefit of creditors, or
(ii) bankruptcy, insolvency, reorganization, arrangement, debt, adjustment,
liquidation or receivership proceedings in which any Shareholder is alleged to
be insolvent or unable to pay his debts as they mature are instituted by or
against such Shareholder and, if instituted against such Shareholder, such
Shareholder shall consent thereto or admit in writing the material allegations
of the petitions filed in said proceedings or said proceedings shall remain
undismissed for ninety days after commencement thereof, or (iii) there is any
entry of a decree or order for relief by a court having jurisdiction in respect
of any Shareholder in an involuntary case under the federal bankruptcy laws
against any Shareholder not dismissed within ninety days or any Shareholder
commences a voluntary case under such laws, or (iv) any of the Shares of any
Shareholder are attached and such attachment is not removed within ninety days,
or (v) any judgment is obtained in any legal or equitable proceeding against any
Shareholder, which judgment is not dismissed, stayed, bonded or satisfied (other
than by sale of the Shares) within ninety days of the entry thereof or which is
executed upon and the sale of any of such Shareholder's Shares is contemplated
or threatened under legal process as a result of such judgment, or (vi) any
execution process is issued against any Shareholder or against any of his Shares
and not dismissed, stayed, bonded or satisfied within
5
<PAGE>
ninety days; provided, however, that an occurrence described in preceding
clauses (v) through (vi) shall not be deemed to have occurred if it resulted
from any legal proceeding between NCM and the Shareholders or between
Shareholders if such proceeding entails disputes of ownership relating to NCM or
the Shares.
(b) Voluntary Sale by a Shareholder. The execution of
an agreement for the voluntary sale of Shares owned by any Shareholder.
8. Purchase Option Procedures in Case of Legal Proceedings or
Voluntary Sale. If any Shareholder shall at any time be subject to subparagraphs
7(a) or (b) above, the other Shareholders shall have the option to purchase all
of such Shareholder's (the "Selling Shareholder") Shares and NCM shall have the
next option to redeem the Selling Shareholder's Shares as follows:
(a) Options of the Offeree Shareholders. Upon the
occurrence of an event described in Paragraph 7 above, the Selling Shareholder
shall so notify the other Shareholders and NCM. Upon receipt of such notice by
the other Shareholders ("Offeree Shareholders") from the Selling Shareholder
that an event under Paragraph 7 has occurred, the Selling Shareholder shall be
deemed to have offered in writing to sell all, but not less than all, of his
Shares to the Offeree Shareholders at the price and upon the terms set forth in
Paragraph 9 below. For a period of thirty days after such offer by the Selling
Shareholder to the Offeree Shareholders, the Offeree Shareholders shall have the
option, exercisable by written notice to the Selling Shareholder with a copy to
NCM and to each of the other Offeree Shareholders, to accept the Selling
Shareholder's offer. Each Offeree Shareholder who shall exercise this option
shall agree, by doing so, to purchase that proportionate part of the Selling
Shareholder's Shares which the number of Shares owned by such Offeree
Shareholder bears to the total number of Shares owned by all Offeree
Shareholders (or in such other proportions as the Offeree Shareholders may agree
among themselves).
(b) Optional Redemption by NCM. In the event that one
or more of the Offeree Shareholders does not exercise his option in accordance
with subparagraph 8(a) above, NCM may provide the Selling Shareholder with a
notice of redemption of all of the Selling Shareholder's remaining Shares,
within a period of fifteen days following expiration of the thirty-day period
set forth in subparagraph 8(a), at the price and upon the terms set forth in
Paragraph 9 below.
(c) Acceptance of a Bona Fide Offer. If, at the end
of the option period described in subparagraph 8(a) above and the redemption
period set forth in the notice of redemption
6
<PAGE>
described in subparagraph 8(b) above, options have not been exercised by the
Offeree Shareholders to purchase all of the Selling Shareholder's Shares, and a
redemption by NCM of all of the Selling Shareholder's Shares has not occurred,
then at the election of the Selling Shareholder, any Shares not so purchased or
redeemed may be offered for sale by the Selling Shareholder free and clear of
the options of the Shareholders and NCM set forth herein (but otherwise subject
to the restrictions on transferability contained in this Agreement) for a period
of sixty days thereafter, such sale to be for all, but not less than all, of his
Shares to a prospective purchaser at the price and upon the terms and conditions
set forth in such prospective purchaser's offer.
9. Purchase Price and Terms.
(a) Time and Place for Settlement. Settlement for the
purchase of Shares by NCM or by a Shareholder pursuant to the options granted in
or the redemption permitted by Paragraph 8 above shall be made within sixty days
following (i) the date of exercise of the last option exercised or (ii) delivery
of a notice of redemption within the fifteen-day period described in
subparagraph 8(b) above. All settlements for the purchase or redemption of
Shares shall, unless otherwise agreed to by all of the purchasers and sellers,
be held at the principal executive offices of NCM during regular business hours.
The precise date and hour of settlement shall be fixed by the purchaser or
purchasers and/or the board of directors of NCM with respect to redemptions
(within the time limits allowed by the provision of this Agreement) by notice in
writing to the Selling Shareholder given at least five days in advance of the
Settlement date specified. In the event that more than one purchaser is involved
in a settlement and the purchasers cannot agree on a precise time of settlement,
the precise time of settlement (within the time limits allowed by the provisions
of this Agreement) shall be fixed by the board of directors of NCM by five or
more days' written notice to the purchasers and seller on the sixtieth day
following the date of exercise of the last option or election exercised.
(b) Delivery of Stock Certificates. At settlement,
the stock certificate or certificates representing the Shares being sold shall
be delivered to the purchaser or purchasers and/or NCM, as appropriate, duly
endorsed for transfer or with executed stock powers attached, with any necessary
documentary and transfer tax stamps affixed by the seller. The Selling
Shareholder; if a personal representative of a Shareholder, shall, upon request
of a purchaser, provide prior to the date of settlement evidence reasonably
satisfactory to the purchaser of the seller's legal status as personal
representative
7
<PAGE>
of such Shareholder. The terms of payment shall be in cash or by certified
check.
(c) Purchase Price. The purchase price per Share
shall be equal to the book value thereof.
10. Copy of Agreement to be Kept on File. NCM shall keep on
file at its principal executive offices, and will exhibit to any Shareholder or
his duly authorized representative at any and all reasonable times, an executed
copy of this Agreement and all amendments thereto.
11. Stock Certificates to be Marked with Legend. All
certificates representing Shares now outstanding or hereafter issued by NCM
shall be marked with the following legend:
"This certificate and the shares represented hereby are held
subject to the terms, covenants and conditions of an agreement
by and among this Company and its then shareholders, as it may
be amended from time to time, and may not be transferred or
disposed of except in accordance with the terms and provisions
thereof. A copy of said agreement and all amendments thereto
is on file and may be inspected at the principal executive
offices of the Company."
NCM shall issue replacement stock certificates without the foregoing legend to
any Shareholder upon request following termination of this Agreement.
12. Term of Agreement. This Agreement shall terminate upon the
first to occur of the following events:
(a) the written agreement by all of the Shareholders
of NCM who are, at that time, bound by the terms of this Agreement;
(b) the dissolution, bankruptcy, or receivership of
NCM; or
(c) the cessation of NCM's business, whether by sale
of assets, liquidation, or otherwise.
13. Rights, Obligations and Remedies. Each Shareholder shall
vote its Shares so as to cause NCM to act so as to accomplish the corporate
actions contemplated by this Agreement. The rights and obligations under, and
the remedies to enforce, this Agreement are joint and several as to NCM and each
of its Shareholders with each being completely free to enforce
8
<PAGE>
any or all of the rights or obligations under this Agreement against any of the
others with or without the concurrence or joinder of any of the others. The
Shares are unique, and recognizing that the remedy at law for any breach or
threatened breach by a party hereto of the covenants and agreements set forth in
this Agreement would be inadequate and that any such breach or threatened breach
would cause such immediate and permanent damage as would be irreparable and the
exact amount of which would be impossible to ascertain, the parties hereto agree
that in the event of any breach or threatened breach of any such covenant or
agreement, in addition to any and all other legal and equitable remedies which
may be available, any party hereto may specifically enforce the terms of this
Agreement and may obtain temporary and/or permanent injunctive relief without
the necessity of proving actual damage by reason of any breach or threatened
breach hereof and, to the extent permissible under the applicable statutes and
rules of procedure, a temporary injunction may be granted immediately upon the
commencement of any such suit and without notice.
14. Resignations. If any Selling Shareholder, or, in the case
of a corporate or LLC shareholder, any shareholder or director of the Selling
Shareholder is an officer, director, employee of or under a consulting agreement
with NCM, he must, at the request of the non-resigning members of the board of
directors of NCM, submit to the Secretary of NCM his resignation as an officer
and/or director, as the case may be, before the sale of his Shares becomes
effective, and the Secretary is hereby authorized to refuse to effect a transfer
of the Selling Shareholder's Shares on the books of NCM until such resignation
as aforesaid is delivered to said Secretary.
15. Subsequent Shareholders to Become Bound. Any person or
entity not an original signatory hereto who becomes a Shareholder (of record or
beneficially) shall be bound by all of the terms and provisions of this
Agreement. Before any person or entity not a party to this Agreement, including
any person or entity to whom transfers of Shares may be made hereunder, may be
entitled to be a Shareholder (of record or beneficially) of NCM, such person or
entity shall be required first to execute and deliver to NCM an agreement
pursuant to which such person or entity agrees to be bound by all of the terms
and conditions of this Agreement (as it may have then been amended), and the
failure of any such person or entity so to do shall preclude such person or
entity from becoming a Shareholder (of record or beneficially) of NCM.
16. Entire Agreement; Amendment, Modification, and
Termination. This Agreement contains the entire understanding among the parties
hereto with respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements
9
<PAGE>
and understandings, inducements or conditions, express or implied, oral or
written, except as herein contained or as contained in the letter agreement
dated November 7, 1997, a copy of which is attached hereto as Exhibit A or as
contained in the Confidentiality Agreement attached hereto as exhibit. The
express terms hereof control and supersede any course of performance and/or
usage of the trade inconsistent with any of the terms hereof. This Agreement may
be amended, modified or terminated at any time or times by the unanimous
agreement in writing of NCM and its then Shareholders. No such amendment,
modification or termination, nor any termination pursuant to the terms hereof,
shall affect the right of any person or entity to receive, or the obligation of
any person or entity to pay, on the terms and conditions of this Agreement, the
purchase price for Shares sold pursuant to this Agreement prior to such
amendment, modification or termination, or the right or obligation of any person
or entity to sell or purchase Shares, on the terms and conditions of this
Agreement, if the event giving rise to such right or obligation to sell or
purchase Shares has in fact taken place prior to such amendment, modification or
termination.
17. Indulgences, Waivers. Neither the failure nor any delay on
the part of any party to exercise any right, remedy, power or privilege under
this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or of any other right, remedy, power or privilege,
nor shall any waiver of any right, remedy, power or privilege with respect to
any occurrence be construed as a waiver of such right, remedy, power or
privilege with respect to any other occurrence. No waiver shall be effective
unless it is in writing and is signed by the party asserted to have granted such
waiver.
18. Controlling Law. This Agreement and all questions relating
to its validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be governed by
and construed in accordance with the laws of the Commonwealth of Pennsylvania,
notwithstanding any conflict-of-laws doctrines of such state or any other
jurisdiction to the contrary, and without the aid of any canon, custom or rule
of law requiring construction against the draftsman. Each Shareholder hereby
consents to the exclusive jurisdiction of the Courts of the Commonwealth of
Pennsylvania and the United States District Court for the Eastern District of
Pennsylvania in any and all actions, disputes or controversies relating to this
Agreement that are not resolved through arbitration and irrevocably consents to
the service of process by certified or registered mail, return receipt
requested, to such Shareholder at his address set forth in the books and records
of NCM.
10
<PAGE>
19. Notices. All notices, requests, demands and other
communications required or permitted under this Agreement shall be in writing
and shall be deemed to have been duly given, made and received only when
delivered (personally, by courier service such as Federal Express, or by other
messenger) or when deposited in the United States mails, registered or certified
mail, postage prepaid, return receipt requested, addressed if to any
Shareholder, to the most current residence address to such Shareholder reflected
in the books and records of NCM, and if to NCM, to the attention of the Chairman
of the board of directors. Any party may alter the address to which
communications or copies are to be sent by giving notice of such change of
address in conformity with the provisions of this paragraph for the giving of
notice.
20. Binding Nature of Agreement; No Assignment. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns, except that
no party may assign or transfer its rights or obligations under this Agreement,
other than the permitted assignment by Crusader, at Crusader's option, of its
interest in NCM to an affiliated company of Crusader and the assignment by Zhao,
subject to the provisions of Paragraph 6 hereof, of his interest in NCM to NCS.
21. Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
22. Paragraph Headings. The paragraph headings in this
Agreement are for convenience only; they form no part of this Agreement and
shall not affect its interpretation.
23. Gender. Words used herein, regardless of the number and
gender specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other general, masculine, feminine or
neuter, as the context indicates is appropriate.
24. Number of Days. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and holidays; provided, however, that if the final day of any time
period falls on a Saturday, Sunday or holiday on which Federal banks are or may
elect to be closed, then the final day shall be deemed to be the next day which
is not a Saturday, Sunday or such holiday.
11
<PAGE>
25. Arbitration. In the event that a dispute arises under the
terms of this Agreement, the parties hereto agree to resolve such dispute
through arbitration. In such event, the dispute shall be submitted to
arbitration utilizing the prevailing rules and procedures of the American
Arbitration Association. The Arbitration shall be conducted in Pennsylvania.
26. Certain Actions. So long as either Zhao or Crusader owns
at least 80% of the original number of shares it has acquired under this
Agreement (as adjusted for stock splits, stock dividends and other
recapitalizations), the following actions shall require the prior written
consent of such party:
(a) all actions under NCM's certificate of
incorporation or By-laws, and under the laws of Delaware, requiring the vote or
consent of shareholders, including to (i) merge, consolidate or otherwise
reorganize NCM, (ii) sell or otherwise dispose of all or any substantial portion
of NCM's assets, (iii) acquire any substantial assets, unless such acquisition
is required in connection with the repurchase of a loan, and (iv) amend NCM's
articles of incorporation, and
(b) all actions with regard to the (i) amendment or
modification of NCM's By-laws, (ii) issuance of any shares of capital stock or
any securities or other instruments convertible into capital stock, (iii)
execution or delivery by NCM of any material contract, including without
limitation any agreement for the payment of compensation or other amounts to any
Shareholder or affiliate of any Shareholder, and (iv) the declaration or payment
of any dividend.
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement on
the date first above written.
ATTEST: NATIONAL CHINESE MORTGAGE
CORPORATION, a Delaware
corporation
By: /s/ Joseph T. Crowley By: /s/ Haiching Zhao
------------------------ -----------------------------
Title: Secretary Title:
[CORPORATE SEAL]
CRUSADER BANK, FSB
By: /s/ Bruce A. Levy By: /s/ Joseph T. Crowley
--------------------- -------------------------
Title: Director Joseph T. Crowley,
President
[CORPORATE SEAL]
WITNESSED:
/s/ Haiching Zhao
- ------------------------------ -------------------------
DR. HAICHING ZHAO
13
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
Crusader Holding Corporation owns 100% of all issued and outstanding capital
stock of Crusader Savings Bank, FSB
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated December 9, 1997 accompanying the
consolidated financial statements of Crusader Holding Company and Subsidiary
contained in to the Registration Statement and Prospectus. We consent to the use
of the aforementioned report in the Registration Statement and Prospectus, and
to the use of our name as it appears under the caption "Experts."
GRANT THORNTON LLP
Philadelphia, Pennsylvania
December 12, 1997
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0
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