<PAGE>
As filed with the Securities and Exchange Commission on December 19, 1997
Registration No. 33-________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
FIRST SOURCE BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CERTIFICATE OF INCORPORATION)
DELAWARE
(state or other jurisdiction of BEING APPLIED FOR
incorporation or organization) (IRS Employer Identification No.)
(Primary Standard
Classification Code Number)
1000 WOODBRIDGE CENTER DRIVE
WOODBRIDGE, NEW JERSEY 07095
(732) 726-9700
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
JOHN P. MULKERIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
FIRST SAVINGS BANK, SLA
1000 WOODBRIDGE CENTER DRIVE
WOODBRIDGE, NEW JERSEY 07095
(732) 726-9700
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copies to:
JOSEPH G. PASSAIC, JR., ESQUIRE
ANN COX CLANCY, ESQUIRE
THOMAS W. FRANCE, ESQUIRE
MULDOON, MURPHY & FAUCETTE
5101 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20016
(202) 362-0840
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / X /
----
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 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,
please check the following box. / /
----
<TABLE>
<CAPTION>
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Title of each Class of Amount to Purchase Price Aggregate Offering Registration
Securities to be Registered be Registered Per Share Price(1) Fee
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<S> <C> <C> <C> <C>
Common Stock 31,740,000
$.01 par Value Shares $10.00 $317,400,000 $93,633
=================================================================================================================
Participation
Interests (2) _______ $ 9,890,490 (3)
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) In addition, this registration statement also covers an indeterminate
amount of interests to be offered or sold pursuant to The Incentive Savings
Plan for Employees of First Savings Bank, SLA.
(3) The securities of First Source Bancorp, Inc. to be purchased by First
Savings Bank, SLA 401(k) Savings Plan are included in the amount shown for
Common Stock. Accordingly, no separate fee is required for the
participation interests. In accordance with Rule 457(h) of the Securities
Act, as amended, the registration fee has been calculated on the basis of
the number of shares of Common Stock that may be purchased with the current
assets of such Plan.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
<PAGE>
FIRST SOURCE BANCORP, INC.
Cross Reference Sheet Showing Location in the Subscription and Community
Offering Prospectus ("Prospectus") of Information Required by Items of Form S-l:
Registration Statement Item and Caption Prospectus Headings
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l. Forepart of the Registration Front Cover Page
Statement and Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Cover Inside Front and Outside Back
Page of Prospectus Cover Pages
3. Summary Information, Risk Factors and Summary; Risk Factors
Ratio of Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price The Conversion and
Reorganization-- Stock Pricing
and Exchange Ratio
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Front Cover Page; The
Conversion and Reorganization--
Subscription Offering and
Subscription Rights; --
Community Offering;--Syndicated
Community Offering
9. Description of Securities to be The Conversion and
Registered Reorganization -- Certain
Restrictions on Purchase or
Transfer of Shares After
Conversion; Restrictions on
Acquisition of the Company and
the Bank; Description of
Capital Stock of the Company;
Description of Capital Stock of
the Bank
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to the Front Cover Page; First Source
Registrant Bancorp, Inc.; First Savings
Bank, SLA; First Savings
Bancshares, MHC; Dividend
Policy; Consolidated Statements
of Income; Management's
Discussion and Analysis of
Financial Condition and Results
of Operations of the Bank;
Business of the Bank;
Regulation; Management of the
Company; Management of the
Bank; The Conversion and
Reorganization; Description of
Capital Stock of the Company;
Description of Capital Stock of
Bank; Financial Statements
12. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act
Liabilities
<PAGE>
[To be used in connection with sales to Participants in the Incentive Savings
Plan for the Employees of First Savings Bank, SLA]
PROSPECTUS SUPPLEMENT
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FIRST SOURCE BANCORP, INC.
FIRST SAVINGS BANK, SLA
PARTICIPATION INTERESTS
THE INCENTIVE SAVINGS PLAN FOR EMPLOYEES OF
FIRST SAVINGS BANK, SLA
This Prospectus Supplement relates to the offer and sale to participants
(the "Participants") in The Incentive Savings Plan for Employees of First
Savings Bank, SLA (the "Plan") of participation interests and shares of common
stock, par value $.01 per share of First Source Bancorp, Inc. (the "Common
Stock"), as set forth herein.
In connection with the offering of Common Stock by First Source Bancorp,
Inc. (the "Holding Company") Participants will be permitted to direct the
trustee of the Plan (the "Trustee") to invest in Common Stock with amounts in
the Plan attributable to such Participants. Such investments in Common Stock
would be made by means of the First Source Bancorp, Inc. Stock Fund, formerly
the First Savings Stock Fund (the "Employer Stock Fund" or the "First Source
Bancorp, Inc. Stock Fund"). Based upon the value of the Plan assets at
September 30, 1997, 893,399 shares of Common Stock could be purchased with Plan
assets (assuming a purchase price of $10.00 per share). This Prospectus
Supplement relates to the initial election of Participants to direct that all or
a portion of their accounts be invested in the Employer Stock Fund in connection
with the Offering and also to elections by Participants to direct that all or a
portion of their accounts be invested in the Employer Stock Fund after the close
of the Offering.
The prospectus dated _______________________________, 1998 of the Holding
Company (the "Prospectus"), which is attached to this Prospectus Supplement,
includes detailed information with respect to the Offering, the Common Stock and
the financial condition, results of operations and business of the Bank. This
Prospectus Supplement, which provides detailed information with respect to the
Plan, should be read only in conjunction with the Prospectus and should be
retained for future reference.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PARTICIPANT, SEE "RISK FACTORS."
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS ____________________, 1997.
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, THE NEW JERSEY
DEPARTMENT OF BANKING, OR ANY OTHER FEDERAL AGENCY OR ANY STATE SECURITIES
COMMISSION, NOR HAS SUCH COMMISSION, OFFICE OR OTHER AGENCY OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT FEDERALLY INSURED OR GUARANTEED, NOR ARE THE SHARES OF
COMMON STOCK GUARANTEED BY THE COMPANY OR THE BANK. THE ENTIRE AMOUNT OF A
PURCHASER'S PRINCIPAL IS SUBJECT TO LOSS.
No person has been authorized to give any information or to make any
representations other than those contained in the Prospectus or this Prospectus
Supplement, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Bank or the Plan. This
Prospectus Supplement does not constitute an offer to sell or solicitation of an
offer to buy any securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Bank or the Plan since the date hereof, or
that the information herein contained or incorporated by reference is correct as
of any time subsequent to the date hereof.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
THE OFFERING................................................. 1
Securities Offered...................................... 1
Election to Purchase Common Stock in the Offering....... 1
Value of Participation Interests........................ 1
Method of Directing Transfer............................ 2
Time for Directing Transfer............................. 2
Irrevocability of Transfer Direction.................... 2
Direction to Purchase Common Stock After the Offering... 2
Purchase Price of Common Stock.......................... 2
Nature of a Participant's Interest in the Common Stock.. 3
Voting and Tender Rights of Common Stock................ 3
DESCRIPTION OF THE PLAN...................................... 4
Introduction............................................ 4
Eligibility and Participation........................... 5
Contributions Under the Plan............................ 5
Limitations on Contributions............................ 6
Investment of Contributions............................. 8
Benefits Under the Plan................................. 12
Withdrawals and Distributions From the Plan............. 12
Administration of the Plan.............................. 13
Reports to Plan Participants............................ 13
Plan Administrator...................................... 14
Amendment and Termination............................... 14
Merger, Consolidation or Transfer....................... 14
Federal Income Tax Consequences......................... 14
ERISA and Other Qualification........................... 16
Restrictions on Resale.................................. 17
SEC Reporting and Short-Swing Profit Liability.......... 17
EXPERTS...................................................... 18
LEGAL OPINION................................................ 18
INVESTMENT FORM
</TABLE>
<PAGE>
THE OFFERING
SECURITIES OFFERED
The securities offered hereby are participation interests in the Plan. Up
to 893,399 shares (assuming the actual purchase price is $10.00 per share) of
Common Stock may be acquired by the Plan to be held in the Employer Stock Fund.
The Holding Company is the issuer of the Common Stock. Only employees of the
Bank who have completed 1,000 hours of service and attained age 21 (hereinafter
referred to as the "Employer") may participate in the Plan. The Common Stock to
be issued hereby is conditioned on the consummation of the Offering. A
Participant's investment in units in the Employer Stock Fund in the Offering is
subject to the priority set forth in the Plan of Conversion and Reorganization.
Information with regard to the Plan is contained in this Prospectus
Supplement and information with regard to the Offering and the financial
condition, results of operations and business of the Bank is contained in the
attached Prospectus. The address of the principal executive office of the Bank
is 1000 Woodbridge Center Drive, Woodbridge, New Jersey 07095. The Bank's
telephone number is (732) 726-9700.
ELECTION TO PURCHASE COMMON STOCK IN THE OFFERING
In connection with First Source Bancorp, Inc.'s offering of Common Stock
(the "Offering"), the Plan permits each Participant to direct that all or part
of the funds which represent his or her beneficial interest in the assets of the
Plan may be transferred to the Employer Stock Fund, an investment fund in the
Plan that will invest in Common Stock. If there is not enough Common Stock in
the Offering to fill all subscriptions, the Common Stock would be apportioned
and the Plan may not be able to purchase all of the Common Stock requested by
the Participants. In such case, the Trustee will purchase shares in the open
market after the close of the Offering to fulfill Participants' requests. Such
purchases may be at prices higher than the purchase price in the Offering. The
ability of each Participant to invest in the Employer Stock Fund in the
Offering pursuant to directions to transfer all or a portion of their beneficial
assets in the Plan will be based on such Participant's status as an Eligible
Account Holder or Supplemental Eligible Account Holder pursuant to the Plan of
Conversion and Reorganization, the subscription priorities set forth in the Plan
of Conversion and Reorganization and the availability of Common Stock.
VALUE OF PARTICIPATION INTERESTS
The market value of the assets of the Plan, as of September 30, 1997, was
$8,933,992 and each Participant was informed of the value of his or her
beneficial interest in the Plan. This value represented the past contributions
to the Plan by the Employers and the Participants and any earnings or losses
thereon, less previous withdrawals.
1
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METHOD OF DIRECTING TRANSFER
The last page of this Prospectus Supplement is a form to direct a transfer
to the Employer Stock Fund (the "Investment Form"). If a Participant wishes to
transfer all or part of his or her beneficial interest in the assets of the Plan
to the Employer Stock Fund, he or she should indicate that decision in Part 2 of
the Investment Form. If a Participant does not wish to make such an election,
he or she does not need to take any action.
TIME FOR DIRECTING TRANSFER
The deadline for submitting a direction to transfer amounts to the Employer
Stock Fund which will purchase Common Stock issued in connection with the
Offering is ten days prior to ____________________(the "Expiration Date") of the
Offering. The Investment Form should be returned to the Bank's Human Resources
Department by 4:00 p.m. on such date.
IRREVOCABILITY OF TRANSFER DIRECTION
A Participant's direction to transfer amounts credited to his or her
account in the Plan to the Employer Stock Fund in connection with the Offering
shall be irrevocable. Participants, however, will be able to direct the
investment of their accounts ("Accounts") after the Offering under the Plan as
explained below.
DIRECTION TO PURCHASE COMMON STOCK AFTER THE OFFERING
A Participant shall be able to direct that a certain percentage of the net
value of such Participant's interests in the trust fund established for the Plan
(the "Trust Fund") be transferred to the Employer Stock Fund and invested in
Common Stock, or to the other investment funds available under the Plan.
Alternatively, a Participant may direct that a certain percentage of such
Participant's interest in the Employer Stock Fund be transferred to the Trust
Fund to be invested by the Trustee. Participants will be permitted to direct
that future contributions made to the Plan by or on their behalf will be
invested in Common Stock. Following the initial election, the allocation of a
Participant's interest in the First Source Bancorp, Inc. Stock Fund and the
First Savings CD Fund may be made only during a 10 day window period prior to
the beginning of each quarter; other investment funds may be re-allocated on a
daily basis using the Plan's administrative phone system. Special restrictions
apply to transfers directed by those Participants who are officers, directors
and principal shareholders of the Bank who are subject to the provisions of
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "1934
Act").
PURCHASE PRICE OF COMMON STOCK
The funds transferred to the First Source Bancorp, Inc. Stock Fund for the
purchase of Common Stock in connection with the Offering will be used by the
Trustee to purchase shares of Common Stock. The price to be paid by the Trust
Fund for such shares of Common Stock will be the same price as is paid by all
persons who purchase shares of Common Stock in the Offering.
2
<PAGE>
Common Stock purchased by the Trustee after the Offering will be acquired
in open market transactions. The prices paid by the Trustee for shares of
Common Stock will not exceed "adequate consideration" as defined in Section
3(18) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
NATURE OF A PARTICIPANT'S INTEREST IN THE COMMON STOCK
The Common Stock will be held in the name of the Trustee for the Plan, as
trustee. Each Participant has an allocable interest in the investment funds of
the Plan but not in any particular assets of the Plan. Accordingly, a specific
number of shares of Common Stock will not be directly attributable to the
account of any Participant. Earnings, e.g., gains and losses, are allocated to
the Account of a Participant based on units in the Employer Stock Fund held by
the Participants. Therefore, earnings with respect to a Participant's Account
should not be affected by the investment designations (including investments in
Common Stock) of other Participants.
VOTING AND TENDER RIGHTS OF COMMON STOCK
The Trustee generally will exercise voting and tender rights attributable
to all Common Stock held by the Trust Fund as directed by Participants with
interests in the Employer Stock Fund. With respect to each matter as to which
holders of Common Stock have a right to vote, each Participant will be allocated
a number of voting instruction rights reflecting such Participant's
proportionate interest in the Employer Stock Fund. The number of shares of
Common Stock held in the Employer Stock Fund that are voted in the affirmative
and negative on each matter shall be proportionate to the number of voting
instruction rights exercised in the affirmative and negative, respectively. In
the event of a tender offer for Common Stock, the Plan provides that each
Participant will be allotted a number of tender instruction rights reflecting
such Participant's proportionate interest in the Employer Stock Fund. The
percentage of shares of Common Stock held in the Employer Stock Fund that will
be tendered will be the same as the percentage of the total number of tender
instruction rights that are exercised in favor of tendering. The remaining
shares of Common Stock held in the Employer Stock Fund will not be tendered.
The Plan makes provision for Participants to exercise their voting instruction
rights and tender instruction rights on a confidential basis.
3
<PAGE>
DESCRIPTION OF THE PLAN
I. INTRODUCTION
The Incentive Savings Plan for Employees of First Savings Bank, SLA (the
"Plan") became effective January 1, 1981 as a cash or deferred arrangement
pursuant to Section 401(a) and Section 401(k) of the Internal Revenue Code of
1954 as amended (the "1954 Code"). The Plan was subsequently amended and
restated in its entirety effective July 1, 1984, in order to comply with
statutorily required changes and to implement administrative changes. The
Internal Revenue Service (the "IRS") issued a determination letter confirming
that the Plan, amended and restated as of July 1, 1984, was qualified under
Section 401(a) of the 1954 Code, and the trust pursuant to which the assets of
the Plan are held by the Bank, as trustee, was exempt from tax under Section
501(a) of the 1954 Code.
At the time of the Bank's reorganization from a mutual savings association
to a mutual holding company, the Bank amended the Plan to implement the First
Savings Stock Fund. The Plan as amended was submitted to the IRS for a
determination that the Plan, as amended, qualifies under Section 401(a) of the
Internal Revenue code of 1986 as amended (the "Code") and that it satisfies the
requirements for a qualified cash or deferred arrangement under Section 401(k)
of the Code. A determination letter was received from the IRS on July 20, 1995.
In connection with the current reorganization of the Bank and the conversion of
the mutual holding company to the stock form of organization, the First Savings
Stock Fund will be converted to the First Source Bancorp, Inc. Stock Fund.
Employee Retirement Income Security Act. The Plan is an "individual
---------------------------------------
account plan" other than a "money purchase pension plan" within the meaning of
ERISA. As such, the Plan is subject to all of the provisions of Title I
(Protection of Employee Benefit Rights) and Title II (Amendments to the Internal
Revenue Code Relating to Retirement Plans) of ERISA, except the funding
requirements contained in Part 3 of Title I of ERISA which by their terms do not
apply to an individual account plan (other than a money purchase pension plan).
The Plan is not subject to Title IV (Plan Termination Insurance) of ERISA.
Neither the funding requirements contained in Part 3 of Title I of ERISA nor the
plan termination insurance provisions contained in Title IV of ERISA will be
extended to Participants (as defined below) or beneficiaries under the Plan.
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS BENEFIT
UNDER THE PLAN PRIOR TO THE PARTICIPANT'S TERMINATION OF EMPLOYMENT WITH THE
BANK. A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE IMPOSED ON WITHDRAWALS MADE
PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59-1/2, REGARDLESS OF WHETHER SUCH
A WITHDRAWAL OCCURS DURING HIS EMPLOYMENT WITH THE BANK OR AFTER TERMINATION OF
EMPLOYMENT.
4
<PAGE>
Reference to Full Text of Plan. The following statements are summaries of
------------------------------
certain provisions of the Plan. They are not complete and are qualified in
their entirety by the full text of the Plan. Copies of the Plan are available
to all employees by filing a request with the Plan Administrator, John Mulkerin,
First Savings Bank, SLA, 1000 Woodbridge Drive, Woodbridge, New Jersey. The
Plan Administrator's telephone number is (732) 726-9700. Each employee is urged
to read carefully the full text of the Plan.
II. ELIGIBILITY AND PARTICIPATION
All employees of the Employer who have attained age 21 are eligible to
participate in the Plan on the first day of January following one year of
service with the Employer. An eligible employee will become a participant on
the first day of January after the employee completes an Elective Deferral
Agreement.
As of September 30, 1997, there were approximately 168 employees eligible
to participate in the Plan, and 153 employees had elected to participate in the
Plan.
III. CONTRIBUTIONS UNDER THE PLAN
401(k) Plan Contributions. Subject to certain limitations on
-------------------------
contributions, each Participant in the Plan is permitted to elect to reduce such
Participant's Compensation (as defined below) pursuant to an "Elective Deferral
Agreement" by an amount not less than 2% and not more than 12% and have that
amount contributed to the Plan on such Participant's behalf. Such amounts are
credited to the Participant's " Elective Deferral Account." See "Section IV
Limitations on Contributions" below. For purposes of the Plan, "Compensation"
means a Participant's compensation from the Employer, including amounts subject
to an Elective Deferral Agreement, but excluding bonuses, overtime, commissions,
expense allowance, profit sharing or any other extra compensation in any form.
As of January 1, 1998, the annual compensation of each Participant taken into
account under the Plan is limited to $160,000 (adjusted for increases in the
cost of living as permitted by the Code). Generally, a Participant may elect to
modify the amount contributed to the Plan under such Participant's Elective
Deferral Agreement not more often than twice a year by providing notice to the
Plan Administrator. However, special restrictions apply to persons subject to
Section 16 of the 1934 Act. Elective deferrals are transferred by the Employer
to the Trustee of the Plan.
Notwithstanding the preceding, a Participant who receives a hardship
distribution under the terms of the Plan may not be eligible to make additional
contributions under a Elective Deferral Agreement or have matching contributions
made on his behalf for a period of twelve (12) months after the receipt of the
hardship distribution.
5
<PAGE>
Employer Contributions. The Employer contributes to the Plan for each Plan
----------------------
Year 50% of the Participant's elective deferrals, up to 3% of the Participant's
Compensation for the Plan Year. Such amounts are credited to the Participant's
"Employer Contribution Account."
IV. LIMITATIONS ON CONTRIBUTIONS
Limitations on Annual Additions and Benefits. Pursuant to the requirements
--------------------------------------------
of the Code, the Plan provides that the amount of contributions allocated to
each Participant's Elective Deferral Account and Employer Contribution Account
during any Plan Year may not exceed the lesser of 25% of the Participant's
(S)415 Compensation for the Plan Year or $30,000 (adjusted for increases in the
cost of living as permitted by the Code). A Participant's (S)415 Compensation
is a Participant's Compensation, excluding any Employer contribution to the Plan
or to any other plan of deferred compensation or any distributions from a plan
of deferred compensation. In addition, annual additions shall be limited to the
extent necessary to prevent the limitations set forth in the Code for all of the
qualified defined benefit plans and defined contribution plans maintained by the
Bank from being exceeded. To the extent that these limitations would be
exceeded by reason of excess annual additions with respect to a Participant,
such excess will be disposed of as follows:
(i) Any non-deductible voluntary employee contributions, to the extent
that would reduce the excess amount, will be returned to the Participant;
(ii) If, after the application of (i) above, an excess still exists and
the Participant is covered by the Plan at the end of the Limitation Year, the
excess amount in the Participant's Account will be used to reduce the Employer
contributions for such Participant in the next Limitation Year, and each
succeeding Limitation Year if necessary;
(iii) If, after the application of (i) above, an excess amount still
exists, and the Participant is not covered by the Plan at the end of the
---
Limitation Year, the excess amount will be held unallocated in a suspense
account which will then be applied to reduce future Employer contributions for
al remaining Participants in the next Limitation Year, and each succeeding
Limitation Year if necessary;
(iv) If a suspense account is in existence at any time during the
Limitation Year, it will not participate in the allocation of investment gains
and losses.
Limitation on 401(k) Plan Contributions. The annual amount of deferred
---------------------------------------
Compensation under a Elective Deferral Agreement of a Participant (when
aggregated with any elective deferrals of the Participant under a simplified
employee pension plan or a tax-deferred annuity) may not exceed $7,000 adjusted
for increases in the cost of living as permitted by the Code (the limitation for
1998 is $10,000). Contributions in excess of this limitation ("excess
deferrals") will be included in the Participant's gross income for federal
income tax purposes in the year they are made. In addition, any such excess
deferral will again be subject to federal income tax when distributed by the
Plan to the Participant, unless the excess deferral (together with any income
allocable thereto) is distributed to the Participant not later than the first
April 15th following the close of the taxable
6
<PAGE>
year in which the excess deferral is made. Any income on the excess
deferral that is distributed not later than such date shall be treated, for
federal income tax purposes, as earned and received by the Participant in the
taxable year in which the excess deferral is made.
Limitation on Plan Contributions for Highly Compensated Employees.
-----------------------------------------------------------------
Sections 401(k) and 401(m) of the Code limit the amount of deferred compensation
that may be made to the Plan in any Plan Year on behalf of Highly Compensated
Employees (defined below) in relation to the amount of deferred compensation
made by or on behalf of all other employees eligible to participate in the Plan.
Specifically, the actual deferral percentage (i.e., the average of the ratios,
calculated separately for each eligible employee in each group, by dividing the
amount of deferred compensation credited to the Elective Deferral Account of
such eligible employee by such eligible employee's compensation for the Plan
Year) of the Highly Compensated Employees may not exceed the greater of (i) 125%
of the actual deferral percentage of all other eligible employees, or (ii) the
lesser of (x) 200% of the actual deferral percentage of all other eligible
employees, or (y) the actual deferral percentage of all other eligible employees
plus two percentage points. In addition, the actual contribution percentage for
such Plan Years (i.e., the average of the ratios calculated separately for each
eligible employee in each group, by dividing the amount of voluntary employee
and employer matching contributions credited to the Employer Contribution
Account of such eligible employee by such eligible employee's compensation for
the Plan Year) of the Highly Compensated Employees may not exceed the greater of
(i) 125% of the actual contribution percentage of all other eligible employees,
or (ii) the lesser of (x) 200% of the actual contribution percentage of all
other eligible employees, or (y) the actual contribution percentage of all other
eligible employees plus two percentage points.
In general, a Highly Compensated Employee includes any employee who, (1)
was a five percent owner of the Employer at any time during the year or
preceding year; or (2) had compensation for the preceding year in excess of
$80,000 and, if the Employer so elects, was in the top 20% of employees by
compensation for such year. The dollar amounts in the foregoing sentence are
for 1998. Such amounts are adjusted annually to reflect increases in the cost
of living.
In addition, the compensation of an employee who is a family member of a 5%
owner, or one of the ten most highly compensated employees during the relevant
period is aggregated with that of the Highly Compensated Employee. All such
family members are treated as a single employee with respect to the application
of the limitations on Highly Compensated Employees.
In order to prevent the disqualification of the Plan, any amount
contributed by Highly Compensated Employees that exceed the average deferral
limitation in any Plan Year ("excess contributions"), together with any income
allocable thereto, must be distributed to such Highly Compensated Employees
before the close of the following Plan Year. However, the Employer will be
subject to a 10% excise tax on any excess contributions unless such excess
contributions, together with any income allocable thereto, either are
recharacterized or are distributed before the close of the first 2 1/2 months
following the Plan Year to which such excess contributions relate.
7
<PAGE>
Top-Heavy Plan Requirements. If for any Plan Year the Plan is a Top-Heavy
---------------------------
Plan (as defined below), then (i) the Bank may be required to make certain
minimum contributions to the Plan on behalf of non-key employees (as defined
below), and (ii) certain additional restrictions would apply with respect to the
combination of annual additions to the Plan and projected annual benefits under
any defined benefit plan maintained by the Bank.
In general, the Plan will be regarded as a "Top-Heavy Plan" for any Plan
Year if, as of the last day of the preceding Plan Year, the aggregate balance of
the Accounts of Participants who are Key Employees (as defined below) exceeds
60% of the aggregate balance of the Accounts of all Participants. Key Employees
generally include any employee who, at any time during the Plan Year or any of
the four preceding Plan Years, is (1) an officer of the Bank having annual
compensation in excess of $60,000 who is in an administrative or policy-making
capacity, (2) one of the ten employees having annual compensation in excess of
$30,000 and owning, directly or indirectly, the largest interests in the Bank,
(3) a 5% owner of the Bank, (i.e., owns directly or indirectly more than 5% of
the stock of the Bank, or stock possessing more than 5% of the total combined
voting power of all stock of the Bank) or (4) a 1% owner of the Bank having
annual compensation in excess of $150,000. The dollar amounts in the foregoing
sentence are for 1998.
V. INVESTMENT OF CONTRIBUTIONS
All amounts credited to Participants' Accounts under the Plan are held in
the Plan Trust (the "Trust") which is administered by the Trustee appointed by
the Bank's Board of Directors.
Prior to [insert date of Prospectus here], the Participant Accounts have
been invested by the Trustee, at the direction of the Participants, in the
following funds:
Fidelity Magellan Fund
Fidelity Puritan Fund
Nationwide Bond Fund
Nationwide Money Market Fund
Twentieth Century U.S. Government Bond
First Savings Stock Fund
First Savings CD Fund
Effective _______, 1998, the First Savings Stock Fund will be converted
into the First Source Bancorp, Inc. Stock Fund.
8
<PAGE>
Each fund has unique investment goals and methodologies
(i) Fidelity Magellan Fund:
. invests primarily in common stocks and convertible securities;
. may invest up to 20% of its assets in debt securities of all types and
qualities;
. features domestic corporations operating primarily in the United States,
domestic corporations that have significant activities and interests
outside the U.S., and foreign companies;
. has no limitation on total foreign investment, but no more than 40% of
fund assets will be invested in companies operating exclusively in one
foreign country;
. is managed by Fidelity Management & Research Company.
(ii) Fidelity Puritan Fund:
. seeks as much income as possible, consistent with the preservation and
conservation of capital;
. invests in common stocks, and bonds, seeking to diversify in terms of both
companies and industries;
. has historically used income-producing securities as the principal
holding;
. is managed by Fidelity Management & Research Company.
(iii) Nationwide Bond Fund:
. seeks as high a level of income as is consistent with capital
preservation;
. invests in high quality bonds and other fixed income securities;
. may include investments such as corporate bonds rated A or better, U.S.
Government obligations, Canadian government bonds, and the highest
investment grades of commercial paper;
. is managed by Nationwide Financial Services.
(iv) Nationwide Money Market Fund:
. provides as high a level of current income as is consistent with the
preservation of capital and maintenance of liquidity;
9
<PAGE>
. invests in a diversified portfolio of high-quality money market
instruments maturing in 397 days or less;
. accomplishes is objectives by investing mainly in debt, but retains
maximum flexibility in the management of its portfolio;
. is managed by Nationwide Financial Services.
(v) Twentieth Century U.S. Gov't Bond:
. may invest in direct obligations of the United States, which are supported
by the full faith and credit of the United States, and in obligations of
agencies and instrumentalities of the U.S. government that are established
under authority of an act of Congress;
. maintains an average weighted maturity of four years or less;
. is managed by Investors Research Corporation.
(vi) First Savings Stock Fund invests primarily in the Common Stock of First
Savings Bank, SLA.
(vii) First Savings CD Fund holds funds in insured deposits at First Savings
Bank, SLA at market rates and other conditions equal to those provided
other customers of First Savings Bank, SLA.
The net gain (or loss) of the Funds from investments (including interest
payments, dividends, realized and unrealized gains and losses on securities, and
expenses paid from the Trust will be determined as of the first day of each June
and December during the Plan Year (the "Valuation Dates") and will be allocated
among the Accounts of Participants according to the balance of such Accounts as
of each Valuation Date.
Any amounts credited to a Participant's Accounts for which investment
directions are not given will be invested in the Nationwide Money Market Fund by
the Trustee.
10
<PAGE>
A. Previous Funds.
--------------
Prior to _________________________, contributions under the Plan were
invested in the following funds. The annual percentage return on these funds
for the prior three years was:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Fidelity Magellan Fund (1.8)%
Fidelity Puritan Fund 1.8
Nationwide Bond Fund (8.1)
Nationwide Money Market Fund 3.7
Twentieth Century U.S. Government (0.5)
Bond Fund
First Savings CD Fund 7.0
First Savings Stock Fund 11.7
</TABLE>
B. The First Source Bancorp, Inc. Stock Fund.
-----------------------------------------
The First Source Bancorp, Inc. Stock Fund will consist of investments
in Common Stock made on and after the effective date of the Offering. Each
Participant's proportionate undivided beneficial interest in the First Source
Bancorp, Inc. Stock Fund is measured by units. Each day a unit value will be
calculated by determining the market value of the Common Stock actually held and
adding to that any cash held by the Trustee. This total will be divided by the
number of units outstanding to determine the unit value of the First Source
Bancorp, Inc. Stock Fund.
On the occasion of the payment of a cash dividend, the unit value will be
determined before the dividend is distributed. The Trustee may use the dividend
to purchase additional shares of Common Stock, thereby increasing the total
value of the First Source Bancorp, Inc. Stock Fund, and the value of each unit.
The Board of Directors of the Holding Company may consider a policy of paying
cash dividends on the Common Stock in the future; however, no decision as to the
amount or timing of cash dividends, if any, has been made. The Trustee will, to
the extent practicable, use all amounts held by it in the First Source Bancorp,
Inc. Stock Fund to purchase shares of Common Stock of the Holding Company. It
is expected that all purchases will be made at prevailing market prices. Under
certain circumstances, the Trustee may be required to limit the daily volume of
shares purchased. Pending investment in Common Stock, assets held in the First
Source Bancorp, Inc. Stock Fund will be placed in bank deposits and other short-
term investments.
Any brokerage commissions, transfer fees and other expenses incurred in the
sale and purchase of Common Stock for the First Source Bancorp, Inc. Stock Fund
will be paid out of a cash
11
<PAGE>
account managed by the Trustee. Therefore, although Participants' Accounts will
not be directly adjusted for such fees, the market value of their accounts will
be reduced.
As of the date of this Prospectus Supplement, none of the shares of Common
Stock have been issued or are outstanding and there is no established market for
the Common Stock. Accordingly, there is no record of the historical performance
of the First Source Bancorp, Inc. Stock Fund. Performance will be dependent
upon a number of factors, including the financial condition and profitability of
the Holding Company and the Bank and market conditions for the Common Stock
generally. See "Market for the Common Stock" in the Prospectus.
INVESTMENTS IN THE FIRST SOURCE BANCORP, INC. STOCK FUND MAY INVOLVE
CERTAIN SPECIAL RISKS IN INVESTMENTS IN COMMON STOCK OF THE COMPANY. FOR A
DISCUSSION OF THESE RISK FACTORS, SEE "RISK FACTORS" IN THE PROSPECTUS.
VI. BENEFITS UNDER THE PLAN
A Participant, at all times, has a fully vested, nonforfeitable interest in
his or her Accounts and the earnings thereon under the Plan.
VII. WITHDRAWALS AND DISTRIBUTIONS FROM THE PLAN
Withdrawals Prior to Termination of Employment. Subject to the hardship
----------------------------------------------
distribution rules under the Plan, a Participant may withdraw all or a portion
of his or her Accounts under the Plan. The hardship distribution requirements
ensure that Participants have a true financial need before a withdrawal may be
made.
A Participant may make a withdrawal from his Employer Contribution Account
following five years of participation in the Plan. However, if a Participant
makes such a withdrawal, he or she is precluded from making any further
withdrawals from his Employer Contribution Account for a twelve-month period.
Distribution Upon Retirement, Disability or Termination of Employment.
---------------------------------------------------------------------
Payment of benefits to a Participant who retires, incurs a disability, or
otherwise terminates employment generally shall be made in a lump sum cash
payment as soon as administratively feasible after such termination of
employment if the vested value of the Participant's Account is $3,500 or less.
If the vested portion of the Participant's Account balance is greater than
$3,500, the Participant may request a distribution (subject to the minimum
distribution rules) in a lump sum payment: (a) as soon as administratively
possible after termination, (b) as of any valuation date up to 13 months after
termination or (c) as of the date the Participant attains normal retirement age.
At the request of the Participant, the distribution may include an in kind
distribution of Common Stock of the Holding Company equal to the number of
shares that can be purchased with the Participant's balance in the First Source
Bancorp, Inc. Stock Fund. Benefit payments ordinarily shall be made not later
than 60 days following the end of the Plan Year in which occurs the latest of
the Participant's: (i) termination of employment; (ii) the attainment of age 65
or (iii) 10th anniversary of commencement
12
<PAGE>
of participation in the Plan; but in no event later than the April 1 following
the calendar year in which the Participant attains age 70 1/2. However, if the
vested portion of the Participant's Account balances exceeds or has ever
exceeded $3,500, no distribution shall be made from the Plan prior to the
Participant's attaining age 65 unless the Participant elects to receive an
earlier distribution.
Distribution upon Death. Unless otherwise elected as above, a Participant
-----------------------
who dies prior to the benefit commencement date for retirement, disability or
termination of employment, and who has a surviving spouse shall have his
benefits paid to the surviving spouse in a lump sum as soon as administratively
possible following the date of his death, unless the Participant elected prior
to his death or the beneficiary so elects within 90 days of the Participant's
death, to receive such distribution in a lump sum payment as of any Valuation
Date which occurs within one year of the Participant's death. With respect to
an unmarried Participant, and in the case of a married Participant with spousal
consent to the designation of another beneficiary, payment of benefits to the
beneficiary of a deceased Participant shall be made in the form of a lump-sum
payment in cash or in Common Stock in the same manner described above as to a
Participant with a surviving spouse.
Nonalienation of Benefits. Except with respect to federal income tax
-------------------------
withholding and as provided with respect to a qualified domestic relations order
(as defined in the Code), benefits payable under the Plan shall not be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to
benefits payable under the Plan shall be void.
ADMINISTRATION OF THE PLAN
The Trustee with respect to the Plan is the named fiduciary of the Plan for
purposes of Section 402 of ERISA.
Trustees. The Trustee is appointed by the Board of Directors of the Bank
--------
to serve at its pleasure. The current Trustees of the Plan are designated
members of the Board. An unaffiliated Trustee has been appointed to hold funds
invested in the First Source Bancorp, Inc. Stock Fund.
The Trustee receives, holds and invests the contributions to the Plan in
trust and distributes them to Participants and beneficiaries in accordance with
the terms of the Plan and the directions of the Plan Administrator. The Trustee
is responsible for investment of the assets of the Trust.
REPORTS TO PLAN PARTICIPANTS
Once a year, the Plan Administrator furnishes to each Participant a
statement showing (i) the balance in the Participant's Account as of the end of
that period, (ii) the amount of contributions allocated to such participant's
Account for that period, and (iii) the adjustments to such participant's Account
to reflect earnings or losses (if any).
13
<PAGE>
PLAN ADMINISTRATOR
Pursuant to the terms of the Plan, the Plan is administered by one or more
persons who are appointed by and who serve at the pleasure of the Bank.
Currently, the Plan Administrator is John Mulkerin of the Bank. The address and
telephone number of the Plan Administrator is c/o First Savings Bank, SLA, 1000
Woodbridge Center Drive, Woodbridge, New Jersey, 07095. The Plan Administrator
is responsible for the administration of the Plan, interpretation of the
provisions of the Plan, prescribing procedures for filing applications for
benefits, preparation and distribution of information explaining the Plan,
maintenance of Plan records, books of account and all other data necessary for
the proper administration of the Plan, and preparation and filing of all returns
and reports relating to the Plan which are required to be filed with the U.S.
Department of Labor and the IRS, and for all disclosures required to be made to
Participants, Beneficiaries and others under Sections 104 and 105 of ERISA.
AMENDMENT AND TERMINATION
It is the intention of the Bank to continue the Plan indefinitely.
Nevertheless, the Bank may terminate the Plan at any time. If the Plan is
terminated in whole or in part, then regardless of other provisions in the Plan,
each employee affected by such termination shall have a fully vested interest in
his Accounts. The Bank reserves the right to make, from time to time, any
amendment or amendments to the Plan which do not cause any part of the Trust to
be used for, or diverted to, any purpose other than the exclusive benefit of
Participants or their beneficiaries; provided, however, that the Bank may make
any amendment it determines necessary or desirable, with or without retroactive
effect, to comply with ERISA.
MERGER, CONSOLIDATION OR TRANSFER
In the event of the merger or consolidation of the Plan with another plan,
or the transfer of the Trust assets to another plan, the Plan requires that each
Participant would (if either the Plan or the other plan then terminated) receive
a benefit immediately after the merger, consolidation or transfer which is equal
to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan had then
terminated).
FEDERAL INCOME TAX CONSEQUENCES
The following is only a brief summary of certain federal income tax aspects
of the Plan which are of general application under the Code and is not intended
to be a complete or definitive description of the federal income tax
consequences of participating in or receiving distributions from the Plan. The
summary is necessarily general in nature and does not purport to be complete.
Moreover, statutory provisions are subject to change, as are their
interpretations, and their application may vary in individual circumstances.
Finally, the consequences under applicable state and local income tax laws may
not be the same as under the federal income tax laws. PARTICIPANTS ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO ANY DISTRIBUTION FROM THE PLAN AND
TRANSACTIONS INVOLVING THE PLAN.
14
<PAGE>
The Plan has received a determination that it is qualified under Section
401(a) and 401(k) of the Code, and that the related Trust is exempt from tax
under Section 501(a) of the Code. A plan that is "qualified" under these
sections of the Code is afforded special tax treatment which include the
following: (1) The sponsoring employer is allowed an immediate tax deduction
for the amount contributed to the Plan each year; (2) Participants pay no
current income tax on amounts contributed by the employer on their behalf; and
(3) earnings of the plan are tax-deferred thereby permitting the tax-free
accumulation of income and gains on investments. The Plan will be administered
to comply in operation with the requirements of the Code as of the applicable
effective date of any change in the law. The Bank expects to timely adopt any
amendments to the Plan that may be necessary to maintain the qualified status of
the Plan under the Code.
Lump Sum Distribution. A distribution from the Plan to a Participant or
---------------------
the beneficiary of a Participant will qualify as a Lump Sum Distribution if it
is made: (i) within one taxable year of the Participant or beneficiary; (ii) on
account of the Participant's death, disability or separation from service, or
after the Participant attains age 59 1/2; and (iii) consists of the balance to
the credit of the Participant under this Plan and all other profit sharing
plans, if any, maintained by the Bank. The portion of any Lump Sum Distribution
that is required to be included in the Participant's or beneficiary's taxable
income for federal income tax purposes (the "total taxable amount") consists of
the entire amount of such Lump Sum Distribution less the amount of after-tax
contributions, if any, made by the Participant to any other profit sharing plans
maintained by the Bank which is included in such distribution.
Averaging Rules. The portion of the total taxable amount of a Lump Sum
---------------
Distribution that is attributable to participation after 1973 in this Plan or in
any other profit-sharing plan maintained by the Bank (the "ordinary income
portion") will be taxable generally as ordinary income for federal income tax
purposes. However, a Participant who has completed at least five years of
participation in this Plan before the taxable year in which the distribution is
made, or a beneficiary who receives a Lump Sum Distribution on account of the
Participant's death (regardless of the period of the Participant's participation
in this Plan or any other profit-sharing plan maintained by the Employers), may
elect to have the ordinary income portion of such Lump Sum Distribution taxed
according to a special averaging rule ("five-year averaging"). The election of
the special averaging rules may apply only to one Lump Sum Distribution received
by the Participant or beneficiary, provided such amount is received on or after
the Participant turns 59-1/2 and the recipient elects to have any other Lump Sum
Distribution from a qualified plan received in the same taxable year taxed under
the special averaging rule. Under a special grandfather rule, individuals who
turned 50 by 1986 may elect to have their Lump Sum Distribution taxed under
either the five-year averaging rule or under the prior law ten-year averaging
rule. Such individuals also may elect to have that portion of the Lump Sum
Distribution attributable to the participant's pre-1974 participation in the
Plan taxed at a flat 20% rate as gain from the sale of a capital asset.
Common Stock Included in Lump Sum Distribution. If a Lump Sum Distribution
----------------------------------------------
includes Common Stock, the distribution generally will be taxed in the manner
described above, except that the total taxable amount will be reduced by the
amount of any net unrealized appreciation with respect to such Common Stock,
i.e., the excess of the value of such Common Stock at the time of
15
<PAGE>
the distribution over its cost or other basis of the securities to the Trust.
The tax basis of such Common Stock to the Participant or beneficiary for
purposes of computing gain or loss on its subsequent sale will be the value of
the Common Stock at the time of distribution less the amount of net unrealized
appreciation. Any gain on a subsequent sale or other taxable disposition of such
Common Stock, to the extent of the amount of net unrealized appreciation at the
time of distribution, will be considered long-term capital gain regardless of
the holding period of such Common Stock. Any gain on a subsequent sale or other
taxable disposition of the Common Stock in excess of the amount of net
unrealized appreciation at the time of distribution will be considered either
short-term capital gain or long-term capital gain depending upon the length of
the holding period of the Common Stock. The recipient of a distribution may
elect to include the amount of any net unrealized appreciation in the total
taxable amount of such distribution to the extent allowed by the regulations to
be issued by the IRS.
Distributions: Rollovers and Direct Transfers to Another Qualified Plan or
---------------------------------------------------------------------------
to an IRA. Pursuant to a change in the law, effective January 1, 1993,
- ----------
virtually all distributions from the Plan may be rolled over to another
qualified Plan or to an individual retirement account ("IRA") without regard to
whether the distribution is a Lump Sum Distribution or a Partial Distribution.
Effective January 1, 1993, Participants have the right to elect to have the
Trustee transfer all or any portion of an "eligible rollover distribution"
directly to another plan qualified under Section 401(a) of the Code or to an
IRA. If the Participant does not elect to have an "eligible rollover
distribution" transferred directly to another qualified plan or to an IRA, the
distribution will be subject to an mandatory federal withholding tax equal to
20% of the taxable distribution. An "eligible rollover distribution" means any
amount distributed from the Plan except: (1) a distribution that is (a) one of a
series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the Participant or the joint
lines of the Participant and his or her designated beneficiary, or (b) for a
specified period of ten years or more; (2) any amount that is required to be
distributed under the minimum distribution rules; and (3) any other
distributions excepted under applicable federal law. The tax law change
described above did not modify the special tax treatment of Lump Sum
Distributions, that are not rolled over or transferred i.e., forward averaging,
capital gains tax treatment and the nonrecognition of net unrealized
appreciation, discussed earlier.
ERISA AND OTHER QUALIFICATION
As noted above, the Plan is subject to certain provisions of ERISA and will
be submitted to the IRS for a determination that it is qualified under Section
401(a) of the Code.
THE FOREGOING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX ASPECTS
OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED
TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN.
ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT A TAX ADVISOR CONCERNING THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.
16
<PAGE>
RESTRICTIONS ON RESALE
Any person receiving a distribution of shares of Common Stock under the
Plan who is an "affiliate" of the Bank as the term "affiliate" is used in Rules
144 and 405 under the Securities Act of 1933, as amended (the "Securities Act")
(e.g., directors, officers and substantial shareholders of the Bank) may reoffer
or resell such shares only pursuant to a registration statement filed under the
Securities Act assuming the availability thereof, pursuant to Rule 144 or some
other exemption of the registration requirements of the Securities Act Any
person who may be an "affiliate" of the Bank may wish to consult with counsel
before transferring any Common Stock owned by him. In addition, Participants
are advised to consult with counsel as to the applicability of Section 16 of the
1934 Act which may restrict the sale of Common Stock where acquired under the
Plan, or other sales of Common Stock.
Persons who are not deemed to be "affiliates" of the Bank at the time of
---
resale will be free to resell any shares of Common Stock to them under the Plan,
either publicly or privately, without regard to the Registration and Prospectus
delivery requirements of the Securities Act or compliance with the restrictions
and conditions contained in the exemptive rules thereunder. An "affiliate" of
the Bank is someone who directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control, with the
Bank. Normally, a director, principal officer or major shareholder of a
corporation may be deemed to be an "affiliate" of that corporation. A person who
may be deemed an "affiliate" of the Bank at the time of a proposed resale will
be permitted to make public resales of the Bank's Common Stock only pursuant to
a "reoffer" Prospectus or in accordance with the restrictions and conditions
contained in Rule 144 under the Securities Act or some other exemption from
registration, and will not be permitted to use this Prospectus in connection
with any such resale. In general, the amount of the Bank's Common Stock which
any such affiliate may publicly resell pursuant to Rule 144 in any three-month
period may not exceed the greater of one percent of the Bank's Common Stock then
outstanding or the average weekly trading volume reported on the National
Association of Securities Dealers Automated Quotation System during the four
calendar weeks prior to the sale. Such sales may be made only through brokers
without solicitation and only at a time when the Bank is current in filing the
reports required of it under the 1934 Act.
SEC REPORTING AND SHORT-SWING PROFIT LIABILITY
Section 16 of the 1934 Act imposes reporting and liability requirements on
officers, directors and persons beneficially owning more than ten percent of
public companies such as the Holding Company. Section 16(a) of the 1934 Act
requires the filing of reports of beneficial ownership. Within ten days of
becoming a person subject to the reporting requirements of Section 16(a), a Form
3 reporting initial beneficial ownership must be filed with the Securities and
Exchange Commission. Certain changes in beneficial ownership, such as
purchases, sales, gifts and participation in savings and retirement plans must
be reported periodically, either on a Form 4 within ten days after the end of
the month in which a change occurs, or annually on a Form 5 within 45 days after
the close of the Bank's fiscal year. Participation in the Employer Stock Fund
of the Plan by officers, directors and
17
<PAGE>
persons beneficially owning more than ten percent of Common Stock of the Holding
Company must be reported to the SEC annually on a Form 5 by such individuals.
In addition to the reporting requirements described above, Section 16(b) of
the 1934 Act provides for the recovery by the Holding Company of profits
realized by any officer, director or any person beneficially owning more than
ten percent of the Holding Company's Common Stock ("Section 16(b) Persons")
resulting from the purchase and sale or sale and purchase of the Holding
Company's Common Stock within any six-month period.
The SEC has adopted rules that provide exemption from the profit recovery
provisions of Section 16(b) for participant-directed employer security
transactions within an employee benefit plan, such as the Plan, provided certain
requirements are met. These requirements generally involve restrictions upon
the timing of elections to acquire or dispose of employer securities for the
accounts of Section 16(b) Persons.
Except for distributions of Common Stock due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order, Section 16(b) Persons are required to hold shares of Common Stock
distributed from the Plan for six months following such distribution.
EXPERTS
The financial statements and schedules of the Incentive Savings Plan for
the Employees of First Savings, SLA as of December 31, 1996 and 1995 and for the
years then ended have been included in reliance upon the report of KPMG Peat
Marwick, independent certified public accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
LEGAL OPINION
The validity of the issuance of the Common Stock will be passed upon by
Muldoon, Murphy & Faucette, Washington, D.C., which firm acted as special
counsel for the Holding Company in connection with the Holding Company's
Offering.
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
First Savings Bank, SLA:
We have audited the accompanying statements of net assets available for plan
benefits (with fund information) of the Incentive Savings Plan for Employees of
First Savings Bank, SLA as of December 31, 1996 and 1995, and the related
statements of changes in net assets available for plan benefits (with fund
information) for the years then ended. These financial statements are the
responsibility of the Plan'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 that 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 net assets available for plan benefits of the
Incentive Savings Plan for Employees of First Savings Bank, SLA as of December
31, 1996 and 1995, and the changes in net assets available for plan benefits for
the years then ended in conformity with generally accepted accounting
principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets
held for investment purposes, and reportable transactions are presented for the
purpose of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. The fund information in
the statements of net assets available for plan benefits (with fund information)
and the statements of changes in net assets available for plan benefits (with
fund information) is presented for purposes of additional analysis rather than
to present the net assets available for plan benefits and changes in net assets
available for plan benefits of each fund. The supplemental schedules and fund
information have been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
<PAGE>
2
The schedule of assets held for investment purposes that accompanies the Plan's
financial statements does not disclose the historical cost of certain plan
assets held by the Plan trustee. Disclosure of this information is required by
the Department of Labor's Rules and Regulations for Reporting and Disclosure
under the Employee Retirement Income Security Act of 1974.
June 6, 1997
<PAGE>
INCENTIVE SAVINGS PLAN FOR EMPLOYEES
OF FIRST SAVINGS BANK, SLA
Statements of Net Assets Available
for Plan Benefits (With Fund Information)
December 31, 1996 and 1995
(In Thousands)
<TABLE>
<CAPTION>
1996 1995
----------------------------------- ------------------------------------
Employer Employer
General stock Mutual General stock Mutual
fund fund funds Total fund fund funds Total
------- -------- ------ ------- ------- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets - investments (note 3):
Money market fund (plan sponsor) $ 25 -- -- 25 9 -- -- 9
Certificates of deposit 1,367 98 -- 1,465 1,299 95 -- 1,394
Mutual funds -- -- 1,344 1,344 -- -- 812 812
Common stock -- 2,841 -- 2,841 -- 3,191 -- 3,191
Members' loans 233 -- -- 233 154 -- -- 154
------- -------- ------ ------- ------- -------- ------ -------
Net asets available for
plan benefits $ 1,625 2,939 1,344 5,908 1,462 3,286 812 5,560
======= ======== ====== ======= ======= ======== ====== =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
INCENTIVE SAVINGS PLAN FOR EMPLOYEES
OF FIRST SAVINGS BANK, SLA
Statements of Changes in Net Assets Available
for Plan Benefits (With Fund Information)
Years ended December 31, 1996 and 1995
(In Thousands)
<TABLE>
<CAPTION>
1996 1995
-------------------------------- ---------------------------------
Employer Employer
General stock Mutual General stock Mutual
fund fund funds Total fund fund funds Total
------- -------- ------ ------- ------- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Interest and dividend income $ 111 110 -- 221 101 71 -- 172
------- -------- ------ ------- ------- -------- ------ -------
Contributions:
Employer 50 -- 85 135 49 -- 66 115
Employee 219 -- 211 430 122 -- 155 277
------- -------- ------ ------- ------- -------- ------ -------
Total contributions 269 -- 296 565 171 -- 221 392
------- -------- ------ ------- ------- -------- ------ -------
Net transfers among funds (110) (40) 150 -- (155) 420 (265) --
Net realized and unrealized appreciation in fair
value of plan assets -- 893 86 979 -- 630 195 825
------- -------- ------ ------- ------- -------- ------ -------
Total additions 270 963 532 1,765 117 1,121 151 1,389
Deductions from net assets attributed to benefits to
participants 107 1,310 -- 1,417 134 -- -- 134
------- -------- ------ ------- ------- -------- ------ -------
Net increase (decrease) 163 (347) 532 348 (17) 1,121 151 1,255
Net assets available for plan benefits at beginning of year 1,462 3,286 812 5,560 1,479 2,165 661 4,305
------- -------- ------ ------- ------- -------- ------ -------
Net assets available for plan benefits at end of year $ 1,625 2,939 1,344 5,908 1,462 3,286 812 5,560
======= ======== ====== ======= ======= ======== ====== =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
INCENTIVE SAVINGS PLAN FOR EMPLOYEES
OF FIRST SAVINGS BANK, SLA
Notes to Financial Statements
December 31, 1996 and 1995
(1) GENERAL
The Incentive Savings Plan for Employees of First Savings Bank, SLA (the
Plan), a participant directed, defined contribution plan, is a voluntary
savings plan available to all eligible employees of First Savings Bank, SLA
(the Bank).
The accompanying financial statements have been prepared on an accrual basis.
Purchases and sales of investments are recorded on a trade-date basis.
Certain amounts in the 1995 financial statements have been reclassified to
comply with the 1996 presentation.
In preparing plan financial statements, a number of estimates and assumptions
have been made relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
The assets of the Plan are primarily financial instruments which are monetary
in nature. As a result, interest rates have a more significant impact on the
Plan's performance than the effects of general levels of inflation. Interest
rates do not necessarily move in the same direction or in the same magnitude
as the prices of goods and services as measured by the consumer price index.
Investments in funds are subject to risk conditions of the individual fund
objectives, stock market interest rates, economic conditions and world
affairs.
All contributions are invested in a trust fund managed by a committee
consisting of at least three members appointed by the Board of Directors of
the Bank. The Plan is subject to the provisions of the Employee Retirement
Income Security Act of 1974 (ERISA).
(2) PLAN DESCRIPTION
The following description of the Plan provides only general information.
Eligible employees who participate (members) should refer to the plan
agreement for a more complete description of the Plan's provisions.
ELIGIBILITY
All employees over age 21 are eligible to participate in the Plan on the
first day of January or July following the completion of one year of service,
as defined.
EMPLOYEE CONTRIBUTIONS
A member may make basic contributions to the Plan, through payroll
deductions, of any whole percentage from 2% to 12% of the member's
compensation, as defined. Cumulative employee contributions total
approximately $2,283,000 and $1,853,000 at December 31, 1996 and 1995,
respectively.
<PAGE>
2
INCENTIVE SAVINGS PLAN FOR EMPLOYEES
OF FIRST SAVINGS BANK, SLA
Notes to Financial Statements, Continued
(2), CONTINUED
BANK CONTRIBUTIONS
The Bank matches 50% of a member's basic contribution, up to 6% of that
member's compensation, as defined. Bank contributions are funded biweekly.
At its discretion, the Bank may make an additional contribution to the Plan
as of the end of a plan year in an amount determined by the Bank. For the
years ended December 31, 1996 and 1995, the Bank elected not to make an
additional discretionary match.
VESTING
All member contributions, employer contributions and income or loss thereon
are fully vested at all times.
WITHDRAWALS
Money can be withdrawn from the Plan when a member reaches age 59-1/2,
terminates employment, dies, becomes disabled or experiences financial
hardship.
BENEFIT PAYMENTS
Upon termination of employment, a member's vested amount under the Plan is
paid in a lump-sum distribution. During 1996, included in deductions from
plan assets attributed to benefits to participants is a $1,321,897 payment
relating to the passing of the Bank's long-time President.
MEMBERS' ACCOUNTS
Each member's account is credited with the member's contribution, the
appropriate amount of the Bank's contribution and an allocation of the Plan's
earnings or losses. Allocations are based on the member's relative
contribution to the individual funds.
LOANS TO PARTICIPANT
Participants are permitted to borrow from the Plan as defined in the plan
document. In no event shall the loan exceed the lesser of (a) $50,000,
reduced by the highest loan balance outstanding during the one-year period
ending on the day before the date on which the new loan is granted; or (b)
50% of the participant's vested amount under the Plan on the date the
loan is granted. Interest shall be charged thereon at a rate for similar
loans in the Bank's portfolio and the loan shall be repaid by payroll
deduction or in a manner determined by the Trustee, but not less frequently
than quarterly.
<PAGE>
3
INCENTIVE SAVINGS PLAN FOR EMPLOYEES
OF FIRST SAVINGS BANK, SLA
Notes to Financial Statements, Continued
(2), CONTINUED
INVESTMENTS
Contributions to the Plan by a member and by the Bank will be invested in
various types of investments, as determined by the trust fund committee, such
as certificates of deposit, mutual funds and the Bank's common stock.
Certificates of deposit and loans to members are carried at cost plus accrued
interest. Mutual funds and common stock, which represent the Bank's common
stock, are carried at fair value. Fair value is determined by quoted market
prices.
(3) INVESTMENTS
The investments of the Plan are held in a trust fund managed by a committee
appointed by the Board of Directors of the Bank. Investments at December 31,
1996 and 1995 are composed of certificates of deposit, mutual funds, loans to
members and common stock issued by the Bank.
Individual investments in excess of 5% of net assets available for plan
benefits at December 31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Stated Maturity
Description rate date 1996 1995
----------- ------------ ---------- ------ -----
<S> <C> <C> <C> <C>
First Savings Bank, SLA (the plan
sponsor) certificate of deposit 6.79% Oct.7,2004 $ 1,367 1,299
====== ==========
Mutual fund -- Fidelity Magellan 564 407
Mutual fund -- Fidelity Puritan 460 289
------ -----
2,391 1,995
Common stock -- First Savings Bank,
SLA (the plan sponsor) 2,841 3,191
------ -----
$5,232 5,186
====== =====
</TABLE>
As noted above, the Plan has a significant concentration of investments
associated with the Bank.
<PAGE>
4
INCENTIVE SAVINGS PLAN FOR EMPLOYEES
OF FIRST SAVINGS BANK, SLA
Notes to Financial Statements, Continued
(4) PLAN EXPENSES
Administrative expenses of the Plan may be paid in whole or in part by the
Bank at its discretion, and any expenses not paid by the Bank shall be paid
by the trustee out of the principal or income of the trust fund. All
administrative expenses for the years ended December 31, 1996 and 1995 were
paid by the Bank.
(5) PLAN TERMINATION
The Plan has no termination date, and it is the Bank's intention to continue
the Plan indefinitely. However, the Bank may terminate, amend or modify the
Plan at any time that it may deem advisable. In the event of the termination
of the Plan, an appraisal of the trust fund shall be made and, after
deducting termination expenses, the members will be paid their vested
amounts.
(6) INCOME TAXES
The plan administrator has obtained a tax determination letter dated July 20,
1995 from the Internal Revenue Service stating that the Plan qualifies under
the provisions of Section 401(a) of the Internal Revenue Code (the Code) and
the related trust is exempt from federal income taxes under Section 501(a) of
the Code. In the opinion of the plan administrator, the Plan and its
underlying trust have operated within the terms of the Plan and remain
qualified under the applicable provisions of the Code.
<PAGE>
Schedule 1
----------
INCENTIVE SAVINGS PLAN FOR EMPLOYEES
OF FIRST SAVINGS BANK, SLA
Item 27a -- Schedule of Assets Held
for Investment Purposes
December 31, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
Stated Maturity Fair
Description of investment rate date Cost value
------------------------- ---- ---- ---- -----
<S> <C> <C> <C> <C>
Certificates of deposit:
First Savings Bank, SLA (the plan
sponsor) certificate of deposit 6.79% Oct.7,2004 $ 1,367 1,367
First Savings Bank, SLA (the plan
sponsor) certificate of deposit 5.84 Nov.3,1997 98 98
===== ========== ------- -----
Total certificates of
deposit 1,465 1,465
Money market fund (plan sponsor) 25 25
Common stock -- First Savings Bank,
SLA (the plan sponsor) -- 147,598
shares 847 2,841
Mutual funds:
Fidelity Magellan * 564
Fidelity Puritan * 460
Money Market * 78
20th Century Growth * 21
20th Century Growth * 145
Dreyfus A Bonds * 12
N+B Partners Trust * 64
------- -----
* 1,344
Loans to members 233 233
------- -----
Total investments $ 2,570 5,908
======= =====
</TABLE>
*The historical cost of the investments in mutual funds was not provided by the
Plan trustee.
<PAGE>
Schedule 2
----------
INCENTIVE SAVINGS PLAN FOR EMPLOYEES
OF FIRST SAVINGS BANK, SLA
Item 27d -- Schedule of Reportable Transactions
Year ended December 31, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
Number
Number of
Description of of trans- Purchase
investments purchased shares actions price
- -------------------------- ------ ------- --------
<S> <C> <C> <C>
Mutual fund -- Nationwide -- 32 $480,769
====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Number
Number of
Description of of trans- Gain
investments sold shares actions Proceeds Cost (loss)
- -------------------------- ------ ------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Employer stock fund 71,611 1* $1,253,190 342,015 911,175
====== ======= ========== ======= =======
</TABLE>
*Represents payout as a result of the passing of the Bank's long-time President
in 1996.
<PAGE>
THE INCENTIVE SAVINGS PLAN
FOR THE EMPLOYEES OF FIRST SAVINGS BANK, SLA
Investment Form
---------------
for the
Employer Stock Fund
-------------------
Name of Plan Participant:___________________________________
Social Security Number: ___________________________________
1. INSTRUCTIONS. The Incentive Savings Plan permits participants to direct
some or all of their account balances into the Employer Stock Fund. Amounts
transferred at the direction of participants into the Employer Stock Fund will
be used to purchase shares of the Common Stock pursuant to the terms and
conditions of the Offering.
To direct a transfer of all or a part of the funds credited to your
accounts to the Employer Stock Fund, you should complete and file this form with
________________, or the Plan Administrator, no later than _______________,
1998. A representative for the Plan Administrator will retain a copy of this
form and return a copy of it to you. If you need any assistance in completing
this form, please contact __________ at _________. If you do not complete and
return this form to the Plan Administrator by __________, the funds credited to
your accounts under the Incentive Savings Plan will remain invested by the
Trustee in the Trust Fund.
2. TRANSFER DIRECTIONS. I hereby direct the Plan Administrator to transfer
the following dollar amount credited to my accounts into the:
EMPLOYER STOCK FUND $_________ Note: The total amount transferred may
not exceed the total value of your
accounts.
Unless indicated otherwise below, each of my accounts under the
Incentive Savings Plan will be invested proportionately in the Employer
Stock Fund.
3. ACKNOWLEDGMENT OF PARTICIPANT. I understand that this Investment Form
shall be subject to all of the terms and conditions of the Incentive Savings
Plan. I acknowledge that I have received a copy of the Prospectus and
Supplement thereto.
______________________________ _______________________
Signature of Participant Date
_______________________________________________________________________________
ACKNOWLEDGMENT OF RECEIPT BY ADMINISTRATOR. This Investment Form was received
by the Plan Administrator and will become effective on the date noted below.
______________________________ _______________________
Date
By:___________________________
<PAGE>
PROSPECTUS
FIRST SOURCE BANCORP, INC.
(Proposed Holding Company for First Savings Bank, SLA)
27,600,000 Shares of Common Stock
First Source Bancorp, Inc. (the "Company" or "First Savings Bancshares"), a
Delaware corporation, is offering up to 27,600,000 shares of its common stock,
par value $.01 per share (the "Common Stock"), in connection with the
reorganization of First Savings Bank, SLA ("First Savings" or the "Bank") and
First Savings Bancshares, MHC, the mutual holding company of the Bank (the
"Mutual Holding Company" or "MHC") into the stock holding company structure
pursuant to the Mutual Holding Company's Plan of Conversion and Agreement and
Plan of Reorganization (the "Plan" or "Plan of Conversion"). In certain
circumstances, the Company may increase the amount of Common Stock offered
hereby to 31,740,000 shares. See Footnote 4 to the table below.
(continued on following page)
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" BEGINNING ON PAGE __.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, THE NEW JERSEY
DEPARTMENT OF BANKING, OR ANY OTHER FEDERAL AGENCY OR ANY STATE
SECURITIES COMMISSION, NOR HAS SUCH COMMISSION, OFFICE OR OTHER AGENCY
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND
OR ANY OTHER GOVERNMENT AGENCY, NOR ARE THEY INSURED OR GUARANTEED BY THE
BANK OR THE COMPANY.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
ESTIMATED UNDERWRITING
SUBSCRIPTION PRICE(1) COMMISSIONS ESTIMATED NET PROCEEDS(3)
AND OTHER FEES AND EXPENSES(2)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum Per Share.................. $10.00 $0.16 $9.84
- -----------------------------------------------------------------------------------------------------------------------------
Midpoint Per Share................. $10.00 $0.15 $9.85
- -----------------------------------------------------------------------------------------------------------------------------
Maximum Per Share.................. $10.00 $0.15 $9.85
- -----------------------------------------------------------------------------------------------------------------------------
Total Minimum(1)................... $105,269,170 $1,707,000 $103,562,170
- -----------------------------------------------------------------------------------------------------------------------------
Total Midpoint(1).................. $123,844,950 $1,903,000 $121,941,950
- -----------------------------------------------------------------------------------------------------------------------------
Total Maximum(1)................... $142,420,720 $2,100,000 $140,320,720
- -----------------------------------------------------------------------------------------------------------------------------
Total Maximum, as adjusted(4)...... $163,784,210 $2,326,000 $161,458,210
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based upon the minimum, midpoint and maximum of the valuation price range,
which was determined in accordance with an independent appraisal prepared
by FinPro, Inc. ("FinPro") dated December 18, 1997. Does not include
shares of Common Stock issued to Public Stockholders in the Exchange (as
both are hereinafter defined). See "The Conversion and Reorganization -
Stock Pricing and Exchange Ratio" and "- Number of Shares to be Issued."
(2) Consists of the estimated costs to the Bank and the Company arising from
the Conversion and Reorganization, including estimated fixed expenses of
$600,000 and marketing fees to be paid to Sandler O'Neill & Partners, L.P.
("Sandler O'Neill") estimated to be $1.1 million and $1.5 million at the
minimum and the maximum of the Estimated Price Range, respectively. See
"The Conversion and Reorganization - Marketing and Underwriting
Arrangements." See "Pro Forma Data" for the assumptions used to arrive at
these estimates. The actual fees and expenses may vary from the estimates.
(3) Actual net proceeds may vary substantially from estimated amounts depending
on the number of shares sold in each of the offerings and other factors.
Includes the purchase of shares of Common Stock by the First Savings Bank,
SLA Employee Stock Ownership Plan and related trust (the "ESOP") which will
be funded by a loan to the ESOP from the Company or a third party and which
will be deducted from the Company's stockholders' equity. See "Use of
Proceeds" and "Pro Forma Data."
(4) As adjusted to reflect the sale of up to an additional 15% of the Common
Stock which may be offered at the $10 per share price ("Purchase Price"),
without resolicitation of subscribers or any right of cancellation, due to
regulatory considerations or changes in market or general financial and
economic conditions. See "Pro Forma Data" and "The Conversion and
Reorganization - Stock Pricing and Exchange Ratio." For a discussion of
the distribution and allocation of the additional shares, if any, see "The
Conversion and Reorganization - Subscription Offering and Subscription
Rights," "- Community Offering" and "- Limitations on Conversion Stock
Purchases."
________________________
SANDLER O'NEILL & PARTNERS, L.P.
________________________
THE DATE OF THIS PROSPECTUS IS _______________, 1998.
<PAGE>
Pursuant to the Plan adopted by the Bank and the Mutual Holding Company,
the Bank will become a subsidiary of the Company upon consummation of the
transactions described herein (collectively, with the Offerings, the "Conversion
and Reorganization"). As a result of the Conversion and Reorganization, each
share of common stock, par value $.01 per share, of the Bank ("Bank Common
Stock") held by the Mutual Holding Company will be cancelled and each share of
Bank Common Stock held by the Bank's public stockholders (the "Public Bank
Shares") will be converted into shares of the Company's Common Stock ("Exchange
Shares") pursuant to a ratio (the "Exchange Ratio") that will result in the
holders of such shares (the "Public Stockholders") owning in the aggregate
approximately the same percentage of the Company as they owned of the Bank,
before giving effect to (a) the payment of cash in lieu of fractional Exchange
Shares, or (b) any shares of Common Stock purchased by such stockholders in the
Offerings described herein or by the Bank's ESOP in the Offerings or thereafter
(the "Exchange"). As of October 31, 1997, the Mutual Holding Company held
4,134,812, or 51.6%, of the outstanding shares of Bank Common Stock and Public
Stockholders held 3,881,539, or 48.4%, of outstanding shares of the Bank's
Common Stock.
IN ADDITION TO THE EXCHANGE, NON-TRANSFERABLE SUBSCRIPTION RIGHTS TO
SUBSCRIBE FOR UP TO 14,242,072 SHARES (WHICH MAY BE INCREASED TO 16,378,421
SHARES UNDER CERTAIN CIRCUMSTANCES DESCRIBED BELOW) OF COMMON STOCK (THE
"CONVERSION STOCK") HAVE BEEN GRANTED, IN ORDER OF PRIORITY, TO EACH OF THE
BANK'S ELIGIBLE ACCOUNT HOLDERS, TO THE ESOP, TO EACH OF THE BANK'S SUPPLEMENTAL
ELIGIBLE ACCOUNT HOLDERS, AND TO CERTAIN OTHER MEMBERS (EACH AS DEFINED HEREIN)
IN A SUBSCRIPTION OFFERING (THE "SUBSCRIPTION OFFERING"). SUBSCRIPTION RIGHTS
ARE NONTRANSFERABLE. PERSONS FOUND TO BE TRANSFERRING SUBSCRIPTION RIGHTS WILL
BE SUBJECT TO THE FORFEITURE OF SUCH RIGHTS AND POSSIBLE FURTHER SANCTIONS AND
PENALTIES IMPOSED BY THE OFFICE OF THRIFT SUPERVISION ("OTS"). Concurrently,
and subject to the prior rights of holders of subscription rights, the Company
is offering the shares of Conversion Stock not subscribed for in the
Subscription Offering for sale in a community offering to certain members of the
general public, with a first preference given to holders of the Public Bank
Shares (the "Community Offering") (the Subscription Offering and Community
Offering are referred to collectively as the "Subscription and Community
Offerings"). Shares not subscribed for in the Subscription and Community
Offerings will be offered to members of the general public in a syndicated
community offering (the "Syndicated Community Offering") (the Subscription and
Community Offerings and the Syndicated Community Offering are referred to
collectively as the "Offerings").
Except for the ESOP, no Eligible Account Holder, Supplemental Eligible
Account Holder or Other Member may, in their respective capacities as such,
purchase in the Subscription Offering more than $250,000 of Conversion Stock
offered for sale in the Conversion and Reorganization; no person, together with
associates of or persons acting in concert with such person, may purchase in the
Community Offering and the Syndicated Community Offering more than $250,000 of
Conversion Stock offered for sale in the Conversion and Reorganization; and no
person, together with associates of or persons acting in concert with such
person, may purchase in the aggregate more than the number of shares of
Conversion Stock that when combined with Exchange Shares received by such person
would exceed the overall maximum purchase limitation of 4.0% of the total number
of shares of Conversion Stock offered for sale in the Conversion and
Reorganization; provided, however, that such purchase limitations and the amount
that may be subscribed for may be increased or decreased in the sole discretion
of the Company, the Mutual Holding Company and the Bank (the "Primary Parties")
without further approval of the Mutual Holding Company's members or the Public
Stockholders. See "The Conversion and Reorganization - Subscription Offering
and Subscription Rights," "- Community Offering" and "- Limitations on
Conversion Stock Purchases." The minimum purchase is 25 shares.
THE SUBSCRIPTION AND COMMUNITY OFFERINGS WILL TERMINATE AT _____ __ .M.,
NEW JERSEY TIME, ON _________, 1998 (THE "EXPIRATION DATE"), UNLESS EXTENDED BY
THE PRIMARY PARTIES, WITH APPROVAL OF THE OTS, IF NECESSARY. Orders submitted
are irrevocable until the completion of the Conversion and Reorganization;
provided that, if the Conversion and Reorganization is not completed within 45
days after the close of the Subscription and Community Offerings, unless such
period has been extended with the consent of the OTS, if necessary, all
subscribers will have their funds returned promptly with interest, and all
withdrawal authorizations will be cancelled. Such extensions may not go beyond
____________, 2000. See "The Conversion and Reorganization -- Subscription
Offering and Subscription Rights" and "-- Procedure for Purchasing Shares in
Subscription and Community Offerings."
The Company has received conditional approval to have its Common Stock
traded on the Nasdaq National Market under the symbol "FSLA" upon completion of
the Conversion and Reorganization. The Bank's Common Stock currently trades on
the Nasdaq National Market under the symbol "FSLA." See "Market for the Common
Stock."
2
<PAGE>
[MAP GOES HERE]
3
<PAGE>
SUMMARY
This summary is qualified in its entirety by the more detailed information
and Consolidated Financial Statements of the Bank and Notes thereto appearing
elsewhere in this Prospectus.
FIRST SOURCE BANCORP, INC.
First Source Bancorp, Inc. is a Delaware corporation recently organized by
the Bank for the purpose of holding all of the capital stock of the Bank and
facilitating the Conversion and Reorganization. Immediately following the
Conversion and Reorganization, the only significant assets of the Company will
be the capital stock of the Bank, two loans to the ESOP and the net proceeds of
the Offerings retained by the Company. The Company will transfer to the Bank 50%
of the net proceeds from the Offerings with the remaining net proceeds to be
retained by the Company. Funds retained by the Company will be used for general
business activities, including a new loan to the ESOP to enable the ESOP to
purchase up to 8% of the aggregate of the Conversion Stock issued, as well as
the assumption of an existing loan to the ESOP. On an interim basis, the net
proceeds are expected to be deposited by the Company into a deposit account at
the Bank. See "Use of Proceeds." The business of the Company will initially
consist of the business of the Bank. See "Business of the Bank" and
"Regulation - Holding Company Regulation."
The Company's executive offices are located at the administrative office
of the Bank at 1000 Woodbridge Center Drive, Woodbridge, New Jersey 07095. The
Company's telephone number is (732) 726-9700.
FIRST SAVINGS BANK, SLA
First Savings is a New Jersey-chartered capital stock savings and loan
association headquartered in Woodbridge, New Jersey. First Savings has operated
in its present market area since 1901. Until 1992, the Bank operated in the
mutual form of organization. In July 1992, First Savings reorganized to become a
federally-chartered mutual holding company, First Savings Bancshares, MHC, and
simultaneously formed the Bank as a majority-owned subsidiary of the Company
("1992 MHC Reorganization"). The Mutual Holding Company transferred
substantially all of its assets (except $1.0 million in cash) and all its
liabilities to the newly organized Bank in exchange for 1,660,000 shares of the
Bank's common stock. Concurrently with the 1992 MHC Reorganization, the Bank
sold one million shares of its common stock to the general public at $10 per
share, resulting in net proceeds of $9.2 million. Upon completion of the 1992
MHC Reorganization, 62.4% of the Bank's Common Stock outstanding was held by the
Mutual Holding Company. Subsequently, the Bank completed a Secondary Stock
Offering of 600,000 shares of common stock at $13.00 per share on July 11, 1995
("1995 Secondary Offering"), which resulted in a decrease in the Mutual Holding
Company's ownership interest from 62.4% to 52.5%.
First Savings' deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC") under the Savings Association Insurance Fund ("SAIF"). The
Bank has been a member of the Federal Home Loan Bank System ("FHLB") System
since 1945. At September 30, 1997, the Bank had total assets of $1.0 billion,
total deposits of $809.4 million and stockholders' equity of $99.2 million. The
Mutual Holding Company's assets at September 30, 1997 consisted of $491,000 in
cash and certificates of deposit, a loan to the Bank's ESOP of $571,000, and a
51.6% interest in the Bank's outstanding common stock.
The Bank is a community-oriented institution that offers traditional
deposit and loan products. It operates 17 full service offices in its market
area of Middlesex, Monmouth and Union Counties in New Jersey. Based on an
evaluation of its retail operations, the Bank has entered into an agreement to
sell its Eatontown branch with deposits totalling $28.2 million at September 30,
1997 for $1.2 million in cash. The
4
<PAGE>
Bank's principal business has been, and continues to be, attracting retail
deposits from the general public and investing those deposits, together with
funds generated from operations and borrowings, primarily in one- to four-family
residential mortgage loans, real estate construction loans, commercial real
estate loans, home equity loans and lines of credit. The Bank also invests in
U.S. Government and federal agency securities and other marketable securities.
The Bank's revenues are derived principally from interest on its mortgage loan
and mortgage-backed securities portfolios, and interest and dividends on its
investment securities. The Bank's total loan portfolio amounted to $573.0
million at September 30, 1997, which represented 54.3% of total assets. One- to
four-family residential mortgage loans accounted for 81.8% of total loans, while
home equity loans and lines of credit equalled 7.3% of total loans. In addition,
the Bank had investments in mortgage-backed securities, including those
available for sale, totalling $350.5 million, or 33.6% of total assets, at
September 30, 1997.
THE CONVERSION AND REORGANIZATION
On October 24, 1997, the Boards of Directors of the Bank and the Mutual
Holding Company adopted the Plan, and in December 1997, the Company was
incorporated under Delaware law. Subsequent to its incorporation, the Company
became a first-tier wholly owned subsidiary of the Bank. Pursuant to the Plan,
(i) the Mutual Holding Company will convert to an interim federal stock savings
institution ("MHC Interim Savings Bank") and simultaneously merge with and into
the Bank, pursuant to which the Mutual Holding Company will cease to exist and
the 51.6% of the outstanding Bank Common Stock held by the Mutual Holding
Company will be canceled, and (ii) an interim savings association, First Interim
Savings Bank, FSB ("First Interim") to be formed as a wholly-owned subsidiary of
the Company solely for purposes of the Reorganization, will then merge with and
into the Bank. As a result of the merger of First Interim with and into the
Bank, the Bank will become a wholly-owned subsidiary of the Company and the
outstanding Public Bank Shares will be converted into the Exchange Shares
pursuant to the Exchange Ratio. This will result in the holders of such shares
owning in the aggregate approximately the same percentage of the Common Stock to
be outstanding upon completion of the Conversion and Reorganization (i.e., the
Conversion Stock) as the percentage of Bank Common Stock owned by them in the
aggregate immediately prior to consummation of the Conversion and
Reorganization, before giving effect to (a) the payment of cash in lieu of
issuing fractional Exchange Shares, or (b) any shares of Conversion Stock
purchased by the Bank's Stockholders or by the ESOP in the Offerings or
thereafter.
In addition to shares of Common Stock to be issued pursuant to the
Exchange, the Company is offering shares of Conversion Stock in the Offerings as
part of the Conversion and Reorganization. See "-- The Offerings" below and "The
Conversion and Reorganization."
Pursuant to OTS regulations, consummation of the Conversion and
Reorganization is conditioned upon the approval of the Plan by the OTS, as well
as (1) the approval of the holders of at least a majority of the total number of
votes eligible to be cast by the members of the Mutual Holding Company
("Members") as of the close of business on __________, 1998 (the "Voting Record
Date") at a special meeting of Members called for the purpose of submitting the
Plan for approval (the "Members' Meeting"), and (2) the approval of the holders
of at least two-thirds of the shares of the outstanding Bank Common Stock held
by the stockholders, as of the Voting Record Date at a special meeting of
stockholders called for the purpose of considering the Plan (the "Stockholders'
Meeting"). In addition, in accordance with current OTS policy, the Plan must be
approved by a majority of the votes cast in person or by proxy by the holders of
the Public Bank Shares at the Stockholders' Meeting. The Mutual Holding Company
intends to vote its shares of Bank Common Stock, which amounts to 51.6% of the
outstanding shares, in favor of the Plan at the Stockholders' Meeting. Officers
and directors of the Bank, who owned in the aggregate 9.3% of the Bank's Common
Stock as of November 30, 1997, also intend to vote in favor of the Plan.
5
<PAGE>
Under New Jersey law, Public Stockholders of the Bank will not have
dissenters' rights or appraisal rights in connection with the Conversion and
Reorganization. See "The Conversion and Reorganization -- Effects of the
Conversion and Reorganization -- Effect on Public Bank Shares."
PURPOSES OF THE CONVERSION AND REORGANIZATION
The Boards of Directors of the Bank and the Mutual Holding Company believe
that the Conversion and Reorganization is in the best interests of their
respective stockholders and members. A principal purpose of the Conversion and
Reorganization is to structure the Mutual Holding Company and the Bank in a form
used by most other holding companies of savings institutions and commercial
banks and most other business entities. The Conversion and Reorganization will
also support future expansion of operations of the Bank, as well as possible
diversification into other banking-related businesses. Although there are no
current arrangements, understandings or agreements regarding such opportunities,
the Company will be in a position after the Conversion and Reorganization,
subject to regulatory limitations and the Company's financial position, to take
advantage of any additional opportunities for such expansion that may arise.
In addition, the Mutual Holding Company and the Bank considered various
regulatory uncertainties associated with the mutual holding company structure,
including the ability to waive dividends from the Bank in the future, the tax
limitation on the Bank to repurchase its Common Stock as well as the general
uncertainty regarding a possible elimination of the thrift charter. See "Use of
Proceeds" and "Dividend Policy." The Offerings will also result in more shares
of stock outstanding, which should result in a more active and liquid market for
the Common Stock than currently exists for the Bank Common Stock, although there
can be no assurances that this will be the case. See "Market for the Common
Stock."
In light of the foregoing, the Boards of Directors of the Bank and the
Mutual Holding Company believe that the Conversion and Reorganization is in the
best interests of such companies and their respective stockholders and Members.
See "The Conversion and Reorganization."
EFFECTS OF THE REORGANIZATION ON PUBLIC STOCKHOLDERS
The following table sets forth the effects of the Conversion and
Reorganization on Public Stockholders, assuming that at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Price Range, as defined
herein, one Public Bank Share will be exchanged for 2.5436, 2.9925, 3.4414 and
3.9576 shares of Company Common Stock. See "Pro Forma Data."
6
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA AT OR FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
BASED UPON SALE AT $10.00 PER SHARE
-----------------------------------------------------------------
HISTORICAL 16,378,421
AT OR FOR 10,526,917 12,384,495 14,242,072 SHARES
THE NINE SHARES SHARES SHARES (15% ABOVE
MONTHS ENDED (MINIMUM OF (MIDPOINT OF (MAXIMUM OF MAXIMUM OF
SEPTEMBER ESTIMATED ESTIMATED ESTIMATED ESTIMATED
30, 1997 PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE)
------------ -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Stockholders' equity per share:
Tangible stockholders' equity per share........ $11.26 $ 8.93 $ 8.26 $7.76 $ 7.35
Tangible stockholders' equity of
Exchange Shares(1)(2)....................... N/A 22.71 24.72 26.74 29.05
Total stockholders' equity per share........... 12.39 9.37 8.64 8.09 7.63
Total stockholders' equity of
Exchange Shares (1)......................... N/A 23.83 25.86 27.84 30.20
Earnings:
Earnings per share............................. 0.84 0.44 0.39 0.35 0.31
Earnings on Exchange Shares(1)................. N/A 1.12 1.17 1.20 1.23
Dividends:
Dividends per share, as adjusted
(annualized) (3)............................ 0.43 0.12 0.12 0.12 0.12
Dividends on Exchange Shares (1)(4)............ N/A 0.31 0.36 0.41 0.47
Market value:
Price per share(5)............................. 32.27 10.00 10.00 10.00 10.00
Price of Exchange Shares (1)................... N/A 25.44 29.93 34.41 39.58
</TABLE>
____________________
(1) Based on 2.5436, 2.9925, 3.4414 and 3.9576 shares of Company Common Stock
being exchanged for one Public Bank Share at the minimum, midpoint,
maximum and maximum, as adjusted, of the Estimated Price Range.
(2) Represents a pro forma increase of 174.9%, 199.3%, 223.7% and 251.7% on an
exchange basis at the minimum, midpoint, maximum, and maximum, as adjusted,
of the Estimated Price Range.
(3) Dividends have been adjusted to reflect a 10% stock dividend paid on
October 30, 1997. Pro forma dividends reflect the Company's intention to
pay a quarterly dividend of $.03 per share.
(4) No assurance can be given that the dividend will not be reduced or
eliminated in future periods. See "Dividend Policy."
(5) The price of a Public Bank Share was $______ on __________, 1998, the most
recent day on which trading of the Bank Common Stock occurred preceding the
date on this Prospectus. Pro forma price per share is reflected as the
$10.00 Purchase Price.
7
<PAGE>
THE VALUE OF THE EXCHANGE SHARES TO BE RECEIVED FOR EACH PUBLIC BANK SHARE
MAY BE LESS THAN THE MARKET PRICE OF THE PUBLIC BANK SHARES AT THE TIME OF THE
EXCHANGE, BASED ON THE FINAL EXCHANGE RATIO AND THE MARKET PRICE AT THE TIME OF
THE EXCHANGE. IN ADDITION, THE BOOK VALUE PER SHARE WILL DECLINE AFTER
CONSUMMATION OF THE CONVERSION AND REORGANIZATION DUE TO THE INCREASE IN THE
NUMBER OF SHARES OUTSTANDING. SEE "--STOCK PRICING AND NUMBER OF SHARES TO BE
ISSUED IN THE CONVERSION AND REORGANIZATION" AND "RISK FACTORS--ESTIMATED PRICE
RANGE BELOW MARKET PRICE."
THE OFFERINGS
Pursuant to the Plan and in connection with the Conversion and
Reorganization, the Company is offering up to 14,242,072 shares of Conversion
Stock in the Offerings. Conversion Stock will be offered in the Subscription and
Community Offerings and, to the extent shares are available, in the Syndicated
Community Offering. Conversion Stock offered in the Subscription Offering will
be offered in the following order of priority: (1) holders of savings accounts
in the Bank totalling $50 or more on December 31, 1995 ("Eligible Account
Holders"); (2) the ESOP; (3) holders of savings accounts in the Bank totalling
$50 or more on December 31, 1997 ("Supplemental Eligible Account Holders"); and
(4) other members of the MHC, consisting of depositors of the Bank as of
______________, 1998, the Voting Record Date for the special meeting of members
to vote on the Conversion, and borrowers with loans outstanding as of July 10,
1992, which continue to be outstanding as of the Voting Record Date, other than
those members who otherwise qualify as Eligible Account Holders or Supplemental
Eligible Account Holders ("Other Members"). Subject to the prior rights of
holders of subscription rights, Conversion Stock not subscribed for in the
Subscription Offering is being concurrently offered in the Community Offering to
certain members of the general public, with a preference given to the Public
Stockholders. The Primary Parties reserve the absolute right to reject or accept
any orders in the Community Offering, in whole or in part, either at the time of
receipt of an order or as soon as practicable following the Expiration Date.
All shares of Conversion Stock not purchased in the Subscription and
Community Offerings, if any, will be offered for sale to the general public in a
Syndicated Community Offering through a syndicate of registered broker-dealers
to be formed and managed by Sandler O'Neill acting as agent of the Company to
assist the Company and the Bank in the sale of the Conversion Stock. The Primary
Parties reserve the absolute right to reject orders, in whole or part, in their
sole discretion, in the Syndicated Community Offering.
PROSPECTUS DELIVERY AND PROCEDURE FOR PURCHASING SHARES
To ensure that each purchaser receives a prospectus at least 48 hours prior
to the Expiration Date in accordance with Rule 15c2-8 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), no prospectus will be mailed any
later than five days prior to the Expiration Date or hand delivered any later
than two days prior to such date. Stock order forms will only be distributed
with a prospectus. The Bank is not obligated to accept for processing orders not
submitted on original stock order forms. Stock order forms unaccompanied by an
executed certification form will not be accepted. Payment by check, money order,
bank draft, cash or debit authorization to an existing account at the Bank must
accompany the stock order and certification forms. No wire transfers will be
accepted. The Bank is prohibited from lending funds to any person or entity for
the purpose of purchasing shares of Conversion Stock in the Conversion and
Reorganization. See "The Conversion and Reorganization --Procedure for
Purchasing Shares in Subscription and Community Offerings."
8
<PAGE>
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES
Prior to the completion of the Conversion and Reorganization, no person may
transfer or enter into any agreement or understanding to transfer the legal or
beneficial ownership of the subscription rights issued under the Plan or the
shares of Common Stock to be issued upon their exercise. Following the
Conversion and Reorganization, there generally will be no restrictions on the
transfer or sale of shares by purchasers other than affiliates of the Company
and the Bank. See "Regulation --Federal Securities Laws" and "The Conversion and
Reorganization -- Certain Restrictions on Purchase or Transfer of Shares After
Conversion."
PURCHASE LIMITATIONS
The minimum purchase in the Subscription and Community Offerings is 25
shares. With the exception of the ESOP, no Eligible Account Holder, Supplemental
Eligible Account Holder or Other Member, in their capacity as such, may
subscribe in the Subscription Offering for more than $250,000 of Conversion
Stock offered; no person, together with associates of or persons acting in
concert with such person, may purchase in the Community Offering and the
Syndicated Community Offering in the aggregate more than $250,000 of Conversion
Stock offered; and no person, together with associates of or persons acting in
concert with such person, may purchase in the Offerings the number of shares of
Conversion Stock that, when combined with any Exchange Shares received by such
person, aggregates to more than the overall maximum purchase limitation of 4.0%
of the total number of shares of Conversion Stock offered in the Conversion and
Reorganization, exclusive of any shares issued pursuant to an increase in the
Estimated Price Range of up to 15%. See "Risk Factors - Effect of Purchase
Limitations on Ability of Public Stockholders to Purchase Conversion Shares." At
any time during the Conversion and Reorganization and without further approval
by the Mutual Holding Company's Members or the Bank's Public Stockholders, the
Primary Parties may in their sole discretion decrease the maximum purchase
limitation to 1% of the number of shares of Conversion Stock to be issued in the
Subscription and Community Offerings, when aggregated with any Exchange Shares,
and/or may decrease the amount that may be subscribed for in the Subscription
and Community Offerings. Additionally, at any time during the Conversion and
Reorganization and without further approval by the Mutual Holding Company's
Members or the Bank's Public Stockholders, the Primary Parties may in their sole
discretion increase the overall maximum purchase limitation and/or increase the
amount that may be subscribed for in the Subscription and Community Offerings,
up to 5% of the Conversion Stock to be offered in the Conversion and
Reorganization. Prior to consummation of the Conversion and Reorganization, if
the maximum purchase limitation is increased, subscribers for the maximum amount
will be, and certain other large subscribers in the sole discretion of the
Primary Parties may be, given the opportunity to increase their subscriptions up
to the then applicable limit. IN ANY EVENT, PURSUANT TO OTS POLICY, ANY EXCHANGE
SHARES RECEIVED BY AN INDIVIDUAL WILL BE AGGREGATED WITH SHARES SUBSCRIBED FOR
BY SUCH PERSON FOR PURPOSES OF APPLYING THE MAXIMUM PURCHASE LIMITATION. In the
event of an increase in the Estimated Price Range, the additional shares will be
distributed and allocated to fill unfilled orders in the Subscription and
Community Offerings, with priority given to the ESOP, without any resolicitation
of subscribers, as described in "The Conversion and Reorganization --
Subscription Offering and Subscription Rights," "-- Community Offering" and "--
Limitations on Conversion Stock Purchases." PURSUANT TO OTS POLICY, BECAUSE THE
OVERALL MAXIMUM PURCHASE LIMITATION CONTAINED IN THE PLAN OF CONVERSION INCLUDES
EXCHANGE SHARES TO BE ISSUED TO PUBLIC STOCKHOLDERS FOR THEIR PUBLIC BANK
SHARES, CERTAIN HOLDERS OF PUBLIC BANK SHARES MAY BE LIMITED IN THEIR ABILITY TO
SUBSCRIBE FOR CONVERSION STOCK IN THE OFFERINGS. See "Risk Factors - Effect of
Purchase Limitations on Ability of Public Stockholders to Purchase Conversion
Shares."
9
<PAGE>
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED IN THE CONVERSION AND
REORGANIZATION
Federal regulations require that the aggregate purchase price of the
Conversion Stock to be offered in the Conversion and Reorganization be
consistent with an independent appraisal of the estimated pro forma market value
of the Bank and the Mutual Holding Company. FinPro, an independent appraiser,
has advised the Primary Parties that in its opinion, dated December 18, 1997,
the estimated aggregate pro forma market value of the Common Stock of the
Company was $240.0 million (the "Appraisal"). Because the holders of the Public
Bank Shares will continue to hold approximately the same aggregate percentage
ownership interest in the Company as they held in the Bank (before giving effect
to any shares of Conversion Stock purchased by the Bank's stockholders in the
Offerings or by the ESOP in the Offerings or thereafter or the payment of cash
in lieu of issuing fractional Exchange Shares), the Appraisal was multiplied by
the Mutual Holding Company's percentage interest in the Bank, which corresponds
with the amount of Conversion Stock to be sold in the Offerings (i.e., 51.6% as
of October 31, 1997), to determine the midpoint of the price range, which was
$123.8 million. In accordance with OTS regulations, the minimum and maximum of
the offering range were set at 15% below and above the midpoint, respectively,
resulting in an offering range of $105.3 million to $142.4 million (the
"Estimated Price Range"). The full text of the appraisal report of FinPro
describes the procedures followed, the assumptions made, limitations on the
review undertaken and matters considered, which included the trading market for
the Bank Common Stock (see "Market for the Common Stock") but was not solely
dependent thereon. (Based on the $39.25 and $____ closing prices of the Bank
Common Stock on October 23, 1997, the day preceding the Bank's announcement of
the Conversion and the Reorganization and _________, 1998, respectively, the
estimated market value of all outstanding shares of Bank Common Stock (including
shares held by the Mutual Holding Company) was $314.6 million and $_____
million, respectively.) For further information, see "The Conversion and
Reorganization -- Stock Pricing and Exchange Ratio." THE APPRAISAL OF THE COMMON
STOCK IS NOT INTENDED AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION OF ANY
KIND AS TO THE ADVISABILITY OF PURCHASING SUCH STOCK NOR CAN ANY ASSURANCE BE
GIVEN THAT PURCHASERS OF THE COMMON STOCK IN THE CONVERSION AND REORGANIZATION
WILL BE ABLE TO SELL SUCH SHARES AFTER THE COMPLETION OF THE CONVERSION AND
REORGANIZATION AT OR ABOVE THE PURCHASE PRICE.
All shares of Conversion Stock issued in the Conversion and Reorganization
will be sold at the Purchase Price of $10.00 per share, as determined by the
Primary Parties. The actual number of shares to be issued in the Offerings will
be determined by the Primary Parties based upon the final updated estimate of
the aggregate pro forma market value of the Common Stock of the Company, giving
effect to the Conversion and Reorganization, at the completion of the Offerings.
The maximum of the Estimated Price Range may be increased by up to 15% and the
number of shares of Conversion Stock to be issued in the Conversion and
Reorganization may be increased to 16,378,421 shares due to regulatory
considerations or changes in market or general financial and economic
conditions. No resolicitation of subscribers will be made and subscribers will
not be permitted to modify or cancel their subscriptions unless the gross
proceeds from the sale of the Conversion Stock are less than the minimum or more
than 15% above the maximum of the current Estimated Price Range. Any increase or
decrease in the number of shares of Conversion Stock will result in a
corresponding change in the number of Exchange Shares, so that upon consummation
of the Conversion and Reorganization, the Conversion Stock and the Exchange
Shares will represent approximately 51.6% and 48.4%, respectively, of the
Company's total outstanding shares. Furthermore, Exchange Shares may represent
less than 48.4% of the Company's total outstanding shares if there are
insufficient shares for the ESOP to purchase 8.0% of the Conversion Stock and,
consequently, the Company issues authorized but unissued shares to the ESOP in
order to satisfy its order to purchase such amount of Conversion Stock in the
Offerings. See "Risk Factors -- Possible Increase in Estimated Price Range and
Number of Shares Issued," "Pro Forma Data," and "The Conversion and
Reorganization -- Stock Pricing and Exchange Ratio" and "-- Number of Shares to
be Issued."
10
<PAGE>
Based on the 3,881,539 Public Bank Shares outstanding at October 31, 1997,
and assuming a minimum of 10,526,917 and a maximum of 14,242,072 shares of
Conversion Stock are issued in the Offerings, the Exchange Ratio is expected to
range from approximately 2.5436 Exchange Shares to 3.4414 Exchange Shares for
each Public Bank Share outstanding immediately prior to the consummation of the
Conversion and Reorganization. The Exchange Ratio will be affected if any stock
options to purchase shares of Bank Common Stock are exercised after October 31,
1997 and prior to consummation of the Conversion and Reorganization. If any of
such stock options are outstanding immediately prior to consummation of the
Conversion and Reorganization, they will be converted into options to purchase
shares of Common Stock, with the number of shares subject to the option and the
exercise price per share to be adjusted based upon the Exchange Ratio so that
the aggregate exercise price remains unchanged, and with the duration of the
option remaining unchanged. At October 31, 1997, there were options exercisable
to purchase 77,201 shares of Bank Common Stock outstanding, which have a
weighted average exercise price of $4.32 per share. Another 65,340 options had
been awarded, but were not exercisable at October 31, 1997. The weighted average
exercise price of these options was $14.35. The Bank has no plans to grant
additional stock options prior to the consummation of the Conversion and
Reorganization.
The following table sets forth, based upon the minimum, midpoint, maximum
and 15% above the maximum of the Estimated Price Range: (i) the total number of
shares of Conversion Stock and Exchange Shares to be issued in the Conversion
and Reorganization, (ii) the percentage of the total Common Stock represented by
the Conversion Stock and the Exchange Shares, and (iii) the Exchange Ratio. The
table does not give effect to cash paid in lieu of issuing fractional Exchange
Shares.
<TABLE>
<CAPTION>
TOTAL SHARES
OF COMMON
CONVERSION STOCK EXCHANGE SHARES STOCK TO BE EXCHANGE
TO BE OFFERED(1) TO BE ISSUED(1)(2) OUTSTANDING(1) RATIO(1)
------------------------- ------------------------- ------------------ -----------------
AMOUNT PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C> <C> <C>
Minimum .................. 10,526,917 51.6% 9,873,083 48.4% 20,400,000 2.5436
Midpoint ................. 12,384,495 51.6 11,615,505 48.4 24,000,000 2.9925
Maximum .................. 14,242,072 51.6 13,357,928 48.4 27,600,000 3.4414
15% above maximum ........ 16,378,421 51.6 15,361,579 48.4 31,740,000 3.9576
</TABLE>
___________________
(1) Assumes that outstanding options to purchase 142,541 shares of Bank Common
Stock at October 31, 1997 are not exercised prior to consummation of the
Conversion and Reorganization.
(2) Based upon 3,881,539 Public Bank Shares outstanding as of October 31, 1997.
Does not reflect unexercised options.
The final Exchange Ratio will be determined based upon the number of shares
issued in the Offerings in order to maintain the Public Stockholders'
approximately 48.4% ownership interest in the Bank at October 31, 1997. The
final Exchange Ratio will not be based upon the market value of the Public Bank
Shares. At the minimum, midpoint and maximum of the Estimated Price Range, one
Public Bank Share will be exchanged for 2.5436, 2.9925, 3.4414, and 3.9576
shares of Common Stock, respectively (which have a calculated equivalent value
of $25.44, $29.93, $34.41, and $39.58 based on the $10.00 Purchase Price of a
share of Common Stock in the Offerings and the aforementioned Exchange Ratios).
THE VALUE OF THE EXCHANGE SHARES TO BE RECEIVED FOR EACH PUBLIC BANK SHARE MAY
BE LESS THAN THE MARKET PRICE OF THE PUBLIC BANK SHARES AT THE TIME OF THE
EXCHANGE, BASED ON THE FINAL EXCHANGE RATIO AND THE MARKET PRICE AT THE TIME OF
THE EXCHANGE. Further, there can be no assurance as to the actual market value
of a share of Common Stock after the Conversion and Reorganization or that such
shares could be sold at or above the $10.00 Purchase Price. Public Stockholders
will be paid cash in lieu of issuing fractional Exchange Shares.
11
<PAGE>
USE OF PROCEEDS
Net proceeds from the sale of the Conversion Stock are estimated to be
between $103.6 million and $140.3 million (or $161.5 million if the Estimated
Price Range is increased by 15%) depending on the number of shares sold and the
expenses of the Conversion and Reorganization. See "Pro Forma Data." The Company
plans to contribute to the Bank 50% of the net proceeds from the Offerings, and
to retain the remaining net proceeds. Net proceeds to be retained by the Company
after the contribution to the Bank are estimated to be between $51.8 million and
$70.2 million (or $80.8 million if the Estimated Price Range is increased by
15%). The Company will be unable to utilize any of the net proceeds until the
close of the Offerings.
Funds retained by the Company will be used for general business activities,
including a loan to the ESOP to purchase Conversion Stock in the Offerings (to
the extent such loan is not funded by a third party), the refinancing of an
existing loan to the ESOP and, subject to applicable limitations, the possible
payment of dividends and repurchases of Common Stock. Assuming the acquisition
by the ESOP of 8% of the aggregate of the number of shares of Conversion Stock
to be issued in the Conversion and Reorganization, the amount of the loan to the
ESOP is estimated to be between $8.4 million and $11.4 million (or $13.1 million
if the Estimated Price Range is increased by 15%) to be repaid over a 15-year
period at the prevailing market rate of interest. See "Management of the Bank --
Benefits -- Employee Stock Ownership Plan and Trust." Funds received by the Bank
from the Company's purchase of its capital stock will be used for general
business purposes. The Company and the Bank may also use such funds to expand
operations through the acquisition or establishment of branch offices and the
acquisition of smaller financial institutions or assets of other financial
institutions. Neither the Bank nor the Company has any pending agreements or
understandings regarding acquisitions of any specific financial institutions,
branch offices or assets of other financial institutions. See "Use of Proceeds"
and "Business of the Bank." To the extent that the stock-based benefit programs
which the Company or Bank intend to adopt subsequent to the Conversion and
Reorganization are not funded with authorized but unissued common stock of the
Company, the Company or Bank may use net proceeds from the Conversion and
Reorganization to fund the purchase of stock in the open market to be awarded
under such stock benefit programs. See "Management of the Bank -- Benefits --
Stock-Based Incentive Plan."
DIVIDENDS
The Bank has paid cash dividends on each Minority Share for each quarter
since reorganizing in July 1992. The Bank intends to continue to pay regular
quarterly dividends through either the date of consummation of the Conversion
and Reorganization (on a pro rata basis) or the end of the fiscal quarter during
which the consummation of the Conversion and Reorganization occurs.
Commencing with the first full quarter following consummation of the
Conversion and Reorganization, the Board of Directors of the Company intends to
pay cash dividends on the Common Stock at an initial quarterly rate of $.03 per
share, regardless of the total number of shares of Common Stock outstanding.
Declarations of dividends by the Company's Board of Directors will depend upon a
number of factors, however, including the amount of the net proceeds from the
Offerings retained by the Company, investment opportunities available to the
Company or the Bank, capital requirements, regulatory limitations, the Company's
and the Bank's financial condition and results of operations, tax considerations
and general economic conditions. Consequently, there can be no assurance that
dividends will in fact be paid on the Common Stock or that, if paid, such
dividends will not be reduced or eliminated in future periods. See "Dividend
Policy" and "Market for the Common Stock."
12
<PAGE>
BENEFITS OF THE CONVERSION AND REORGANIZATION TO MANAGEMENT
Among the benefits to the Company and the Bank anticipated from the
Conversion and Reorganization is the ability to attract and retain personnel
through the prudent use of stock options and other stock related benefit
programs. Subsequent to the Conversion and Reorganization, the Company intends
to adopt one or more stock-based benefit plans to provide stock options,
restricted stock awards and certain related rights to directors, officers and
employees (hereinafter individually or collectively referred to as the "Stock-
Based Incentive Plan"). If such Stock-Based Incentive Plan is adopted within one
year after the Conversion and Reorganization, under current OTS regulations the
plan will be subject to stockholders' approval at a meeting of stockholders
which may not be held earlier than six months after the Conversion and
Reorganization. The Company intends to adopt a plan which would provide for the
granting of Common Stock to officers, directors and employees of the Bank and
Company in an amount equal to 4% of the Conversion Stock issued in the
Conversion and Reorganization. The Company also intends to adopt a plan to
provide the Company with the ability to grant options to officers, directors and
employees of the Bank and Company to purchase Common Stock equal to 10% of the
number of shares of Conversion Stock sold in the Conversion and Reorganization.
For a further description of the Stock-Based Incentive Plan, see "Risk Factors -
Stock Based Benefits to Management and Directors" and "Management of the Bank -
Benefits -- Stock-Based Incentive Plan." See "Beneficial Ownership of Capital
Stock - Subscriptions of Executive Officers and Directors," and "Restrictions on
Acquisition of the Company and the Bank - Restrictions in the Company's
Certificate of Incorporation and Bylaws."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective investors.
13
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
The selected data presented below under the captions "Selected Consolidated
Financial Data" and "Selected Operating Data" for, and as of the end of each of
the years in the five-year period ended December 31, 1996, are derived from the
consolidated financial statements of First Savings Bank, SLA, and subsidiaries,
which financial statements have been audited by KPMG Peat Marwick LLP,
independent certified accountants. The selected data presented below for the
nine month periods ended September 30, 1997 and 1996, are derived from the
unaudited consolidated financial statements of First Savings Bank, SLA, and
subsidiaries included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
------------------------ --------------------------------------------------------------
1997(1) 1996(1) 1996 1995 1994 1993 1992
----------- ----------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED FINANCIAL DATA:
Total assets............................ $1,044,513 $ 974,771 $ 987,115 $945,012 $798,350 $783,846 $759,495
Loan receivable, net.................... 567,197 498,472 509,627 457,756 415,902 415,010 413,748
Loans available for sale................ -- 149 287 424 148 1,595 2,287
Investment securities................... 40,959 39,968 38,955 39,003 23,997 19,019 43,039
Investment securities available
for sale............................... 18,024 21,690 14,831 2,058 13,206 41,064 8,960
Other interest-earning assets(2)........ 25,970 7,428 9,278 24,151 10,066 9,967 9,475
Mortgage-backed securities, net......... 228,158 270,855 252,383 288,143 283,263 244,187 255,931
Mortgage-backed securities available
for sale.............................. 122,371 93,402 120,797 89,339 24,367 28,314 3,528
Deposits................................ 809,449 800,441 794,595 806,338 681,613 678,961 673,031
Borrowed funds.......................... 124,465 70,108 88,640 39,496 34,300 26,400 20,600
Stockholders' equity.................... 99,213 90,226 92,863 89,713 74,064 68,809 58,551
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
------------------------ --------------------------------------------------------------
1997(1) 1996(1) 1996 1995 1994 1993 1992
----------- ----------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income......................... $ 54,636 $ 50,499 $ 68,039 $ 64,573 $ 52,909 $ 54,665 $ 62,142
Interest expense........................ 30,591 27,644 37,264 35,691 25,135 26,448 33,810
---------- --------- --------- -------- -------- -------- --------
Net interest income before
provision for loan losses............ 24,045 22,855 30,775 28,882 27,774 28,217 28,332
Provision for loan losses............... 900 375 550 310 300 1,200 2,400
---------- --------- --------- -------- -------- -------- --------
Net interest income after
provision for loan losses............ 23,145 22,480 30,225 28,572 27,474 27,017 25,932
Other operating income.................. 2,186 1,382 1,995 2,171 1,734 2,791 2,786
Operating expenses...................... 14,581 20,122(3) 24,701(3) 17,830 16,021 15,551 15,194
---------- --------- --------- -------- -------- -------- --------
Income before income taxes, and
cumulative effect of accounting
changes.............................. 10,750 3,740 7,519 12,913 13,187 14,257 13,524
Income taxes............................ 3,990 1,376 2,809 4,611 4,912 5,352 5,495
---------- --------- --------- -------- -------- -------- --------
Income before cumulative
effect of accounting changes...... 6,760 2,364 4,710 8,302 8,275 8,905 8,029
Cumulative effect of accounting
changes(4)............................ -- -- -- -- -- 398 --
---------- --------- --------- -------- -------- -------- --------
Net income........................ $ 6,760 $ 2,364 $ 4,710 $ 8,302 $ 8,275 $ 9,303 $ 8,029
========== ========= ========= ======== ======== ======== ========
Net income per share before cumulative
effect of accounting changes(5)....... $0.84 $0.29 $0.59 $1.04 $1.03 $1.16 N/A
Cumulative effect of accounting
changes(4)(5)......................... -- -- -- -- -- 0.05 N/A
---------- --------- --------- -------- -------- -------- --------
Net income per share after cumulative
effect of accounting changes(5)....... $0.84 $0.29 $0.59 $1.04 $1.03 $1.21 N/A
========== ========= ========= ======== ======== ======== ========
Dividends per share, as adjusted(5)(6).. $0.31 $0.25 $0.33 $0.30 $0.27 $0.27 N/A
========== ========= ========= ======== ======== ======== ========
</TABLE>
(footnotes on following pages)
14
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, AT OR FOR THE YEARS ENDED DECEMBER 31,
------------------------ --------------------------------------------------------------
1997(1) 1996(1) 1996 1995 1994 1993 1992
----------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA(5):
Return on average assets(4).............. 0.87% 0.33% 0.49% 0.91% 1.04% 1.20% 1.04%
Return on average stockholder's
equity(4).............................. 9.37 3.46 5.12 10.14 11.63 14.70 15.84
Average stockholder's equity to
average assets......................... 9.31 9.44 9.52 8.95 8.92 8.19 6.58
Stockholders' equity to total assets..... 9.50 9.26 9.41 9.49 9.28 8.78 7.71
Interest rate spread..................... 2.83 2.86 2.88 2.77 3.26 3.40 3.46
Net interest margin (7).................. 3.25 3.29 3.30 3.22 3.58 3.74 3.78
Operating expenses to average
assets(8).............................. 1.63 2.62(3) 2.42(3) 1.83 1.98 1.99 1.92
Net interest income before provision
for loan losses to operating
expenses (8)........................... 1.90x 1.20x(3) 1.32x(3) 1.72x 1.76x 1.84x 1.91x
Non-performing loans to total loans
receivable, net........................ 0.69 0.93 0.94 1.32 2.17 2.77 3.81
Non-performing assets to total assets.... 0.51 0.67 0.64 0.97 1.34 1.73 2.25
Allowance for loan losses to non-
performing loans....................... 151.83 110.27 110.58 86.90 63.52 51.09 36.32
Allowance for loan losses to non-
performing assets...................... 112.06 77.90 84.08 57.23 53.81 43.42 33.60
Allowance for loan losses to total
loans receivable, net.................. 1.05 1.02 1.04 1.15 1.38 1.42 1.38
Dividend payout ratio(6)................. 17.59 39.26 26.29 12.09 9.51 7.36 --
Average interest-earning assets to
average interest-bearing
liabilities............................ 1.10x 1.11x 1.11x 1.11x 1.10x 1.10x 1.07x
Full service offices....................... 17(9) 16 16 17 15 15 15
</TABLE>
(footnotes on following page)
15
<PAGE>
___________________
(1) The data presented at September 30, 1997 and for the nine months ended
September 30, 1997 and 1996 were derived from unaudited financial
statements and reflect, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) which are necessary to
present fairly the results for such interim periods. Interim results for
the nine months ended September 30, 1997 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1997. All
selected financial ratios and other data relating to operating results for
the nine month periods ended September 30, 1997 and September 30, 1996 are
presented on an annualized basis.
(2) Includes federal funds sold and investment in the stock of the FHLB-NY.
(3) Includes the Savings Association Insurance Fund ("SAIF") special assessment
of $5.2 million for the nine months ended September 30, 1996 and for the
year ended December 31, 1996.
(4) Reflects the implementation of Statement of Financial Accounting Standards
("SFAS") No. 106 -- Accounting for Postretirement Benefits and SFAS No.
109 -- Accounting for Income Taxes.
(5) Per share data reflects 10% stock dividends paid July 1, 1993, April 1,
1994, December 16, 1996 and October 30, 1997, as well as a 2-for-1 stock
split on December 1, 1994, adjusted retroactively.
(6) Excludes shares owned by the MHC, for which cash dividends were waived with
regulatory approval, after giving effect to prior stock dividends and the
two-for-one stock split.
(7) Calculation is based upon the net interest income before provision for loan
losses divided by interest earning assets.
(8) For purposes of calculating these ratios, operating expenses equal total
operating expenses less amortization of intangibles.
(9) The Bank has signed an agreement to sell the branch deposits of its
Eatontown location, which totalled $28.2 million at September 30, 1997, for
cash of $1.2 million. The closing date is scheduled for February 1998.
16
<PAGE>
RISK FACTORS
The following risk factors, in addition to those discussed elsewhere in
this Prospectus, should be considered by investors in deciding whether to
purchase the Common Stock offered hereby.
COMPETITION
The Bank faces significant competition both in originating loans and in
attracting deposits. The State of New Jersey has a high density of financial
institutions, many of which are branches of significantly larger institutions
which have greater financial resources than the Bank and all of which are
competitors of the Bank to varying degrees. The Bank's competition for loans
comes principally from commercial banks, savings banks, savings and loan
associations, credit unions, mortgage banking companies and insurance companies.
Its most direct competition for deposits has historically come from commercial
banks, savings banks, savings and loans associations and credit unions. The Bank
faces additional competition for deposits from short-term money market funds,
other corporate and government securities funds and from other financial
institutions such as brokerage firms, mutual funds, and insurance companies. See
"Business of the Bank."
Competitive mortgage lending and deposit opportunities in the Bank's
primary market area may exist for the foreseeable future, preventing the Bank
from achieving significant growth within its primary market area. In an effort
to address diminished mortgage loan demand and increased competition for
deposits, the Bank may seek to expand its market area and the loan and deposit
products it offers. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Business Strategy," "Business of the
Bank - Lending Activities" and "- Sources of Funds."
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES
The Bank's profitability, like that of most financial institutions, is
dependent to a large extent upon its net interest income, which is the
difference between its interest income on interest-earning assets, such as loans
and investments, and its interest expense on interest-bearing liabilities, such
as deposits and borrowed funds. Accordingly, the Bank's results of operations
and financial condition are affected by on movements in market interest rates
and its ability to manage its assets and liabilities in response to such
movements. At September 30, 1997, total interest-bearing liabilities maturing or
repricing within one year exceeded total interest-earning assets maturing or
repricing in the same time period by $136.9 million based upon national interest
rate sensitivity assumptions and the Bank's historical experience. This
represents a cumulative one year gap as a percentage of total assets of negative
13.09%. As a result of its negative gap position, the yield on interest-earning
assets of the Bank will adjust to changes in interest rates at a slower rate
than the cost of the Bank's interest-bearing liabilities. Consequently, the
Bank's net interest income may be adversely affected during periods of rapidly
rising interest rates.
The Bank's interest rate sensitivity is also monitored by management
through the use of an OTS Net Portfolio Value Model which generates estimates of
the change in the Bank's net portfolio value ("NPV") over a range of interest
rate scenarios. NPV is the present value of expected cash flows from assets,
liabilities, and off-balance sheet contracts. The NPV ratio, under any interest
rate scenario, is defined as the NPV in that scenario divided by the market
value of assets in the same scenario. As of September 30, 1997, the Bank's NPV
was $127.4 million, or 11.92% of the market value of assets. A 200 basis point
increase in interest rates would result in a decrease in the Bank's NPV to
$104.7 million, representing an 18.0% reduction in the value of the Bank's
discounted cash flows. Conversely, a 200 basis point decrease in interest rates
would result in an increase in the Bank's NPV to $132.7 million, representing
only a 4.0% increase in
17
<PAGE>
the value of the Bank's discounted cash flows. Consequently, an increase in
interest rates will have a significantly greater impact on the Bank's NPV than a
corresponding decrease in interest rates.
Increases in market interest rates also can affect the type (fixed-rate or
adjustable-rate) and amount of loans originated by the Bank and the average life
of loans and securities, which can adversely impact the yields earned on the
Bank's loan and securities portfolio. In addition, increases in interest rates
could result in interest rates on the Bank's adjustable-rate loans increasing,
thereby resulting in increased loan payment amounts by the borrowers which, in
turn, may result in higher delinquencies on such loans. In periods of decreasing
interest rates, the average life of loans held by the Bank may be shortened to
the extent increased prepayment activity occurs during such periods which, in
turn, may result in the Bank investing funds from such prepayments in lower
yielding assets. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Management of Interest Rate Risk."
DEPENDENCE UPON LOCAL ECONOMY
The Bank's market area is concentrated in north and central New Jersey and
therefore, its results of operations are largely dependent on the economy of the
New Jersey area. In the late 1980s and early 1990s, due in part to the effects
of a prolonged decline in the national and regional economy, layoffs in the
financial services industry and corporate relocations, New Jersey experienced
reduced levels of employment. These events, in conjunction with a surplus of
available commercial and residential properties, resulted in an overall decline
during this period in the underlying values of properties located in New Jersey.
New Jersey's real estate market has stabilized in recent periods. The
population of Middlesex County is growing, but at a declining rate, and new
housing starts in the Bank's primary market area are still lower than those in
the state of New Jersey generally. For the nine months ended September 30, 1997
and the years ended December 31, 1996 and 1995, the Bank originated $76.2
million, $100.0 million and $75.5 million of one- to four-family residential
loans, respectively. Repayments on total mortgage loans were $48.1 million,
$77.1 million and $52.2 million, respectively, for the same periods. While the
Bank's total loan portfolio has grown in the 1990s in dollar amount, from $416.0
million at December 31, 1992, to $567.2 million at September 30, 1997, it has
decreased as a percentage of total assets over the same period. Total loans as a
percentage of assets were 54.8% at December 31, 1992, compared to 54.3% at
September 30, 1997. Although the current national and local economic conditions
have significantly improved since the early 1990s, there can be no assurances
that conditions in the local economy, national economy, or real estate market in
general will not deteriorate and adversely affect the financial condition and
results of operations of the Bank.
ESTIMATED PRICE RANGE BELOW MARKET PRICE
The aggregate purchase price of the Conversion Stock to be offered and the
amount of Exchange Shares to be issued in connection with the Conversion and
Reorganization have been determined on the basis of FinPro's independent
appraisal of the estimated pro forma market value of the Bank and the Mutual
Holding Company. The appraised amount was multiplied by the Mutual Holding
Company's percentage interest in the Bank to determine the aggregate amount of
Conversion Stock to be sold in the Offerings, and by the Public Stockholders'
percentage interest to determine the aggregate number of Exchange Shares to be
issued based upon the Purchase Price of $10.00 per share. The final Exchange
Ratio will be based upon the number of shares issued in the Offerings in order
to maintain the Public Stockholders' approximately 48.4% ownership interest in
the Bank. THE FINAL EXCHANGE RATIO WILL NOT BE BASED UPON THE TRADING PRICE OF
THE PUBLIC BANK SHARES. At the minimum, midpoint, maximum and maximum, as
adjusted, of the Estimated Price Range, one Public Bank Share will be exchanged
for 2.5436, 2.9925, 3.4414 and 3.9576 shares of Common Stock, respectively.
Based upon the $10.00 Purchase Price of a share of Common Stock
18
<PAGE>
in the Offerings and the Exchange Ratio, the Exchange Shares to be received for
one share of Bank Common Stock have a calculated equivalent value of $25.44,
$29.93, $34.41 and $39.58 at the minimum, midpoint, maximum and maximum, as
adjusted, of the Estimated Price Range, which may be less than the market value
of one share of Bank Common Stock at the time of the Exchange. The closing price
per share of the Bank Common Stock as of ___________, 1998, was $_____. There
can be no assurance as to the actual market price of a share of Bank Common
Stock at the time of the Exchange. Further, there can be no assurance as to the
actual market value of a share of Common Stock of the Company after the
Conversion and Reorganization, or that such shares could be sold at or above the
$10.00 Purchase Price. See "Summary - Effects of the Reorganization on Public
Stockholders," and "The Conversion and Reorganization - Stock Pricing and Number
of Shares to be Issued in the Conversion and Reorganization."
EFFECT OF PURCHASE LIMITATIONS ON ABILITY OF PUBLIC STOCKHOLDERS TO PURCHASE
CONVERSION SHARES
The OTS has required that the overall maximum purchase limitation contained
in the Plan of Conversion include Exchange Shares to be issued to Public
Stockholders for their Public Bank Shares. As a result, a Public Stockholder who
receives Exchange Shares in an amount equal to or exceeding 4.0% of the
Conversion Stock offered will not be able to subscribe for shares of Conversion
Stock in the Offerings. For example, a Public Stockholder who qualifies as an
Eligible Account Holder and receives 569,682 Exchange Shares at the maximum of
the Estimated Price Range, will not be able to participate as a first priority
purchaser in the Subscription Offering. See "The Conversion and Reorganization
- -- Limitations on Conversion Stock Purchases."
STOCK-BASED BENEFITS TO MANAGEMENT AND DIRECTORS
The Company intends to seek stockholder approval of a Stock-Based Incentive
Plan which it intends to adopt for the benefit of non-employee directors,
officers and employees of the Company and the Bank at a meeting of stockholders
following the Conversion and Reorganization, which under current OTS regulations
may be held no earlier than six months after completion of the Conversion and
Reorganization. Assuming the receipt of stockholder approval, the Company
expects to acquire or issue an amount equal to 4% of the Conversion Stock sold
in the Conversion, or 421,076 shares and 569,682 shares at the minimum and
maximum of the Estimated Price Range, respectively. These shares will be
acquired either through open market purchases or from authorized but unissued
Common Stock. The Company also intends to acquire or issue an amount equal to
10% of the Conversion Stock issued, or 1,052,691 shares and 1,424,207 shares at
the minimum and maximum of the Estimated Price Range, respectively, for stock
options. The exercise price will be equal to the fair market value of the
underlying Common Stock on the date of grant. Although no specific award
determinations have been made, the Company anticipates that it will provide
awards and options to its directors and employees to the extent permitted by
applicable regulations. Current OTS regulations provide that no individual may
receive more than 25% of the shares of any plan and non-employee directors may
not receive more than 5% individually, or 30% in the aggregate, of the shares or
options awarded under any plan. Stock awards will be granted at no cost to the
recipients. Officers and directors receiving options will not be required to pay
for the shares until the date of exercise. See "Management of the Bank - New
Benefits Resulting from the Conversion and Reorganization."
The foregoing plans are in addition to the First Savings Bank, SLA 1992
Incentive Stock Option Plan and the 1992 Stock Option Plan for Outside
Directors, (collectively, the "1992 Stock Option Plans") which were adopted by
the Bank in connection with the 1992 MHC Reorganization, and to the First
Savings Bank, SLA 1996 Omnibus Incentive Plan ("1996 Incentive Plan") which was
implemented following the Bank's 1995 Secondary Offering, each of which were
subsequently approved by the stockholders of the Bank. These plans will continue
in existence after the Conversion and Reorganization as plans of the Company.
See "Management of the Bank - Benefits" and "The Conversion and Reorganization -
Effect on Existing
19
<PAGE>
Compensation Plans." In addition, the Bank's existing ESOP, which was adopted in
connection with the 1992 MHC Reorganization, intends to purchase 8.0% of the
Conversion Stock to be issued in the Offerings (1,139,365 shares or $11.4
million of Conversion Stock at the maximum of the Estimated Price Range) with a
loan funded by the Company, if such loan is not made by a third party. See "Use
of Proceeds" and "Management of the Bank - Benefits - Employee Stock Ownership
Plan."
Expenses Associated With Stock Benefit Plans. The purchase by the Bank's
ESOP of 8.0% of the Conversion Stock issued and the purchase by the Stock-Based
Incentive Plan of 4% of the Conversion Stock issued, assuming receipt of
stockholder approval, will cause the Bank to recognize additional significant
compensation and employee benefits expense. The Bank cannot predict the actual
amount of these new expenses because applicable accounting practices require
that the compensation expense be based on the fair market value of the shares of
Common Stock when the expenses are recognized. Expenses for the ESOP would be
recognized when shares are committed to be released to participants' accounts,
and expenses for the Stock-Based Incentive Plan would be recognized over the
vesting period of awards made to recipients. These expenses have been reflected
in the pro forma financial information under "Pro Forma Data" assuming the
$10.00 per share Purchase Price as the fair market value. Actual expenses,
however, will be based on the fair market value of the Common Stock at the time
of recognition, which may be higher or lower than $10.00. For further discussion
of these plans, see "Management of the Bank - Benefits -Employee Stock Ownership
Plan" and "- Stock-Based Incentive Plan."
Possible Dilutive Effect of Stock-Based Incentive Plan. Following the
Conversion and Reorganization, the Stock-Based Incentive Plan, if approved by
the stockholders of the Company, will acquire an amount of shares equal to 4% of
the shares of Conversion Stock issued in the Conversion and Reorganization,
either through open market purchases or the issuance of authorized but unissued
shares of Common Stock from the Company. If the Stock-Based Incentive Plan is
funded by the issuance of authorized but unissued shares, the voting interests
of then-existing shareholders will be diluted by 2.0%. In addition, directors,
officers and employees will be granted options to purchase authorized but
unissued shares in an amount equal to 10% of the Conversion Stock issued in the
Conversion and Reorganization, if the Stock-Based Incentive Plan is approved by
the stockholders of the Company. If all of the options were to be exercised
using authorized but unissued Common Stock and the stock awards were funded with
authorized but unissued shares, the voting interests of then-existing
stockholders would be diluted by 6.6%.
The Bank also has adopted and maintains the 1992 Stock Option Plans, which
reserved for issuance 292,820 shares of Bank Common Stock, after giving effect
to four 10% stock dividends and a two-for-one stock split. As of September 30,
1997, 79,584 options remained available for exercise. In addition, the Bank
maintains the 1996 Incentive Plan, which has reserved for issuance 72,600 shares
of Bank Common Stock, after giving effect to two 10% stock dividends. At
September 30, 1997, all of the option shares awarded under this plan remained
available for exercise. Upon consummation of the Conversion and Reorganization,
the 1992 Stock Option Plans and the 1996 Incentive Plan will become plans of the
Company and Common Stock will be issued in lieu of Bank Common Stock pursuant to
the terms of such plans, as adjusted to reflect the exchange of options in
connection with the Conversion and Reorganization. See "Management of the Bank
- -- Benefit Plans."
Voting Control of Officers and Directors. Directors and executive officers
of the Bank and the Company expect to hold approximately 12.6% or 9.3% of the
shares of Common Stock to be outstanding upon completion of the Conversion and
Reorganization, based upon the minimum and the maximum of the Estimated Price
Range, respectively. When combined with shares that may be attributable to
directors and officers through the existing and future stock benefit plans, and
the ESOP, management's potential voting control could, together with additional
stockholder support, defeat stockholder proposals requiring 80% approval of
stockholders. As a result, this potential voting control may preclude takeover
attempts that certain stockholders deem to be in their best interest and may
tend to perpetuate existing management. See
20
<PAGE>
"Restrictions on Acquisition of the Company and the Bank - Restrictions in the
Company's Certificate of Incorporation and Bylaws."
EMPLOYMENT CONTRACTS, CHANGE IN CONTROL PROVISIONS AND EMPLOYEE SEVERANCE
COMPENSATION
The Bank and the Mutual Holding Company currently maintain employment
agreements with Messrs. Mulkerin and Martin. In connection with the Conversion
and Reorganization, the Bank and the Company intend to enter into new employment
or severance agreements with certain executive officers of the Company and the
Bank, which agreements provide for severance payments if their respective
employment is terminated in connection with a change in control of the Bank or
the Company. In addition, the Bank intends to adopt a severance plan for
employees that would provide for severance payments for employees that are
terminated in connection with a change in control. These provisions may have the
effect of increasing the cost of acquiring the Company, thereby discouraging
future attempts to take over the Company or the Bank. See "Restrictions on
Acquisition of the Company and the Bank - Restrictions in the Company's
Certificate of Incorporation and Bylaws," "Management of the Bank - Employment
Agreements," "- Change-in-Control Agreements," "- Employee Severance
Compensation Plan."
CERTAIN ANTI-TAKEOVER PROVISIONS WHICH MAY DISCOURAGE TAKEOVER ATTEMPTS
Provisions in the Company's and the Bank's Governing Instruments. Certain
provisions of the Company's Certificate of Incorporation and Bylaws,
particularly a provision limiting voting rights, and the Bank's Stock
Certificate of Incorporation and Bylaws, as well as certain federal regulations,
assist the Company in maintaining its status as an independent publicly owned
corporation. These provisions provide for, among other things, supermajority
voting on certain matters, staggered boards of directors, non-cumulative voting
for directors, limits on the calling of special meetings, limits on voting
shares in excess of 10% of the outstanding shares, and certain uniform price
provisions for certain business combinations. The Bank's Stock Certificate of
Incorporation also prohibits, for five years, the acquisition or offer to
acquire, directly or indirectly, the beneficial ownership of more than 10% of
the Bank's equity securities. Any person violating this restriction may not vote
the Bank's securities in excess of 10%. These provisions in the Bank's and the
Company's governing instruments may discourage potential proxy contests and
other potential takeover attempts, particularly those which have not been
negotiated with the Board of Directors, and thus, generally may serve to
perpetuate current management. For a more detailed discussion of these
provisions, see "Restrictions on Acquisition of the Company and the Bank."
POSSIBLE INCREASE IN ESTIMATED PRICE RANGE AND NUMBER OF SHARES ISSUED
The number of shares to be sold in the Conversion and Reorganization may be
increased as a result of an increase in the Estimated Price Range of up to 15%
to reflect changes in market and financial conditions following the commencement
of the Subscription and Community Offerings. In the event that the Estimated
Price Range is so increased, it is expected that the Company will issue up to
16,378,421 shares of Conversion Stock at the Purchase Price for an aggregate
purchase price of up to $163.8 million. An increase in the number of shares
issued will decrease pro forma net earnings per share and stockholders' equity
per share and will increase the Company's pro forma consolidated stockholders'
equity and net earnings for those subscribers who are not already Public
Stockholders of the Bank. Such an increase will also increase the Purchase Price
as a percentage of pro forma stockholders' equity per share and net earnings per
share.
POSSIBLE ADVERSE INCOME TAX CONSEQUENCES OF THE DISTRIBUTION OF SUBSCRIPTION
RIGHTS
The Bank has received an opinion of FinPro that subscription rights granted
to Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members have no value. However, this opinion
21
<PAGE>
is not binding on the Internal Revenue Service ("IRS"). If the subscription
rights granted to Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members are deemed to have an ascertainable value, receipt of
such rights could result in taxable gains to those Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members who receive and/or
exercise the subscription rights in an amount equal to such value. Additionally,
the Bank could recognize a gain for tax purposes on such distribution. Whether
subscription rights are considered to have ascertainable value is an inherently
factual determination. See "The Conversion and Reorganization -- Effects of the
Conversion and Reorganization" and "- Tax Aspects."
FIRST SOURCE BANCORP, INC.
The Company was organized in December 1997 at the direction of the Boards
of Directors of the Mutual Holding Company and the Bank for the purpose of
holding all of the capital stock of the Bank. The Company has applied to the OTS
to become a savings and loan holding company, and, as such, will be subject to
regulation by the OTS. See "The Conversion and Reorganization -- General." After
completion of the Conversion and Reorganization, the Company will conduct
business initially as a unitary savings and loan holding company. See
"Regulation - Holding Company Regulation." Upon consummation of the Conversion
and Reorganization, the Company's assets will consist of all of the outstanding
shares of the Bank's capital stock issued and exchanged to the Company in the
Conversion and Reorganization and that portion of the net proceeds of the
Offerings retained by the Company. The Company intends to use part of the net
proceeds it retains to loan funds to the ESOP to enable the ESOP to purchase 8%
of the aggregate of the Conversion Stock issued, and to refinance the MHC's
existing loan to the ESOP. Initially, the Company expects to deposit the
remaining proceeds with the Bank. See "Use of Proceeds." The Company and Bank
may, however, alternatively choose to fund the ESOP through a loan to the ESOP
trust by a third party financial institution.
Initially, the Company will neither own nor lease any property, but will
instead use the premises, equipment and furniture of the Bank. At the present
time, the Company does not intend to employ any persons other than the officers
set forth under "Management of the Company," but will utilize the support staff
of the Bank from time to time. Additional employees will be hired as appropriate
to the extent the Company expands its business in the future. The initial
business activities of the Company will consist of investment in the Bank. The
Company may in the future expand its business activities or services which it
provides through existing or newly-formed subsidiaries or through acquisitions
of other financial services providers. The initial activities of the Company are
anticipated to be funded by the net proceeds retained by the Company and
earnings thereon or, alternatively, through dividends from the Bank.
The Company's executive offices are currently located at 1000 Woodbridge
Center Drive, Woodbridge, New Jersey 07095. Its telephone number is (732) 726-
9700.
FIRST SAVINGS BANCSHARES, MHC
The Mutual Holding Company was formed as a result of the 1992 MHC
Reorganization of the Bank, in a series of steps, from a New Jersey-chartered
savings association into a federally-chartered mutual holding company. The Bank
is a majority-owned subsidiary of the Mutual Holding Company. Pursuant to OTS
regulations governing mutual holding companies, the Mutual Holding Company must
at all times own more than 50% of the outstanding voting stock of the Bank. As
the majority owner of the Bank, the Mutual Holding Company elects directors who
oversee the affairs and operations of the Bank. Depositors and those current
borrowers of the Bank who had loans outstanding as of the consummation of the
Reorganization, vote and elect directors of the Mutual Holding Company. The
Mutual Holding Company currently does not engage in any business activity other
than to hold the majority of the Bank's common stock, to invest the
22
<PAGE>
funds retained at the Mutual Holding Company, and to finance a loan to the
Bank's ESOP. At September 30, 1997, the Mutual Holding Company's assets
consisted of a 51.6% ownership interest in the Bank, $491,000 in cash and
certificates of deposit (which will become assets of the Bank upon consummation
of the Conversion and Reorganization), and a loan to the Bank's ESOP totalling
$571,000. The Mutual Holding Company had liabilities of $29,000 at September 30,
1997, and had net income for the nine months ended September 30, 1997 of
$10,000. As part of the Conversion and Reorganization, the Mutual Holding
Company will convert from mutual form to a federal interim stock savings
institution and simultaneously merge with and into the Bank, with the Bank being
the surviving entity.
FIRST SAVINGS BANK, SLA
First Savings is a New Jersey-chartered capital stock savings and loan
association headquartered in Woodbridge, New Jersey. First Savings has operated
in its present market area since 1901. Until 1992, the Bank operated in the
mutual form of organization. On July 10, 1992, the Bank, acting on a Plan of
Reorganization approved by its members, reorganized to become a federally-
chartered mutual holding company. In connection with the 1992 MHC
Reorganization, all of the assets and substantially all of the liabilities of
the mutual savings association were transferred to a newly formed state-
chartered stock savings association that assumed the name of First Savings Bank,
SLA. Concurrently, the newly formed stock savings association sold approximately
37.6% of its Common Stock at $10.00 per share in an initial minority stock
offering. The remaining 62.4% of the Bank Common Stock was issued to the Mutual
Holding Company in exchange for all assets, except $1.0 million in cash, and all
of the liabilities of the former state-chartered mutual association. On July 11,
1995, the Bank consummated its 1995 Secondary Offering, whereby the Bank sold
additional shares of Common Stock, which resulted in the Minority Ownership
Interest in the Bank increasing to 47.5% at that time.
The Bank's executive offices are currently located at 1000 Woodbridge
Center Drive, Woodbridge, New Jersey 07095. Its telephone number is (732) 726-
9700.
23
<PAGE>
REGULATORY CAPITAL COMPLIANCE
At September 30, 1997, the Bank exceeded all regulatory capital
requirements. See "Regulation - Federal Regulation of Savings Institutions-
Capital Requirements." Set forth below is a summary of the Bank's compliance
with regulatory capital standards as of September 30, 1997, on a historical and
pro forma basis assuming that the indicated number of shares were sold as of
such date and receipt by the Bank of 50% of the net proceeds. For purposes of
the table below, the amount expected to be borrowed by the ESOP and the cost of
the shares expected to be acquired by the Stock-Based Incentive Plan are
deducted from pro forma regulatory capital.
<TABLE>
<CAPTION>
FIRST SAVINGS BANK, SLA
PRO FORMA AT SEPTEMBER 30, 1997 BASED UPON SALE AT $10.00 PER SHARE
----------------------------------------------------------------------------------
10,526,917 SHARES 12,384,495 SHARES 14,242,072 SHARES
(MINIMUM OF (MIDPOINT OF (MAXIMUM OF
HISTORICAL AT ESTIMATED ESTIMATED ESTIMATED
SEPTEMBER 30, 1997 PRICE RANGE) PRICE RANGE) PRICE RANGE)
-------------------- ---------------------- ---------------------- ----------------------
PERCENT PERCENT PERCENT PERCENT
OF OF OF OF
AMOUNT ASSETS (2) AMOUNT ASSETS (2) AMOUNT ASSETS (2) AMOUNT ASSETS (2)
------ ---------- ------ ---------- ------ ---------- ------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital (3)......... $99,213 9.50% $145,230 13.32% $153,306 13.95% $161,381 14.58%
======= ===== ======== ===== ======== ===== ======== =====
Tangible Capital:
Capital Level......... $89,992 8.68% $136,212 12.59% $144,288 13.24% $152,363 13.88%
Requirement........... 15,552 1.50 16,107 1.50 16,228 1.50 16,349 1.50
------- ----- -------- ----- -------- ----- -------- -----
Excess................ $74,440 7.18% $119,989 11.09% $128,059 11.74% $136,014 12.38%
======= ===== ======== ===== ======== ===== ======== =====
Core Capital:
Capital Level......... $89,992 8.68% $136,212 12.59% $144,288 13.24% $152,363 13.88%
Requirement (4)....... 31,104 3.00 32,214 3.00 32,451 3.00 32,699 3.00
------- ----- -------- ----- -------- ----- -------- -----
Excess................ $58,888 5.68% $103,998 9.59% $111,831 10.24% $119,664 10.88%
======= ===== ======== ===== ======== ===== ======== =====
Risk-Based Capital (5):
Capital Level (5)..... $95,319 22.38% $141,336 31.49% $149,412 31.13% $157,487 32.27%
Requirement........... 34,070 8.00 35,911 8.00 38,397 8.00 39,043 8.00
------- ----- -------- ----- -------- ----- -------- -----
Excess................ $61,249 14.38% $105,426 23.49% $111,014 23.13% $118,444 24.27%
======= ===== ======== ===== ======== ===== ======== =====
<CAPTION>
---------------------
16,378,421 SHARES
(15% ABOVE
MAXIMUM
OF ESTIMATED
PRICE RANGE) (1)
---------------------
PERCENT
OF
AMOUNT ASSETS (2)
------- ------------
GAAP Capital (3)......... $170,668 15.28%
======== =====
Tangible Capital:
Capital Level......... $161,650 14.60%
Requirement........... 16,489 1.50
-------- -----
Excess................ $145,161 13.10%
======== =====
Core Capital:
Capital Level......... $161,650 14.60%
Requirement (4)....... 33,978 3.00
-------- -----
Excess................ $128,673 11.60%
======== =====
Risk-Based Capital (5):
Capital Level (5)..... $166,774 33.53%
Requirement........... 39,786 8.00
-------- -----
Excess................ $126,988 25.53%
======== =====
</TABLE>
______________________
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
(2) Tangible capital levels are shown as a percentage of total adjusted assets.
Core capital levels are shown as a percentage of total adjusted assets.
Risk-based capital levels are shown as a percentage of risk-weighted
assets.
(3) Excludes the $193,000 unrealized gain on securities available for sale, net
of taxes.
(4) The current OTS core capital requirement for savings associations is 3% of
total adjusted assets. The OTS has proposed core capital requirements which
would require a core capital ratio of 3% of total adjusted assets for
thrifts that receive the highest supervisory rating for safety and
soundness and a 4% to 5% core capital ratio requirement for all other
thrifts. See "Regulation - Federal Regulation of Savings Institutions -
Capital Requirements."
(5) Assumes net proceeds are invested in assets that carry a 50%
risk-weighting.
24
<PAGE>
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Conversion Stock
cannot be determined until the Conversion and Reorganization is completed, it is
presently anticipated that the net proceeds from the sale of the Conversion
Stock will be between $103.6 million and $140.3 million (or $161.5 million if
the Estimated Price Range is increased by 15%). See "Pro Forma Data" and "The
Conversion and Reorganization -- Stock Pricing and Exchange Ratio" as to the
assumptions used to arrive at such amounts. The Company will be unable to
utilize any of the proceeds of the Offerings until the consummation of the
Conversion and Reorganization.
The Company will contribute to the Bank 50% of the net proceeds of the
Offerings. Such portion of net proceeds will be added to the Bank's general
funds which the Bank currently intends to utilize for general corporate
purposes, including investment in one- to four-family residential mortgage
loans, commercial real estate loans and other loans, investment in federal
funds, investment grade marketable securities and mortgage-backed securities, to
repay borrowings and to fund the Stock-Based Incentive Plan. The Bank may also
use such funds to expand operations through the establishment or acquisition of
branch offices, and the acquisition of other financial institutions or other
financial services companies, including those located within the Bank's market
area. To the extent the Stock Programs are not funded with authorized but
unissued common stock of the Company, the Company or Bank may use net proceeds
from the Conversion and Reorganization to fund the purchase of stock to be
awarded under such Stock-Based Incentive Plan. See "Risk Factors - Stock-Based
Benefits to Management and Directors" and "Management of the Bank - Benefits -
Stock-Based Incentive Plan."
The Company intends to use a portion of the net proceeds to loan
additional funds to the ESOP to enable the ESOP to purchase 8% of the Conversion
Stock issued in the Conversion and to refinance the MHC's existing loan to the
ESOP. Based upon the issuance of 10,526,917 shares or 14,242,072 shares at the
minimum and maximum, respectively, of the Estimated Price Range, the amount of
the loan to the ESOP would be $8.4 million or $11.4 million, respectively (or
$13.1 million if the Estimated Price Range is increased by 15%) to be repaid
over a 15 year period at a market rate of interest. See "Management of the
Bank -Benefit Plans -Employee Stock Ownership Plan and Trust."
The net proceeds retained by the Company may also be used to support
the future expansion of operations through branch acquisitions, the
establishment of branch offices and the acquisition of smaller savings
associations and commercial banks or their assets, including those located
within the Bank's market area or diversification into other banking related
businesses. The Company has no current arrangements, understandings or
agreements regarding any such transactions. Upon completion of the Conversion
and Reorganization, the Company will be a unitary savings and loan holding
company, which under existing laws would generally not be restricted as to the
types of business activities in which it may engage, provided that the Bank
continues to be a qualified thrift lender ("QTL"). See "Regulation - Holding
Company Regulation" for a description of certain regulations currently
applicable to the Company.
Upon completion of the Conversion and Reorganization, the Board of
Directors of the Company will have the authority to adopt stock repurchase
plans, subject to statutory and regulatory requirements. Unless approved by the
OTS, the Company, pursuant to OTS regulations, will be prohibited from
repurchasing any shares of the Common Stock for three years except (i) for an
offer to all stockholders on a pro rata basis, or (ii) for the repurchase of
qualifying shares of a director. Notwithstanding the foregoing and except as
provided below, beginning one year following completion of the Conversion and
Reorganization, the Company may repurchase its Common Stock so long as: (i) the
repurchases within the following two years are part of an open-market program
not involving greater than 5% of its outstanding capital stock during a
25
<PAGE>
twelve-month period; (ii) the repurchases do not cause the Bank to become
"undercapitalized" within the meaning of the OTS prompt corrective action
regulation; and (iii) the Company provides to the Regional Director of the OTS
no later than ten days prior to the commencement of a repurchase program written
notice containing a full description of the program to be undertaken and such
program is not disapproved by the Regional Director. See "Regulation - Prompt
Corrective Regulatory Action."
Based upon facts and circumstances following the Conversion and
Reorganization and subject to applicable regulatory requirements, the Board of
Directors may determine to repurchase stock in the future. Such facts and
circumstances may include but not be limited to: (i) market and economic factors
such as the price at which the stock is trading in the market, the volume of
trading, the attractiveness of other investment alternatives in terms of the
rate of return and risk involved in the investment, the ability to increase the
book value and/or earnings per share of the remaining outstanding shares, and
the opportunity to improve the Company's return on equity; (ii) the avoidance of
dilution to stockholders by not having to issue additional shares to cover the
exercise of stock options or to fund employee stock benefit plans; and (iii) any
other circumstances in which repurchases would be in the best interests of the
Company and its shareholders. In the event the Company determines to repurchase
stock, such repurchases may be made at market prices which may be in excess of
the Purchase Price in the Offerings. To the extent that the Company repurchases
stock at market prices in excess of the per share book value, such repurchases
may have a dilutive effect upon existing stockholders.
Any stock repurchases will be subject to the determination of the
Board of Directors that both the Company and the Bank will be capitalized in
excess of applicable regulatory requirements after any such repurchases and that
such capital will be adequate, taking into account, among other things, the
level of nonperforming and other risk assets, the Company's and the Bank's
current and projected results of operations and asset/liability structure, the
economic environment, tax and other considerations. See "The Conversion and
Reorganization -- Certain Restrictions on Purchase or Transfer of Shares After
Conversion."
26
<PAGE>
DIVIDEND POLICY
Since the 1992 MHC Reorganization, the Bank has paid, in the
aggregate, annual cash dividends on the Bank Common Stock ranging from $0.27 per
share for 1993 to $0.33 per share for 1996, as adjusted for stock dividends and
a 2-for-1 stock split. The current quarterly cash dividend is $0.12 per share.
The Bank intends to continue to pay regular quarterly dividends through either
the date of consummation of the Conversion and Reorganization (on a pro rata
basis) or the end of the fiscal quarter during which the consummation of the
Conversion and Reorganization occurs. The table below sets forth the cash and
stock dividends paid by the Bank since January 1, 1995.
<TABLE>
<CAPTION>
ACTUAL
CASH STOCK
DIVIDEND DIVIDEND PAID, DIVIDEND
PAYABLE DATE PAID(1) AS ADJUSTED(2) PAID
------------ ----------- -------------- ------------
<S> <C> <C> <C> <C>
YEAR ENDING DECEMBER 31, 1997:
Fourth Quarter......................... November 28 $.12 $.12 --%
October 30 -- -- 10
Third Quarter.......................... August 29 .12 .11 --
Second Quarter......................... May 30 .12 .11 --
First Quarter.......................... February 28 .10 .09 --
YEAR ENDING DECEMBER 31, 1996:
Fourth Quarter......................... December 16 $ -- $ -- 10%
November 29 .10 .08 --
Third Quarter.......................... August 31 .10 .08 --
Second Quarter......................... May 31 .10 .08 --
First Quarter.......................... February 29 .10 .08 --
YEAR ENDING DECEMBER 31, 1995:
Fourth Quarter......................... November 30 $.09 .07 10%
Third Quarter.......................... August 31 .09 .07 --
Second Quarter......................... May 31 .09 .07 --
First Quarter.......................... February 28 .09 .07 --
</TABLE>
________________________
(1) The Mutual Holding Company has waived receipt of all cash dividends paid
by the Bank. The aggregate amount of all cash dividends waived by the
Mutual Holding Company as of September 30, 1997 is $6.7 million.
(2) As adjusted for 10% stock dividends paid on July 1, 1993, April 1, 1994,
December 16, 1996 and October 30, 1997, respectively, and a two-for-one
stock split effected on December 1, 1994.
Upon consummation of the Conversion and Reorganization, the Company
expects to pay an initial quarterly dividend of $.03 per share. Declarations of
dividends by the Company's Board of Directors, however, will depend upon a
number of factors, including the amount of the net proceeds from the Offerings
retained by the Company, investment opportunities available to the Company or
the Bank, capital requirements, regulatory limitations, the Company's and the
Bank's financial condition and results of operations, tax considerations and
general economic conditions. Consequently, there can be no assurance that
dividends will in fact be paid on the Common Stock or that, if paid, such
dividends will not be reduced or eliminated in future periods. See "Market for
the Common Stock."
27
<PAGE>
The Bank will not be permitted to pay dividends to the Company on its
capital stock if its stockholders' equity would be reduced below the amount
required for the liquidation account. See "The Conversion and Reorganization --
Liquidation Rights." For information concerning federal and state law and
regulations which apply to the Bank in determining the amount of proceeds which
may be retained by the Company and regarding a savings institution's ability to
make capital distributions including payment of dividends to its holding
company, see "Federal and State Taxation - Federal Taxation - Distributions" and
"Regulation - Federal Regulation of Savings Institutions -- Limitation on
Capital Distributions."
Unlike the Bank, the Company is not subject to OTS regulatory
restrictions on the payment of dividends to its stockholders, although the
source of such dividends will be dependent on the net proceeds retained by the
Company and earnings thereon and may be dependent, in part, upon dividends from
the Bank. The Company is subject, however, to the requirements of Delaware law,
which generally limit dividends to an amount equal to the excess of the net
assets of the Company (the amount by which total assets exceed total
liabilities) over its statutory capital (generally defined as the aggregate par
value of the outstanding shares of the Company's capital stock having a par
value plus the amount of the consideration paid for shares of the Company's
capital stock without par value) or, if there is no such excess, to its net
profits for the current and/or immediately preceding fiscal year.
Additionally, in connection with the Conversion and Reorganization,
the Company and Bank have committed to the OTS that during the one-year period
following the consummation of the Conversion and Reorganization, the Company
will not take any action to declare an extraordinary dividend to stockholders
which would be treated by recipient stockholders as a tax-free return of capital
for federal income tax purposes without prior approval of the OTS.
MARKET FOR THE COMMON STOCK
Although the Bank Common Stock is traded on the Nasdaq National
Market, there is no established market for the Common Stock of the Company at
this time. The Company has received conditional approval to have its Common
Stock quoted on the Nasdaq National Market under the symbol "FSLA." One of the
requirements for quotation of the Common Stock on the Nasdaq National Market is
that there be at least three market makers for the Common Stock. The Company
will seek to encourage and assist at least three market makers to make a market
in its Common Stock. Currently, there are three market makers for the Bank's
Common Stock. Making a market involves maintaining bid and ask quotations and
being able, as principal, to effect transactions in reasonable quantities at
those quoted prices, subject to various securities laws and other regulatory
requirements. Although under no obligation to do so, Sandler O'Neill has
informed the Company that it intends, upon the completion of the Conversion and
Reorganization, to make a market in the Common Stock by maintaining bid and ask
quotations and trading in the Common Stock so long as the volume of trading
activity and certain other market making considerations justify it doing so. As
of the date hereof, no other broker-dealers have agreed to act as market makers.
While the Company anticipates that prior to the completion of the Conversion
there will be at least two other broker-dealers to act as market maker for the
Common Stock, there can be no assurance there will be three or more market
makers for the Common Stock.
Additionally, the development of a liquid public market depends on the
existence of willing buyers and sellers, the presence of which is not within the
control of the Company, the Bank or any market maker. Accordingly, there can be
no assurance that an active and liquid trading market for the Common Stock will
develop or that, if developed, it will continue.
28
<PAGE>
The following table sets forth the high and low trading prices of the
Bank's Common Stock during the periods indicated as adjusted for a 10% stock
dividend paid on October 30, 1997.
<TABLE>
<CAPTION>
HIGH LOW
-------- -------
<S> <C> <C>
YEAR ENDING DECEMBER 31, 1997:
------------------------------
Fourth Quarter................ $ N/A $ N/A
Third Quarter................. 32.50 26.88
Second Quarter................ 29.25 21.00
First Quarter................. 23.50 18.25
YEAR ENDED DECEMBER 31, 1996:
-----------------------------
Fourth Quarter................ $19.50 $16.50
Third Quarter................. 17.00 15.50
Second Quarter................ 16.25 14.50
First Quarter................. 16.50 15.00
YEAR ENDED DECEMBER 31, 1995:
-----------------------------
Fourth Quarter................ $17.50 $13.25
Third Quarter................. 14.25 13.25
Second Quarter................ 15.25 12.50
First Quarter................. 14.50 12.50
</TABLE>
29
<PAGE>
CAPITALIZATION
The following table presents the unaudited historical consolidated
capitalization of the Bank at September 30, 1997, and the pro forma consolidated
capitalization of the Company after giving effect to the Conversion and
Reorganization, based upon the sale of the number of shares indicated in the
table and the other assumptions set forth under "Pro Forma Data."
<TABLE>
<CAPTION>
COMPANY PRO FORMA BASED UPON SALE AT $10.00 PER SHARE
----------------------------------------------------------------------
16,378,421
SHARES
BANK 10,526,917 12,384,495 14,242,072 (15% ABOVE
HISTORICAL SHARES SHARES SHARES MAXIMUM
AT (MINIMUM (MIDPOINT (MAXIMUM OF OF ESTIMATED
SEPTEMBER 30, OF ESTIMATED OF ESTIMATED ESTIMATED PRICE
1997 PRICE RANGE) PRICE RANGE) PRICE RANGE) RANGE) (1)
-------------- -------------- -------------- -------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deposit accounts (2)..................... $809,449 $809,449 $809,449 $809,449 $809,449
Borrowed funds........................... 123,894 123,894 123,894 123,894 123,894
Debt in connection with acquisition
of shares of Common Stock by
ESOP (3)............................... 571 571 571 571 571
-------- -------- -------- -------- --------
Total deposit accounts and
borrowed funds......................... $933,914 $933,914 $933,914 $933,914 $933,914
======== ======== ======== ======== ========
Stockholders' equity:
Preferred Stock, $.01 par value,
10,000,000 shares authorized;
none to be issued.................... $ -- $ -- $ -- $ -- $ --
Common Stock, $.01 par
value, 85,000,000 shares
authorized; shares to be
issued as reflected (4).............. 73 204 240 276 317
Additional paid-in capital (5)(6)...... 27,856 132,393 150,737 169,080 190,176
Retained earnings...................... 71,870 71,870 71,870 71,870 71,870
Net unrealized gain on securities
available for sale..................... 193 193 193 193 193
Less:
Unearned Common Stock previously
acquired by the ESOP (3)............. (571) (571) (571) (571) (571)
Unearned Common Stock held
by the 1996 Incentive Plan........... (208) (208) (208) (208) (208)
Common Stock to be acquired
by the ESOP (7)...................... -- (8,422) (9,908) (11,394) (13,103)
Common Stock to be acquired by
the Stock-Based Incentive Plan (8)... -- (4,211) (4,954) (5,697) (6,551)
-------- -------- -------- -------- --------
Total stockholders' equity............... $ 99,213 $191,248 $207,399 $223,549 $242,123
======== ======== ======== ======== ========
</TABLE>
(footnotes on next page)
30
<PAGE>
______________________
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Common Stock in the Conversion. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) Assumes that the existing loan to the ESOP remains outstanding.
(4) Assumes (i) that the 3,881,539 Public Bank Shares outstanding at October
31, 1997 are converted into 9,873,082, 11,615,505, 13,357,928 and
15,361,578 Exchange Shares at the minimum, midpoint, maximum and 15% above
the maximum of the Valuation Price Range, respectively, and (ii) that no
fractional shares of Exchange Shares will be issued by the Company. No
effect has been given to the issuance of additional shares of Common Stock
pursuant to existing and proposed stock option plans. See "Pro Forma Data,"
"Management of the Bank -- Benefits."
(5) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Company's Stock-Based Incentive Plan intended to be
adopted by the Company and presented for approval of stockholders at a
meeting of stockholders following the Conversion and Reorganization. If
approved by the stockholders of the Company, an amount equal to 10% of the
shares of Conversion Stock issued in the Conversion and Reorganization will
be reserved for issuance upon the exercise of options to be granted under
the Stock-Based Incentive Plan. See "Risk Factors -Possible Dilutive Effect
of Stock-Based Incentive Plan," Footnote 3 to the tables under "Pro Forma
Data" at or for the nine months ended September 30, 1997 and at or for the
year ended December 31, 1996, respectively, and "Management of the Bank --
Benefits -- Stock-Based Incentive Plan."
(6) The additional paid-capital includes $1.1 million of assets from the Mutual
Holding Company. The pro forma additional paid- in capital and retained
earnings reflect a restriction of the original retained earnings of the
Bank prior to the 1992 MHC Reorganization. The retained earnings of the
Bank will be substantially restricted after the Conversion and
Reorganization by virtue of the liquidation account to be established in
connection with the Conversion and Reorganization. See "The Conversion and
Reorganization -- Liquidation Rights" and "Regulation - Federal Regulation
of Savings Institutions -- Limitations on Capital Distributions."
(7) Assumes that 8% of the aggregate of the Conversion Stock issued in the
Conversion and Reorganization will be purchased by the ESOP and that the
funds used to acquire such shares will be borrowed from the Company. The
Common Stock acquired by the ESOP is reflected as a reduction of
stockholders' equity. See "Management of the Bank - Benefits - Employee
Stock Ownership Plan and Trust."
(8) Assumes that, subsequent to the Conversion and Reorganization, an amount
equal to 4% of the shares of Conversion Stock issued in the Conversion and
Reorganization is purchased by the Stock-Based Incentive Plan through open
market purchases. The Common Stock purchased by the Stock-Based Incentive
Plan is reflected as a reduction of stockholder's equity. Implementation of
the Stock-Based Incentive Plan is subject to the approval of the Company's
stockholders at a meeting following the Conversion and Reorganization. See
"Risk Factors - Possible Dilutive Effect of Stock-Based Incentive Plan,"
Footnote 2 to the tables under "Pro Forma Data" at or for the nine months
ended September 30, 1997 and at or for the year ended December 31, 1996,
respectively, and "Management of the Bank - Benefits -- Stock-Based
Incentive Plan."
31
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Conversion Stock cannot be
determined until the Conversion and Reorganization is completed. However, net
proceeds are currently estimated to be between $103.6 million and $140.3 million
(or $161.5 million in the event the Estimated Price Range is increased by 15.0%)
based upon the following assumptions: (i) 100% of the shares of Conversion Stock
will be sold in the Subscription Offering to Eligible Account Holders; (ii)
directors, officers and employees of the Bank and members of their immediate
families (collectively, "Insiders") will purchase an aggregate of $600,000 of
Common Stock; (iii) Sandler O'Neill will receive a fee equal to 1.15% of the
aggregate Purchase Price of shares sold in the Subscription Offering and in the
Community Offering, excluding shares purchased by Insiders and the ESOP; and
(iv) Conversion and Reorganization expenses, excluding the marketing fees paid
to Sandler O'Neill, will be approximately $600,000. Actual Conversion and
Reorganization expenses may vary from those estimated.
Pro forma consolidated net income of the Company for the nine months ended
September 30, 1997, and for the year ended December 31, 1996 have been
calculated as if the Conversion Stock had been sold (and the Exchange Shares
issued) at the beginning of the respective periods and the net proceeds had been
invested at an average yield of 5.42%, the one-year Treasury note rate at
September 30, 1997. The Treasury yield was used on the reinvestment of proceeds
because it reflects a more achievable rate of return than the arithmetic average
of the average yield of the Bank's interest-earning assets and cost of deposits.
The tables below do not reflect the effect of withdrawals from deposit accounts
for the purchase of Conversion Stock or the effect of any possible use of the
net proceeds. The pro forma after-tax yield for the Company and the Bank is
assumed to be 3.41% for both the nine months ended September 30, 1997 and the
year ended December 31, 1996 based on an effective tax rate of 37%.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma consolidated stockholders' equity represents
the difference between the stated amount of assets and liabilities of the
Company. The pro forma stockholders' equity is not intended to represent the
fair market value of the Common Stock and may be greater than amounts that would
be available for distribution to stockholders in the event of liquidation.
The following tables summarize historical data of the Bank and pro forma
data of the Company at or for the nine months ended September 30, 1997 and the
year ended December 31, 1996 based on the assumptions set forth above and in the
tables and should not be used as a basis for projections of market value of the
Common Stock following the Conversion and Reorganization. The tables below give
effect to the Stock-Based Incentive Plan, which is expected to be adopted by the
Company following the Conversion and Reorganization and presented to
stockholders for approval at a meeting of stockholders. See Footnotes 2 and 3 to
the tables and "Management of the Bank - Benefits - Stock-Based Incentive Plan."
No effect has been given in the tables to the possible issuance of additional
shares reserved for future issuance pursuant to the options to be adopted by the
Board of Directors of the Company and presented to stockholders for approval at
a meeting of stockholders, nor does book value give any effect to the
liquidation account to be established for the benefit of Eligible Account
Holders and Supplemental Eligible Account Holders or, in the event of
liquidation of the Bank, to the tax effect of the bad debt reserve and other
factors. See Footnote 3 to the tables below, "The Conversion and Reorganization
- -- Liquidation Rights" and "Management of the Bank -Benefits - Stock-Based
Incentive Plan."
32
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
----------------------------------------------------------------------
10,526,917 12,384,495 14,242,072 16,378,421
SHARES SOLD SHARES SOLD SHARES SOLD SHARES SOLD
AT $10.00 AT $10.00 AT $10.00 AT $10.00 PER
PER SHARE PER SHARE PER SHARE SHARE (15%
(MINIMUM (MIDPOINT (MAXIMUM ABOVE MAXIMUM
OF ESTIMATED OF ESTIMATED OF ESTIMATED OF ESTIMATED
PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE)(7)
-------------- -------------- -------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross Proceeds....................................... $105,269 $123,845 $142,421 $163,784
Less: Offering expenses and commission.............. 1,707 1,903 2,100 2,326
-------- -------- -------- --------
Estimated net proceeds............................... 103,562 121,942 140,321 161,458
Less: Common Stock purchased by the ESOP............ (8,422) (9,908) (11,394) (13,103)
Common Stock purchased by Stock-Based
Incentive Plan (4,211) (4,954) (5,697) (6,551)
-------- -------- -------- --------
Estimated net proceeds, as adjusted................ $ 90,929 $107,080 $123,230 $141,804
======== ======== ======== ========
Consolidated net earnings:
Historical......................................... $ 6,760 $ 6,760 $ 6,760 $ 6,760
Pro forma earnings on net proceeds................. 2,326 2,739 3,152 3,627
Less: Pro forma ESOP adjustment(1)............... (265) (312) (359) (413)
Pro forma Stock-Based Incentive
Plan(2)................................. (398) (468) (538) (619)
-------- -------- -------- --------
Pro forma net earnings........................ $ 8,423 $ 8,719 $ 9,015 $ 9,355
======== ======== ======== ========
Per share net earnings (3):
Historical......................................... $ 0.35 $ 0.30 $ 0.26 $ 0.22
Pro forma earnings on net proceeds................. 0.12 0.12 0.12 0.12
Less: Pro forma ESOP adjustment(1)............... (0.01) (0.01) (0.01) (0.01)
Pro forma Stock-Based Incentive
Plan(2)................................. (0.02) (0.02) (0.02) (0.02)
-------- -------- -------- --------
Pro forma net earnings per share.............. $ 0.44 $ 0.39 $ 0.35 $ 0.31
======== ======== ======== ========
Stockholders' equity:
Historical......................................... $ 99,213 $ 99,213 $ 99,213 $ 99,213
Estimated net proceeds............................. 103,562 121,942 140,321 161,458
Plus: Assets consolidated from MHC................. 1,106 1,106 1,106 1,106
Less: Common stock acquired by ESOP(1)........... (8,422) (9,908) (11,394) (13,103)
Common Stock acquired by Stock-
Based Incentive Plan(2)................. (4,211) (4,954) (5,697) (6,551)
-------- -------- -------- --------
Pro forma stockholders' equity(2)(4)(5)....... $191,248 $207,399 $223,549 $242,123
======== ======== ======== ========
Stockholders' equity per share (6):
Historical......................................... $ 4.86 $ 4.13 $ 3.59 $ 3.13
Estimated net proceeds............................. 5.08 5.08 5.08 5.09
Plus: Assets consolidated from MHC................. 0.05 0.05 0.04 0.03
Less: Common stock acquired by ESOP(1)........... (0.41) (0.41) (0.41) (0.41)
Common Stock acquired by Stock-
Based Incentive Plan(2)................. (0.21) (0.21) (0.21) (0.21)
-------- -------- -------- --------
Pro forma stockholders' equity per
share(2)(4)(5)............................. $ 9.37 $ 8.64 $ 8.09 $ 7.63
======== ======== ======== ========
Offering price as a percentage of pro forma
stockholders' equity per share..................... 106.72% 115.74% 123.61% 131.06%
Offering price to pro forma net earnings per share... 22.7x 25.6x 28.6x 32.3x
</TABLE>
(footnotes on following page)
33
<PAGE>
__________________
(1) It is assumed that 8% of the shares of Common Stock issued in the
Conversion and Reorganization will be purchased by the ESOP. For purposes
of this table, the funds used to acquire such shares are assumed to have
been borrowed by the ESOP from the Company. The amount to be borrowed is
reflected as a reduction of stockholders' equity. The Bank intends to make
annual contributions to the ESOP in an amount at least equal to the
principal and interest requirement of the debt. The Bank's total annual
payment of the ESOP debt is based upon 15 equal annual installments of
principal, with an assumed interest rate at 7.00%. The pro forma net
earnings assume: (i) that the Bank's contribution to the ESOP is equivalent
to the debt service requirement for the nine months ended September 30,
1997, and was made at the end of the period; (ii) that 42,107, 49,537,
56,968 and 65,513 shares at the minimum, midpoint, maximum and 15% above
the maximum of the range, respectively, were committed to be released
during the nine months ended September 30, 1997 at an average fair value of
$10.00 per share in accordance with Statement of Position ("SOP") 93-6; and
(iii) only the ESOP shares committed to be released were considered
outstanding for purposes of the net earnings per share calculations. See
"Management of the Bank -- Benefits -- Employee Stock Ownership Plan and
Trust."
(2) Gives effect to the Stock-Based Incentive Plan expected to be adopted by
the Company following the Conversion and presented for approval at a
meeting of stockholders. The Stock-Based Incentive Plan intend to acquire
an amount of Common Stock equal to 4% of the shares of Common Stock sold in
the Conversion or 421,076, 495,379, 569,682 and 655,136 shares of Common
Stock at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Price Range, respectively, either through open market purchases,
if permissible, or from authorized but unissued shares of Common stock or
treasury stock of the Company, if any. Funds used by the Stock-Based
Incentive Plan to purchase the shares will be contributed to the Stock-
Based Incentive Plan by the Bank. In calculating the pro forma effect of
the Stock-Based Incentive Plan, it is assumed that the shares were acquired
by the Stock-Based Incentive Plan at the beginning of the period presented
in open market purchases at the Purchase Price and that 15% of the amount
contributed was an amortized expense during such period. The issuance of
authorized but unissued shares of the Company's Common Stock to the Stock-
Based Incentive Plan instead of open market purchases would dilute the
voting interests of existing stockholders by approximately 2.2% and pro
forma net earnings per share would be $.43, $.38, $.34, and $.31,
at the minimum, midpoint, maximum and 15% above the maximum of the range,
respectively, and pro forma shareholders' equity per share would be $9.19,
$8.47, $7.94 and $7.47 at the minimum, midpoint, maximum, and 15% above
the maximum of the range, respectively. There can be no assurance that
stockholder approval of the Stock-Based Incentive Plan will be obtained, or
that the actual purchase price of the shares will be equal to the Purchase
Price. See "Management of the Bank -- Benefits -- Stock-Based Incentive
Plan."
(3) Historical and pro forma net earnings per share have been divided by the
total number of shares to be outstanding upon consummation of the
Conversion and Reorganization, as adjusted to give effect to the purchase
of shares by the ESOP during the period, or 19,392,930, 22,815,270,
26,237,578 and 30,173,225 shares at the minimum, midpoint, maximum, and
maximum, as adjusted, of the Estimated Price Range, respectively.
(4) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the options provided for in the Stock-Based Incentive
Plan expected to be adopted by the Company following the Conversion and
Reorganization or to the exercise of existing stock options. The Company
expects to present the Stock-Based Incentive Plan for approval at a meeting
of stockholders. An amount equal to 10% of the Common Stock issued in the
Conversion or 1,052,691, 1,238,449, 1,424,207 and 1,637,842 shares at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated Price
Range, respectively, will be reserved for future issuance upon the exercise
of options to be granted under the Stock-Based Incentive Plan. The issuance
of Common Stock pursuant to the exercise of options under the Stock-Based
Incentive Plan will result in the dilution of existing stockholders'
interests. Assuming all options were exercised at the end of the period at
an exercise price of $10.00 per share, the pro forma net earnings per share
would be $0.41, $0.36, $0.33, and $0.29, respectively, and the pro forma
stockholders' equity per share would be $9.41, $8.71, $8.19, and $7.74,
respectively. See "Management of the Bank -- Benefits -- Stock-Based
Incentive Plan."
(5) The retained earnings of the Bank will continue to be substantially
restricted after the Conversion and Reorganization. See "Dividend Policy,"
"The Conversion -- Liquidation Rights" and "Regulation --Federal Savings
Institution Regulation -- Limitation on Capital Distributions."
(6) Historical and pro forma shareholders' equity per share have been divided
by the total number of shares to be outstanding upon consummation of the
Conversion and Reorganization, or 20,400,000, 24,000,000, 27,600,000 and
30,174,000 shares at the minimum, midpoint, maximum, and maximum, as
adjusted, of the Estimated Price Range, respectively.
(7) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
34
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,1996
----------------------------------------------------------------------
10,526,917 12,384,495 14,242,072 16,378,421
SHARES SOLD SHARES SOLD SHARES SOLD SHARES SOLD
AT $10.00 AT $10.00 AT $10.00 AT $10.00 PER
PER SHARE PER SHARE PER SHARE SHARE (15%
(MINIMUM (MIDPOINT (MAXIMUM ABOVE MAXIMUM
OF ESTIMATED OF ESTIMATED OF ESTIMATED OF ESTIMATED
PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE)(6)
-------------- -------------- -------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross Proceeds....................................... $105,269 $123,845 $142,421 $163,784
Less: Offering expenses and commissions............. 1,707 1,903 2,100 2,326
-------- -------- -------- --------
Estimated net proceeds............................... 103,562 121,942 140,321 161,458
Less: Common Stock purchased by the ESOP............ (8,422) (9,908) (11,394) (13,103)
Common Stock purchased by Stock-Based
Incentive Plan........................... (4,211) (4,954) (5,697) (6,551)
-------- -------- -------- --------
Estimated net proceeds, as adjusted................ $ 90,929 $107,080 $123,230 $141,804
======== ======== ======== ========
Consolidated net earnings:
Historical......................................... $ 4,710 $ 4,710 $ 4,710 $ 4,710
Pro forma earnings on net proceeds, as adjusted.... 3,101 3,651 4,202 4,836
Less: Pro forma ESOP adjustment(1)............. (354) (416) (479) (550)
Pro forma Stock-Based Incentive Plan
adjustment(2)........................ (531) (624) (718) (825)
-------- -------- -------- --------
Pro forma net earnings........................ $ 6,926 $ 7,321 $ 7,715 $ 8,171
======== ======== ======== ========
Per share net earnings (3)
Historical......................................... $ 0.24 $ 0.21 $ 0.18 $ 0.16
Pro forma earnings on net proceeds, as adjusted.... 0.16 0.16 0.16 0.16
Less: Pro forma ESOP adjustment(1)............. (0.02) (0.02) (0.02) (0.02)
Pro forma Stock-Based Incentive Plan
adjustment(2)........................ (0.03) (0.03) (0.03) (0.03)
-------- -------- -------- --------
Pro forma net earnings per share.............. $ 0.35 $ 0.32 $ 0.29 $ 0.27
======== ======== ======== ========
Stockholders' equity:
Historical......................................... $ 92,863 $ 92,863 $ 92,863 $ 92,863
Estimated net proceeds............................. 103,562 121,942 140,321 161,458
Plus: Assets consolidated from MHC................. 1,106 1,106 1,106 1,106
Less: Common Stock acquired by ESOP(1)......... (8,422) (9,908) (11,394) (13,103)
Common Stock acquired by
Stock-Based Incentive Plan(2)........ (4,211) (4,954) (5,697) (6,551)
-------- -------- -------- --------
Pro forma stockholders' equity(2)(4)(5)....... $184,898 $201,049 $217,199 $235,773
======== ======== ======== ========
Stockholders' equity per share (6):
Historical......................................... $ 4.55 $ 3.87 $ 3.36 $ 2.93
Estimated net proceeds............................. 5.08 5.08 5.08 5.09
Plus: Assets consolidated from MHC................. 0.05 0.05 0.04 0.03
Less: Common Stock acquired by ESOP(1)......... (0.41) (0.41) (0.41) (0.41)
Common Stock acquired by
Stock-Based Incentive Plan(2)........ (0.21) (0.21) (0.21) (0.21)
-------- -------- -------- --------
Pro forma stockholders' equity
per share(2)(4)(5)....................... $ 9.06 $ 8.38 $ 7.86 $ 7.43
======== ======== ======== ========
Offering price as a percentage of pro forma
stockholders' equity per share..................... 110.38% 119.19% 127.23% 134.59%
Offering price to pro forma net earnings (loss)
per share.......................................... 28.6x 31.3x 34.5x 37.0x
</TABLE>
(footnotes on following page)
35
<PAGE>
__________________
(1) It is assumed that 8% of the shares of Conversion Stock issued in the
Conversion and Reorganization, will be purchased by the ESOP. For purposes
of this table, the funds used to acquire such shares are assumed to have
been borrowed by the ESOP from the Company. The amount to be borrowed is
reflected as a reduction of stockholders' equity. The Bank intends to make
annual contributions to the ESOP in an amount at least equal to the
principal and interest requirement of the debt. The Bank's total annual
payment of the ESOP debt is based upon 15 equal annual installments of
principal, with an assumed interest rate at 7.00%. The pro forma net
earnings assumes: (i) that the Bank's contribution to the ESOP is
equivalent to the debt service requirement for the year ended December 31,
1996, and was made at the end of the period; (ii) that 56,143, 66,050,
75,957 and 87,351 shares at the minimum, midpoint, maximum and 15% above
the maximum of the range, respectively, were committed to be released
during the year ended December 31, 1996, at an average fair value of $10.00
per share in accordance with the SOP 93-6; and (iii) only the ESOP shares
committed to be released were considered outstanding for purposes of the
net earnings per share calculations. See "Management of the Bank- Benefit
Plans - Employee Stock Ownership Plan and Trust."
(2) Gives effect to the Stock-Based Incentive Plan expected to be adopted by
the Company following the Conversion and Reorganization and presented for
approval at a meeting of stockholders. If the Stock-Based Incentive Plan is
approved by stockholders, the Stock-Based Incentive Plan intends to acquire
an amount of Conversion Stock equal to 4% of the shares of Common Stock
issued in the Conversion and Reorganization, or 421,076, 495,379, 569,682
and 655,136 shares of Common Stock at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Price Range, respectively, either
through open market purchases, if permissible, or from authorized but
unissued shares of Common Stock or treasury stock of the Company, if any.
Funds used by the Stock-Based Incentive Plan to purchase the shares will be
contributed to the Stock-Based Incentive Plan by the Bank. In calculating
the pro forma effect of the Stock-Based Incentive Plan, it is assumed that
the required stockholder approval has been received, that the shares were
acquired by the Stock-Based Incentive Plan at the beginning of the period
presented in open market purchases at the Purchase Price and that 20% of
the amount contributed was an amortized expense during such period. The
issuance of authorized but unissued shares of the Company's Common Stock to
the Stock-Based Incentive Plan instead of open market purchases would
dilute the voting interests of existing stockholders by approximately 2.17%
and pro forma net earnings per share would be $0.36, $0.32, $0.29 and $0.27
at the minimum, midpoint, maximum and 15% above the maximum of the range,
respectively, and pro forma stockholders' equity per share would be $8.88,
$8.21, $7.71 and $7.28 at the minimum, midpoint, maximum and 15% above the
maximum of the range, respectively. There can be no assurance that
stockholder approval of the Stock-Based Incentive Plan will be obtained, or
that the actual purchase price of the shares will be equal to the Purchase
Price. See "Management of the Bank -Benefits - Stock-Based Incentive Plan."
(3) Historical and pro forma net earnings per share have been divided by the
total number of shares to be outstanding upon consummation of the
Conversion and Reorganization, as adjusted to give effect to the purchase
of shares by the ESOP during the period, or 19,406,967, 22,831,784,
22,256,568 and 30,195,063 shares of Common Stock at the minimum, midpoint,
maximum, and maximum, as adjusted, of the Estimated Price Range,
respectively.
(4) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the options provided for under the Stock-Based Incentive
Plan expected to be adopted by the Company following the Conversion and
Reorganization or to the exercise of existing stock options. The Company
expects to present the Stock-Based Incentive Plan for approval at a meeting
of stockholders. If the Stock-Based Incentive Plan are approved by
stockholders, an amount equal to 10% of the Conversion Stock issued in the
Conversion, or 1,052,691, 1,238,449, 1,424,207 and 1,637,842 shares at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated Price
Range, respectively, will be reserved for future issuance upon the exercise
of options to be granted under the Stock-Based Incentive Plan. The issuance
of Common Stock pursuant to the exercise of options under the Stock-Based
Incentive Plan will result in the dilution of existing stockholders'
interests by approximately 5.31%. Assuming stockholder approval of the
Stock-Based Incentive Plan and all options were exercised at the end of the
period at an exercise price of $10.00 per share, the pro forma net earnings
per share would be $0.34, $0.30, $0.28 and $0.26, respectively, and the pro
forma stockholders' equity per share would be $9.11, $8.46, $7.97 and
$7.55, respectively. See "Management of the Bank - Benefits -- Stock-Based
Incentive Plan."
(5) The retained earnings of the Bank will continue to be substantially
restricted after the Conversion. See "Dividend Policy," "The Conversion and
Reorganization -- Liquidation Rights" and "Regulation -Federal Regulation
of Savings Institutions - Limitation on Capital Distributions."
(6) Historical and pro forma stockholders' equity per share have been divided
by the total number of shares to be outstanding upon consummation of the
Conversion and Reorganization, or 20,400,000, 24,000,000, 27,600,000 and
30,174,000 shares at the minimum, midpoint, maximum, and maximum, as
adjusted, of the Estimated Price Range, respectively.
(7) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
36
<PAGE>
FIRST SAVINGS BANK, SLA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of the Bank and
Subsidiaries for each of the years in the three-year period ended December 31,
1996 have been audited by KPMG Peat Marwick LLP independent certified public
accountants, whose report thereon is included elsewhere in this Prospectus. With
respect to the information for the nine months ended September 30, 1997 and
1996, which is unaudited, in the opinion of management, all adjustments
necessary for a fair presentation of such interim periods have been included and
are of a normal recurring nature. Results for the nine months ended September
30, 1997 are not necessarily indicative of the results that may be expected for
the fiscal year ended December 31, 1997. These Consolidated Statements of Income
should be read in conjunction with the Consolidated Financial Statements and
notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------- ----------------------------------
1997 1996 1996 1995 1994
---------- ------------ ---------- ----------- ----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Interest income:
<S> <C> <C> <C> <C> <C>
Loans.......................................... $ 32,216 $ 28,489 $ 38,596 $ 35,245 $ 32,095
Mortgage-backed securities..................... 12,598 14,680 19,147 22,140 15,115
Investment securities and other................ 2,993 2,952 4,094 4,671 2,179
Investment and mortgage-backed securities
and loans available for sale................ 6,829 4,378 6,202 2,517 3,520
--------- --------- --------- --------- ---------
Total interest income.................. 54,636 50,499 68,039 64,573 52,909
--------- --------- --------- --------- ---------
Interest expense:
Deposits:
NOW and money market demand............ 4,142 3,809 5,122 5,090 4,348
Savings................................ 2,462 2,665 3,514 3,568 3,609
Certificates of deposit................ 18,863 19,040 25,256 24,997 15,738
--------- --------- --------- --------- ---------
25,467 25,514 33,892 33,655 23,695
Borrowed funds................................. 5,124 2,130 3,372 2,036 1,440
--------- --------- --------- --------- ---------
Total interest expense................. 30,591 27,644 37,264 35,691 25,135
--------- --------- --------- --------- ---------
Net interest income before provision for
loan losses................................. 24,045 22,855 30,775 28,882 27,774
Provision for loan losses...................... 900 375 550 310 300
--------- --------- --------- --------- ---------
Net interest income after provision for 23,145 22,480 30,225 28,572 27,474
loan losses................................. --------- --------- --------- --------- ---------
Other operating income:
Fees and service charges....................... 1,241 1,140 1,557 1,604 1,587
Net gain on sales of loans and securities...... 593 139 236 751 40
Other, net..................................... 352 103 202 (184) 107
--------- --------- --------- --------- ---------
Total other operating income........... 2,186 1,382 1,995 2,171 1,734
--------- --------- --------- --------- ---------
Operating expenses:
Compensation and employee benefits............. 7,342 7,956 10,283 8,531 8,189
Occupancy...................................... 1,491 1,517 2,048 2,056 1,875
Equipment...................................... 1,103 762 1,033 1,186 1,288
Advertising.................................... 439 313 445 563 426
Federal deposit insurance premium.............. 285 1,394 1,860 1,701 1,569
Special SAIF assessment........................ -- 5,220 5,220 -- --
- - Amortization of intangibles.................... 1,932 1,138 1,349 1,066 223
General and administrative..................... 1,989 1,822 2,463 2,727 2,451
--------- --------- --------- --------- ---------
Total operating expenses............... 14,581 20,122 24,701 17,830 16,021
--------- --------- --------- --------- ---------
Income before income tax expense................. 10,750 3,740 7,519 12,913 13,187
Income tax expense............................... 3,990 1,376 2,809 4,611 4,912
--------- --------- --------- --------- ---------
Net income....................................... $ 6,760 $ 2,364 $ 4,710 $ 8,302 $ 8,275
========= ========= ========= ========= =========
Net income per share............................. $ 0.84 $ 0.29 $ 0.59 $ 1.04 $ 1.03
========= ========= ========= ========= =========
Weighted average shares outstanding including
common stock equivalents....................... 8,025,954 8,023,369 7,986,590 7,974,548 7,997,935
--------- --------- --------- --------- ---------
</TABLE>
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The earnings of the Bank depend primarily on its level of net interest and
dividend income, which is the difference between interest earned on the Bank's
interest-earning assets, consisting primarily of mortgage and consumer loans,
mortgage-backed securities, U.S. Government and agency obligations, and the
interest paid on interest-bearing liabilities, which consist of savings deposits
and borrowings from the FHLB and primary brokers/dealers. Net interest income is
a function of the Bank's interest rate spread, which is the difference between
the average yield on interest-earning assets and the average rate paid on
interest-bearing liabilities, as well as a function of the average balance of
interest-earning assets as compared to interest-bearing liabilities. The Bank's
earnings are also affected by its level of noninterest income, including
primarily loan fees and service charges, gains (losses) on sales of securities
available for sale, sales of real estate acquired in settlement of loans, income
from real estate operations and by its level of noninterest expense, including
primarily compensation and employee benefits, occupancy, equipment, SAIF deposit
premiums, and other operating expenses. Earnings of the Bank are also affected
significantly by general economic and competitive conditions, particularly
changes in market interest rates, government policies and actions of regulatory
authorities, which events are beyond the control of the Bank.
BUSINESS STRATEGY
The Bank's business strategy is to preserve asset quality, to maintain a
strong capital position by continuing to emphasize one- to four-family lending
and to seek controlled growth. The Bank's strategy emphasizes customer service
and convenience, and the Bank attributes the loyalty of its customer base to its
commitment to maintaining customer satisfaction. The Bank attempts to set itself
apart from its competitors by providing the type of personalized service not
generally available from larger banks while offering a greater variety of
products and services than is typically available from smaller, local depository
institutions.
The Bank's principal business has historically been, and, to a large
degree, continues to be, attracting retail deposits from the general public and
investing those deposits, together with funds generated from operations and
borrowings, primarily in one- to four-family residential mortgage loans, real
estate construction loans, commercial real estate loans, home equity loans and
lines of credit and multi-family residential mortgage loans. The Bank maintains
a significant portfolio of mortgage-backed securities and also invests in U. S.
Government, federal agency and corporate debt securities and other marketable
securities. The Bank's revenues are derived principally from interest on its
mortgage loan and mortgage-backed securities portfolios and interest and
dividends on its investment securities. The Bank's primary sources of funds are
deposits, proceeds from principal and interest payments on loans and mortgage-
backed securities; sales of loans, mortgage-backed securities and investments
available for sale; maturities of investment securities and short-term
investments; and, to an increasing extent, advances from the Federal Home Loan
Bank of New York ("FHLB-NY"), reverse repurchase agreements and other borrowed
funds.
In an effort to enhance its long-term profitability and increase its market
share, however, the Bank began, in 1997, to expand its traditional thrift
lending and securities investment strategy. In this regard, the Bank has begun
to diversify and expand upon the products and services it offers by focusing on
small and medium-sized retail businesses as both lending and deposit customers
by increasing its emphasis on the origination of commercial real estate,
construction and commercial loans, as well as increasing the marketing of its
business checking accounts and other business-related services. To develop full-
service relationships with commercial customers, the Bank has introduced
merchant services, such as merchant credit card
38
<PAGE>
processing, overdraft sweep accounts and express teller services. The Bank
intends to hire additional lending personnel with expertise in commercial real
estate lending to facilitate growth in this area. It is also the Bank's
intention to increase lending volumes through the use of third-party
correspondent lending, without compromising credit quality, as the
correspondents selected will be using the Bank's underwriting guidelines and
approved appraisers.
As part of the Bank's asset/liability management strategy, and as a means
of enhancing profitability, the Bank also invests in securities. More recently,
the Bank has begun to increase its borrowings as a means of funding asset
growth. The average balance of borrowings outstanding for the year ended
December 31, 1996 was $55.2 million, compared to $111.0 for the nine months
ended September 30, 1997. To the extent the Bank continues to increase its
utilization of borrowings, it may incur an increase in the average cost of
funds, and a corresponding decrease in its net interest margin.
The Bank is in the process of redesigning its retail delivery system to
facilitate the transition from deposit gathering to active sales promotion and
tracking. The Bank has also invested in a Marketing Customer Information File
marketing system to provide better target marketing and develop product and
customer profitability levels. This strategy is intended to enable the Bank to
reach new and existing customers with products and services which match their
profile, and result in more effective use of the Bank's marketing initiatives.
The desired results of the revamping of the retail branch network is to attract
low-cost deposit accounts, primarily non-interest bearing checking, and also
maintain its current core customer by enhancing existing services to become more
efficient.
The Bank has, and will continue to, actively pursue growth in contiguous
markets, as evidenced in its retail expansion via branch purchase transactions
with the Resolution Trust Corporation ("RTC"). The Bank has opened a new branch
in its corporate headquarters, and will actively seek opportunities as they
present themselves. The Bank and the Company may use a portion of the net
Conversion and Reorganization proceeds to open additional branch offices or
acquire other financial institutions. However, neither the Company nor the Bank
have any pending agreements or understandings regarding acquisitions of any
specific financial institutions or branch offices.
The Bank emphasizes its attention to quality service, but also monitors its
operating expenses to maintain its profitability. As business lines and products
are added, the Bank develops break-even levels and budgetary constraints to make
sure the service or product offered is enhancing returns and meeting growth
targets. The Bank regularly reviews its retail operations to verify that they
maintain lending and retail deposit growth initiatives and retention targets. As
a result of this review, the Bank entered into an agreement with a commercial
bank to sell its Eatontown branch, which at September 30, 1997, had total
deposits of $28.2 million. The Bank determined that this branch, acquired from
the RTC in 1991 in a cluster of three branches of another financial institution,
had not performed to the Bank's targeted retail lending and cost of funds
levels. This transaction is scheduled to close in February 1998.
YEAR 2000 COMPUTER ISSUES
First Savings Bank has adopted a Year 2000 Compliant Plan. This lan was
approved by the Board of Directors and has been submitted to the OTS. First
Savings has also established a Year 2000 Compliant Committee, which includes
members of senior management from all operating areas. The objectives of the
plan and the committee are to ensure that the Bank will be prepared for the new
millennium. As recommended by the Federal Financial Institutions Examination
Council, the Year 2000 Compliant Plan encompasses the following phases:
Awareness, Assessment, Renovation, Validation and Implementation. These phases
will enable the Bank to identify risks, develop an action plan, perform adequate
testing and
39
<PAGE>
complete certification that its processing systems will be Year 2000 compliant.
Execution of the plan is currently on target and no material expenses have been
identified to date.
MANAGEMENT OF INTEREST RATE RISK
The principal objective of the Bank's interest rate risk management is to
evaluate the interest rate risk inherent in certain balance sheet accounts,
determine the level of risk appropriate given the Bank's business strategy,
operating environment, capital and liquidity requirements and performance
objectives, and manage the risk consistent with the Board of Directors' approved
guidelines. Through such management, the Bank seeks to minimize the
vulnerability of its operations to changes in interest rates. The Bank's Board
of Directors reviews the Bank's interest rate risk position quarterly. The
Bank's Asset/Liability Committee is comprised of the Bank's senior management
under the direction of the Board of Directors, with senior management
responsible for reviewing with the Board of Directors its activities and
strategies, the effect of those strategies on the Bank's net interest margin,
the market value of the portfolio and the effect that changes in interest rates
will have on the Bank's portfolio and the Bank's exposure limits. In addition,
the Bank has established an Asset/Liability Strategy Committee ("ALSCO"), a
subcommittee of the Asset/Liability Committee, which is charged with
establishing and maintaining a monitoring system for all marketing initiatives
providing management reports, and formulating and recommending strategies to the
Asset/Liability Committee. The ALSCO meets at least twice monthly. See "Risk
Factors--Potential Impact of Changes in Interest Rates."
The Bank utilizes the following strategies to manage interest rate risk:
(1) emphasizing the origination and retention of fixed-rate mortgage loans
having terms to maturity of not more than 20 years, adjustable-rate loans and
consumer loans consisting primarily of home equity loans and lines of credit;
(2) selling substantially all fixed-rate conforming mortgage loans with terms of
thirty years without recourse and on a servicing-retained basis; and (3)
investing primarily in adjustable-rate mortgage-backed securities, which may
generally bear lower yields as compared to longer term investments, but which
better position the Bank for increases in market interest rates and holding the
majority of same as available for sale. The Bank currently does not participate
in hedging programs, interest rate swaps or other activities involving the use
of off-balance sheet derivative financial instruments, but may do so in the
future to mitigate interest rate risk.
Net Portfolio Value. The Bank's interest rate sensitivity is monitored by
management through the use of the OTS model which estimates the change in the
Bank's net portfolio value ("NPV") over a range of interest rate scenarios, and
the Federal Home Loan Bank of Atlanta Asset/Liability Model. The NPV is defined
as the current market value of assets, minus the current market value of
liabilities, plus or minus the current value of off-balance sheet items. The
market values are estimated through two cash flow-based valuation methodologies
and an option-based valuation model: (1) static discounted cash flow analysis,
(2) an option-based pricing analysis (modified discounted cash flow analysis to
value embedded options), and (3) the Black-Scholes model to value off-balance
sheet items. The change in NPV measures an institution's vulnerability to
changes in interest rates by estimating the change in the market value of an
institution's assets, liabilities, and off-balance sheet contracts in response
to an instantaneous change in the general level of interest rates.
The OTS uses, as a critical point, a change of plus or minus 200 basis
points in order to set its "normal" institutional results and peer comparisons.
The greater the change, positive or negative, in NPV, the more interest rate
risk is assumed to exist within the institution. The following table lists the
Bank's percentage change in NPV assuming an immediate change of plus or minus of
up to 400 basis points from the level of interest rates at September 30, 1997,
as calculated by the OTS. As the table shows, increases in
40
<PAGE>
interest rates would result in decreases in the Bank's NPV, while decreases in
interest rates would result in increases in the Bank's NPV.
<TABLE>
<CAPTION>
CHANGE IN NPV AS % OF PORTFOLIO
INTEREST RATES NET PORTFOLIO VALUE VALUE OF ASSETS
--------------------------------- ----------------------------
IN BASIS POINTS NPV
(RATE SHOCK) AMOUNT $ CHANGE % CHANGE RATIO CHANGE(1)
- --------------- -------- ----------- -------- ---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
400 $ 72,140 $(55,218) (43.0)% 7.30% (461)
300 89,115 (38,243) (30.0) 8.81 (310)
200 104,705 (22,653) (18.0) 10.14 (178)
100 117,921 (9,437) (7.0) 11.20 (71)
Static 127,358 -- -- 11.92 --
(100) 131,681 4,323 3.0 12.19 27
(200) 132,680 5,322 4.0 12.19 27
(300) 135,050 7,692 6.0 12.28 37
(400) 140,536 13,178 10.0 12.63 71
</TABLE>
_____________
(1) Expressed in basis points.
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurements. Modeling changes in NPV require the making of
certain assumptions which may or may not reflect the manner in which actual
yields and costs respond to changes in market interest rates. In this regard,
the NPV model presented assumes that the composition of the Bank's interest
sensitive assets and liabilities existing at the beginning of a period remains
constant over the period being measured and also assumes that a particular
change in interest rates is reflected uniformly across the yield curve
regardless of the duration to maturity or repricing of specific assets and
liabilities. Accordingly, although the NPV measurements and net interest income
models provide an indication of the Bank's interest rate risk exposure at a
particular point in time, such measurements are not intended to and do not
provide a precise forecast of the effect of changes in market interest rates on
the Bank's net interest income and will differ from actual results.
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on interest-
earning assets and expense on interest-bearing liabilities. Net interest income
also depends on the relative amounts of interest-earning assets and interest-
bearing liabilities and the interest rate earned or paid on them.
41
<PAGE>
AVERAGE BALANCE SHEET. The following table sets forth certain information
relating to the Bank's average balance sheet and reflects the average yield on
assets and average cost of liabilities for the periods indicated and the average
yields earned and rates paid. Such yields and costs are derived by dividing
annualized income or expense by the average balance of assets or liabilities,
respectively, for the periods presented. Average balances are derived from
month-end balances.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------
1997 1997 1996
---------------------- ---------------------------------------------------------------------
AVERAGE AVERAGE
YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE COST BALANCE INTEREST COST BALANCE INTEREST COST
----------- --------- ---------- ---------- -------- --------- ----------- -----------
(DOLLARS IN THOUSANDS)
ASSETS:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net(1)........... $ 567,197 7.84% $ 540,782 $32,216 7.94% $480,638 $28,489 7.90%
Mortgage-backed securities......... 228,158 7.33 243,273 12,598 6.90 289,080 14,680 6.77
Investment securities.............. 40,959 7.23 41,236 2,258 7.30 35,665 2,002 7.48
Investment and mortgage-backed
securities and loans available
for sale........................ 140,395 6.77 144,510 6,829 6.30 95,717 4,378 6.10
Other interest-earning
investments(2)................... 25,970 6.09 17,163 735 5.71 24,642 950 5.14
---------- ---------- ------- -------- -------
Total interest-earning assets.... 1,002,679 7.50 986,964 54,636 7.38 925,742 50,499 7.27
------- -------
Non-interest earning assets....... 41,834 46,474 39,524
---------- ---------- --------
Total assets...................... $1,044,513 $1,033,438 $965,266
========== ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
NOW and money market accounts..... 195,003 2.93 191,758 4,142 2.88 177,228 3,809 2.87
Passbook and statement savings.... 123,384 2.54 129,334 2,462 2.54 141,031 2,665 2.52
Certificate accounts.............. 464,652 5.54 463,939 18,863 5.42 470,523 19,040 5.40
Borrowed funds.................... 124,465 5.98 110,954 5,124 6.16 46,978 2,130 6.05
---------- ---------- ------- -------- -------
Total interest-bearing liabilities. 907,504 4.63 895,985 30,591 4.55 835,760 27,644 4.41
------- -------
Non-interest-bearing deposits...... 26,410 21,109 19,667
Other liabilities.................. 11,386 20,147 18,677
---------- ---------- --------
Total liabilities................. 945,300 937,241 874,104
Stockholders' equity............... 99,213 96,197 91,162
---------- ---------- --------
Total liabilities and stockholders
equity........................... $1,044,513 $1,033,438 $965,266
========== ========== ========
Net interest income/interest
rate spread(3)................... 2.87% $24,045 2.83% $22,855 2.86%
==== ======= ==== ======= ====
Net interest-earning assets/
net interest
rate margin(4).................. $ 90,979 3.25% $ 89,982 3.29%
========== ==== ======== ====
Ratio of interest-earning assets to
interest-bearing liabilities..... 1.10x 1.11x
===== =====
</TABLE>
___________________
(1) Loans receivable, net includes non-accrual loans.
(2) Includes federal funds sold and FHLB-NY stock.
(3) Interest rate spread represents the difference between the average rate on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
42
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------
1996 1995
----------------------------------- ----------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
-------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans receivable, net(1)........... $487,619 $38,596 7.92% $457,802 $35,245 7.70%
Mortgage-backed securities......... 282,021 19,147 6.79 332,167 22,140 6.67
Investment securities.............. 36,810 2,741 7.45 44,334 3,171 7.15
Investment and mortgage-backed
securities and loans available
for sale......................... 101,244 6,202 6.13 42,425 2,517 5.93
Other interest-earning
investments(2)................... 23,525 1,353 5.75 21,069 1,500 7.12
-------- ------- -------- -------
Total interest-earning assets... 931,219 68,039 7.31 897,797 64,573 7.19
------- -------
Non-interest earning assets........ 34,360 16,030
-------- --------
Total assets....................... $965,579 $913,827
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
NOW and money market accounts...... 178,176 5,122 2.87 179,978 5,090 2.83
Passbook and statement savings..... 139,045 3,514 2.53 140,122 3,568 2.55
Certificate accounts............... 468,894 25,256 5.39 453,655 24,997 5.51
Borrowed funds..................... 55,241 3,372 6.10 33,575 2,036 6.06
-------- ------- -------- -------
Total interest-bearing.liabilities... 841,356 37,264 4.43 807,330 35,691 4.42
------- -------
Non-interest-bearing deposits........ 19,491 16,610
Other liabilities.................... 12,799 8,029
-------- --------
Total liabilities.................. 873,646 831,969
Stockholders' equity................. 91,933 81,858
-------- --------
Total liabilities and
stockholders' equity.............. $965,579 $913,827
======== ========
Net interest income/interest
rate spread(3)..................... $30,775 2.88% $28,882 2.77%
======= ==== ======= ====
Net interest-earning assets/net
interest margin(4).................. $ 89,863 3.30% $ 90,517 3.22%
======== ==== ======== ====
Ratio of interest-earning
assets to interest-bearing
liabilities........................ 1.11x 1.11x
======== ========
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1994
-----------------------------------------
AVERAGE
AVERAGE YIELD/
BALANCE INTEREST COST
----------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans receivable, net(1)........... $413,314 $32,095 7.77%
Mortgage-backed securities......... 267,274 15,115 5.66
Investment securities.............. 24,954 1,410 5.65
Investment and mortgage-backed
securities and loans
available for sale.............. 56,270 3,520 6.26
Other interest-earning............. 769 5.94
investments(2)................... 12,948 -------
Total interest-earning assets... -------- 52,909 6.83
774,760 -------
Non-interest earning assets........
22,407
Total assets....................... --------
$797,167
========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
NOW and money market accounts...... 4,348 2.59
Passbook and statement savings..... 168,168 3,609 2.51
Certificate accounts............... 143,738 15,738 4.35
Borrowed funds..................... 361,589 1,440 4.82
29,896 -------
Total interest-bearing --------
liabilities......................... 703,391 25,135 3.57
-------
Non-interest-bearing deposits 14,002
Other liabilities.................... 8,638
--------
Total liabilities 726,031
Stockholders' equity................. 71,136
--------
Total liabilities and
stockholders' equity.............. $797,167
========
Net interest income/interest
rate spread(3)..................... $27,774 3.26%
======= ====
Net interest-earning assets/net $ 71,369
interest margin(4).................. ======== 3.58%
====
Ratio of interest-earning
assets to interest-bearing 1.10x
liabilities........................ ========
</TABLE>
____________________________
(1) Loans receivable, net includes non-accrual loans.
(2) Includes federal funds sold and FHLB-NY stock.
(3) Interest rate spread represents the difference between the average
rate on interest-earning assets and the average cost of interest-
bearing liabilities.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
43
<PAGE>
RATE/VOLUME ANALYSIS
Net interest income can also be analyzed in terms of the impact of changing
interest rates on interest-earning assets and interest-bearing liabilities and
changing volume or amount of these assets and liabilities. The following table
represents the extent to which changes in interest rates and changes in the
volume of interest-earning assets and interest-bearing liabilities have affected
the Bank's interest income and interest expense during the periods indicated.
Information is provided in each category with respect to (i) changes
attributable to changes in volume (change in volume multiplied by prior rate),
(ii) changes attributable to changes in rate (change in rate multiplied by prior
volume), and (iii) the net change. Changes attributable to the combined impact
of volume and rate have been allocated proportionately to the changes due to
volume and the changes due to rate.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
COMPARED TO COMPARED TO
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1995
---------------------------- -----------------------------------
INCREASE INCREASE
(DECREASE) (DECREASE)
DUE TO DUE TO
-------------------- ----------------------
VOLUME RATE NET VOLUME RATE NET
-------- --------- ------- ---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable, net............... $ 3,582 $145 $ 3,727 $ 2,329 $1,022 $ 3,351
Mortgage-backed securities........... (2,527) 445 (2,082) (3,387) 394 (2,993)
Investment securities................ 333 (77) 256 (558) 128 (430)
Investment and mortgage-backed
securities and loans available
for sale........................... 2,303 148 2,451 3,597 88 3,685
Other interest earning
investments........................ (363) 148 (215) 162 (309) (147)
------- ---- ------- ------- ------ -------
Total......................... 3,328 809 4,137 2,143 1,323 3,466
------- ---- ------- ------- ------ -------
INTEREST-BEARING LIABILITIES:
Deposits:
NOW and money market accounts........ 319 14 333 (46) 78 32
Passbook and statement savings....... (237) 34 (203) (27) (27) (54)
Certificates of deposit.............. (289) 112 (177) 819 (560) 259
Borrowed funds....................... 2,955 39 2,994 1,322 14 1,336
------- ---- ------- ------- ------ -------
Total......................... 2,748 199 2,947 2,068 (495) 1,573
------- ---- ------- ------- ------ -------
Net change in net interest income.... $ 580 $610 $ 1,190 $ 75 $1,818 $ 1,893
======= ==== ======= ======= ====== =======
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
COMPARED TO
YEAR ENDED
DECEMBER 31, 1994
-----------------------------------
INCREASE
(DECREASE)
DUE TO
----------------------
VOLUME RATE NET
--------- -------- ----------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable, net................ $3,441 $ (291) $ 3,150
Mortgage-backed securities............ 4,049 2,976 7,025
Investment securities................. 1,312 449 1,761
Investment and mortgage-backed
securities and loans available
for sale............................ (826) (177) (1,003)
Other interest earning
investments......................... 555 176 731
------ ------- -------
Total.......................... 8,531 3,133 11,664
------ ------- -------
INTEREST-BEARING LIABILITIES:
Deposits:
NOW and money market accounts......... 320 442 742
Passbook and statement savings........ (95) 54 (41)
Certificates of deposit............... 4,521 4,738 9,259
Borrowed funds........................ 193 403 596
------ -------
Total.......................... 4,939 5,617 10,556
------ ------- -------
Net change in net interest income..... $3,592 $(2,484) $ 1,108
====== ======= =======
</TABLE>
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
ASSETS. Total assets increased by $57.4 million, or 5.8%, to $1.0 billion
at September 30, 1997, from $987.1 million at December 31, 1996. Cash and cash
equivalents increased $14.8 million, or 163.2%, to $23.8 million as of September
30, 1997, from $9.0 million at December 31, 1996. The increase was due primarily
to a temporary increase in the balance of federal funds sold. These funds were
subsequently invested in longer term, higher yielding assets. Investment
securities, including those available for sale, increased $5.2 million, or 9.7%,
to $59.0 million as of September 30, 1997, from $53.8 million at December 31,
1996. Mortgage-backed securities, including those available for sale, decreased
$22.7 million, or 6.1%, to $350.5 million at September 30, 1997, from $373.2
million at December 31, 1996. The primary source of the asset growth was
increased lending. Net loans receivable, inclusive of those available for sale,
grew by $57.3 million, or 11.2 %, to $567.2 million at September 30, 1997, from
$509.9 million at December 31, 1996. The increase in loans was due to
management's strategic decision to maintain a higher percentage of
44
<PAGE>
loans as a balance sheet component. Management emphasized the origination of
residential one- to four-family five-year adjustable rate mortgages and
construction loans. Loan originations totaled $105.2 million for the nine months
ended September 30, 1997 as compared to $97.3 million for the same period in
1996. Repayment of principal on loans totaled $51.0 million for the nine months
ended September 30, 1997 as compared to $59.7 million for the same period in
1996. Over the 1997 period, principal repayments and sales of mortgage backed
securities were primarily used to fund loan growth. Premises and equipment, net
increased $2.9 million to $13.3 million at September 30, 1997, from $10.4
million at December 31, 1996. The increase was primarily due to costs
capitalized in conjunction with the completion of the Bank's new corporate
headquarters in Woodbridge, New Jersey. Excess of costs over fair value of net
assets acquired decreased $1.9 million to $9.0 million at September 30, 1997,
from $11.0 million at December 31, 1996. Normal amortization accounted for
$635,000 of this decrease. In addition, an impairment writedown of the core
deposit intangible totaling $1.3 million was recognized as of September 30,
1997, on deposits acquired from the RTC in 1995.
LIABILITIES. Deposits increased $14.9 million, or 1.9%, to $809.4 million
at September 30, 1997, from $794.6 million at December 31, 1996. Borrowed funds
increased $35.9 million, or 40.8%, to $123.9 million at September 30, 1997, from
$88.0 million at December 31, 1996. The increased deposits and borrowed funds
were used primarily to fund the asset growth detailed above as well as for
normal operations. Advances by borrowers for taxes and insurance increased
$782,000, or 17.0%, to $5.4 million at September 30, 1997, from $4.6 million at
December 31, 1996, primarily due to the timing of these payments as well as an
increase in the residential loan portfolio.
STOCKHOLDERS' EQUITY. The Bank's stockholders' equity increased $6.4
million for the nine months ended September 30, 1997, due primarily to earnings
of $6.8 million, partially offset by dividends of $1.2 million declared and paid
during the first nine months of 1997. Stockholder's equity was also positively
affected by an increase in the market value of securities available for sale
which resulted in an increase in the value of such investments of $196,000, net
of applicable income tax effect. Stock options exercised during the first nine
months of 1997 totaled $430,000.
The OTS requires that the Bank meet minimum tangible, core, and risk-based
capital requirements. At September 30, 1997, the Bank exceeded all regulatory
capital requirements.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1996 AND DECEMBER 31, 1995
ASSETS. The Bank's assets at December 31, 1996, totaled $987.1 million, an
increase of $42.1 million, or 4.5% from December 31, 1995. Cash and cash
equivalents decreased $17.5 million, or 65.9%, to $9.0 million at December 31,
1996 from $26.5 million at December 31, 1995. The decrease was due primarily to
federal funds being utilized to fund loan production. Investment securities,
including those available for sale, increased $12.7 million, or 31.0%, to $53.8
million at December 31, 1996, from $41.1 million at December 31, 1995. The
increase was due primarily to purchases of investment securities of $52.7
million, partially offset by sales, calls, and maturities of investment
securities of $39.8 million. FHLB-NY stock increased $1.2 million, or 18.4%, to
$7.4 million December 31, 1996, due to an additional purchase of stock as
required by FHLB-NY. Loans receivable, net increased $51.9 million, or 11.3%, to
$509.6 million at December 31, 1996 from $457.8 million at December 31, 1995.
The Bank originated $124.1 million in loans during 1996, compared to $95.7
million for 1995. The Bank also purchased $10.1 million of first mortgage loans
secured by 1-4 family properties in New Jersey from third-party correspondents
during 1996, compared with $5.2 million during 1995. The Bank will continue to
originate residential and commercial mortgage loans through its retail outlets,
in-house originators, brokers and third-party correspondents. The Bank will also
continue to warehouse and sell its 30-year fixed-rate conforming
45
<PAGE>
mortgage loans. The Bank provided $550,000 for possible loan losses during 1996,
compared to $310,000 for 1995. Although non-performing loans decreased to $4.8
million at December 31, 1996, from $6.0 million at December 31, 1995, the Bank's
loan portfolio growth warranted an increase in the provision. Real estate owned
("REO") decreased $1.6 million to $1.5 million at December 31, 1996, from $3.1
million at December 31, 1996. The Bank acquired $2.5 million in properties,
provided $105,000 for possible losses on REO, while selling $4.2 million during
1996. The Bank continues to liquidate REO properties as expeditiously as
possible. MBS, including those available for sale, totaled $373.2 million at
December 31, 1996, compared to $377.5 million at December 31, 1995. The
available for sale portfolio increased $31.5 million, while the held to maturity
portfolio decreased $35.8 million, as the Bank continued to more actively manage
its MBS portfolio. Premises and equipment, net increased $1.0 million, or 10.8%,
to $10.4 million at December 31, 1996, as the Bank was renovating its new
corporate headquarters. Excess of cost over fair value of net assets acquired
decreased $1.3 million, or 11.0%, to $11.0 million at December 31, 1996, from
$12.3 million at December 31, 1995, as the Bank recognized an impairment
writedown totaling $334,000 on deposits acquired from the RTC in 1991, along
with normal amortization of core deposit premiums.
LIABILITIES. Deposits decreased $11.7 million, or 1.5%, to $794.6 million
at December 31, 1996, from $806.3 million at December 31, 1995. The decrease was
primarily due to a reduction in the dependence on higher rate certificates of
deposits, accompanied by the outflow of funds into other investment vehicles,
specifically mutual funds and the equity markets. Borrowed funds, which consist
of FHLB-NY advances and repurchase agreements, increased $49.2 million, or
127.1%, to $88.0 million at December 31, 1996, from $39.0 million at December
31, 1995. The Bank repaid $37.2 million in borrowings, while proceeds on new
borrowings totaled $86.4 million during 1996. Due to the decline in deposits,
funding for continued loan production was attained through borrowings. ESOP debt
decreased $100,000 to $646,000 at December 31, 1996, as a result of principal
payments during 1996. Advances by borrowers for taxes and insurance increased
$787,000, or 20.6%, to $4.6 million at December 31, 1996, as a direct
correlation with the growth of the loan portfolio. Other liabilities increased
$765,000, or 13.5%, to $6.4 million at December 31, 1996, from $5.7 million at
December 31, 1995, primarily as a result of an increase in accrued liabilities.
STOCKHOLDERS' EQUITY. Stockholders' equity increased $3.2 million, or 3.5%,
to $92.9 million at December 31, 1996, from $89.7 million at December 31, 1995.
The increase was primarily attributable to earnings for the year ended December
31, 1996, of $4.7 million, offset by cash dividends of $1.2 million, the
acquisition of shares for the Recognition and Retention Plan ("RRP") totaling
$310,000, and a net change in unrealized loss on securities available for sale
of $168,000. Proceeds from stock options exercised during 1996 totaled $32,000.
The OTS requires that the Bank meet minimum tangible, core, and risk-based
capital requirements. At December 31, 1996, the Bank exceeded all regulatory
capital requirements.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
SEPTEMBER 30, 1996
RESULTS OF OPERATIONS. Net income for the nine months ended September 30,
1997 was $6.8 million, or $.84 per share, compared with $2.4 million, or $.29
per share, for the corresponding 1996 period. The earnings for 1997 were
affected by an impairment writedown of the core deposit intangible recognized as
of September 30, 1997. An after tax charge of $867,000 was incurred due to this
writedown. Net income for the nine months ended September 30, 1997, excluding
this charge, was $7.6 million, or $.95 per share. The 1996 period was affected
by non-recurring charges incurred due to the special assessment to recapitalize
the SAIF and also due to benefits payable as a result of the passing of the
Bank's long-time President.
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Earnings for the 1996 period would have been $6.6 million, or $.82 per share,
without these non-recurring charges.
INTEREST INCOME. Interest income increased by $4.1 million, or 8.2%, to
$54.6 million for the nine months ended September 30, 1997, compared to $50.5
million for the same period in 1996. Interest on loans increased $3.7 million,
or 13.1%, to $32.2 million for the nine months ended September 30, 1997, from
$28.5 million for the same period in 1996. The increase was due primarily to an
increase in the average size of the loan portfolio to $540.8 million for the
nine month period ended September 30, 1997, from $480.6 million for the same
period in 1996. Interest on mortgage-backed securities held to maturity
decreased $2.1 million, or 14.2%, to $12.6 million for the nine months ended
September 30, 1997, compared to $14.7 million for the same period in 1996. The
decrease was due to the decreased average balance of the mortgage-backed
securities held to maturity portfolio for the nine months of 1997 to $243.3
million, from $289.1 million for the same period in 1996, partially offset by an
increase in the yield on the portfolio to 6.90% for 1997 from 6.77% for 1996.
The decrease in mortgage-backed securities held to maturity balances was due
primarily to principal repayments on existing mortgage-backed securities held to
maturity being utilized to fund loan production. The majority of mortgage-backed
securities purchased over the period were classified as available for sale.
Interest and dividends on investment securities increased $41,000, or 1.4% for
the nine months ended September 30, 1997. Interest on investments and mortgage-
backed securities available for sale increased $2.5 million, or 56.0%, to $6.8
million for the nine months ended September 30, 1997, as compared to $4.4
million for the same period in 1996. The increase was due to an increase in the
average balance of the available for sale portfolio to $144.5 million for the
nine months ended September 30, 1997, from $95.7 million for the same period of
1996 along with an increase in the yield on the portfolio to 6.30% for 1997 from
6.10% in 1996.
INTEREST EXPENSE. Interest expense increased $2.9 million, or 10.7%, to
$30.6 million for the nine months ended September 30, 1997, compared to $27.6
million for the same period in 1996. Interest expense on deposits decreased
$47,000, or 0.2%, to $25.5 million for the nine month period ended September 30,
1997. Interest expense on borrowed funds increased $3.0 million, or 140.6%, to
$5.1 million for the nine months ended September 30, 1997, compared to $2.1
million for the same period in 1996. The increase was due primarily to the
growth in the average balance of borrowings, which was $111.0 million for the
nine months ended September 30, 1997, as compared to $47.0 million for the
comparable 1996 period. This increase was attributable to management's strategy
to fund the purchase of investment and mortgage-backed securities through the
use of borrowed funds, where accretive to earnings. The interest expense on
borrowings was also affected by an increase in the average cost of borrowings to
6.16% for the nine months ended September 30, 1997, from 6.05% for the
comparable 1996 period.
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest income
before provision for loan losses increased $1.2 million, or 5.2%, to $24.0
million for the nine months ended September 30, 1997, compared to $22.9 million
for the same period in 1996. The increase was due to the changes in interest
income and interest expense described above.
PROVISION FOR LOAN LOSSES. The provision for loan losses increased
$525,000, or 140.0%, to $900,000 for the nine months ended September 30, 1997,
compared to $375,000 for the same period in 1996. The increase in the provision
is primarily due to the increase in the loan portfolio. Net loans increased
$68.6 million between September 30, 1997 and September 30, 1996. The provision
was based upon management's review and evaluation of the loan portfolio, level
of delinquencies, general market and economic conditions, and asset
classification review. In management's opinion, the allowance for loan losses,
totaling $6.0 million, is adequate to cover losses inherent in the portfolio.
Although management considers the allowance for loan
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losses to be adequate, additional problems could develop and lead to
additional loan loss provisions and asset write-downs.
OTHER OPERATING INCOME. Other operating income increased $804,000, or
58.2%, to $2.2 million for the nine months ended September 30, 1997, compared to
$1.4 million for the same period in 1996. Fees and service charges increased
$101,000, or 8.9%, to $1.2 million for the nine months ended September 30, 1997,
from $1.1 million for the same period in 1996. This increase was due to a higher
number of demand deposit accounts along with higher service fees. The overall
increase in other operating income was due primarily to an increase of $454,000
in gains on sales of loans and securities available for sale, to $593,000 for
the nine months ended September 30, 1997, from $139,000 for the comparable 1996
period. The increase was due primarily to net gains of $545,000 recognized in
the third quarter of 1997 and such gains were principally attributable to sales
of mortgage-backed securities available for sale. The "Other, net" category of
Other operating income increased $249,000, or 241.7%, to $352,000 for the nine
months ended September 30, 1997, from $103,000 for the same period in 1996. The
changes in that category are primarily due to reduced expense of $131,000
associated with REO operations and increased income of $121,000 realized by the
Bank's wholly owned subsidiary, FSB Financial Corp. FSB Financial Corp. markets
annuities and other financial products to customers of the Bank and receives
commissions on sales.
OPERATING EXPENSES. Operating expenses decreased $5.5 million, or 27.5%, to
$14.6 million for the nine months ended September 30, 1997, from $20.1 million
for the same period in 1996. The decrease was primarily due to the SAIF
assessment and employee benefit costs. Compensation and employee benefits
decreased $614,000, or 7.7%, to $7.3 million for the nine months ended September
30, 1997, compared to $8.0 million for the same period in 1996. The 1996 period
included a non-recurring charge for benefits payable as a result of the passing
of the Bank's long-time Chairman and President. Equipment expense increased
$341,000, or 44.8%, to $1.1 million for the nine months ended September 30,
1997, from $762,000 million for the same period in 1996. The increase was due to
the write off of certain equipment determined to be obsolete and increased
depreciation expense incurred due to an upgrade of the Bank's computer
equipment. The Bank incurred reduced FDIC insurance premiums in 1997. On
September 30, 1996, the President signed into law the Deposit Insurance Funds
Act of 1996 (the "Funds Act") which, among other things, imposed a one-time
special assessment on SAIF member institutions, including the Bank, to
recapitalize the SAIF. The Bank's special assessment of $5.2 million was
reflected as an expense in the 1996 period. As a result of the Funds Act, the
FDIC substantially lowered the SAIF insurance assessments on SAIF member
institutions. The Bank's assessment rate has now been reduced to 6.4 basis
points from 23 basis points and the corresponding FDIC expense decreased $1.1
million, or 80%, to $285,000 for the nine months ended September 30, 1997, from
$1.4 million for the comparable 1996 period. Amortization of intangibles
increased $794,000, or 69.8%, to $1.9 million for the nine months ended
September 30, 1997, from $1.1 million for the same period in 1996. An impairment
writedown of the core deposit intangible totaling $1.3 million was recognized as
of September 30, 1997, regarding deposits acquired from the RTC in 1995.
INCOME TAX EXPENSE. Income tax expense totaled $4.0 million for the nine
months ended September 30, 1997, compared to $1.4 million for the comparable
1996 period, which represented an increase of $2.6 million, or 190.0%. The
increase was due primarily to an increase in taxable income. Taxable income was
affected in the 1996 period by several non-recurring charges.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
RESULTS OF OPERATIONS. Net income for the year ended December 31, 1996,
totaled $4.7 million, a 43.4% decrease from the $8.3 million earned in 1995. The
decrease was primarily attributable to non-
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recurring charges for the special assessment to recapitalize the SAIF and the
expenses resulting from the sudden passing of the Bank's long-time President.
INTEREST INCOME. Interest income for the year ended December 31, 1996,
totaled $68.0 million, an increase of $3.5 million, or 5.4%, from $64.6 million
for the year ended December 31, 1995. The increase was due primarily to an
increase in the average balance of interest-earning assets to $931.2 million for
1996, from $897.8 million for 1995. Interest income on loans increased $3.4
million, or 9.5%, to $38.6 million for the year ended December 31, 1996,
compared to $35.2 million for 1995. The increase was due primarily to the
increase in the average balance of the loan portfolio to $487.6 million for the
year ended December 31, 1996, from $457.8 million for 1995. Interest on
mortgage-backed securities held to maturity decreased $3.0 million, or 13.5%, to
$19.1 million for the year ended December 31, 1996, from $22.1 million for 1995.
The decrease is primarily due to a reduction in the average size of the
mortgage-backed securities held to maturity portfolio to $282.0 million for the
year ended December 31, 1996, from $332.2 million for 1995, as the cash flows
from mortgage-backed securities held to maturity were used to provide funding
for loan production and the purchase of investment securities and mortgage-
backed securities available for sale. Interest on investment securities
decreased $577,000, or 12.4%, to $4.1 million for the year ended December 31,
1996, from $4.7 million for 1995. The decrease was primarily due to a reduction
in the average size of the investment securities portfolio to $36.8 million for
the year ended December 31, 1996, from $44.3 million in 1995, offset slightly by
an increase in the average yield on the investment portfolio to 7.45% for 1996,
from 7.15% for 1995. Interest on investment securities and mortgage-backed
securities available for sale increased $3.7 million, or 146.4%, to $6.2 million
for the year ended December 31, 1996, from $2.5 million for 1995. The increase
was primarily due to the increased average size of the available for sale
portfolio to $101.2 million for 1996, from $42.4 million for 1995, accompanied
by an increase in the average yield to 6.13% for 1996, from 5.93% for 1995. The
increased average size was due to the reclassification from held to maturity to
available for sale of $77.5 million in investment and mortgage-backed securities
in December 1995, (see Note 1, "Summary of Significant Accounting Policies" in
the consolidated financial statements) accompanied by the Bank's positioning
more securities in the available for sale category to manage the portfolio more
effectively.
INTEREST EXPENSE. Total interest expense increased $1.6 million, or 4.4%,
to $37.3 million for the year ended December 31, 1996, compared to $35.7 million
for 1995. Interest expense on deposits increased $237,000, or 0.7%, to $33.9
million for the year ended December 31, 1996. Interest expense on borrowed funds
increased $1.3 million, or 65.6%, to $3.4 million for the year ended December
31, 1996, from $2.0 million for 1995. The increase was due primarily to an
increase in the average balance of FHLB-NY advances and other borrowings to
$55.2 million for 1996, from $33.6 million for 1995, accompanied by a slight
increase in the average rate paid on borrowings to 6.10% for 1996, from 6.06%
for 1995. The Bank continued to utilize borrowings for funding of loan
production and investment securities purchases.
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest income
increased $1.9 million, or 6.6%, totaling $30.8 million for the year ended
December 31, 1996, compared to $28.9 million for 1995. The average interest rate
spread for the year ended December 31, 1996, was 2.88%, compared to 2.77% for
1995. The average yield on interest-earning assets increased 12 basis points,
while average interest expense increased only 1 basis point from 1995 to 1996.
PROVISION FOR LOAN LOSSES. The Bank provided $550,000 for possible loan
losses in 1996, as compared to $310,000 in 1995. The provision was based upon
management's review and evaluation of the loan portfolio, level of
delinquencies, general market and economic conditions, and asset classification
review. The related allowance for loan losses totaled $5.3 million, and was
112.8% of nonaccrual loans at December 31, 1996. This compares to a $5.2 million
allowance for loan losses at December 31, 1995, which
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was 89.9% of nonaccrual loans. Substantially all of the nonaccrual loans are
secured by first mortgage liens on single-family residential properties. Non-
performing loans decreased $1.2 million, or 20.3%, to $4.8 million at December
31, 1996, compared to $6.0 million at December 31, 1995.
OTHER OPERATING INCOME. Other operating income, consisting primarily of
deposit product fees, loan servicing fees, gains and losses on loans and
securities sold, and real estate owned operating income and expenses, totaled
$2.0 million for the year ended December 31, 1996, compared to $2.2 million for
1995, which represented a decrease of $176,000, or 8.1%. Net gains on sales of
loans and securities available for sale totaled $236,000 for the year ended
December 31, 1996, from $751,000 for 1995. Although volume of sales increased
during 1996, the Bank continued to minimize its exposure to rising rates by
limiting the duration of the available for sale portfolio, in order to provide a
consistent funding source for continued loan production. Other income,
consisting primarily of income from the Bank's operating subsidiaries, FSB
Financial Corp. and 1000 Woodbridge Center Drive, Inc., gains and losses on
sales of REO, rental income, and REO expenses, totaled $202,000 for the year
ended December 31, 1996, compared to a net expense of $184,000 for the year
ended December 31, 1995, representing an increase of $386,000, or 209.8%. The
increase was due to decreased REO expenses and provisions for possible losses on
REO, increased income from operating subsidiaries, and increased profits on the
sale of REO.
OPERATING EXPENSE. Operating expenses increased $6.9 million, or 38.5%, to
$24.7 million for the year ended December 31, 1996, from $17.8 million in 1995.
There were several non-recurring expenses during 1996. Compensation and employee
benefit expense increased $1.8 million, or 20.5%, to $10.3 million for the year
ended December 31, 1996, from $8.5 million for 1995. The increase was primarily
due to a non-recurring charge for benefits payable as a result of the passing of
the Bank's President, accompanied by increased salary and benefit costs.
Occupancy expense decreased $8,000 to $2.0 million for the year ended December
31, 1996. The decrease was due primarily to the closing of a branch of the Bank
in November 1996. Equipment expense decreased $153,000, or 12.9%, to $1.0
million for the year ended December 31, 1996. Advertising expense decreased
$118,000, or 21.0%, to $445,000 for the year ended December 31, 1996, from
$563,000 for 1995. The decrease was due primarily to reduced generic marketing
as loan production was attained without additional marketing efforts. Federal
deposit insurance premiums increased $159,000, or 9.3%, to $1.9 million for the
year ended December 31, 1996, from $1.7 million for 1995. The increase was due
primarily to an increase in the average level of insurance-assessable deposits
to $813.3 million for 1996, from $796.1 million for 1995. The Funds Act, which
was signed into law on September 30, 1996, imposed a one-time special assessment
of $5.2 million on the Bank to recapitalize the SAIF (see Note 15, "Special SAIF
Assessment" in the consolidated financial statements). Amortization of
intangibles increased $283,000, or 26.5%, to $1.3 million for the year ended
December 31, 1996, from $1.1 million for 1995. The increase was due primarily an
impairment writedown of the core deposit intangible totaling $334,000 regarding
deposits acquired from the RTC in 1991. General and administrative expenses
decreased $264,000, or 9.7%, to $2.5 million for the year ended December 31,
1996, from $2.7 million for 1995. The decrease was due primarily to lower
outside service bureau expenses.
INCOME TAX EXPENSE. Income tax expense totaled $2.8 million for the year
ended December 31, 1996, compared to $4.6 million for 1995, which represented a
decrease of $1.8 million, or 39.1%. The decrease was due primarily to a
reduction in taxable income due to the special SAIF assessment and one-time
charges resulting from the passing of the Bank's President in 1996.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
RESULTS OF OPERATIONS. Net income for the year ended December 31, 1995,
totaled $8.3 million, unchanged from the $8.3 million earned in 1994. The Bank's
earnings were primarily achieved by an
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increase in net interest income and other operating income, offset by higher
operating expenses due primarily to the expenses relating to the acquisition of
branches from the RTC, partially reduced by lower income tax expense.
INTEREST INCOME. Interest income for the year ended December 31, 1995,
totaled $64.6 million, an increase of $11.7 million, or 22.1%, from $52.9
million for 1994. The increase was primarily due to an increase in the average
balance of interest-earning assets to $897.8 million for 1995, from $774.8
million for 1994, combined with an increase in the average yield on interest-
earning assets to 7.19% for the year ended December 31, 1995, from 6.83% for
1994. Interest income on loans increased $3.1 million, or 9.7%, to $35.2 million
for the year ended December 31, 1995, compared to $32.1 million for 1994. The
increase was due primarily to an increase in the average balance of the loan
portfolio to $457.8 million in 1995, from $413.3 million in 1994. Interest on
mortgage-backed securities held to maturity increased $7.0 million, or 46.4%, to
$22.1 million for the year ended December 31, 1995, compared to $15.1 million
for 1994. The increase is due primarily to an increase in the average size of
the mortgage-backed securities held to maturity portfolio to $332.2 million in
1995, from $267.3 million for 1994, as the proceeds of the branch acquisitions
were used to purchase mortgage-backed securities held to maturity, accompanied
by the increase in the average yield earned on mortgage-backed securities held
to maturity to 6.67% during 1995 from 5.66% during 1994 as a result of upward
adjustments on adjustable-rate mortgage-backed securities. Interest on
investment securities increased $2.5 million, or 113.6%, to $4.7 million for the
year ended December 31, 1995, as compared to $2.2 million for 1994. The increase
was due primarily to the increase in the average balance of the investment
securities portfolio with cash flow provided from the branch acquisition during
1995, accompanied by an increase in the average yield to 7.15% for 1995 from
5.65% for 1994, as a result of purchases of investment securities in the first
half of 1995 when rates were higher. Interest on investments, mortgage-backed
securities and loans available for sale totaled $2.5 million for the year ended
December 31, 1995, as compared to $3.5 million for 1994, which represents a
decrease of $1.0 million, or 28.6%. The decrease was due primarily to the
average yield on the available for sale portfolio decreasing to 5.93% for the
year ended December 31, 1995, from 6.26% for 1994, and a corresponding decrease
in the average balance of the available for sale portfolio during 1995. On
December 15, 1995, the Bank reassessed its classifications of all of its
securities in accordance with the SFAS 115 (see Note 1, "Summary of Significant
Accounting Policies" in the consolidated financial statements). The Bank
classified an additional $77.5 million in investment and mortgage-backed
securities from held to maturity to available for sale.
INTEREST EXPENSE. Total interest expense increased $10.6 million, or 42.2%,
to $35.7 million for the year ended December 31, 1995, as compared to $25.1
million for 1994. The increase in interest expense on deposits to $33.7 million
for the year ended December 31, 1995, from $23.7 million for 1994, was mainly
attributable to an increase in the average deposit balance outstanding to $773.8
million for 1995, from $673.5 million for 1994, accompanied by higher interest
rates paid on deposits, causing average interest cost to increase to 4.35% for
1995, from 3.52% for 1994. General market interest rates began a trend upward in
1994 and continued increasing through June, 1995. Interest rates trended
downward, which enabled the Bank to reprice certificates of deposits
accordingly. Interest expense on borrowed funds increased $596,000, or 41.4%,
during 1995, and was due to increased borrowings accompanied by higher interest
rates paid on borrowings. The average cost of borrowed funds increased to 6.06%
for 1995, from 4.82% for 1994.
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest income
increased slightly during 1995, totaling $28.9 million for the year ended
December 31, 1995, as compared to $27.8 for 1994, a $1.1 million, or 4.0%
increase. The average interest rate spread for the year ended December 31, 1995,
was 2.77%, compared to 3.26% for 1994. The spread compression was due to the
upward repricing of certificates of deposit during 1995 outpacing the repricing
of adjustable rate assets, which are subject to
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interest rate caps and margins. The average yield on interest-earning assets
increased 36 basis points, but the average interest expense increased 85 basis
points from 1994 to 1995.
PROVISION FOR LOAN LOSSES. The Bank provided $310,000 for possible loan
losses in 1995, as compared to $300,000 in 1994. The provision was based upon
management's review and evaluation of the loan portfolio, level of
delinquencies, general market and economic conditions, and asset classification
review. The related allowance for loan losses totaled $5.2 million, and was
89.9% of nonaccrual loans at December 31, 1995. This compares to a $5.7 million
allowance for loan losses at December 31, 1994, which was 65.3% of nonaccrual
loans. Substantially all of the nonaccrual loans are secured by first mortgage
liens on single-family residential properties. Non-performing loans decreased
$3.0 million, or 50.0%, to $6.0 million at December 31, 1995, compared to $9.0
million at December 31, 1994.
OTHER OPERATING INCOME. Other operating income, totaled $2.2 million for
the year ended December 31, 1995, as compared to $1.7 million for 1994, which
represented an increase of $500,000, or 29.4%. The increase was due primarily to
net gains on sales of loans and securities sold to $751,000 for the year ended
December 31, 1995, increased from $40,000 for 1994, as some of the securities
purchased with the proceeds from both the branch acquisitions and the Secondary
Offering were placed in the available for sale portfolio and subsequently sold.
Also included in the net gains on sales of securities available for sale was the
sale of securities which were transferred in accordance with the reassessment of
the securities portfolio as allowed by the SFAS 115 (see Note 1, "Summary of
Significant Accounting Policies" in the consolidated financial statements).
Other income totaled a net expense of $184,000 for the year ended December 31,
1995, as compared to income of $107,000 for 1994. This decrease was due
primarily to increased REO expenses and provisions for possible losses on REO.
OPERATING EXPENSES. Operating expenses increased $1.8 million, or 11.3%, to
$17.8 million for the year ended December 31, 1995, as compared to $16.0 million
for 1994. The increase was due primarily to increased costs due to the branch
acquisitions during 1995. Compensation and employee benefits increased $342,000,
or 4.2%, to $8.5 million for the year ended December 31, 1995, as compared to
$8.2 million for 1994. Occupancy expenses increased $181,000, or 9.5%, to $2.1
million for the year ended December 31, 1995, compared to $1.9 million for 1994,
due to new branch location costs. Advertising expense increased $137,000, or
32.2% to $563,000 for 1995, compared to $426,000 for 1994, due to increased
advertising to maintain loan volume. Federal deposit insurance premiums
increased $132,000, or 8.3%, to $1.7 million for 1995, compared to $1.6 million
for 1994, due primarily to the increase in the deposit base as a result of the
acquisition from the RTC. Amortization of intangibles totaled $1.1 million for
the year ended December 31, 1995, as compared to $223,000 for 1994, as a result
of the $12.6 million premium paid on the deposits acquired from the RTC during
1995. General and administrative expenses increased $276,000, or 11.0%, to $2.7
million for the year ended December 31, 1995. The increase was due primarily to
certain one-time costs related to the conversion of the deposit data from the
acquired branches to the Bank's data processing system, and increased expenses
in operating subsidiaries.
INCOME TAX EXPENSE. Income tax expense totaled $4.6 million for the year
ended December 31, 1995, compared to $4.9 million for 1994, which represented a
decrease of $300,000, or 6.1%. The decrease was due primarily to a reduction in
taxable income because of allowable deductions for increases in specific loan
and REO reserves and charge-offs.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's liquidity is a measure of its ability to generate sufficient
cash flows to meet all of its current and future financial obligations and
commitments. The Bank's primary sources of funds are deposits,
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proceeds from principal and interest payments on loans and mortgage-backed
securities; sales of loans, mortgage-backed securities and investments available
for sale; maturities of investment securities and short-term investments; and,
to an increasing extent, advances from the FHLB-NY, reverse repurchase
agreements and other borrowed funds. While maturities and scheduled amortization
of loans and mortgage-backed securities are a predictable source of funds,
deposit cash flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition.
The primary investing activity of the Bank is the origination of one- to
four-family mortgage loans. During the nine months ended September 30, 1997 and
1996, and years ended December 31, 1996, 1995, and 1994, the originated mortgage
loans in the amounts of $104.6 million, $100.9 million, $127.1 million, $98.5
million and $81.8 million, respectively. The Bank originated other loans
totaling $3.4 million, $2.3 million, $3.8 million, $3.8 million and $2.3 million
for the nine months ended September 30, 1997 and 1996, and years ended December
31, 1996, 1995, and 1994, respectively. The Bank also purchased loans and
mortgage-backed and investment securities to reduce excess liquidity not
otherwise used for lending activities. Purchases of mortgage loans totaled $4.7
million and $4.6 million for the nine months ended September 30, 1997 and 1996,
respectively, and $10.1 million and $5.2 million for the years ended December
31, 1996 and 1995, respectively. There were no mortgage loans purchased in 1994.
Purchases of mortgage-backed securities, including those available for sale,
totaled $160.7 million, $141.4 million, $191.3 million, $215.3 million and
$146.6 million for the nine months ended September 30, 1997 and 1996, and years
ended December 31, 1996, 1995, and 1994, respectively. Purchases of investment
securities, including those available for sale, totaled $27.0 million, $44.8
million, $52.7 million, $48.0 million and $37.7 million for the nine months
ended September 30, 1997 and 1996, and years ended December 31, 1996, 1995, and
1994, respectively. Other investing activities include investment in FHLB-NY
stock and federal funds. The investing activities were funded primarily from
principal repayments on loans and mortgage-backed securities of $117.3 million,
$139.2 million, $178.6 million, $119.8 million and $149.4 million for the nine
months ended September 30, 1997 and 1996, and years ended December 31, 1996,
1995, and 1994, respectively. Additionally, proceeds from sales of loans,
mortgage-backed securities and investment securities totaling $128.0 million,
$90.2 million, $124.2 million, $114.8 million and $89.1 million for the nine
months ended September 30, 1997 and 1996, and years ended December 31, 1996,
1995, and 1994, and, to a lesser extent, called or maturing investment
securities totaling $14.0 million, $13.0 million, $19.0 million, $19.0 million
and $11.0 million for the nine months ended September 30, 1997 and 1996, and
years ended December 31, 1996, 1995, and 1994, respectively, provided additional
liquidity.
The Bank has several other sources of liquidity, including FHLB-NY
advances, which, at September 30, 1997, totaled $33.0 million, of which $15.0
million were due within the following twelve months. If necessary, the Bank has
additional borrowing capacity with the FHLB-NY, including an available overnight
line of credit of up to $48.9 million. The Bank also has other borrowings that
provided additional liquidity, totaling $90.9 million at September 30, 1997,
$25.9 million of which is due in 1998. Other sources of liquidity are investment
and mortgage-backed securities available for sale, totaling $140.4 million at
September 30, 1997.
The Bank, in the normal course of conducting business, extends credit to
meet the financing needs of its customers through commitments and letters of
credit. At September 30, 1997, the Bank had commitments to originate and
purchase mortgage loans of $25.8 million and to purchase mortgage-backed and
investment securities of $16.9 million. At that date, there were also
commitments under unfunded credit lines totaling $43.0 million and standby
letters of credit totaling $2.1 million. Certificates of deposit that are
scheduled to mature in one year or less totaled $348.3 million at September 30,
1997. Based on historical experience, management estimates that a significant
portion of such deposits will remain with the Bank. The Bank anticipates that it
will have sufficient funds available to meet its current commitments.
53
<PAGE>
The Bank is required to maintain an average daily balance of liquid assets
as defined by OTS regulations. This ratio is based upon a percentage of deposits
and short-term borrowings. The required minimum ratio has been reduced to 4.00%,
from 5.00% at September 30, 1997. The Bank's liquidity ratio at September 30,
1997, was 8.17%. The Bank's most liquid assets are cash and cash equivalents,
which include investments in highly liquid, short-term investments. The level of
these assets is dependent upon the Bank's operating, financing, and investing
activities during any given period. As of September 30, 1997, cash and
investments qualifying for liquidity purposes totaled $80.0 million.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements of the Bank and notes thereto, presented elsewhere
herein, have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars without considering the change in the
relative purchasing power of money over time and due to inflation. The impact of
inflation is reflected in the increased cost of the Bank's operations. Unlike
most industrial companies, nearly all of the assets and liabilities of the Bank
are monetary. As a result, interest rates have a greater impact on the Bank's
performance than does the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the
prices of goods and services.
IMPACT OF NEW ACCOUNTING STANDARDS
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. In June 1996, the FASB issued SFAS 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("SFAS 125"). SFAS 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishment of
liabilities. These standards are based on a consistent application of a
financial components approach that focuses on control. Under this approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished. SFAS 125 is effective for transfers that occur after December
31, 1996 and will be applied prospectively except for certain provisions that
were deferred until January 1, 1998, by Statement 127 "Deferral of the Effective
Date of Certain Provisions of FASB No. 125" issued in December 1996. The
adoption of SFAS 125 did not have a material effect on the Bank's financial
position or results of operations.
Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125. In December 1996, the FASB issued SFAS No. 127, "Deferral of the Effective
Date of Certain Provisions of FASB Statement No. 125" ("SFAS 127"), an amendment
of SFAS 125. SFAS 127 defers for one year the effective date of portions of SFAS
125 that address secured borrowings and collateral for all transactions.
Additionally, SFAS 127 defers for one year the effective date of transfers of
financial assets that are part of repurchase agreements, securities lending and
similar transactions. The adoption of SFAS 127 is not expected to have a
material effect on the Bank's financial position or results of operations.
Earnings Per Share. In February 1997, the FASB issued Statement 128,
"Earnings Per Share" ("SFAS 128"). SFAS 128 supersedes APB Opinion No. 15,
"Earnings Per Share" and specifies the computation, presentation and disclosure
requirements for earnings per share ("EPS") for entities with publicly held
common stock or potential common stock. SFAS 128 replaces Primary EPS and Fully
Diluted EPS with Basic EPS and Diluted EPS, respectively. SFAS 128 requires dual
presentation of Basic and Diluted EPS on the face of the income statement for
entities with complex capital structures and a reconciliation of information
utilized to calculate Basic EPS to that used to calculate Fully Diluted EPS.
54
<PAGE>
SFAS 128 is effective for financial statement periods ending after December 15,
1997. Earlier application is not permitted. After adoption, all prior EPS are
required to be restated to conform with SFAS 128. If the Bank had adopted SFAS
128, Basic EPS would have been $0.85 and $0.30 for the nine months ended
September 30, 1997 and 1996 and $0.60, $1.06 and $1.05 for the years ended
December 31, 1996, 1995 and 1994, respectively. Diluted EPS would have been the
same as earnings per share reported.
Reporting Comprehensive Income. In June 1997, the FASB issued SFAS 130,
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 established standards
for reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. Under SFAS 130, comprehensive
income is divided into net income and other comprehensive income. Other
comprehensive income includes items previously recorded directly in equity, such
as unrealized gains or losses on securities available for sale. SFAS 130 is
effective for interim periods and annual periods beginning after December 15,
1997. Comparative financial statements for earlier periods are required to be
reclassified to reflect application of the provisions of SFAS 130. The Bank has
not determined the impact, if any, SFAS 130 will have on the Bank's financial
statement presentation.
Disclosures About Segments of an Enterprise and Related Information. In
June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards
for the way public business enterprises are to report information about
operating segments in annual financial statements and requires those enterprises
to report selected financial information about operating segments in interim
financial reports to shareholders. SFAS 131 is effective for financial
statements for periods beginning after December 15, 1997. The Bank has not yet
determined the impact, if any, SFAS 131 will have on the Bank's financial
statement presentation.
BUSINESS OF THE BANK
GENERAL
The Bank's principal business has been, and continues to be, attracting
retail deposits from the general public and investing those deposits, together
with funds generated from operations and borrowings, primarily in one- to four-
family residential mortgage loans, real estate construction loans, commercial
real estate loans, home equity loans and lines of credit and multi-family
residential mortgage loans. The Bank maintains a significant portfolio of
mortgage-backed securities and also invests in U.S. Government, federal agency
and corporate debt securities and other marketable securities. The Bank's
revenues are derived principally from interest on its mortgage loan and
mortgage-backed securities portfolios, and interest and dividends on its
investment securities. The Bank's total loan portfolio amounted to $573.0
million at September 30, 1997. One- to four-family residential loans accounted
for 81.8% of total loans, while home equity loans and lines of credit were 7.3%
of total loans. Real estate construction, commercial real estate and multi-
family residential mortgage loans represented in the aggregate 9.8% of total
loans. The Bank also offers a variety of consumer loans. In addition, the Bank
had investments in mortgage-backed securities totalling $350.5 million, or 33.6%
of total assets at September 30, 1997.
MARKET AREA AND COMPETITION
The Bank has 17 branch offices in central New Jersey, 13 of which are
located in Middlesex County, three in Monmouth county and one in Union County.
The Bank's deposit gathering base is concentrated in the communities surrounding
its offices. The majority of the Bank's loan originations are derived from north
and central New Jersey, which is a part of the New York City metropolitan area
and which has historically benefitted from having a large number of corporate
headquarters and a concentration of financial services-
55
<PAGE>
related industries. The area also has a well-educated employment base and a
large number of industrial, service and high-technology businesses. In the late
1980's and early 1990's, however, due in part to the effects of a prolonged
decline in the national and regional economy, layoffs in the financial services
industry and corporate relocations, the New York/New Jersey metropolitan area
experienced reduced levels of employment. These events, in conjunction with a
surplus of available commercial and residential properties, resulted in an
overall decline during this period in the underlying values of properties
located in New Jersey. However, New Jersey's real estate market has stabilized
in recent years. Whether such stabilization will continue is dependent, in large
part, upon the general economic health of the United States and other factors
beyond the Bank's control and, therefore, cannot be estimated.
The Bank faces significant competition both in making loans and in
attracting deposits. The State of New Jersey has a high density of financial
institutions, many of which are branches of significantly larger institutions
which have greater financial resources than the Bank, all of which are
competitors of the Bank to varying degrees. The Bank's competition for loans
comes principally from commercial banks, savings banks, savings and loan
associations, credit unions, mortgage banking companies and insurance companies.
Its most direct competition for deposits has historically come from commercial
banks, savings banks savings and loan associations and credit unions. The Bank
faces additional competition for deposits from short-term money market funds,
other corporate and government securities funds and from other financial
institutions such as brokerage firms and insurance companies.
LENDING ACTIVITIES
Loan and Mortgage-Backed Securities Portfolio Compositions. The Bank's loan
portfolio consists primarily of conventional first mortgage loans secured by
one-to four-family residences and, to a lesser extent, multi-family residences
and commercial real estate. At September 30, 1997, the Bank's loan portfolio
totalled $573.0 million, of which $468.8 million, or 81.8% were one- to four-
family residential mortgage loans. At that date, the Bank's loan portfolio also
included $41.9 million of home equity loans and lines of credit generally
secured by second liens on one- to four-family residential property, $18.3
million of construction loans, $31.6 million of commercial real estate loans,
and $6.2 million of multi-family residential mortgage loans, which represented
7.3%, 3.2%, 5.5% and 1.1%, respectively, of total loans receivable. Of the
mortgage loan portfolio outstanding at that date, 36.0% were fixed-rate loans
and 64.0% were ARM loans. Other loans held by the Bank, which consist of loans
on deposit accounts, commercial business, personal, automobile and credit card
loans, totalled $6.2 million, or 1.1% of total loans outstanding at September
30, 1997. The Bank does not anticipate maintaining a credit card portfolio in
the foreseeable future.
The majority of the loans originated by the Bank are held for investment.
However, the Bank sells 30 year, fixed-rate, conforming loans to the Federal
Home Loan Mortgage Corporation ("Freddie Mac") and institutional investors from
time to time, and retains servicing rights. All loans are sold without recourse.
At September 30, 1997, the Bank's servicing portfolio was $94.5 million.
The Bank also invests in mortgage-backed securities and other mortgage-
backed products such as collateralized mortgage obligations ("CMOs"). At
September 30, 1997, mortgage-backed securities aggregated $350.5 million, or
33.6% of total assets, of which 59.4% were secured by ARM loans. The majority of
the Bank's mortgage-backed securities are insured or guaranteed by Freddie Mac,
the Government National Mortgage Association ("GNMA"), or Fannie Mae ("FNMA").
CMOs totalled $61.7 million, or 17.7% of the Bank's total mortgage-backed
securities portfolio at September 30, 1997, the majority of which were backed or
guaranteed by federal agencies. At September 30, 1997, the Bank had $228.2
million in mortgage-backed securities held for investment, $4.1 million of which
had contractual
56
<PAGE>
maturities of less than one year. The actual maturity of a mortgage-backed
security varies, depending on when the underlying mortgages are repaid or
prepaid. Prepayments of the underlying mortgages may shorten the life of the
investment, thereby affecting its yield to maturity and the related market value
of the mortgage-backed security. The actual prepayments of the underlying
mortgages depend on many factors, including the type of mortgages, the coupon
rates, the age of the mortgages, the geographical location of the underlying
real estate collateralizing the mortgages, levels of market interest rates, and
general economic conditions. As part of the Bank's asset/liability management
strategy and for increased liquidity, the Bank holds a portion of its mortgage-
backed securities portfolio available for sale. At September 30, 1997, mortgage-
backed securities available for sale had an amortized cost of $122.0 million and
a market value of approximately $122.4 million.
57
<PAGE>
The following table sets forth the composition of the Bank's loan and
mortgage-backed securities portfolio in dollar amounts and as a percentage of
the portfolio at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------
AT SEPTEMBER 30,
1997 1996 1995 1994
----------------------- --------------------- -------------------- --------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT
----------- ------------ ---------- ---------- ---------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans(1):
One-to-four family..................... $468,829 81.82% $428,463 83.14% $390,641 84.20% $363,449
Home equity loans...................... 41,895 7.31 39,140 7.60 33,456 7.21 30,768
Construction(2)........................ 18,255 3.19 12,871 2.50 7,612 1.64 3,177
Commercial real estate................. 31,569 5.51 21,209 4.11 17,322 3.73 13,370
Multi-family........................... 6,225 1.09 7,876 1.53 9,675 2.09 7,779
A.I.D.(3).............................. -- -- -- -- 165 0.04 178
-------- ------ -------- ------ -------- ------ --------
Total mortgage loans............. 566,773 98.92 509,559 98.88 458,871 98.91 418,721
Other loans............................. 6,208 1.08 5,772 1.12 5,055 1.09 4,027
-------- ------ -------- ------ -------- ------ --------
Total loans receivable........... 572,981 100.00% 515,331 100.00% 463,926 100.00% 422,748
====== ====== ======
Less:
Net deferred loan fees.................. (198) 95 499 953
and premiums and discounts
Allowance for loan losses............... 5,982 5,322 5,247 5,745
-------- -------- -------- --------
Total loans receivable, net........... $567,197 $509,914 $458,180 $416,050
======== ======== ======== ========
Mortgage loans:
ARM................................... $362,631 63.98% $309,600 60.76% $275,109 59.95% $242,499
Fixed-rate............................ 204,142 36.02 199,959 39.24 183,762 40.05 176,222
-------- ------ -------- ------ -------- ------ --------
Total mortgage loans............. $566,773 100.00% $509,559 100.00% $458,871 100.00% $418,721
======== ====== ======== ====== ======== ====== ========
Mortgage-backed securities(4):
CMOs................................... $ 61,670 17.73% $ 40,095 10.81% $ 65,399 17.41% $ 81,009
FHLMC.................................. 199,984 57.50 248,525 67.00 259,994 69.22 198,377
GNMA................................... 18,509 5.32 27,999 7.54 31,570 8.41 10,029
FNMA................................... 67,623 19.45 54,339 14.65 18,644 4.96 18,573
-------- ------ -------- ------ -------- ------ --------
Total mortgage-backed securities........ 347,786 100.00% 370,958 100.00% 375,607 100.00% 307,988
======= ======= ======= =======
Net premiums and discounts.............. 2,414 2,094 1,634 1,153
Net unrealized gain (loss) on mortgage-
backed securities available for sale.... 329 128 241 (1,511)
-------- -------- -------- --------
Net mortgage-backed securities.......... $350,529 $373,180 $377,482 $307,630
======== ======== ======== ========
<CAPTION>
------------------------------------------------------------------------------
1993 1992
-------------------------- ------------------------
PERCENT PERCENT PERCENTAGE
OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
---------------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Mortgage loans(1):
One-to-four family..................... 85.98% $366,914 86.56% $370,280 87.30%
Home equity loans...................... 7.28 27,676 6.53 25,734 6.07
Construction(2)........................ 0.75 3,920 0.92 5,514 1.30
Commercial real estate................. 3.16 12,559 2.96 8,585 2.02
Multi-family........................... 1.84 7,335 1.73 7,436 1.75
A.I.D.(3).............................. 0.04 191 0.05 202 0.05
------ -------- ------ -------- ------
Total mortgage loans............. 99.05 418,595 98.75 417,751 98.49
Other loans............................. 0.95 5,306 1.25 6,410 1.51
------ -------- ------ -------- ------
Total loans receivable........... 100.00% 423,901 100.00% 424,161 100.00%
====== ====== ======
Less:
Net deferred loan fees
and premiums and discounts............ 1,397 2,375
Allowance for loan losses............... 5,899 5,751
-------- --------
Total loans receivable, net........... $416,605 $416,035
======== ========
Mortgage loans:
ARM................................... 57.91% $240,424 57.44% $256,248 61.34%
Fixed-rate............................ 42.09 178,171 42.56 161,503 38.66
------ -------- ------ -------- ------
Total mortgage loans............. 100.00% $418,595 100.00% $417,751 100.00%
====== ======== ====== ======== ======
Mortgage-backed securities(4):
CMOs................................... 26.30% $ 74,523 27.64% $ 51,397 19.89%
FHLMC.................................. 64.41 166,245 61.66 182,278 70.54
GNMA................................... 3.26 13,578 5.04 18,664 7.22
FNMA................................... 6.03 15,280 5.66 6,065 2.35
------ -------- ------ -------- ------
Total mortgage-backed securities........ 100.00% 269,626 100.00% 258,404 100.00%
====== ====== ======
Net premiums and discounts.............. 2,238 1,055
Net unrealized gain (loss) on mortgage-. 637 --
backed securities available for sale.... -------- --------
Net mortgage-backed securities.......... $272,501 $259,459
======== ========
</TABLE>
_________________________________________
(1) Includes $287,000, $424,000, $150,000, $1.6 million and $2.3 million in
mortgage loans available for sale for 1996, 1995, 1994, 1993 and 1992,
respectively.
(2) Net of loans in process of $26.2 million, $12.3 million, $3.8 million, $3.9
million, $6.3 million and $4.6 million at September 30, 1997, December 31,
1996, 1995, 1994, 1993 and 1992, respectively.
(3) Agency for International Development. Represented a participation interest
in a $15.0 million aggregate loan to the Korea National Housing
Corporation, a government-sponsored housing development project.
(4) Includes $122.4 million, $120.8 million, $89.3 million, $24.4 million,
$28.3 million and $3.5 million in mortgage-backed securities available for
sale at September 30, 1997 and December 31, 1996, 1995, 1994, 1993 and
1992, respectively.
58
<PAGE>
The following table sets forth the Bank's loan originations and principal
repayments for the periods indicated.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
------------------------- --------------------------------------
1997 1996 1996 1995 1994
------------ ------------ ------------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Mortgage loans(1):
At beginning of period...................................... $ 504,142 $453,125 $453,125 $412,023 $411,299
--------- -------- -------- -------- --------
Mortgage loans originated:
One- to four-family..................................... 76,212 78,523 99,956 75,505 64,976
Home equity loans....................................... 11,253 12,649 15,290 10,679 9,549
Construction............................................ 5,383 4,938 5,258 5,262 5,355
Commercial real estate.................................. 11,550 1,066 4,943 5,043 1,334
Multi-family............................................ 167 3,743 1,650 1,976 547
-------- -------- -------- -------- --------
Total mortgage loans originated and purchased......... 104,565 100,919 127,097 98,465 81,761
Mortgage loans purchased.................................... 4,665 4,631 10,118 5,181 --
--------- -------- -------- -------- --------
Total mortgage loans originated......................... 109,230 105,550 137,215 103,646 81,761
Mortgage loans sold......................................... (3,036) (6,198) (6,932) (6,343) (5,387)
Principal repayments........................................ (48,095) (57,321) (77,060) (52,193) (73,883)
(Increase) decrease in premiums/discounts................... 293 247 404 454 444
and deferred loan fees
Net (increase) decrease in allowance for loan losses........ (660) 156 (75) 498 154
Mortgage loans transferred to real estate owned............. (885) (2,105) (2,535) (4,960) (2,365)
--------- -------- -------- -------- --------
At end of period............................................ $ 560,989 $493,454 $504,142 $453,125 $412,023
========= ======== ======== ======== ========
Other loans:
At beginning of period...................................... $ 5,772 $ 5,055 $ 5,055 $ 4,027 $ 5,306
Other loans originated...................................... 3,364 2,343 3,835 3,828 2,278
Other loans sold............................................ -- -- -- -- (238)
Principal repayments........................................ (2,928) (2,380) (3,118) (2,800) (3,319)
--------- -------- -------- -------- --------
At end of period............................................ $ 6,208 $ 5,018 $ 5,772 $ 5,055 $ 4,027
========= ======== ======== ======== ========
Mortgage-backed securities(2):
At beginning of period...................................... $ 373,180 $377,482 $377,482 $307,630 $272,501
Mortgage-backed securities purchased........................ 160,663 141,397 191,327 215,292 146,629
Mortgage-backed securities sold............................. (116,430) (73,011) (96,147) (81,792) (35,905)
Amortization of premium..................................... (794) (756) (977) (615) (1,227)
Net change in unrealized gain (loss) on..................... 202 (1,362) (113) 1,752 (2,148)
mortgage-backed securities available for sale
Principal repayments........................................ (66,292) (79,493) (98,392) (64,785) (72,220)
--------- -------- -------- -------- --------
At end of period............................................ $ 350,529 $364,257 $373,180 $377,482 $307,630
========= ======== ======== ======== ========
</TABLE>
__________________________________________
(1) Includes $149,000, $287,000, $424,000 and $150,000 in mortgage loans
available for sale for the nine months ended September 30, 1996, and the
years ended December 31, 1996, 1995 and 1994, respectively.
(2) Includes $122.4 million, $93.4 million, $120.7 million, $89.1 million and
$25.9 million in mortgage-backed securities available for sale for the nine
months ended September 30, 1997 and 1996, and for the years ended December
31, 1996, 1995 and 1994, respectively.
59
<PAGE>
Loan Maturity. The following table sets forth the maturity or period of
repricing of the Bank's loan portfolio at September 30, 1997. Demand loans,
loans having no stated schedule of repayments and no stated maturity, and
overdrafts are reported as due within one year. Adjustable and floating rate
loans are included in the period in which interest rates are next scheduled to
adjust rather than in which they contractually mature, and fixed rate loans are
included in the period in which the final contractual repayment is due. The
table does not include the effect of future principal prepayments. Principal
prepayments and scheduled principal amortization on loans totalled $51.0
million, $80.2 million and $55.0 million for the nine months ended September 30,
1997 and the years ended December 31, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
------------------------------------------------------------------------------------------------
ONE YEAR THREE FIVE YEARS TEN YEARS TWENTY
ONE YEAR TO THREE YEARS TO TO TEN TO TWENTY YEARS
OR LESS YEARS FIVE YEARS YEARS YEARS OR MORE TOTAL
----------- ------------- ----------------- -------------- ------------ -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One-to four-family............ $101,491 $89,064 $ 97,755 $ 98,545 $67,589 $14,385 $468,829
Home equity loans............. 13,786 1,057 4,957 9,544 12,551 -- 41,895
Construction(1)............... 18,255 -- -- -- -- -- 18,255
Commercial real estate........ 3,259 5,427 2,518 3,765 15,342 1,258 31,569
Multi-family.................. -- 352 4,689 536 648 -- 6,225
-------- ------- -------- -------- ------- ------- --------
Total mortgage loans........ 136,791 95,900 109,919 112,390 96,130 15,643 566,773
Other loans..................... 2,983 1,876 978 -- 371 -- 6,208
------- -------- -------- -------- ------- -------- --------
Total loans................. $139,774 $97,776 $110,897 $112,390 $96,501 $15,643 $572,981
======== ======= ======== ======== ======= =======
Net deferred loan fees and unearned discounts........................................................................ 198
Allowance for loan losses............................................................................................ (5,982)
--------
Loans receivable, net.................................................................................................. $567,197
========
</TABLE>
____________________________________________
(1) Net of loans in process of $26.2 million.
The following table sets forth at September 30, 1997 the dollar amount of
loans contractually due or repricing after September 30, 1998, and whether such
loans have fixed interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
DUE OR REPRICING AFTER SEPTEMBER 30, 1998
----------------------------------------------------------
FIXED ADJUSTABLE TOTAL
---------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Mortgage loans:
One- to four-family........................ $148,842 $218,496 $367,338
Multi-family............................... 162 6,063 6,225
Home equity loans.......................... 28,109 -- 28,109
Commercial real estate..................... 24,400 3,910 28,310
Other loans................................ 3,225 -- 3,225
-------- -------- --------
Total loans receivable....................... 204,738 228,469 433,207
Mortgage-backed securities(1)................ 125,405 221,709 347,114
-------- -------- --------
Total loans receivable and
mortgage-backed securities.................. $330,143 $450,178 $780,321
======== ======== ========
</TABLE>
___________________________________________
(1) Includes $122.0 million in mortgage-backed securities available for sale, at
amortized cost.
One- to Four-Family Mortgage Loans. The Bank offers fixed- and adjustable-
rate first mortgage loans secured by one- to four-family residences in New
Jersey. Typically, such residences are single family homes that serve as the
primary residence of the owner. Loan originations are generally obtained from
existing or past customers, members of the local community, and referrals from
attorneys, established builders, and realtors within the Bank's market area. In
addition, one- to four-family residential mortgage loans are also originated in
the Bank's market area through loan originators who are employees of the Bank
60
<PAGE>
and are compensated on a commission basis. Originated mortgage loans in the
Bank's portfolio include due-on-sale clauses which provide the Bank with the
contractual right to deem the loan immediately due and payable in the event that
the borrower transfers ownership of the property without the Bank's consent.
At September 30, 1997, 81.8% of total loans receivable consisted of one-to
four-family residential loans. The Bank currently offers ARM loans, with an
initial fixed rate for one, three, five, seven or ten year periods, which it
then converts into a one-year ARM. The Bank's ARM loans may carry an initial
interest rate which is less than the fully-indexed rate for the loan. The
initial discounted rate is determined by the Bank in accordance with market and
competitive factors. The majority of the Bank's ARM loans adjust by a maximum of
2.00% per year, with a lifetime cap on increases of up to 6.00%. ARM loans are
originated for a term of up to 30 years. In the past, the Bank offered three
year ARM loans that reset every three years at a margin over the three year U.S.
Treasury Index. Interest rates charged on fixed-rate loans are competitively
priced based on market conditions and the Bank's cost of funds. The Bank's
fixed-rate mortgage loans currently are made for terms of 10 through 30 years.
In previous years, the Bank offered balloon mortgages of five and seven years.
Generally, ARM loans pose credit risks different than risks inherent in
fixed-rate loans, primarily because as interest rates rise, the payments of the
borrower rise, thereby increasing the potential for delinquency and default. At
the same time, the marketability of the underlying property may be adversely
affected by higher interest rates. In order to minimize risks, borrowers of one-
year ARM loans are qualified at the starting interest rate plus 2.00% or the
fully-indexed rate, whichever is lower. The Bank does not originate ARM loans
which provide for negative amortization. At present, the Bank offers Limited
Documentation loans that do not require income verification but do require full
asset verification.
The Bank generally originates one- to four-family residential mortgage
loans in amounts up to 95% of the appraised value or selling price of the
mortgaged property, whichever is lower. The Bank requires private mortgage
insurance for all loans originated with loan-to-value ratios exceeding 80%.
Generally, the minimum one- to four-family loan amount is $25,000, and the
maximum loan amount is $500,000. The Bank typically charges an origination fee
of up to 3.00% on one- to four-family residential loans.
Home Equity Loans and Lines of Credit. The Bank originates home equity
loans secured by one- to four-family residences. These loans generally are
originated as fixed-rate loans with terms from five to 15 years. Home equity
loans are primarily made on owner-occupied, one- to four-family residences and
primarily to the Bank's first mortgage customers. These loans are generally
subject to a 80% loan-to-value limitation, including any other outstanding
mortgages or liens where the first mortgage lien is held by the Bank, and 75% on
all other loans. The Bank currently offers home equity loans for qualified
borrowers with a loan-to-value ratio of up to 90%. The Bank obtains private
mortgage insurance for some of these types of loans, depending on the
underwriting and first lien position. The Bank is currently offering "Helping
Hand" home equity loans for low income borrowers, with maximum terms of five
years, with loan-to-value ratios of up to 90% and a maximum loan amount of
$10,000. Generally, the Bank's minimum equity loan is $5,000 and the maximum
equity loan is $200,000. As of September 30, 1997, the Bank had $28.2 million in
fixed-rate home equity loans outstanding.
The Bank also offers a variable rate home equity line of credit which
extends a credit line based on the applicant's income and equity in the home.
Generally, the credit line, when combined with the balance of the first mortgage
lien, may not exceed 80% of the appraised value of the property at the time of
the loan commitment where the first mortgage lien is held by the Bank, and 75%
on all other loans. Home equity lines of credit are secured by a mortgage on the
underlying real estate. The Bank presently charges no origination fees for these
loans. A borrower is required to make monthly payments of principal and
interest,
61
<PAGE>
at a minimum of $100.00 plus interest, based upon a 15 or 20 year amortization
period. Generally, the interest rate charged is the prime rate of interest (as
published in The Wall Street Journal) plus up to 2.0%. The loans have a 6.0%
lifetime cap on the amount the interest rate may increase. During 1996, the Bank
introduced a credit line product which is based on a 10 year amortization and
the interest rate charged is the prime rate of interest. These loans also have a
6.0% lifetime cap. The Bank offers a teaser-rate on both home equity line of
credit products. The Bank's home equity lines of credit outstanding at September
30, 1997 totalled $13.7 million against total available credit lines of $14.3
million.
Construction Lending. At September 30, 1997, construction loans totalled
$18.3 million, or 3.2%, of the Bank's total loans outstanding. Construction
loans, in the form of lines of credit, are primarily made to developers known by
the Bank. Available credit lines totalled $26.2 million at September 30, 1997.
The current policy of the Bank is to charge interest rates on its construction
loans which float at margins of up to 2.0% above the prime rate (as published in
The Wall Street Journal). The Bank's construction loans improve the interest
rate sensitivity of its earning assets. The Bank's construction loans typically
have original principal balances that are larger than its one- to four-family
mortgage loans, with the majority of the loans ranging from available lines of
credit of $125,000 to $6.2 million. At September 30, 1997, the Bank had 21
construction loans, six of which had a principal balance outstanding of $1.0
million or more, with the largest loan balance being $4.5 million. At September
30, 1997, all of the Bank's construction lending portfolio consisted of loans
secured by property located in the State of New Jersey, for the purpose of
constructing one- to four-family homes.
The Bank will originate construction loans on unimproved land in amounts up
to 60% of the lower of the appraised value or the cost of the land. The Bank
also originates loans for site improvements and construction costs in amounts up
to 75% of actual costs or sales price where contracts for sale have been
executed. Generally, construction loans are offered for one year terms with up
to four six-month options to extend the original term. Typically, additional
loan origination fees are charged for each extension granted, although in some
cases these fees have been waived. The Bank requires an appraisal of the
property, credit reports, and financial statements on all principals and
guarantors, among other items, on all construction loans.
Construction lending, by its nature, entails additional risks as compared
with one- to four-family mortgage lending, attributable primarily to the fact
that funds are advanced upon the security of the project under construction
prior to its completion. As a result, construction lending often involves the
disbursement of substantial funds with repayment dependent on the success of the
ultimate project and the ability of the borrower or guarantor to repay the loan.
Because of these factors, the analysis of prospective construction loan projects
requires an expertise that is different in significant respects from that which
is required for residential mortgage lending. The Bank addresses these risks
through its underwriting procedures. At September 30, 1997, none of the Bank's
construction loans were classified as substandard. See "-- Delinquencies and
Classified Assets - Non-performing Assets" for further discussion.
Commercial Real Estate. At September 30, 1997, the Bank had 53 loans
secured by commercial real estate, totalling $31.6 million, or 5.5%, of the
Bank's total loan portfolio. Commercial real estate loans are generally
originated in amounts up to 70% of the appraised value of the mortgaged
property. The Bank's commercial real estate loans are permanent loans secured by
improved property such as office buildings, retail stores, including small
shopping centers, medical offices, small industrial facilities, warehouses and
other non-residential buildings. The largest commercial real estate loan at
September 30, 1997 was a participation loan originated in 1995 on a medical arts
building with a balance of $3.8 million at that date. All commercial real estate
loans in portfolio are secured by properties located within New Jersey.
62
<PAGE>
The Bank's commercial real estate loans are generally made for terms of up
to 15 years. These loans typically are based upon a payout over a period of 10
to 25 years. To originate commercial real estate loans, the Bank requires a
security interest in personal property, standby assignment of rents and leases
and some level of personal guarantees, if possible. The Bank has established its
loan-to-one borrower limitation, which was $13.5 million as of September 30,
1997, as its maximum commercial real estate loan amount.
Loans secured by commercial real estate properties are generally larger and
involve a greater degree of risk than residential mortgage loans. Because
payments on loans secured by commercial real estate properties are often
dependent on successful operation or management of the properties, repayment of
such loans may be subject, to a greater extent, to adverse conditions in the
real estate market or the economy. The Bank seeks to minimize these risks by
limiting the number of such loans, lending only to established customers and
borrowers otherwise known or recommended to the Bank, generally restricting such
loans to New Jersey, and obtaining personal guarantees, if possible.
Multi-Family Mortgage Loans. The Bank originates multi-family mortgage
loans in its primary lending area. As of September 30, 1997, $6.2 million, or
1.1%, of the Bank's total loan portfolio consisted of multi-family residential
loans. Substantially all of the Bank's multi-family loan portfolio is comprised
of loans on garden apartments and participations in senior citizen homes with
the Thrift Institutions Community Investment Corp ("TICIC"). The largest multi-
family loan at September 30, 1997 had an outstanding balance of $1.9 million.
The second largest multi-family loan at that date had an outstanding balance of
$1.4 million. Large multi-family loans, such as these two loans, are originated
on the basis of the Bank's underwriting standards for commercial real estate
loans. The Bank also participates with other savings institutions to provide
financing for projects within the state of New Jersey via the TICIC. The Bank
has four participation loans outstanding with the TICIC at September 30, 1997,
totaling $2.2 million, which are secured by four senior citizen complexes and
one garden apartment complex.
Other Lending. The Bank also offers other loans, primarily loans secured by
savings accounts and commercial, business, personal and automobile loans. At
September 30, 1997, $6.2 million or 1.1% of the loan portfolio consisted of such
other loans.
Loan Approval Authority and Underwriting. All loans secured by real estate
must have the approval or ratification of the members of the Loan Committee,
which consists of two directors and at least two senior officers engaged in the
lending area. The Loan Committee meets at least monthly to review and ratify
management's approval of loans made within the scope of its authority since the
last committee meeting, and to approve mortgage loans made in the excess of
$750,000, but not greater than $1.0 million. Real estate loans in excess of $1.0
million require prior Board approval. Prior Board approval is also required for
the origination of consumer and business loans in excess of $100,000 for
unsecured loans, and $500,000 for secured loans.
One- to four-family residential mortgage loans are generally underwritten
according to Freddie Mac guidelines, except as to loan amount and certain
documentation. For all loans originated by the Bank, upon receipt of a completed
loan application from a prospective borrower, a credit report is then requested,
income, assets and certain other information are verified and, if necessary,
additional financial information is requested. An appraisal of the real estate
intended to secure the proposed loan is required, which is currently performed
by appraisers designated and approved by the Board of Directors. It is the
Bank's policy to obtain appropriate insurance protections, including title and
flood insurance, on all real estate first mortgage loans. Borrowers must also
obtain hazard insurance prior to closing. Borrowers generally are required to
advance funds for certain items such as real estate taxes, flood insurance and
private mortgage insurance, when applicable.
63
<PAGE>
LOAN SERVICING. The Bank generally retains the servicing rights on loans it
has sold. The Bank receives fees for these servicing activities, which include
collecting and remitting loan payments, inspecting the properties and making
certain insurance and tax payments on behalf of the borrowers. The Bank was
servicing $94.5 million and $101.2 million of mortgage loans for others at
September 30, 1997 and December 31, 1996, respectively. The Bank received
$218,000 and $325,000 in servicing fees for the nine months ended September 30,
1997 and the year ended December 31, 1996, respectively.
LOAN PURCHASES AND SALES. The Bank is a Freddie Mac qualified servicer in
good standing, and may sell any of its conforming loans originated, subject to
Freddie Mac requirements, and retain the servicing rights. As a part its
asset/liability management, the Bank will sell loans, on occasion, in order to
reduce or minimize potential interest rate and credit risk. To account for such
sales, the Bank has established an available for sale category and carries loans
available for sale at the lower of cost or market. As of September 30, 1997, the
Bank did not have any mortgage loans classified as available for sale. Mortgage
loans sold totalled $3.0 million and $6.2 million for the nine months ended
September 30, 1997 and the year ended December 31, 1996, respectively. From time
to time, the Bank may also purchase mortgage loans in order to maintain stable
interest income, if and when management believes it is prudent to do so. The
Bank purchased $4.7 million and $10.1 million in mortgage loans from third-party
corespondents for the nine months ended September 30, 1997 and the year ended
December 31, 1996, respectively. The Bank underwrote the loans and verified
documentation prior to purchase and has representations and warranties on same
for a one year period, including repayment of remaining premiums if a loan
prepays within the first 12 months.
DELINQUENCIES AND CLASSIFIED ASSETS
DELINQUENT LOANS. In the late 1980s and early 1990s, the Bank experienced
an increase in loans delinquent 90 days or more. The increase occurred primarily
with single family residential loans, which the Bank attributes, in large part,
to the decline in economic conditions in the Northeast, the weakness of the New
Jersey real estate market and the national recession. Since 1992, delinquent
loans have decreased, due to an improving economy and continued stabilization of
the New Jersey real estate market. The aggregate principal balances of one- to
four-family loans delinquent 90 days or more had declined to $3.9 million, at
September 30, 1997, from $4.6 million at September 30, 1996. At September 30,
1997, one-to four- family loans delinquent 90 days or more consisted of 42
loans. There can be no assurances, however, that such declines will continue, or
that increases will not occur.
64
<PAGE>
Delinquent Loans and Nonaccrual Loans. The following table sets forth
information regarding loans and loans delinquent 90 days or more, and REO. At
September 30, 1997, REO totaled $1.4 million and consisted of 14 properties. It
is the policy of the Bank to cease accruing interest on loans 90 days or more
past due with loan-to-value ratios in excess of 55% and to charge off all
accrued interest. For the nine months ended September 30, 1997, the amount of
additional interest income that would have been recognized on nonaccrual loans
if such loans had continued to perform in accordance with their contractual
terms was $198,000.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
------------------------ -----------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ----------- ------------ ----------- ------------ ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Non-accrual mortgage loans.......... $3,547 $4,538 $4,716 $5,838 $ 8,636 $10,631 $14,564
Non-accrual other loans............. 14 6 4 -- 160 453 150
------ ------ ------ ------ ------- ------- -------
Total non-accrual loans........ 3,561 4,544 4,720 5,838 8,796 11,084 14,714
------ ------ ------ ------ ------- ------- -------
Loans 90 days or more delinquent.... 379 72 93 200 248 463 1,120
and still accruing............. ------ ------ ------ ------ ------- ------- -------
Total non-performing loans........ 3,940 4,616 4,813 6,038 9,044 11,547 15,834
------ ------ ------ ------ ------- ------- -------
Total real estate owned, net of... 1,398 1,918 1,517 3,131 1,633 2,039 1,282
related allowance for loss.... ------ ------ ------ ------ ------- ------- -------
Total non-performing assets......... $5,338 $6,534 $6,330 $9,169 $10,677 $13,586 $17,116
====== ====== ====== ====== ======= ======= =======
Non-performing loans to
total loans receivable, net.... 0.69% 0.93% 0.94% 1.32% 2.17% 2.77% 3.81%
Total non-performing assets to
total assets....................... 0.51% 0.67% 0.64% 0.97% 1.34% 1.73% 2.25%
</TABLE>
Classification of Assets. Federal regulations provide for the
classification of loans and other assets such as debt and equity securities
considered by the OTS to be of lesser quality as "substandard," "doubtful," or
"loss" assets. An asset is considered "substandard" if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. "Substandard" assets include those characterized by
the "distinct possibility" that the Bank will sustain "some loss" if the
deficiencies are not corrected. Assets classified as "doubtful" have all of the
weaknesses inherent in those classified "substandard," with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. Assets
that do not expose the savings institution to risk sufficient to warrant
classification in one of the aforementioned categories, but which possess some
weaknesses, are required to be designated "special mention" by management. Loans
designated as special mention are generally loans that, while current in
required payment, have exhibited some potential weaknesses that, if not
corrected, could increase the level of risk in the future. Pursuant to the
Bank's internal guidelines, all loans 90 days past due are classified
substandard, doubtful, or loss.
65
<PAGE>
The following table sets forth the aggregate amount of the Bank's special
mention and classified assets at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
---------------------- ------------------------------
1997 1996 1996 1995 1994
----------- ---------- --------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Special mention............. $ 811 $ 242 $ 290 $1,348 $ 747
Substandard assets.......... 5,720 6,983 6,037 6,287 10,117
Doubtful assets............. 121 181 167 253 78
------ ------ ------ ------ -------
Total special mention and
classified assets.....
$6,652 $7,406 $6,494 $7,888 $10,942
====== ====== ====== ====== =======
</TABLE>
As of September 30, 1997, the Bank had no single special mention or
classified asset with a balance of greater than $240,000.
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
adequacy of the allowance, including an assessment of known and inherent risks
in its loan portfolio, review of individual loans for adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and consideration of current economic conditions. Such
evaluation, which includes a review of all loans on which full collectibility
may not be reasonably assured, considers the fair value of the underlying
collateral, economic conditions, historical loan loss experience, and other
factors that warrant recognition in providing for an adequate loan loss
allowance. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for loan
losses and valuation of real estate owned. Such agencies may require the Bank to
recognize additions to the allowance based on their judgments about information
available to them at the time of their examination.
The Bank provided $900,000 and $375,000 in provision for loan losses for
the nine months ended September 30, 1997 and 1996, respectively. The Bank
provided $550,000 to the allowance for loan losses for 1996, compared with
$310,000 in 1995. The Bank determined, after performing its asset classification
review, that the allowance was adequate and within industry standards. At
September 30, 1997, the total allowance was $6.0 million, which amounted to 1.1%
of total loans receivable, net and 112.1% of nonperforming assets. Management
will continue to maintain an allowance for loan losses consistent with
regulatory expectations for non-performing assets, and will also adhere to the
Bank's policy of evaluating the risks inherent in its loan portfolio and the New
Jersey economy. The Bank will continue to monitor the level of its allowance for
loan losses in order to maintain it at a level which management considers
adequate to provide for potential loan losses.
The following table sets forth activity in the Bank's allowance for loan
losses for the periods indicated.
<TABLE>
<CAPTION>
AT OR FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
--------------------- ------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- ---------- --------------- -------------- ------------ ------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period............ $5,322 $5,247 $5,247 $ 5,745 $5,899 $ 5,751 $3,865
Provision for loan losses................. 900 375 550 310 300 1,200 2,400
Charge-offs............................... (240) (534) (585) (1,044) (490) (1,087) (520)
Recoveries................................ -- 3 110 236 36 35 6
------ ------ ------ ------- ------ ------- ------
Balance at end of period.................. $5,982 $5,091 $5,322 $ 5,247 $5,745 $ 5,899 $5,751
====== ====== ====== ======= ====== ======= ======
</TABLE>
66
<PAGE>
The following tables set forth the Bank's percent of allowance for loan
losses to total allowance for loan losses and the percent of loans to total
loans in each of the categories listed at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
---------------------------------------------------------------------------------
1997 1996
--------------------------------------- -------------------------------------
PERCENT PERCENT
OF LOANS OF LOANS
PERCENT OF IN EACH PERCENT OF IN EACH
ALLOWANCE CATEGORY ALLOWANCE CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS
-------- ----------- ---------- -------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
One-to four-family........................... $3,592 60.05% 81.82% $3,465 68.06 83.35
Home equity loans............................ 442 7.39 7.31 310 6.09 7.73
Construction................................. 791 13.22 3.19 597 11.73 2.49
Commercial real estate....................... 540 9.03 5.51 322 6.32 4.25
Multi-family................................. 64 1.07 1.09 89 1.75 1.18
Total mortgage loans..................... 5,429 90.76 98.92 4,783 93.95 99.00
Consumer loans.................................. 192 3.21 1.08 157 3.09 1.00
Other........................................... 64 1.07 -- 16 0.31 --
Unallocated..................................... 297 4.96 -- 135 2.65 --
------ ------ ------ ------ ------ ------
Total allowance for loan losses.......... $5,982 100.00% 100.00% $5,091 100.00% 100.00%
====== ====== ====== ====== ====== ======
<CAPTION>
DECEMBER 31,
----------------------------------------
1996
---------------------------------------
PERCENT
OF LOANS
PERCENT OF IN EACH
ALLOWANCE CATEGORY
TO TOTAL TO TOTAL
AMOUNT ALLOWANCE LOANS
-------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
One-to four-family........................... $3,641 68.42% 83.14%
Home equity loans............................ 437 8.21 7.60
Construction................................. 577 10.84 2.50
Commercial real estate....................... 347 6.52 4.11
Multi-family................................. 89 1.67 1.53
Total mortgage loans..................... 5,091 95.66 98.88
Consumer loans.................................. 174 3.27 1.12
Other........................................... 13 0.24 --
Unallocated..................................... 44 0.83 --
------ ------ ------
Total allowance for loan losses.......... $5,322 100.00% 100.00%
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------------------------------------------
1995 1994 1993
--------------------------------- -------------------------------- ----------------------------------
PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS
PERCENT OF IN EACH PERCENT OF IN EACH PERCENT OF IN EACH
ALLOWANCE CATEGORY ALLOWANCE CATEGORY ALLOWANCE CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS
-------- ----------- ---------- -------- ----------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family........ $3,842 73.22% 84.20% $4,408 76.73% 85.98% $4,238 71.84% 86.56%
Home equity loans....... 348 6.63 7.21 301 5.24 7.28 219 3.71 6.53
Construction............... 301 5.74 1.64 181 3.15 0.75 566 9.59 0.92
Commercial real estate..... 173 3.30 3.73 100 1.74 3.16 44 0.75 2.96
Multi-family............... 97 1.85 2.09 55 0.96 1.84 26 0.44 1.73
A.I.D...................... -- -- 0.04 -- -- 0.04 -- -- 0.05
------ ------ ------ ------ ------ ------ ------ ------ ------
Total mortgage loans..... 4,761 90.74 98.91 5,045 87.82 99.05 5,093 86.33 98.75
Consumer loans............. 147 2.80 1.09 208 3.62 0.95 263 4.46 1.25
Other...................... 49 0.93 -- 14 0.24 -- 145 2.46 --
Unallocated................ 290 5.53 -- 478 8.32 -- 398 6.75 --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total allowance for
loan losses......... $5,247 100.00% 100.00% $5,745 100.00% 100.00% $5,899 100.00% 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
---------------------------------
1992
---------------------------------
PERCENT
OF LOANS
PERCENT OF IN EACH
ALLOWANCE CATEGORY
TO TOTAL TO TOTAL
AMOUNT ALLOWANCE LOANS
-------- ----------- ----------
<S> <C> <C> <C>
One- to four-family........ $4,148 72.13% 87.30%
Home equity loans....... 201 3.50 6.07
Construction............... 661 11.49 1.30
Commercial real estate..... 30 0.52 2.02
Multi-family............... 26 0.45 1.75
A.I.D...................... -- -- 0.05
------ ----- -----
Total mortgage loans..... 5,066 88.09 98.49
Consumer loans............. 217 3.77 1.51
Other...................... 135 2.35 --
Unallocated................ 333 5.79 --
------ ----- -----
Total allowance for
loan losses......... $5,751 100.00% 100.00%
====== ====== ======
</TABLE>
67
<PAGE>
INVESTMENT ACTIVITIES
The Investment Policy of the Bank, which is established by the Board of
Directors and reviewed by the Investment Committee, is designed primarily to
provide and maintain liquidity, to generate a favorable return on investments
without incurring undue interest rate and credit risk and to complement the
Bank's lending activities. The Policy currently provides for investment,
available for sale and trading portfolios. In order to enhance the Bank's
liquidity and flexibility, total return, or minimize interest rate risk,
securities may be acquired for the available for sale portfolio. Investment
securities and mortgage-backed securities, other than those designated as
available for sale or trading, are comprised of debt securities that the Bank
has the positive intent and ability to hold to maturity. Investment securities
held to maturity are carried at cost, adjusted for amortization of premiums and
accretion of discounts using the level-yield method over the estimated lives of
the securities. At September 30, 1997, the Bank had investment securities held
to maturity in the aggregate amount of $41.0 million, with a market value of
$41.1 million.
New Jersey state-chartered savings institutions have the authority to
invest in various types of liquid assets, including United States Treasury
obligations, securities of various federal agencies, certain certificates of
deposit of insured banks and savings institutions, certain bankers' acceptances,
repurchase agreements and loans on federal funds. Subject to various
restrictions, state-chartered savings institutions may also invest a portion of
their assets in commercial paper, corporate debt securities and asset-backed
securities.
In November 1995, the Financial Accounting Standards Board ("FASB") issued
"Special Report -- A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities," which provided the Bank with
an opportunity to reassess the appropriateness of the classifications of all its
securities, and on December 15, 1995, the Bank reclassified $13.0 million in
amortized cost of investment securities from held to maturity to available for
sale. At September 30, 1997, investment securities available for sale had a net
unrealized loss of $27,000.
INVESTMENTS AVAILABLE FOR SALE. The Bank maintains a portfolio of
investments available for sale to reduce interest rate and market value risk.
These investments, designated as available for sale at purchase, are marked to
market in accordance with SFAS No. 115. The Bank's Investment Policy designates
what type of securities may be contained in the available for sale portfolio.
This portfolio of available for sale investments is reviewed and priced at least
monthly. As of September 30, 1997, the market value of investment securities
available for sale was $18.0 million, with an amortized cost basis of $18.1
million, and was composed of U.S. Treasury and agencies securities, and
corporate debt obligations. The available for sale portfolio had a weighted
average contractual maturity of 4.75 years. A substantial portion of the
investment portfolio is comprised of callable agency notes, which have a variety
of call options available to the issuer at predetermined dates. The investment
portfolio's yield is enhanced by the addition of callable agency notes, due to
the issuer's flexibility in repricing their funding source, while creating
reinvestment risk to the Bank. At September 30, 1997, $52.0 million, or 88.2% of
the total investment portfolio, including securities available for sale, were
callable.
68
<PAGE>
INVESTMENT PORTFOLIO. The following table sets forth certain information
regarding the carrying and market values of the Bank's investment portfolio at
the dates indicated:
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994
-------------------- -------------------- -------------------- --------------------
AMORTIZED MARKET AMORTIZED MARKET AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE COST VALUE COST VALUE
---------- --------- ---------- --------- ---------- --------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities held to maturity:
U.S. Government and agency
obligations.............................. $40,959 $41,108 $38,955 $38,980 $39,003 $39,617 $23,997 $22,774
======= ======= ======= ======= ======= ======= ======= =======
Investment securities available for sale:
U.S. Government and agency
obligations.............................. $13,972 $13,943 $12,964 $12,836 $ 1,000 $ 996 $13,884 $13,206
Corporate obligations..................... 4,079 4,081 2,000 1,995 1,041 1,062 -- --
------- ------- ------- ------- ------- ------- ------- -------
Total investment securities
available-for-sale........................ $18,051 $18,024 $14,964 $14,831 $ 2,041 $ 2,058 $13,884 $13,206
======= ======= ======= ======= ======= ======= ======= =======
Other interest-earning investments:
Federal funds sold......................... $17,925 $17,925 $ 1,850 $ 1,850 $17,875 $17,875 $ 4,375 $ 4,375
FHLB-NY stock.............................. 8,045 8,045 7,428 7,428 6,276 6,276 5,691 5,691
------- ------- ------- ------- ------- ------- ------- -------
Total other interest-earning investments... $25,970 $25,970 $ 9,278 $ 9,278 $24,151 $24,151 $10,066 $10,066
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
69
<PAGE>
The table below sets forth certain information regarding the contractual
maturities, amortized costs, market values and weighted average yields for the
Bank's investment portfolio at September 30, 1997.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
-------------------------------------------------------------------------------
MORE THAN ONE YEAR MORE THAN FIVE YEARS
ONE YEAR OR LESS TO FIVE YEARS TO TEN YEARS
------------------------ ----------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AMORTIZED AVERAGE AMORTIZED AVERAGE AMORTIZED AVERAGE
COST YIELD COST YIELD COST YIELD
----------- --------- ----------- --------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Investment securities held
to maturity:
U.S. Government and Agency
obligations.................... $ -- --% $14,991 6.81% $19,972 7.31%
------- ------ ------- ------ ------- ------
Total investment securities
held to maturity............... $ -- --% $14,991 6.81% $19,972 7.31%
======= ====== ======= ====== ======= ======
Investment securities
available for sale:
U.S. Government and Agency
obligations.................... $ -- --% $10,972 6.11% $ 3,000 6.75%
Corporate obligations............ -- -- 2,000 5.95 2,079 6.15
------- ------ ------- ------ ------- ------
Total investment securities
available for sale............. $ -- --% $12,972 6.09% $ 5,079 6.51%
======= ====== ======= ====== ======= ======
Other interest-earning investments:
Federal funds sold............... $17,925 5.79% $ -- --% $ -- --%
FHLB-NY stock (1)................ 8,045 6.75 -- -- -- --
------- ------ ------- ------ ------- ------
Total other interest-earning
investments.................... $25,970 6.09% $ -- --% $ -- --%
======= ====== ======= ====== ======= ======
<CAPTION>
----------------------------------------------------------------
MORE THAN TEN YEARS TOTAL
------------------------ ------------------------------------
WEIGHTED WEIGHTED
AMORTIZED AVERAGE AMORTIZED MARKET AVERAGE
COST YIELD COST VALUE YIELD
----------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Investment securities held
to maturity:
U.S. Government and Agency
obligations.................... $5,996 8.02% $40,959 $41,108 7.23%
------ ------ ------- ------- ------
Total investment securities
held to maturity............... $5,996 8.02% $40,959 $41,108 7.23%
====== ====== ======= ======= ======
Investment securities
available for sale:
U.S. Government and Agency
obligations.................... $ -- --% $13,972 $13,943 6.25%
Corporate obligations............ -- -- 4,079 4,081 6.05
------ ------ ------- ------- ------
Total investment securities
available for sale............. $ -- --% $18,051 $18,024 620%
====== ====== ======= ======= ======
Other interest-earning investments:
Federal funds sold............... $ -- --% $17,925 $17,925 5.79%
FHLB-NY stock (1)................ -- -- 8,045 8,045 6.75
------ ------ ------- ------- ------
Total other interest-earning
investments.................... $ -- --% $25,970 $25,970 6.09%
====== ====== ======= ======= ======
</TABLE>
____________________
(1) FHLB-NY stock does not have a stated maturity.
70
<PAGE>
SOURCES OF FUNDS
GENERAL. The Bank's primary source of funds are deposits; proceeds from
principal and interest payments on loans and mortgage-backed securities; sales
of loans, mortgage-backed securities and investments available for sale;
maturities of investment securities and short-term investment; and, to an
increasing extent, advances from the FHLB-NY, reverse repurchase agreements and
other borrowed funds.
DEPOSITS. The Bank offers a variety of deposit accounts having a range of
interest rates and terms. The Bank's deposits principally consist of fixed-term
certificates, passbook savings, money market, Individual Retirement Accounts
("IRAs") and Negotiable Order of Withdrawal ("NOW") accounts. The flow of
deposits is significantly influenced by general economic conditions, changes in
money market and prevailing interest rates and competition. The Bank's deposits
are typically obtained from the areas in which its offices are located. The Bank
relies primarily on customer service and long-standing relationships to attract
and retain these deposits. At September 30, 1997, $121.9 million of the Bank's
deposit balance consisted of IRAs. Also at that date, $76.5 million, or 9.45%,
of the Bank's deposit balance consisted of deposit accounts with a balance
greater than $100,000. The Bank does not currently accept brokered deposits.
The Bank seeks to maintain a high level of stable core deposits by
providing convenient and high quality service through its extended branch
network. To further this objective, the Bank acquired six branch offices from
the RTC in 1991 for a deposit premium of $509,000, which was written off in
1996. Of those six offices, the Bank continues to operate four of the offices,
and transferred the deposits of the other two offices into existing First
Savings branches. During October 1997, the Bank entered into an agreement to
sell its Eatontown branch, with the transfer of deposit liabilities and physical
branch location scheduled for late February 1998. The Bank acquired two
additional branches from the RTC in 1995 with deposits of approximately $112.8
million for a premium of $12.6 million. The Bank's strategy was to strengthen
its market area within Middlesex County, and to provide better service to those
communities within which these branches reside. During the years 1995 and 1994,
the Bank's deposit base grew $11.9 million and $2.7 million, respectively,
excluding the $112.8 million in deposits acquired in 1995. The percentage
increase for those periods was 1.7% and 0.4%, respectively. During 1996,
deposits decreased $11.7 million, or 1.5%, to $794.6 million. The decrease was
due to increased competition and premium interest rates being paid by other
institutions. For the nine months ended September 30, 1997, deposits increased
$14.9 million, or 1.9%, due to partial retention of interest credited.
71
<PAGE>
The following table presents the deposit activity of the Bank for the
periods indicated:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
---------------------------- ---------------------------------------------------
1997 1996 1996 1995 1994
--------- --------- ---------------- -------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deposits....................................... $ 1,234,631 $ 1,197,644 $ 1,672,325 $ 1,374,946 $ 1,295,191
Withdrawals.................................... (1,245,329) (1,229,251) (1,718,034) (1,396,632) (1,316,030)
Deposits acquired in purchase(1)............... -- -- -- 112,785 --
----------- ----------- ----------- ----------- -----------
Withdrawals less than (in excess of) deposits.. (10,698) (31,607) (45,709) 91,099 (20,839)
Interest credited.............................. 25,552 25,710 33,966 33,626 23,491
----------- ----------- ----------- ----------- -----------
Total increase (decrease) in deposits.......... $ 14,854 $ (5,897) $ (11,743) $ 124,725 $ 2,652
=========== =========== =========== =========== ===========
</TABLE>
_______________________
(1) Purchase of deposits from the Resolution Trust Corporation.
The following table presents by various categories, the amount of
certificate accounts outstanding at September 30, 1997 and 1996, and the time to
maturity of the certificate accounts outstanding at September 30, 1997.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, MATURITY AT SEPTEMBER 30, 1997
--------------------------- ------------------------------------------------------
WITHIN ONE THROUGH
1997 1996 ONE YEAR THREE YEARS THEREAFTER TOTAL
---------- ------------ ------------ --------------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Certificate accounts:
3.99% or less.............. $ 2,800 $ 3,448 $ 2,800 $ -- $ -- $ 2,800
4.00% to 4.49%............. 91 16,242 91 -- -- 91
4.50% to 4.99%............. 21,879 153,445 18,687 3,192 -- 21,879
5.00% to 5.49%............. 252,318 156,071 239,457 6,414 6,447 252,318
5.50% to 5.99%............. 123,762 44,162 70,659 38,693 14,410 123,762
6.00% to 6.49%............. 23,056 35,379 3,107 4,990 14,959 23,056
6.50% to 6.99%............. 34,628 49,583 10,288 12,698 11,642 34,628
7.00% to 7.49%............. 2,594 2,702 2,486 -- 108 2,594
7.50% to 7.99%............. 2,890 2,837 341 1,232 1,317 2,890
8.00% and greater.......... 634 656 388 246 -- 634
-------- -------- -------- ------- ------- --------
Total.................... $464,652 $464,525 $348,304 $67,465 $48,883 $464,652
======== ======== ======== ======= ======= ========
</TABLE>
72
<PAGE>
At September 30, 1997, the Bank had $45.3 million in certificate
accounts in amounts of $100,000 or more maturing as follows:
<TABLE>
<CAPTION>
MATURITY PERIOD AMOUNT
------------------------------------- ------------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Three months or less............. $ 8,328
Over 3 through 6 months.......... 6,673
Over 6 through 12 months......... 20,239
Over 12 months .................. 10,101
-------
Total...................... $45,341
=======
</TABLE>
73
<PAGE>
The following table sets forth the distribution of the Bank's average
accounts for the periods indicated and the weighted average nominal interest
rates on each category of deposits presented.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 1996 1995
----------------------------------- ------------------------------------- -----------------------
PERCENT PERCENT PERCENT
OF TOTAL WEIGHTED OF TOTAL WEIGHTED OF TOTAL
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE BALANCE DEPOSITS
--------- ----------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand.... $ 21,109 2.62% --% $ 19,491 2.42% --% $ 16,610 2.10
Money market accounts.......... 134,681 16.71 3.30 124,097 15.40 3.28 129,426 16.37
Savings accounts............... 129,334 16.04 2.54 139,045 17.26 2.53 140,122 17.73
NOW accounts................... 57,077 7.08 1.90 54,079 6.71 1.96 50,552 6.40
-------- ------ -------- ------ -------- ------
Total.................... 342,201 42.45 2.56 336,712 41.79 2.57 336,710 42.60
-------- ------ -------- ------ -------- ------
Certificate accounts(1):
Less than six months...... 143,604 17.81 5.05 142,332 17.67 4.85 128,984 16.32
Over 6 through 12 months.. 167,818 20.82 5.32 166,356 20.65 5.34 157,267 19.90
Over 12 through 36 months. 54,425 6.75 5.74 59,192 7.35 5.65 67,921 8.59
Over 36 months............ 98,092 12.17 6.05 101,014 12.54 6.16 99,483 12.59
-------- ------ -------- ----- -------- ------
Total certificate
accounts................ 463,939 57.55 5.42 468,894 58.21 5.39 453,655 57.40
-------- ------ -------- ------ -------- ------
Total average
deposits................ $806,140 100.00% 4.21 $805,606 100.00% 4.22 $790,365 100.00
======== ====== ======== ======= ======== ======
<CAPTION>
1994
------------------------------------------
PERCENT
WEIGHTED OF TOTAL WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
RATE BALANCE DEPOSITS RATE
-------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Non-interest bearing demand.... --% $ 14,002 2.04 --%
Money market accounts.......... 3.20 124,917 18.17 2.79
Savings accounts............... 2.55 143,738 20.91 2.51
NOW accounts................... 1.89 43,251 6.29 2.00
-------- ------
Total.................... 2.57 325,908 47.41 2.44
-------- ------
Certificate accounts(1):
Less than six months...... 5.05 110,320 16.04 3.26
Over 6 through 12 months.. 5.51 110,130 16.02 3.70
Over 12 through 36 months. 5.22 52,264 7.60 4.64
Over 36 months............ 6.41 88,875 12.93 6.43
-------- ------
Total certificate
accounts................ 5.53 361,589 52.59 4.35
-------- ------
Total average
deposits................ 4.27 $687,497 100.00% 3.46
======== ======
</TABLE>
74
<PAGE>
BORROWINGS
The Bank's policy has been to utilize borrowings as an alternative and/or
less costly source of funds. The Bank obtains advances from the FHLB-NY, which
are collateralized by the capital stock of the FHLB-NY held by the Bank, and
certain mortgage loans and mortgage-backed securities of the Bank. The Bank also
borrows funds via reverse repurchase agreements with the FHLB-NY and primary
broker/dealers. Advances from the FHLB-NY are made pursuant to several different
credit programs, each of which has its own interest rate and maturity. The
maximum amount that the FHLB-NY will advance to member institutions, including
the Bank, for purposes of other than meeting withdrawals, fluctuates from time
to time in accordance with the policies of the FHLB-NY and the OTS. The maximum
amount of FHLB-NY advances permitted to a member institution generally is
reduced by borrowings from any other source. At September 30, 1997, the Bank's
FHLB-NY advances totalled $33.0 million, representing 3.5% of total liabilities.
During 1997, the Bank continued to borrow funds from primary
broker/dealers. The borrowings are collateralized by designated mortgage-backed
and investment securities. The total of these borrowings at September 30, 1997
was $90.9 million, representing 9.6% of total liabilities. The Bank has the
right to freely substitute collateral as long as the margin is at least 95% of
all outstanding borrowings, including accrued interest.
The Bank also has an available overnight line-of-credit with the FHLB-NY
for a maximum of $48.9 million. The fee for the line-of-credit for the nine
months ended September 30, 1997 was $500. The Bank may continue to increase
borrowings in the future to fund asset growth. To the extent it does so, the
Bank may experience an increase in its cost of funds.
The Bank, as part of the Reorganization, established, for eligible
employees, an ESOP which became effective at completion of the 1992 MHC
Reorganization. As part of the initial minority stock offering conducted in
connection with the 1992 MHC Reorganization, the Bank's ESOP borrowed funds
totalling $700,000 from an unrelated third party lender and used the funds to
purchase 7%, or 70,000 shares, of the common stock issued in the offering. On
September 30, 1994, the third party lender was repaid by the Mutual Holding
Company, which refinanced the ESOP loan at the same interest rate. The ESOP debt
as of September 30, 1997 and December 31, 1996 and 1995, was $571,000, $646,000
and $746,000, respectively, and bears an interest rate equal to the prime rate
less 1.50%, as published in The Wall Street Journal, with principal and interest
payable in quarterly installments over a ten-year period. During the nine months
ended September 30, 1997, and the year ended December 31, 1996, $25,000 of
dividends paid on ESOP shares during each of the periods was used to pay down
ESOP debt. Total interest paid on ESOP debt for the nine months ended September
30, 1997 and 1996, was $33,000 and $37,000, respectively, and for the years
ended December 31, 1996, 1995 and 1994 was $48,000, $41,000 and $26,000,
respectively. In July 1995, the Bank completed its 1995 Secondary Offering,
whereby the ESOP purchased an additional 42,000 shares of Common Stock at $13
per share, totalling $546,000. The funds to purchase those shares were borrowed
from the Mutual Holding Company. The borrowing is currently secured by 80,102
shares of the Bank's Common Stock, as adjusted for the 10% stock dividend
declared on September 24, 1997.
Upon consummation of the Conversion and Reorganization, it is expected that
the Mutual Holding Company's loan to the ESOP will be assumed by the Company,
and that the Company will lend additional funds to the ESOP to enable it to
acquire 8% of the Conversion Stock. See "Management of the Bank--Executive
Compensation--Employee Stock Ownership Plan."
75
<PAGE>
The following table sets forth certain information regarding the Bank's borrowed
fundson the dates indicated:
<TABLE>
<CAPTION>
AT OR FOR THE NINE MONTHS ENDED AT OR FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------------------ -----------------------------
1997 1996 1996 1995 1994
-------------- ------------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FHLB-NY advances:
Average balance outstanding........................... $ 36,200 $19,400 $21,846 $21,231 $29,538
Maximum amount outstanding at any
month-end during the period........................ 40,000 22,000 30,000 34,000 37,000
Balance outstanding at end of period.................. 33,000 20,000 30,000 19,000 34,000
Weighted average interest rate during the period...... 6.18% 6.18% 6.13% 5.72% 4.74%
Weighted average interest rate at end of period....... 6.06% 6.17% 6.06% 6.13% 5.22%
Repurchase agreements:
Average balance outstanding........................... $ 74,138 $26,862 $32,691 $11,834 $ --
Maximum amount outstanding at any
month-end during the period......................... 90,894 49,437 57,994 24,864 --
Balance outstanding at end of period.................. 90,894 49,437 57,994 19,750 --
Weighted average interest rate during the period...... 6.14% 5.91% 6.05% 6.50% --%
Weighted average interest rate at end of period....... 5.94% 6.04% 6.02% 6.13% --%
ESOP debt:
Average balance outstanding......................... $ 616 $ 716 $ 704 $ 510 $ 358
Maximum amount outstanding at any
month-end during the period ...................... 646 746 746 796 400
Balance outstanding at end of period.................. 571 671 646 746 300
Weighted average interest rate during the period...... 7.03% 6.84% 7.74% 8.08% 7.25%
Weighted average interest rate at end of period....... 7.00% 6.75% 6.75% 7.00% 8.50%
Total borrowings:
Average balance outstanding......................... $110,954 $46,978 $55,241 $33,575 $29,896
Maximum amount outstanding at any
month-end during the period ...................... 124,465 70,108 88,640 59,661 37,325
Balance outstanding at end of period.................. 124,465 70,108 88,640 39,496 34,300
Weighted average interest rate during the period...... 6.16% 6.05% 6.10% 6.06% 4.82%
Weighted average interest rate at end of period....... 5.98% 6.08% 6.04% 6.15% 5.24%
</TABLE>
76
<PAGE>
SUBSIDIARY ACTIVITIES
FSB FINANCIAL CORP. FSB Financial Corp. is a wholly-owned subsidiary of the
Bank. FSB Financial Corp. provides a line of fixed and variable rate annuity
products, along with mutual funds and term life insurance. For the nine months
ended September 30, 1997, FSB Financial Corp. had net income of $140,000.
1000 WOODBRIDGE CENTER DRIVE, INC. 1000 Woodbridge Center Drive, Inc. is a
wholly-owned subsidiary of the Bank. 1000 Woodbridge Center Drive, Inc. was the
owner of the Bank's corporate center. For the year ended December 31, 1996, 1000
Woodbridge Center Drive, Inc. had a net loss of $110,000. The subsidiary was
inactive as of September 30, 1997.
PROPERTIES
The Bank conducts its business through its main office and 17 full service
branch offices, all located in central New Jersey. The following table sets
forth certain information concerning the main office and each branch office of
the Bank at September 30, 1997. The aggregate net book value of the Bank's
premises and equipment was $13.3 million at September 30, 1997.
77
<PAGE>
<TABLE>
<CAPTION>
DATE LEASED NET BOOK VALUE AT
LOCATION OR ACQUIRED SEPTEMBER 30, 1997 LEASED OR OWNED
- -------------------------------- --------------- ---------------------- -------------------
<S> <C> <C> <C>
MAIN OFFICE:
339 State Street 4/29 $1,306,297 Owned
Perth Amboy, NJ 08861(1)
CORPORATE HEADQUARTERS:
1000 Woodbridge Avenue
Woodbridge, NJ 07095 5/94 5,500,548 Owned
BRANCH OFFICES:
158 Wyckoff Road
Eatontown, NJ 07724(2) 7/93 105,135 Leased
980 Amboy Avenue
Edison, NJ 08837 6/74 673,607 Owned
2100 Oak Tree Road
Edison, NJ 08820 4/84 312,974 Owned
206 South Avenue
Fanwood, NJ 07023 9/91 373,090 Owned
Lafayette Road & Ford Avenue
Fords, NJ 08863 4/84 54,524 Leased
Rt. 35 & Bethany Road
Hazlet, NJ 07730 1/91 15,755 Leased
101 New Brunswick Avenue
Hopelawn, NJ 08861 6/76 63,240 Leased
1220 Green Street
Iselin, NJ 08830 11/84 644,436 Owned
599 Middlesex Avenue
Metuchen, NJ 08840(3) 1/95 44,382 Leased
1580 Rt. 35 South
Middletown, NJ 07748 4/95 226,162 Leased
97 North Main Street
Milltown, NJ 08850(3) 1/95 1,050,927 Owned
Rt. 9 & Ticetown Road
Old Bridge, NJ 08857 6/79 7,306 Leased
100 Stelton Road
Piscataway, NJ 08854(4) 9/91 298,274 Leased
325 Amboy Avenue
Woodbridge, NJ 07095 1/70 236,732 Owned
Rt. 1 & St. Georges Avenue
Woodbridge, NJ 07095 6/80 570 Leased
</TABLE>
_______________
(1) Includes an adjacent administrative building with a net book value of
$942,000.
(2) An agreement has been signed to sell the Eatontown branch. The transaction
is anticipated to close in February 1998.
(3) Acquired/leased in conjunction with purchase of deposits of the former
Carteret Savings Bank from the RTC on January 20, 1995.
(4) Includes property acquired for future branch site during 1994.
78
<PAGE>
LEGAL PROCEEDINGS
The Bank is involved in various legal actions arising in the normal course
of its business. In the opinion of management, the resolution of these legal
actions are not expected to have a material adverse effect on the Bank's results
of operations.
PERSONNEL
As of September 30, 1997, the Bank had 208 full-time employees and 33 part-
time employees. The employees are not represented by a collective bargaining
unit and the Bank considers its relationship with its employees to be good. See
"Management of the Bank - Benefit Plans" for a description of certain
compensation and benefit programs offered to the Bank's employees.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
General. The Bank and the Company will report their income on a calendar
year basis using the accrual method of accounting and will be subject to federal
income taxation in the same manner as other corporations with some exceptions,
including particularly the Bank's reserve for bad debts discussed below. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to the
Bank or the Company. The Bank was last audited by the IRS in 1984 and has not
been audited by the New Jersey Division of Taxation ("DOT") in the past five
years.
Bad Debt Reserve. Historically, savings institutions such as the Bank
which met certain definitional tests primarily related to their assets and the
nature of their business ("qualifying thrifts") were permitted to establish a
reserve for bad debts and to make annual additions thereto, which may have been
deducted in arriving at their taxable income. The Bank's deductions with respect
to "qualifying real property loans," which are generally loans secured by
certain interest in real property, were computed using an amount based on the
percentage of taxable income method.
In August 1996, the provisions repealing the current thrift bad debt rules
were passed by Congress as part of "The Small Business Job Protection Act of
1996." The new rules eliminate the 8% of taxable income method for deducting
additions to the tax bad debt reserves for all thrifts for tax years beginning
after December 31, 1995. These rules also require that all thrift institutions
recapture all or a portion of their bad debt reserves added since the base year
(last taxable year beginning before January 1, 1988). The Bank has previously
recorded a deferred tax liability equal to the bad debt recapture and as such,
the new rules will have no effect on net income or federal income tax expense.
For the tax years beginning after December 31, 1995, the Bank is not
permitted to maintain a tax reserve for bad debts. As of September 30, 1997, the
Bank had an excess amount subject to recapture equal to $12.7 million. The new
rules allow an institution to suspend the bad debt reserve recapture for the
1996 and 1997 tax years if the institution's lending activity for those years is
equal to or greater than the institution's average mortgage lending activity for
the six taxable years preceding 1996. For this purpose, only home purchase and
home improvement loans are included and the institution can elect to have the
tax years with the highest and lowest lending activity removed from the average
calculation. If an institution is permitted to postpone the reserve recapture,
it must begin its six year recapture no later than the 1998 tax year. The
unrecaptured base year reserves will not be subject to recapture as long as the
institution continues to carry on the business of banking. In addition, the
balance of the pre-1988 bad debt reserves continue to
79
<PAGE>
be subject to provisions of present law referred to below that require recapture
in the case of certain excess distributions to shareholders.
Distributions. To the extent that the Bank makes "non-dividend
distributions" to the Company that are considered as made (i) from the reserve
for losses on qualifying real property loans, or (ii) from the supplemental
reserve for losses on loans ("Excess Distributions"), then an amount based on
the amount distributed will be included in the Bank's taxable income. Non-
dividend distributions include distributions in excess of the Bank's current and
accumulated earnings and profits, distributions in redemption of stock, and
distributions in partial or complete liquidation. However, dividends paid out of
the Bank's current or accumulated earnings and profits, as calculated for
federal income tax purposes, will not be considered to result in a distribution
from the Bank's bad debt reserve. Thus, any dividends to the Company that would
reduce amounts appropriated to the Bank's bad debt reserve and deducted for
federal income tax purposes would create a tax liability for the Bank. The
amount of additional taxable income created from an Excess Distribution is an
amount that, when reduced by the tax attributable to the income, is equal to the
amount of the distribution. Thus, if, after the Conversion, the Bank makes a
"non-dividend distribution," then approximately one and one-half times the
amount so used would be includable in gross income for federal income tax
purposes, assuming a 34% corporate income tax rate (exclusive of state and local
taxes). See "Regulation" and "Dividend Policy" for limits on the payment of
dividends of the Bank. The Bank does not intend to pay dividends that would
result in a recapture of any portion of its bad debt reserve.
Corporate Alternative Minimum Tax. The Internal Revenue Code of 1986, as
amended (the "Code") imposes a tax on alternative minimum taxable income
("AMTI") at a rate of 20%. Only 90% of AMTI can be offset by net operating loss
carryovers of which the Bank currently has none. AMTI is increased by an amount
equal to 75% of the amount by which the Bank's adjusted current earnings exceeds
its AMTI (determined without regard to this preference and prior to reduction
for net operating losses). The Bank does not expect to be subject to the AMT.
Dividends Received Deduction and Other Matters. The Company may exclude
from its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. The corporate dividends received deduction is
generally 70% in the case of dividends received from unaffiliated corporations,
except that if the Company or the Bank own more than 20% of the stock of a
corporation distributing a dividend then 80% of any dividends received may be
deducted.
STATE AND LOCAL TAXATION
State of New Jersey. The Bank files New Jersey income tax returns. For New
Jersey income tax purposes, savings institutions are presently taxed at a rate
equal to 3% of taxable income. For this purpose, "taxable income" generally
means federal taxable income, subject to certain adjustments (including the
addition of net interest income on state and municipal obligations). The Bank is
not currently under audit with respect to its New Jersey income tax returns.
The Company will be required to file a New Jersey income tax return because
it will be doing business in New Jersey. For New Jersey tax purposes, regular
corporations are presently taxed at a rate equal to 9% of taxable income. For
this purpose, "taxable income" generally means Federal taxable income subject to
certain adjustments (including addition of interest income on state and
municipal obligations).
Delaware Taxation. As a Delaware holding company not earning income in
Delaware, the Company is exempt from Delaware corporate income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.
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REGULATION
GENERAL
The Bank is subject to extensive regulation, examination and supervision by
the Department, as its chartering agency, the OTS, as its federal banking
regulator, and the FDIC, as the deposit insurer. The Bank is a member of the
FHLB System. The Bank's deposit accounts are insured up to applicable limits by
the SAIF managed by the FDIC. The Bank must file reports with the Commissioner
of the Department (the "Commissioner"), the OTS and the FDIC concerning its
activities and financial condition in addition to obtaining regulatory approvals
prior to entering into certain transactions such as mergers with, or
acquisitions of, other financial institutions. There are periodic examinations
by the Department, the OTS and the FDIC to test the Bank's compliance with
various regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such policies, whether by the Department, the OTS, the FDIC or the
Congress, could have a material adverse impact on the Company, the Bank and
their operations. The Company, as a savings and loan holding company, will also
be required to file certain reports with, and otherwise comply with the rules
and regulations of the OTS and of the Securities and Exchange Commission (the
"SEC") under the federal securities laws.
Any change in the regulatory structure or the applicable statutes or
regulations, whether by the Department, the OTS, the FDIC or the Congress, could
have a material impact on the Company, the Bank, their operations or the
Conversion and Reorganization. Congress has been considering various proposals
to eliminate the federal thrift charter and abolish the OTS. The outcome of such
legislation is uncertain. Therefore, the Bank is unable to determine the extent
to which legislation, if enacted, would affect its business and what charter
alternatives will be available at that time. See "Risk Factors - Financial
Institution Regulation and Possible Legislation."
Certain of the regulatory requirements applicable to the Bank and to the
Company are referred to below or elsewhere herein. The description of statutory
provisions and regulations applicable to savings associations set forth in this
Prospectus do not purport to be complete descriptions of such statutes and
regulations and their effects on the Bank and the Company and is qualified in
its entirety by reference to such statutes and regulations.
FEDERAL REGULATION OF SAVINGS INSTITUTIONS
Business Activities. The activities of savings institutions are governed
by the Home Owners' Loan Act, as amended (the "HOLA") and, in certain respects,
the Federal Deposit Insurance Act ("FDI Act") and the regulations issued by the
agencies to implement these statutes. These laws and regulations delineate the
nature and extent of the activities in which savings associations may engage.
Loans-to-One Borrower. Under the HOLA, savings institutions are generally
subject to the national bank limit on loans-to-one borrower. Generally, this
limit is 15% of the Bank's unimpaired capital and surplus, plus an additional
10% of unimpaired capital and surplus, if such loan is secured by readily-
marketable collateral, which is defined to include certain financial instruments
and bullion. At September 30, 1997, the Bank's general policy is to limit loans-
to-one borrower to $13.5 million. At September 30, 1997, the Bank's largest
aggregate amount of loans-to-one borrower totalled $11.1 million.
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QTL Test. The HOLA requires savings institutions to meet a QTL test. Under
the QTL test, a savings association is required to maintain at least 65% of its
"portfolio assets" (total assets less: (i) specified liquid assets up to 20% of
total assets; (ii) intangibles, including goodwill; and (iii) the value of
property used to conduct business) in certain "qualified thrift investments"
(primarily residential mortgages and related investments, including certain
mortgage-backed and related securities) in at least nine months out of each 12
month period. A savings association that fails the QTL test must either convert
to a bank charter or operate under certain restrictions. As of September 30,
1997, the Bank maintained 88.8% of its portfolio assets in qualified thrift
investments and, therefore, met the QTL test. Recent legislation has expanded
the extent to which education loans, credit card loans and small business loans
may be considered as "qualified thrift investments."
Limitation on Capital Distributions. OTS regulations impose limitations
upon all capital distributions by a savings institution, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to shareholders
of another institution in a cash-out merger and other distributions charged
against capital. The rule establishes three tiers of institutions, which are
based primarily on an institution's capital level and supervisory condition. An
institution, such as the Bank, that exceeds all fully phased-in regulatory
capital requirements before and after a proposed capital distribution ("Tier 1
Bank") and has not been advised by the OTS that it is in need of more than
normal supervision, could, after prior notice to, but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of: (i) 100% of its net earnings to date during the calendar year plus the
amount that would reduce by one-half its "surplus capital ratio" (the excess
capital over its fully phased-in capital requirements) at the beginning of the
calendar year; or (ii) 75% of its net earnings for the previous four quarters.
Any additional capital distributions would require prior OTS approval. In the
event the Bank's capital fell below its capital requirements or the OTS notified
it that it was in need of more than normal supervision, the Bank's ability to
make capital distributions could be restricted. In addition, the OTS could
prohibit a proposed capital distribution by any institution, which would
otherwise be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice.
Liquidity. The Bank is required to maintain an average daily balance of
specified liquid assets equal to a monthly average of not less than a specified
percentage (currently 4%) of its net withdrawable deposit accounts plus short-
term borrowings. Monetary penalties may be imposed for failure to meet these
liquidity requirements. The Bank's average liquidity ratio at September 30, 1997
was 8.17%, which exceeded the applicable requirements. The Bank has never been
subject to monetary penalties for failure to meet its liquidity requirements.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
Assessments. Savings institutions are required by regulation to pay
assessments to the FDIC, the OTS and the New Jersey Department of Banking to
fund the various agency's operations and periodic Bank examinations. The
assessments paid by the Bank to these agencies for the nine months ended
September 30, 1997 and for the years ended December 31, 1996 and 1995 totalled
$251,000, $271,000 and $217,000, respectively.
Transactions with Related Parties. The Bank's authority to engage in
transactions with related parties or "affiliates" (i.e., any company that
controls or is under common control with an institution, including the Company
and any non-savings institution subsidiaries that the Company may establish) is
limited by Sections 23A and 23B of the Federal Reserve Act ("FRA"). Section 23A
restricts the aggregate amount of covered transactions with any individual
affiliate to 10% of the capital and surplus of the savings institution and also
limits the aggregate amount of transactions with all affiliates to 20% of the
savings institution's capital and surplus. Certain transactions with affiliates
are required to be secured by collateral in an amount and of a type described in
Section 23A and the purchase of low quality assets from affiliates
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is generally prohibited. Section 23B generally requires that certain
transactions with affiliates, including loans and asset purchases, must be on
terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies.
The Bank's authority to extend credit to executive officers, directors and
10% shareholders ("insiders"), as well as entities such persons control, is
governed by Sections 22(g) and 22(h) of the FRA, and Regulation O thereunder.
Among other things, these regulations require such loans to be made on terms and
conditions substantially the same as those offered to unaffiliated individuals
and not involve more than the normal risk of repayment. Recent legislation
created an exception for loans to insiders made pursuant to a benefit or
compensation program that are widely available to all employees of the
institution and do not give preference to insiders over other employees.
Regulation O also places individual and aggregate limits on the amounts of loans
the Bank may make to insiders based, in part, on the Bank's capital position,
and requires certain board approval procedures to be followed.
Enforcement. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring action
against all "institution-affiliated parties," including stockholders, and any
attorneys, appraisers and accountants who knowingly or recklessly participate in
wrongful action likely to have an adverse effect on an insured institution.
Formal enforcement action may range from the issuance of a capital directive or
cease and desist order to removal of officers or directors, receivership,
conservatorship or termination of deposit insurance. Civil penalties cover a
wide range of violations and can amount to $25,000 per day, or $1 million per
day in especially egregious cases. Under the FDI Act, the FDIC has the authority
to recommend to the Director of the OTS that enforcement action be taken with
respect to a particular savings institution. If action is not taken by the
Director, the FDIC has authority to take such action under certain
circumstances. Federal and state law also establishes criminal penalties for
certain violations.
Standards for Safety and Soundness. The FDI Act requires each federal
banking agency to prescribe for all insured depository institutions standards
relating to, among other things, internal controls, information systems and
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, and compensation, fees and benefits and such other
operational and managerial standards as the agency deems appropriate. The
federal banking agencies have adopted final regulations and Interagency
Guidelines Establishing Standards for Safety and Soundness ("Guidelines") to
implement these safety and soundness standards. The Guidelines set forth the
safety and soundness standards that the federal banking agencies use to identify
and address problems at insured depository institutions before capital becomes
impaired. The Guidelines address internal controls and information systems;
internal audit system; credit underwriting; loan documentation; interest rate
risk exposure; asset growth; asset quality; earnings; and compensation, fees and
benefits. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the Guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard, as required by the FDI Act. The final
regulations establish deadlines for the submission and review of such safety and
soundness compliance plans.
Capital Requirements. The OTS capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital standard,
a 3% leverage (core capital) ratio and an 8% risk based capital standard. Core
capital is defined as common stockholder's equity (including retained earnings),
certain non-cumulative perpetual preferred stock and related surplus, minority
interests in equity accounts of consolidated subsidiaries less intangibles other
than certain mortgage servicing rights ("MSRs") and credit card relationships.
The OTS regulations require that, in meeting the leverage ratio, tangible and
risk-based capital standards institutions generally must deduct investments in
and loans to subsidiaries engaged in activities not permissible for a national
bank. In addition, the OTS prompt corrective action regulation
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provides that a savings institution that has a leverage capital ratio of less
than 4% (3% for institutions receiving the highest CAMEL examination rating)
will be deemed to be "undercapitalized" and may be subject to certain
restrictions. See "- Prompt Corrective Regulatory Action."
The risk-based capital standard for savings institutions requires the
maintenance of total capital (which is defined as core capital and supplementary
capital) to risk-weighted assets of 8%. In determining the amount of risk-
weighted assets, all assets, including certain off-balance sheet assets, are
multiplied by a risk-weight of 0% to 100%, as assigned by the OTS capital
regulation based on the risks OTS believes are inherent in the type of asset.
The components of core capital are equivalent to those discussed earlier under
the 3% leverage standard. The components of supplementary capital currently
include cumulative preferred stock, long-term perpetual preferred stock,
mandatory convertible securities, subordinated debt and intermediate preferred
stock and, within specified limits, the allowance for loan and lease losses.
Overall, the amount of supplementary capital included as part of total capital
cannot exceed 100% of core capital.
At September 30, 1997, the Bank met each of its capital requirements, in
each case on a fully phased-in basis. See "Regulatory Capital Compliance" for a
table which sets forth in terms of dollars and percentages the OTS tangible,
leverage and risk-based capital requirements, the Bank's historical amounts and
percentages at September 30, 1997, and pro forma amounts and percentages based
upon the issuance of the shares within the Estimated Price Range and assuming
that a portion of the net proceeds are retained by the Company.
THRIFT RECHARTERING
Recently enacted legislation provides that the BIF (the deposit insurance
fund that covers most commercial bank deposits) and the SAIF will merge on
January 1, 1999 if there are no more savings associations as of that date.
Several bills have been introduced in the current Congress that would eliminate
the federal thrift charter and the OTS. A bill recently reported by the House
Banking Committee would require federal thrifts to become national banks or
state banks or savings banks within two years after enactment or they would, by
operation of law, become national banks. A national bank resulting from a
converted federal thrift could continue to engage in activities, including
holding any assets, in which it was lawfully engaged on the day before the date
of enactment. Branches operated on the day before enactment could be retained
regardless of their permissibility for national banks. Subject to a
grandfathering provision, all savings and loan holding companies would become
subject to the same regulation and activities restrictions as bank holding
companies. The grandfathering could be lost under certain circumstances, such as
a change in control of the holding company. The legislative proposal would also
abolish the OTS and transfer its functions to the federal bank regulators with
respect to the institutions and to the Board of Governors of the Federal Reserve
Board with respect to the regulation of holding companies. The Bank is unable to
predict whether the legislation will be enacted or, given such uncertainty,
determine the extent to which the legislation, if enacted, would affect its
business. The Bank is also unable to predict whether the SAIF and BIF will
eventually be merged.
PROMPT CORRECTIVE REGULATORY ACTION
Under the OTS prompt corrective action regulations, the OTS is required to
take certain supervisory actions against undercapitalized institutions, the
severity of which depends upon the institution's degree of capitalization.
Generally, a savings institution that has a total risk-based capital of less
than 8.0% or a leverage ratio or a Tier 1 capital ratio that is less than 4.0%
is considered to be undercapitalized. A savings institution that has a total
risk-based capital less than 6.0%, a Tier 1 risk-based capital ratio of less
than 3.0% or a leverage ratio that is less than 3.0% is considered to be
"significantly undercapitalized" and a savings institution that has a tangible
capital to assets ratio equal to or less than 2.0% is deemed to be "critically
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undercapitalized." Subject to a narrow exception, the banking regulator is
required to appoint a receiver or conservator for an institution that is
critically undercapitalized. The regulation also provides that a capital
restoration plan must be filed with the OTS within 45 days of the date an
association receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." Compliance with the plan
must be guaranteed by any parent holding company. In addition, numerous
mandatory supervisory actions may become immediately applicable to the
institution depending upon its category, including, but not limited to,
increased monitoring by regulators, restrictions on growth, and capital
distributions and limitations on expansion. The OTS could also take any one of a
number of discretionary supervisory actions, including the issuance of a capital
directive and the replacement of senior executive officers and directors.
INSURANCE OF DEPOSIT ACCOUNTS
The FDIC has adopted a risk-based insurance assessment system. The FDIC
assigns an institution to one of three capital categories based on the
institution's financial information, as of the reporting period ending seven
months before the assessment period. The capital categories are (1) well
capitalized, (2) adequately capitalized or (3) undercapitalized. An institution
is also placed in one of three supervisory subcategories within each capital
group. The supervisory subgroup to which an institution is assigned is based on
a supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and information that the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds. An institution's assessment rate depends on the capital category and
supervisory category to which it is assigned with the most well capitalized,
healthy institutions receiving the lowest rates.
Deposits of the Bank are presently insured by the SAIF. Both the SAIF and
the BIF are statutorily required to be recapitalized to a 1.25% of insured
reserve deposits ratio. Until recently, members of the SAIF and BIF were paying
average deposit insurance assessments of between 24 and 25 basis points. The BIF
met the required reserve in 1995, whereas the SAIF was not expected to meet or
exceed the required level until 2002 at the earliest. This situation was
primarily due to the statutory requirement that SAIF members make payments on
bonds issued in the late 1980s by the Financing Corporation ("FICO") to
recapitalize the predecessor to the SAIF.
In view of the BIF's achieving the 1.25% ratio, the FDIC ultimately adopted
a new assessment rate schedule of from 0 to 27 basis points under which 92% of
BIF members paid an annual premium of only $2,000. With respect to SAIF member
institutions, the FDIC adopted a final rule retaining the previously existing
assessment rate schedule applicable to SAIF member institutions of 23 to 31
basis points. As long as the premium differential continued, it may have had
adverse consequences for SAIF members, including reduced earnings and an
impaired ability to raise funds in the capital markets. In addition, SAIF
members, such as the Bank, could have been placed at a substantial competitive
disadvantage to BIF members with respect to pricing of loans and deposits and
the ability to achieve lower operating costs.
On September 30, 1996, the President of the United States signed into law
the Deposit Insurance Funds Act of 1996 (the "Funds Act") which, among other
things, imposed a special one-time assessment on SAIF member institutions,
including the Bank, to recapitalize the SAIF. As required by the Funds Act, the
FDIC imposed a special assessment of 65.7 basis points on SAIF assessable
deposits held as of March 31, 1995, payable November 27, 1996. The SAIF Special
Assessment was recognized by the Bank as an expense in the quarter ended
September 30, 1996 and was tax deductible. The SAIF Special Assessment recorded
by the Bank amounted to $5.2 million on a pre-tax basis and $3.3 million on an
after-tax basis.
The Funds Act also spread the obligations for payment of the FICO bonds
across all SAIF and BIF members. Beginning on January 1, 1997, BIF deposits were
assessed for a FICO payment of 1.3 basis points,
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while SAIF deposits pay 6.48 basis points. Full pro rata sharing of the FICO
payments between BIF and SAIF members will occur on the earlier of January 1,
2000 or the date the BIF and SAIF are merged.
As a result of the Funds Act, the FDIC voted to effectively lower SAIF
assessments to 0 to 27 basis points as of January 1, 1997, a range comparable to
that of BIF members. SAIF members will also continue to make the FICO payments
described above. The FDIC also lowered the SAIF assessment schedule for the
fourth quarter of 1996 to 18 to 27 basis points. Management cannot predict the
level of FDIC insurance assessments on an on-going basis, whether the federal
thrift charter will be eliminated or whether the BIF and SAIF will eventually be
merged.
The Bank's assessment rate for the nine months ended September 30, 1997 was
6.48 basis points and the regular premium expense for this period was $285,000.
The FDIC is authorized to raise the assessment rates in certain
circumstances. The FDIC has exercised this authority several times in the past
and may raise insurance premiums in the future. If such action is taken by the
FDIC, it could have an adverse effect on the earnings of the Bank.
Under the FDI Act, insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the FHLB System, which consists of 12 regional
FHLBs. The FHLB provides a central credit facility primarily for member
institutions. The Bank, as a member of the FHLB, is required to acquire and hold
shares of capital stock in the FHLB in an amount at least equal to 1% of the
aggregate principal amount of its unpaid residential mortgage loans and similar
obligations at the beginning of each year, or 1/20 of its advances (borrowings)
from the FHLB, whichever is greater. The Bank was in compliance with this
requirement with an investment in FHLB stock at September 30, 1997 of $8.0
million. FHLB advances must be secured by specified types of collateral and all
long-term advances may only be obtained for the purpose of providing funds for
residential housing finance. At September 30, 1997, the Bank had $33.0 million
in FHLB advances and $38.2 million in repurchase agreements with the FHLB.
The FHLBs are required to provide funds for the resolution of insolvent
thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to their members. For the nine months ended September 30, 1997 and the
years ended December 31, 1996 and 1995, dividends from FHLB stock to the Bank
amounted to $382,000, $469,000 and $475,000, respectively. If dividends were
reduced, the Bank's net interest income would likely also be reduced. Further,
there can be no assurance that the impact of recent or future legislation on the
FHLBs will not also cause a decrease in the value of the FHLB stock held by the
Bank.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require savings institutions to
maintain noninterest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations generally require that reserves be maintained against aggregate
transaction accounts as follows: for accounts aggregating $47.8 million or less
(subject to adjustment by the Federal
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Reserve Board) the reserve requirement is 3%; and for accounts greater than
$47.8 million, the reserve requirement is $1.479 million (subject to adjustment
by the Federal Reserve Board between 8% and 14%) against that portion of total
transaction accounts in excess of $47.8 million. The first $4.7 million of
otherwise reservable balances (subject to adjustment by the Federal Reserve
Board) are exempted from the reserve requirements. The Bank is in compliance
with the foregoing requirements. Because required reserves must be maintained in
the form of either vault cash, a noninterest-bearing account at a Federal
Reserve Bank or a pass-through account as defined by the Federal Reserve Board,
the effect of this reserve requirement is to reduce the Bank's interest-earning
assets. FHLB System members are also authorized to borrow from the Federal
Reserve "discount window," but Federal Reserve Board regulations require
institutions to exhaust all FHLB sources before borrowing from a Federal Reserve
Bank.
NEW JERSEY LAW
The Commissioner regulates, among other things, the Bank's internal
business procedures as well as its deposits, lending and investment activities.
The Commissioner must approve changes to the Bank's Certificate of
Incorporation, establishment or relocation of branch offices, mergers and the
issuance of additional stock. In addition, the Commissioner conducts periodic
examinations of the Bank. Certain of the areas regulated by the Commissioner are
not subject to similar regulation by the FDIC.
Recent federal and state legislative developments have reduced distinctions
between commercial banks and SAIF-insured savings institutions in New Jersey
with respect to lending and investment authority, as well as interest rate
limitations. As federal law has expanded the authority of federally chartered
savings institutions to engage in activities previously reserved for commercial
banks, New Jersey legislation and regulations ("parity legislation") have given
New Jersey chartered savings institutions, such as the Bank, the powers of
federally chartered savings institutions.
New Jersey law provides that, upon satisfaction of certain triggering
conditions, as determined by the Commissioner, insured institutions or savings
and loan holding companies located in a state which has reciprocal legislation
in effect on substantially the same terms and conditions as stated under New
Jersey law may acquire, or be acquired by, New Jersey insured institutions or
holding companies on either a regional or national basis. New Jersey law
explicitly prohibits interstate branching.
HOLDING COMPANY REGULATION
The Company will be a non-diversified unitary savings and loan holding
company within the meaning of the HOLA. As such, the Company will be required to
register with the OTS and will be subject to OTS regulations, examinations,
supervision and reporting requirements. In addition, the OTS has enforcement
authority over the Company and its non-savings institution subsidiaries. Among
other things, this authority permits the OTS to restrict or prohibit activities
that are determined to be a serious risk to the subsidiary savings institution.
The Bank must notify the OTS 30 days before declaring any dividend to the
Company.
As a unitary savings and loan holding company, the Company generally will
not be restricted under existing laws as to the types of business activities in
which it may engage, provided that the Bank continues to be a QTL. See "-
Federal Regulation of Savings Institutions - QTL Test" for a discussion of the
QTL requirements. Upon any non-supervisory acquisition by the Company of another
savings association, the Company would become a multiple savings and loan
holding company (if the acquired institution is held as a separate subsidiary)
and would be subject to extensive limitations on the types of business
activities in which it could engage. The HOLA limits the activities of a
multiple savings and loan holding company and its non-insured institution
subsidiaries primarily to activities permissible for bank holding companies
under
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Section 4(c)(8) of the Bank Holding Company ("BHC") Act, subject to the prior
approval of the OTS, and to other activities authorized by OTS regulation.
Recently proposed legislation would treat all savings and loan holding companies
as bank holding companies and limit the activities of such companies to those
permissible for bank holding companies. See "Risk Factors - Financial
Institution Regulation and Possible Legislation."
The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5% of
the voting stock of another savings institution, or holding company thereof,
without prior written approval of the OTS; from acquiring or retaining, with
certain exceptions, more than 5% of a non-subsidiary holding company or savings
association. The HOLA also prohibits a savings and loan holding company from
acquiring more than 5% of a company engaged in activities other than those
authorized for savings and loan holding companies by the HOLA; or acquiring or
retaining control of a depository institution that is not insured by the FDIC.
In evaluating applications by holding companies to acquire savings institutions,
the OTS must consider the financial and managerial resources and future
prospects of the company and institution involved, the effect of the acquisition
on the risk to the insurance funds, the convenience and needs of the community
and competitive factors.
The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, except: (i) the approval of interstate supervisory
acquisitions by savings and loan holding companies, and (ii) the acquisition of
a savings institution in another state if the laws of the state of the target
savings institution specifically permit such acquisitions. The states vary in
the extent to which they permit interstate savings and loan holding company
acquisitions.
FEDERAL SECURITIES LAWS
The Company has filed with the SEC a registration statement under the
Securities Act of 1933, as amended ("Securities Act"), for the registration of
the Common Stock to be issued pursuant to the Conversion. Upon completion of the
Conversion, the Company's Common Stock will be registered with the SEC under the
Exchange Act. The Company will then be subject to the information, proxy
solicitation, insider trading restrictions and other requirements under the
Exchange Act.
The registration under the Securities Act of shares of the Common Stock to
be issued in the Conversion does not cover the resale of such shares. Shares of
the Common Stock purchased by persons who are not affiliates of the Company may
be resold without registration. Shares purchased by an affiliate of the Company
will be subject to the resale restrictions of Rule 144 under the Securities Act.
If the Company meets the current public information requirements of Rule 144
under the Securities Act, each affiliate of the Company who complies with the
other conditions of Rule 144 (including those that require the affiliate's sale
to be aggregated with those of certain other persons) would be able to sell in
the public market, without registration, a number of shares not to exceed, in
any three-month period, the greater of (i) 1% of the outstanding shares of the
Company or (ii) the average weekly volume of trading in such shares during the
preceding four calendar weeks. Provision may be made in the future by the
Company to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.
MANAGEMENT OF THE COMPANY
The Board of Directors of the Company is divided into three classes, each
of which contains approximately one-third of the Board. The directors shall be
elected by the stockholders of the Company for staggered three year terms, or
until their successors are elected and qualified. One class of directors,
consisting of Messrs. Mulkerin, Shein and Burke has a term of office expiring at
the first annual meeting of
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stockholders, a second class, consisting of Mr. Timpson and Dr. Akey, has a term
of office expiring at the second annual meeting of stockholders, and a third
class, consisting of Messrs. Martin, McLaughlin and Ruegger has a term of office
expiring at the third annual meeting of stockholders. Their names and
biographical information are set forth under "Management of the Bank -
Directors." The Company will hold its first annual meeting of stockholders prior
to consummation of the Conversion and Reorganization. The Company's first annual
meeting of public stockholders is expected to occur in April 1999.
The following individuals are the executive officers of the Company and
hold the offices set forth below opposite their names.
<TABLE>
<CAPTION>
NAME POSITIONS HELD WITH COMPANY
- -------------------------- ---------------------------------
<S> <C>
John P. Mulkerin President and Chief Executive Officer of the
Bank and Company, General Counsel
Christopher P. Martin Executive Vice President, Chief Operating
and Financial Officer, Corporate Secretary
</TABLE>
The executive officers of the Company are elected annually and hold office
until their respective successors have been elected and qualified or until
death, resignation or removal at the discretion of the Board of Directors.
Since the formation of the Company, none of the executive officers,
directors or other personnel of the Company has received remuneration from the
Company. Information concerning the principal occupations, employment and other
information concerning the directors and officers of the Company during the past
five years is set forth under "Management of the Bank -Biographical
Information."
MANAGEMENT OF THE BANK
DIRECTORS
The following table sets forth certain information regarding the Board of
Directors of the Bank.
<TABLE>
<CAPTION>
POSITION(S) HELD WITH THE DIRECTOR TERM
NAME AGE(1) BANK(2) SINCE EXPIRES
- ----------------------- --------- -------------------------------------------- ---------- ------------
<S> <C> <C> <C> <C>
Walter K. Timpson 75 Chairman of the Board 1964 2000
Donald T. Akey, M.D. 75 Director 1979 2000
Harry F. Burke 90 Director 1970 1999
Keith H. McLaughlin 61 Director 1983 1999
John P. Mulkerin 60 President, Chief Executive Officer, General
Counsel and Director 1996 1998
Philip T. Ruegger, Jr. 70 Director 1983 2000
Jeffries Shein 57 Director 1985 1998
Christopher P. Martin 40 Executive Vice President, Chief Financial
and Operating Officer, Corporate Secretary
and Director 1997 1998
</TABLE>
__________________
(1) As of September 30, 1997.
(2) All directors of the Bank are also directors of the Company.
89
<PAGE>
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The following table sets forth certain information regarding the executive
officers of the Bank who are not also directors.
<TABLE>
<CAPTION>
NAME AGE(1) POSITION(S) HELD WITH THE BANK
- --------------------------- ------- ------------------------------------------------
<S> <C> <C>
John F. Cerulo, Jr. 46 Senior Vice President/Retail Banking
Karen I. Martino 38 Senior Vice President/Audit and Compliance
Richard Spengler 36 Senior Vice President/Chief Lending Officer
</TABLE>
______________
(1) As of September 30, 1997.
Each of the executive officers of the Bank will retain his office in the
Bank until their re-election at the annual meeting of the Board of Directors of
the Bank, held immediately after the first annual meeting of stockholders
subsequent to the Conversion, and until their successors are elected and
qualified or until they are removed or replaced. Officers are subject to re-
election by the Board of Directors annually.
BIOGRAPHICAL INFORMATION
DIRECTORS
John P. Mulkerin was named President and Chief Executive Officer and a
member of the Board of Directors of the Bank in June 1996, following the death
of Joseph S. Yewaisis. Mr. Mulkerin joined the Bank in 1987 as Executive Vice
President, Chief Operating Officer and Corporate Secretary. He was named General
Counsel of the Bank in 1993. Mr. Mulkerin also serves as President and Chief
Executive Officer of the Company and is a director of FSB Financial Corp., a
wholly-owned subsidiary of the Bank. Mr. Mulkerin is also a member of the Board
of Directors of Middlesex Water Company, Raritan Bay Medical Center and Daytop
Village Foundation, headquartered in New York.
Christopher P. Martin is the Executive Vice President, Chief Financial and
Operating Officer and Corporate Secretary. He joined the Bank in 1984 and served
as Controller of the Bank until 1989, when he was named Senior Vice President
and Chief Financial Officer. He was named Executive Vice President in 1994. Mr.
Martin is also the Executive Vice President and Chief Financial Officer of the
Company and he serves as Treasurer and a director of FSB Financial Corp.
Donald T. Akey, M.D. joined the Board of First Savings in 1979. Dr. Akey is
a surgeon who had practiced in Metuchen, New Jersey, for over forty years. Dr.
Akey retired from active practice in 1993.
Harry F. Burke joined the Board of First Savings in 1970. Mr. Burke owned
and operated a general insurance agency in Woodbridge, New Jersey prior to the
sale of said business in 1980.
Keith H. McLaughlin joined the Board of First Savings in 1983. He is the
President and Chief Executive Officer of Raritan Bay Medical Center, which
operates acute care hospitals in Perth Amboy and Old Bridge, New Jersey. Mr.
McLaughlin also serves as a director of the Princeton Insurance Company.
Philip T. Ruegger, Jr. joined the Board of First Savings in 1983. Mr.
Ruegger is now an investor. Previously, he was President of Northwest
Construction Co., a real estate construction and management firm. Mr. Ruegger
served as director of the National Bank of New Jersey, a commercial bank, from
1968 through 1981.
90
<PAGE>
Jeffries Shein joined the Board of First Savings in 1985. He is a partner
with Jacobson, Goldfarb and Tanzman Associates, L.L.C., a commercial real estate
brokerage firm. Mr. Shein serves on the Board of Directors of Middlesex Water
Co. and is Chairman of the Board of Raritan Bay Medical Center.
Walter K. Timpson was appointed Chairman of the Board of Directors in June
1996, following the death of Mr. Joseph S. Yewaisis. Mr. Timpson has operated a
real estate appraisal firm in Metuchen, New Jersey, for over forty years.
Each director named above is also a director of the Company.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
John F. Cerulo, Jr. joined the Bank in 1988 as Senior Vice President -
Retail Banking. Prior to First Savings, Mr. Cerulo worked for another savings
institution for 16 years as a Branch Administrator.
Karen I. Martino joined the Bank in 1984. She is now Senior Vice President
and Auditor, a position she has held since 1990.
Richard Spengler joined the Bank in 1983. He was appointed Assistant Vice
President in 1990, and Vice President of Mortgage Operations in 1991. In January
1995, Mr. Spengler was named Senior Vice President - Chief Lending Officer.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS OF THE BANK AND COMPANY
The business of the Bank's Board of Directors is conducted through meetings
and activities of the Board and its committees. During the nine months ended as
of September 30, 1997, the Board of Directors held 10 regular meetings,
including the annual organization meeting, and five special meetings. During the
nine months ended September 30, 1997, no director attended fewer than 75% of the
total meetings of the Board of Directors of the Bank and committees on which
such director served.
The Audit Committee consists of Directors Akey (Chairman), Burke,
McLaughlin, Ruegger and Timpson. The Audit Committee met four times during the
nine months ended September 30, 1997. The Audit Committee reviews audit programs
and results of audits of compliance, departmental internal controls and
operating procedures.
The Nominating Committee consists of the entire Board of Directors except
those directors standing for election. The Nominating Committee meets annually
to select the nominees for the Board of Directors. The Board of Directors met
once in its capacity as a nominating committee during the nine months ended
September 30, 1997.
The Compensation Committee consists of Directors Timpson (Chairman),
McLaughlin, Ruegger and Shein. The Compensation Committee meets at least
annually to review the performance and remuneration of the officers and
employees of the Bank. The committee reviews and approves all compensation
programs to be implemented by the Bank. The Compensation Committee met twice in
its capacity as a compensation committee during the nine months ended September
30, 1997.
91
<PAGE>
DIRECTOR COMPENSATION
Nonemployee directors receive $750 for each Board of Directors meeting
attended, plus a $1,750 monthly retainer. Nonemployee directors serving on the
committees are paid $300 for each meeting attended.
DIRECTORS' DEFERRED FEE PLAN. Directors may elect to defer all or part of
their fees under the Agreement for Deferment of Directors' Fees (the "Deferral
Fee Agreement"). The fees so deferred are recorded on the books of the Bank as a
liability in the year the fees are earned; however, the Bank does not
specifically fund the amount so deferred. The Bank pays the deferred fees to the
directors not earlier than the time they cease to be a director, retirement or
when they attain age 65 (or some other age specifically elected by the
director), unless the Bank determines it serves its best interests or the best
interests of the director to disburse these funds at an earlier date.
The Bank also maintains the First Savings Bank, SLA Directors' Deferred Fee
Stock Unit Plan (the "Deferred Fee Stock Unit Plan"). During the Bank's 1992 and
1995 stock offerings, Directors who had deferred fees under the Deferred Fee
Agreement had the opportunity to elect to defer the fees under the Deferred Fee
Stock Unit Plan. Each Director who elected to participate in the Deferred Fee
Stock Unit Plan had his deferred fees credited with a number of shares of Common
Stock based on the fair market value of the stock. Messrs. Burke, McLaughlin,
Martin, Ruegger, Shein and Timpson currently participate in the Plan. It is
expected that Directors will again be able to defer fees previously earned into
the Deferred Fee Stock Unit Plan in connection with the Offerings.
RETIREMENT PLAN. First Savings also maintains a nonqualified, unfunded
retirement plan for directors who are not employees, have served as a director
for five (5) years, and who retire from the Board of Directors within the time
specified under the Retirement Plan. Benefits, in general, are equal either to
all or a portion of the current annual retainer received by Board members,
depending upon the director's age and length of service at retirement. Benefits
are paid monthly, commencing in the month following the director's retirement
from the Board and ending in the month following the director's death.
STOCK OPTION PLAN FOR OUTSIDE DIRECTORS. During 1992, the Board of
Directors adopted the First Savings Bank, SLA 1992 Stock Option Plan for Outside
Directors (the "Directors' Stock Option Plan") of the Bank and its affiliates.
Under the terms of the Director's Stock Option Plan, 100,399 shares of the
Common Stock have been reserved for issuance to current directors who are not
employees of the Bank. The Directors' Stock Option Plan is a self administering
plan and provides that each member of the Board of Directors of the Bank who is
not an officer or employee of the Bank or the Mutual Holding Company will be
granted non-statutory stock options to purchase 16,733 shares of the Common
Stock (based on adjustments for four 10% stock dividends and a two-for-one stock
split). All stock options granted under this plan are currently exercisable at
an exercise price of $3.413 per share, as adjusted the four stock dividends and
the stock split. As of September 30, 1997, 33,466 options had been exercised
under this plan.
INCENTIVE PLAN. During 1995, the Board of Directors adopted the First
Savings Bank, SLA 1996 Omnibus Incentive Plan for directors, officers and
certain employees of the Bank and its affiliates. Under the terms of the
Incentive Plan, 21,780 shares of the Common stock have been reserved for
issuance to current directors who are not employees of the Bank. The portion of
the Incentive Plan granting awards to directors is self administering and
provides that each member of the Board of Directors who is not an officer or
employee of the Bank or the Holding Company will be granted non-statutory
options to purchase 3,630 shares of the Bank's Common Stock at an exercise price
of $13.02 per share. Stock options granted under this plan vest in equal
installments over a three-year period from the date of issuance.
92
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth certain
information as to the total remuneration paid by the Bank to the Chief Executive
Officer and other executive officers who received salary and bonuses in excess
of $100,000 during the year ended December 31, 1996 ("Named Executive
Officers"). In addition, the table sets forth information regarding total
remuneration for the years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM COMPENSATION
-------------------------------------------------------
ANNUAL COMPENSATION(1) AWARDS PAYOUTS
------------------------------------------------------------------------------------------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
SALARY COMPENSATION STOCK AWARDS OPTIONS/SARS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITIONS YEAR (1)(2) BONUS(3) (4) (5) (6) (7) (8)(9)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joseph S. Yewaisis(10) 1996 $185,770 $ -- $ -- $ -- -- $ -- $17,742
Chairman of the Board, 1995 330,000 99,000 -- -- -- -- 17,122
President and Chief Executive 1994 315,000 94,500 -- -- -- -- 14,615
Officer
John P. Mulkerin (11) 1996 202,250 67,500 -- 66,138 13,915 -- 19,813
President, Chief Executive 1995 152,000 30,400 -- -- -- -- 17,062
Officer and General Counsel 1994 145,000 29,000 -- -- -- -- 14,128
Christopher P. Martin(12) 1996 160,460 54,000 -- 66,138 13,915 -- 18,905
Executive Vice President, Chief 1995 125,000 25,000 -- -- -- -- 14,168
Financial Officer, Chief 1994 110,000 22,000 -- -- -- -- 10,718
Operating Officer and Corporate
Secretary
Richard Spengler 1996 100,000 15,000 -- 17,875 2,420 -- 13,042
Senior Vice President, Lending 1995 74,480 11,250 -- -- -- -- 7,995
1994 63,000 7,875 -- -- -- -- 6,020
</TABLE>
_________________________
(1) Includes directors' fees paid to Mr. Mulkerin in 1996.
(2) Includes amounts of salary deferred pursuant to the Bank's Incentive
Savings Plan for Employees of First Savings Bank, SLA 401(k).
(3) Includes bonuses granted pursuant to the Bank's Annual Incentive Plan.
Under this plan, bonuses are awarded by the Compensation Committee of the
Board of Directors based upon achieving certain predetermined profit
levels and other identifiable goals. See "Compensation Committee
Report."
(4) The Bank provides certain executive officers with the use an automobile,
club dues and certain other benefits, which, in the aggregate, do not
exceed the lesser of either $50,000, or 10% of the total annual salary
and bonus reported for any of the named executive officers.
(5) Pursuant to the 1996 Incentive Plan, Messrs. Mulkerin, Martin and
Spengler were awarded 4,477 shares, 4,477 shares and 1,210 shares of
Common stock, respectively, in November 1996, as adjusted for a 10% stock
dividend paid on October 30, 1997, which had a market value of $75,300,
$75,300 and $19,600, respectively, at December 31, 1996. The dollar
amounts set forth in the table represent the market value of the shares
awarded on the date of grant. A committee of non-employee directors
determines the date on which plan share awards vest. Pursuant to the
award agreements, the awards will vest over a three-year period from the
date of grant.
(6) The Bank maintains the 1992 Incentive Stock Option Plan for the benefit
of officers and employees. All options granted pursuant to the 1992
Incentive Stock Option Plan became exercisable as of July 10, 1993. The
Bank also maintains the 1996 Incentive Plan for the benefit of officers
and directors. Messrs. Mulkerin, Martin and Spengler were awarded 13,915
shares, 13,915 shares and 2,420 shares subject to options, respectively,
under the 1996 Incentive Plan, as adjusted for a 10% stock dividend paid
on October 30, 1997. Options granted become exercisable in equal
installments at an annual rate of 33-1/3% beginning November 19, 1997.
(7) For 1996, 1995 and 1994, the Bank had no long-term incentive plan;
accordingly, there were no payouts or awards under any long-term
incentive plan.
(8) Includes $4,950, $3,847 and $3,000 contributed by the Bank in 1996 to the
accounts of Messrs. Mulkerin, Martin and Spengler, respectively, under
the Incentive Savings Plan for Employees of First Savings Bank, SLA
401(k).
(9) Includes $15,063, $15,063 and $10,042, contributed by the Bank pursuant
to the Bank's Employee Stock Ownership Plan ("ESOP") in 1997 allocated
for the benefit of Messrs. Mulkerin, Martin and Spengler.
(10) Mr. Yewaisis passed away on May 29, 1996.
(11) Mr. Mulkerin was appointed to the positions of President and Chief
Executive Officer on June 12, 1996.
(12) Mr. Martin was appointed to the added positions of Chief Operating
Officer and Corporate Secretary on June 12, 1996.
93
<PAGE>
1996 Incentive Plan. On April 24, 1996, the Bank's stockholders approved
the First Savings Bank, SLA 1996 Omnibus Incentive Plan under which all
employees of the Bank are eligible to receive awards. The 1996 Incentive Plan
provides discretionary awards to officers and key employees, as determined by a
committee of non-employee directors. Stock options were awarded to officers
under the 1996 Incentive Plan on November 19, 1996. The following table lists
all grants of stock options under the Incentive Plan to the Named Executive
Officers for fiscal 1996 and contains certain information about the potential
value of those options based upon certain assumptions regarding the appreciation
of the Bank's stock over the life of the stock option.
OPTIONS GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTIONS(1)
- -------------------------------------------------------------------------------------- ---------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTION/SARS
OPTIONS/SARS GRANTED TO EXERCISE OR
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION
NAME (2)(3)(4)(5) FISCAL YEAR PER SHARE DATE(6) 5% 10%
- ------------------------ -------------- --------------- -------------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
John P. Mulkerin 13,915 21.1% $14.773 11/19/06 $129,504 $326,844
Christopher P. Martin 13,915 21.1 14.773 11/19/06 129,504 326,844
Richard Spengler 2,420 3.7 14.773 11/19/06 22,523 56,843
</TABLE>
__________________________
(1) The amounts represent certain assumed rates of appreciation. Actual gains,
if any, on stock exercises and Common Stock holdings are dependent on the
future performance of the Common Stock and overall stock market conditions.
There can be no assurance that the amounts reflected in this table will be
realized. All stock options and their respective prices reflect the 10%
stock dividend paid on October 30, 1997.
(2) Options granted pursuant to the Incentive Plan become exercisable in equal
installments at an annual rate of 33 1/3% beginning on November 19, 1997.
(3) The purchase price may be paid in cash or in Common Stock.
(4) Under limited circumstances, such as death or disability of an employee,
the employee (or his beneficiary) may request that the Bank, in exchange
for the employee's surrender of an option, pay to the employee (or
beneficiary) the amount by which the fair market value of the Common Stock
exceeds the exercise price of the option on the date of the employee's
termination of employment. It is within the Bank's discretion to accept or
reject such a request.
(5) To the extent possible, options will be treated as incentive options.
(6) The option term is ten years.
94
<PAGE>
The following table provides certain information with respect to the number
of shares of Common Stock acquired upon exercise of stock options and the value
realized thereon. Also reported is the number of shares of Common Stock
represented by outstanding stock options at December 31, 1996, held by named
executive officers and the values for "in-the-money" options which represent the
positive spread between the exercise price of any existing stock option and the
year-end price of the Common Stock.
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS AT
OPTIONS AT DECEMBER 31, DECEMBER 31, 1996 (1)(2)
1996(1)
-------------------------------- --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
John P. Mulkerin.......... 2,130 13,915 $ 28,540 $28,460
Christopher P. Martin..... 8,785 13,915 117,740 28,460
Richard Spengler.......... -- 2,420 -- 4,950
</TABLE>
___________________________
(1) All options granted under the 1992 Incentive Stock Option Plan were
issued on July 10, 1992, and exercisable on July 10, 1993, at an
option price of $3.413 per share. All options granted under the 1996
Incentive Plan were issued on November 19, 1996, at an option price of
$14.773 per share. Options granted to Messrs. Mulkerin and Martin are
exercisable at the rate of 4,638 shares per year commencing on
November 19, 1997. Options granted to Mr. Spengler are exercisable at
the rate of 807 shares per year commencing on November 19, 1997. All
options will immediately vest upon a change in control.
(2) The market value of the Common Stock at December 31, 1996, was $18.50
per share.
The 1996 Incentive Plan was implemented by the Bank and the Mutual Holding
Company as a means of providing employees and outside directors, respectively,
of the Bank and the Mutual Holding Company with a proprietary interest in the
Bank in a manner designed to encourage such persons to remain with the Bank and
the Company. In November 1996, the 1996 Incentive Plan acquired 18,000 shares of
Bank Common Stock from authorized but unissued shares (21,780 shares as adjusted
for two 10% stock dividends).
A Committee of the Board of Directors of the Bank and the Company comprised
of nonemployee directors administers the 1996 Incentive Plan, and makes awards
to executive officers pursuant to the Plan. Awards under the 1996 Incentive Plan
become immediately vested in the event of death, disability, retirement or a
change in control of the Bank or its successors.
Officers, directors and employees of the Bank were awarded a total of
18,000 shares of Bank Common Stock during the year ended December 31, 1996
(21,780 as adjusted for two 10% stock dividends paid on October 30, 1997). Of
the total, 21,780 shares of Bank Common Stock acquired by the 1996 Incentive
Plan, 14,524 shares were unallocated at November 30, 1997. At the completion of
the Conversion and Reorganization, the unallocated shares will be converted into
shares of Company Common Stock in accordance with the applicable Exchange Ratio
and will be available for grants to participants in the 1996 Incentive Plan.
95
<PAGE>
Adoption of Existing Bank Plans by Company. The Company has approved
adoption of the Bank's existing 1992 Stock Option Plans and 1996 Incentive Plan
(collectively the "Plans") as plans of the Company upon consummation of the
Conversion and Reorganization and will issue Common Stock in lieu of Bank Common
Stock to such Plans pursuant to the terms of such Plans. As of the effective
date of the Conversion and Reorganization, rights outstanding under the Plans
shall be assumed by the Company and thereafter shall be rights only for shares
of Company Common Stock, with each such right being for a number of shares of
Common Stock equal to the number of shares of Bank Common Stock that were
available thereunder immediately prior to such effective date times the Exchange
Ratio, and the price of each such right shall be adjusted to reflect the
Exchange Ratio and so that the aggregate purchase price of the right is
unaffected, but with no change in other terms or conditions of such right. The
Company shall make appropriate amendments to the Plans to reflect the adoption
of the Plans by the Company without adverse effect upon the rights outstanding
thereunder. In addition, the Bank's Incentive Savings Plan for Employees of
First Savings Bank, SLA (the "401(k) Plan"), will be amended to permit
participants to invest in the Common Stock of the Company. Currently, the 401(k)
Plan has an employer stock fund which enables participants to invest in Bank
Common Stock.
EMPLOYMENT AGREEMENTS
The Mutual Holding Company and the Bank currently have employment
agreements with Messrs. Mulkerin and Martin. Effective upon the Conversion and
Reorganization, the Company intends to enter into employment agreements
(collectively, the "Employment Agreements") with Messrs. Mulkerin and Martin
(the "Executives"). The Bank's contracts will remain in effect. The Employment
Agreements are subject to the review and approval of the Company, and the review
of the OTS and may be amended as a result of such review. Review of the
compensation arrangements by the OTS does not indicate, and should not be
construed to indicate that the OTS has passed upon the merits thereof. The
Employment Agreements are intended to ensure that the Bank and the Company will
be able to maintain a stable and competent management base after the Conversion
and Reorganization. The continued success of the Bank and the Company depends to
a significant degree on the skills and competence of Messrs. Mulkerin and
Martin.
The proposed Employment Agreements are expected to provide for a three-year
term for the Executives. The Bank's Employment Agreements provide that,
commencing on the first anniversary date and continuing each anniversary date
thereafter, the Board of Directors of the Bank reviews the agreements and the
Executive's performance for purposes of determining whether to extend the
agreements with the Bank for an additional year such that the remaining terms
would be the amount of the original terms. It is expected that the Company
Employment Agreement would automatically extend daily, such that the remaining
terms would be the amount of the original term unless written notice of non-
renewal is given by the Board of Directors of the Company after conducting a
performance evaluation of the executive. The base annual salary which will be
effective for the Employment Agreement for Messrs. Mulkerin and Martin will be
$260,000 and $210,000, respectively. In addition to the base salary, the
proposed Employment Agreements would provide for, among other things,
participation in stock benefit plans and other fringe benefits applicable to
executive personnel. The Employment Agreements provide for termination by the
Bank or the Company for "cause," as defined in the agreements, at any time. In
the event the Bank or the Company would choose to terminate the Executive's
employment for reasons other than for "cause," or in the event of the
Executive's resignation from the Bank and the Company upon: (i) failure to re-
elect the Executive to his current offices; (ii) a material change in the
Executive's functions, duties or responsibilities; (iii) a relocation of the
Executive's principal place of employment by more than 25 miles; (iv)
liquidation or dissolution of the Bank or the Company; or (v) a breach of the
agreement by the Bank or the Company, the Executive or, in the event of death,
his beneficiary, would be entitled to receive the remaining base salary payments
due to the Executive and the contributions that would have been made on the
Executive's behalf to any employee benefit plans of the Bank or the Company
during the remaining term of the agreement. The Bank and the
96
<PAGE>
Company would also continue and pay for the Executive's life, health and
disability coverage for the remaining term of the Employment Agreements.
Under the current and proposed Employment Agreements, if voluntary or
involuntary termination follows a "change in control" of the Bank or the
Company, as defined in the proposed Employment Agreements, the Executive or, in
the event of death, his beneficiary, would be entitled to a payment equal to the
greater of: (1) the payments due for the remaining term of the agreement; or (2)
a severance payment equal to three times the average of the five preceding
taxable years' compensation, in the case of the Company's proposed Employment
Agreement, and three times the average of the three preceding taxable years'
compensation in the case of the Bank's existing Employment Agreements. It is
also expected that the Company, like the Bank, would also continue the
Executive's life, health, and disability coverage for 36 months. Notwithstanding
that both agreements would provide for a severance payment in the event of a
change in control, the Executive would only be entitled to receive a severance
payment under one agreement.
Payments to the Executives under the Bank's proposed Employment Agreements
are expected to be guaranteed by the Company in the event that payments or
benefits are not paid by the Bank. Payment under the Company's Employment
Agreements would be made by the Company. All reasonable costs and legal fees
paid or incurred by the Executive pursuant to any dispute or question of
interpretation relating to the Employment Agreements would be paid by the Bank
or Company, respectively, if the Executive is successful on the merits pursuant
to a legal judgment, arbitration or settlement. The Bank's Employment Agreement
provides, and it is expected that the Company's Employment Agreement would
provide, that the Bank and Company indemnify the Executive to the fullest extent
allowable under federal and Delaware law, respectively. In the event of a
"change in control" of the Bank or Company, the total amount of payments that
would be due under the Employment Agreements, based solely on cash compensation
paid to Messrs. Mulkerin and Martin in the past fiscal year and excluding any
benefits under any employee benefit plan which may be payable, would be
approximately $709,000 and $567,000, respectively.
CHANGE IN CONTROL AGREEMENTS
Effective upon the Conversion and Reorganization, the Bank and the Company
intend to enter into Change in Control Agreements ("CIC Agreements") with
__________________. Such agreements will have terms ranging from one to three
years. The proposed CIC Agreements are expected to provide that commencing on
the first anniversary date and continuing on each anniversary thereafter, the
Bank's CIC Agreements may be renewed by the Board of Directors for an additional
year while the term of the Company's CIC Agreements shall be extended on a daily
basis unless written notice of non-renewal is given by the Board of Directors of
the Company. It is also expected that the CIC Agreements with the Company will
provide that in the event voluntary or involuntary termination follows a change
in control of the Bank or the Company, the officer would be entitled to receive
a severance payment equal to one to three times the officer's average annual
compensation for the five years preceding termination, depending on the term of
the officers' CIC Agreement. It is also expected that the Bank's CIC Agreement
would have a similar change in control provision; however, the officer would
only be entitled to receive a severance payment under one agreement. The Company
and the Bank would also continue, and pay for, the officer's life, health and
disability coverage for 12 to 36 months following termination. Payments to the
officer under the Bank's CIC Agreements would be guaranteed by the Company in
the event that payments or benefits are not paid by the Bank. In the event of a
change in control of the Bank or Company, the total payments that would be due
under the CIC Agreements, based solely on the cash compensation paid to the
officers covered by the CIC Agreements over the past three fiscal years and
excluding any benefits under any employee benefit plan which may be payable,
would be approximately $___ million.
97
<PAGE>
EMPLOYEE SEVERANCE COMPENSATION PLAN
It is anticipated that the Bank's Board of Directors will, subsequent to
the Conversion and Reorganization, establish the First Savings Bank, SLA
Employee Severance Compensation Plan ("Severance Plan") which would provide
eligible employees with severance pay benefits in the event of a change in
control of the Bank or the Company following Conversion and Reorganization.
Management personnel with employment or CIC Agreements would not be eligible to
participate in the Severance Plan. Generally, all employees would be eligible to
participate in the Severance Plan. It is expected that under the Severance Plan,
in the event of a change in control of the Bank or the Company, eligible
employees who are terminated from or terminate their employment within one year
of the change in control (for reasons specified under the Severance Plan), would
be entitled to receive a severance payment. The participant would be entitled to
a cash severance payment equal to one-twelfth of then-current annual
compensation for each year of service up to a maximum of 100% of annual
compensation. Such payments may tend to discourage takeover attempts by
increasing costs to be incurred by the Bank in the event of a takeover. In the
event the provisions of the Severance Plan were triggered, the total amount of
payments that would be due thereunder, based solely upon salary levels at
December 31, 1996, would be approximately $___ million.
BENEFITS
Pension Plan. On January 1, 1993, the Bank became a participant in the
Financial Institutions Retirement Fund, a multiple-employer defined benefit
plan. All employees who attain the age of 21 years and complete one year of
service are eligible to participate in this Plan. Retirement benefits are based
upon a formula utilizing years of service and average compensation. Participants
are vested 100% upon the completion of five years of service.
Financial Institutions Retirement Fund does not segregate its assets,
liabilities or costs by participating employer. Therefore, disclosure of the
accumulated benefit obligations, plan assets and the components of annual
pension expense attributable to the Bank cannot be ascertained.
First Savings is required to make an annual contribution to the plan based
upon the actuarial estimated provided by the actuary. During the nine months
ended September 30, 1997, this amounted to $143,000, which includes past
conversion costs from prior plan year revaluations.
98
<PAGE>
The following table illustrates annual pension benefits at age 65 under the
most advantageous plan provisions available at various levels of compensation
and years of service. The benefits listed in the table are not subject to a
deduction for Social Security or any other offset amount.
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------
AVERAGE 10 15 20 25 AND OVER
-------------- --------- --------- ---------- -----------
<S> <C> <C> <C> <C>
$ 20,000...... $ 4,000 $ 6,000 $ 8,000 $ 10,000
$ 30,000...... 6,000 9,000 12,000 15,000
$ 50,000...... 10,000 15,000 20,000 25,000
$ 75,000...... 15,000 22,500 30,000 37,500
$100,000...... 20,000 30,000 40,000 50,000
$150,000...... 30,000 45,000 60,000 75,000
$200,000...... 40,000 60,000 80,000 100,000
$300,000 and
over(1)....... 60,000 90,000 130,000(2) 130,000(2)
</TABLE>
________________
(1) Under current law, the average final compensation for computing benefits
under the Pension Plan cannot exceed $160,000 (indexed for inflation).
However, benefits are not reduced below the level of benefits accrued as of
December 31, 1992.
(2) Under current law, the maximum benefit is limited to $130,000 per year
beginning in 1998.
(3) The compensation utilized for formula purposes include salary amounts
listed under "Summary Compensation Table."
The following table sets forth the years of credited service as of December
31, 1996, for each of the individuals named in the Executive Compensation Table.
<TABLE>
<CAPTION>
YEARS OF CREDITED
SERVICE
-------------------
<S> <C>
John P. Mulkerin 9
Christopher P. Martin 13
Richard Spengler 14
</TABLE>
Supplemental Executive Retirement Plan. Effective as of January 1, 1994,
the Board of Directors revised a previously existing plan entitled the
Retirement Benefit Maintenance Plan (the "Maintenance Plan") and restated it as
the First Savings Bank, SLA Supplemental Executive Retirement Plan ("SERP"). The
SERP provides a post-employment supplemental retirement benefit for participants
who retire on or after their "Normal Retirement Age" (age 65) equal to (i)
seventy-five percent (75%) of the participant's base salary during the twelve
months prior to retirement, (ii) less the amount of the participant's "Pension
Plan Annual Benefit" and "Primary Social Security Benefit," as defined in the
plan. The plan allows for benefits, reduced according to actuarial
considerations, for early retirement. The SERP is not a tax-qualified employee
benefit plan. Pursuant to the SERP, the estimated additional annual benefits
payable upon retirement at normal retirement age for Messrs. Mulkerin and Martin
are $107,600 and $47,900, respectively.
99
<PAGE>
The Bank intends to implement an additional supplemental executive
retirement plan to provide for supplemental benefits to certain employees whose
benefits under the ESOP and/or 401(k) Plan are reduced by limitations imposed by
the Code. From time to time, the Board will designate which employees may
participate in this additional supplemental executive retirement plan. This
supplemental executive retirement plan will also be an "unfunded" promise to pay
supplemental benefits in the future and any amount set aside to pay the benefits
under the plan remain subject to the claims of the Bank's general creditors
until they are paid to plan participants. The Bank may establish a grantor trust
in connection with the plan to satisfy the obligations of the Bank under the
plan. The grantor trust would be permitted to invest in a wide-variety of
investments, including Company Common Stock.
Employee Stock Ownership Plan and Trust. The Bank established the First
Savings Bank, SLA Employee Stock Ownership Plan (the "ESOP") and related trust
for eligible employees in connection with the 1992 MHC Reorganization. Employees
employed with the Bank as of January 1, 1992 and employees of the Company or the
Bank employed after such date, who have been credited with at least 1,000 hours
during a 12-month period and who have attained the age of 21 participate in the
ESOP.
In July 1992, the ESOP borrowed $700,000 from an unaffiliated lender to
purchase 70,000 shares of Bank Common Stock issued in the 1992 MHC
Reorganization ("1992 ESOP Loan"). In connection with the Bank's 1995 Secondary
Issuance, the ESOP purchased an additional 42,000 shares of Bank Common Stock at
$13.00 per share. The ESOP borrowed an additional $546,000 from the MHC to fund
the purchase of the shares. The MHC also assumed the 1992 ESOP Loan. Upon
consummation of the Conversion and Reorganization, the Public Bank Shares held
by the ESOP will convert into Common Stock of the Company based upon the
Exchange Ratio, and the Company expects to refinance the MHC's existing loan to
the ESOP. See "The Conversion and Reorganization - Effect on Existing
Compensation Plans" and "Use of Proceeds."
In connection with the establishment of the ESOP, a Committee of the Board
of Directors was appointed to administer the ESOP (the "ESOP Committee"). A
trustee for the ESOP was appointed prior to the 1992 MHC Reorganization and
continuing thereafter. The ESOP Committee may instruct the trustee regarding
investment of funds contributed to the ESOP. The ESOP trustee, subject to its
fiduciary duty, must vote all allocated shares held in the ESOP in accordance
with the instructions of the participating employees. Under the ESOP, allocated
shares for which no instructions are given and unallocated shares will be voted
by the trustee in a manner calculated to most accurately reflect the
instructions it has received from participants regarding the allocated stock,
provided such vote is in accordance with the provisions of ERISA.
The ESOP intends to purchase 8% of the Conversion Stock issued in the
Conversion. As part of the Conversion and in order to fund the ESOP's purchase
of the Conversion Stock to be issued in the Conversion, the ESOP intends to
borrow funds either from the Company or a third-party lender equal to 8% of the
aggregate purchase price of the Conversion Stock. In either case, the loan will
be repaid principally from the Company's or the Bank's contribution's to the
ESOP over a period of 15 years and the collateral for the loan will be the
Common Stock purchased by the ESOP. This loan will be in addition to the
existing ESOP loans, which will continue to be repaid over their original terms.
Subject to receipt of any necessary regulatory approvals or opinions, the Bank
may make contributions to the ESOP for repayment of the loan since the
participants are all employees of the Bank, or to reimburse the Company for
contributions made by it. Contributions to the ESOP will be discretionary,
however, the Company or the Bank intend to make annual contributions to the ESOP
in an aggregate amount at least equal to the principal and interest requirement
on the debt. The interest rate for the loan is expected to be the current market
rate.
Shares purchased by the ESOP will initially be pledged as collateral for
the loan, and will be held in a suspense account until released for allocation
among participants as the loan is repaid. The pledged shares will be released
annually from the suspense account in an amount proportional to the repayment of
the ESOP loan for each plan year. The released shares will be allocated among
the accounts of participants on the basis of the participant's compensation for
the year of allocation. Participants will vest in their ESOP
100
<PAGE>
accounts after five years of credited service. Participants also vest completely
in their accounts if their service terminates due to death, early retirement,
permanent disability or a change in control. Forfeitures will be reallocated
among remaining participating employees, in the same proportion as
contributions. Benefits may be payable upon death, retirement, early retirement,
disability or separation from service. The contributions to the ESOP are not
fixed, so benefits payable under the ESOP cannot be estimated.
Stock-Based Incentive Plan. Following the Conversion and Reorganization,
the Board of Directors of the Company intends to adopt one or more stock-based
benefit plans to provide stock options, awards of restricted stock and certain
related rights to eligible officers, employees, and directors of the Company and
Bank. The Company anticipates granting stock options and restricted stock awards
under a single plan. However, it is possible separate plans could be established
for directors and employees (including officers).
At a meeting of stockholders of the Company following the Conversion and
Reorganization, which under applicable OTS regulations may be held no earlier
than six months after the completion of the Conversion and Reorganization, the
Board of Directors intends to present the Stock-Based Incentive Plan or any
separate plan(s) to stockholders for approval. The Company has reserved an
amount equal to 10% of the shares of Common Stock issued in the Conversion and
Reorganization, or 1,424,207 shares (based upon the issuance of 14,242,072
shares), for stock options, and 4% of the shares of Common Stock issued in the
Conversion, or 569,682 shares (based upon the issuance of 14,242,072 shares),
for restricted stock awards. OTS regulations provide that no individual officer
or employee of the Bank may receive more than 25% of the stock options available
under the Stock-Based Incentive Plan (or any separate plan for officers and
employees) and non-employee directors may not receive more than 5% individually,
or 30% in the aggregate, of the stock options available under the Stock-Based
Incentive Plan (or any separate plan for directors). OTS regulations also
provide that no individual officer or employee of the Bank may receive more than
25% of the restricted stock awards available under the Stock-Based Incentive
Plan (or any separate plan for officers and employees) and non-employee
directors may not receive more than 5% individually, or 30% in the aggregate, of
the restricted stock awards available under the Stock-Based Incentive Plan (or
any separate plan for directors). The Bank expects to contribute funds to a
trust established in connection with the Stock-Based Incentive Plan (or any
separate plan(s)) to enable the plan to acquire, in the aggregate, an amount
equal to 4% of the shares of Common Stock issued in the Conversion, or 569,682
shares (based upon the issuance of 14,242,072 shares). These shares would be
acquired through open market purchases, if permitted, or from authorized but
unissued shares. The Board intends to appoint an independent fiduciary to serve
as trustee of a trust to be established in connection with the Stock-Based
Incentive Plan. In the event that additional authorized but unissued shares are
acquired by the Stock-Based Incentive Plan after the Conversion and
Reorganization, the interests of existing shareholders would be diluted. See
"Pro Forma Data."
The grants of stock options and restricted stock awards will be designed to
attract and retain qualified personnel in key positions, provide officers and
key employees with a propriety interest in the Company as an incentive to
contribute to the success of the Company and reward key employees for
outstanding performance. All employees of the Company and its subsidiaries,
including the Bank, will be eligible to participate in the Stock-Based Incentive
Plan (or any separate plan for employees). It is expected that the committee
administering the plan will determine which officers and employees will be
granted stock options, restricted stock awards and related rights, including
limited rights. The committee will also determine whether stock options will be
incentive or non-statutory stock options, the number of shares subject to each
stock option and restricted stock award, the exercise price of each non-
statutory stock option, whether stock options may be exercised by delivering
other shares of Common Stock, and when stock options become exercisable or
restricted stock awards vest. Only employees may receive grants of Incentive
Stock Options. Therefore, under the Stock-Based Incentive Plan (or any separate
plan for directors), directors may receive only grants of Non-Statutory Stock
Options.
101
<PAGE>
The Stock-Based Incentive Plan (or any separate plan for employees) will
provide for the grant of: (i) options to purchase the Common Stock intended to
qualify as incentive stock options under Section 422 of the Code ("Incentive
Stock Options"); (ii) options that do not so qualify ("Non-Statutory Stock
Options"); and (iii) limited option rights ("Limited Option Rights"). Limited
Option Rights are exercisable only upon a change in control of the Bank or the
Company. Upon exercise of Limited Option Rights in the event of a change in
control, the employee or director will be entitled to receive a lump sum cash
payment equal to the difference between the exercise price of any unexercised
option, whether exercisable or unexercisable at such time, and the fair market
value of the shares of common stock subject to the stock option on the date of
exercise of the right in lieu of purchasing the stock underlying the stock
option. It is anticipated that all stock options granted contemporaneously with
stockholder approval of the Stock-Based Incentive Plan will qualify as Incentive
Stock Options to the extent permitted under Section 422 of the Code. Unless
sooner terminated, the Stock-Based Incentive Plan will be in effect for a period
of ten years from the earlier of adoption by the Board of Directors or approval
by the Company's Stockholders. Subject to stockholder approval, the Company
intends to grant stock options with Limited Option Rights under the Plan at an
exercise price equal to at least the fair market value of the underlying Common
Stock on the date of grant.
An individual will not be deemed to have received taxable income upon the
grant or exercise of any Incentive Stock Option, provided that such shares
received through the exercise of such option are not disposed of by the employee
for at least one year after the date the stock is received in connection with
the stock option exercise and two years after the date of grant of the stock
option (a "disqualifying disposition"). No compensation deduction will be
available to the Company as a result of the grant or exercise of Incentive Stock
Options unless there has been a disqualifying disposition. In the case of a Non-
Statutory Stock Option and in the case of a disqualifying disposition of an
Incentive Stock Option, an individual will realize ordinary income upon exercise
of the stock option (or upon the disqualifying disposition) in an amount equal
to the amount by which the exercise price exceeds the fair market value of the
Common Stock purchased by exercising the stock option on the date of exercise.
The amount of any ordinary income realized by an optionee upon the exercise of a
Non-Statutory Stock Option or due to a disqualifying disposition of an Incentive
Stock Option will be a deductible expense to the Company for tax purposes. In
the case of Limited Rights, the option holder will have to include the amount
paid to him or her upon exercise in his gross income for federal income tax
purposes in the year in which the payment is made and the Company will be
entitled to a deduction for federal income tax purposes of the amount paid.
Under the Stock-Based Incentive Plan (or any separate plans for directors
and employees), restricted stock awards and related Limited Stock Rights, would
be granted in the form of shares of Common Stock held by the plans. Awards will
be non-transferable and non-assignable. Allocations and grants of restricted
stock awards, and related Limited Stock Rights, to officers and employees may be
made in the form of base grants and/or performance grants (the vesting of which
would be contingent upon performance goals established by the committee
administering the plan). In establishing any performance goals, the committee
may utilize the annual financial results of the Bank, actual performance of the
Bank as compared to targeted goals such as the ratio of the Bank's net worth to
total assets, the Bank's return on average assets or average equity, or such
other performance standards as determined by the committee with the approval of
the Board of Directors.
Limited Stock Rights would be exercisable by participants upon a change in
control of the Company or Bank as described in the plan. Subject to OTS
regulations, upon the exercise of a Limited Stock Right, the recipient will be
entitled to receive a cash payment equal to the fair market value of all
unvested stock awards in exchange for any rights to such unvested stock awards.
When a participant becomes vested with respect to restricted stock awards,
the participant will realize ordinary income equal to the fair market value of
the Common Stock at the time of vesting (unless the participant made an election
pursuant to Section 83(b) of the Code). The amount of income recognized by the
participants will be a deductible expense for tax purposes for the Bank. When
restricted stock awards
102
<PAGE>
become vested and shares of Common Stock are actually distributed to
participants, the participants would receive amounts equal to any accrued
dividends with respect thereto. Prior to vesting, recipients of stock awards may
direct the voting of the shares awarded to them. Shares not subject to grants
and shares allocated subject to the achievement of performance goals will be
voted by the trustee in proportion to the directions provided with respect to
shares subject to grants. Vested shares will be distributed to recipients as
soon as practicable following the day on which they vest.
If the Stock-Based Incentive Plan (or any separate plans for employees and
directors) is adopted in the form described above, stock awards would become
vested and stock options would become vested and exercisable in the manner
specified by the Company, subject to applicable OTS regulations, which require
that stock options and restricted stock awards begin vesting no earlier than one
year from the date of shareholder approval of the plan and thereafter vest at a
rate of no more than 20% per year. Stock options could be exercisable for three
months following the date on which the employee or director ceases to perform
services for the Bank or the Company, except that in the event of death or
disability, options accelerate and become fully vested and could be exercisable
for up to one year thereafter or such longer period as determined by the
Company. In the case of death or disability, stock options may be exercised for
a period of 12 months. However, any Incentive Stock Options exercised more than
three months following the date the employee ceases to perform services as an
employee would be treated as a Non-Statutory Stock Option. In the event of
retirement, if the optionee continues to perform services as a director or
consultant on behalf of the Bank, the Company or an affiliate, unvested options
would continue to vest in accordance with their original vesting schedule until
the optionee ceases to serve as a consultant or director. In the event of death,
disability or normal retirement, the Company, if requested by the optionee, or
the optionee's beneficiary, could elect, in exchange for vested options, to pay
the optionee, or the optionee's beneficiary in the event of death, the amount by
which the fair market value of the Common Stock exceeds the exercise price of
the options on the date of the employee's termination of employment.
Applicable OTS regulations currently do not permit accelerated vesting in
the event of a change in control of stock options or stock awards granted under
a plan adopted within one year after conversion. Subject to any applicable
regulatory requirements, the Stock-Based Incentive Plan (or any separate plans
for employees and directors) may be amended subsequent to the expiration of the
one-year period following the Conversion and Reorganization to provide for
accelerated vesting of previously granted options in the event of a change in
control of the Company or the Bank. A change in control would generally be
considered to occur when a person or group of persons acting in concert acquires
beneficial ownership of 20% or more of any class of equity security of the
Company or the Bank or in the event of a tender or exchange offer, merger or
other form of business combination, sale of all or substantially all of the
assets of the Company or the Bank or contested election of directors which
resulted in the replacement of a majority of the Board of Directors by persons
not nominated by the directors in office prior to the contested election.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") required that all loans or extensions of credit to executive officers
and directors be made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
the general public and not involve more than the normal risk of repayment or
present other unfavorable features. In addition, loans made to a director or
executive officer in excess of the greater of $25,000, or 5% of the Bank's
capital and surplus (up to a maximum of $500,000) must have been approved in
advance by a majority of the disinterested members of the Board of Directors.
The Bank currently makes loans to executive officers and directors on the
same terms and conditions offered to the general public. The Bank's policy
provides that all loans made by the Bank to its executive officers and directors
be made in the ordinary course of business, on substantially the same terms,
including collateral, as those prevailing at the time for comparable
transactions with other persons and may not involve
103
<PAGE>
more than the normal risk of collectibility or present other unfavorable
features. The Bank may, in the future, determine to offer loans to executive
officers and directors on terms not available to the public, but available to
other employees, in accordance with recently modified regulations.
Prior to the enactment of FIRREA, the Bank provided loans to Directors and
executive officers at reduced rates and/or with points waived or reduced. There
were no loans to the Bank's current executive officers and directors that
exceeded $500,000 as of September 30, 1997. The largest principal amount
outstanding on a pre-FIRREA basis loan during the nine months ended September
30, 1997 was a first mortgage loan of $149,000, and the amount outstanding and
the interest rate on such loan on such date were $147,000 and 8.00%,
respectively. All other loans that exceeded $60,000 at any time during fiscal
year 1997 to executive officers, directors, immediate family members of
executive officers and directors, or organizations with which executive officers
and directors are affiliated, were made in the ordinary course of business, on
substantially the same terms including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons.
104
<PAGE>
BENEFICIAL OWNERSHIP OF CAPITAL STOCK
BENEFICIAL OWNERSHIP OF BANK COMMON STOCK
The following table includes, as of November 30, 1997, certain information
as to the Bank Common Stock beneficially owned by (i) the only persons or
entities, including any "group" as that term issued in Section 13(d)(3) of the
Exchange Act, who or which was known to the Bank to be the beneficial owner of
more than 5% of the issued and outstanding Bank Common Stock, (ii) the directors
of the Bank, (iii) certain executive officers of the Bank, and (iv) all
directors and executive officers of the Bank as a group. For information
concerning proposed subscriptions by directors and executive officers and the
anticipated ownership of Common Stock by such persons upon consummation of the
Conversion and Reorganization, see "-Subscriptions by Executive Officers and
Directors."
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL BENEFICIAL PERCENT OF
OWNER OR NUMBER OF OWNERSHIP AS OF BANK
PERSONS IN GROUP NOVEMBER 30, 1997(1)(3)(4)(5) COMMON STOCK
- ---------------------------------- ----------------------------- ------------
<S> <C> <C>
First Savings Bancshares, MHC (2)
1000 Woodbridge Center Drive
Woodbridge, NJ 07095 4,134,812 51.6%
Walter K. Timpson 137,426 1.7
Donald T. Akey, M.D. 29,453 0.4
Harry F. Burke 54,855 0.7
Keith H. McLaughlin 65,145 0.8
Philip T. Ruegger, Jr. 153,588 1.9
Jeffries Shein 206,132 2.6
John P. Mulkerin 87,544 1.1
Christopher P. Martin 50,543 0.6
John F. Cerulo, Jr. 12,479 0.2
Karen I. Martino 9,035 0.1
Richard Spengler 23,655 0.3
All Directors and Executive
Officers as a Group (11 persons) 829,855 10.4%
</TABLE>
__________________
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed to
be the beneficial owner for purposes of this table, of any shares of Common
Stock if he has shared voting or investment power with respect to such
security, or has a right to acquire beneficial ownership at any time within
60 days from the date as to which beneficial ownership is being determined.
As used herein, "voting power" is the power to vote or direct the voting of
shares and "investment power" is the power to dispose or direct the
disposition of shares. Includes all shares held directly as well as by
spouses and minor children, in trust and other indirect ownership, over
which shares the named individuals effectively exercise sole or shared
voting and investment power.
(2) The Bank's executive officers and directors are also executive officers
and directors of First Savings Bancshares, MHC.
(3) Based upon filings made pursuant to the Exchange Act and information
furnished by the respective individuals. Under regulations promulgated
pursuant to the Exchange Act, shares of Bank Common Stock are deemed to be
beneficially owned by a person if he directly or indirectly has or shares
(i) voting power, which includes the power to vote or to direct the voting
of the shares, or (ii) investment power, which includes the power to
dispose or to direct the disposition of the shares. Unless otherwise
indicated, the named beneficial owner has sole voting and dispositive power
with respect to the shares.
(4) Under applicable regulations, a person is deemed to have beneficial
ownership of any shares of Bank Common Stock which may be acquired within
60 days of November 30, 1997 pursuant to the exercise of outstanding stock
options. Shares of Bank Common Stock which are subject to stock options are
deemed to be outstanding for the purpose of computing the percentage of
outstanding Bank Common Stock owned by such person or group or group but
not deemed outstanding for the purpose of computing the percentage of Bank
Common Stock owned by any other person or group.
(5) Includes the following amount of unvested shares of restricted stock
awarded under the 1996 Incentive Plan which may be voted by the recipient
pending vesting and distribution: 726 shares to each of Messrs. Akey,
Burke, McLaughlin, Ruegger and Shein; 2,985 shares to both Messrs. Mulkerin
and Martin; and 807 shares to each of Mr. Cerulo, Ms. Martino and Mr.
Spengler. Includes options to purchase stock pursuant to the Bank's 1992
Stock Option Plans which were vested as of November 30, 1997: 17,943 shares
to each of Messrs. Timpson, McLaughlin, Ruegger and Shein, 1,210 shares to
each of Messrs. Akey and Burke; 6,768 shares to Mr. Mulkerin; 4,638 shares
to Mr. Martin; and 807 shares to each of Messrs. Cerulo, Spengler and Ms.
Martino.
105
<PAGE>
SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth, for each of the Company's directors and
executive officers and for all of the directors and executive officers as a
group, (i) the number of Exchange Shares to be held upon consummation of the
Conversion and Reorganization, based upon their beneficial ownership of the Bank
Common Stock as of November 30, 1997, (2) the proposed purchases of Conversion
Stock, assuming sufficient shares are available to satisfy their subscriptions,
and (3) the total amount of Common Stock to be held upon consummation of the
Conversion and Reorganization, in each case assuming that 12,384,495 shares of
Conversion Stock are sold, which is the midpoint of the Valuation Price Range.
<TABLE>
<CAPTION>
PROPOSED PURCHASES OF TOTAL COMMON STOCK
NUMBER OF CONVERSION STOCK(1) TO BE HELD
------------------------ --------------------------
EXCHANGE SHARES TO NUMBER NUMBER PERCENTAGE
BE HELD (2)(3)(4) AMOUNT OF SHARES OF SHARES OF TOTAL
------------------ ----------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Walter K. Timpson 355,379 $ 50,000 5,000 360,379 1.52%
Donald T. Akey, M.D. 82,343 30,000 3,000 85,343 0.36
Harry F. Burke 158,359 50,000 5,000 163,359 0.68
Keith H. McLaughlin 139,079 156,000 15,500 154,079 0.64
Philip T. Ruegger, 403,745 250,000 25,000 428,745 1.79
Jr.
Jeffries Shein (5) 560,983 0 0 566,983 2.34
John P. Mulkerin 232,791 250,000 25,000 257,791 1.07
Christopher P. 128,439 200,000 20,000 148,439 0.62
Martin
John F. Cerulo, Jr. 32,513 60,000 6,000 38,513 0.16
Karen I. Martino 22,206 25,000 2,500 24,706 0.10
Richard Spengler 75,957 40,000 4,000 69,957 0.29
--------- -------- ------ --------- -----
All Directors and
Executive Officers
as a Group (11 persons) 2,181,794 $1,105,000 110,500 2,292,294 9.55%
========= ======== ====== ========= =====
</TABLE>
____________________
(1) Includes proposed subscriptions, if any, by associates. Does not include
subscription orders by the ESOP. Intended purchases by the ESOP are
expected to be 8% of the shares issued in the Conversion.
(2) Excludes shares which may be received upon the exercise of outstanding
stock options. Based upon the Exchange Ratio of 2.9925 Exchange Shares for
each Public Bank Share at the midpoint of the Valuation Price Range, the
persons named in the table would have options to purchase Common Stock as
follows: Mr. Timpson, 60,936 shares; Dr. Akey, 10,862 shares; Mr. Burke,
10,862 shares; Mr. McLaughlin, 60,936 shares; Mr. Ruegger, 60,936 shares;
Mr. Shein, 60,936 shares; Mr. Mulkerin, 48,014 shares; Mr. Martin, 41,640
shares; Mr. Cerulo, 7,241 shares; Ms. Martino, 7,241 shares; Mr. Spengler,
7,241 shares; and all directors and executive officers as a group, 376,845
shares.
(3) Excludes the following amount of shares awarded under the 1996 Incentive
Plan, which have not yet vested based upon the above Exchange Ratio, in the
following amounts: Mr. Timpson, 2,172 shares; Dr. Akey, 2,172 shares; Mr.
Burke, 2,172 shares; Mr. McLaughlin, 2,172 shares; Mr. Ruegger, 2,172
shares; Mr. Shein, 2,172 shares; Mr. Mulkerin, 8,932 shares; Mr. Martin,
8,932 shares; Mr. Cerulo, 2,414 shares; Ms. Martino, 2,414 shares; Mr.
Spengler, 2,414 shares; and all directors and executive officers as a
group, 38,138 shares.
(4) Excludes stock options and awards to be granted under the Company's 1998
Stock Option Plan and 1998 Stock Program if such plans are approved by
stockholders at an annual or special meeting of shareholders at least six
months following the Conversion and Reorganization. See "Management of the
Bank - New Benefits Resulting from the Conversion and Reorganization."
(5) Due to the purchase limitations, Mr. Shein may be precluded from purchasing
any shares in the Offerings.
106
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THE CONVERSION AND REORGANIZATION
THE BOARDS OF DIRECTORS OF THE MUTUAL HOLDING COMPANY, THE BANK AND THE
COMPANY HAVE APPROVED THE PLAN OF CONVERSION, AS HAS THE OTS, SUBJECT TO
APPROVAL BY THE MEMBERS OF THE MUTUAL HOLDING COMPANY AND THE STOCKHOLDERS OF
THE BANK ENTITLED TO VOTE ON THE MATTER AND THE SATISFACTION OF CERTAIN OTHER
CONDITIONS. SUCH OTS APPROVAL, HOWEVER, DOES NOT CONSTITUTE A RECOMMENDATION OR
ENDORSEMENT OF THE PLAN BY SUCH AGENCY.
GENERAL
On October 24, 1997 the Boards of Directors of the Mutual Holding Company
and the Bank unanimously adopted, subject to approval by the OTS, the Plan
pursuant to which the Mutual Holding Company will convert to a stock form of
organization; the Company will offer and sell the Conversion Stock; and the
Company will issue Common Stock in exchange for the Public Bank Shares. The Plan
was subsequently amended on December 16, 1997. It is intended that all of the
outstanding capital stock of the Bank will be held by the Company, which is
incorporated under Delaware law. The Plan was approved by the OTS, subject to,
among other things, approval of the Plan by the Members of the Mutual Holding
Company and the stockholders of the Bank. A special meeting of members and a
special meeting of stockholders has been called for this purpose to be held on
____________, 1998.
The Company has received approval of the OTS to become a savings and loan
holding company and to acquire all of the Common Stock of the Bank to be issued
in the Conversion and Reorganization. The Company plans to retain 50% of the net
proceeds from the sale of the Conversion Stock, with all the remaining proceeds
contributed to the Bank. The Conversion and Reorganization will be effected only
upon completion of the sale of all of the shares of Conversion Stock of the
Company to be issued pursuant to the Plan.
The Plan provides generally that (i) the Mutual Holding Company will
convert to the stock form of organization and (ii) the Company will offer shares
of Conversion Stock for sale in the Subscription Offering to the Bank's Eligible
Account Holders, the ESOP, Supplemental Eligible Account Holders, and Other
Members. Concurrently, shares will be offered in a Community Offering with a
first preference given to the holders of the Public Bank Shares. It is
anticipated that all shares not subscribed for in the Subscription and Community
Offerings will be offered for sale by the Company to the general public in a
Syndicated Community Offering. The Primary Parties have the right to accept or
reject, in whole or in part, any orders to purchase shares of the Conversion
Stock received in the Community Offering or in the Syndicated Community
Offering. See "-Community Offering" and "- Syndicated Community Offering."
The aggregate price of the shares of Conversion Stock to be issued in the
Conversion within the Estimated Price Range, currently estimated to be between
$105.3 million and $142.4 million, will be determined based upon an independent
appraisal, prepared by FinPro of the estimated pro forma market value of the
Common Stock of the Company. All shares of Conversion Stock to be issued and
sold in the Conversion and Reorganization will be sold at the same price. The
independent appraisal will be affirmed or, if necessary, updated at the
completion of the Subscription and Community Offerings, if all shares are
subscribed for, or at the completion of the Syndicated Community Offering. The
appraisal has been performed by FinPro, a consulting firm experienced in the
valuation and appraisal of savings institutions. See "- Stock Pricing and
Exchange Ratio" for additional information as to the determination of the
estimated pro forma market value of the Conversion Stock.
107
<PAGE>
The following is a brief summary of pertinent aspects of the Conversion.
The summary is qualified in its entirety by reference to the provisions of the
Plan. A copy of the Plan is available for inspection at each branch of the Bank
and at the Northeast Region and Washington, D.C. offices of the OTS. The Plan is
also filed as an Exhibit to the Registration Statement of which this Prospectus
is a part, copies of which may be obtained from the SEC. See "Additional
Information."
PURPOSES OF THE CONVERSION AND REORGANIZATION
The Mutual Holding Company, as a federally-chartered mutual holding
company, does not have stockholders and has no authority to issue capital stock.
As a result of the Conversion and Reorganization, the Mutual Holding Company
will be restructured into the form used by holding companies of commercial
banks, other business entities and a growing number of savings institutions. The
Conversion and Reorganization will enhance the ability of the Company and the
Bank to access capital markets, expand current operations, acquire other
financial institutions or branch offices, provide affordable home financing
opportunities to the communities the Bank serves or diversify into other
financial services to the extent allowable by applicable law and regulation.
The stock holding company form of organization would provide additional
flexibility to diversify the Bank's business activities through existing or
newly formed subsidiaries, or through acquisitions of or mergers with both
mutual and stock institutions, as well as other companies. Although there are no
current arrangements, understandings or agreements regarding any such
opportunities, the Company will be in a position after the Conversion and
Reorganization, subject to regulatory limitations and the Company's financial
position, to take advantage of any such opportunities that may arise. See "Use
of Proceeds."
While the Bank currently has the ability to raise additional capital
through the sale of additional shares of its common stock, that ability is
limited by the mutual holding company structure which, among other things,
requires that the Mutual Holding Company own a majority of the outstanding
shares of its savings institution subsidiary's common stock. The Conversion and
Reorganization will significantly increase the Bank's capital position to a
level whereby the Bank will be better positioned to take advantage of business
opportunities as they arise. At September 30, 1997, the Bank had stockholders'
equity, determined in accordance with generally accepted accounting principles
("GAAP"), of $99.2 million, or 9.5% of total assets. Assuming that the Company
contributes 50% of net proceeds at the maximum of the Estimated Price Range to
the Bank, the Bank's GAAP capital will increase to $161.4 million, or a ratio of
GAAP capital to adjusted assets, on a pro forma basis, of 14.58% after the
Conversion and Reorganization. The investment of the net proceeds from the sale
of the Conversion Stock is expected to provide the Bank with additional income
to increase further its capital position. The additional capital may also assist
the Bank in offering new programs and expanded services to its customers. See
"Use of Proceeds."
If the Bank had undertaken a standard conversion involving the formation of
a stock holding company in 1992 when it reorganized into mutual holding company
form, applicable OTS regulations would have required a greater amount of common
stock to be sold than the $10.0 million raised in the 1992 MHC Reorganization,
and in light of then prevailing market conditions there was uncertainty as to
whether the greater amount of common stock could have been sold. A standard
conversion in 1995 also would have immediately eliminated all aspects of the
mutual form of organization. In light of current market conditions for the
stocks of savings institutions and their holding companies and the Bank's
financial condition, the Boards of Directors of the Bank and the Mutual Holding
Company believe that it is in the best interests of such companies and their
respective stockholders and members to raise additional capital at this time,
and that the most feasible way to do so is through the Conversion and
Reorganization.
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After completion of the Conversion and Reorganization, the unissued common
and preferred stock authorized by the Company's Certificate of Incorporation
will permit the Company, subject to market conditions and regulatory approval of
an offering, to raise additional equity capital through further sales of
securities, and to issue securities in connection with possible acquisitions. At
the present time, the Company has no plans with respect to additional offerings
of securities, other than the issuance of additional shares upon exercise of
stock options or the possible issuance of authorized but unissued shares for
restricted stock awards under the Stock-Based Incentive Plan. Following the
Conversion and Reorganization, the Company will also be able to use stock-
related incentive programs to attract and retain executive and other personnel
for itself and its subsidiaries. See "Management of the Bank - Executive
Compensation."
DESCRIPTION OF THE CONVERSION
The Boards of Directors of the Bank and the Mutual Holding Company adopted
the Plan on October 24, 1997. Thereafter, the Bank caused the Company to be
incorporated under Delaware law as a first-tier, wholly owned subsidiary of the
Bank, and the Board of Directors of the Company adopted the Plan on December 16,
1997. After receipt of all requisite regulatory approvals, the Company will form
First Interim as a first-tier, wholly owned subsidiary of the Company, and the
Board of Directors of First Interim shall adopt the Plan by at least a two-
thirds vote. In addition, the Bank and the Company shall approve the Plan in
their capacities as the sole shareholders of the Company and First Interim,
respectively.
Pursuant to OTS regulations, the Plan must be approved by the affirmative
vote of at least a majority of the total number of votes eligible to be cast by
Members at the Special Meeting and by holders of at least two-thirds of the
outstanding common stock of the Bank at the Stockholders' Meeting. In addition,
in accordance with current OTS policy, the Plan must be approved by a majority
of the votes cast, in person or by proxy, by the holders of the Public Bank
Shares at the Stockholders' Meeting.
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The following diagram outlines the current organizational structure of
the parties' ownership interests:
<TABLE>
<S> <C>
- ----------------------------------- ------------------------------------
FIRST SAVINGS BANCSHARES, MHC HOLDERS OF PUBLIC BANK SHARES
- ----------------------------------- ------------------------------------
51.6% 48.4%
---------------------------------
FIRST SAVINGS BANK, SLA
---------------------------------
100%
---------------------------------
FIRST SOURCE BANCORP, INC.
---------------------------------
100%
---------------------------------
FIRST INTERIM SAVINGS BANK, FSB
---------------------------------
</TABLE>
The following diagram reflects the resulting structure of the parties upon
consummation of the Conversion and Reorganization, including (i) the merger of
the Mutual Holding Company (following its conversion into an interim federal
stock savings institution) with and into the Bank, (ii) the merger of First
Interim with and into the Bank, pursuant to which the Public Bank Shares will be
converted into Exchange Shares, and (iii) the offering of Conversion Stock. The
diagram assumes that there are no fractional shares and does not give effect to
purchase of Conversion Stock by holders of Public Bank Shares or the exercise of
outstanding stock options.
<TABLE>
<S> <C>
------------------------ -----------------------
PURCHASERS HOLDERS OF
OF CONVERSION STOCK PUBLIC BANK SHARES
------------------------ -----------------------
51.6% 48.4%
-----------------------------------
FIRST SOURCE BANCORP, INC.
-----------------------------------
100%
-----------------------------------
FIRST SAVINGS BANK, SLA
-----------------------------------
</TABLE>
EFFECTS OF THE CONVERSION AND REORGANIZATION
General. Each depositor in the Bank has both a deposit account in the
institution and a pro rata ownership interest in the net worth of the
institution based upon the balance in his account, which interest may only be
realized in the event of a liquidation of the Mutual Holding Company. However,
this ownership interest is tied to the depositor's account and has no tangible
market value separate from such deposit account. Any depositor who opens a
deposit account obtains a pro rata ownership interest in the net worth
110
<PAGE>
of the Mutual Holding Company without any additional payment beyond the amount
of the deposit. A depositor who reduces or closes his account receives a portion
or all of the balance in the account but nothing for his ownership interest in
the net worth of the Mutual Holding Company, which is lost to the extent that
the balance in the account is reduced.
Consequently, the depositors of the Bank normally have no way to realize
the value of their ownership interest, which has realizable value only in the
unlikely event that the Mutual Holding Company is liquidated. In such event, the
depositors of record at that time, as owners, would share pro rata in any
residual surplus and reserves after other claims, including claims of depositors
to the amounts of their deposits, are paid.
Upon consummation of the Conversion and Reorganization, permanent
nonwithdrawable capital stock is created to represent the ownership of the net
worth of the Company. THE COMMON STOCK OF THE COMPANY IS SEPARATE AND APART FROM
DEPOSIT ACCOUNTS AND CANNOT BE AND IS NOT INSURED BY THE FDIC OR ANY OTHER
GOVERNMENTAL AGENCY. Certificates are issued to evidence ownership of the
capital stock. The stock certificates are transferable and, therefore, the stock
may be sold or traded if a purchaser is available with no effect on any account
the seller may hold in the Bank.
Continuity. While the Conversion and Reorganization is being accomplished,
the normal business of the Bank of accepting deposits and making loans will
continue without interruption. The Bank will continue to be subject to
regulation by the OTS and the FDIC. After the Conversion and Reorganization, the
Bank will continue to provide services for depositors and borrowers under
current policies by its present management and staff.
The Directors serving the Bank at the time of Conversion and Reorganization
will serve initially as Directors of the Bank after the Conversion and
Reorganization. The Directors of the Company will consist initially of
individuals currently serving on the Board of Directors of the Mutual Holding
Company. All officers of the Bank at the time of Conversion and Reorganization
will retain their positions immediately after Conversion and Reorganization.
Effect on Public Bank Shares. Under the Plan, upon consummation of the
Conversion and Reorganization, the Public Bank Shares shall be converted into
Common Stock based upon the Exchange Ratio without any further action on the
part of the holder thereof. Upon surrender of the Public Bank Shares, Common
Stock will be issued in exchange for such shares.
Upon consummation of the Conversion and Reorganization, the Public
Stockholders of the Bank, a New Jersey chartered savings association, will
become stockholders of the Company, a Delaware corporation. For a description of
certain changes in the rights of stockholders as a result of the Conversion and
Reorganization, see "Comparison of Stockholders' Rights" below.
Under New Jersey law, Public Stockholders of the Bank will not have
dissenters' rights or appraisal rights in connection with the Conversion and
Reorganization. See "Comparison of Stockholders' Rights - Dissenters' Rights of
Appraisal."
Effect on Deposit Accounts. Under the Plan, each depositor in the Bank at
the time of Conversion and Reorganization will automatically continue as a
depositor after the Conversion and Reorganization, and each such deposit account
will remain the same with respect to deposit balance, interest rate and other
terms. Each such account will be insured by the FDIC to the same extent as
before the Conversion (i.e., up to $100,000 per depositor). Depositors will
continue to hold their existing certificates, passbooks and other evidences of
their accounts.
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<PAGE>
Effect on Loans. No loan outstanding from the Bank will be affected by the
Conversion and Reorganization, and the amount, interest rate, maturity and
security for each loan will remain as they were contractually fixed prior to the
Conversion and Reorganization.
Effect on Voting Rights of Members. At present, all depositors and certain
borrowers of the Bank are members of, and have voting rights in, the Mutual
Holding Company as to all matters requiring membership action. Upon Conversion
and Reorganization, the Mutual Holding Company will cease to exist and
therefore, depositors and borrowers will no longer have membership rights in the
Mutual Holding Company. Upon Conversion and Reorganization, all voting rights in
the Bank will be vested in the Company as the sole stockholder of the Bank.
Exclusive voting rights with respect to the Company will be vested in the
holders of Common Stock. Depositors and borrowers of the Bank will not have
voting rights in the Company after the Conversion and Reorganization except to
the extent that they become stockholders of the Company.
Tax Effects. The Primary Parties have received an opinion from Muldoon,
Murphy & Faucette with regard to federal income taxation and New Jersey taxation
which provides that the adoption and implementation of the Plan of Conversion
and Agreement and Plan of Reorganization set forth herein will not be taxable
for federal or New Jersey tax purposes to the Primary Parties or the Bank's
Eligible Account Holders, Supplemental Eligible Account Holders or Other
Members, except as discussed below. See "- Tax Aspects."
Effect on Liquidation Rights. If the Mutual Holding Company were to
liquidate, all claims of creditors (including those of depositors, to the extent
of deposit balances) would be paid first. Thereafter, if there were any assets
remaining, depositors would be entitled to such remaining assets, pro rata,
based upon the deposit balances in their deposit accounts immediately prior to
liquidation. In the unlikely event that the Bank were to liquidate after
Conversion, all claims of creditors (including those of depositors, to the
extent of their deposit balances) would also be paid first, followed by
distribution of the "liquidation account" to certain depositors (see "-
Liquidation Rights"), with any assets remaining thereafter distributed to the
Company as the holder of the Bank's capital stock. Pursuant to the rules and
regulations of the OTS, a post-Conversion merger, consolidation, sale of bulk
assets or similar combination or transaction with another insured savings
institution would not be considered a liquidation and, in such a transaction,
the liquidation account would be assumed by the surviving institution.
EFFECT ON EXISTING COMPENSATION PLANS
Under the Plan, the Bank's 1992 Stock Option Plans and 1996 Incentive Plan
will become stock benefit plans of the Company and the Bank's 1992 ESOP will
continue as a benefit plan of the Bank and shares of Common Stock will be issued
(or reserved for issuance) pursuant to such benefit plans. See "Management of
the Bank - Benefits."
STOCK PRICING AND EXCHANGE RATIO
The Plan of Conversion requires that the Aggregate Purchase Price of the
Conversion Stock must be based on the appraised pro forma market value of the
Company's Common Stock, as determined on the basis of an independent valuation.
The Primary Parties have retained FinPro to make such valuation. For its
services in making such appraisal, FinPro will receive a fee of $25,000, plus
reasonable expenses. The Primary Parties have agreed to indemnify FinPro and its
employees and affiliates against certain losses (including any losses in
connection with claims under the federal securities laws) arising out of its
services as appraiser, except where FinPro liability results from its
negligence, willful misconduct or bad faith.
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<PAGE>
An appraisal has been made by FinPro in reliance upon the information
contained in this Prospectus, including the Consolidated Financial Statements.
FinPro also considered the following factors, among others: the present and
projected operating results and financial condition of the Primary Parties and
the economic and demographic conditions in the Mutual Holding Company's and the
Bank's existing marketing area; certain historical, financial and other
information relating to the Mutual Holding Company and the Bank; a comparative
evaluation of the operating and financial statistics of the Bank with those of
other similarly situated publicly-traded savings banks and savings institutions
located in the Mutual Holding Company's and the Bank's primary market area and
northeastern United States; the aggregate size of the offering of the Conversion
Stock; the impact of Conversion and Reorganization on the Mutual Holding
Company's and the Bank's net worth and earnings potential; the proposed dividend
policy of the Company and the Bank; and the trading market for the Bank Common
Stock and securities of comparable institutions and general conditions in the
market for such securities.
On the basis of the foregoing, FinPro has advised the Primary Parties in
its opinion the estimated pro forma market value of the Company's Common Stock,
after giving effect to the Conversion and Reorganization, was $240.0 million as
of December 18, 1997. Because the holders of the Public Bank Shares will
continue to hold the same aggregate percentage ownership interest in the Company
as they currently hold in the Bank (before giving effect to the payment of cash
in lieu of issuing fractional Exchange Shares, and any shares of Conversion
Stock purchased by the Bank's stockholders in the Offerings or by the ESOP
thereafter), the Appraisal was multiplied by the Mutual Holding Company's
percentage interest in the Bank which corresponds with the amount of Conversion
Stock to be sold in the Offerings (i.e., 51.6%), to determine the midpoint of
the valuation ($123.8 million), and the minimum and maximum of the valuation
were set at 15% below and above the midpoint, respectively, resulting in a range
of $105.3 million to $142.4 million. The Boards of Directors of the Primary
Parties determined that the Conversion Stock would be sold at $10.00 per share,
resulting in a range of 10,526,917 to 14,242,072 shares of Conversion Stock
being offered. Upon consummation of the Conversion and Reorganization, the
Conversion Stock and the Exchange Shares will represent approximately 51.6% and
48.4%, respectively, of the Company's total outstanding shares. The Boards of
Directors of the Primary Parties reviewed FinPro's appraisal report, including
the methodology and the assumptions used by FinPro, and determined that the
Valuation Price Range was reasonable and adequate. The Boards of Directors of
the Primary Parties also established the formula for determining the Exchange
Ratio. Based upon such formula and the Valuation Price Range, the Exchange Ratio
ranged from a minimum of 2.5436 to a maximum of 3.4414 Exchange Shares for each
Public Bank Shares, with a midpoint of 2.9925. Based upon these Exchange Ratios,
the Company expects to issue between 9,873,083 and 13,357,928 shares of Exchange
Shares to the holders of Public Bank Shares outstanding immediately prior to the
consummation of the Conversion and Reorganization. The Valuation Price Range and
the Exchange Ratio may be amended with the approval of the OTS, if required, or
if necessitated by subsequent developments in the financial condition of any of
the Primary Parties or market conditions generally. In the event the Appraisal
is updated to below $204.0 million or above $317.4 million (the maximum of the
Valuation Price Range, as adjusted by 15%), such Appraisal will be filed with
the SEC by post-effective amendment.
Based upon current market and financial conditions and recent practices and
policies of the OTS, in the event the Company receives orders for Conversion
Stock in excess of $142.4 million (the maximum of the Valuation Price Range) and
up to $163.8 million (the maximum of the Valuation Price Range, as adjusted by
15%), the Company may be required by the OTS to accept all such orders. No
assurances, however, can be made that the Company will receive orders for
Conversion Stock in excess of the maximum of the Valuation Price Range or that,
if such orders are received, that all such orders will be accepted because the
Company's final valuation and number of shares to be issued are subject to the
receipt of an updated appraisal from FinPro, which reflects such an increase in
the valuation and the approval of such increase by the OTS.
113
<PAGE>
There is no obligation or understanding on the part of management to take and/or
pay for any shares of Conversion Stock in order to complete the Offerings.
The following table sets forth, based upon the minimum, midpoint, maximum
and 15% above the maximum of the Valuation Price Range, the following: (i) the
total number of shares of Conversion Stock and Exchange Shares; (ii) the
percentage of the total Common Stock represented by the Conversion Stock and the
Exchange Shares; and (iii) the Exchange Ratio. The table assumes that there is
no cash paid in lieu of issuing fractional Exchange Shares.
<TABLE>
<CAPTION>
CONVERSION STOCK EXCHANGE SHARES TOTAL SHARES
TO BE OFFERED(1) TO BE ISSUED(1)(2) OF COMMON
----------------------- -----------------------
STOCK TO BE EXCHANGE
AMOUNT PERCENT AMOUNT PERCENT OUTSTANDING(1) RATIO(1)
<S> <C> <C> <C> <C> <C> <C>
Minimum..................... 10,526,917 51.6% 9,873,083 48.4% 20,400,000 2.5436
Midpoint.................... 12,384,495 51.6 11,615,505 48.4 24,000,000 2.9925
Maximum..................... 14,242,072 51.6 13,357,928 48.4 27,600,000 3.4414
15% above maximum........... 16,378,421 51.6 15,361,579 48.4 31,740,000 3.9576
</TABLE>
________________________________
(1) Assumes that outstanding options to purchase 142,541 shares of Bank Common
Stock at October 31, 1997 are not exercised prior to consummation of the
Conversion and Reorganization.
(2) Based upon 3,881,539 Public Bank Shares outstanding as of October 31, 1997.
Does not reflect unexercised options.
SUCH VALUATION, HOWEVER, IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING SUCH SHARES.
FINPRO DID NOT INDEPENDENTLY VERIFY THE CONSOLIDATED FINANCIAL STATEMENTS AND
OTHER INFORMATION PROVIDED BY THE BANK AND THE MUTUAL HOLDING COMPANY, NOR DID
FINPRO VALUE INDEPENDENTLY THE ASSETS OR LIABILITIES OF THE BANK AND THE MUTUAL
HOLDING COMPANY. THE VALUATION CONSIDERS THE BANK AND THE MUTUAL HOLDING COMPANY
AS GOING CONCERNS AND SHOULD NOT BE CONSIDERED AS AN INDICATION OF THE
LIQUIDATION VALUE OF THE BANK AND THE MUTUAL HOLDING COMPANY. MOREOVER, BECAUSE
SUCH VALUATION IS NECESSARILY BASED UPON ESTIMATES AND PROJECTIONS OF A NUMBER
OF MATTERS, ALL OF WHICH ARE SUBJECT TO CHANGE FROM TIME TO TIME, NO ASSURANCE
CAN BE GIVEN THAT PERSONS PURCHASING CONVERSION STOCK OR RECEIVING EXCHANGE
STOCK IN THE CONVERSION AND REORGANIZATION WILL THEREAFTER BE ABLE TO SELL SUCH
SHARES AT PRICES AT OR ABOVE THE PURCHASE PRICE OR IN THE RANGE OF THE FOREGOING
VALUATION OF THE PRO FORMA MARKET VALUE THEREOF. SEE "MARKET FOR THE COMMON
STOCK."
Following commencement of the Subscription and Community Offerings, the
maximum of the Estimated Price Range may be increased up to 15% and the number
of shares of Conversion Stock to be issued in the Conversion may be increased to
16,378,421 shares due to regulatory considerations or changes in market or
general financial and economic conditions, without the resolicitation of
subscribers. See "- Limitations on Conversion Stock Purchases" as to the method
of distribution and allocation of additional shares that may be issued in the
event of an increase in the Estimated Price Range to fill unfilled orders in the
Subscription and Community Offerings.
No sale of shares of Conversion Stock may be consummated unless, prior to
such consummation, FinPro confirms to the Primary Parties and the OTS that, to
the best of its knowledge, nothing of a material nature has occurred which,
taking into account all relevant factors, would cause FinPro to conclude that
the value of the Conversion Stock at the price so determined is incompatible
with its estimate of the pro forma market value of the Common Stock at the
conclusion of the Subscription and Community Offerings.
If the pro forma market value of the Common Stock is either more than 15%
above the maximum of the Estimated Price Range or less than the minimum of the
Estimated Price Range, the Bank and the
114
<PAGE>
Company, after consulting with the OTS, may terminate the Plan and return all
funds promptly with interest at the Bank's passbook rate of interest on payments
made by check, bank draft or money order, extend or hold a new Subscription and
Community Offering, establish a new Estimated Price Range, commence a
resolicitation of subscribers or take such other actions as permitted by the OTS
in order to complete the Conversion. In the event that a resolicitation is
commenced, unless an affirmative response is received within a reasonable period
of time, all funds will be promptly returned to investors as described above. A
resolicitation, if any, following the conclusion of the Subscription and
Community Offerings would not exceed 45 days unless further extended by the OTS
for periods of up to 90 days not to extend beyond ____________________, 2000.
If all shares of Conversion Stock are not sold through the Subscription and
Community Offerings, then the Bank and the Company expect to offer the remaining
shares in a Syndicated Community Offering which would occur as soon as
practicable following the close of the Subscription and Community Offerings but
may commence during the Subscription and Community Offerings subject to prior
rights of subscribers. All shares of Conversion Stock will be sold at the same
price per share in the Syndicated Community Offering as in the Subscription and
Community Offerings. See "--Syndicated Community Offering."
No sale of shares of Conversion Stock may be consummated unless, prior to
such consummation, FinPro confirms to the Bank, the Company and the OTS that, to
the best of its knowledge, nothing of a material nature has occurred which,
taking into account all relevant factors, including those which would be
involved in a cancellation of the Syndicated Community Offering, would cause
FinPro to conclude that the aggregate value of the Conversion Stock at the
Purchase Price is incompatible with its estimate of the pro forma market value
of the Common Stock of the Company at the time of the Syndicated Community
Offering. Any change which would result in an aggregate purchase price which is
below or more than 15% above the Estimated Price Range would be subject to OTS
approval. If such confirmation is not received, the Primary Parties may extend
the Offerings, extend, reopen or commence new Subscription and Community
Offerings or Syndicated Community Offering, establish a new Estimated Price
Range and commence a resolicitation of all subscribers with the approval of the
OTS or take such other actions as permitted by the OTS in order to complete the
Conversion and Reorganization, or terminate the Plan and cancel the Subscription
and Community Offerings and/or the Syndicated Community Offering. In the event
market or financial conditions change so as to cause the aggregate purchase
price of the shares to be below the minimum of the Estimated Price Range or more
than 15% above the maximum of such range, and the Company and the Bank determine
to continue the Conversion and Reorganization, subscribers will be resolicited
(i.e., be permitted to continue their orders, in which case they will need to
affirmatively reconfirm their subscriptions prior to the expiration of the
resolicitation offering or their subscription funds will be promptly refunded
with interest at the Bank's passbook rate of interest, or be permitted to
decrease or cancel their subscriptions). Any change in the Estimated Price Range
must be approved by the OTS. A resolicitation, if any, following the conclusion
of the Subscription and Community Offerings would not exceed 45 days, or if
following the Syndicated Community Offering, 90 days, unless further extended by
the OTS for periods up to 90 days not to extend beyond ____________, 2000. If
such resolicitation is not effected, the Bank will return all funds promptly
with interest at the Bank's passbook rate of interest on payments made by check,
bank draft or money order.
Copies of the appraisal report of FinPro including any amendments thereto,
and the detailed memorandum of the appraiser setting forth the method and
assumptions for such appraisal are available for inspection at the main office
of the Bank and the other locations specified under "Additional Information."
115
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INTERPRETATION, AMENDMENT AND TERMINATION
All interpretations of the Plan by the Boards of Directors of the Primary
Parties will be final, subject to the authority of the OTS, including but not
limited to interpretations relating to residence requirements applicable to
subscribers and purchase limitations. The Plan provides that, if deemed
necessary or desirable by the Boards of Directors of the Primary Parties, the
Plan may be substantively amended prior to the solicitation of proxies from
members entitled to vote on the Plan by a two-thirds vote of the Boards of
Directors; amendment of the Plan thereafter requires the approval of the OTS.
The Plan will terminate if the sale of all shares of stock being offered
pursuant to the Plan is not completed prior to 24 months after the date of the
Special Meeting. The Plan may be terminated by a two-thirds vote of the Boards
of Directors of the Primary Parties at any time prior to the Special Meeting,
and thereafter by such a vote with the approval of the OTS.
NUMBER OF SHARES TO BE ISSUED
Depending upon market or financial conditions following the commencement
of the Subscription and Community Offerings, the total number of shares of
Conversion Stock to be issued in the Conversion and Reorganization may be
increased or decreased without a resolicitation of subscribers, provided that
the product of the total number of shares times the price per share is not below
the minimum of the Estimated Price Range or more than 15% above the maximum of
the Estimated Price Range. Based on a fixed purchase price of $10.00 per share
and the FinPro estimate of the pro forma market value of the Conversion Stock
ranging from a minimum of $105.3 million to a maximum, as increased by 15%, of
$163.8 million, the number of shares of Conversion Stock expected to be issued
is between a minimum of 10,526,917 shares and a maximum, as adjusted by 15%, of
16,378,421 shares. The actual number of shares issued between this range will
depend on a number of factors and shall be determined by the Primary Parties
subject to OTS approval, if necessary.
In the event market or financial conditions change so as to cause the
aggregate purchase price of the shares to be below the minimum of the Estimated
Price Range or more than 15% above the maximum of the Estimated Price Range and,
if the Plan is not terminated by the Primary Parties after consultation with the
OTS, purchasers will be resolicited (i.e., permitted to continue their orders,
in which case they will need to affirmatively reconfirm their subscriptions
prior to the expiration of the resolicitation offering or their subscription
funds will be promptly refunded, or be permitted to modify or rescind their
subscriptions). Any change in the Estimated Price Range must be approved by the
OTS. If the number of shares issued in the Conversion and Reorganization is
increased due to an increase of up to 15% in the Estimated Price Range to
reflect changes in market or financial condition, persons who subscribed for the
maximum number of shares will not be given the opportunity to subscribe for an
adjusted maximum number of shares, except for the ESOP which will be able to
subscribe for such adjusted amount. See "- Limitations on Conversion Stock
Purchases." Any increase or decrease in the number of shares of Common Stock
will result in a corresponding change in the number of Exchange Shares, so that
upon consummation of the Conversion and Reorganization, the Conversion Stock and
the Exchange Shares will represent approximately 51.6% and 48.4%, respectively,
of the Company's total outstanding shares of Common Stock.
An increase in the number of shares of Conversion Stock as a result of an
increase in the estimated pro forma market value would decrease both a
subscriber's ownership interest and the Company's pro forma net earnings and
stockholders' equity on a per share basis while increasing pro forma net
earnings and stockholders' equity on an aggregate basis. A decrease in the
number of shares of Conversion Stock would increase both a subscriber's
ownership interest and the Company's pro forma net earnings and stockholders'
equity on a per share basis while decreasing pro forma net earnings and
stockholder's equity on an aggregate basis. For a presentation of the effects of
such changes, see "Pro Forma Data."
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SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS
In accordance with the Plan of Conversion, rights to subscribe for the
purchase of Conversion Stock have been granted under the Plan of Conversion to
the following persons in the following order of descending priority: (1) holders
of savings accounts with a balance of $50 or more as of December 31, 1995
("Eligible Account Holders"); (2) the ESOP; (3) holders of savings accounts with
a balance of $50 or more as of December 31, 1997 ("Supplemental Eligible Account
Holders"); and (4) members of the Bank, consisting of depositors of the Bank as
of ___________, 1998, the Voting Record Date, and borrowers with loans
outstanding as of July 10, 1992, which continue to be outstanding as of the
Voting Record Date other than Eligible Account Holders and Supplemental Eligible
Account Holders ("Other Members"). All subscriptions received will be subject to
the availability of Conversion Stock after satisfaction of all subscriptions of
all persons having prior rights in the Subscription Offering and to the maximum
and minimum purchase limitations set forth in the Plan of Conversion and as
described below under "- Limitations on Conversion Stock Purchases."
Priority 1: Eligible Account Holders. Each Eligible Account Holder will
receive, without payment therefor, first priority, nontransferable subscription
rights to subscribe for in the Subscription Offering up to the greater of the
amount permitted to be purchased in the Community Offering, currently $250,000
of Conversion Stock offered, one-tenth of one percent (.10%) of the total
offering of shares of Conversion Stock or fifteen times the product (rounded
down to the next whole number) obtained by multiplying the total number of
shares of Conversion Stock to be issued by a fraction of which the numerator is
the amount of the Eligible Account Holder's Qualifying Deposit (defined by the
Plan as any savings account in the Bank with a balance of $50 or more as of
December 31, 1995) and the denominator is the total amount of Qualifying
Deposits of all Eligible Account Holders, in each case on the Eligibility Record
Date, subject to the overall purchase limitation and exclusive of an increase in
the shares issued pursuant to an increase in the Estimated Price Range of up to
15%. See "-Limitations on Conversion Stock Purchases."
In the event that Eligible Account Holders exercise subscription rights for
a number of shares in excess of the total number of shares eligible for
subscription, the shares will be allocated so as to permit each subscribing
Eligible Account Holder to purchase a number of shares sufficient to make his
total allocation equal to the lesser of 100 shares or the number of shares
subscribed for. Thereafter, unallocated shares will be allocated among the
remaining subscribing Eligible Account Holders whose subscriptions remain
unfilled in the proportion that the amounts of their respective Qualifying
Deposits bear to the total amount of Qualifying Deposits of all remaining
Eligible Account Holders whose subscriptions remain unfilled, exclusive of any
increase in the shares issued pursuant to an increase in the Estimated Price
Range of up to 15%.
To ensure proper allocation of stock, each Eligible Account Holder must
list on his subscription order form all accounts in which he has an ownership
interest. Failure to list an account could result in less shares being allocated
than if all accounts had been disclosed. The subscription rights of Eligible
Account Holders who are also Directors or Officers of the Bank or their
associates will be subordinated to the subscription rights of other Eligible
Account Holders to the extent attributable to increased deposits in the year
preceding December 31, 1994.
Priority 2: Employee Stock Ownership Plan. To the extent that there are
sufficient shares remaining after satisfaction of the subscriptions by Eligible
Account Holders, the ESOP will receive, without payment therefor, second
priority, nontransferable subscription rights to purchase, in the aggregate, up
to 10% of Conversion Stock issued in the Conversion, including any increase in
the number of shares of Conversion Stock to be issued in the Conversion after
the date hereof as a result of an increase of up to 15% in the maximum of the
Estimated Price Range. The ESOP intends to purchase 8% of the shares to be
issued in the
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Conversion or 842,153 shares and 1,139,365 shares, based on the issuance of
10,526,917 shares and 14,242,072 shares, respectively. Subscriptions by the ESOP
will not be aggregated with shares of Conversion Stock purchased directly by or
which are otherwise attributable to any other participants in the Subscription
and Community Offerings, including subscriptions of any of the Bank's directors,
officers, employees or associates thereof. See "Management of the Bank - Benefit
Plans - Employee Stock Ownership Plan and Trust."
Priority 3: Supplemental Eligible Account Holders. Each Supplemental
Eligible Account Holder will receive, without payment therefor, third priority,
nontransferable subscription rights to subscribe for in the Subscription
Offering up to the greater of the amount permitted to be purchased in the
Community Offering, currently $250,000 of Conversion Stock offered, one-tenth of
one percent (.10%) of the total offering of shares of Conversion Stock or
fifteen times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Conversion Stock to be issued by a
fraction of which the numerator is the amount of the Supplemental Eligible
Account Holder's Qualifying Deposit and the denominator is the total amount of
Qualifying Deposits of all Supplemental Eligible Account Holders, in each case
on the Supplemental Eligibility Record Date, subject to the overall purchase
limitation and exclusive of an increase in the shares issued pursuant to an
increase in the Estimated Price Range of up to 15%. See "- Limitations on
Conversion Stock Purchases."
In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares in excess of the total number of
shares eligible for subscription, the shares will be allocated so as to permit
each subscribing Supplemental Eligible Account Holder, to the extent possible,
to purchase a number of shares sufficient to make his total allocation equal to
the lesser of 100 shares or the number of shares subscribed for. Thereafter,
unallocated shares will be allocated among the remaining subscribing
Supplemental Eligible Account Holders whose subscriptions remain unfilled in the
proportion that the amounts of their respective Qualifying Deposits bear to the
total amount of Qualifying Deposits of all remaining Supplemental Eligible
Account Holders whose subscriptions remain unfilled, exclusive of any increase
in the shares issued pursuant to an increase in the Estimated Price Range of up
to 15%.
To ensure proper allocation of stock, each Supplemental Eligible Account
Holder must list on his subscription order form all accounts in which he has an
ownership interest. Failure to list an account could result in less shares being
allocated than if all accounts had been disclosed. The subscription rights
received by Eligible Account Holders will be applied in partial satisfaction to
the subscription rights to be received as a Supplemental Eligible Account
Holder.
Priority 4: Other Members. To the extent that there are sufficient shares
remaining after satisfaction of subscriptions by the Eligible Account Holders,
the ESOP and the Supplemental Eligible Account Holders, each Other Member will
receive, without payment therefor, fourth priority nontransferable subscription
rights to subscribe for Conversion Stock in the Subscription Offering up to the
greater of the amount permitted to be purchased in the Community Offering,
currently $250,000 of Conversion Stock offered, or one-tenth of one percent
(.10%) of the total offering of shares of Conversion Stock, subject to the
overall purchase limitation and exclusive of an increase in shares issued
pursuant to an increase in the Estimated Price Range of up to 15%. See "-
Limitations on Conversion Stock Purchases."
In the event that Other Members exercise subscription rights for a number
of shares in excess of the total number of shares eligible for subscription, the
shares will be allocated so as to permit each subscribing Other Member, to the
extent possible, to purchase a number of shares sufficient to make his total
allocation equal to the lesser of 100 shares or the number of shares subscribed
for. Thereafter, unallocated shares will be allocated among the remaining
subscribing Other Members whose subscriptions remain unfilled on a pro
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rata basis in the same proportion as a subscribing Other Member's total votes on
the Voting Record Date for the Special Meeting bears to the total votes of all
subscribing Other Members on such date.
Expiration Date for the Subscription Offering. The Subscription Offering
will expire at ______ .m., New Jersey time, on ___________, 1998, unless
extended for up to 45 days by the Primary Parties or such additional periods
with the approval of the OTS. Subscription rights which have not been exercised
prior to the Expiration Date will become void.
The Primary Parties will not execute orders until all shares of Conversion
Stock have been subscribed for or otherwise sold. If all shares have not been
subscribed for or sold within 45 days after the Expiration Date, unless such
period is extended with the consent of the OTS, all funds delivered to the Bank
pursuant to the Subscription Offering will be returned promptly to the
subscribers with interest and all withdrawal authorizations will be canceled. If
an extension beyond the 45 day period following the Expiration Date is granted,
the Primary Parties will notify subscribers of the extension of time and of any
rights of subscribers to modify or rescind their subscriptions and have their
funds returned promptly with interest, and of the time period within which
subscribers must affirmatively notify the Primary Parties of their intention to
confirm, modify, or rescind their subscription. If an affirmative response to
any resolicitation is not received by the Company from a subscriber, such order
will be rescinded and all subscription funds will be promptly returned with
interest. Such extensions may not go beyond __________, 2000.
COMMUNITY OFFERING
To the extent that shares remain available for purchase after satisfaction
of all subscriptions of the Eligible Account Holders, the ESOP, the Supplemental
Eligible Account Holders and Other Members, the Primary Parties have determined
to offer shares pursuant to the Plan to certain members of the general public,
with a preference given to holders of Public Bank Shares, subject to the right
of the Company to accept or reject any such orders, in whole or in part, in
their sole discretion. Such persons, together with associates of and persons
acting in concert with such persons, may purchase up to $250,000 of Conversion
Stock offered subject to the maximum overall purchase limitation and exclusive
of shares issued pursuant to an increase in the Estimated Price Range by up to
15%. See "- Limitations on Conversion Stock Purchases." This amount may be
increased to up to a maximum of 5% of the Conversion Stock offered or decreased
to less than $250,000 of Conversion Stock at the sole discretion of the Primary
Parties. THE OPPORTUNITY TO SUBSCRIBE FOR SHARES OF CONVERSION STOCK IN THE
COMMUNITY OFFERING CATEGORY IS SUBJECT TO THE RIGHT OF THE PRIMARY PARTIES, IN
THEIR SOLE DISCRETION, TO ACCEPT OR REJECT ANY SUCH ORDERS IN WHOLE OR IN PART
EITHER AT THE TIME OF RECEIPT OF AN ORDER OR AS SOON AS PRACTICABLE FOLLOWING
THE EXPIRATION DATE.
Subject to the foregoing, if the amount of stock remaining is insufficient
to fill the orders of the Public Stockholders after completion of the
Subscription and Community Offerings, such stock will be allocated first to each
holder of Public Bank Shares whose order is accepted by the Bank, in an amount
equal to the lesser of 100 shares or the number of shares subscribed for by each
such Public Stockholder, if possible. Thereafter, unallocated shares will be
allocated among the Public Stockholders whose order remains unsatisfied on a 100
shares per order basis until all such orders have been filled or the remaining
shares have been allocated. To the extent that there are shares remaining after
all subscriptions by Public Stockholders have been filed, shares will be
allocated, applying the same allocation formula described above, to Preferred
Subscribers. If there are any shares remaining, shares will be allocated to
other persons of the general public who purchase in the Community Offering
applying the same allocation described above for Public Stockholders and
Preferred Subscribers.
Persons in Nonqualified States or Foreign Countries. The Primary Parties
will make reasonable efforts to comply with the securities laws of all states in
the United States in which persons entitled to
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subscribe for stock pursuant to the Plan reside. However, the Plan provides that
the Primary Parties are not required to offer stock in the Subscription Offering
to any person who resides in a foreign country or resides in a state of the
United States with respect to which both of the following apply: (i) a small
number of persons otherwise eligible to subscribe for shares of Conversion Stock
reside in such state; and (ii) the Primary Parties determines that compliance
with the securities laws of such state would be impracticable for reasons of
cost or otherwise, including but not limited to a request that the Primary
Parties or their officers, directors or trustees register as a broker, dealer,
salesman or selling agent, under the securities laws of such state, or a request
to register or otherwise qualify the subscription rights or Conversion Stock for
sale or submit any filing with respect thereto in such state. Where the number
of persons eligible to subscribe for shares in one state is small, the Primary
Parties will base their decision as to whether or not to offer the Conversion
Stock in such state on a number of factors, including the size of accounts held
by account holders in the state, the cost of registering or qualifying the
shares or the need to register the Company, its officers, directors or employees
as brokers, dealers or salesmen.
MARKETING AND UNDERWRITING ARRANGEMENTS
The Bank has engaged Sandler O'Neill as a consultant and financial advisor
in connection with the offering of the Conversion Stock, and Sandler O'Neill has
agreed to use its best efforts to assist the Company with the solicitation of
subscriptions and purchase orders for shares of Conversion Stock in the
Offerings. Based upon negotiations between the Primary Parties concerning fee
structure, Sandler O'Neill will receive a equal to 1.15% of the aggregate
Purchase Price of all shares sold in Subscription Offering and Community
Offering, excluding shares purchased by directors, officers, employees and any
immediate family member thereof and the ESOP for which Sandler O'Neill will not
receive a fee. In the event that a selected dealers agreement is entered into in
connection with a Syndicated Community Offering, the Bank will pay a fee (to be
negotiated at such time under such agreement) to such selected dealers, any
sponsoring dealers fees, and a management fee to Sandler O'Neill of 1.15% for
shares sold by a National Association of Securities Dealers, Inc. ("NASD")
member firm pursuant to a selected dealers agreement; provided, however, that
any fees payable to Sandler O'Neill for Conversion Stock sold by them pursuant
to such a selected dealers agreement shall not exceed 1.15% of the Purchase
Price and provided, further, however, that the aggregate fees payable to Sandler
O'Neill and the selected dealers will not exceed 7.0% of the aggregate purchase
price of the Conversion Stock sold by selected dealers. Fees to Sandler O'Neill
and to any other broker-dealer may be deemed to be underwriting fees, and
Sandler O'Neill and such broker-dealers may be deemed to be underwriters.
Notwithstanding the foregoing, in the event the Offerings are not consummated or
Sandler O'Neill ceases, under certain circumstances after the subscription
solicitation activities are commenced, to provide assistance to the Company,
Sandler O'Neill will be entitled to a fee for its management advisory services
in an amount to be agreed upon by the Bank and Sandler O'Neill, and based upon
the amount of services performed by Sandler O'Neill and will also be reimbursed
for its reasonable out-of-pocket expenses as described above. The Primary
Parties have agreed to indemnify Sandler O'Neill for reasonable costs and
expenses in connection with claims or liabilities under applicable federal or
state law, or otherwise, related to or arising out of the Conversion except to
the extent that such claim or liability arose out of or was based upon any
untrue statement of material fact, omission of a material fact related to or
made in reliance upon and in conformity with written information furnished to
the Primary Parties by Sandler O'Neill or such claim or liability was primarily
attributable to the gross negligence, willful misconduct or bad faith of Sandler
O'Neill. Such claims and liabilities could include claims under the federal and
state securities laws. Sandler O'Neill has received advances towards its fees
totaling $25,000. Total marketing fees to Sandler O'Neill are expected to be
$1.1 million and $1.5 million at the minimum and the maximum of the Estimated
Price Range, respectively. See "Pro Forma Data" for the assumptions used to
arrive at these estimates.
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Sandler O'Neill also will perform proxy solicitation services, conversion
agent services and records management services for the Primary Parties in the
Conversion and is expected to receive a fee for these services of approximately
$10,000. Sandler O'Neill has received advances toward its fees for these
services totaling $5,000.
Directors and executive officers of the Primary Parties may participate in
the solicitation of offers to purchase Common Stock. Questions of prospective
purchasers will be directed to executive officers or registered representatives.
Other employees of the Bank may participate in the Offering in administrative
capacities or providing clerical work in effecting a sales transaction. Such
other employees have been instructed not to solicit offers to purchase Common
Stock or provide advice regarding the purchase of Common Stock. The Company will
rely on Rule 3a4-1 under the Exchange Act, and sales of Common Stock will be
conducted within the requirements of Rule 3a4-1, so as to permit officers,
directors and employees to participate in the sale of Common Stock. No officer,
director or employee of Primary Parties will be compensated in connection with
his participation by the payment of commissions or other remuneration based
either directly or indirectly on the transactions in the Conversion Stock.
PROCEDURE FOR PURCHASING SHARES IN SUBSCRIPTION AND COMMUNITY OFFERINGS
To ensure that each purchaser receives a prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Exchange Act,
no prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the stock
order form and certification form will confirm receipt or delivery in accordance
with Rule 15c2-8. Stock order and certification forms will only be distributed
with a prospectus.
To purchase shares in the Subscription and Community Offerings, an executed
stock order form and certification form with the required payment for each share
subscribed for, or with appropriate authorization for withdrawal from the Bank's
deposit account (which may be given by completing the appropriate blanks in the
stock order form), must be received by the Bank at any of its offices by 12:00
noon, New Jersey Time, on the Expiration Date. Stock order forms which are not
received by such time or are executed defectively or are received without full
payment (or appropriate withdrawal instructions) are not required to be
accepted. In addition, the Primary Parties are not obligated to accept orders
submitted on photocopied or facsimilied stock order forms and will not accept
stock order forms unaccompanied by an executed certification form.
Notwithstanding the foregoing, the Company shall have the right, in its sole
discretion, to permit institutional investors to submit irrevocable orders
together with a legally binding commitment for payment and to thereafter pay for
the shares of Conversion Stock for which they subscribe in the Community
Offering at any time prior to 48 hours before the completion of the Conversion.
The Primary Parties have the right to waive or permit the correction of
incomplete or improperly executed forms, but do not represent that they will do
so. Once received, an executed stock order form may not be modified, amended or
rescinded without the consent of the Primary Parties unless the Conversion has
not been completed within 45 days after the end of the Subscription and
Community Offerings, unless such period has been extended.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (December 31,
1995) and/or the Supplemental Eligibility Record Date (December 31, 1997) and/or
the Voting Record Date (__________, 1998) must list all accounts on the stock
order form giving all names in each account and the account number.
Payment for subscriptions may be made (i) in cash if delivered in person at
any branch office of the Bank, (ii) by check, bank draft or money order, or
(iii) by authorization of withdrawal from deposit accounts maintained with the
Bank. No wire transfers will be accepted. Interest will be paid on payments made
by
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cash, check, bank draft or money order at the Bank's passbook rate of interest
from the date payment is received until the completion or termination of the
Conversion and Reorganization. If payment is made by authorization of withdrawal
from deposit accounts, the funds authorized to be withdrawn from a deposit
account will continue to accrue interest at the contractual rates until
completion or termination of the Conversion and Reorganization, but a hold will
be placed on such funds, thereby making them unavailable to the depositor until
completion or termination of the Conversion and Reorganization.
If a subscriber authorizes the Bank to withdraw the amount of the purchase
price from his deposit account, the Bank will do so as of the effective date of
the Conversion and Reorganization. The Bank will waive any applicable penalties
for early withdrawal from certificate accounts. If the remaining balance in a
certificate account is reduced below the applicable minimum balance requirement
at the time that the funds actually are transferred under the authorization, the
certificate will be canceled at the time of the withdrawal, without penalty, and
the remaining balance will earn interest at the Bank's passbook rate.
If the ESOP subscribes for shares during the Subscription Offering, the
ESOP will not be required to pay for the shares subscribed for at the time it
subscribes, but rather, may pay for such shares of Conversion Stock subscribed
for at the Purchase Price upon consummation of the Subscription and Community
Offering, if all shares are sold, or upon consummation of the Syndicated
Community Offering if shares remain to be sold in such offering; provided, that
there is in force from the time of its subscription until such time, a loan
commitment from an unrelated financial institution or the Company to lend to the
ESOP, at such time, the aggregate Purchase Price of the shares for which it
subscribed.
Owners of self-directed Individual Retirement Accounts ("IRAs") may use the
assets of such IRAs to purchase shares of Conversion Stock in the Subscription
and Community Offerings, provided that such IRAs are not maintained at the Bank.
Persons with self-directed IRAs maintained at the Bank must have their accounts
transferred to an unaffiliated institution or broker to purchase shares of
Common Stock in the Subscription and Community Offerings. In addition, the
provisions of ERISA and IRS regulations require that officers, directors and 10%
shareholders who use self-directed IRA funds to purchase shares of Conversion
Stock in the Subscription and Community Offerings, make such purchases for the
exclusive benefit of the IRAs.
Certificates representing shares of Conversion Stock purchased will be
mailed to purchasers at the address specified in properly completed stock order
forms, as soon as practicable following consummation of the sale of all shares
of Conversion Stock. Any certificates returned as undeliverable will be disposed
of in accordance with applicable law.
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES
Prior to the completion of the Conversion and Reorganization, the OTS
conversion regulations prohibit any person with subscription rights, including
the Eligible Account Holders, the ESOP, the Supplemental Eligible Account
Holders and Other Members of the Bank, from transferring or entering into any
agreement or understanding to transfer the legal or beneficial ownership of the
subscription rights issued under the Plan or the shares of Conversion Stock to
be issued upon their exercise. Such rights may be exercised only by the person
to whom they are granted and only for his account. Each person exercising such
subscription rights will be required to certify that he is purchasing shares
solely for his own account and that he has no agreement or understanding
regarding the sale or transfer of such shares. The regulations also prohibit any
person from offering or making an announcement of an offer or intent to make an
offer to purchase such subscription rights or shares of Conversion Stock prior
to the completion of the Conversion and Reorganization.
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THE PRIMARY PARTIES WILL PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES
(INCLUDING FORFEITURE) IN THE EVENT THEY BECOME AWARE OF THE TRANSFER OF
SUBSCRIPTION RIGHTS AND WILL NOT HONOR ORDERS KNOWN BY THEM TO INVOLVE THE
TRANSFER OF SUCH RIGHTS.
SYNDICATED COMMUNITY OFFERING
As a final step in the Conversion and Reorganization, the Plan provides
that, if feasible, all shares of Conversion Stock not purchased in the
Subscription and Community Offerings, if any, will be offered for sale to the
general public in a Syndicated Community Offering through a syndicate of
registered broker-dealers to be formed and managed by Sandler O'Neill acting as
agent of the Company to assist the Company and the Bank in the sale of the
Conversion Stock. The Company and the Bank have the right to reject orders in
whole or in part in their sole discretion in the Syndicated Community Offering.
Neither Sandler O'Neill nor any registered broker-dealer shall have any
obligation to take or purchase any shares of the Conversion Stock in the
Syndicated Community Offering, however, Sandler O'Neill have agreed to use their
best efforts in the sale of shares in the Syndicated Community Offering.
The price at which Conversion Stock is sold in the Syndicated Community
Offering will be determined as described above under "- Stock Pricing and
Exchange Ratio." Subject to overall purchase limitations, no person, together
with any associate or group of persons acting in concert, will be permitted to
subscribe in the Syndicated Community Offering for more than $250,000 of the
total number of shares offered in the Conversion, exclusive of an increase in
shares issued pursuant to an increase in the Estimated Price Range of up to 15%;
provided, however, that shares of Conversion Stock purchased in the Community
Offering by any persons, together with associates of or persons acting in
concert with such persons, will be aggregated with purchases in the Syndicated
Community Offering and be subject to the overall maximum purchase limitation,
exclusive of an increase in shares issued pursuant to an increase in the
Estimated Price Range by up to 15%.
Payments made in the form of a check, bank draft, money order or in cash
will earn interest at the Bank's passbook rate of interest from the date such
payment is actually received by the Bank until completion or termination of the
Conversion.
In addition to the foregoing, if a syndicate of broker-dealers ("selected
dealers") is formed to assist in the Syndicated Community Offering, a purchaser
may pay for his shares with funds held by or deposited with a selected dealer.
If an order form is executed and forwarded to the selected dealer or if the
selected dealer is authorized to execute the order form on behalf of a
purchaser, the selected dealer is required to forward the order form and funds
to the Bank for deposit in a segregated account on or before noon of the
business day following receipt of the order form or execution of the order form
by the selected dealer. Alternatively, selected dealers may solicit indications
of interest from their customers to place orders for shares. Such selected
dealers shall subsequently contact their customers who indicated an interest and
seek their confirmation as to their intent to purchase. Those indicating an
intent to purchase shall execute order forms and forward them to their selected
dealer or authorize the selected dealer to execute such forms. The selected
dealer will acknowledge receipt of the order to its customer in writing on the
following business day and will debit such customer's account on the third
business day after the customer has confirmed his intent to purchase (the "debit
date") and on or before noon of the next business day following the debit date
will send order forms and funds to the Bank for deposit in a segregated account.
Although purchasers' funds are not required to be in their accounts with
selected dealers until the debit date in the event that such alternative
procedure is employed once a confirmation of an intent to purchase has been
received by the selected dealer, the purchaser has no right to rescind his
order.
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Certificates representing shares of Conversion Stock purchased, together
with any refund due, will be mailed to purchasers at the address specified in
the order form, as soon as practicable following consummation of the sale of the
Conversion Stock. Any certificates returned as undeliverable will be disposed of
in accordance with applicable law.
The Syndicated Community Offering will terminate no more than 45 days
following the Subscription Expiration Date, unless extended by the Company with
the approval of the OTS. Such extensions may not be beyond ____________, 2000.
See "- Stock Pricing and Exchange Ratio" above for a discussion of rights of
subscribers, if any, in the event an extension is granted.
LIMITATIONS ON CONVERSION STOCK PURCHASES
The Plan includes the limitations set forth below on the number of shares
of Conversion Stock which may be purchased during the Conversion. The purchase
limits set forth in paragraphs (2), (4), (5), (6) and (7) are subject to the
overall maximum purchase limitations in (8) below which includes Exchange Shares
received by purchasers.
(1) No less than 25 shares;
(2) Each Eligible Account Holder may subscribe for and purchase in the
Subscription Offering up to the greater of the amount permitted to be
purchased in the Community Offering, currently $250,000 of Conversion
Stock offered, one-tenth of one percent (.10%) of the total offering
of shares of Conversion Stock or fifteen times the product (rounded
down to the next whole number) obtained by multiplying the total
number of shares of Conversion Stock to be issued by a fraction of
which the numerator is the amount of the Qualifying Deposit of the
Eligible Account Holder and the denominator is the total amount of
Qualifying Deposits of all Eligible Account Holders in each case on
the Eligibility Record Date subject to the overall maximum purchase
limitation in (8) below and exclusive of an increase in the total
number of shares issued due to an increase in the Estimated Price
Range of up to 15%;
(3) The ESOP is permitted to purchase in the aggregate up to 10% of the
shares of Conversion Stock issued in the Conversion and
Reorganization, including shares issued in the event of an increase in
the Estimated Price Range of 15% and intends to purchase 8% of the
shares of Conversion Stock issued in the Conversion and
Reorganization, including any increase in the number of shares to be
issued after the date hereof as a result of an increase of up to 15%
in the maximum of the Estimated Price Range;
(4) Each Supplemental Eligible Account Holder may subscribe for and
purchase in the Subscription Offering up to the greater of the amount
permitted to be purchased in the Community Offering, currently
$250,000 of Conversion Stock offered, one-tenth of one percent (.10%)
of the total offering of shares of Conversion Stock or fifteen times
the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Conversion Stock to be
issued by a fraction of which the numerator is the amount of the
Qualifying Deposit of the Supplemental Eligible Account Holder and the
denominator is the total amount of Qualifying Deposits of all
Supplemental Eligible Account Holders in such case on the Supplemental
Eligibility Record Date subject to the overall maximum purchase
limitation in (8) below and exclusive of an increase in the total
number of shares issued due to an increase in the Estimated Price
Range of up to 15%;
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(5) Each Other Member may subscribe for and purchase in the Subscription
Offering up to the greater of the amount permitted to be purchased in
the Community Offering, currently $250,000 of Conversion Stock
offered, or one-tenth of one percent (.10%) of the total offering of
shares of Conversion Stock subject to the overall maximum purchase
limitation in (8) below and exclusive of an increase in the total
number of shares issued due to an increase in the Estimated Price
Range of up to 15%;
(6) Persons purchasing shares of Conversion Stock in the Community
Offering, together with associates of and groups of persons acting in
concert with such persons, may purchase in the Community Offering up
to $250,000 of Conversion Stock offered in the Conversion and
Reorganization subject to the overall maximum purchase limitation in
(8) below and exclusive of an increase in the total number of shares
issued due to an increase in the Estimated Price Range of up to 15%;
(7) Persons purchasing shares of Conversion Stock in the Syndicated
Community Offering, together with associates of and persons acting in
concert with such persons, may purchase in the Syndicated Offering up
to $250,000 of shares of Conversion Stock offered in the Conversion
and Reorganization subject to the overall maximum purchase limitation
in (8) below and exclusive of an increase in the total number of
shares issued due to an increase in the Estimated Price Range of up to
15% and, provided further that shares of Conversion Stock purchased in
the Community Offering by any persons, together with associates of and
persons acting in concert with such persons, will be aggregated with
purchases in the Syndicated Community Offering in applying the
$250,000 purchase limitation;
(8) Eligible Account Holders, Supplemental Eligible Account Holders and
Other Members may purchase stock in the Community Offering and
Syndicated Community Offering subject to the purchase limitations
described in (6) and (7) above, provided that, except for the ESOP,
the overall maximum number of shares of Conversion Stock subscribed
for or purchased in all categories of the Conversion and
Reorganization by any person, together with associates of and groups
of persons acting in concert with such persons when combined with any
Exchange Shares received by such persons, shall not exceed 4.0% of the
shares of Conversion Stock offered in the Conversion and
Reorganization and exclusive of an increase in the total number of
shares issued due to an increase in the Estimated Price Range of up to
15%; and
(9) No more than 25.00% of the total number of shares of Conversion Stock
offered for sale in the Conversion and Reorganization may be purchased
by directors and officers of the Bank and the Mutual Holding Company
and their associates in the aggregate, when combined with any Exchange
Shares received and excluding purchases by the ESOP.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the members of
the Mutual Holding Company or the Public Stockholders of the Bank, both the
individual amount permitted to be subscribed for and the overall maximum
purchase limitation may be increased to up to a maximum of 5% at the sole
discretion of the Primary Parties. If such amount is increased, subscribers for
the maximum amount will be, and certain other large subscribers in the sole
discretion of the Bank may be, given the opportunity to increase their
subscriptions up to the then applicable limit. In addition, the Boards of
Directors of the Primary Parties may, in their sole discretion, increase the
maximum purchase limitation referred to above up to 9.99%, provided that orders
for shares exceeding 5% of the shares being offered in the Subscription and
Community Offerings shall not exceed, in the aggregate, 10% of the shares being
offered in the Subscription and Community Offerings. Requests
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to purchase additional shares of Conversion Stock under this provision will be
determined by the Boards of Directors and, if approved, allocated on a pro rata
basis giving priority in accordance with the priority rights set forth herein.
In any event, any Exchange Shares received by an individual will be aggregated
with shares subscribed for by such person for purposes of applying the maximum
purchase limitation.
The overall maximum purchase limitation may not be reduced to less than 1%
but the individual amount permitted to be subscribed for may be reduced by the
Primary Parties to less than 1%, subject to paragraphs (2), (4), and above
without the further approval of members or Public Stockholders or resolicitation
of subscribers. An individual Eligible Account Holder, Supplemental Eligible
Account Holder or Other Member may not purchase individually in the Subscription
Offering the overall maximum purchase limit of 4.0% of the shares of Conversion
Stock offered, but may make such purchase, together with associates of and
persons acting in concert with such person, by also purchasing in other
available categories of the Conversion and Reorganization, subject to
availability of shares, the overall maximum purchase limit for purchases in the
Conversion and Reorganization and the amount of Exchange Shares received by such
individual.
In the event of an increase in the total number of shares offered in the
Conversion and Reorganization due to an increase in the Estimated Price Range of
up to 15% (the "Adjusted Maximum"), the additional shares will be allocated in
the following order or priority in accordance with the Plan: (i) to fill the
ESOP's subscription of 8% of the Adjusted Maximum number of shares; (ii) in the
event that there is an oversubscription by Eligible Account Holders, to fill
unsatisfied subscriptions of Eligible Account Holders, exclusive of the Adjusted
Maximum; (iii) in the event that there is an oversubscription by Supplemental
Eligible Account Holders, to fill unsatisfied subscriptions of Supplemental
Eligible Account Holders, exclusive of the Adjusted Maximum; (iv) in the event
that there is an oversubscription by Other Members, to fill unsatisfied
subscriptions of Other Members exclusive of the Adjusted Maximums; and (v) to
fill unsatisfied subscriptions in the Community Offering to the extent possible,
exclusive of the Adjusted Maximum and with a preference to Public Stockholders.
The term "associate" of a person is defined to mean: (i) any corporation
(other than the Primary Parties or a majority-owned subsidiary of the Bank) of
which such person is an officer, partner or 10% stockholder; (ii) any trust or
other estate in which such person has a substantial beneficial interest or
serves as a trustee or in a similar fiduciary capacity; provided, however, such
term shall not include any employee stock benefit plan of the Bank in which such
person has a substantial beneficial interest or serves as a trustee or in a
similar fiduciary capacity; and (iii) any relative or spouse of such person, or
any relative of such spouse, who either has the same home as such person or who
is a director or officer of the Bank. Directors are not treated as associates of
each other solely because of their Board membership. For a further discussion of
limitations on purchases of a converting institution's stock at the time of
Conversion and subsequent to Conversion, see "Beneficial Ownership of Capital
Stock - Subscriptions by Executive Officers and Directors," "- Certain
Restrictions on Purchase or Transfer of Shares After Conversion and
Reorganization" and "Restrictions on Acquisition of the Company and the Bank."
LIQUIDATION RIGHTS
In the unlikely event of a complete liquidation of the Mutual Holding
Company in its present mutual form, each depositor would receive his pro rata
share of any assets of the Mutual Holding Company remaining after payment of
claims of all creditors (including the claims of all depositors to the
withdrawal value of their accounts). Each depositor's pro rata share of such
remaining assets would be in the same proportion as the value of his deposit
account was to the total value of all deposit accounts in the Bank at the time
of liquidation. After the Conversion and Reorganization, each depositor, in the
event of a complete liquidation, would have a claim as a creditor of the same
general priority as the claims of all other general
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creditors of the Bank. However, except as described below, his claim would be
solely in the amount of the balance in his deposit account plus accrued
interest. He would not have an interest in the value or assets of the Bank or
the Company above that amount.
The Plan provides for the establishment, upon the completion of the
Conversion and Reorganization, of a special "liquidation account" for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders in
an amount equal to the greater of (1) the Bank's retained earnings at December
31, 1991, the date of the latest statement of financial condition contained in
the final offering circular utilized in the 1992 MHC Reorganization or (2) 51.6%
of the Bank's shareholders' equity as of the date of its latest balance sheet
contained in the final Prospectus used in connection with the Conversion and
Reorganization. Each Eligible Account Holder and Supplemental Eligible Account
Holder, if he were to continue to maintain his deposit account at the Bank,
would be entitled, on a complete liquidation of the Bank after the Conversion
and Reorganization, to an interest in the liquidation account prior to any
payment to the stockholders of the Bank. Each Eligible Account Holder and
Supplemental Eligible Account Holder would have an initial interest in such
liquidation account for each deposit account, including regular savings
accounts, transaction accounts such as NOW accounts, money market deposit
accounts, and certificates of deposit, with a balance of $50 or more held in the
Bank on December 31, 1995 and September 30, 1997, respectively. Each Eligible
Account Holder and Supplemental Eligible Account Holder will have a pro rata
interest in the total liquidation account based on the proportion that the
balance of his Qualifying Deposits on the Eligibility Record Date or
Supplemental Eligibility Record Date, respectively, bore to the total amount of
all Qualifying Deposits of all Eligible Account Holders and Supplemental
Eligible Account Holders in the Bank. For Qualifying Deposits in existence at
both dates separate subaccounts shall be determined on the basis of the
Qualifying Deposits in such deposit accounts on such respective record dates.
If, however, on any annual closing date subsequent to the Eligibility
Record Date or Supplemental Eligibility Record Date, the amount of the
Qualifying Deposit of an Eligible Account Holder or Supplemental Eligible
Account Holder is less than the amount of the Qualifying Deposit of such
Eligible Account Holder or Supplemental Eligible Account Holder as of the
Eligibility Record Date or Supplemental Eligibility Record Date, respectively,
or less than the amount of the Qualifying Deposits as of the previous annual
closing date, then the interest in the liquidation account relating to such
Qualifying Deposit would be reduced from time to time by the proportion of any
such reduction, and such interest will cease to exist if such Qualifying Deposit
accounts are closed. In addition, no interest in the liquidation account would
ever be increased despite any subsequent increase in the related Qualifying
Deposit. Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders are satisfied would be
distributed to the Company as the sole stockholder of the Bank.
TAX ASPECTS
Consummation of the Conversion and Reorganization is expressly conditioned
upon the receipt by the Primary Parties of either a favorable ruling from the
IRS or an opinion of counsel with respect to federal and New Jersey income
taxation to the effect that the Conversion and Reorganization will not be a
taxable transaction to the Mutual Holding Company, the Company, the Bank,
Eligible Account Holders, or Supplemental Eligible Account Holders except as
noted below.
No private ruling will be received from the IRS with respect to the
proposed Conversion and Reorganization. Instead, the Bank has received an
opinion of Muldoon, Murphy & Faucette, to the effect that for federal income tax
purposes, among other matters: (1) the conversion of the Mutual Holding Company
from mutual form to a federal interim stock savings institution and its
simultaneous merger with and into the Bank, with the Bank being the surviving
institution, will qualify as a reorganization within the meaning of Section
368(a)(1)(A) of the Code, (2) no gain or loss will be recognized by the Bank
upon the
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receipt of the assets of the Mutual Holding Company in such merger, (3) the
merger of the First Interim with and into the Bank, with the Bank being the
surviving institution, will qualify as a reorganization within the meaning of
Section 368(a)(1)(A) of the Code, (4) no gain or loss will be recognized by
First Interim upon the transfer of its assets to the Bank, (5) no gain or loss
will be recognized by the Bank upon the receipt of the assets of First Interim,
(6) no gain or loss will be recognized by the Company upon the receipt of Bank
Common Stock solely in exchange for Common Stock, (7) no gain or loss will be
recognized by the Public Stockholders upon the receipt of Common Stock solely in
exchange for their Public Bank Shares, (8) the basis of the Common Stock to be
received by the Public Stockholders will be the same as the basis of the Public
Bank Shares surrendered in exchange therefore, before giving effect to any
payment of cash in lieu of fractional shares, (9) the holding period of the
Common Stock to be received by the Public Stockholders will include the holding
period of the Public Bank Shares, provided that the Public Bank Shares were held
as a capital asset on the date of the exchange, (10) no gain or loss will be
recognized by the Company upon the sale of shares of Conversion Stock in the
Offering, (11) the Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members will recognize gain, if any, upon the issuance to them
of withdrawable savings accounts in the Bank following the Conversion and
Reorganization, interests in the liquidation account and nontransferable
subscription rights to purchase Conversion Stock, but only to the extent of the
value, if any, of the subscription rights, and (12) the tax basis to the holders
of Conversion Stock purchased in the Offerings will be the amount paid
therefore, and the holding period for the shares of Conversion Stock will begin
on the date of consummation of the Offerings if purchased through the exercise
of subscription rights and on the day after the date of purchase if purchased in
the Community Offering or Syndicated Community Offering. Muldoon, Murphy &
Faucette has also opined that the Conversion and Reorganization will not be a
taxable transaction to the Company, the Bank, Eligible Account Holders or
Supplemental Eligible Account Holders for New Jersey income and/or franchise tax
purposes. Certain portions of both the federal and the state and local tax
opinions are based upon the assumption that the subscription rights issued in
connection with the Conversion and Reorganization will have no value.
Unlike private rulings, an opinion of counsel is not binding on the IRS and
the IRS could disagree with conclusions reached therein. In the event of such
disagreement, there can be no assurance that the IRS would not prevail in a
judicial or administrative proceeding.
In the opinion of FinPro, the subscription rights do not have any value,
based on the fact that such rights are acquired by the recipients without cost,
are nontransferable and of short duration, and afford the recipients the right
only to purchase the Conversion Stock at a price equal to its estimated fair
market value, which will be the same price as the Purchase Price for the
unsubscribed shares of Conversion Stock. Such valuation is not binding on the
IRS. If the subscription rights granted to Eligible Account Holders or
Supplemental Eligible Account Holders are deemed to have an ascertainable value,
receipt of such rights could be taxable to those Eligible Account Holders or
Supplemental Eligible Account Holders who receive and/or exercise the
subscription rights in an amount equal to such value and the Bank could
recognize gain on such distribution. Eligible Account Holders and Supplemental
Eligible Account Holders are encouraged to consult with their own tax advisor as
to the tax consequences in the event that such subscription rights are deemed to
have an ascertainable value.
CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF SHARES AFTER CONVERSION
All shares of Conversion Stock purchased in connection with the Conversion
and Reorganization by a director or an executive officer of the Primary Parties
will be subject to a restriction that the shares not be sold for a period of one
year following the Conversion and Reorganization, except in the event of the
death of such director or executive officer. Each certificate for restricted
shares will bear a legend giving notice of this restriction on transfer, and
instructions will be issued to the effect that any transfer within such time
period of any certificate or record ownership of such shares other than as
provided above is a violation
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of the restriction. Any shares of Common Stock issued at a later date as a stock
dividend, stock split, or otherwise, with respect to such restricted stock will
be subject to the same restrictions. The directors and executive officers of the
Company and the Bank will also be subject to the insider trading rules
promulgated pursuant to the Exchange Act and any other applicable requirements
of the federal securities laws.
Purchases of outstanding shares of Conversion Stock of the Company by
directors, executive officers (or any person who was an executive officer or
director of the Primary Parties after adoption of the Plan of Conversion) and
their associates during the three-year period following Conversion and
Reorganization may be made only through a broker or dealer registered with the
SEC, except with the prior written approval of the OTS. This restriction does
not apply, however, to negotiated transactions involving more than 1.0% of the
Company's outstanding Common Stock or to the purchase of stock pursuant to any
Stock-Based Incentive Plan to be established after the Conversion and
Reorganization.
Unless approved by the OTS, the Company, pursuant to OTS regulations, will
be prohibited from repurchasing any shares of the Common Stock for three years
except: (i) for an offer to all stockholders on a pro rata basis; or (ii) for
the repurchase of qualifying shares of a director. Notwithstanding the
foregoing, beginning one year following completion of the Conversion and
Reorganization the Company may repurchase its Common Stock so long as: (i) the
repurchases within the following two years are part of an open-market program
not involving greater than 5% of its outstanding capital stock during a twelve-
month period; (ii) the repurchases do not cause the Company to become
undercapitalized; and (iii) the Company provides to the Regional Director of the
OTS no later than ten days prior to the commencement of a repurchase program
written notice containing a full description of the program to be undertaken and
such program is not disapproved by the Regional Director. In addition, under
current OTS policies, repurchases may be allowed in the first year following
Conversion and in amounts greater than 5% in the second and third years
following the Conversion, provided there are valid and compelling business
reasons for such repurchases and the OTS does not object to such repurchases.
COMPARISON OF STOCKHOLDERS' RIGHTS
GENERAL
As a result of the Conversion and Reorganization, holders of the Bank
Common Stock will become stockholders of the Company. There are certain
differences in stockholder rights arising from distinctions between the Bank's
certificate of incorporation and bylaws and the Company's Certificate of
Incorporation and Bylaws and from distinctions between laws with respect to New
Jersey chartered savings associations and Delaware law.
The discussion herein is not intended to be a complete statement of the
differences affecting the rights of stockholders, but rather summarizes the more
significant differences and certain important similarities. The discussion
herein is qualified in its entirety by reference to the Certificate of
Incorporation and Bylaws of the Company and Delaware General Corporation law.
Authorized Capital Stock. The Company's authorized capital stock consists
of 85,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock,
both with a par value $.01 per share, whereas the Bank's authorized capital
stock consists of 10,000,000 shares of Bank Common Stock and 1,000,000 shares of
serial preferred stock, both with a par value $0.01 per share (the "Bank
Preferred Stock"). The increased authorized capitalization will provide the
Company's Board of Directors with additional flexibility to effect, among other
transactions, acquisitions, financings, stock dividends, stock splits and stock
benefit plans. However, these additional authorized shares may also be used by
the Board of Directors consistent with its fiduciary duty to deter future
attempts to gain control of the Company. The Board of Directors also has sole
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authority to determine the terms of any one or more series of Preferred Stock,
including voting rights, conversion rates, and liquidation preferences. As a
result of the ability to fix voting rights for a series of Preferred Stock, the
Board has the power, to the extent consistent with its fiduciary duty, to issue
a series of Preferred Stock to persons friendly to management in order to
attempt to block a post-tender offer merger or other transaction by which a
third party seeks control, and thereby assist management to retain its position.
The Company's Board of Directors currently has no plans for the issuance of
additional shares, other than the issuance of additional shares pursuant to the
terms of the Stock-Based Incentive Plan and upon exercise of stock options to be
issued pursuant to the terms of the Stock-Based Incentive Plan, all of which are
to be established and presented to stockholders at a meeting after the
Conversion and Reorganization.
The Company will be subject to annual franchise taxes under Delaware law
based on its authorized capitalization. As a New Jersey chartered institution,
the Bank is not subject to franchise taxes, regardless of the amount of its
authorized capitalization.
Issuance of Capital Stock. Pursuant to applicable laws and regulations, the
Mutual Holding Company is required to own not less than a majority of the
outstanding Bank Common Stock. There will be no such restriction applicable to
the Company following consummation of the Conversion and Reorganization.
Neither the Certificate of Incorporation of the Bank nor the Certificate of
Incorporation of the Company contains a restriction on the issuance of shares of
capital stock to directors, officers or controlling persons of the Company and
the Bank, respectively. Thus, stock-related compensation plans such as stock
option plans could be adopted by the Company and the Bank without stockholder
approval and shares of Company capital stock and Bank capital stock could be
issued directly to directors, officers or controlling persons without
stockholder approval. The Bylaws of the NASD, however, generally require
corporations with securities which are quoted on the Nasdaq National Market to
obtain stockholder approval of most stock compensation plans for directors,
officers and key employees of the corporation. Moreover, although generally not
required, stockholder approval of stock-related compensation plans may be sought
in certain instances in order to qualify such plans for favorable federal income
tax and securities law treatment under current laws and regulations.
Voting Rights. The Bank's Bylaws and Certificate of Incorporation prohibit,
and the Company's Bylaws do not provide for, cumulative voting in elections of
directors. The prohibition on cumulative voting will help to ensure continuity
and stability of the Company's Board of Directors and the policies adopted by it
by making it more difficult for the holders of a relatively small amount of the
Common Stock to elect their nominees to the Board of Directors and possibly by
delaying, deterring or discouraging proxy contests.
Neither the Certificate of Incorporation of the Bank nor the Certificate of
Incorporation and Bylaws of the Company provide for pre-emptive rights to
stockholders in connection with the issuance of capital stock.
For additional information relating to voting rights, see "-General -
Limitation on Acquisitions of Voting Stock and Voting Rights" below.
Payment of Dividends. The ability of the Bank to pay dividends on its
capital stock is restricted by federal regulations and New Jersey law and
regulations and by tax considerations related to savings associations such as
the Bank. See "Regulation - Federal Regulation of Savings Institutions --
Capital Requirements" and "Federal and State Taxation - Federal Taxation."
Although the Company is not subject to these restrictions as a Delaware
corporation, such restrictions will indirectly affect the Company because
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dividends from the Bank will be a primary source of funds of the Company for the
payment of dividends to stockholders of the Company.
The Delaware General Corporation Law generally provides that, subject to
any restrictions in the corporation's Certificate of Incorporation, dividends
may be declared from the corporation's surplus or, if there is no surplus, from
its net profits for the fiscal year in which the dividend is declared and the
preceding fiscal year. However, if the corporation's capital (generally defined
in the Delaware General Corporation Law as the sum of the aggregate par value of
all shares of the corporation's capital stock, where all such shares have a par
value and the board of directors has not established a higher level of capital)
has been diminished to an amount less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets, dividends may not be declared and
paid out of such net profits until the deficiency in such capital has been
repaired.
Board of Directors. The Bank's Certificate of Incorporation and the
Certificate of Incorporation and Bylaws of the Company, respectively, require
the Board of Directors of the Bank and the Company to be divided into three
classes as nearly equal in number as possible and that the members of each class
shall be elected for a term of three years and until their successors are
elected and qualified, with one class being elected annually.
Under the Bank's Bylaws, any vacancies in the Board of Directors of the
Bank may be filled by the affirmative vote of a majority of the remaining
directors although less than a quorum of the board of directors. Persons elected
by the directors of the Bank to fill vacancies may only serve until the next
annual meeting of stockholders. However, under the Company's Certificate of
Incorporation, any vacancy occurring in the Board of Directors of the Company,
including any vacancy created by reason of an increase in the number of
directors, may be filled by the remaining directors, and any director so chosen
shall hold office for the remainder of the term to which the director has been
elected and until his successor is elected and qualified.
Under the Bank's Bylaws, any director may be removed for cause by a two-
thirds vote of the Board of Directors or by the affirmative vote of at least 80%
of the voting power of the then outstanding shares of capital stock of the Bank
entitled to vote in an election of directors. Under the Company's Certificate of
Incorporation, a director or the entire board of directors may be removed only
for cause and only by the affirmative vote of the holders of at least 80% of the
outstanding voting shares of the Company.
Limitations on Liability. The Company's Certificate of Incorporation
provides that the personal liability of the directors and officers of the
Company for monetary damages shall be eliminated to the fullest extent permitted
by the Delaware General Corporation Law as it exists on the effective date of
the Certificate of Incorporation or as such law may be thereafter in effect.
Section 102(b)(7) of the Delaware General Corporation Law currently provides
that directors (but not officers) of corporations that have adopted such a
provision will not be so liable, except (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) for the payment of certain unlawful dividends and the
making of certain stock purchases or redemptions, or (iv) for any transaction
from which the director derived an improper personal benefit.
If Delaware law was amended in the future to provide for greater
limitations on the personal liability of directors or to permit corporations to
limit the personal liability of officers, the provision in the Company's
Certificate of Incorporation limiting the personal liability of directors and
officers would automatically incorporate such authorities without further action
by stockholders. Similarly, if Delaware law was amended in the future to
restrict the ability of a corporation to limit the personal liability of
directors, the Company's
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Certificate of Incorporation would automatically incorporate such restrictions
without further action by stockholders.
The Bank's current Certificate of Incorporation contains similar provisions
regarding the elimination of director liability consistent with New Jersey law.
Indemnification of Directors, Officers and Employees. The Bank's
Certificate of Incorporation provides that the Bank shall indemnify its
directors, officers and employees for any costs incurred in connection with any
litigation involving any such person's activities as a director, officer or
employee. In addition, indemnification is permitted in the case of a settlement,
a final judgment against such person or final judgment other than on the merits,
if it is determined by the board of directors and the Commission that such
person was acting in good faith within the scope of his or her employment as he
or she could reasonably have perceived it under the circumstances and for a
purpose he or she could have reasonably believed under the circumstances was in
the best interest of the Bank or its stockholders.
The Company's Certificate of Incorporation provides that the Company shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suite or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
such person is or was a director, officer or employee of the Company or any
predecessor of the Company, or is or was serving at the request of the Company
or any predecessor of the Company as a director, officer or employee of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses, liability and loss reasonably incurred or suffered by such indemnitee
in connection therewith to the fullest extent authorized by the Delaware General
Corporation Law of the State of Delaware against expenses, liability and loss
reasonably incurred or suffered by such indemnitee in connection therewith.
The Company's Certificate of Incorporation also provides that reasonable
expenses (including attorneys' fees) incurred by a director, officer or employee
of the Company in defending any civil, criminal, administrative or investigative
action, suit or proceeding described above shall be paid by the Company in
advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors upon receipt of an undertaking by or on
behalf of such person to repay such amount if it shall ultimately be determined
that the person is not entitled to be indemnified by the Company.
Special Meetings of Stockholders. The Bank's Bylaws provide that special
meetings of the stockholders of the Bank may be called by the Chairman,
President, a majority of the Board of Directors or the holders of not less than
ten percent of the outstanding capital stock of the Bank entitled to vote at the
meeting. The Certificate of Incorporation and Bylaws of the Bank provide,
however, that until the fifth anniversary of the 1992 MHC Reorganization,
special meetings of stockholders relating to changes in control of the Bank or
amendments to its Certificate of Incorporation may only be called upon direction
of the Board of Directors of the Bank. The Company's Certificate of
Incorporation contains a provision pursuant to which special meetings of
stockholders of the Company only may be called by the Board of Directors of the
Company.
Stockholder Nominations and Proposals. The Bank's Bylaws generally provide
that stockholders may submit nominations for election as director at an annual
meeting of stockholders 60 days prior to the annual meeting and any new business
to be taken up at such a meeting at least 60 days before the date of any such
meeting.
The Company's Bylaws require a stockholder who intends to nominate a
candidate for election to the Board of Directors, or to raise new business at a
stockholder meeting to give at least 90 days advance notice to the Secretary of
the Company. The notice provision requires a stockholder who desires to raise
new
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business to provide certain information to the Company concerning the nature of
the new business, the stockholder and the stockholder's interest in the business
matter. Similarly, a stockholder wishing to nominate any person for election as
a director must provide the Company with certain information concerning the
nominee and the proposing stockholder.
Inspectors of Election. The Bank's Bylaws provide that the Board of
Directors may appoint one or more persons other than nominees for office as
inspectors of election at a meeting of stockholders and that if inspectors of
election are not so appointed, the Chairman of the Board or the President may,
and on the request of not less than 10% of the votes represented at the meeting
shall, make such appointment at the meeting. The Company's Bylaws provide that
the Board of Directors of the Company shall appoint one or more persons as
inspectors of election, and that the chairman of any meeting of stockholders
shall make such an appointment in the event that the inspector(s) appointed by
the Board of Directors shall be unable to act or the board shall fail to appoint
any inspector. The Bylaws of the Bank and the Company also specify the duties of
inspectors of election.
Stockholder Action Without a Meeting. The Bylaws of the Bank provide that
any action to be taken or which may be taken at any annual or special meeting of
stockholders must be taken at such annual or special meeting and may not be
taken without a meeting. The Certificate of Incorporation and Bylaws of the
Company similarly provide that any action required by Delaware law to be taken
at any annual or special meetings of stockholders, or any action which may be
taken at any annual or special meeting of stockholders, must be taken at such
annual or special meeting, and may not be taken without a meeting.
Limitations on Acquisitions of Voting Stock and Voting Rights. The Bank's
Certificate of Incorporation provides that no person, other than the MHC or the
Company, shall directly or indirectly offer to acquire or acquire the beneficial
ownership of more than 10% of the issued and outstanding shares of any class of
an equity security of the Bank, unless such offer to acquire or acquisition is
approved by a majority of the Board of Directors. In the event that shares are
acquired in violation of this restriction, all shares beneficially owned by any
person in excess of 10% shall be considered "Excess Shares" and shall not be
counted as shares entitled to vote and shall not be voted by any person or
counted as voting shares in connection with any matters submitted to
stockholders for a vote.
The Certificate of Incorporation of the Company provides that in no event
shall any record owner of any outstanding Common Stock which is beneficially
owned, directly or indirectly, by a person who beneficially owns in excess of
10% of the then outstanding shares of Common Stock (the "Limit") be entitled or
permitted to any vote in respect of the shares held in excess of the Limit.
Beneficial ownership is determined pursuant to Rule 13d-3 of the General Rules
and Regulations promulgated pursuant to the Exchange Act, and includes shares
beneficially owned by such person or any of his affiliates (as defined in the
Certificate of Incorporation), shares which such person or his affiliates have
the right to acquire upon the exercise of conversion rights or options and
shares as to which such person and his affiliates have or share investment or
voting power, but shall not include shares beneficially owned by the ESOP or
directors, officers and employees of the Bank or Company or shares that are
subject to a revocable proxy and that are not otherwise beneficially owned, or
deemed by the Company to be beneficially owned, by such person and his
affiliates. The Certificate of Incorporation of the Company further provides
that this provision limiting voting rights may only be amended upon the vote of
80% of the outstanding shares of voting stock (after giving effect to the
limitation on voting rights).
Mergers, Consolidations and Sales of Assets. The Bank's Certificate of
Incorporation and Bylaws do not impose any specific vote requirement for
stockholder approval of mergers and certain business transactions.
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The Delaware General Corporation Law requires the approval of the Board of
Directors and the holders of a majority of the outstanding stock of the Company
entitled to vote thereon for mergers or consolidations, and for sale, leases or
exchanges of all or substantially all of the Company's assets, unless a higher
requirement is specified in the Company's Certificate of Incorporation.
As holder of all of the outstanding Bank Common Stock after consummation of
the Conversion and Reorganization, the Company generally will be able to
authorize a merger, consolidation or other business combination involving the
Bank without the approval of the stockholders of the Company. However, the
Company's Certificate of Incorporation requires the approval of the holders of
at least 80% of the Company's outstanding shares of voting stock to approve
certain "Business Combinations" as defined therein. See "Restrictions on
Acquisition of the Company and the Bank - Restrictions in the Company's
Certificate of Incorporation and Bylaws."
Dissenters' Rights of Appraisal. Under New Jersey corporate law, which is
applicable to the Bank generally, a stockholder of a New Jersey corporation
which engages in a merger, consolidation or sale of all or substantially all of
its assets shall have the right to demand from such corporation payment of the
fair or appraised value of his stock in the New Jersey corporation, subject to
specified procedural requirements. This law also provides, however, that the
stockholders of a New Jersey chartered corporation with stock which is listed on
a national securities exchange or which has more than 1,000 shareholders are not
entitled to dissenters' rights in connection with a merger involving such
corporation if the stockholder is required to accept only "qualified
consideration" for his stock, which is defined to include cash, shares of stock
of any corporation which at the effective date of the merger will be listed on a
national securities exchange or quoted on the Nasdaq National Market System or
any combination of such shares of stock and cash.
After the Conversion and Reorganization, the rights of appraisal of
dissenting stockholders of the Company will be governed by the Delaware General
Corporation Law. Pursuant thereto, a stockholder of a Delaware corporation
generally has the right to dissent from any merger or consolidation involving
the corporation or sale of all or substantially all of the corporation's assets,
subject to specified procedural requirements. However, no such appraisal rights
are available for the shares of any class or series of a corporation's capital
stock if (i) as of the record date fixed to determine the stockholders entitled
to receive notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, such shares were either listed on a
national securities exchange or held of record by more than 2,000 stockholders,
or (ii) the corporation is the surviving corporation of a merger and the merger
did not require the approval of the corporation's stockholders, unless in either
case, the holders of such stock are required by an agreement of merger or
consolidation to accept for that stock something other than: (a) shares of stock
of the corporation surviving or resulting from the merger or consolidation; (b)
shares of stock of any other corporation that, at the effective date of the
merger, will be listed on a national securities exchange or held of record by
more than 2,000 stockholders; (c) cash in lieu of fractional shares of a
corporation described in clause (a) or (b) above; or (d) any combination of the
shares of stock and cash in lieu of fractional shares described in clauses (a)
through (c) above.
Amendment of Governing Instruments. No amendment of the Bank's Certificate
of Incorporation may be made unless it is first proposed by the Board of
Directors of the Bank, thereafter approved by the holders of a majority of the
total votes eligible to be cast at a legal meeting and submitted to the
Commissioner for action as specified by law or regulation. The Company's
Certificate of Incorporation similarly provides that no amendment of the
Company's Certificate of Incorporation may be made unless it is first approved
by the Board of Directors of the Company and thereafter is approved by the
holders of a majority of the shares of the Company entitled to vote generally in
an election of directors, voting together in a single class; provided, however,
that the affirmative vote of at least 80% of the outstanding voting stock
entitled to vote is needed for certain amendments.
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The Bylaws of the Bank may be amended by a majority of the full Board of
Directors of the Bank or by a majority vote of the votes cast by the
stockholders of the Bank at any legal meeting. The Bylaws of the Company may be
amended by a majority vote of the Board of Directors of the Company or by the
affirmative vote of the holders of 80% of the votes cast by stockholders of the
Company at a meeting of stockholders.
RESTRICTIONS ON ACQUISITION OF THE COMPANY
AND THE BANK
GENERAL
The Plan of Conversion provides for the conversion of the Mutual Holding
Company from the mutual to the stock form of organization. See "The Conversion
and Reorganization -- General." Certain provisions in the Company's Certificate
of Incorporation and Bylaws and in its management remuneration entered into in
connection with the Conversion and Reorganization, together with provisions of
Delaware corporate law, may have anti-takeover effects. In addition, regulatory
restrictions may make it difficult for persons or companies to acquire control
of either the Company or the Bank.
RESTRICTIONS IN THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
A number of provisions of the Company's Certificate of Incorporation and
Bylaws deal with matters of corporate governance and certain rights of
stockholders. The following discussion is a general summary of certain
provisions of the Company's Certificate of Incorporation and Bylaws and certain
other statutory and regulatory provisions relating to stock ownership and
transfers, the Board of Directors and business combinations, which might be
deemed to have a potential "anti-takeover" effect. These provisions may have the
effect of discouraging a future takeover attempt which is not approved by the
Board of Directors but which individual Company stockholders may deem to be in
their best interests or in which stockholders may receive a substantial premium
for their shares over then current market prices. As a result, stockholders who
might desire to participate in such a transaction may not have an opportunity to
do so. Such provisions will also render the removal of the current Board of
Directors or management of the Company more difficult. The following description
of certain of the provisions of the Certificate of Incorporation and Bylaws of
the Company is necessarily general and reference should be made in each case to
such Certificate of Incorporation and Bylaws, which are incorporated herein by
reference. See "Additional Information" as to how to obtain a copy of these
documents.
Limitation on Voting Rights. The Certificate of Incorporation of the
Company provides that in no event shall any record owner of any outstanding
Common Stock which is beneficially owned, directly or indirectly, by a person
who beneficially owns in excess of 10% of the then outstanding shares of Common
Stock (the "Limit") be entitled or permitted to any vote in respect of the
shares held in excess of the Limit. Beneficial ownership is determined pursuant
to Rule 13d-3 of the General Rules and Regulations promulgated pursuant to the
Exchange Act, and includes shares beneficially owned by such person or any of
his affiliates (as defined in the Certificate of Incorporation), shares which
such person or his affiliates have the right to acquire upon the exercise of
conversion rights or options and shares as to which such person and his
affiliates have or share investment or voting power, but shall not include
shares beneficially owned by the ESOP or directors, officers and employees of
the Bank or Company or shares that are subject to a revocable proxy and that are
not otherwise beneficially owned, or deemed by the Company to be beneficially
owned, by such person and his affiliates. The Certificate of Incorporation of
the Company further provides that this provision limiting voting rights may only
be amended upon the vote of 80% of the outstanding shares of voting stock (after
giving effect to the limitation on voting rights).
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Board of Directors. The Board of Directors of the Company is divided into
three classes, each of which shall contain approximately one-third of the whole
number of members of the Board. Each class shall serve a staggered term, with
approximately one-third of the total number of directors being elected each
year. The Company's Certificate of Incorporation and Bylaws provide that the
size of the Board shall be determined by a majority of the directors. The
Certificate of Incorporation and the Bylaws provide that any vacancy occurring
in the Board, including a vacancy created by an increase in the number of
directors or resulting from death, resignation, retirement, disqualification,
removal from office or other cause, shall be filled for the remainder of the
unexpired term exclusively by a majority vote of the directors then in office.
The classified Board is intended to provide for continuity of the Board of
Directors and to make it more difficult and time consuming for a stockholder
group to fully use its voting power to gain control of the Board of Directors
without the consent of the incumbent Board of Directors of the Company. The
Certificate of Incorporation of the Company provides that a director may be
removed from the Board of Directors prior to the expiration of his term only for
cause, upon the vote of 80% of the outstanding shares of voting stock.
In the absence of these provisions, the vote of the holders of a majority
of the shares could remove the entire Board, with or without cause, and replace
it with persons of such holders' choice.
Cumulative Voting, Special Meetings and Action by Written Consent. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, special meetings of stockholders of the Company may be called
only by the Board of Directors of the Company. The Certificate of Incorporation
also provides that any action required or permitted to be taken by the
stockholders of the Company may be taken only at an annual or special meeting
and prohibits stockholder action by written consent in lieu of a meeting.
Authorized Shares. The Certificate of Incorporation authorizes the issuance
of 85,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock.
The shares of Common Stock and Preferred Stock were authorized in an amount
greater than that to be issued in the Conversion and Reorganization to provide
the Company's Board of Directors with as much flexibility as possible to effect,
among other transactions, financings, acquisitions, stock dividends, stock
splits and employee stock options. However, these additional authorized shares
may also be used by the Board of Directors consistent with its fiduciary duty to
deter future attempts to gain control of the Company. The Board of Directors
also has sole authority to determine the terms of any one or more series of
Preferred Stock, including voting rights, conversion rates, and liquidation
preferences. As a result of the ability to fix voting rights for a series of
Preferred Stock, the Board has the power, to the extent consistent with its
fiduciary duty, to issue a series of Preferred Stock to persons friendly to
management in order to attempt to block a post-tender offer merger or other
transaction by which a third party seeks control, and thereby assist management
to retain its position. The Company's Board of Directors currently has no plans
for the issuance of additional shares, other than the issuance of additional
shares pursuant to the terms of the restricted stock awards and upon exercise of
stock options to be issued pursuant to the terms of the Stock-Based Incentive
Plan all of which are to be established and presented to stockholders no earlier
than six months after the Conversion and Reorganization.
Stockholder Vote Required to Approve Business Combinations with Principal
Stockholders. The Certificate of Incorporation requires the approval of the
holders of at least 80% of the Company's outstanding shares of voting stock to
approve certain "Business Combinations," as defined therein, and related
transactions. Under Delaware law, absent this provision, Business Combinations,
including mergers, consolidations and sales of all or substantially all of the
assets of a corporation must, subject to certain exceptions, be approved by the
vote of the holders of only a majority of the outstanding shares of Common Stock
of the Company and any other affected class of stock. Under the Certificate of
Incorporation, at least 80% approval of stockholders is required in connection
with any transaction involving an Interested Stockholder (as defined below)
except (i) in cases where the proposed transaction has been approved in
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advance by a majority of those members of the Company's Board of Directors who
are unaffiliated with the Interested Stockholder and were directors prior to the
time when the Interested Stockholder became an Interested Stockholder or (ii) if
the proposed transaction meets certain conditions set forth therein which are
designed to afford the stockholders a fair price in consideration for their
shares in which case, if a stockholder vote is required, approval of only a
majority of the outstanding shares of voting stock would be sufficient. The term
"Interested Stockholder" is defined to include any individual, corporation,
partnership or other entity (other than the Company or its subsidiary) which
owns beneficially or controls, directly or indirectly, 10% or more of the
outstanding shares of voting stock of the Company. This provision of the
Certificate of Incorporation applies to any "Business Combination," which is
defined to include (i) any merger or consolidation of the Company or any of its
subsidiaries with or into any Interested Stockholder or Affiliate (as defined in
the Certificate of Incorporation) of an Interested Stockholder; (ii) any sale,
lease, exchange, mortgage, pledge, transfer, or other disposition to or with any
Interested Stockholder or Affiliate of 25% or more of the assets of the Company
or combined assets of the Company and its subsidiary; (iii) the issuance or
transfer to any Interested Stockholder or its Affiliate by the Company (or any
subsidiary) of any securities of the Company in exchange for any assets, cash or
securities the value of which equals or exceeds 25% of the fair market value of
the Common Stock of the Company; (iv) the adoption of any plan for the
liquidation or dissolution of the Company proposed by or on behalf of any
Interested Stockholder or Affiliate thereof; and (v) any reclassification of
securities, recapitalization, merger or consolidation of the Company which has
the effect of increasing the proportionate share of Common Stock or any class of
equity or convertible securities of the Company owned directly or indirectly by
an Interested Stockholder or Affiliate thereof. The directors and executive
officers of the Bank are purchasing in the aggregate approximately ___% of the
shares of the Common Stock at the maximum of the Estimated Price Range. In
addition, the ESOP intends to purchase 8% of the aggregate of the Conversion
Stock sold in the Conversion. Additionally, if at a meeting of stockholders
following the Conversion and Reorganization stockholder approval of the proposed
Stock-Based Incentive Plan is received, the Company expects to acquire 4% of the
aggregate of the Conversion Stock issued in the Conversion and Reorganization
and expects to issue an amount equal to 10% of the aggregate of the Conversion
Stock issued in the Conversion and Reorganization to directors and executive
officers. As a result, assuming the Stock-Based Incentive Plan is approved by
stockholders, directors, executive officers and employees have the potential to
control the voting of approximately 25% of the Company's Common Stock, thereby
enabling them to prevent the approval of the transactions requiring the approval
of at least 80% of the Company's outstanding shares of voting stock described
hereinabove.
Evaluation of Offers. The Certificate of Incorporation of the Company
further provides that the Board of Directors of the Company, when evaluating any
offer of another "Person" (as defined therein) to (i) make a tender or exchange
offer for any equity security of the Company, (ii) merge or consolidate the
Company with another corporation or entity, or (iii) purchase or otherwise
acquire all or substantially all of the properties and assets of the Company,
may, in connection with the exercise of its judgment in determining what is in
the best interest of the Company, the Bank and the stockholders of the Company,
give due consideration to all relevant factors, including, without limitation,
the social and economic effects of acceptance of such offer on the Company's
customers and the Bank's present and future account holders, borrowers and
employees; on the communities in which the Company and the Bank operate or are
located; and on the ability of the Company to fulfill its corporate objectives
as a savings and loan holding company and on the ability of the Bank to fulfill
the objectives of a federally-chartered stock savings association under
applicable statutes and regulations. By having these standards in the
Certificate of Incorporation of the Company, the Board of Directors may be in a
stronger position to oppose such a transaction if the Board concludes that the
transaction would not be in the best interest of the Company, even if the price
offered is significantly greater than the then market price of any equity
security of the Company.
Amendment of Certificate of Incorporation and Bylaws. Amendments to the
Company's Certificate of Incorporation must be approved by a majority vote of
its Board of Directors and also by a majority of the
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outstanding shares of its voting stock; provided, however, that an affirmative
vote of at least 80% of the outstanding voting stock entitled to vote (after
giving effect to the provision limiting voting rights) is required to amend or
repeal certain provisions of the Certificate of Incorporation, including the
provision limiting voting rights, the provisions relating to approval of certain
business combinations, calling special meetings, the number and classification
of directors, director and officer indemnification by the Company and amendment
of the Company's Bylaws and Certificate of Incorporation. The Company's Bylaws
may be amended by its Board of Directors, or by a vote of 80% of the total votes
eligible to be voted at a duly constituted meeting of stockholders.
Certain Bylaw Provisions. The Bylaws of the Company also require a
stockholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at a stockholder meeting to give at least 90
days advance notice to the Secretary of the Company. The notice provision
requires a stockholder who desires to raise new business to provide certain
information to the Company concerning the nature of the new business, the
stockholder and the stockholder's interest in the business matter. Similarly, a
stockholder wishing to nominate any person for election as a director must
provide the Company with certain information concerning the nominee and the
proposing stockholder.
ANTI-TAKEOVER EFFECTS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
AND MANAGEMENT REMUNERATION ADOPTED IN CONVERSION
The provisions described above are intended to reduce the Company's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by members of its Board of Directors. The
provisions of the employment agreements, CIC Agreements, Severance Plan, and the
Stock-Based Incentive Plan to be established may also discourage takeover
attempts by increasing the costs to be incurred by the Bank and the Company in
the event of a takeover. See "Management of the Bank - Employment Agreements"
and "- New Benefits Resulting from the Conversion and Reorganization - Stock
Option Plans."
The Company's Board of Directors believes that the provisions of the
Certificate of Incorporation, Bylaws and management remuneration plans to be
established are in the best interest of the Company and its stockholders. An
unsolicited non-negotiated proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Accordingly, the Board
of Directors believes it is in the best interests of the Company and its
stockholders to encourage potential acquirors to negotiate directly with
management and that these provisions will encourage such negotiations and
discourage non-negotiated takeover attempts. It is also the Board of Directors'
view that these provisions should not discourage persons from proposing a merger
or other transaction at a price that reflects the true value of the Company and
that otherwise is in the best interest of all stockholders.
DELAWARE CORPORATE LAW
The state of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The takeover
statute, which is codified in Section 203 of the Delaware General Corporate Law
("Section 203"), is intended to discourage certain takeover practices by
impeding the ability of a hostile acquiror to engage in certain transactions
with the target company.
In general, Section 203 provides that a "Person" (as defined therein) who
owns 15% or more of the outstanding voting stock of a Delaware corporation (an
"Interested Stockholder") may not consummate a merger or other business
combination transaction with such corporation at any time during the three-year
period following the date such "Person" became an Interested Stockholder. The
term "business combination"
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is defined broadly to cover a wide range of corporate transactions including
mergers, sales of assets, issuances of stock, transactions with subsidiaries and
the receipt of disproportionate financial benefits.
The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person became
an Interested Stockholder, the Board of Directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
Interested Stockholder; (ii) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he became an Interested Stockholder, with the number of shares outstanding
calculated without regard to those shares owned by the corporation's directors
who are also officers and by certain employee stock plans; (iii) any business
combination with an Interested Stockholder that is approved by the Board of
Directors and by a two-thirds vote of the outstanding voting stock not owned by
the Interested Stockholder; and (iv) certain business combinations that are
proposed after the corporation had received other acquisition proposals and
which are approved or not opposed by a majority of certain continuing members of
the Board of Directors. A corporation may exempt itself from the requirements of
the statute by adopting an amendment to its Certificate of Incorporation or
Bylaws electing not to be governed by Section 203. At the present time, the
Board of Directors does not intend to propose any such amendment.
RESTRICTIONS IN THE BANK'S CERTIFICATE OF INCORPORATION AND BYLAWS
Although the Board of Directors of the Bank is not aware of any effort that
might be made to obtain control of the Bank after the Conversion and
Reorganization, the Board of Directors believes that it is appropriate to retain
certain provisions permitted by New Jersey law and to adopt certain new
provisions to protect the interests of the Bank and its stockholders from any
hostile takeover. Such provisions may, indirectly, inhibit a change in control
of the Company, as the Bank's sole stockholder. See "Risk Factors -- Certain
Anti-Takeover Provisions Which May Discourage Takeover Attempts."
The Bank's Certificate of Incorporation will continue to contain a
provision whereby the acquisition of or offer to acquire beneficial ownership of
more than 10% of the issued and outstanding shares of any class of equity
securities of the Bank by any person (i.e., any individual, corporation, group
acting in concert, trust, partnership, joint stock company or similar
organization), either directly or through an affiliate thereof, will be
prohibited for a period of five years following the date of completion of the
Conversion and Reorganization. Any stock in excess of 10% acquired in violation
of the Certificate of Incorporation provision will not be counted as outstanding
for voting purposes. This limitation shall not apply to any transaction in which
the Bank forms a holding company without a change in the respective beneficial
ownership interests of its stockholders other than pursuant to the exercise of
any dissenter or appraisal rights. In the event that holders of revocable
proxies for more than 10% of the shares of the Common Stock of the Company seek,
among other things, to elect one-third or more of the Company's Board of
Directors, to cause the Company's stockholders to approve the acquisition or
corporate reorganization of the Company or to exert a continuing influence on a
material aspect of the business operations of the Company, which actions could
indirectly result in a change in control of the Bank, the Board of Directors of
the Bank will be able to assert this provision of the Bank's Certificate of
Incorporation against such holders. Although the Board of Directors of the Bank
is not currently able to determine when and if it would assert this provision of
the Bank's Certificate of Incorporation, the Board of Directors, in exercising
its fiduciary duty, may assert this provision if it were deemed to be in the
best interests of the Bank, the Company and its stockholders. It is unclear,
however, whether this provision, if asserted, would be successful against such
persons in a proxy contest which could result in a change in control of the Bank
indirectly through a change in control of the Company. Finally, stockholders
will not be permitted to call a special meeting of stockholders relating to a
change of control of the Bank or a charter amendment or to cumulate their votes
in the election of directors. Furthermore, the staggered terms of the Board of
Directors could have an anti-takeover effect by making it
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more difficult for a majority of shares to force an immediate change in the
Board of Directors since only one-third of the Board is elected each year. The
purpose of these provisions is to assure stability and continuity of management
of the Bank in the years immediately following the Conversion and
Reorganization.
Although the Bank has no arrangements, understandings or plans at the
present time, except as described in "Description of Capital Stock of the
Company - Preferred Stock," for the issuance or use of the shares of Bank
Preferred Stock proposed to be authorized, the Board of Directors believes that
the availability of such shares will provide the Bank with increased flexibility
in structuring possible future financings and acquisitions and in meeting other
corporate needs which may arise. In the event of a proposed merger, tender offer
or other attempt to gain control of the Bank of which management does not
approve, it might be possible for the Board of Directors to authorize the
issuance of one or more series of Bank Preferred Stock with rights and
preferences which could impede the completion of such a transaction. An effect
of the possible issuance of such Bank Preferred Stock, therefore, may be to
deter a future takeover attempt. The Board of Directors does not intend to issue
any Bank Preferred Stock except on terms which the Board deems to be in the best
interest of the Bank and its then existing stockholders.
REGULATORY RESTRICTIONS
The Plan of Conversion prohibits any person, prior to the completion of the
Conversion and Reorganization, from transferring, or from entering into any
agreement or understanding to transfer, to the account of another, legal or
beneficial ownership of the subscription rights issued under the Plan or the
Conversion Stock to be issued upon their exercise. The Plan also prohibits any
person, prior to the completion of the Conversion and Reorganization, from
offering, or making an announcement of an offer or intent to make an offer, to
purchase such subscription rights or Conversion Stock.
For three years following the Conversion and Reorganization, OTS
regulations prohibit any person from acquiring or making an offer to acquire
more than 10% of the stock of any converted savings institution, except for: (i)
offers that, if consummated, would not result in the acquisition by such person
during the preceding 12-month period of more than 1% of such stock; (ii) offers
for up to 25% in the aggregate by the ESOP or other tax qualified plans of the
Bank or the Company; or (iii) offers which are not opposed by the Board of
Directors of the Bank and which receive the prior approval of the OTS. Such
prohibition is also applicable to the acquisition of the stock of the Company.
Such acquisition may be disapproved by the OTS if it is found, among other
things, that the proposed acquisition (a) would frustrate the purposes of the
provisions of the regulations regarding conversions; (b) would be manipulative
or deceptive; (c) would subvert the fairness of the conversion; (d) would be
likely to result in injury to the savings institution; (e) would not be
consistent with economical home financing; (f) would otherwise violate law or
regulation; or (g) would not contribute to the prudent deployment of the savings
institution's conversion proceeds. In the event that any person, directly or
indirectly, violates this regulation, the securities beneficially owned by such
person in excess of 10% shall not be counted as shares entitled to vote and
shall not be voted by any person or counted as voting shares in connection with
any matters submitted to a vote of stockholders. The definition of beneficial
ownership for this regulation extends to persons holding revocable or
irrevocable proxies for the Company's stock under circumstances that give rise
to a conclusive or rebuttable determination of control under the OTS
regulations.
In addition, any proposal to acquire 10% of any class of equity security of
the Company generally would be subject to approval by the OTS under the Change
in Bank Control Act. The OTS requires all persons seeking control of a savings
institution and, therefore, indirectly its holding company, to obtain regulatory
approval prior to offering to obtain control. Federal law generally provides
that no "person," acting directly or indirectly or through or in concert with
one or more other persons, may acquire directly
140
<PAGE>
or indirectly "control," as that term is defined in OTS regulations, of a
federally-insured savings institution without giving at least 60 days' written
notice to the OTS and providing the OTS an opportunity to disapprove the
proposed acquisition. Such acquisitions of control may be disapproved if it is
determined, among other things, that (i) the acquisition would substantially
lessen competition; (ii) the financial condition of the acquiring person might
jeopardize the financial stability of the savings institution or prejudice the
interests of its depositors; or (iii) the competency, experience or integrity of
the acquiring person or the proposed management personnel indicates that it
would not be in the interest of the depositors or the public to permit the
acquisition of control by such person. Such change in control restrictions on
the acquisition of holding company stock are not limited to three years after
conversion but will apply for as long as the regulations are in effect. Persons
holding revocable or irrevocable proxies may be deemed to be beneficial owners
of such securities under OTS regulations and therefore prohibited from voting
all or the portion of such proxies in excess of the 10% aggregate beneficial
ownership limit. Such regulatory restrictions may prevent or inhibit proxy
contests for control of the Company or the Bank which have not received prior
regulatory approval.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
GENERAL
The Company is authorized to issue 85,000,000 shares of Common Stock having
a par value of $.01 per share and 10,000,000 shares of preferred stock having a
par value of $.01 per share (the "Preferred Stock"). The Company currently
expects to issue up to 27,600,000 shares of Common Stock (or 31,740,000 in the
event of an increase of 15% in the Estimated Price Range) and no shares of
Preferred Stock in the Conversion. Except as discussed above in "Restriction on
Acquisition of the Company and the Bank." Each share of the Company's Common
Stock will have the same relative rights as, and will be identical in all
respects with, each other share of Common Stock. Upon payment of the Purchase
Price for the common stock, in accordance with the Plan, all such stock will be
duly authorized, fully paid and non-assessable.
THE COMMON STOCK OF THE COMPANY WILL REPRESENT NON-WITHDRAWABLE CAPITAL,
WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED BY THE
FDIC.
COMMON STOCK
Dividends. The Company can pay dividends out of statutory surplus or from
certain net profits if, as and when declared by its Board of Directors. The
payment of dividends by the Company is subject to limitations which are imposed
by law and applicable regulation. See "Dividend Policy" and "Regulation." The
holders of Common Stock of the Company will be entitled to receive and share
equally in such dividends as may be declared by the Board of Directors of the
Company out of funds legally available therefor. If the Company issues Preferred
Stock, the holders thereof may have a priority over the holders of the Common
Stock with respect to dividends.
Voting Rights. Upon Conversion and Reorganization, the holders of Common
Stock of the Company will possess exclusive voting rights in the Company. They
will elect the Company's Board of Directors and act on such other matters as are
required to be presented to them under Delaware law or the Company's Certificate
of Incorporation or as are otherwise presented to them by the Board of
Directors. Except as discussed in "Restrictions on Acquisition of the Company
and the Bank," each holder of Common Stock will be entitled to one vote per
share and will not have any right to cumulate votes in the election of
directors. If the Company issues Preferred Stock, holders of the Preferred Stock
may also possess voting rights. Certain matters require an 80% stockholder vote.
See "Restrictions on Acquisition of the Company and the Bank."
141
<PAGE>
Subsequent to the Conversion and Reorganization, voting rights will be
vested exclusively in the owners of the shares of capital stock of the Bank,
which will be the Company, and voted at the direction of the Company's Board of
Directors. Consequently, the holders of the Common Stock will not have direct
control of the Bank.
Liquidation. In the event of any liquidation, dissolution or winding up of
the Bank, the Company, as holder of the Bank's capital stock, would be entitled
to receive, after payment or provision for payment of all debts and liabilities
of the Bank (including all deposit accounts and accrued interest thereon) and
after distribution of the balance in the special liquidation account to Eligible
Account Holders and Supplemental Eligible Account Holders (see "The Conversion
and Reorganization --Liquidation Rights"), all assets of the Bank available for
distribution. In the event of liquidation, dissolution or winding up of the
Company, the holders of its Common Stock would be entitled to receive, after
payment or provision for payment of all its debts and liabilities, all of the
assets of the Company available for distribution. If Preferred Stock is issued,
the holders thereof may have a priority over the holders of the Common Stock in
the event of liquidation or dissolution.
Preemptive Rights. Holders of the Common Stock of the Company will not be
entitled to preemptive rights with respect to any shares which may be issued.
The Common Stock is not subject to redemption.
PREFERRED STOCK
None of the shares of the Company's authorized Preferred Stock will be
issued in the Conversion and Reorganization. Such stock may be issued with such
preferences and designations as the Board of Directors may from time to time
determine. The Board of Directors can, without stockholder approval, issue
preferred stock with voting, dividend, liquidation and conversion rights which
could dilute the voting strength of the holders of the Common Stock and may
assist management in impeding an unfriendly takeover or attempted change in
control.
DESCRIPTION OF CAPITAL STOCK OF THE BANK
GENERAL
The Certificate of Incorporation of the Bank authorizes the issuance of
capital stock consisting of 10,000,000 shares of common stock, par value $0.01
per share, and 1,000,000 shares of preferred stock, par value $.01 per share,
which preferred stock may be issued in series and classes having such rights,
preferences, privileges and restrictions as the Board of Directors may
determine. Each share of Common Stock of the Bank has the same relative rights
as, and will be identical in all respects with, each other share of common
stock. After the Conversion and Reorganization, the Board of Directors will be
authorized to approve the issuance of Common Stock up to the amount authorized
by the Certificate of Incorporation without the approval of the Bank's
stockholders. Following the Conversion and Reorganization, all of the issued and
outstanding common stock of the Bank will be held by the Company as the Bank's
sole stockholder. THE CAPITAL STOCK OF THE BANK WILL REPRESENT NON-WITHDRAWABLE
CAPITAL, WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED BY
THE FDIC.
COMMON STOCK
Dividends. The holders of the Bank's common stock will be entitled to
receive and to share equally in such dividends as may be declared by the Board
of Directors of the Bank out of funds legally available therefor. See "Dividend
Policy" for certain restrictions on the payment of dividends and "Federal and
State Taxation - Federal Taxation" for a discussion of the consequences of the
payment of cash dividends from income appropriated to bad debt reserves.
142
<PAGE>
Voting Rights. Immediately after the Conversion and Reorganization, the
holders of the Bank's common stock will possess exclusive voting rights in the
Bank. Each holder of shares of common stock will be entitled to one vote for
each share held, provided that cumulation of votes will not be permitted. See
"Restrictions on Acquisition of the Company and the Bank - Anti-Takeover Effects
of the Company's Certificate of Incorporation and Bylaws and Management
Remuneration Adopted in Conversion."
Liquidation. In the event of any liquidation, dissolution, or winding up of
the Bank, the holders of common stock will be entitled to receive, after payment
of all debts and liabilities of the Bank (including all deposit accounts and
accrued interest thereon), and distribution of the balance in the special
liquidation account to Eligible Account Holders and Supplemental Eligible
Account Holders, all assets of the Bank available for distribution in cash or in
kind. If additional preferred stock is issued subsequent to the Conversion and
Reorganization, the holders thereof may also have priority over the holders of
common stock in the event of liquidation or dissolution.
Preemptive Rights; Redemption. Holders of the common stock of the Bank will
not be entitled to preemptive rights with respect to any shares of the Bank
which may be issued. The common stock will not be subject to redemption. Upon
receipt by the Bank of the full specified purchase price therefor, the common
stock will be fully paid and non-assessable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Registrar and
Transfer Company, Cranford, New Jersey.
EXPERTS
The consolidated financial statements of the Bank and its subsidiaries as
of December 31, 1996 and for each of the years in the three year period ended
December 31, 1996 have been included herein, in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
FinPro has consented to the publication herein of the summary of its report
to the Bank and Company setting forth its opinion as to the estimated pro forma
market value of the Common Stock upon Conversion and its valuation with respect
to subscription rights.
LEGAL AND TAX OPINIONS
The legality of the Common Stock will be passed upon for the Bank and the
Company by Muldoon, Murphy & Faucette, Washington, D.C., special counsel to the
Bank and the Company. Muldoon, Murphy & Faucette will rely as to certain matters
of Delaware law on the opinion of Morris, Nichols, Arsht & Tunnell. The federal
income and New Jersey tax consequences of the Conversion and Reorganization will
be passed upon for the Bank and the Company by Muldoon, Murphy & Faucette.
Certain legal matters will be passed upon for Sandler O'Neill by Breyer &
Aguggia, Washington, D.C.
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information, including
the Conversion Valuation Appraisal Report which is an exhibit to the
Registration Statement, can be examined without charge at the public reference
facilities of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of such material can be obtained from the SEC at prescribed rates. In
addition, the
143
<PAGE>
SEC maintains a web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC, including the Company. This Prospectus contains a
description of the material terms and features of all material contracts,
reports or exhibits to the Registration Statement required to be described,
however, the statements contained in this Prospectus as to the contents of any
contract or other document filed as an exhibit to the registration statement
are, of necessity, brief descriptions thereof and are not necessarily complete;
each such statement is qualified by reference to such contract or document.
The Mutual Holding Company has filed an application for conversion with the
OTS with respect to the Conversion and Reorganization. Pursuant to the rules and
regulations of the OTS, this Prospectus omits certain information contained in
that application. The application may be examined at the principal office of the
OTS, 1700 G Street, N.W., Washington, D.C. 20552 and at the Office of the
Regional Director of the OTS located at 10 Exchange Place, 18th Floor, Jersey
City, New Jersey 07302.
In connection with the Conversion and Reorganization, the Company will
register its Common Stock with the SEC under Section 12(b) of the Exchange Act
and, upon such registration, the Company and the holders of its stock will
become subject to the proxy solicitation rules, reporting requirements and
restrictions on stock purchases and sales by directors, officers and greater
than 10% stockholders, the annual and periodic reporting and certain other
requirements of the Exchange Act. Under the Plan, the Company has undertaken
that it will not terminate such registration for a period of at least three
years following the Conversion and Reorganization.
A copy of the Certificate of Incorporation and the Bylaws of the Company
and the Stock Certificate of Incorporation and Bylaws of the Bank are available
without charge from the Bank.
144
<PAGE>
FIRST SAVINGS BANK, SLA AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Independent Auditors' Report........................................ F-2
Consolidated Statements of Financial Condition as of September
30, 1997 (unaudited) and December 31, 1996 and 1995................. F-3
Consolidated Statements of Income for the Nine Months Ended
September 30, 1997 and 1996 (unaudited) and for the Years
Ended December 31, 1996, 1995 and 1994.............................. 37
Consolidated Statements of Stockholders' Equity for the Nine
Months Ended September 30, 1997 (unaudited) and for the Years
Ended December 31, 1996, 1995 and 1994.............................. F-4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996 (unaudited) and for the Years
Ended December 31, 1996, 1995 and 1994.............................. F-5
Notes to Consolidated Financial Statements.......................... F-7 to F-33
</TABLE>
All schedules are omitted because they are not required or applicable, or
the required information is shown in the financial statements or notes thereto.
The financial statements of First Source Bancorp, Inc. have been omitted
because First Source Bancorp, Inc. has not yet issued any stock, has no assets
and no liabilities, and has not conducted any business other than of an
organizational nature.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
First Savings Bank, SLA:
We have audited the consolidated financial statements of First Savings Bank,
SLA, and Subsidiaries as listed in the accompanying index. These consolidated
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First Savings Bank,
SLA, and Subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Short Hills, New Jersey
January 27, 1997
F-2
<PAGE>
FIRST SAVINGS BANK SLA, AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Consolidated Statements of Financial Condition
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
----------------------
1997 1996 1995
--------------- --------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and due from banks....................................................... $ 5,873 $ 7,192 $ 8,674
Federal funds sold............................................................ 17,925 1,850 17,875
---------- --------- ---------
Total cash and cash equivalents.......................................... 23,798 9,042 26,549
Federal Home Loan Bank of New York (FHLB-NY) stock,
at cost, (note 10)....................................................... 8,045 7,428 6,276
Investment securities, at amortized cost (estimated fair value
of $41,108, $38,980 and $39,617 at 9/30/97, 12/31/96
and 12/31/95, respectively) (notes 4 and 10)............................. 40,959 38,955 39,003
Investment securities available for sale (notes 4 and 10)..................... 18,024 14,831 2,058
Mortgage-backed securities (estimated fair value of
$231,667, $255,052 and $291,689 at 9/30/97,
12/31/96 and 12/31/95, respectively) (notes 5 and 10)..................... 228,158 252,383 288,143
Mortgage-backed securities available for sale (notes 5 and 10)................ 122,371 120,797 89,339
Loans receivable, net (notes 6 and 10)........................................ 567,197 509,627 457,756
Loans available for sale (notes 6 and 10)..................................... -- 287 424
Interest and dividends receivable, net (note 7)............................... 7,719 7,415 6,793
Premises and equipment, net (note 8).......................................... 13,283 10,356 9,347
Excess of cost over fair value of net assets acquired......................... 9,018 10,950 12,299
Other assets (note 12)........................................................ 5,941 5,044 7,025
---------- --------- ---------
Total assets............................................................. $1,044,513 $ 987,115 $ 945,012
========== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (note 9)............................................................. $ 809,449 $794,595 $ 806,338
Borrowed funds (note 10)...................................................... 123,894 87,994 38,750
Employee Stock Ownership Plan (ESOP) debt (note 11)........................... 571 646 746
Advances by borrowers for taxes and insurance................................. 5,382 4,600 3,813
Other liabilities (note 12 and 13)............................................ 6,004 6,417 5,652
---------- -------- ---------
Total liabilities........................................................... 945,300 894,252 855,299
---------- -------- ---------
Commitments and contingencies (note 14).......................................
STOCKHOLDERS' EQUITY
Preferred Stock, 1,000,000 shares authorized; issued and
outstanding - none.......................................................
Common Stock, $0.01 par value, 10,000,000 shares authorized;
8,006,707, 7,903,719 and 7,872,604 shares issued and outstanding
at 9/30/97, 12/31/96 and 12/31/95, respectively (note 13)................ 73 72 65
Paid-in capital (note 13)..................................................... 27,856 27,427 22,007
Retained earnings (note 12)................................................... 71,870 66,299 68,222
Net unrealized gain (loss) on securities available for sale
(notes 4 and 5).......................................................... 193 (3) 165
Less: Common Stock acquired by the ESOP (note 13)............................. (571) (646) (746)
Common Stock acquired by the Recognition and
Retention Plan (RRP) (note 13)......................................... (208) (286) --
---------- -------- ---------
Total stockholders' equity (notes 2 and 3)............................... 99,213 92,863 89,713
---------- -------- ---------
Total liabilities and stockholders' equity............................... $1,044,513 $987,115 $ 945,012
========== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FIRST SAVINGS BANK SLA, AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
NET UNREALIZED
GAIN/(LOSS)
ON SECURITIES COMMON COMMON
AVAILABLE STOCK STOCK TOTAL
COMMON PAID-IN RETAINED FOR SALE, ACQUIRED ACQUIRED STOCKHOLDERS'
STOCK CAPITAL EARNINGS NET OF TAX BY ESOP BY RRP EQUITY
------ ------- -------- -------------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993................ $29 $11,606 $56,539 $ 1,105 $(400) $ (70) $68,809
Net income for the year
ended December 31, 1994.................. 8,275 8,275
Issuance of 10% stock dividend.............. 3 3,100 (3,103) -
Cash dividends ($.027 per share)............ (787) (787)
Net change in unrealized gain/(loss)........ (2,502) (2,502)
2-for-1 stock split......................... 33 (33) -
Amortization of RRP......................... 70 70
Principal payments on ESOP loan............. 100 100
Exercise of stock options................... 99 99
--- ------ ------- ------- ----- ----- -------
Balance at December 31, 1994................ 65 14,772 60,924 (1,397) (300) -- 74,064
Net income for the year
ended December 31, 1995.................. 8,302 8,302
Net proceeds from stock offering
(600,000 shares)......................... 7,205 7,205
Stock acquired by ESOP (42,000 shares)...... (546) (546)
Cash dividends ($0.30 per share)............ (1,004) (1,004)
Net change in unrealized gain/(loss)........ 1,562 1,562
Principal payments on ESOP loan............. 100 100
Exercise of stock options................... 30 30
--- ------ ------ ------- ----- ----- -------
Balance at December 31, 1995................ 65 22,007 68,222 165 (746) -- 89,713
Net income for the year
ended December 31, 1996.................. 4,710 4,710
Issuance of 10% stock dividend.............. 7 5,388 (5,395) -
Cash in lieu of fractional shares........... (3) (3)
Stock acquired by RRP (21,780 shares)....... (310) (310)
Cash dividends ($0.33 per share)............ (1,238) (1,238)
Net change in unrealized gain/(loss)........ (168) (168)
Amortization of RRP......................... 24 24
Principal payments on ESOP loan............. 100 100
Exercise of stock options................... 35 32
--- ------ ------- ------- ----- ----- -------
Balance at December 31, 1996................ 72 27,427 66,299 (3) (646) (286) 92,863
Net income for the nine months
ended September 30, 1997................. 6,760 6,760
Cash dividends ($0.31 per share)............ (1,189) (1,189)
Net change in unrealized gain/(loss)........ 196 196
Amortization of RRP......................... 78 78
Principal payments on ESOP loan............. 75 75
Exercise of stock options................... 1 429 430
--- ------- ------- ------- ----- ----- -------
Balance at September 30, 1997............... $73 $27,856 $71,870 $ 193 $(571) $(208) $99,213
=== ======= ======= ======= ===== ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FIRST SAVINGS BANK SLA, AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30, Year Ended December 31,
------------- -----------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................................. $ 6,760 $ 2,364 $ 4,710 $ 8,302 $ 8,275
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation of premises and equipment.................................. 754 630 842 1,018 1,241
Amortization of excess of cost over fair value of assets acquired....... 1,932 1,138 1,349 1,066 223
Amortization of ESOP.................................................... 75 75 100 100 100
Amortization of RRP..................................................... 78 -- 24 -- 70
Net accretion and amortization of deferred loan fees.................... 44 (95) (284) (335) (256)
Provision for loan losses............................................... 900 375 550 310 300
Provision for losses on real estate owned............................... 61 105 105 222 149
Net (gain) loss on sales of investment securities available for sale.... (149) 19 (114) 104 (21)
Net loss on market adjustment to investment securities held for trading. 29 -- -- -- --
Net (gain) loss on sales of mortgage loans available for sale........... (12) 41 40 (15) 77
Net gain on sales of mortgage-backed securities available for sale...... (461) (199) (162) (840) (96)
Net gain on sales of real estate owned.................................. (92) (161) (183) (52) (59)
Investment securities purchased for trading............................. (1,989) -- -- -- --
Proceeds from sales of investment securities held for trading........... 1,971 -- -- -- --
Net amortization of premiums and discounts.............................. 112 410 716 (1,275) 795
Increase in interest and dividends receivable........................... (304) (370) (622) (1,552) (629)
(Decrease) increase in other liabilities................................ (413) 3,846 765 1,011 247
(Decrease) increase in other assets..................................... (1,127) (589) 5 (461) 110
-------- -------- -------- -------- --------
Net cash provided by operating activities............................. 8,169 7,589 7,841 7,603 10,526
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities available for sale......... 8,149 10,877 20,978 25,823 47,821
Proceeds from sales of mortgage loans available for sale................ 3,048 6,157 6,892 6,358 5,310
Proceeds from sales of mortgage-backed securities available for sale.... 116,891 73,210 96,309 82,632 36,001
Proceeds from sale of real estate owned................................. 1,035 3,495 4,351 3,299 2,681
Purchases of investment securities available for sale................... (11,000) (28,807) (31,808) (1,016) (23,716)
Loans originated for sale............................................... (2,750) (5,923) 6,798 (6,619) (4,701)
Purchases of mortgage-backed securities available for sale.............. (129,974) (87,005) (136,935) (86,767) (38,580)
Purchases of investment securities...................................... (15,998) (15,950) (20,937) (47,002) (14,000)
Maturities of investment securities..................................... 14,000 13,000 19,000 19,000 11,000
Origination of loans.................................................... (105,179) (97,339) (124,134) (95,674) (79,338)
Purchases of loans...................................................... (4,665) (4,631) (10,118) (5,181) --
Purchases of mortgage-backed securities................................. (30,689) (54,392) (54,392) (128,524) (108,049)
Principal payments on loans............................................. 51,023 59,701 80,178 54,993 77,202
Principal payments on mortgage-backed securities........................ 66,292 79,493 98,392 64,785 72,220
(Purchase) redemption of FHLB-NY stock.................................. (617) (1,152) (1,152) (585) 726
Purchases of premises and equipment..................................... (3,681) (673) (1,849) (2,065) 2,434
Cost in excess of fair value of assets acquired......................... -- -- -- (12,640) --
-------- -------- -------- -------- --------
Net cash used in investing activities................................. (44,115) (49,939) (62,023) (129,183) (17,857)
-------- -------- -------- -------- --------
</TABLE>
F-5
<PAGE>
FIRST SAVINGS BANK SLA, AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30, Year Ended December 31,
------------------- ------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from stock offering......................................... -- -- -- 7,205 --
Proceeds from ESOP debt.................................................. -- -- -- 546 --
Cost of stock contributed to RRP......................................... -- -- (310) -- --
Payment on ESOP debt..................................................... (75) (75) (100) (100) (100)
Purchase of ESOP shares.................................................. -- -- -- (546) --
Stock options exercised.................................................. 430 35 35 30 99
Cash dividends paid...................................................... (1,189) (928) (1,238) (1,004) (787)
Proceeds from acquisition of deposits.................................... -- -- -- 112,784 --
Net increase (decrease) in deposits...................................... 14,854 (5,897) (11,743) 11,941 2,652
Net increase in borrowed funds........................................... 35,900 30,687 49,244 4,750 8,000
Net increase (decrease) in advances by borrowers for taxes and
insurance............................................................... 782 684 787 80 (80)
--------- -------- --------- --------- ---------
Net cash provided by financing activities....................... 50,702 24,506 36,675 135,686 9,784
========= ======== ========= ========= =========
Net increase (decrease) in cash and cash equivalents............ 14,756 (17,844) (17,507) 14,106 2,453
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,042 26,549 26,549 12,443 9,990
--------- -------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 23,798 $ 8,705 $ 9,042 $ 26,549 $ 12,443
========= ======== ========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest.............................................................$ 30,196 $ 27,443 $ 36,967 $ 35,409 $ 24,953
Income taxes......................................................... 3,851 3,824 3,831 4,495 4,474
Non cash investing and financing activities for the period:
Transfer of loans to real estate owned.............................. 885 2,105 2,535 4,960 2,365
Transfer of investment and mortgage-backed securities from
held to maturity to available for sale........................ -- -- -- 77,549 --
Transfer of loans available for sale to loans receivable............ -- -- -- -- 596
========= ======== ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FIRST SAVINGS BANK SLA, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the more significant accounting policies used
in preparation of the accompanying consolidated financial statements of First
Savings Bank, SLA, and Subsidiaries ("the Bank").
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements are comprised of the accounts of the Bank
and its wholly-owned subsidiaries, FSB Financial Corp. and 1000 Woodbridge
Center Drive, Inc. All significant intercompany accounts and transactions have
been eliminated in consolidation.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual results could
differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan losses and
the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowance for
loan losses, management generally obtains independent appraisals for significant
properties.
The accompanying unaudited consolidated financial statements as of September 30,
1997, and for the nine month periods ended September 30, 1997 and 1996, have
been prepared in accordance with generally accepted accounting principles. In
the opinion of management, all adjustments (consisting of only normal recurring
accruals) necessary for a fair presentation of such interim periods have been
made at and for the nine months ended September 30, 1997 and 1996. The results
of operations for the nine months ended September 30, 1997 are not necessarily
indicative of results that may be expected for the entire fiscal year ending
December 31, 1997.
CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, cash equivalents
consist of interest-bearing deposits in other financial institutions and loans
of federal funds.
INVESTMENT AND MORTGAGE-BACKED SECURITIES
Management determines the appropriate classification of investment and mortgage-
backed securities as either available for sale, held to maturity, or held for
trading at the purchase date. Securities available for sale include debt,
mortgage-backed, and marketable equity securities that are held for an
indefinite period of time and may be sold in response to changing market and
interest rate conditions. These securities are reported at fair value with
unrealized gains and losses, net of tax, included as a separate component of
stockholders' equity. Upon realization, such gains and losses will be included
in earnings using the specific identification method. In November, 1995, the
Financial Accounting Standards Board ("FASB") issued "Special Report - A Guide
to Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity
F-7
<PAGE>
Securities" within which there was offered transition guidance permitting an
enterprise to reassess the appropriateness of the classifications of all of its
securities before December 31, 1995. The Bank reassessed its classifications
and, on December 15, 1995, transferred $77.5 million in amortized cost of
investment and mortgage-backed securities to the available for sale
classification. The net unrealized loss (net of taxes) as of the date of
transfer was $40,000.
Trading account securities are adjusted to market value through earnings. Gains
and losses from adjusting trading account securities to market value and from
the sale of these securities are included in noninterest income. There were no
trading account securities outstanding at September 30, 1997, December, 31, 1996
or 1995.
Investment securities, other than those designated as available for sale or
trading, are carried at amortized historical cost and consist of those
securities for which there is a positive intent and ability to hold to maturity.
Investment securities are adjusted for amortization of premiums and accretion of
discounts using the level-yield method over the estimated lives of the
securities.
Mortgage-backed securities, other than those designated as available for sale or
trading, are carried at their outstanding principal balance, adjusted for
amortization of premiums and accretion of discounts using the level-yield method
over the estimated lives of the securities.
FEDERAL HOME LOAN BANK OF NEW YORK STOCK
The Bank, as a member of the FHLB-NY, is required to hold shares of capital
stock in the FHLB-NY in an amount equal to 1% of the Bank's outstanding balance
of residential mortgage loans or 5% of its outstanding advances from the FHLB-
NY, whichever is greater.
LOANS RECEIVABLE, NET
Loans receivable, other than loans available for sale, are stated at the unpaid
principal balance, net of premiums, unearned discounts, net deferred loan
origination and commitment fees, and the allowance for loan losses.
Loans are classified as non-accrual when they are past due 90 days or more as to
principal or interest, or where reasonable doubt exists as to timely
collectibility. However, if a loan meets the above criteria but a current
appraisal of the property indicates that the total outstanding balance is less
than 55% of the appraised value, the loan is not classified as non-accrual. At
the time a loan is place on non-accrual status, previously accrued and
uncollected interest is reversed against interest income. Interest received on
non-accrual loans is generally credited to interest income for the current
period. If principal and interest payments are brought contractually current and
future collectibility is reasonably assured, loans are returned to accrual
status. Discounts are accreted and premiums amortized to income using the level
yield method over the estimated lives of the loans. Loan fees and certain direct
loan origination costs are deferred, and the net fee or cost is recognized in
interest income using the level-yield method over the contractual life of the
individual loans, adjusted for actual prepayments.
Statement of Financial Accounting Standards ("SFAS") 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures" were adopted
prospectively by the Bank on January 1, 1995. These statements address the
accounting for impaired loans and specify how allowances for loan losses related
to these impaired loans should be determined. The adoption of the statements did
not effect the level of the overall allowance or the operating results. Income
recognition and charge-off policies were not changed as a result of SFAS 114 and
SFAS 118. The Bank has defined the population of impaired loans to be all non-
accrual commercial real
F-8
<PAGE>
estate, multi-family and land loans. Impaired loans are individually assessed to
determine that the loan's carrying value is not in excess of the fair value of
the collateral or the present value of the loan's expected future cash flows.
Smaller balance homogeneous loans that are collectively evaluated for
impairment, such as residential mortgage loans and installment loans are
specifically excluded for the impaired loan portfolio. There were no impaired
loans at September 30, 1997, nor at December 31, 1996 and 1995, as defined by
SFAS 114 and SFAS 118.
Loans available for sale are carried at the lower of cost or market using the
aggregate method. Valuation adjustments, if applicable, are reflected in current
operations. Gains and losses on sales are recorded using the specific
identification method. Management determines the appropriate classification of
loans as either held to maturity or available for sale at origination, in
conjunction with the Bank's overall asset/liability management strategy.
Effective January 1, 1996, SFAS 122, "Accounting for Mortgage Servicing Rights,"
was adopted on a prospective basis. SFAS 122 requires capitalization of the
rights to service mortgage loans for others, whether those rights are acquired
through purchase or origination. The Bank determines the value of servicing
rights through an evaluation of prepayment trends, the market for purchased
servicing and underlying interest rate of the loans. All capitalized mortgage
servicing rights, both originated and purchased, will be evaluated for
impairment on a quarterly basis with any adjustments recognized through a
valuation allowance. The Bank amortizes mortgage servicing rights over the
estimated life of the loans on a straight line basis. Certain provisions of SFAS
122 were amended by SFAS 125. See Note 16, "Recent Accounting Pronouncements,"
for a description of SFAS 125.
A substantial portion of the Bank's loans are secured by real estate in the
State of New Jersey. Accordingly, as with most financial institutions in the
market area, the collectibility of a substantial portion of the carrying value
of the Bank's loan portfolio and real estate owned is susceptible to changes in
market conditions.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is based on management's evaluation of the
adequacy of the allowance, including an assessment of known and inherent risks
in the portfolio, review of individual loans for adverse situations that may
affect the borrower's ability to repay, the estimated value of any underlying
collateral, and consideration of current economic conditions.
Additions to the allowance arise from charges to operations through the
provision for loan losses or from the recovery of amounts previously charged
off. The allowance is reduced by loan charge-offs.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions in the Bank's market area. In addition, various regulatory agencies,
as an integral part of their examination process, periodically review the Bank's
allowance for loan losses. Such agencies may require the Bank to recognize
additions to the allowance based on their judgments about information available
to them at the time of their examination.
REAL ESTATE OWNED, NET
Real estate owned is recorded at the fair value at the date of acquisition, with
a charge to the allowance for loan losses for any excess of cost over fair
value. Subsequently, real estate owned is carried at the lower of cost or fair
value, less estimated selling costs. Certain costs incurred in preparing
properties for sale are capitalized, and expenses of holding foreclosed
properties are charged to operations as incurred. There was
F-9
<PAGE>
$1.4 million, $1.5 million, and $3.1 million in real estate owned included in
Other Assets at September 30, 1997, December 31, 1996 and 1995, respectively.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
The excess of cost over fair value of net assets acquired from the acquisition
of deposits is amortized to expense over the expected life of the acquired
deposit base (7 to 15 years) using the straight-line method. During 1995, the
Bank acquired the deposits and former branch locations of two offices of the
former Carteret Savings for a premium of $12.6 million. Core deposit studies
regarding the retention of the deposits acquired are performed by the Bank on an
annual basis. After reviewing the results of the core deposit studies, a
writedown of the core deposit premium may be recognized if the current balance
of the core deposit premium is considered impaired. The Bank recognized
writedowns of $1.3 million and $334,000 for the nine months ended September 30,
1997, and for the year ended December 31, 1996, respectively.
PREMISES AND EQUIPMENT
Premises and equipment, including leasehold improvements, are stated at cost,
less accumulated amortization and depreciation. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the assets or leases. Repair and maintenance items are expensed and improvements
are capitalized. Upon retirement or sale, any gain or loss is charged to
operations.
STOCK-BASED COMPENSATION
In October 1995, SFAS 123, "Accounting for Stock-Based Compensation" was issued.
SFAS 123 encourages recording in current period earnings compensation expense
related to the fair value of certain stock-based compensation. Companies may
choose to continue to follow the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), where
compensation expense is not recorded for certain stock-based compensation plans.
However, companies are required to disclose pro forma net income and earnings
per share as if they adopted the fair value based method of accounting. The Bank
has elected to continue to account for stock-based compensation under APB 25 and
the pro forma disclosures required by SFAS 123 have been included in Note 13,
"Stock Option Plans." The adoption of SFAS 123 had no impact on the Bank's
consolidated financial statements.
RECOGNITION AND RETENTION PLAN (RRP)
RRP awards are granted in the form of shares of common stock held by the RRP,
and are payable over a three year vesting period at a rate of 33.3% per year,
commencing on the date of the award grant. Compensation expense is recorded at
the fair market value of the shares at the grant date ratably over the vesting
period.
INCOME TAXES
The Bank accounts for income taxes according to SFAS 109, "Accounting for Income
Taxes." Under the asset and liability method of SFAS 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using the enacted tax rates applicable to taxable
income for the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
F-10
<PAGE>
PENSION PLAN
Pension plan costs based on actuarial computation of current and future benefits
for employees are charged to expense and are funded based on the maximum amount
that can be deducted for Federal income tax purposes.
POST-RETIREMENT BENEFITS
The Bank accounts for post-retirement benefits under SFAS 106 "Employers'
Accounting for Post-Retirement Benefits Other than Pensions." SFAS 106 requires
the accrual of the expected cost of providing health care and other benefits to
employees subsequent to their retirement during the service periods of the
employees.
NET INCOME PER SHARE AND PER SHARE DATA
Net income per share is computed by dividing net income by the weighted average
number of shares of common stock and common stock equivalents outstanding. See
Note 16, "Recent Accounting Prouncements."
Per share data reflects 10% stock dividends paid on April 1, 1994, and December
16, 1996, and declared on September 24, 1997, respectively, and a 2-for-1 stock
split on December 1, 1994, all applied retroactively.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1995 amounts to conform
to the 1997 presentation.
(2) REORGANIZATION AND STOCK ISSUANCE
On July 10, 1992, the Office of Thrift Supervision ("OTS") approved the Plan of
Reorganization adopted by the Board ("the Reorganization"), whereby the Bank was
reorganized into a federal mutual holding company. At that time, First Savings
Bank, SLA, reorganized from a New Jersey-chartered mutual savings association
into a federal mutual holding company, First Savings Bancshares, MHC ("Holding
Company"). The Bank has continued to operate under the mutual holding company
regulations as proscribed by the OTS.
As part of the Reorganization, a minority stock offering was completed on July
10, 1992, whereby 1,000,000 shares were sold at a price of $10 per share, for
gross proceeds of $10.0 million, which represented a minority ownership of 37.6%
of the Bank. On July 11, 1995, the Bank completed a secondary stock offering of
600,000 shares of common stock at $13 per share for gross proceeds of $7.8
million, offset by offering-related expenses totaling $595,000. The net proceeds
were used to purchase investment and mortgage-backed securities. The total
minority ownership, after the secondary stock offering, totaled 47.5% at
December 31, 1995. At September 30, 1997, the total minority ownership was
48.4%.
On October 24, 1997, the Boards of Directors for First Savings Bank and First
Savings Bancshares, MHC, the mutual holding company of the Bank, announced that
a Plan of Conversion was adopted to convert First Savings Bancshares, MHC to
stock form and to reorganize First Savings Bancshares, MHC and First Savings
Bank into the stock holding company structure by forming a new stock Delaware
corporation to become the parent holding company for the Bank. Pursuant to the
Plan, the new Delaware corporation will exchange certain shares of its common
stock for the outstanding common stock of the Bank and will issue and offer for
sale certain additional shares of its common stock. The Plan of Conversion must
receive regulatory approval from the Office of Thrift Supervision, along with
approval from the members of First Savings Bancshares, MHC, and the Bank's
stockholders. The transaction is expected to be completed during the second
quarter of 1998.
F-11
<PAGE>
(3) REGULATORY MATTERS
Capital distributions, in the form of any dividend paid or other distribution in
cash or in kind, are limited by the OTS. A "Tier 1" association, which is
defined as an association that has capital immediately prior to a proposed
capital distribution that is equal to or greater than the amount of its fully
phased-in capital requirement, is authorized to make capital distributions
during a calendar year up to the higher of 100% of its net income to date during
the calendar year plus the amount that would reduce by one-half its surplus
capital ratio at the beginning of the calendar year, or 75% of its net income
over the most recent four-quarter period. The Bank is a Tier 1 association.
OTS regulations require savings institutions to maintain minimum levels of
regulatory capital. Under the regulations in effect at September 30, 1997,
December 31, 1996 and 1995, the Bank was required to maintain a minimum ratio of
tangible capital to total adjusted assets of 1.5%; a minimum ratio of Tier 1
(core) capital to total adjusted assets of 3.0%; and a minimum ratio of total
(core and supplementary) capital to risk-weighted assets of 8.0%.
Under the prompt corrective action regulations, the OTS is required to take
certain supervisory actions and may take additional discretionary actions with
respect to an undercapitalized institution. Such actions could have a direct
material effect on the institution's financial statements. The regulations
establish a framework for the classification of savings institutions into five
categories: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized. Generally, an
institution is considered well capitalized if it has a Tier 1 (core) capital
ratio of at least 5.0%; a Tier 1 risk-based capital ratio of at least 6.0%; and
a total risk-based capital ratio of at least 10.0%.
The foregoing capital ratios are based in part on specific quantitative measures
of assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. Capital amounts and classifications are also
subject to qualitative judgments by the OTS about capital components, risk
weightings and other factors.
Management believes that, as of September 30, 1997, the Bank meets all capital
adequacy requirements to which it is subject. Further, the most recent OTS
notification categorized the Bank as a well capitalized institution under the
prompt corrective action regulations. There have been no conditions or events
since that notification that management believes have changed the Bank's capital
classification.
The following is a summary of the Bank's actual capital amounts and ratios as of
September 30, 1997, December 31, 1996 and 1995, compared to the OTS minimum
capital adequacy requirements and the OTS requirements for classification as a
well-capitalized institution:
F-12
<PAGE>
<TABLE>
<CAPTION>
OTS REQUIREMENTS
--------------------------------------------------
MINIMUM CAPITAL FOR CLASSIFICATION AS
BANK ACTUAL ADEQUACY WELL-CAPITALIZED
---------------------- ----------------------- ----------------------
AMOUNT RATIO (%) AMOUNT RATIO (%) AMOUNT RATIO (%)
--------- ----------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
September 30, 1997
- ------------------------------
Tangible capital.............. $89,992 8.68 $15,552 1.50
Tier 1 (core) capital........ 89,992 8.68 31,104 3.00 $51,840 5.00
Risk-based capital:
Tier 1..................... 89,992 21.13 25,552 6.00
Total...................... $95,319 22.38 $34,070 8.00 $42,587 10.00
======= ===== ======= ==== ======= =====
December 31, 1996
- ------------------------------
Tangible capital.............. $81,909 8.38 $14,670 1.50
Tier 1 (core) capital......... 81,909 8.38 29,340 3.00 $48,900 5.00
Risk-based capital:
Tier 1..................... 81,909 20.85 23,571 6.00
Total...................... $86,822 22.10 $31,428 8.00 $39,286 10.00
======= ===== ======= ==== ======= =====
December 31, 1995
- ------------------------------
Tangible capital.............. $77,249 8.28 $13,995 1.50
Tier 1 (core) capital......... 77,751 8.33 28,005 3.00 $46,675 5.00
Risk-based capital:
Tier 1.................... 77,751 20.85 22,371 6.00
Total..................... $80,680 21.64 $29,828 8.00 $37,285 10.00
======= ===== ======= ==== ======= =====
</TABLE>
F-13
<PAGE>
(4) INVESTMENT SECURITIES
A summary of investment securities at September 30, 1997, December 31, 1996 and
1995, is as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENTS HELD TO MATURITY
U.S. Government and Agency obligations....................... $40,959 $193 $(44) $41,108
======= ==== ==== =======
INVESTMENTS AVAILABLE FOR SALE
U.S. Government and Agency obligations....................... $13,972 $ 26 $(55) $13,943
Corporate obligations........................................ 4,079 3 (1) 4,081
------- ---- ---- -------
Total investment securities available for sale............... $18,051 $ 29 $(56) $18,024
======= ==== ==== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENTS HELD TO MATURITY
U.S. Government and Agency obligations....................... $38,955 $247 $(222) $38,980
INVESTMENTS AVAILABLE FOR SALE
U.S. Government and Agency obligations....................... $12,964 $ 4 $(132) $12,836
Corporate obligations........................................ 2,000 -- (5) 1,995
------- ---- ----- -------
Total investment securities available for sale............... $14,964 $ 4 $(137) $14,831
======= ==== ===== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
INVESTMENTS HELD TO MATURITY
U.S. Government and Agency obligations....................... $39,003 $621 $(7) $39,617
======= ==== === =======
INVESTMENTS AVAILABLE FOR SALE
U.S. Government and Agency obligations....................... $ 1,000 $ -- $(4) $ 996
Corporate obligations........................................ 1,041 21 -- 1,062
------- ---- --- -------
Total investment securities available for sale............... $ 2,041 $ 21 $(4) $ 2,058
======= ==== === =======
</TABLE>
The cost and estimated fair value of investment securities at September 30, 1997
and December 31, 1996, by contractual maturity, are shown below (in thousands).
Expected maturities may differ from contractual maturities because borrowers may
have the right to call or repay obligations at par value without prepayment
penalties.
F-14
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------------------------------------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
INVESTMENTS HELD TO MATURITY COST VALUE COST VALUE
---------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Due in:
Less than one year............................. $ -- $ -- $ 1,000 $ 1,002
One to five years.............................. 14,991 15,041 13,990 14,054
Five to ten years.............................. 19,972 20,022 17,970 17,953
Ten to fifteen years........................... 5,996 6,045 5,995 5,971
------- ------- ------- -------
$40,959 $41,108 $38,955 $38,980
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
INVESTMENTS AVAILABLE FOR SALE.................... COST VALUE COST VALUE
<S> ------------- ------------- ------------ ------------
Due in: <C> <C> <C> <C>
One to five years............................. $12,972 $12,942 $13,964 $13,856
Five to ten years............................. 5,079 5,082 1,000 975
------- ------- ------- -------
$18,051 $18,024 $14,964 $14,831
======= ======= ======= =======
</TABLE>
Proceeds from sales of investment securities and the realized gross gains and
losses from those sales are as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31
------------------ -----------------------------
1997 1996 1996 1995 1994
------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Proceeds from sales............ $10,120 $10,877 $20,978 $25,823 $47,821
======= ======= ======= ======= =======
Gross realized gains........... $ 180 $ 12 $ 147 $ 94 $ 317
Gross realized losses.......... (60) (31) (33) (198) (296)
------- ------- ------- ------- -------
$ 120 $ (19) $ 114 $ (104) $ 21
======= ======= ======= ======= =======
</TABLE>
Investment securities with an amortized cost of $15.4 million and $15.0 million
at September 30, 1997 and December 31, 1996, respectively, are pledged as
collateral for other borrowings. Pursuant to a collateral agreement with the
FHLB-NY, all unpledged, qualifying investment securities, including those
available for sale, are pledged to secure advances from the FHLB-NY (see note
10).
(5) MORTGAGE-BACKED SECURITIES
A summary of mortgage-backed securities at September 30, 1997, December 31, 1996
and 1995, is as follows (in thousands):
F-15
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES HELD TO MATURITY
FHLMC......................................................... $132,388 $2,988 $ (73) $135,303
GNMA.......................................................... 18,612 536 -- 19,148
FNMA.......................................................... 33,164 307 (15) 33,456
Collateralized mortgage obligations........................... 43,994 61 (295) 43,760
-------- ------ ----- --------
Total mortgage-backed securities held to maturity............. $228,158 $3,892 $(383) $231,667
======== ====== ===== ========
MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
FHLMC......................................................... $ 69,272 $ 537 $(238) $ 69,571
FNMA ........................................................ 35,009 11 (102) 34,918
Collateralized mortgage obligations........................... 17,761 128 (7) 17,882
-------- ------ ----- --------
Total mortgage-backed securities available for sale........... $122,042 $ 676 $(347) $122,371
======== ====== ===== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES HELD TO MATURITY
FHLMC......................................................... $161,180 $2,663 $(187) $163,656
GNMA.......................................................... 20,851 398 -- 21,249
FNMA.......................................................... 32,225 217 (115) 32,327
Collateralized mortgage obligations........................... 38,127 75 (382) 37,820
-------- ------ ----- --------
Total mortgage-backed securities held to maturity............. $252,383 $3,353 $(684) $255,052
======== ====== ===== ========
MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
FHLMC......................................................... $ 88,818 $ 505 $(343) $ 88,980
GNMA.......................................................... 7,320 17 (23) 7,314
FNMA.......................................................... 22,528 53 (73) 22,508
Collateralized mortgage obligations........................... 2,004 -- (9) 1,995
-------- ------ ----- --------
Total mortgage-backed securities available for sale........... $120,670 $ 575 $(448) $120,797
======== ====== ===== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS GAINS VALUE
--------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES HELD TO MATURITY
FHLMC......................................................... $199,320 $3,241 $ (48) $202,513
GNMA.......................................................... 19,690 588 -- 20,278
FNMA.......................................................... 12,474 181 (9) 12,646
Collateralized mortgage obligations........................... 56,659 139 (546) 56,252
-------- ------ ----- --------
Total mortgage-backed securities held to maturity............. $288,143 $4,149 $(603) $291,689
======== ====== ===== ========
MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
FHLMC......................................................... $ 62,029 $ 334 $ (81) $ 62,282
GNMA.......................................................... 12,059 13 -- 12,072
FNMA.......................................................... 6,206 90 (10) 6,286
Collateralized mortgage obligations........................... 8,805 21 (127) 8,699
-------- ------ ----- --------
Total mortgage-backed securities available for sale........... $ 89,099 $ 458 (218) $ 89,339
======== ====== ===== ========
</TABLE>
F-16
<PAGE>
Proceeds from sales of mortgage-backed securities and the realized gross gains
and losses from those sales are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
---------------------------------- ---------------------------------
1997 1996 1996 1995 1994
------------- ---------------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
Proceeds from sales $116,891 $73,210 $96,309 $82,632 $36,001
======== ======= ======= ======= =======
Gross realized gains $ 513 $ 243 $ 324 $ 986 $ 217
Gross realized losses (52) (44) (162) (146) (121)
-------- ------- ------- ------- -------
$ 461 $ 199 $ 162 $ 840 $ 96
======== ======= ======= ======= =======
</TABLE>
Mortgage-backed securities with an amortized cost of $301,000, $338,000 and
$444,000 at September 30, 1997, December 31, 1996 and 1995, respectively, were
pledged as collateral to secure deposits held for municipalities within the
State of New Jersey. Mortgage-backed securities with an amortized cost of $87.8
million, $48.7 million and $21.8 million at September 30, 1997, December 31,
1996 and 1995, respectively, were pledged as collateral for other borrowings.
Pursuant to a collateral agreement with the FHLB-NY, all unpledged, qualifying
mortgage-backed securities are pledged to secure advances from the FHLB-NY (see
note 10). Expected maturities of mortgage-backed securities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without penalties.
________________________________________________________________________________
(6) LOANS RECEIVABLE, NET
A summary of loans receivable at September 30, 1997, December 31, 1996 and 1995,
is as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------------------------
1997 1996 1995
--------------- ------------- -------------
<S> <C> <C> <C>
LOANS RECEIVABLE
Real estate mortgages:
One- to four-family........................... $466,257 $425,175 $386,458
Multi-family and commercial................... 37,794 29,085 26,997
Home equity................................... 41,895 39,139 33,456
FHA-insured and VA-guaranteed................. 2,572 3,002 3,759
AID housing loan.............................. -- -- 165
-------- -------- --------
548,518 496,401 450,835
Real estate construction........................ 44,469 25,124 11,412
Consumer........................................ 6,208 5,772 5,055
-------- -------- --------
Total Loans............................ 599,195 527,297 467,302
-------- -------- --------
Loans in process................................ (26,214) (12,253) (3,800)
Deferred (fees) expenses........................ 255 19 (265)
Net unearned discount........................... (57) (114) (234)
Allowance for loan losses....................... (5,982) (5,322) (5,247)
-------- -------- --------
(31,998) (17,670) (9,546)
-------- -------- --------
Loans receivable, net.................. $567,197 $509,627 $457,756
======== ======== ========
LOANS AVAILABLE FOR SALE
Real estate mortgages - one-to-four family....... $ -- $ 287 $ 424
======== ======== ========
</TABLE>
F-17
<PAGE>
The Bank serviced loans for others in the amount of $94.5 million and $103.4
million at September 30, 1997 and 1996, respectively, and $101.2 million, $106.9
million and $112.4 million at December 31, 1996, 1995 and 1994, respectively.
Related servicing income earned on loans serviced for others totaled $218,000
and $246,000 for the nine months ended September 30, 1997 and 1996,
respectively, and $325,000, $350,000 and $386,000 for the years ended December
31, 1996, 1995 and 1994, respectively.
Loans in the amount of $1.7 million, $1.9 million and $2.1 million were
outstanding to directors and executive officers of the Bank at September 30,
1997, and December 31, 1996 and 1995, respectively. The loans consist primarily
of loans secured by mortgages on residential properties.
The Bank has pledged, under a blanket assignment, its unpledged and qualifying
mortgage portfolio to secure advances from the FHLB-NY (see note 10).
A summary of nonperforming assets at September 30, 1997, December 31, 1996 and
1995, is as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
----------------------
1997 1996 1995
-------------- -------- --------
<S> <C> <C> <C>
Nonaccrual loans..................................... $3,561 $4,720 $5,838
Loans 90 days or more delinquent and still accruing.. 379 93 200
Total nonperforming loans........................ 3,940 4,813 6,038
Real estate owned (included in other assets)......... 1,398 1,517 3,131
------ ------ ------
Total nonperforming assets....................... $5,338 $6,330 $9,169
====== ====== ======
</TABLE>
If interest income on nonaccrual loans had been current in accordance with their
original terms, approximately $253,000 and $274,000 of interest income for the
nine months ended September 30, 1997 and 1996, respectively, and $364,000,
$579,000 and $805,000 of interest income for the years ended December 31, 1996,
1995, and 1994, respectively, would have been recorded. Interest income
recognized on non-accrual loans totaled $55,000 and $84,000 for the nine months
ended September 30, 1997 and 1996, respectively, and $105,000, $114,000 and
$71,000 for the years ended December 31, 1996, 1995 and 1994, respectively. At
September 30, 1997, there were no commitments to lend additional funds to
borrowers whose loans are classified as nonperforming.
An analysis of the allowance for loan losses for the nine months ended September
30, 1997 and 1996 and for the years ended December 31, 1996, 1995 and 1994, is
as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------------------- ---------------------------
1997 1996 1996 1995 1994
------------ ---------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period....... $5,322 $5,247 $5,247 $5,745 $5,899
Provision charged to operations...... 900 375 550 310 300
------ ------ ------ ------ -----
6,222 5,622 5,797 6,055 6,199
Loans charged off, net of recoveries. (240) (531) (475) (808) (454)
------ ------ ------ ------ -----
Balance at end of period............. $5,982 $5,091 $5,322 $5,247 $5,745
====== ====== ====== ====== =====
</TABLE>
F-18
<PAGE>
________________________________________________________________________________
(7) INTEREST AND DIVIDENDS RECEIVABLE, NET
A summary of interest and dividends receivable, net of allowance for uncollected
interest of $407,000, $440,000, and $1.1 million at September 30, 1997, December
31, 1996 and 1995, respectively, is as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------------------
1997 1996 1995
------------- --------- ----------
<S> <C> <C> <C>
Loans.................................................. $3,339 $2,868 $2,841
Investment securities.................................. 851 908 810
Mortgage-backed securities............................. 3,529 3,639 3,142
------ ------ ------
$7,719 $7,415 $6,793
====== ====== ======
</TABLE>
________________________________________________________________________________
(8) PREMISES AND EQUIPMENT, NET
Premises and equipment at September 30, 1997, December 31, 1996 and 1995, are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
----------------------------
1997 1996 1995
------------- ---------- ----------
<S> <C> <C> <C>
Land................................................... $ 2,235 $ 1,423 $ 1,423
Buildings and improvements............................. 10,902 7,977 7,670
Leasehold improvements................................. 2,127 1,967 1,915
Furnishings, equipment and automobiles................. 4,705 3,265 4,953
Construction in progress............................... 120 1,788 1,043
------- ------- -------
Total............................................. 20,089 16,420 17,004
Accumulated depreciation and amortization............. (6,806) (6,064) (7,657)
------- ------- -------
$13,283 $ 10,356 $ 9,347
======= ======= =======
</TABLE>
________________________________________________________________________________
(9) DEPOSITS
Deposits at September 30, 1997, December 31, 1996 and 1995, are summarized as
follows (dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------------------------------------ -----------------------------------------
INTEREST WEIGHTED INTEREST WEIGHTED
RATE AVERAGE RATE AVERAGE
RANGES RATE RANGES RATE
AMOUNT (%) (%) AMOUNT (%) (%)
----------- ------------ ---------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand........ $ 26,410 -- -- $ 19,888 -- --
NOW and money market............... 195,003 0-3.39 2.93 181,499 0-5.43 2.90
Savings............................ 123,384 0-5.84 2.54 131,427 0-2.50 2.50
Certificates of deposit............ 464,652 3.45-9.34 5.54 461,781 3.69-9.34 5.38
-------- ---- -------- ----
$809,449 4.27 $794,595 4.20
======== ==== ======== ====
<CAPTION>
DECEMBER 31, 1995
---------------------------------------
INTEREST WEIGHTED
RATE AVERAGE
RANGES RATE
Amount (%) (%)
---------- ---------- ------------
<S> <C> <C> <C>
Non-interest bearing demand........ $ 18,515 -- --
NOW and money market............... 173,597 0-3.70 2.88
Savings............................ 140,919 0-4.11 2.50
Certificate of deposit............. 473,307 3.69-9.34 5.60
-------- ----
$806,338 4.34
======== ====
</TABLE>
F-19
<PAGE>
The scheduled maturities of certificates of deposit at September 30, 1997 and as
follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
One year or less..................................... $348,304 $358,098
After one to two years............................... 44,579 39,366
After two to three years............................. 22,886 17,533
After three to four years............................ 11,035 15,889
After four to five years............................. 15,186 11,738
After five years..................................... 22,662 19,157
-------- --------
$464,652 $461,781
======== ========
</TABLE>
Included in deposits at September 30, 1997, December 31, 1996 and 1995, are
$76.5 million, $62.5 million and $60.3 million of deposits of $100,000 and over,
and $342,000, $331,000 and $357,000, respectively, of accrued interest payable
on deposits.
________________________________________________________________________________
(10) BORROWED FUNDS
FEDERAL HOME LOAN BANK-NEW YORK ADVANCES
Advances from the FHLB-NY at September 30, 1997, December 31, 1996 and 1995, are
summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
------------------ ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
AMOUNT AVG. RATE AMOUNT AVG. RATE AMOUNT AVG. RATE
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
1996.......... $ -- --% $ -- --% $ 4,000 5.18%
1997.......... 5,000 6.09 12,000 5.80 7,000 5.94
1998.......... 15,000 6.26 10,000 6.56 5,000 7.42
1999.......... 6,000 5.87 6,000 5.87 1,000 5.58
2000.......... 2,000 5.76 2,000 5.76 2,000 5.76
2002.......... 5,000 5.76 -- -- -- --
------- ------- -------
$33,000 6.06% $30,000 6.06% $19,000 6.13%
======= ==== ======= ==== ======= ====
</TABLE>
The Bank has entered into FHLB-NY advances that have call features that may be
exercised by the FHLB-NY at predetermined dates. The total of such advances at
September 30, 1997 and December 31, 1996, totaled $10.0 million for both
periods. The maximum amount of FHLB-NY advances outstanding at any month-end
during the nine months ended September 30, 1997 and for the years ended December
31, 1996 and 1995 was $40.0 million, $30.0 million and $34.0 million,
respectively. At September 30, 1997 and December 31, 1996, $10.0 million and
$5.0 million of FHLB-NY advances had adjustable rates.
Advances from the FHLB-NY are secured by pledges of FHLB-NY stock of $8.0
million, $7.4 million and $6.3 million at September 30, 1997, December 31, 1996
and 1995, respectively, and a blanket assignment of the Bank's unpledged,
qualifying mortgage loans, mortgage-backed securities and investment securities.
The Bank has an available overnight line of credit with the FHLB-NY for a
maximum of $48.9 million at September 30, 1997.
F-20
<PAGE>
OTHER BORROWINGS
The following is a summary of Other Borrowings at September 30, 1997, December
31, 1996 and 1995 (dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
-------------------------- ------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
CONTRACTUAL MATURITY AMOUNT INTEREST AMOUNT INTEREST AMOUNT INTEREST
- -------------------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
1996.............................. $ -- --% $ -- --% $ 1,000 5.95%
1997.............................. 15,000 5.62 13,750 5.93 8,750 6.12
1998.............................. 25,894 6.32 24,244 6.35 10,000 6.15
1999.............................. 15,000 5.71 15,000 5.71 -- --
2000.............................. 20,000 6.07 -- -- -- --
2001.............................. 5,000 5.55 5,000 5.55 -- --
2002.............................. 10,000 5.75 -- -- -- --
------- ------- --------
$90,894 5.94% $57,994 6.02% $19,750 6.13%
======= ==== ======= ==== ======== ====
</TABLE>
The maximum amount of other borrowings outstanding at any month-end during the
nine months ended September 30, 1997 and for the years ended December 31, 1996
and 1995 was $90.9 million, $58.0 million and $24.9 million, respectively.
Securities underlying other borrowings included mortgage-backed and investment
securities, which had an amortized cost of $103.3 million, $63.7 million and
$21.8 million, and market values of $103.7 million, $63.8 million and $22.0
million at September 30, 1997, December 31, 1996 and 1995, respectively. At
September 30, 1997 and December 31, 1996, $50.0 million and $20.0 million,
respectively, of other borrowings are callable at defined dates and at the
lender's discretion prior to the contractual maturity of the borrowings.
________________________________________________________________________________
(11) EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP") DEBT
The ESOP debt as of September 30, 1997, December 31, 1996 and 1995, was
$571,000, $646,000 and $746,000, respectively, and bears an interest rate equal
to the prime rate less 1.50%, as published in the Wall Street Journal, with
---- ------ -------
principal and interest payable in quarterly installments over a ten-year period.
During the nine months ended September 30, 1997, and the year ended December 31,
1996, $25,000 and $25,000 of dividends paid on ESOP shares were used to pay down
ESOP debt. Total interest paid on ESOP debt for the nine months ended September
30, 1997 and 1996, was $33,000 and $37,000, respectively, and for the years
ended December 31, 1996, 1995 and 1994 was $48,000, $41,000, and $26,000,
respectively. In July, 1995, the Bank completed a secondary stock offering,
whereby the ESOP purchased an additional 42,000 shares of common stock at $13
per share, totaling $546,000. The funds to purchase the shares were obtained
from the parent company. The maturity date of the loan is September 30, 2005.
The borrowing is secured by 80,102 shares of the Bank's common stock (as
restated for the 10% stock dividend declared on September 24, 1997).
F-21
<PAGE>
________________________________________________________________________________
(12) INCOME TAXES
Under tax law that existed prior to 1996, the Bank was generally allowed a
special bad debt deduction in determining income for tax purposes. The
deduction was based on either a specified experience formula or a percentage of
taxable income before such deduction. The percentage of taxable income method
was used in preparing the income tax returns for 1995 and 1994. Legislation was
enacted in August 1996, which repealed for tax purposes the percentage of
taxable income bad debt reserve method. As a result, the Bank must instead use
the direct charge-off method to compute its bad debt deduction. The legislation
also requires the Bank to recapture its post-1987 net additions to the tax bad
debt reserves. The Bank has previously provided for this liability in the
financial statements. The Bank's federal tax returns have been audited through
December 31, 1984.
Retained earnings at September 30, 1997 and December 31, 1996 includes
approximately $12.7 million for which no provision for income tax has been made.
This amount represents an allocation of income to bad debt deductions for tax
purposes only. Events that would result in taxation of these reserves include
failure to qualify as a bank for tax purposes, distributions in complete or
partial liquidation, stock redemptions and excess distributions to shareholders.
At September 30, 1997 and December 31, 1996, the Bank had an unrecognized tax
liability of $4.6 million with respect to this reserve.
Income tax expense applicable to income for the periods ended September 30, 1997
and 1996, and for the years ended December 31, 1996, 1995 and 1994, consists of
the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------------ -------------------------------------
1997 1996 1996 1995 1994
-------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
FEDERAL:
Current..................... $4,159 $ 3,854 $3,183 $3,671 $4,624
Deferred.................... (501) (2,595) (603) 545 (114)
------ ------- ------ ------ ------
3,658 1,259 2,580 4,216 4,510
STATE:
Current..................... 376 346 282 365 409
Deferred.................... (44) (229) (53) 30 (7)
------ ------- ------ ------ ------
332 117 229 395 402
------ ------- ------ ------ ------
$3,990 $ 1,376 $2,809 $4,611 $4,912
====== ======= ====== ====== ======
</TABLE>
The effective tax rates for the nine month periods ended September 30, 1997 and
1996 are 37.1% and 36.8% and for the years ended December 31, 1996, 1995 and
1994, the rates were 37.4%, 35.7% and 37.2%, respectively.
F-22
<PAGE>
A reconciliation between the effective income tax expense and the amount
computed by multiplying the applicable statutory federal income tax rate for the
periods ended September 30, 1997 and 1996, and for the years ended December 31,
1996, 1995 and 1994, is as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------------------- -----------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Income before income taxes............ $10,750 $3,740 $7,519 $12,913 $13,187
Applicable statutory federal tax 35% 35% 35% 35% 35%
rate.................................. ------- ------ ------ ------- -------
Computed "expected" federal income tax
expense............................... 3,763 1,309 2,632 4,520 4,615
Increase in federal income tax expense
resulting from:
State income taxes, net of federal
benefit............................... 216 76 151 257 261
Other items, net ..................... 11 (9) 26 (166) 36
------- ------ ------ ------- -------
$ 3,990 $1,376 $2,809 $ 4,611 $ 4,912
======= ====== ====== ======= =======
</TABLE>
The tax effects of temporary differences that give rise to a significant portion
of deferred tax assets and liabilities at September 30, 1997, December 31, 1996
and 1995, are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
DEFERRED TAX ASSETS:
<S> <C> <C> <C>
Provision for loan losses - book.............................. $2,231 $1,980 $1,984
Postretirement benefits....................................... 376 350 293
Cash to accrual adjustment.................................... -- 1 164
Excess pension expense........................................ 448 670 204
Deferred directors' fees...................................... 87 63 20
Unrealized loss on securities available for sale.............. -- 2 --
Excess of cost over fair value of net assets acquired......... 479 -- --
Other......................................................... 87 2 8
------ ------ ------
Total gross deferred tax assets (included in Other Assets). 3,708 3,068 2,673
----- ------ ------
DEFERRED TAX LIABILITIES:
Provision for loan losses - tax............................... 1,161 1,161 1,136
Unrealized gain on securities available for sale.............. 109 -- 94
Tax depreciation less than book depreciation.................. 2 179 148
Excess sum-of-year discount over straight line................ 215 90 181
Amortization of core deposit premium ......................... -- 55 93
Net mortgage premium accretion................................ 66 66 85
Prepaid expense............................................... 16 -- 171
Deferred points............................................... 152 -- --
Other......................................................... 36 -- --
------ ------ ------
Total gross deferred tax liabilities (included in
Other Liabilities)....................................... 1,757 1,551 1,908
------ ------ ------
Net deferred tax asset........................................ $1,951 $1,517 $ 765
====== ====== ======
</TABLE>
Management has determined that it is more likely than not that it will realize
the deferred tax assets based upon the nature and timing of the items listed
above. There can be no assurances, however, that there will be no significant
differences in the future between taxable income and pre-tax book income if
circumstances change. In order to fully realize the net deferred tax asset, the
Bank will need to generate future taxable income. Management has projected that
the Bank will generate sufficient taxable income to utilize the net deferred tax
asset, however, there can be no assurance as to such levels of taxable income
generated.
F-23
<PAGE>
Included in Stockholders' Equity are income tax expenses (benefits) attributable
to net unrealized gains (losses) on securities available for sale in the amounts
of $111,000 for the nine months ended September 30, 1997 and $(96,000) and
$887,000 for the years ended December 31, 1996 and 1995, respectively.
________________________________________________________________________________
(13) EMPLOYEE BENEFIT PLANS
The Bank is a participant in the Financial Institutions Retirement Fund, a
multi-employer defined benefit plan. All employees who attain the age of 21
years and complete one year of service are eligible to participate in this plan.
Retirement benefits are based upon a formula utilizing years of service and
average compensation, as defined. Participants are vested 100% upon the
completion of five years of service. Pension expense was $143,000, $240,000,
$320,000, $330,000 and $330,000 for the nine months ended September 30, 1997 and
1996, and for the years ended December 31, 1996, 1995 and 1994, respectively.
Financial Institutions Retirement Fund does not segregate its assets,
liabilities or costs by participating employer. Therefore, disclosure of the
accumulated benefit obligations, plan assets and the components of annual
pension expense attributable to the Bank cannot be ascertained.
The Bank has a Supplemental Executive Retirement Plan ("SERP"), which provides a
post-employment supplemental retirement benefit equal to seventy-five percent of
the participant's base salary during the twelve months prior to retirement less
the amount of the participant's Pension Plan Annual Benefit and primary Social
Security Benefit due at the participant's normal retirement age. The SERP is
non-qualified employee benefit plan. SERP expenses due to normal accruals were
$635,000 and $488,000 for the periods ended September 30, 1997 and 1996,
respectively, and $550,000, $200,000, and $72,000 for the years ended December
31, 1996, 1995 and 1994, respectively. Due to the sudden death of the Bank's
President, an additional one-time expense of $600,000 was incurred in 1996 to
fund the related SERP liability.
The Bank also maintains an incentive savings plan for eligible employees.
Employees may make contributions to the plan of 2% to 12% of their compensation.
For the first 6% of the employee's contribution, the Bank will contribute 50% of
that amount to the employee's account. At the end of the plan year, the Bank
may make an additional contribution to the plan. The contributions under this
plan were $98,000 and $106,000 for the periods ended September 30, 1997 and
1996, respectively, and $135,000, $119,000 and $107,000, for the years ended
December 31, 1996, 1995 and 1994, respectively.
POSTRETIREMENT BENEFITS
The Bank accounts for postretirement benefits in accordance with SFAS 106. The
expense for the periods ended September 30, 1997 and 1996 were $70,000 and
$63,000, respectively, and for the years ended December 31, 1996 and 1994 was
$157,000 and $3,000, respectively. There was no expense for the year ended
December 31, 1995. The accumulated postretirement benefit obligation for fully
eligible active plan participants and retirees was $1.0 million, $948,000 and
$791,000 as of September 30, 1997, December 31, 1996 and 1995, respectively.
The plan is unfunded as of September 30, 1997, and the obligation is included in
Other liabilities as an accrued postretirement benefit cost.
The following assumptions were used in determining the accumulated
postretirement benefit obligation for 1997, 1996 and 1995, respectively: a
discount rate of 8.0% and a health care cost rate of 5.0% per year for 1997, a
discount rate of 8.0% and a health care cost trend rate of 5.0% grading down to
0.0% per year for 1996, and a discount rate of 8.0% and a health care cost trend
rate of 7.5% grading down to 5.0% at 0.5% per year for 1995. As the plan is
currently unfunded, no assumption was needed as to the long-term rate of return
on assets.
F-24
<PAGE>
BANK RECOGNITION AND RETENTION PLAN AND TRUST
In 1992, the Bank adopted a Recognition and Retention Plan and Trust (RRP) for
the benefit of directors, officers and key employees of the Bank. During 1995,
the Board of Directors amended the RRP in order to increase the number of shares
available for grants under the plan by 21,780 shares (adjusted for the 10% stock
dividend declared on September 24, 1997), as approved by the OTS and
stockholders.
Under the RRP, awards are granted in the form of shares of common stock held by
the RRP, and are payable over a three year period at a rate of 33.3% per year,
commencing on the date of the award grant. The market value of shares issued
and granted under the RRP in August and November, 1996 was $310,000.
Amortization of the RRP for the nine month period ended September 30, 1997 and
for the year ended December 31, 1996 was $78,000 and $24,000, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN
On July 10, 1992, the Bank established an ESOP for eligible employees who have
completed a twelve-month period of employment with the Bank. The ESOP acquired
70,000 shares of common stock. On July 11, 1995, the Bank completed a secondary
offering of common stock, and the ESOP purchased 42,000 shares of common stock
at $13.00 per share. Funds for the purchase of the additional shares were
borrowed from the Bank's parent. Shares purchased by the ESOP are held by a
trustee for allocation among participants as the loan is repaid. The Bank, at
its discretion, contributes funds, in cash, to pay principal and interest on the
ESOP loan. The number of shares of common stock released each year is
proportional to the amount of principal and interest repaid on the loan for the
year. The Bank recognizes compensation expense when debt payments are made.
The Bank accounts for the allocation of ESOP shares purchased prior to 1995 at
their original issue price. The Bank accounts for the shares purchased in the
secondary offering in accordance with American Institute of Certified Public
Accountants ("AICPA") Statement of Position ("SOP") 93-6. Those shares have a
fair value of $1.8 million at September 30, 1997. The ESOP allocated 21,962,
29,282, 26,620 and 26,620 shares for the period ended September 30, 1997 and the
years ended December 31, 1996, 1995 and 1994, respectively, inclusive of four
10% stock dividends, and a 2-for-1 stock split. The compensation expense for
payments made to the ESOP totaled $50,000 and $50,000 for the periods ended
September 30, 1997 and 1996, respectively, and $75,000, $75,000 and $100,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
STOCK OPTION PLANS
The Bank maintains stock option plans ("the Plans") for the benefit of
directors, officers, and other key employees of the Bank. Options granted under
the Plans are exercisable over a period not to exceed ten years from the date of
grant. Under the Plans, the exercise price of each option equals the market
price of the Bank's stock on the date of grant. During 1995, the Board of
Directors amended the Plans, in conjunction with the secondary offering, to
increase the number of shares available for grants by 60,000 shares, as approved
by the OTS and stockholders. The following table summarizes the options granted
and exercised under the Plans during the periods indicated and their respective
weighted average exercise price (rounded to the nearest tenth decimal place),
reflective of four 10% stock dividends and a 2-for-1 stock split:
F-25
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31,1996 DECEMBER 31, 1995 DECEMBER 31,1994
---------------------- ------------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
---------- ----------- ------------- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period...................... 271,958 $6.306 209,627 $ 3.413 218,451 $3.413 247,366 $3.413
Granted..................... -- -- 72,600 14.245 -- -- -- --
Exercised.................... (119,774) 3.413 (10,269) 3.413 (8,824) 3.413 (28,915) 3.413
------- ------ ------- ------- ------- ------ ------- ------
Outstanding at end of period. 152,184 $8.582 271,958 $ 6.306 209,627 $3.413 218,451 $3.413
======= ====== ======= ======= ======= ====== ======= ======
Options exercisable at end of
period....................... 86,844 199,356 180,343 159,884
======= ======= ======= =======
Weighted average fair value
of options granted during
the period.................. N/A $14.103 N/A N/A
====== ======= ====== ======
</TABLE>
The following table summarizes information about the stock options outstanding
at September 30, 1997, and December 31, 1996, as adjusted for the effect of
stock dividends:
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
- ---------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------------------------------- --------------------------------
WEIGHTED
AVERAGE WEIGHTED NUMBER OF WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE SHARES AVERAGE
EXERCISE OF SHARES CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES OUTSTANDING LIFE IN YEARS PRICE AT PERIOD PRICE
END
- ------------------ ------------- ----------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 3.413 79,584 4.6 $ 3.413 79,584 $ 3.413
13.017-14.773 72,600 9.0 14.245 7,260 13.017
- --------------- ------- --- ------- ------ -------
$ 3.413-14.773 152,184 6.7 $ 8.582 86,844 $ 4.216
=============== ======= === ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
- --------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------------------------------- -------------------------------
WEIGHTED
AVERAGE WEIGHTED NUMBER OF WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE SHARES AVERAGE
EXERCISE OF SHARES CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES OUTSTANDING LIFE IN YEARS PRICE AT PERIOD PRICE
END
- ------------------ ------------- ----------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
$ 3.413 199,358 5.5 $ 3.413 199,356 $3.413
13.017-14.773 72,600 9.8 14.245 -- --
- ------------------ ------- --- ------- ------- -------
$ 3.413-14.773 271,958 6.7 $ 6,305 199,356 $3,413
================== ======= === ======= ======= =======
</TABLE>
F-26
<PAGE>
The Bank applies APB 25 in accounting for the Plans. Consistent with SFAS 123,
if compensation cost for the Plans was included, the Bank's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below (as restated for the 10% stock dividend declared on September 24, 1997).
There were no options granted in 1997. (in thousands, except per share data) :
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
------------------------ --------------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Income:
As Reported....................... $6,760 $2,364 $4,710 $8,302 $8,275
Pro forma......................... 6,760 2,364 4,649 8,302 8,275
Earnings per share:
As Reported....................... $ 0.84 $ 0.29 $ 0.59 $ 1.04 $ 1.03
Pro forma......................... $ 0.84 $ 0.29 $ 0.58 $ 1.04 $ 1.03
Weighted average fair value
of options granted during the year N/A N/A $ 4.38 N/A N/A
</TABLE>
The fair value of stock options (or their equivalents) granted by the Bank was
estimated through the use of the Black-Scholes option-pricing model that takes
into account the following factors as of the grant dates: the exercise price and
expected life of the option, the market price of the underlying stock at the
grant date and its expected volatility, and the risk-free interest rate for the
expected term of the option. In deriving the fair value of a stock option, the
stock price at the grant date is reduced by the value of the dividends to be
paid during the life of the option. The following assumptions were used for
grants in 1996: dividend yield of 2.50%, an expected volatility of 28.6% and a
risk-free interest rate of 6.05%. There were no options granted in 1997, 1995
and 1994 that required disclosure in accordance with SFAS 123. The effects of
applying SFAS 123 on the pro forma net income may not be representative of the
effects on pro forma net income for future years.
_______________________________________________________________________________
(14) COMMITMENTS AND CONTINGENCIES
COMMITMENTS
FINANCIAL TRANSACTIONS WITH OFF-BALANCE-SHEET RISK
AND CONCENTRATIONS OF CREDIT
The Bank, in the normal course of conducting its business, extends credit to
meet the financing needs of its customers through commitments and letters of
credit.
The following commitments and contingent liabilities existed at September 30,
1997, December 31, 1996 and 1995, which are not reflected in the accompanying
consolidated financial statements (in thousands):
F-27
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------------------------
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
ORIGINATION OF MORTGAGE LOANS:
Fixed rate................................... $ 8,809 $ 6,477 $ 6,168
Variable rate................................ 14,505 22,813 3,583
Purchase of mortgage loans - variable rate..... 2,428 2,773 6,393
Undisbursed home equity credit lines........... 14,333 15,210 14,575
Purchase of investment and mortgage-backed..... 16,936 21,268 4,000
Undisbursed construction credit lines.......... 26,214 12,243 3,800
Undisbursed consumer lines of credit........... 1,544 -- --
Participations in Thrift Institutions
Community Investment Corp..................... 100 650 2,300
of New Jersey
Unused credit card lines....................... 911 964 966
Standby letters of credit...................... 2,143 1,322 977
Sale of mortgage-backed securities............. $ -- $(21,364) $ --
========= ======== ==========
</TABLE>
These instruments involve elements of credit and interest rate risk in excess of
the amount recognized in the consolidated financial statements. The Bank uses
the same credit policies and collateral requirements in making commitments and
conditional obligations as it does for on-balance-sheet loans. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since the commitments may 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 collateral obtained is based on management's credit
evaluation of the borrower.
The Bank grants one- to four-family first mortgage real estate loans, multi-
family, and nonresidential first mortgage real estate loans to borrowers
throughout New Jersey. Its borrowers' abilities to repay their obligations are
dependent upon various factors, including the borrowers' income and net worth,
cash flows generated by the underlying collateral, value of the underlying
collateral and priority of the Bank's lien on the property. Such factors are
dependent upon various economic conditions and individual circumstances beyond
the Bank's control; the Bank is therefore subject to risk of loss. The Bank
believes its lending policies and procedures adequately minimize the potential
exposure to such risks and that adequate provisions for loan losses are provided
for all known and inherent risks. Collateral and/or guarantees are required for
virtually all loans.
LEASE OBLIGATIONS
At September 30, 1997, and December 31, 1996, the Bank was obligated under
noncancellable operating leases for premises and equipment. Rental expense
under these leases aggregated approximately $518,000 and $536,000 for the nine
months ended September 30, 1997 and 1996, respectively, and $711,000, $714,000
and $644,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
F-28
<PAGE>
The projected minimum rental commitments are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
1997.......................... $ 115 $ 420
1998.......................... 336 273
1999.......................... 336 273
2000.......................... 197 140
2001.......................... 123 70
Thereafter.................... 205 155
------ ------
$1,312 $1,331
====== ======
</TABLE>
CONTINGENCIES
The Bank is a defendant in certain claims and legal actions arising in the
ordinary course of business. Management is of the opinion that the ultimate
disposition of these matters will not have a material adverse effect on the
Bank's consolidated financial condition or results of operations.
________________________________________________________________________________
(15) SPECIAL SAIF ASSESSMENT
The Deposit Insurance Funds Act of 1996 (the "Act") was signed into law on
September 30, 1996. Among other things, the Act required depository
institutions to pay a one-time special assessment of 65.7 basis points on their
SAIF (Savings Association Insurance Fund)-assessable deposits, in order to
recapitalize the SAIF to the reserve level required by law. The Bank's
financial statements for the period ended September 30, 1996 and year ended
December 31, 1996 reflect a charge of $5.2 million for this special SAIF
assessment. As a result of the Act, the Bank's annual SAIF insurance premium
has been reduced to 6.4 basis points. In addition to this special SAIF
assessment, the Bank paid federal deposit insurance premiums of $285,000 and
$1.4 million in for the nine months ended September 30, 1997, and 1996,
respectively and $1.9 million, $1.7 million and $1.6 million for the years ended
December 31, 1997, 1996 and 1995, respectively.
________________________________________________________________________________
(16) RECENT ACCOUNTING PRONOUNCEMENTS
In June, 1996, the FASB issued SFAS 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." SFAS 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities. These standards are based on a
consistent application of a financial components approach that focuses on
control. Under this approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished. SFAS 125 is effective for
transfers that occur after December 31, 1996 and will be applied prospectively
except for certain provisions that were deferred until January 1, 1998, by
Statement 127 "Deferral of the Effective date of Certain Provisions of FASB No.
125" issued in December 1996. The adoption of SFAS 125 did not have a material
effect on the Bank's financial position or results of operations.
F-29
<PAGE>
In February 1997, the FASB issued Statement 128, "Earnings Per Share." SFAS 128
supersedes APB Opinion No. 15, "Earnings per Share" and specifies the
computation, presentation and disclosure requirements for earnings per share
(EPS) for entities with publicly held common stock or potential common stock.
SFAS 128 replaces Primary EPS and Fully Diluted EPS with Basic EPS and Diluted
EPS, respectively. SFAS 128 requires dual presentation of Basic and Diluted EPS
on the face of the income statement for entities with complex capital structures
and a reconciliation of information utilized to calculate Basic EPS to that used
to calculate Fully Diluted EPS. SFAS 128 is effective for financial statement
periods ending after December 15, 1997. Earlier application is not permitted.
After adoption, all prior EPS are required to be restated to conform with SFAS
128. If the Bank had adopted SFAS 128, Basic EPS would have been $0.85 and
$0.30 for the nine months ended September 30, 1997 and 1996 and $0.60, $1.06 and
$1.05 for the years ended December 31, 1996, 1995 and 1994, respectively.
Diluted EPS would have been the same as earnings per share reported.
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income." SFAS
130 established standards for reporting and display of comprehensive income and
its components in a full set of general purpose financial statements. Under
SFAS 130, comprehensive income is divided into net income and other
comprehensive income. Other comprehensive income includes items previously
recorded directly in equity, such as unrealized gains or losses on securities
available for sale. SFAS 130 is effective for interim periods and annual
periods beginning after December 15, 1997. Comparative financial statements for
earlier period are required to be reclassified to reflect application of the
provisions of SFAS 130. The Bank has not determined the impact, if any, SFAS
130 will have on the Bank's financial statement presentation.
In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 establishes standards for the way
public business enterprises are to report information about operating segments
in annual financial statements and requires those enterprises to report selected
financial information about operating segments in interim financial reports to
shareholders. SFAS 131 is effective for financial statements for periods
beginning after December 15, 1997. The Bank has not determined the impact, if
any, SFAS 131 will have on the Bank's financial statement presentation.
F-30
<PAGE>
________________________________________________________________________________
(17) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following fair value estimates, methods and assumptions were used to measure
the fair value of each class of financial instrument for which it is practical
to estimate that value.
CASH AND CASH EQUIVALENTS
For such short-term investments, the carrying amount was considered to be a
reasonable estimate of fair value.
FEDERAL HOME LOAN BANK-NY STOCK
Federal Home Loan Bank-NY stock is valued at cost.
INVESTMENT AND MORTGAGE-BACKED SECURITIES
For investment and mortgage-backed securities, fair values were based on quoted
market prices or dealer quotes. If a quoted market price was not available,
fair values were estimated using quoted market prices for similar securities.
LOANS RECEIVABLE, NET
Fair values were estimated for portfolios of performing and nonperforming loans
with similar financial characteristics. For certain analogous categories of
loans, such as residential mortgages, home equity loans, non-residential
mortgages, and consumer loans, fair value was estimated using the quoted market
prices for securities backed by similar loans, adjusted for differences in loan
characteristics. The fair value of other performing loan types was estimated by
discounting the future cash flows using market discount rates that reflect the
credit, collateral, and interest rate risk inherent in the loan.
DEPOSITS
The fair value of demand deposits, savings deposits and money market accounts
were the amounts payable on demand at September 30, 1997, December 31, 1996 and
1995. The fair values of certificates of deposit were based on the discounted
value of contractual cash flows. The discount rate was estimated utilizing the
rate currently offered for deposits of similar remaining maturities.
BORROWED FUNDS
For short-term borrowings, the carrying amount was considered to be a reasonable
estimate of fair value. For long-term borrowings, the fair value was based upon
the discounted value of the cash flows. The discount rates utilized were based
on rates currently available with similar terms and maturities.
OFF-BALANCE SHEET INSTRUMENTS
For commitments to extend credit and letters of credit, the fair value would
approximate fees currently charged to enter into similar agreements.
F-31
<PAGE>
The estimated fair values of the Bank's financial instruments at September 30,
1997, December 31, 1996 and December 31, 1995, were as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------- ------------------------- -------------------------
BOOK FAIR BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE VALUE VALUE
----------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and cash equivalents.............. $ 23,798 $ 23,798 $ 9,042 $ 9,042 $ 26,549 $ 26,549
FHLB-NY stock.......................... 8,045 8,045 7,428 7,428 6,276 6,276
Investment securities.................. 40,959 41,108 38,955 38,980 39,003 39,617
Investment securities available for.... 18,024 18,024 14,831 14,831 2,058 2,058
sale
Mortgage-backed securities............. 228,158 231,667 252,383 255,052 288,143 291,689
Mortgage-backed securities............. 122,371 122,371 120,797 120,797 89,339 89,339
available for sale
Loans receivable, net.................. 567,197 586,475 509,627 514,084 457,756 470,269
Loans available for sale............... -- --- 287 290 424 428
FINANCIAL LIABILITIES:
Deposits............................... 809,449 810,060 794,595 795,545 806,338 808,639
Borrowed funds......................... 124,465 124,172 88,640 88,648 39,496 39,671
OFF-BALANCE SHEET INSTRUMENTS:
Loan commitments....................... 138 -- 393 -- 39
Standby letters of credit.............. -- 21 -- 13 -- 10
======== ======== ======== ======== ======== ========
</TABLE>
LIMITATIONS:
The foregoing fair value estimates were made at September 30, 1997, December 31,
1996 and 1995, based on pertinent market data and relevant information on the
financial instrument. These estimates do not include any premium or discount
that could result from an offer to sell, at one time, the Bank's entire holdings
of a particular financial instrument or category thereof. Since no market
exists for a substantial portion of the Bank's financial instruments, fair value
estimates were necessarily based on judgments with respect to future expected
loss experience, current economic conditions, risk assessments of various
financial instruments involving a myriad of individual borrowers, and other
factors. Given the innately subjective nature of these estimates, the
uncertainties surrounding them and the matters of significant judgment that must
be applied, these fair value estimations cannot be calculated with precision.
Modifications in such assumptions could meaningfully alter these estimates.
Since these fair value approximations were made solely for on- and off-balance
sheet financial instruments at September 30, 1997, December 31, 1996 and 1995,
no attempt was made to estimate the value of anticipated future business of the
value of nonfinancial statement assets and liabilities. Other important
elements which are not deemed to be financial assets or liabilities include the
value of the Bank's retail branch delivery system, its existing core deposit
base, premises and equipment, and goodwill. Further, certain tax implications
related to the realization of the unrealized gains and losses could have a
substantial impact on these fair value estimates and have not been incorporated
into any of the estimates.
F-32
<PAGE>
________________________________________________________________________________
(18) QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table contains quarterly financial data for the nine months ended
September 30, 1997 and years ended December 31, 1996 and 1995 (dollars in
thousands, except per share data, which includes four 10% stock dividends and a
2-for-1 stock split):
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 FIRST SECOND THIRD
QUARTER QUARTER QUARTER
-------- ------- -------
<S> <C> <C> <C>
Interest income............................................... $17,791 $18,263 $18,582
Interest expense.............................................. 9,828 10,262 10,501
------- ------- -------
Net interest income before provision for loan losses.......... 7,963 8,001 8,081
Provision for loan losses..................................... 300 300 300
------- ------- -------
Net interest income after provision for loan losses........... 7,663 7,701 7,781
Other operating income........................................ 525 526 1,135
Operating expenses............................................ 4,124 4,417 6,040
------- ------- -------
Income before income tax expense.............................. 4,064 3,810 2,876
Income tax expense............................................ 1,563 1,356 1,071
Net income.................................................... $ 2,501 $ 2,454 $ 1,805
======= ======= =======
Net income per share.......................................... $0.31 $0.30 $0.22
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income............................................... $16,788 $16,811 $16,900 $17,540
Interest expense.............................................. 9,227 9,168 9,249 9,620
------- ------- ------- -------
Net interest income before provision for losses............... 7,561 7,643 7,651 7,920
Provision for loan losses..................................... 100 125 150 175
------- ------- ------- -------
Net interest income after provision for loan losses........... 7,461 7,518 7,501 7,745
Other operating income........................................ 485 395 502 613
Operating expenses............................................ 4,510 5,218 10,394 4,579
------- ------- ------- -------
Income (loss) before income tax expense (benefit)............. 3,436 2,695 (2,391) 3,779
Income tax expense (benefit).................................. 1,244 1,005 (873) 1,433
------- ------- ------- -------
Net income (loss)............................................. $ 2,192 $ 1,690 $(1,518) $ 2,346
======= ======= ======= =======
Net income (loss) per share................................... $0.27 $0.21 $(0.19) $0.29
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income............................................... $15,111 $15,983 $16,635 $16,844
Interest expense.............................................. 7,865 8,970 9,407 9,449
------- ------- ------- -------
Net interest income before provision for loan losses.......... 7,246 7,013 7,228 7,395
Provision for loan losses..................................... 75 75 75 85
------- ------- ------- -------
Net interest income after provision for loan losses........... 7,171 6,938 7,153 7,310
Other operating income........................................ 713 652 286 520
Operating expenses............................................ 4,397 4,589 4,422 4,422
------- ------- ------- -------
Income before income tax expense.............................. 3,487 3,001 3,017 3,408
Income tax expense............................................ 1,098 1,252 1,003 1,258
------- ------- ------- -------
Net income.................................................... $ 2,389 $ 1,749 $ 2,014 $ 2,150
======= ======= ======= =======
Net income per share.......................................... $0.30 $0.22 $0.25 $0.27
======= ======= ======= =======
</TABLE>
F-33
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as having been
authorized by First Source Bancorp, Inc., the Bank or Sandler O'Neill. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby to any person in any jurisdiction in
which such offer or solicitation is not authorized or in which the person making
such offer or solicitation is not qualified to do so, or to any person to whom
it is unlawful to make such offer or solicitation in such jurisdiction. Neither
the delivery of this Prospectus nor any sale hereunder shall under any
circumstances create any implication that there has been no change in the
affairs of First Source Bancorp, Inc. or the Bank since any of the dates as of
which information is furnished herein or since the date hereof.
______________________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary...................................................................
Selected Financial and Other Data.........................................
Risk Factors..............................................................
First Source Bancorp, Inc.................................................
First Savings Bancshares, MHC.............................................
First Savings Bank, SLA...................................................
Regulatory Capital Compliance.............................................
Use of Proceeds...........................................................
Dividend Policy...........................................................
Market for the Common Stock...............................................
Capitalization............................................................
Pro Forma Data............................................................
First Savings Bank, SLA and Subsidiaries Consolidated Statements
of Operations...........................................................
Management's Discussion and Analysis of Financial.........................
Condition and Results of Operations....................................
Business of the Bank......................................................
Federal and State Taxation................................................
Regulation................................................................
Management of the Company.................................................
Management of the Bank....................................................
Beneficial Ownership of Capital Stock.....................................
The Conversion and Reorganization.........................................
Comparison of Stockholders' Rights........................................
Restrictions on Acquisition of the Company and the Bank...................
Description of Capital Stock of the Company...............................
Description of Capital Stock of the Bank..................................
Transfer Agent and Registrar..............................................
Experts...................................................................
Legal and Tax Opinions....................................................
Additional Information....................................................
Index of Consolidated Financial Statements................................
</TABLE>
______________________________
UNTIL _________, 1998 OR 25 DAYS AFTER COMMENCEMENT OF THE SYNDICATED
COMMUNITY OFFERING, IF ANY, WHICHEVER IS LATER, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
27,600,000 Shares
FIRST SOURCE BANCORP, INC.
(Proposed Holding Company for
First Savings Bank, SLA)
COMMON STOCK
__________
PROSPECTUS
__________
________, 1998
SANDLER O'NEILL & PARTNERS, L.P.
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.(1)
<TABLE>
<S> <C>
OTS filing fee............................................ $ 8,400
SEC filing fee(1)......................................... 93,633
NASD filing fee(1)........................................ 30,500
Exchange listing fee(1)................................... 36,740
Printing, postage and mailing............................. 75,000
Legal fees and expenses................................... 100,000
Accounting fees and expenses.............................. 100,000
Appraiser's fees and expenses (including
business plan).......................................... 25,000
Marketing fees and selling commissions (1)................ 1,726,000
Underwriter's expenses (including underwriter's
counsel fees)(1)....................................... --
Proxy solicitation and record management
fees and expenses...................................... 10,000
Transfer agent fees and expenses.......................... 15,000
Certificate printing...................................... 5,000
Telephone, temporary help and other
equipment............................................... 25,000
Blue Sky fees and expenses................................ 10,000
Miscellaneous............................................. 65,727
----------
TOTAL..................................................... $2,326,000
==========
</TABLE>
____________________
(1) Actual expenses based upon the registration of 31,740,000 shares at $10.00
per share. All other expenses are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with the General Corporation Law of the State of Delaware (being
Chapter 1 of Title 8 of the Delaware Code), Articles 10 and 11 of the
Registrant's Certificate of Incorporation provide as follows:
TENTH:
A. Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent, or in any other capacity while serving as a Director,
Officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader
<PAGE>
indemnification rights than such law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) reasonably incurred or suffered by such indemnitee in
connection therewith; provided, however, that, except as provided in Section C
hereof with respect to proceedings to enforce rights to indemnification, the
Corporation shall indemnify any such indemnitee in connection with a proceeding
(or part thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this Article TENTH
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a Director or Officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, services to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article TENTH shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
Director, Officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid in full by
the Corporation within sixty days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses under this
Article TENTH or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses conferred
in this Article TENTH shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, the Corporation's Certificate
of Incorporation, Bylaws, agreement, vote of stockholders or Disinterested
Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect itself
and any Director, Officer, employee or agent of the Corporation or subsidiary or
Affiliate or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the Board
of Directors, grant rights to indemnification and to the advancement of expenses
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
<PAGE>
ELEVENTH:
- ---------
A Director of this Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
Director, except for liability: (i) for any breach of the Director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the Director derived an improper personal
benefit. If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
Directors, then the liability of a Director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of the
Corporation shall not adversely affect any right or protection of a Director of
the Corporation existing at the time of such repeal or modification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(a) List of Exhibits (Filed herewith unless otherwise noted)
<TABLE>
<CAPTION>
<S> <C>
1.1 Engagement Letter between First Savings Bank, SLA and Sandler O'Neill & Partners, L.P.
1.2 Draft Form of Agency Agreement*
2.1 Amended Plan of Conversion and Agreement and Plan of Reorganization
3.1 Certificate of Incorporation of First Source Bancorp, Inc.
3.2 Bylaws of First Source Bancorp, Inc.
3.3 Certificate of Incorporation and Bylaws of First Savings Bank, SLA
4.0 Draft Stock Certificate of First Source Bancorp, Inc.
5.0 Draft Opinion of Muldoon, Murphy & Faucette re: legality
5.1 Draft Opinion of Morris, Nichols, Arsht & Tunnell re: legality
8.0 Draft Opinion of Muldoon, Murphy & Faucette re: Federal and State Tax Matters*
10.1 First Savings Bank, SLA 1992 Incentive Stock Option Plan
10.2 First Savings Bank, SLA 1992 Stock Option Plan for Outside Directors
10.3 First Savings Bank, SLA 1996 Omnibus Incentive Plan
10.4 First Savings Bank, SLA 1992 Employee Stock Ownership Plan
10.5 Draft ESOP Loan Commitment Letter and ESOP Loan Documents*
10.6 First Savings Bank, SLA Directors' Deferred Fee Stock Unit Plan
10.7 First Savings Bank, SLA Supplemental Executive Retirement Plan
10.8 Draft First Savings Bank, SLA Supplemental Executive Retirement Plan II
10.9 First Savings Bank, SLA Director Retirement Plan
10.10 Employment Agreements between First Savings Bank, SLA and certain executive officers
10.11 Form of Employment Agreement between First Source Bancorp, Inc. and certain executive officers
10.12 Form of Change in Control Agreement between First Savings Bank, SLA and certain executive officers
10.13 Form of Change in Control Agreement between First Source Bancorp, Inc. and certain executive officers
10.14 Form of First Savings Bank, SLA Employee Severance Compensation Plan
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Muldoon, Murphy & Faucette
23.3 Consent of Morris, Nichols, Arsht & Tunnell
23.4 Consent and Subscription Rights Opinion of FinPro, Inc.
24.1 Powers of Attorney
27.0 Financial Data Schedule
99.1 Appraisal Report of FinPro, Inc. (P)
99.2 Agreement Regarding Listing on a Securities Exchange*
99.3 Proxy Materials and Form of Revocable Proxy for First Savings Bank, SLA Stockholders
</TABLE>
__________________________________
*To be filed by amendment
4
<PAGE>
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the Offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
CONFORMED
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Woodbridge,
State of New Jersey, on December 19, 1997.
FIRST SOURCE BANCORP, INC.
By: /s/ John P. Mulkerin
---------------------------------------
John P. Mulkerin
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Date
---- ----
<S> <C>
/s/ Walter K. Timpson December 19, 1997
- ----------------------------------------
Walter K. Timpson
Chairman of the Board
/s/ John P. Mulkerin December 19, 1997
- ----------------------------------------
President, Chief Executive Officer and
Director (principal executive officer)
/s/ Christopher P. Martin December 19, 1997
- ----------------------------------------
Christopher P. Martin
Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
(principal accounting and financial officer)
/s/ Donald T. Akey, M.D. December 19, 1997
- ----------------------------------------
Donald T. Akey, M.D.
Director
/s/ Harry F. Burke December 19, 1997
- ----------------------------------------
Harry F. Burke
Director
/s/ Keith H. McLaughlin December 19, 1997
- ----------------------------------------
Keith H. McLaughlin
Director
/s/ Philip T. Ruegger, Jr. December 19, 1997
- ----------------------------------------
Philip T. Ruegger, Jr.
Director
/s/ Jeffries Shein December 19, 1997
- ----------------------------------------
Jeffries Shein
Director
</TABLE>
<PAGE>
Exhibit 1.1
[LETTERHEAD OF SANDLER O'NEILL & PARTNERS, L.P APPEARS HERE]
Sandler O'Neill
October 24, 1997
Mr. John P. Mulkerin
President and Chief Executive Officer
First Savings Bank, SLA
1000 Woodbridge Center Drive
Perth Amboy, New Jersey 07095
Dear Mr. Mulkerin:
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") is pleased to act as
an independent financial advisor to First Savings Bank, SLA (the "Bank") in
connection with the Bank's proposed conversion from mutual holding company
status to full stock form (the "Conversion"), including the offer and sale of
certain shares of the common stock of the proposed new holding company for the
Bank (the "Holding Company") to the Bank's eligible account holders in a
Subscription Offering, to members of the Bank's community in a Direct Community
Offering and, under certain circumstances, to the general public in a Syndicated
Community Offering (collectively, the "Offerings"). For purposes of this
letter, the term "Actual Purchase Price" shall mean the price at which the
shares of the Holding Company's common stock are sold in the Conversion. This
letter is to confirm the terms and conditions of our engagement.
ADVISORY SERVICES
- -----------------
Sandler O'Neill will act as a consultant and advisor to the Bank and the
Holding Company and will work with the Bank's management, counsel, accountants
and other advisors in connection with the Conversion and the Offerings. We
anticipate that our services will include the following, each as may be
necessary and as the Bank may reasonably request:
1. Consulting as to the securities marketing implications of any aspect
of the Plan of Conversion or related corporate documents;
2. Reviewing with the Board of Directors the independent appraiser's
appraisal of the common stock, particularly with regard to aspects of
the appraisal involving the methodology employed;
3. Reviewing all offering documents, including the Prospectus, stock
order forms and related offering materials (it being understood that
preparation and filing of such documents will be the responsibility of
the Bank and the Holding Company and their counsel);
4. Assisting in the design and implementation of a marketing strategy for
the Offerings;
<PAGE>
First Savings Bank, SLA
October 24, 1997
Page 2 Sandler O'Neill
5. Assisting in obtaining all requisite regulatory approvals;
6. Assisting Bank management in scheduling and preparing for meetings
with potential investors and broker-dealers; and
7. Providing such other general advice and assistance as may be requested
to promote the successful completion of the Conversion.
FEES
- ----
If the Conversion is consummated, the Bank agrees to pay Sandler O'Neill
for its services hereunder the fees set forth below:
1. a fee of one and fifteen-hundredths (1.15%) of the aggregate Actual
Purchase Price of the shares of common stock sold in the Subscription
Offering to eligible account holders, current depositors and in the
Direct Community Offering, excluding in each case shares purchased by
(i) any benefit plan of the Holding Company or the Bank established
for the benefit of their respective directors, officers and employees,
and (ii) any director, officer or employee of the Holding Company or
the Bank or members of their immediate families (whether or not living
in the same household); and
2. with respect to any shares of the Holding Company's common stock sold
by any NASD member firm (other than Sandler O'Neill) under any
selected dealers agreement in the Syndicated Community Offering, (a)
the sales commission payable to the selected dealer under such
agreement, (b) any sponsoring dealer's fees, and (c) a management fee
to Sandler O'Neill of one and fifteen-hundredths (1.15%) of the Actual
Purchase Price. Any fees payable to Sandler O'Neill for common stock
sold by Sandler O'Neill under any such agreement shall be limited to
an aggregate of one and fifteen-hundredths (1.15%) of the Actual
Purchase Price of such shares.
If (i) Sandler O'Neill's engagement hereunder is terminated for any of the
reasons provided for under the second paragraph of the section of this letter
captioned "Definitive Agreement," or (ii) the Conversion is terminated by the
Bank, no fees shall be payable by the Bank to Sandler O'Neill hereunder.
All fees payable to Sandler O'Neill hereunder shall be payable in cash at
the time of the closing of the Conversion. In recognition of the long lead times
involved in the conversion process, the Bank agrees to make advance payments to
Sandler O'Neill in the aggregate amount of $50,000, $25,000 of which shall be
payable upon execution of this letter and the remaining $25,000 of which shall
be
<PAGE>
First Savings Bank, SLA
October 24, 1997
Page 3 Sandler O'Neill
payable upon commencement of the Subscription Offering, which shall be credited
against any fees payable hereunder.
SYNDICATED COMMUNITY OFFERING
- -----------------------------
If any shares of the Holding Company's common stock remain available after
the expiration of the Subscription Offering and the Direct Community Offering,
at the request of the Bank and subject to the continued satisfaction of the
conditions set forth in the second paragraph under the caption "Definitive
Agreement" below, Sandler O'Neill will seek to form a syndicate of registered
dealers to assist in the sale of such common stock in a Syndicated Community
Offering on a best efforts basis, subject to the terms and conditions set forth
in a selected dealers agreement. Sandler O'Neill will endeavor to limit the
aggregate fees to be paid by the Bank under any such selected dealers agreement
to an amount competitive with gross underwriting discounts charged at such time
for underwritings of comparable amounts of stock sold at a comparable price per
share in a similar market environment, which shall not exceed 7% of the
aggregate Actual Purchase Price of the shares sold under such agreements and
shall be subject to the prior approval of the Bank. Sandler O'Neill will
endeavor to distribute the common stock among dealers in a fashion which best
meets the distribution objectives of the Bank and the requirements of the Plan
of Conversion, which may result in limiting the allocation of stock to certain
selected dealers. It is understood that in no event shall Sandler O'Neill be
obligated to act as a selected dealer or to take or purchase any shares of the
Holding Company's common stock.
COSTS AND EXPENSES
- ------------------
Sandler O'Neill shall bear all of its out-of-pocket expenses incurred in
connection with its engagement hereunder, regardless of whether the Conversion
is consummated, including, without limitation, legal fees and disbursements of
Sandler O'Neill's counsel, costs of temporary employees hired by Sandler O'Neill
in connection with its engagement hereunder, advertising, promotional,
syndication (including Sandler O'Neill's costs associated with any road shows or
investor meetings) and travel expenses.
As is customary, the Bank will bear all other expenses incurred in
connection with the Conversion and the Offerings, including, without limitation,
(i) the cost of obtaining all securities and bank regulatory approvals,
including any required NASD filing fees; (ii) the cost of printing and
distributing the offering materials; (iii) the costs of blue sky qualification
(including fees and expenses of blue sky counsel) of the shares in the various
states; (iv) listing fees; and (v) all fees and disbursements of the Bank's and
the Holding Company's counsel, accountants, appraiser and other advisors other
than Sandler O'Neill and its advisors. In the event Sandler O'Neill incurs any
such fees and expenses on behalf of the Bank or the Holding Company, the Bank
will reimburse Sandler O'Neill for such fees and expenses whether or not the
Conversion is consummated; provided, however, that Sandler O'Neill shall not
-------- -------
incur any substantial expenses on behalf of the Bank or the Holding
<PAGE>
First Savings Bank, SLA
October 24, 1997
Page 4 Sandler O'Neill
Company pursuant to this paragraph without the prior approval of the Bank.
POST-CONVERSION GENERAL ADVISORY SERVICES
- -----------------------------------------
If the Conversion is consummated, Sandler O'Neill agrees to act as an
independent financial advisor to the Holding Company, the Bank and their
subsidiaries (referred to collectively in this paragraph as the "Company") in
connection with the Company's general strategic planning ("General Advisory
Services"). In connection with such General Advisory Services, we would expect
to work with the Company's management, its counsel, accountants and other
advisors to assess the Company's strategic alternatives and help implement a
tactical plan to enhance the value of the Company. We anticipate that our
activities would include, as appropriate, those activities outlined in Exhibit A
hereto. Sandler O'Neill shall provide such services at the Company's request for
a period of two years following the completion of the Conversion; provided,
--------
however, that the Company shall reimburse Sandler O'Neill for its reasonable
- -------
out-of-pocket expenses incurred in connection with providing such services.
Thereafter, if both parties wish to continue the relationship, the parties will
enter into a separate advisory services agreement on terms and conditions to be
negotiated at such time. Notwithstanding the above, the Company is under no
obligation to receive or request such services.
DUE DILIGENCE REVIEW
- --------------------
Sandler O'Neill's obligation to perform the services contemplated by this
letter shall be subject to the satisfactory completion of such investigation and
inquiries relating to the Bank and the Holding Company, and their respective
directors, officers, agents and employees, as Sandler O'Neill and its counsel in
their sole discretion may deem appropriate under the circumstances. In this
regard, the Bank agrees that, at its expense, it will make available to Sandler
O'Neill all information which Sandler O'Neill requests, and will allow Sandler
O'Neill the opportunity to discuss with the Bank's and the Holding Company's
management the financial condition, business and operations of the Bank and the
Holding Company. The Bank and the Holding Company acknowledge that Sandler
O'Neill will rely upon the accuracy and completeness of all information received
from the Bank and the Holding Company and their directors, trustees, officers,
employees, agents, independent accountants and counsel.
BLUE SKY MATTERS
- ----------------
The Bank agrees that if Sandler O'Neill's counsel does not serve as counsel
with respect to blue sky matters in connection with the Offerings, the Bank will
cause the counsel performing such services to prepare a Blue Sky Memorandum
related to the Offerings including Sandler O'Neill's participation therein and
shall furnish Sandler O'Neill a copy thereof addressed to Sandler O'Neill or
upon which such counsel shall state Sandler O'Neill may rely.
<PAGE>
First Savings Bank, SLA
October 24, 1997
Page 5 Sandler O'Neill
CONFIDENTIALITY
- ---------------
Other than disclosure to other firms made part of any syndicate of selected
dealers or as required by law or regulation, Sandler O'Neill agrees that it will
not disclose any Confidential Information relating to the Bank obtained in
connection with its engagement hereunder (whether or not the Conversion is
consummated). As used in this paragraph, the term "Confidential Information"
shall not include information which (i) is or becomes generally available to the
public other than as a result of a disclosure by Sandler O'Neill, (ii) was
available to Sandler O'Neill on a non-confidential basis prior to its disclosure
to Sandler O'Neill by the Bank, or (iii) becomes available to Sandler O'Neill on
a non-confidential basis from a person other than the Bank who is not otherwise
known to Sandler O'Neill to be bound not to disclose such information pursuant
to a contractual, legal or fiduciary obligation.
INDEMNIFICATION
- ---------------
Since Sandler O'Neill will be acting on behalf of the Bank and the Holding
Company in connection with the Conversion, the Holding Company and the Bank
agree to indemnify and hold Sandler O'Neill and its affiliates and their
respective partners, directors, officers, employees, agents and controlling
persons within the meaning of Section 15 of the Securities Act of 1933 or
Section 20 of the Securities Exchange Act (Sandler O'Neill and each such person
being an "Indemnified Party") harmless from and against any and all losses,
claims, damages and liabilities, joint or several, to which such Indemnified
Party may become subject under applicable federal or state law, or otherwise,
related to or arising out of the Conversion or the engagement of Sandler O'Neill
pursuant to, or the performance by Sandler O'Neill of the services contemplated
by, this letter, and will reimburse any Indemnified Party for all expenses
(including reasonable legal fees and expenses upon presentation of invoices to
the Bank) as they are incurred, including expenses incurred in connection with
the investigation of, preparation for or defense of any pending or threatened
claim or any action or proceeding arising therefrom, whether or not such
Indemnified Party is a party; provided, however, that the Bank and the Holding
-------- -------
Company will not be liable in any such case to the extent that any such loss,
claim, damage, liability or expense (i) arises out of or is based upon any
untrue statement of a material fact or the omission of a material fact required
to be stated therein or necessary to make not misleading any statements
contained in any final proxy statement or prospectus, or any amendment or
supplement thereto, or any of the applications, notices, filings or documents
related thereto made in reliance on and in conformity with written information
furnished to the Bank by Sandler O'Neill expressly for use therein, or (ii) is
attributable to the gross negligence, willful misconduct or bad faith of Sandler
O'Neill. If the foregoing indemnification is unavailable for any reason, the
Bank and the Holding Company agree to contribute to such losses, claims,
damages, liabilities and expenses in the proportion that its financial interest
in the Conversion bears to that of Sandler O'Neill.
<PAGE>
First Savings Bank, SLA
October 24, 1997
Page 6 Sandler O'Neill
DEFINITIVE AGREEMENT
- --------------------
Sandler O'Neill and the Bank agree that (a) except as set forth in clause
(b), the foregoing represents the general intention of the Bank and Sandler
O'Neill with respect to the services to be provided by Sandler O'Neill in
connection with the Offerings, which will serve as a basis for Sandler O'Neill
commencing activities, and (b) the only legal and binding obligations of the
Bank, the Holding Company and Sandler O'Neill with respect to the subject matter
hereof shall be (1) those set forth under the captions "Confidentiality" and
"Indemnification," and (2) as set forth in a duly negotiated and executed
definitive Agency Agreement to be entered into prior to the commencement of the
Subscription Offering relating to the services of Sandler O'Neill in connection
with the Offerings. Such Agency Agreement shall be in form and content
satisfactory to Sandler O'Neill, the Bank and the Holding Company and their
respective counsel and shall contain standard indemnification provisions
mutually acceptable to the Bank, the Holding Company and Sandler O'Neill.
Sandler O'Neill's execution of such Agency Agreement shall also be subject
to (i) Sandler O'Neill's satisfaction with its investigation of the Bank's
business, financial condition and results of operations, (ii) preparation of
offering materials that are satisfactory to Sandler O'Neill and its counsel,
(iii) compliance with all relevant legal and regulatory requirements to the
reasonable satisfaction of Sandler O'Neill counsel, (iv) agreement that the
price established by the independent appraiser is reasonable and (v) market
conditions at the time of the proposed offering. Sandler O'Neill may terminate
this agreement if such Agency Agreement is not entered into prior to June 30,
1999.
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: /s/ Mark B. Cohen
-------------------------
Mark B. Cohen
Principal
Accepted and agreed to as of
the date first above written:
First Savings Bank, SLA
By: /s/ John P. Mulkerin 11.11.97
------------------------------
Mr. John P. Mulkerin
President and Chief Executive Officer
<PAGE>
EXHIBIT A Sandler O'Neill
GENERAL ADVISORY SERVICES
- --------------------------------------------------------------------------------
1. A review and analysis of the Company's current business and financial
characteristic, including its operating strategies, balance sheet
composition, historical operating performance, branch structure and market
share, and the Company's competitive position relative to selected peer
groups;
2. Creation of a base case financial model to serve as a benchmark for
analyzing alternative strategies and market environments;
3. An analysis of the impact on the franchise value of altering the Company's
dividend policy, implementing a stock repurchase program, or changing the
asset mix or other operating activities;
4. An analysis of the Company's acquisition resources, objectives and capacity
to compete for acquisition opportunities;
5. A summary of recent merger and acquisition trends in the financial services
industry, including tactics employed by others and typical terms and values
involved;
6. A review of other strategic alternatives which could provide long-term
benefits and enhanced value to the Company;
7. A review of the Company's advance defensive preparation plans, including a
comprehensive financial valuation and an analysis of stock ownership and
trading activities;
8. A review with the Board of Directors of the Company of Sandler O'Neill's
findings, with periodic updates as may be requested;
9. Ongoing general advice and counsel to management and the Board of Directors
of the Company with respect to strategic and tactical issues; and
10. Rendering such other financial advisory and investment banking services as
may from time to time be agreed upon by Sandler O'Neill and the Company.
<PAGE>
[LETTERHEAD OF SANDLER O'NEILL & PARTNERS, L.P APPEARS HERE]
Sandler O'Neill
October 24, 1997
Mr. John P. Mulkerin
President and Chief Executive Officer
First Savings Bank, SLA
1000 Woodbridge Center Drive
Perth Amboy, New Jersey 07095
Dear Mr. Mulkerin:
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") is pleased to act as
conversion agent to First Savings Bank, SLA (the "Bank") in connection with the
Bank's proposed conversion from mutual holding company to full stock form (the
"Conversion"). This letter is to confirm the terms and conditions of our
engagement.
SERVICES AND FEES
- -----------------
In our role as Conversion Agent, we anticipate that our services will
include the services outlined below, each as may be necessary and as the Bank
may reasonably request:
I. Consolidation of Accounts and Development of a Central File
II. Preparation of Proxy, Order and/or Request Forms
III. Organization, Operation and Supervision of the Conversion Center
IV. Proxy Solicitation and Special Meeting Services
V. Subscription Services
Each of these services is further described in Appendix A to this agreement.
For its services hereunder, the Bank agrees to pay Sandler O'Neill a fee of
$10,000. This fee is based upon a total number of unconsolidated accounts of
approximately 107,000. No change in fees will occur as long as the variance in
the number of accounts does not exceed 5%. In the event the actual number of
accounts exceeds the number specified above by more than 5%, the fee will be
proportionately increased.
<PAGE>
First Savings Bank, SLA
October 24, 1997
Page 2 Sandler O'Neill
The feet set forth above is based upon the requirements of current
regulations and the Plan of Conversion as currently contemplated. Any unusual or
additional items or duplication of service required as a result of a material
change in the regulations or the Plan of Conversion or a material delay or other
similar events may result in extra charges which will be covered in a separate
agreement if and when they occur.
All fees under this agreement shall be payable in cash, as follows: (a)
$5,000 payable upon execution of this agreement by the Bank, which shall be
non-refundable; and (b) the balance upon the completion of the Conversion.
COSTS AND EXPENSES
- ------------------
Sandler O'Neill shall bear all of its out-of-pocket expenses incurred in
connection with its engagement hereunder, including, without limitation, costs
of temporary employees hired by Sandler O'Neill in connection with its
engagement hereunder, meals, lodging and travel expenses, telephone, postage,
listings, forms and other similar expenses. As is customary, the Bank will bear
all other expenses incurred in connection with the establishment and operation
of the conversion center and the costs of soliciting votes and stock orders,
including, without limitation, the costs of Bank employees, occupancy costs of
the conversion center, stationery and office supplies, telephone, postage and
delivery costs of communicating with depositors and potential investors in
connection with the Conversion and other similar expenses.
RELIANCE ON INFORMATION PROVIDED
- --------------------------------
The Bank will provide Sandler O'Neill with such information as Sandler
O'Neill may reasonably require to carry out its duties. The Bank recognizes and
confirms that Sandler O'Neill (a) will use and rely on such information in
performing the services contemplated by this agreement without having
independently verified the same, and (b) does not assume responsibility for the
accuracy or completeness of the information. The Bank will also inform Sandler
O'Neill within a reasonable period of time of any changes in the Plan which
require changes in Sandler O'Neill's services. If a substantial expense results
from any such change, the parties shall negotiate an equitable adjustment in the
fee.
LIMITATIONS
- -----------
Sandler O'Neill, as Conversion Agent hereunder, (a) shall have no duties or
obligations other
<PAGE>
First Savings Bank, SLA
October 24, 1997
Page 3 Sandler O'Neill
than those specifically set forth herein; (b) will be regarded as making no
representations and having no responsibilities as to the validity, sufficiency,
value or genuineness of any order form or any stock certificates or the shares
represented thereby, and will not be required to and will make no
representations as to the validity, value or genuineness of the offer; (c) shall
not be liable to any person, firm or corporation including the Bank by reason of
any error of judgment or for any mistake of law or fact in connection with this
agreement and the performance hereof unless caused by or arising out of its own
willful misconduct, bad faith or negligence; (d) will not be obliged to take any
legal action hereunder which might in its judgment involve any expense or
liability, unless it shall have been furnished with reasonable indemnity
satisfactory to it; and (e) may rely on and shall be protected in acting in
reliance upon any certificate, instrument, opinion, notice, letter, telex,
telegram, or other document or security delivered to it and in good faith
believed by it to be genuine and to have been signed by the proper party or
parties.
INDEMNIFICATION
- ---------------
The Bank agrees to indemnify and hold Sandler O'Neill and its affiliates
and their respective partners, directors, officers, employees, agents and
controlling persons (Sandler O'Neill and each such person being an "Indemnified
Party") harmless from and against any and all losses, claims, damages and
liabilities joint or several, to which such Indemnified Party may become
subject under applicable federal or state law, or otherwise, related to or
arising out of the engagement of Sandler O'Neill pursuant to, and the
performance by Sandler O'Neill of the services contemplated by this letter, and
will reimburse any Indemnified Party for all expenses (including reasonable
counsel fees and expenses) as they are incurred, including expenses incurred in
connection with the investigation of, preparation for or defense of any pending
or threatened claim or any action or proceeding arising therefrom, whether or
not such Indemnified Party is a party. The Bank will not be liable under the
foregoing indemnification provision to the extent that any loss, claim, damage,
liability or expense is found in a final judgment by a court of competent
jurisdiction to have been attributable to Sandler O'Neill's willful misconduct,
bad faith or negligence.
MISCELLANEOUS
- -------------
The following addresses shall be sufficient for written notices to each
other:
If to you: First Savings Bank, SLA
1000 Woodbridge Center Drive
Perth Amboy, New Jersey 07095
Attention: Mr. John P. Mulkerin
<PAGE>
First Savings Bank, SLA
October 24, 1997 Sandler O'Neill
Page 4
If to us: Sandler O'Neill & Partners, L.P.
747 Middle Neck Road
Great Neck, New York 11024
Attention: Mr. Mark B. Cohen
The Agreement and appendix hereto constitute the entire Agreement between
the parties with respect to the subject matter hereof and can be altered only by
written consent signed by the parties. This Agreement is governed by the laws
of the State of New York.
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp,
the sole general partner
By: /s/ Mark B. Cohen
-------------------------------
Mark B. Cohen
Principal
Accepted and agreed to as of
the date first above written:
First Savings Bank, SLA
By: /s/ John P. Mulkerin 11.11.97
------------------------------
Mr. John P. Mulkerin
President and Chief Executive Officer
<PAGE>
APPENDIX A Sandler O'Neill
----------
OUTLINE OF CONVERSION AGENT SERVICES
------------------------------------
I. Consolidation of Accounts
1. Consolidate files in accordance with regulatory guidelines.
2. Accounts from various files are all linked together. The resulting
central file can then be maintained on a regular basis.
3. Our EDP format will be provided to your data processing people.
II. Proxy/Order Form/Request Card Preparation
1. Vote calculation.
2. Any combination of proxies, request cards and stock order forms for
voting and ordering stock.
3. Target group indentification for subscription offering.
III. Organization and Supervision of Conversion Center
1. Advising on and supervising the physical organization of the
Conversion Center, including materials requirements.
2. Assist in the training of all Bank personnel who will be staffing
the conversion center.
3. Establish reporting procedures.
4. On-site supervision of the Conversion Center during the
solicitation/offering period.
IV. Special Meeting Services
1. Direct proxy solicitation.
2. Proxy and ballot tabulation.
3. Act as or support inspector of election.
4. Delete voting record date accounts closed prior to special meeting.
5. Produce final report to vote.
V. Subscription Services
1. Produce list of depositors by state (Blue Sky report).
2. Production of subscription rights and research books.
3. Stock order form processing.
4. Acknowledgement letter to confirm receipt of stock order.
5. Daily reports and analysis.
6. Proration calculation and share allocation in the event of an
oversubscription.
7. Produce charter shareholder list.
8. Interface with Transfer Agent for Stock Certificate issuance.
9. Refund and interest calculations.
10. Confirmation letter to confirm purchase of stock.
11. Notification of full/partial rejection of orders.
12. Production of 1099/Debit tape.
A-1
<PAGE>
Exhibit 2.1
AMENDED PLAN OF CONVERSION
OF
FIRST SAVINGS BANCSHARES, MHC
AND
AGREEMENT AND PLAN OF REORGANIZATION
OF
FIRST SAVINGS BANK, SLA
WOODBRIDGE, NEW JERSEY
AS ADOPTED ON:
OCTOBER 24, 1997
and amended on:
December 16, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Introduction........................................................ 1
2. Definitions......................................................... 3
3. General Procedure for Conversion and Reorganization................. 12
4. Holding Company Applications and Approvals.......................... 15
5. Sale of Conversion Stock............................................ 16
6. Number of Shares and Purchase Price of Conversion Stock............. 17
7. Retention of Proceeds by Holding Company............................ 19
8. Subscription Rights of Eligible Account Holders..................... 20
9. Subscription Rights of Employee Plans............................... 21
10. Subscription Rights of Supplemental Eligible Account Holders........ 22
11. Subscription Rights of Other Members................................ 24
12. Community Offering.................................................. 25
13. Syndicated Community Offering....................................... 27
14. Limitation on Purchases............................................. 28
15. Payment for Conversion Stock........................................ 32
16. Manner of Exercising Subscription Rights Through Order Forms........ 34
17. Undelivered, Defective or Late Order Forms; Insufficient Payment.... 36
18. Restrictions on Resale or Subsequent Disposition.................... 37
19. Voting Rights of Stockholders....................................... 38
20. Establishment of Liquidation Account................................ 39
21. Transfer of Savings Accounts and Continuity of the Institution...... 41
22. Restrictions on Acquisition of the Institution and Holding Company.. 42
23. Payment of Dividends and Repurchase of Stock........................ 43
24. Amendment of Plan................................................... 44
25. Effective Date...................................................... 44
26. Registration and Marketing.......................................... 45
27. Residents of Foreign Countries and Certain States................... 45
28. Expenses............................................................ 46
29. Conditions to Conversion............................................ 46
30. Interpretation...................................................... 46
</TABLE>
Annex A Plan of Merger between the Mutual Holding Company and the Bank
Annex B Plan of Reorganization between the Bank, Interim B and the Holding
Company
<PAGE>
AMENDED PLAN OF CONVERSION AND AGREEMENT
AND PLAN OF REORGANIZATION OF
FIRST SAVINGS BANCSHARES, MHC
AND
FIRST SAVINGS BANK, SLA
1. INTRODUCTION
For purposes of this section, all capitalized terms have the meanings
ascribed to them in Section 2.
This Plan of Conversion and Agreement and Plan of Reorganization ("Plan")
provides for the conversion ("Conversion") of First Savings Bancshares, MHC,
Woodbridge, New Jersey ("Mutual Holding Company") to the stock form of
organization. Mutual Holding Company was formed on July 10, 1992 and is
currently a mutual holding company duly organized and validly existing under the
laws of the United States, and as of October 24, 1997 owns beneficially and of
record 3,758,920 shares of common stock, par value $0.01 per share ("INSTITUTION
Common Stock") representing approximately fifty one and six-tenths percent
(51.6%) of the voting stock of First Savings Bank, SLA (the "INSTITUTION"), a
New Jersey capital stock savings association. As of October 24, 1997, the
remaining 3,528,866 shares of INSTITUTION Common Stock or forty eight and four-
tenths percent (48.4%) are owned by the Public Stockholders. The principal
office of the Mutual Holding Company is located at 1000 Woodbridge Center Drive,
Woodbridge, New Jersey.
The Boards of Directors of the Mutual Holding Company and the INSTITUTION
believe that a conversion of the Mutual Holding Company to stock form pursuant
to the Plan is in their best interests, as well as the best interests of their
respective Members and Stockholders. The Conversion will result in the
INSTITUTION being wholly owned by a stock holding company, which is a more
common structure and form of ownership than a mutual holding company. The
<PAGE>
Boards of Directors determined that the Plan equitably provides for the
interests of Members through the granting of subscription rights and the
establishment of a liquidation account and that consummation of the Conversion
would not adversely impact the net worth of the INSTITUTION.
The Conversion will provide the INSTITUTION with a larger capital base
which will enhance the INSTITUTION's ability to pursue lending and investment
opportunities, as well as opportunities for growth and expansion. The Conversion
also will provide a more flexible operating structure and possible
diversification, which will enable the INSTITUTION to compete more effectively
with other financial institutions. In addition, the Conversion will result in
the raising of additional capital for the INSTITUTION and the Holding Company
and should result in a more active and liquid market for the Holding Company
Common Stock than currently exists for the INSTITUTION Common Stock, although
there can be no assurances that this will be the case. Finally, the Conversion
has been structured to reunite the accumulated earnings and profits tax
attribute retained by the Mutual Holding Company with the retained earnings of
the INSTITUTION through a tax-free reorganization.
In connection with the Conversion and Reorganization, the INSTITUTION will
form a new first-tier subsidiary which will be incorporated under Delaware law
as a stock corporation (the "Holding Company"). The Holding Company will in turn
form an interim capital stock savings association, First Interim Bank, ("Interim
B") as a wholly owned subsidiary. As is described in more detail herein,
simultaneously with the conversion of Mutual Holding Company to an interim
Federal stock savings bank, MHC Interim Savings Bank, FSB ("Interim A"), the
INSTITUTION, Mutual Holding Company and Holding Company will undergo a
reorganization
2
<PAGE>
in which Interim A will merge with the INSTITUTION, Interim B will merge with
and into the INSTITUTION, the Holding Company will become the parent company of
the INSTITUTION and the Holding Company will issue and sell its capital stock
pursuant to this Plan (the "Reorganization" and, together with the conversion of
Mutual Holding Company to stock form, the "Conversion").
This Plan, which has been unanimously approved by the Boards of Directors
of the Mutual Holding Company and the INSTITUTION, must also be approved by the
affirmative vote of a majority of the total number of votes eligible to be cast
by Voting Members of the Mutual Holding Company at a special meeting to be
called for that purpose. Prior to the submission of this Plan to the Voting
Members for consideration, the Plan must be approved by the Office of Thrift
Supervision (the "OTS"). The Plan also must be approved by holders of at least
two-thirds of the shares of the INSTITUTION's outstanding common stock
("INSTITUTION Common Stock") eligible to be voted and by a majority of the votes
cast, in person or by proxy, by the Public Stockholders at the special meeting
of the INSTITUTION's stockholders called for the purpose of submitting the Plan
for approval.
2. DEFINITIONS
For the purposes of this Plan, the following terms have the following
meanings:
Account Holder - The term Account Holder means any Person holding a Savings
--------------
Account in the INSTITUTION.
Acting in Concert - The term "Acting in Concert" means (i) knowing
-----------------
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; (ii) a
combination or pooling of voting or other interests in the
3
<PAGE>
securities of an issuer for a common purpose pursuant to any contract,
understanding, relationship, agreement or other arrangement, whether written or
otherwise; or (iii) a person or company which acts in concert with another
person or company ("other party") shall also be deemed to be acting in concert
with any person or company who is also acting in concert with that other party,
except that any tax-qualified employee stock benefit plan will not be deemed to
be acting in concert with its trustee or a person who serves in a similar
capacity solely for the purpose of determining whether stock held by the trustee
and stock held by the plan will be aggregated.
Actual Purchase Price - The term Actual Purchase Price means the per share
---------------------
price at which the Conversion Stock is ultimately sold in accordance with the
terms hereof.
Affiliate - The term Affiliate means a Person who, directly or indirectly,
---------
through one or more intermediaries, controls or is controlled by or is under
common control with the Person specified.
Associate - The term Associate when used to indicate a relationship with
---------
any person, means (i) any corporation or organization (other than the Mutual
Holding Company, INSTITUTION or a majority-owned subsidiary of the Mutual
Holding Company or INSTITUTION) of which such person is an officer or partner or
is, directly or indirectly, the beneficial owner of 10 percent or more of any
class of equity securities, (ii) any trust or other estate in which such person
has a substantial beneficial interest or as to which such person serves as
trustee or in a similar fiduciary capacity except that for the purposes of
Sections 9 and 14 hereof, the term "Associate" does not include any Non-Tax-
Qualified Employee Stock Benefit Plan or any Tax-Qualified Employee Stock
Benefit Plan in which a person has a substantial
4
<PAGE>
beneficial interest or serves as a trustee or in a similar fiduciary capacity,
and except that, for purposes of aggregating total shares that may be held by
Officers and Directors the term "Associate" does not include any Tax-Qualified
Employee Stock Benefit Plan, and (iii) any relative or spouse of such person, or
any relative of such spouse, who has the same home as such person or who is a
Director or Officer of the INSTITUTION, the Mutual Holding Company or the
Holding Company, or any of their parents or subsidiaries.
Community Offering - The term Community Offering means the offering for
------------------
sale to certain members of the general public directly by the Holding Company of
any shares of Conversion Stock not subscribed for in the Subscription Offering.
Conversion and Reorganization - The term Conversion and Reorganization
-----------------------------
shall mean (a) the conversion of the Mutual Holding Company into a stock form
interim Federal savings bank ("Interim A") and its simultaneous merger with and
into the INSTITUTION, with the INSTITUTION being the surviving institution; (b)
the merger of an interim savings association subsidiary of the Holding Company
("Interim B") with and into the INSTITUTION, with the INSTITUTION being the
surviving institution and becoming a wholly owned subsidiary of the Holding
Company; (c) the exchange of shares of INSTITUTION Common Stock (other than
those held by the Mutual Holding Company which shall be extinguished) for shares
of Holding Company Common Stock; and (d) the issuance of Conversion Stock by the
Holding Company in the Offerings as provided in this Plan.
Conversion Stock - The term Conversion Stock means the $.01 par value
----------------
common stock offered and issued by the Holding Company in the Offerings pursuant
to this Plan.
5
<PAGE>
Director - The term Director means a member of the Board of Directors of
--------
the INSTITUTION and, where applicable, a member of the Board of Directors of the
Mutual Holding Company or the Holding Company.
Eligible Account Holder - The term Eligible Account Holder means any person
-----------------------
holding a Qualifying Deposit on the Eligibility Record Date.
Eligibility Record Date - The term Eligibility Record Date means the date
-----------------------
for determining Eligible Account Holders in the INSTITUTION and is December 31,
1995.
Employees - The term Employees means all Persons who are employed by the
---------
Mutual Holding Company or the INSTITUTION, but does not include an Officer or
Director.
Employee Plans - The term Employee Plans means the Tax Qualified Employee
--------------
Stock Benefit Plans approved by the Board of Directors of the Mutual Holding
Company or INSTITUTION, including any plan adopted by the Holding Company.
Estimated Price Range - The term Estimated Price Range means the range of
---------------------
minimum and maximum aggregate values determined by the Board of Directors of the
Mutual Holding Company and the INSTITUTION within which the aggregate amount of
Common Stock sold in the Conversion will fall. The Estimated Price Range will be
within the estimated pro forma market value of the Conversion Stock as
determined by the Independent Appraiser prior to the Subscription Offering and
as it may be amended from time to time thereafter.
Exchange Ratio - The term Exchange Ratio shall mean the rate at which
--------------
shares of Holding Company Common Stock will be exchanged for shares of
INSTITUTION Common Stock held by the Public Stockholders upon consummation of
the Conversion. The exact rate shall be determined by the Mutual Holding
Company and the INSTITUTION at the time the
6
<PAGE>
Actual Purchase Price is determined and shall equal the rate that will result in
the Public Stockholders owning in the aggregate approximately the same
percentage of shares of common stock of the Holding Company to be outstanding
upon completion of the Conversion as the percentage of INSTITUTION Common Stock
owned by them in the aggregate immediately prior to consummation of the
Conversion, before giving effect to (a) the payment of cash in lieu of issuing
fractional shares of Holding Company Common Stock, and (b) any shares of
Conversion Stock purchased by Public Stockholders in the Offerings or by tax-
qualified employee stock benefit plans of the Holding Company or the INSTITUTION
thereafter.
Exchange Stock - The term Exchange Stock shall mean Holding Company Common
--------------
Stock issued to the Public Stockholders in exchange for INSTITUTION Common
Stock.
FDIC - The term FDIC means the Federal Deposit Insurance Corporation.
----
Holding Company - The term Holding Company means the Delaware corporation
---------------
to be organized initially as a first tier, wholly owned subsidiary of the
INSTITUTION. Upon completion of the Conversion, the Holding Company shall hold
all of the outstanding capital stock of the INSTITUTION.
Holding Company Common Stock - The term Holding Company Common Stock means
----------------------------
the common stock of the Holding Company, par value $.01 per share.
Independent Appraiser - The term Independent Appraiser means an appraiser
---------------------
retained by the Mutual Holding Company and the INSTITUTION to prepare an
appraisal of the pro forma market value of the Conversion Stock.
7
<PAGE>
Interim A - shall mean MHC Interim Savings Bank, FSB, which will be the
---------
stock form interim Federal savings bank resulting from the conversion of First
Savings Bancshares, MHC to stock form immediately prior to the merger of Interim
B into the INSTITUTION.
Interim B - shall mean First Interim Bank, which will be formed as a wholly
---------
owned stock form interim savings association subsidiary of the Holding Company,
which will merge with and into the INSTITUTION immediately after the merger of
Interim A into the INSTITUTION.
Institution - The term INSTITUTION means First Savings Bank, SLA,
-----------
Woodbridge, New Jersey.
Institution Common Stock - The term Institution Common Stock means the
------------------------
common stock of the INSTITUTION, par value $.01 per share.
Local Community - The term Local Community means Middlesex, Monmouth and
---------------
Union Counties in the State of New Jersey.
Member - The term Member means any Person or entity who qualifies as a
------
member of the Mutual Holding Company pursuant to its charter and bylaws.
Mutual Holding Company - The term Mutual Holding Company means First
----------------------
Savings Bancshares, MHC.
NJDB - The term NJDB means the State of New Jersey Department of Banking.
----
Offerings - The term Offerings means the Subscription Offering, the
---------
Community Offering and the Syndicated Community Offering.
OTS - The term OTS means Office of Thrift Supervision of the Department of
---
the Treasury.
8
<PAGE>
Officer - The term Officer means an executive officer of the Mutual Holding
-------
Company or the INSTITUTION which includes the Chief Executive Officer,
President, Executive Vice President, Senior Vice Presidents, Vice Presidents in
charge of principal business functions, Secretary and Controller and any Person
performing functions similar to those performed by the foregoing persons.
Order Form - The term Order Form means any form together with attached
----------
cover letter, sent by the Mutual Holding Company and the INSTITUTION to any
Participant or Person containing among other things a description of the
alternatives available to such Person under the Plan and by which any such
Person may make elections regarding subscriptions for Conversion Stock in the
Subscription and Community Offerings.
Other Member - The term Other Member means any person who is a Member of
------------
the Mutual Holding Company (other than an Eligible Account Holder or
Supplemental Eligible Account Holder) at the close of business on the Voting
Record Date.
Participants - The term Participants means the Eligible Account Holders,
------------
Employee Plans, Supplemental Eligible Account Holders and Other Members.
Person - The term Person means an individual, a corporation, a partnership,
------
an association, a joint-stock company, a trust (including Individual Retirement
Accounts and KEOGH Accounts), any unincorporated organization, a government or
political subdivision thereof or any other entity.
Plan - The term Plan means this Plan of Conversion and Agreement and Plan
----
of Reorganization as it exists on the date hereof and as it may hereafter be
amended in accordance with its terms.
9
<PAGE>
Preferred Subscribers - The term Preferred Subscribers means those members
---------------------
of the general public which are natural persons residing in the INSTITUTION'S
Local Community.
Primary Parties - The term Primary Parties means the Mutual Holding
---------------
Company, the INSTITUTION and the Holding Company.
Public Stockholder - The term Public Stockholder shall mean any person who
------------------
owns INSTITUTION Common Stock, excluding the Mutual Holding Company, as of the
Voting Record Date.
Qualifying Deposit - The term Qualifying Deposit means the balance of each
------------------
Savings Account of $50 or more in the INSTITUTION at the close of business on
the Eligibility Record Date or the Supplemental Eligibility Record Date,
whichever may be the case. Savings Accounts with total deposit balances of less
than $50 shall not constitute a Qualifying Deposit.
Reorganization - The term Reorganization shall mean the issuance and sale
--------------
of the Common Stock and the purchase by the Holding Company of all of the
capital stock of the INSTITUTION.
SEC - The term SEC refers to the U.S. Securities and Exchange Commission.
---
Savings Account - The term Savings Account has the same meaning as in
---------------
Section 561.42 of the Rules and Regulations of the OTS, and includes
certificates of deposit.
Special Meeting of Members - The term Special Meeting of Members means the
--------------------------
special meeting and any adjournments thereof held to consider and vote upon this
Plan.
Special Meeting of INSTITUTION Stockholders - The term Special Meeting of
-------------------------------------------
INSTITUTION Stockholders shall mean the special meeting of INSTITUTION
Stockholders,
10
<PAGE>
and any adjournments thereof, to be called and held for the purpose of
submitting the Plan to the INSTITUTION Stockholders for their approval.
Subscription Offering - The term Subscription Offering means the offering
---------------------
of Conversion Stock for purchase through Order Forms to Participants.
Subscription Price - The term Subscription Price means the amount per share
------------------
of Conversion Stock to be paid initially by Participants in the Subscription
Offering and persons in the Community Offering.
Supplemental Eligibility Record Date - The term Supplemental Eligibility
------------------------------------
Record Date means the supplemental record date for determining Supplemental
Eligible Account Holders of the Mutual Holding Company. The Supplemental
Eligibility Record Date shall be the last day of the calendar quarter preceding
the OTS' approval of the application for conversion.
Supplemental Eligible Account Holder - The term Supplemental Eligible
------------------------------------
Account Holder means any person (other than an Eligible Account Holder) holding
a Qualifying Deposit, except officers, directors and their associates, as of the
Supplemental Eligibility Record Date.
Syndicated Community Offering - The term Syndicated Community Offering
-----------------------------
means the offering of Conversion Stock following the Subscription and Community
Offerings through a syndicate of broker-dealers.
Tax-Qualified Employee Stock Benefit Plan - The term Tax-Qualified Employee
-----------------------------------------
Stock Benefit Plan means any defined benefit plan or defined contribution plan,
including the INSTITUTION Employee Stock Ownership Plan, stock bonus plan,
profit-sharing plan or other plan, which, with its related trust, meets the
requirements to be "qualified" under Section 401 of
11
<PAGE>
the Internal Revenue Code. A "Non-Tax-Qualified Employee Stock Benefit Plan" is
any defined benefit plan or defined contribution plan which is not so qualified.
Voting Members - The term Voting Members means those persons qualifying as
--------------
voting members of the Mutual Holding Company pursuant to its charter and bylaws.
Voting Record Date - The term Voting Record Date means the date fixed by
------------------
the Directors in accordance with OTS regulations and the laws of the State of
New Jersey, if applicable, for determining eligibility to vote at the Special
Meeting of Members and the Special Meeting of INSTITUTION Stockholders.
3. GENERAL PROCEDURE FOR CONVERSION AND REORGANIZATION
(A) CONVERSION OF MUTUAL HOLDING COMPANY TO STOCK FORM INTERIM AND MERGER
OF INTERIM INTO THE INSTITUTION. The Mutual Holding Company will convert into a
stock form interim Federal savings bank under the name MHC Interim Savings Bank,
FSB ("Interim A") and Interim A will simultaneously merge with and into the
INSTITUTION, with the INSTITUTION as the surviving entity ("Mutual Holding
Company Merger"). As a result of the Mutual Holding Company Merger, the
INSTITUTION Common Stock held by the Mutual Holding Company will be cancelled
and Eligible Account Holders and Supplemental Eligible Account Holders will be
granted ratable interests in a liquidation account, to be established in
accordance with the procedures set forth in this Plan.
(B) MERGER OF SECOND INTERIM INTO INSTITUTION AND EXCHANGE OF SHARES.
Immediately after the conversion of Mutual Holding Company into Interim A and
the merger of Interim A with and into the INSTITUTION pursuant to this Section
3, Interim B will merge with and into the INSTITUTION, and the separate
existence of Interim B will cease. As part of the
12
<PAGE>
Reorganization, the shares of the Holding Company Common Stock held by the Bank
will be cancelled. The Holding Company's shares of Interim B will be converted,
on a one-to-one basis, into shares of INSTITUTION Common Stock, which will
result in the INSTITUTION becoming a wholly-owned subsidiary of the Holding
Company. The Public Stockholders will exchange their shares of INSTITUTION
Common Stock for shares of Holding Company Common Stock based upon the Exchange
Ratio. In addition, options to purchase shares of INSTITUTION Common Stock which
are outstanding immediately prior to consummation of the Conversion and
Reorganization shall be converted to options to purchase shares of Holding
Company Common Stock, with the number of shares subject to the option and the
exercise price per share to be adjusted based upon the Exchange Ratio so that
the aggregate exercise price remains unchanged, and with the duration of the
option remaining unchanged. Upon consummation of the Conversion and
Reorganization, all of the INSTITUTION Common Stock will be owned by the Holding
Company and the Public Stockholders will own the same percentage of the Holding
Company Common Stock as the percentage of the INSTITUTION Common Stock owned by
them prior to the Conversion and Reorganization, before giving effect to cash
paid in lieu of any fractional interests of Common Stock and any shares of
Conversion Stock purchased by the Public Stockholders in the Offering or tax-
qualified employee stock benefit plans of the Holding Company or INSTITUTION
thereafter. The Holding Company will then sell the Conversion Stock in the
Offerings in accordance with this Plan.
Following consummation of the Conversion and Reorganization, voting rights
with respect to the INSTITUTION shall be held and exercised exclusively by the
Holding Company as holder of the INSTITUTION Common Stock. Voting rights with
respect to the Holding
13
<PAGE>
Company shall be held and exercised exclusively by holders of the Holding
Company Common Stock.
(C) REGULATORY APPLICATIONS AND NOTICE. After approval of the Plan by the
Boards of Directors of the Mutual Holding Company and the INSTITUTION, the Plan
shall be submitted together with all other requisite material to the OTS and the
NJDB for approval. Notice of the adoption of the Plan by the Boards of
Directors of the Mutual Holding Company and the INSTITUTION and the submission
of the Plan to the OTS and the NJDB for approval will be published in a
newspaper having general circulation in each community in which an office of the
Mutual Holding Company and the INSTITUTION is located and copies of the Plan
will be made available at each office of the Mutual Holding Company and the
INSTITUTION for inspection by the Members and INSTITUTION Stockholders.
Immediately upon filing of an application for conversion with the OTS, the
Mutual Holding Company and the INSTITUTION also will cause to be published a
notice of the filing with the OTS of an application to convert and notice of the
filing with the NJDB of an application for merger in accordance with the
provisions of the Plan.
(D) APPROVAL OF PLAN BY MEMBERS AND INSTITUTION STOCKHOLDERS; THE SPECIAL
MEETINGS. Following approval by the OTS, the Plan will be submitted to a vote
of the Voting Members of the Mutual Holding Company at the Special Meeting of
Members called for that purpose. The INSTITUTION shall file preliminary proxy
materials with the OTS and if applicable, the NJDB, in order to seek the
approval of the Plan by the INSTITUTION Stockholders. Promptly following
clearance of such proxy materials (and of the Application of Conversion) by the
OTS and if applicable, the NJDB, this Plan will be submitted to the INSTITUTION
Stockholders for their consideration and approval at the Special Meeting of
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INSTITUTION Stockholders. The Plan must be approved by the holders of at least
two-thirds of the outstanding INSTITUTION Common Stock. In addition, in
accordance with current OTS policy, the Plan must be approved by at least a
majority of the votes cast, in person or by proxy, by the Public Stockholders at
the Special Meeting.
Upon approval of the Plan by a majority of the total outstanding votes of
the Voting Members, the Mutual Holding Company will take all other necessary
steps pursuant to applicable laws and regulations to convert the Mutual Holding
Company to stock form. The conversion must be completed within 24 months of the
approval of the Plan by the Voting Members, unless a longer time period is
permitted by governing laws and regulations.
The Conversion Stock will not be insured by the FDIC. The INSTITUTION will
not knowingly lend funds or otherwise extend credit to any Person to purchase
shares of the Conversion Stock.
4. HOLDING COMPANY APPLICATIONS AND APPROVALS
The Holding Company shall make timely applications for any requisite
regulatory approvals, including an Application on Form H-(e)1 or H-(e)1-S, if
available to the Holding Company, to be filed with the OTS and the NJDB, if
required, and a Registration Statement on Form S-1 to be filed with the SEC. In
addition, an application to merge the Mutual Holding Company (following its
conversion into an interim federal stock savings bank) and the INSTITUTION and
an application to merge Interim B and the INSTITUTION shall be filed with the
OTS, either as exhibits to the Application H-(e)1 or H-(e)1-S, or separately and
with the NJDB. Upon completion of the Conversion and Reorganization, the
INSTITUTION shall be a wholly-owned subsidiary of the Holding Company.
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5. SALE OF CONVERSION STOCK
The Conversion Stock will be offered simultaneously in the Subscription
Offering to the Eligible Account Holders, Employee Plans, Supplemental Eligible
Account Holders and Other Members in the respective priorities set forth in
Sections 8 through 11 of this Plan. The Subscription Offering may be commenced
as early as the mailing of the Proxy Statement for the Special Meeting of
Members and must be commenced in time to complete the Conversion within the time
period specified in Section 3.
Any shares of Conversion Stock not subscribed for in the Subscription
Offering will be offered for sale in the Community Offering as provided in
Section 12 of this Plan. The Subscription Offering may be commenced prior to
the Special Meeting of Members and, in that event, the Community Offering may
also be commenced prior to the Special Meeting of Members. The offer and sale
of Conversion Stock prior to the Special Meetings of Members and INSTITUTION
Stockholders shall, however, be conditioned upon approval of the Plan by the
Voting Members.
If feasible, any shares of Conversion Stock remaining after the
Subscription and Community Offerings may be sold in a Syndicated Community
Offering, as provided in Section 13 of this Plan in a manner that will achieve
the widest distribution of the Conversion Stock as determined by the Primary
Parties. The sale of all Conversion Stock subscribed for in the Subscription
and Community Offerings will be consummated simultaneously on the date the sale
of Conversion Stock in the Syndicated Community Offering is consummated and only
if all unsubscribed for Conversion Stock is sold.
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The Primary Parties may elect to offer to pay fees on a per share basis to
brokers who assist Persons in determining to purchase shares in the Subscription
and Community Offerings.
6. NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK
The total number of shares (or a range thereof) of Conversion Stock to be
issued and offered for sale will be determined by the Boards of Directors of the
Primary Parties immediately prior to the commencement of the Subscription and
Community Offerings, subject to adjustment thereafter if necessitated by market
or financial conditions, with the approval of the OTS, if necessary. In
particular, the total number of shares may be increased by up to 15% of the
number of shares offered in the Subscription and Community Offering if the
Estimated Price Range is increased subsequent to the commencement of the
Subscription and Community Offering to reflect changes in market and financial
conditions.
All shares sold in the Conversion will be sold at a uniform price per share
referred to in this Plan as the Actual Purchase Price. The aggregate purchase
price for all shares of Conversion Stock will not be inconsistent with the
estimated consolidated pro forma market value of the Holding Company. The
Primary Parties shall cause the Independent Appraiser to prepare a pro forma
valuation of the aggregate market value of the Common Stock and of the aggregate
market value of the Conversion Stock. The valuation shall be prepared in
accordance with Section 563b.7 of the Conversion Regulations. Prior to the
commencement of the Subscription and Community Offerings, an Estimated Price
Range will be established, which range will vary within 15% above to 15% below
the midpoint of such range. The number of shares of Conversion Stock to be
issued and the purchase price per share may be increased or decreased by the
Primary Parties. In the event that the aggregate purchase price of the
Conversion Stock is
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below the minimum of the Estimated Price Range, or materially above the maximum
of the Estimated Price Range, resolicitation of purchasers may be required,
provided that up to a 15% increase above the maximum of the Estimated Price
Range will not be deemed material so as to require a resolicitation. Any such
resolicitation shall be effected in such manner and within such time as the
Primary Parties shall establish, with the approval of the OTS, if required. Up
to a 15% increase in the number of shares to be issued which is supported by an
appropriate change in the estimated pro forma market value of the Holding
Company will not be deemed to be material so as to require a resolicitation of
subscriptions.
Based upon the independent valuation as updated prior to the commencement
of the Subscription and Community Offerings, the Boards of Directors of the
Primary Parties will fix the Subscription Price and the range of the number of
shares to be offered. If upon completion of the Subscription and Community
Offerings all of the Conversion Stock is subscribed for, or if because of a
limited number of unsubscribed shares or otherwise a Syndicated Community
Offering cannot be effected, the total number of shares of Conversion Stock to
be issued and sold will be determined by the Primary Parties as follows: (a)
the estimated aggregate pro forma market value of the Holding Company,
immediately after conversion as determined by the Independent Appraiser,
expressed in terms of a specific aggregate dollar amount rather than as a range,
upon completion of the Subscription and Community Offerings or other sale of all
of the Conversion Stock shall be divided by (b) the Actual Purchase Price.
If there is a Syndicated Community Offering of shares of Conversion Stock
not subscribed for in the Subscription and Community Offerings, the price per
share at which the
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Conversion Stock is sold in such Syndicated Community Offering shall be the
Subscription Price.
Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the Primary Parties and to the OTS that, to the best knowledge of
the Independent Appraiser, nothing of a material nature has occurred which,
taking into account all relevant factors including those which would be involved
in a change in the maximum subscription price, would cause the Independent
Appraiser to conclude that the aggregate value of the Conversion Stock at the
Actual Purchase Price is incompatible with its estimate of the aggregate
consolidated pro forma market value of the Holding Company. If such
confirmation is not received, the Primary Parties may cancel the Subscription
and Community Offerings and/or the Syndicated Community Offering, extend the
Conversion, establish a new Subscription Price Range and/or Estimated Price
Range, extend, reopen or hold new Subscription and Community Offerings and/or
Syndicated Community Offering or take such other action as the OTS may permit.
The Conversion Stock to be issued in the Conversion shall be fully paid and
nonassessable.
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7. RETENTION OF PROCEEDS BY THE HOLDING COMPANY
The Holding Company will apply to the OTS to retain up to 50% of the
proceeds of the Conversion. The Mutual Holding Company and the INSTITUTION
believe that the Conversion proceeds will provide economic strength to the
Holding Company and the INSTITUTION for the future in a highly competitive and
regulated environment and would facilitate expansion through acquisitions,
diversification into other related businesses and for other business and
investment purposes, including the payment of dividends and future repurchases
of Holding Company Common Stock as permitted by the OTS.
8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, as first priority and
without payment, nontransferable subscription rights to subscribe for shares of
Conversion Stock equal to an amount up to the greater of: the amount permitted
to be subscribed for in the Community Offering which amount, pursuant to Section
12, currently is $250,000 of the Conversion Stock offered, but which may be
increased to five percent (5%) of the total offering of shares of Conversion
Stock offered or decreased to less than $250,000, without the further approval
of members or resolicitation of subscribers; one-tenth of one percent (.10%) of
the total offering of shares of Conversion Stock; or fifteen times the product
(rounded down to the next whole number) obtained by multiplying the total number
of shares of Conversion Stock to be issued by a fraction of which the numerator
is the amount of the Qualifying Deposit of the Eligible Account Holder and the
denominator is the total amount of Qualifying Deposits of all Eligible Account
Holders, in each case on the Eligibility Record Date, subject to the Maximum
Overall
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Purchase Limitation specified in Section 14A and the minimum purchase limitation
specified in Section 14C and exclusive of an increase in the total number of
shares issued due to an increase in the Estimated Price Range of up to 15%.
B. In the event that Eligible Account Holders exercise subscription
rights for a number of shares of Conversion Stock in excess of the total number
of shares eligible for subscription, the shares of Conversion Stock shall be
allocated among the subscribing Eligible Account Holders so as to permit each
subscribing Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his or her total allocation of Conversion
Stock equal to the lesser of 100 shares or the number of shares subscribed for
by the Eligible Account Holders. Any shares remaining after that allocation will
be allocated among the remaining subscribing Eligible Account Holders whose
subscriptions remain unsatisfied in the proportion that the amount of the
Qualifying Deposit of each remaining Eligible Account Holder whose subscription
remains unsatisfied bears to the total amount of the Qualifying Deposits of all
remaining Eligible Account Holders whose subscriptions remain unsatisfied. If
the amount so allocated exceeds the amount subscribed for by any one or more
remaining Eligible Account Holders, the excess shall be reallocated (one or more
times as necessary) among those remaining Eligible Account Holders whose
subscriptions are still not fully satisfied on the same principle until all
available shares have been allocated or all subscriptions satisfied.
C. Subscription rights as Eligible Account Holders received by Directors
and Officers and their Associates which are based on deposits made by such
persons during the twelve (12) months preceding the Eligibility Record Date
shall be subordinated to the Subscription Rights of all other Eligible Account
Holders.
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9. SUBSCRIPTION RIGHTS OF THE EMPLOYEE PLANS (SECOND PRIORITY)
The Employee Plans shall receive, without payment, as a second priority
after the filling of subscriptions of Eligible Account Holders, nontransferable
subscription rights to purchase in the Subscription Offering the number of
shares of Conversion Stock requested by such Plan, subject to the purchase
limitations set forth in Section 14. If, after the filling of subscriptions of
Eligible Account Holders, a sufficient number of shares is not available to fill
the subscriptions by such plan, the subscription by such plan shall be filled to
the maximum extent possible, provided however that in the event of an increase
in the total number of shares issued due to an increase in the Estimated Price
Range of up to 15%, the additional shares shall be sold to the Employee Plans,
subject to the purchase limitations set forth in Section 14.
The Employee Plans shall not be deemed to be an associate or affiliate of
or Person Acting in Concert with any Director or Officer of the Holding Company
or the INSTITUTION.
10. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD
PRIORITY)
A. Each Supplemental Eligible Account Holder shall receive, as third
priority and without payment, nontransferable subscription rights to subscribe
for shares of Conversion Stock equal to an amount up to the greater of: the
amount permitted to be subscribed for in the Community Offering which amount,
pursuant to Section 12, currently is $250,000 of the Conversion Stock offered,
but which may be increased to five percent (5%) of the total offering of shares
of Conversion Stock offered or decreased to less than $250,000, without the
further approval of members or resolicitation of subscribers; one-tenth of one
percent (.10%) of the total offering of Conversion Stock; or fifteen times the
product (rounded down to the next whole
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number) obtained by multiplying the total number of shares of Conversion Stock
to be issued by a fraction of which the numerator is the amount of the
Qualifying Deposit of the Supplemental Eligible Account Holder and the
denominator is the total amount of the Qualifying Deposits of all Supplemental
Eligible Account Holders in the INSTITUTION on the Supplemental Eligibility
Record Date, subject to the Maximum Overall Purchase Limitation specified in
Section 14A and the minimum purchase limitation specified in Section 14C and
exclusive of an increase in the total number of shares issued due to an increase
in the Estimated Price Range of up to 15%.
B. In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Conversion Stock in excess of the
total number of shares eligible for subscription, the shares of Conversion Stock
shall be allocated among the subscribing Supplemental Eligible Account Holders
so as to permit each subscribing Supplemental Eligible Account Holder, to the
extent possible, to purchase a number of shares sufficient to make his or her
total allocation of Conversion Stock equal to the lesser of 100 shares or the
number of shares subscribed for by the Supplemental Eligible Account Holder.
Any shares remaining after that allocation will be allocated among the remaining
subscribing Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied in the proportion that the amount of the Qualifying Deposit of each
remaining Supplemental Eligible Account Holder whose subscription remains
unsatisfied bears to the total amount of the Qualifying Deposits of all
remaining Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied. If the amount so allocated exceeds the amount subscribed for by
any one or more remaining Supplemental Eligible Account Holders, the excess
shall be reallocated (one or more times as necessary)
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<PAGE>
among those remaining Supplemental Eligible Account Holders whose subscriptions
are still not fully satisfied on the same principle until all available shares
have been allocated or all subscriptions satisfied.
C. Subscription rights received by an Eligible Account Holder pursuant to
Section 8 shall be applied in partial satisfaction of the subscription rights to
be received as a Supplemental Eligible Account Holder pursuant to this Section
10.
11. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)
A. Each Other Member shall receive, without payment, as a fourth priority
after the filling of subscriptions of the Eligible Account Holders, the Employee
Plans, and the Supplemental Eligible Account Holders, nontransferable
subscription rights to subscribe for shares of Conversion Stock equal to an
amount up to the greater of: the amount permitted to be subscribed for in the
Community Offering which amount, pursuant to Section 12, currently is $250,000
of the Conversion Stock offered, but which may be increased to five percent (5%)
of the total offering of shares of Conversion Stock offered or decreased to less
than $250,000, without the further approval of members or resolicitation of
subscribers; or one-tenth of one percent (.10%) of the total offering of shares
of Conversion Stock, subject to the Maximum Overall Purchase Limitation
specified in Section 14A and the minimum purchase limitation specified in
Section 14C and exclusive of an increase in the total number of shares issued
due to an increase in the Estimated Price Range of up to 15%.
B. In the event that Other Members exercise subscription rights for a
number of shares of Conversion Stock in excess of the total number of shares
eligible for subscription, the shares of Conversion Stock shall be allocated
among the subscribing Other Members so as to
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<PAGE>
permit each subscribing Other Member, to the extent possible, to purchase a
number of shares sufficient to make his or her total allocation of Conversion
Stock equal to the lesser of 100 shares or the number of shares subscribed for
by the Other Member. Any shares remaining after that allocation will be
allocated among the subscribing Other Members whose subscriptions remain
unsatisfied pro rata in the same proportion that the number of votes of a
subscribing Other Member on the Voting Record Date bears to the total votes on
the Voting Record Date of all subscribing Other Members. If the amount so
allocated exceeds the amount subscribed for by any one or more remaining Other
Members, the excess shall be reallocated (one or more times as necessary) among
those remaining Other Members whose subscriptions are still not fully satisfied
on the same principle until all available shares have been allocated or all
subscriptions satisfied.
12. COMMUNITY OFFERING (FIFTH PRIORITY)
If less than the total number of shares of Conversion Stock to be
subscribed for in the Conversion are sold in the Subscription Offering, it is
expected that shares remaining unsubscribed for will be made available for
purchase in the Community Offering to certain members of the general public,
with a first preference given to the Public Stockholders and a second preference
to natural persons whose primary residence is in the INSTITUTION's Local
Community (such natural persons are hereinafter referred to as "Preferred
Subscribers"), which may subscribe together with any Associate or group of
persons Acting in Concert for up to $250,000 of the Conversion Stock offered,
subject to the Maximum Overall Purchase Limitation specified in Section 14A and
the minimum purchase limitation specified in Section 14C and exclusive of an
increase in the total number of shares issued due to an increase in the
Estimated
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Price Range of up to 15%; provided, however, that the amount permitted to be
purchased in the Community Offering may be increased to five percent (5%) of the
total offering of shares of Conversion Stock offered or decreased to less than
$250,000, without the further approval of members or resolicitation of
subscribers. The shares may be made available in the Community Offering through
a direct community marketing program which may provide for utilization of a
broker, dealer, consultant or investment banking firm, experienced and expert in
the sale of savings institution securities. Such entities may be compensated on
a fixed fee basis or on a commission basis, or a combination thereof. The
Primary Parties shall make distribution of the Conversion Stock to be sold in
the Community Offering in such a manner as to promote a wide distribution of
Conversion Stock. The Primary Parties reserves the right to reject any or all
orders, in whole or in part, which are received in the Community Offering.
If the Public Stockholders in the Community Offering, whose orders would
otherwise be accepted, subscribe for more shares than are available for
purchase, the shares available to them will be allocated among the Public
Stockholders in the manner which permits each such person to the extent
possible, to purchase the number of shares necessary to make his total
allocation of Conversion Stock equal to the lesser of 100 shares or the number
of shares subscribed for by such persons with preference given to Public
Stockholders. Thereafter, unallocated shares will be allocated among the Public
Stockholders whose subscriptions remain unsatisfied on a 100 shares per order
basis until all such orders have been filled or the remaining shares have been
allocated. To the extent that there are shares remaining after all
subscriptions by Public Stockholders, any remaining shares will be allocated
among Preferred Subscribers using the foregoing allocation as applied to Public
Stockholders. The Primary Parties may establish all
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<PAGE>
other terms and conditions of such offer. It is expected that the Community
Offering will commence concurrently with the Subscription Offering. The
Community Offering must be completed within 45 days after the completion of the
Subscription Offering unless otherwise extended by the OTS.
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13. SYNDICATED COMMUNITY OFFERING
If feasible, all shares of Conversion Stock not subscribed for in the
Subscription and Community Offerings may be sold in a Syndicated Community
Offering, subject to such terms, conditions and procedures as may be determined
by the Primary Parties in a manner that will achieve the widest distribution of
the Conversion Stock subject to the right of the Primary Parties to accept or
reject in whole or in part all subscriptions in the Syndicated Community
Offering. In the Syndicated Community Offering, any person together with any
Associate or group of persons Acting in Concert may purchase up to $250,000 of
the Conversion Stock offered subject to the maximum purchase limitation
specified in Section 14A and the minimum purchase limitation specified in
Section 14C and exclusive of an increase in the total number of shares issued
due to an increase in the Estimated Price Range of up to 15%; provided, however,
that this amount may be increased to five percent (5%) of the total offering of
shares of Conversion Stock offered or decreased to less than $250,000 without
the further approval of members or resolicitation of subscribers. The shares
purchased by any Person together with any Associate or group of persons Acting
in Concert pursuant to Section 12 shall be counted toward meeting the maximum
percentage of shares permitted to be purchased pursuant to this Section.
Provided that the Subscription Offering has commenced, the Primary Parties may
commence the Syndicated Community Offering at any time after the mailing to the
Members of the Proxy Statement to be used in connection with the Special Meeting
of Members, provided that the completion of the offer and sale of the Conversion
Stock shall be conditioned upon the approval of this Plan by the Voting Members.
If the Syndicated Community Offering is not sooner commenced pursuant to the
provisions of the preceding sentence, the Syndicated Community Offering will be
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commenced as soon as practicable following the date upon which the Subscription
and Community Offerings terminate.
Alternatively, if a Syndicated Community Offering is not held, the Primary
Parties shall have the right to sell any shares of Conversion Stock remaining
following the Subscription and Community Offerings in an underwritten firm
commitment public offering. The provisions of Section 14 hereof shall not be
applicable to sales to underwriters for purposes of such an offering but shall
be applicable to the sales by the underwriters to the public. The price to be
paid by the underwriters in such an offering shall be equal to the Actual
Purchase Price less an underwriting discount to be negotiated among such
underwriters, the Primary Parties, which will in no event exceed an amount
deemed to be acceptable by the OTS.
If for any reason a Syndicated Community Offering or an underwritten firm
commitment public offering of shares of Conversion Stock not sold in the
Subscription and Community Offerings can not be effected, or in the event that
any insignificant residue of shares of Conversion Stock is not sold in the
Subscription and Community Offerings or in the Syndicated Community Offering or
an underwritten firm commitment public offering, other purchase arrangements
will be made for the sale of unsubscribed shares by the Primary Parties, if
possible. Such other purchase arrangements will be subject to the approval of
the OTS.
14. LIMITATION ON PURCHASES
In addition to the maximum amount of Conversion Stock that may be
subscribed for as set forth in Sections 8, 10, 11, 12 and 13 the following
limitations shall apply to all purchases of shares of Conversion Stock:
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A. The maximum number of shares of Conversion Stock which may be
subscribed for or purchased in all categories in the Conversion by any Person or
Participant together with any Associate or group or persons Acting in Concert
when combined with any Exchange Stock received shall not exceed 4.0% of the
Conversion Stock offered (the "Maximum Overall Purchase Limitation@), except for
the Employee Plans which may subscribe for up to 10% of the Conversion Stock
issued in addition to any Exchange Stock to which it may be entitled and except
for certain Eligible Account Holders and Supplemental Eligible Account Holders
which may subscribe for or purchase shares in accordance with Sections 8 and 10
herein.
B. The maximum number of shares of Conversion Stock which may be
purchased in all categories in the Conversion by Officers and Directors of the
INSTITUTION and their Associates in the aggregate when combined with any
Exchange Stock received shall not exceed 25.0% of the total number of shares of
Conversion Stock issued.
C. A minimum of 25 shares of Conversion Stock must be purchased by each
Person purchasing shares in the Conversion to the extent those shares are
available; provided, however, that in the event the minimum number of shares of
Conversion Stock purchased times the price per share exceeds $500, then such
minimum purchase requirement shall be reduced to such number of shares of
Conversion Stock which when multiplied by the price per share shall not exceed
$500, as determined by the Boards of Directors of the Primary Parties.
If the number of shares of Conversion Stock otherwise allocable pursuant to
Sections 8 through 13, inclusive, to any Person or that Person's Associates
would be in excess of the maximum number of shares permitted as set forth above,
the number of shares of Conversion Stock allocated to each such person shall be
reduced to the lowest limitation applicable to that
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Person, and then the number of shares allocated to each group consisting of a
Person and that Person's Associates shall be reduced so that the aggregate
allocation to that Person and his or her Associates complies with the above
maximums, and such maximum number of shares shall be reallocated among that
Person and his or her Associates as they may agree, or in the absence of an
agreement, in proportion to the shares subscribed by each (after first applying
the maximums applicable to each Person, separately).
Depending upon market or financial conditions, the Boards of Directors of
the Primary Parties, without further approval of the Members, may decrease or
increase the maximum purchase limitation in this Plan, provided that the maximum
purchase limitation may not be increased to a percentage in excess of 5%.
Notwithstanding the foregoing, the maximum purchase limitation may be increased
up to 9.99% provided that orders for Conversion Stock exceeding 5% of the shares
being offered shall not exceed, in the aggregate, 10% of the total offering. If
the Primary Parties increase the maximum purchase limitations, the Primary
Parties are only required to resolicit Persons who subscribed for the maximum
purchase amount and may, in the sole discretion of the Primary Parties resolicit
certain other large subscribers.
In the event of an increase in the total number of shares offered in the
Conversion due to an increase in the Estimated Price Range of up to 15% (the
"Adjusted Maximum") the additional shares will be allocated in the following
order of priority: (i) to fill the Employee Plans' subscription to the Adjusted
Maximum; (ii) in the event that there is an oversubscription at the Eligible
Account Holder level, to fill unfulfilled subscriptions of Eligible Account
Holders exclusive of the Adjusted Maximum in accordance with Section 8; (iii) in
the event there is an oversubscription at the Supplemental Eligible Account
Holder level, to fill unfulfilled
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subscriptions of Supplemental Eligible Account Holders exclusive of the Adjusted
Maximum in accordance with Section 10; (iv) in the event that there is an
oversubscription at the Other Member level, to fill unfulfilled subscriptions of
Other Members exclusive of the Adjusted Maximum in accordance with Section 11;
and (v) to fill unfulfilled Subscriptions in the Community Offering exclusive of
the Adjusted Maximum in accordance with Section 12.
For purposes of this Section 14, the Boards of Directors of the Primary
Parties shall not be deemed to be Associates or a group affiliated with each
other or otherwise Acting in Concert solely as a result of their being Directors
of the Primary Parties.
Notwithstanding anything to the contrary contained in this Plan, the Public
Stockholders will not have to sell any Holding Company Common Stock or be
limited in receiving Exchange Stock even if their ownership of INSTITUTION
Common Stock when converted into Exchange Stock pursuant to the Conversion would
exceed an applicable purchase limitation.
Each Person purchasing Conversion Stock in the Conversion shall be deemed
to confirm that such purchase does not conflict with the above purchase
limitations contained in this Plan.
For a period of three years following the Conversion, no Officer, Director
or their Associates shall purchase, without the prior written approval of the
OTS, any outstanding shares of common stock of the Holding Company except from a
broker-dealer registered with the SEC. This provision shall not apply to
negotiated transactions involving more than one percent of the outstanding
shares of common stock of the Holding Company the exercise of any options
pursuant to a stock option plan or purchases of common stock of the Holding
Company made by or held by any Tax-Qualified Employee Stock Benefit Plan or Non-
Tax-Qualified Employee Stock Benefit Plan of the Primary Parties (including the
Employee Plans) which may be
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attributable to any Officer or Director. As used herein, the term "negotiated
transaction" means a transaction in which the securities are offered and the
terms and arrangements relating to any sale are arrived at through direct
communications between the seller or any person acting on its behalf and the
purchaser or his investment representative. The term "investment representative"
shall mean a professional investment advisor acting as agent for the purchaser
and independent of the seller and not acting on behalf of the seller in
connection with the transaction.
15. PAYMENT FOR CONVERSION STOCK
All payments for Conversion Stock subscribed for in the Subscription,
Community and Syndicated Community Offerings must be delivered in full to the
INSTITUTION, together with a properly completed and executed Order Form, or
purchase order in the case of the Syndicated Community Offering, on or prior to
the expiration date specified on the Order Form or purchase order, as the case
may be, unless such date is extended by the Primary Parties; provided, however,
that if the Employee Plans subscribe for shares during the Subscription
Offering, such plans will not be required to pay for the shares at the time they
subscribe but rather may pay for such shares of Conversion Stock subscribed for
by such plans at the Actual Purchase Price upon consummation of the Conversion,
provided that, in the case of the employee stock ownership plan ("ESOP") there
is in force from the time of its subscription until the consummation of the
Conversion, a loan commitment from the Holding Company or an unrelated financial
institution to lend to the ESOP, at such time, the aggregated Subscription Price
of the shares for which it subscribed. The INSTITUTION may make scheduled
discretionary contributions to an Employee Plan provided such contributions do
not cause the INSTITUTION to fail to meet its regulatory capital requirement.
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Notwithstanding the foregoing, the Primary Parties shall have the right, in
their sole discretion, to permit institutional investors to submit contractually
irrevocable orders in the Community Offering and to thereafter submit payment
for the Conversion Stock for which they are subscribing in the Community
Offering at any time prior to 48 hours before the completion of the Conversion,
unless such 48 hour period is waived by the Primary Parties, in their sole
discretion.
Payment for Conversion Stock subscribed for shall be made either in cash
(if delivered in person), check or money order. Alternatively, subscribers in
the Subscription and Community Offerings may pay for the shares subscribed for
by authorizing the INSTITUTION on the Order Form to make a withdrawal from the
subscriber's Savings Account at the INSTITUTION in an amount equal to the
purchase price of such shares. Such authorized withdrawal, whether from a
savings passbook or certificate account, shall be without penalty as to
premature withdrawal. If the authorized withdrawal is from a certificate
account, and the remaining balance does not meet the applicable minimum balance
requirement, the certificate shall be cancelled at the time of withdrawal,
without penalty, and the remaining balance will earn interest at the passbook
rate. Funds for which a withdrawal is authorized will remain in the
subscriber's Savings Account but may not be used by the subscriber until the
Conversion Stock has been sold or the 45-day period (or such longer period as
may be approved by the OTS) following the Subscription and Community Offering
has expired, whichever occurs first. Thereafter, the withdrawal will be given
effect only to the extent necessary to satisfy the subscription (to the extent
it can be filled) at the purchase price per share. Interest will continue to be
earned on any amounts authorized for withdrawal until such withdrawal is given
effect. Interest will be paid by the INSTITUTION at
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not less than the passbook annual rate on payments for Conversion Stock received
in cash or by check or money order. Such interest will be paid from the date
payment is received by the INSTITUTION until consummation or termination of the
Conversion. If for any reason the Conversion is not consummated, all payments
made by subscribers in the Subscription, Community and Syndicated Community
Offerings will be refunded to them with interest. In case of amounts authorized
for withdrawal from Savings Accounts, refunds will be made by cancelling the
authorization for withdrawal. The INSTITUTION is prohibited by regulation from
knowingly making any loans or granting any lines of credit for the purchase of
stock in the Conversion, and therefore, will not do so.
16. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
As soon as practicable after the Prospectus prepared by the Primary Parties
has been declared effective by the OTS and the SEC Order Forms will be
distributed to all Eligible Account Holders, the Employee Plans, the
Supplemental Eligible Account Holders and Other Members at their last known
addresses appearing on the records of the INSTITUTION for the purpose of
subscribing to shares of Conversion Stock in the Subscription Offering and will
be made available for use by those Persons entitled to purchase in the Community
Offering. Notwithstanding the foregoing, the Primary Parties may elect to send
Order Forms only to those Persons who request them after such notice as is
approved by the OTS and is adequate to apprise all Eligible Account Holders, the
Employee Plans, Supplemental Eligible Account Holders and Other Members of the
pendency of the Subscription Offering has been given. Such notice may be
included with the proxy statement for the Special Meeting of Members and may
also be
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<PAGE>
included in a notice of the pendency of the Conversion and the Special Meeting
of Members sent to all Eligible Account Holders and Supplemental Eligible
Account Holders in accordance with regulations of the OTS.
Each Order Form will be preceded or accompanied by the Prospectus
describing the Primary Parties, the Conversion Stock and the Subscription and
Community Offerings. Each Order Form will contain, among other things, the
following:
A. A specified date by which all Order Forms must be received by the
Primary Parties, which date shall be not less than twenty (20), nor more than
forty-five (45) days, following the date on which the Order Forms are mailed by
the Primary Parties, and which date will constitute the termination of the
Subscription Offering;
B. The Subscription Price per share for shares of Conversion Stock to be
sold in the Subscription and Community Offerings;
C. A description of the minimum and maximum number of shares of
Conversion Stock which may be subscribed for pursuant to the exercise of
subscription rights or otherwise purchased in the Community Offering;
D. Instructions as to how the recipient of the Order Form is to indicate
thereon the number of shares of Conversion Stock for which such person elects to
subscribe and the available alternative methods of payment therefor;
E. An acknowledgment that the recipient of the Order Form has received a
final copy of the Prospectus or Offering Circular, as the case may be, prior to
execution of the Order Form;
F. A statement to the effect that all subscription rights are
nontransferable, will be void at the end of the Subscription Offering, and can
only be exercised by delivering within the
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<PAGE>
subscription period such properly completed and executed Order Form, together
with cash (if delivered in person), check or money order in the full amount of
the purchase price as specified in the Order Form for the shares of Conversion
Stock for which the recipient elects to subscribe in the Subscription Offering
(or by authorizing on the Order Form that the INSTITUTION withdraw said amount
from the subscriber's Savings Account at the INSTITUTION) to the INSTITUTION;
G. A statement to the effect that the executed Order Form, once received
by the INSTITUTION, may not be modified or amended by the subscriber without the
consent of the INSTITUTION; and
H. A statement with respect to the residence of the subscriber.
Notwithstanding the above, the Primary Parties will not accept orders
received on photocopied or facsimilied order forms.
17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORMS; INSUFFICIENT PAYMENT
In the event Order Forms (a) are not delivered and are returned to the
Primary Parties by the United States Postal Service or the Primary Parties is
unable to locate the addressee, (b) are not received back by the Primary Parties
or are received by the Primary Parties after the expiration date specified
thereon, (c) are defectively filled out or executed, (d) are not accompanied by
the full required payment, or, in the case of institutional investors in the
Community Offering, by delivering irrevocable orders together with a legally
binding commitment to pay in cash, check, money order or wire transfer the full
amount of the purchase price prior to 48 hours before the completion of the
Conversion for the shares of Conversion Stock subscribed for (including cases in
which savings accounts from which withdrawals are
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<PAGE>
authorized are insufficient to cover the amount of the required payment), or (e)
are not mailed pursuant to a "no mail" order placed in effect by the account
holder, the subscription rights of the person to whom such rights have been
granted will lapse as though such person failed to return the contemplated Order
Form within the time period specified thereon; provided, however, that the
Primary Parties may, but will not be required to, waive any immaterial
irregularity on any Order Form or require the submission of corrected Order
Forms or the remittance of full payment for subscribed shares by such date as
the Primary Parties may specify. The interpretation of the Primary Parties of
terms and conditions of the Plan and of the Order Forms will be final, subject
to the authority of the OTS.
18. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION
A. All shares of Conversion Stock purchased by Directors or Officers of
the Primary Parties in the Conversion shall be subject to the restriction that,
except as provided in Section 18B, below, or as may be approved by the OTS, no
interest in such shares may be sold or otherwise disposed of for value for a
period of one (l) year following the date of purchase.
B. The restriction on disposition of shares of Conversion Stock set forth
in Section 18A above shall not apply to the following:
(i) Any exchange of such shares in connection with a merger or
acquisition involving the INSTITUTION or the Holding Company, as the case may
be, which has been approved by the OTS; and
(ii) Any disposition of such shares following the death of the
person to whom such shares were initially sold under the terms of the Plan; and
(iii) Any Exchange Stock received by any Officers or Directors.
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<PAGE>
C. With respect to all shares of Conversion Stock subject to restrictions
on resale or subsequent disposition, each of the following provisions shall
apply:
(i) Each certificate representing shares restricted within the
meaning of Section 18A, above, shall bear a legend prominently stamped on its
face giving notice of the restriction;
(ii) Instructions shall be issued to the stock transfer agent for
the INSTITUTION or the Holding Company, as the case may be, not to recognize or
effect any transfer of any certificate or record of ownership of any such shares
in violation of the restriction on transfer; and
(iii) Any shares of capital stock of the INSTITUTION or the Holding
Company, as the case may be, issued with respect to a stock dividend, stock
split, or otherwise with respect to ownership of outstanding shares of
Conversion Stock subject to the restriction on transfer hereunder shall be
subject to the same restriction as is applicable to such Conversion Stock.
19. VOTING RIGHTS OF STOCKHOLDERS
Following consummation of the Conversion and the Reorganization, the
holders of the capital stock of the INSTITUTION shall have the exclusive voting
rights with respect to the INSTITUTION as specified in its charter. The holders
of the common stock of the Holding Company shall have the exclusive voting
rights with respect to the Holding Company.
20. ESTABLISHMENT OF LIQUIDATION ACCOUNT
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The INSTITUTION shall establish at the time of conversion a liquidation
account in an amount equal to its net worth as of the latest practicable date
prior to conversion ("Liquidation Account"). The liquidation account will be
maintained by the INSTITUTION for the benefit of the Eligible Account Holders
and Supplemental Eligible Account Holders who continue to maintain their Savings
Accounts at the INSTITUTION. Each Eligible Account Holder and Supplemental
Eligible Account Holder shall, with respect to his Savings Account, hold a
related inchoate interest in a portion of the Liquidation Account balance, in
relation to his Savings Account balance at the Eligibility Record Date and/or
Supplemental Eligibility Record Date or to such balance as it may be
subsequently reduced, as hereinafter provided.
The initial Liquidation Account balance shall be equal to the amount of the
dividends with respect to the INSTITUTION Common Stock waived by the Mutual
Holding Company plus the greater of (1) the Bank's net worth as of the latest
statement of financial condition contained in the final offering circular
utilized in the reorganization of the INSTITUTION into mutual holding company
form, or (2) 51.7% of the INSTITUTION's total stockholders' equity as reflected
in its latest statement of financial condition contained in the final offering
circular utilized in the Conversion and Reorganization. In the unlikely event
of a complete liquidation of the INSTITUTION (and only in such event), following
all liquidation payments to creditors (including those to Account Holders to the
extent of their Savings Accounts) each Eligible Account Holder and Supplemental
Eligible Account Holder shall be entitled to receive a liquidating distribution
from the Liquidation Account, in the amount of the then adjusted subaccount
balance for his Savings Account then held, before any liquidation distribution
may be made to any holders of the INSTITUTION's capital stock. No merger,
consolidation, bulk
40
<PAGE>
purchase of assets with assumption of Savings Accounts and other liabilities, or
similar transactions with an FDIC-issued institution, in which the INSTITUTION
is not the surviving institution, shall be deemed to be a complete liquidation
for this purpose. In such transactions, the Liquidation Account shall be assumed
by the surviving institution.
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder and Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the Liquidation Account by a fraction, the
numerator of which is the amount of such Eligible Account Holder's and/or
Supplemental Eligible Account Holder's Qualifying Deposit and the denominator of
which is the total amount of all Qualifying Deposits of all Eligible Account
Holders and Supplemental Eligible Account Holders in the INSTITUTION. Such
initial subaccount balance shall not be increased, but shall be subject to
downward adjustment as described below. For Savings Accounts in existence at
both dates, separate subaccounts shall be determined on the basis of the
Qualifying Deposits in such Savings Account on such record dates. Such initial
subaccount balances shall not be increased but shall be subject to downward
adjustment as described below.
If, at the close of business on any annual closing date, commencing on or
after the Eligibility Record Date and the Supplemental Eligibility Record Date,
the deposit balance in the Savings Account of an Eligible Account Holder or
Supplemental Eligible Account Holder is less than the lesser of (i) the balance
in the Savings Account at the close of business on any other annual closing date
subsequent to the Eligibility Record Date or Supplemental Eligibility Record
Date, or (ii) the amount of the Qualifying Deposit in such Savings Account, the
subaccount balance for such Savings Account shall be adjusted by reducing such
subaccount balance in an
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<PAGE>
amount proportionate to the reduction in such deposit balance. In the event of
such downward adjustment, the subaccount balance shall not be subsequently
increased, notwithstanding any subsequent increase in the deposit balance of the
related Savings Account. If any such Savings Account is closed, the related
subaccount shall be reduced to zero.
The creation and maintenance of the Liquidation Account shall not operate
to restrict the use or application of any of the net worth accounts of the
INSTITUTION.
21. TRANSFER OF SAVINGS ACCOUNTS AND CONTINUITY OF THE INSTITUTION
Upon the Conversion and Reorganization, each Savings Account Holder having
a Savings Account at the INSTITUTION prior to the Conversion and Reorganization
will continue to have a Savings Account, without payment therefor, in the same
amount and subject to the same terms and conditions (except for voting and
liquidation rights) as in effect prior to the Conversion and Reorganization.
After the Conversion and Reorganization, the INSTITUTION will succeed to
all the rights, interests, duties and obligations of the INSTITUTION before the
Conversion and Reorganization, including but not limited to all rights and
interests of the INSTITUTION in and to its assets and properties, whether real,
personal or mixed. The INSTITUTION will continue to be a member of the Federal
Home Loan Bank System and all its insured savings deposits will continue to be
insured by the FDIC to the extent provided by applicable law.
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22. RESTRICTIONS ON ACQUISITION OF THE INSTITUTION AND HOLDING COMPANY
A. In accordance with OTS regulations, for a period of not less than three
years from the date of consummation of the Conversion, no Person, other than the
Holding Company shall directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of any class of an equity security of the
INSTITUTION without the prior written consent of the OTS.
B. 1. The Certificate of Incorporation of the INSTITUTION contains a
provision stipulating that no person, except the Holding Company shall directly
or indirectly offer to acquire or acquire the beneficial ownership of more than
10% of any class of an equity security of the INSTITUTION, without the prior
written approval of the applicable federal or state regulatory agency. In
addition, such charter may also provide that shares beneficially owned in
violation of the above-described charter provision shall not be entitled to vote
and shall not be voted by any person or counted as voting stock in connection
with any matter submitted to stockholders for a vote. In addition, special
meetings of the stockholders relating to changes in control or amendment of the
charter may only be called by the Board of Directors, and shareholders shall not
be permitted to cumulate their votes for the election of directors.
B. 2. The Certificate of Incorporation of the Holding Company will
contain a provision stipulating that in no event shall any record owner of any
outstanding shares of the Holding Company's common stock who beneficially owns
in excess of 10% of such outstanding shares be entitled or permitted to any vote
in respect to any shares held in excess of 10%. In addition, the Certificate of
Incorporation and Bylaws of the Holding Company will provide for staggered terms
of the directors, noncumulative voting for directors, limitations on the calling
of
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special meetings, a fair price provision for certain business combinations and
certain notice requirements.
C. For the purposes of this Section 22:
(i) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock company, a
trust, an unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of
securities of an insured institution;
(ii) The term "offer" includes every offer to buy or acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value;
(iii) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise; and
(iv) The term "security" includes non-transferable subscription
rights issued pursuant to a plan of conversion as well as a "security" as
defined in 15 U.S.C. (S) 78c(a)(10).
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23. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK
The INSTITUTION shall not declare or pay a cash dividend on, or repurchase
any of, its capital stock if the effect thereof would cause its regulatory
capital to be reduced below (i) the amount required for the Liquidation Account
or (ii) the federal regulatory capital requirement set forth in Section 567.2 of
the Rules and Regulations of the OTS. Otherwise, the INSTITUTION may declare
dividends, make capital distributions or repurchase its capital stock in
accordance with applicable law and regulations.
24. AMENDMENT OF PLAN
If deemed necessary or desirable, the Plan may be substantively amended at
any time prior to solicitation of proxies from Members and Stockholders to vote
on the Plan by a two-thirds vote of the Boards of Directors of the Primary
Parties, and at any time thereafter by such vote of such Boards of Directors
with the concurrence of the OTS. Any amendment to the Plan made after approval
by the Members and INSTITUTION Stockholders with the approval of the OTS shall
not necessitate further approval by the Members and INSTITUTION Stockholders
unless otherwise required by the OTS. The Plan may be terminated by majority
vote of the Boards of Directors of the Primary Parties at any time prior to the
Special Meeting of Members or the Special Meeting of Stockholders to vote on the
Plan, and at any time thereafter with the concurrence of the OTS.
By adoption of the Plan, the Members of the Mutual Holding Company and the
INSTITUTION Stockholders authorize the Boards of Directors of the Primary
Parties to amend or terminate the Plan under the circumstances set forth in this
Section.
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25. EFFECTIVE DATE
The effective date of the Conversion and Reorganization shall be the date
upon which the last of the following actions occurs: (i) the filing of
Affidavits of Merger with the NJDB with respect to the Mergers and (ii) the
closing of the issuance of the shares of Conversion Stock in the Offerings. The
filing of Affidavits of Merger relating to the Mergers and the closing of the
issuance of shares of Conversion Stock in the Offerings shall not occur until
all requisite regulatory, Member and Stockholder approvals have been obtained,
all applicable waiting periods have expired and sufficient subscriptions and
orders for the Conversion Stock have been received. It is intended that the
closing of the Mergers and the sale of shares of Conversion Stock in the
Offerings shall occur consecutively and substantially simultaneously.
26. REGISTRATION AND MARKETING
Within the time period required by applicable laws and regulations, the
Holding Company will register the securities issued in connection with the
Conversion pursuant to the Securities Exchange Act of 1934 and will not
deregister such securities for a period of at least three years thereafter,
except that the maintenance of registration for three years requirement may be
fulfilled by any successor to the INSTITUTION or any holding company of the
INSTITUTION. In addition, the Holding Company will use its best efforts to
encourage and assist a market-maker to establish and maintain a market for the
Conversion Stock and to list those securities on a national or regional
securities exchange or the NASDAQ system.
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27. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES
The Primary Parties will make reasonable efforts to comply with the
securities laws of all States in the United States in which Persons entitled to
subscribe for shares of Conversion Stock pursuant to the Plan reside. However,
no such Person will be issued subscription rights or be permitted to purchase
shares of Conversion Stock in the Subscription Offering if such Person resides
in a foreign country or in a state of the United States with respect to which
both of the following apply: (a) a small number of Persons otherwise eligible
to subscribe for shares under the Plan reside in such state; and (b) the
issuance of subscription rights or the offer or sale of shares of Conversion
Stock to such Persons would require the INSTITUTION or the Holding Company, as
the case may be, under the securities laws of such state, to register as a
broker, dealer, salesman or agent or to register or otherwise qualify its
securities for sale in such state and such registration or qualification would
be impracticable for reasons of cost or otherwise.
28. EXPENSES
The Primary Parties shall use their best efforts to assure that expenses
incurred by them in connection with the Conversion and Reorganization shall be
reasonable.
29. CONDITIONS TO CONVERSION
The Conversion of the Mutual Holding Company pursuant to this Plan is
expressly conditioned upon the following:
(a) Prior receipt by the Primary Parties of rulings of the United States
Internal Revenue Service and the State of New Jersey taxing authorities, or
opinions of counsel, substantially to the effect that the Conversion will not
result in any adverse federal or state tax
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<PAGE>
consequences to Eligible Account Holders or to the Primary Parties before or
after the Conversion;
(b) The sale of all of the Conversion Stock offered in the Conversion; and
(c) The completion of the Conversion within the time period specified in
Section 3 of this Plan.
30. INTERPRETATION
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Boards of Directors of the Primary
Parties shall be final, subject to the authority of the OTS.
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ANNEX A
PLAN OF MERGER
Plan of Merger, dated as of ______________, 1998 between First Savings
Bancshares, MHC (the "Mutual Holding Company"), a federally-chartered mutual
holding company, and First Savings Bank, SLA (the "Bank" or the "Surviving
Corporation"), a New Jersey-chartered savings association.
WITNESSETH:
WHEREAS, the Mutual Holding Company and the Bank have adopted a Plan of
Conversion and Agreement and Plan of Reorganization (the "Plan" or "Plan of
Conversion"), between the Mutual Holding Company and the Bank pursuant to which
the Bank will organize a Delaware-chartered capital stock corporation (the
"Company"), and upon consummation of the following transactions, or in any other
manner consistent with the Plan and applicable regulations, will become a wholly
owned subsidiary of the Company: (1) the Mutual Holding Company, which currently
owns approximately 51.6% of the outstanding shares of common stock of the Bank,
will convert from mutual form to a federal interim stock savings institution and
simultaneously merge into the Bank, with the Bank being the surviving entity;
(2) an interim institution to be formed as a wholly owned subsidiary of the
Company will then merge with and into the Bank, with the Bank being the
surviving entity; (3) the outstanding shares of Bank common stock (other than
those held by the Mutual Holding Company, which will be cancelled) will be
converted into shares of the Company's common stock pursuant to a ratio that
will result in the holders of such shares owning in the aggregate approximately
the same percentage of the Company as they currently own of the Bank, before
giving effect to such stockholders purchasing additional shares in a concurrent
stock offering by the Company or purchases by the Bank's Employee Stock
Ownership Plan thereafter or stockholders receiving cash in lieu of fractional
shares; and (4) the offer and sale of shares of the Company's common stock; and
WHEREAS, the Mutual Holding Company, which owns 51.6% of the outstanding
common stock of the Bank, par value $.01 per share ("Bank Common Stock"), will
convert to a federally-chartered interim stock savings bank pursuant to the Plan
of Conversion and merge with and into the Bank pursuant to this Plan of Merger
(the "Mutual Holding Company Merger"), pursuant to which, among other things,
all interests of members in the Mutual Holding Company and all shares of Bank
Common Stock held by the Mutual Holding Company will be cancelled; and
WHEREAS, the Mutual Holding Company and the Bank (the "Constituent
Corporations") desire to provide for the terms and conditions of the Mutual
Holding Company Merger;
1
<PAGE>
NOW, THEREFORE, the Mutual Holding Company and the Bank hereby agree as
follows:
1. EFFECTIVE DATE. The Mutual Holding Company Merger shall become
effective on the date specified in the affidavit of merger filed with the State
of New Jersey Department of Banking (the "Effective Date").
2. THE MUTUAL HOLDING COMPANY MERGER AND EFFECT THEREOF. Subject to the
terms and conditions set forth herein and the prior approval of the OTS and, if
applicable, the State of New Jersey Department of Banking ("NJDB") of the
Conversion and Reorganization, as defined in the Plan of Conversion, and the
expiration of all applicable waiting periods, the Mutual Holding Company shall
convert from the mutual form to a federal interim stock savings bank and
simultaneously merge with and into the Bank, which shall be the Surviving
Corporation. Upon consummation of the Mutual Holding Company Merger, the
Surviving Corporation shall be considered the same business and corporate entity
as each of the Constituent Corporations and thereupon and thereafter all the
property, rights, powers and franchises of each of the Constituent Corporations
shall vest in the Surviving Corporation and the Surviving Corporation shall be
subject to and be deemed to have assumed all of the debts, liabilities,
obligations and duties of each of the Constituent Corporations and shall have
succeeded to all of each of their relationships, fiduciary or otherwise, as
fully and to the same extent as if such property, rights, privileges, powers,
franchises, debts, obligations, duties and relationships had been originally
acquired, incurred or entered into by the Surviving Corporation. In addition,
any reference to either of the Constituent Corporations in any contract, will or
document, whether executed or taking effect before or after the Effective Date,
shall be considered a reference to the Surviving Corporation if not inconsistent
with the other provisions of the contract, will or document; and any pending
action or other judicial proceeding to which either of the Constituent
Corporations is a party shall not be deemed to have abated or to have been
discontinued by reason of the Mutual Holding Company Merger, but may be
prosecuted to final judgment, order or decree in the same manner as if the
Mutual Holding Company Merger had not occurred or the Surviving Corporation may
be substituted as a party to such action or proceeding, and any judgment, order
or decree may be rendered for or against it that might have been rendered for or
against either of the Constituent Corporations if the Mutual Holding Company
Merger had not occurred.
3. CANCELLATION OF BANK COMMON STOCK HELD BY THE MUTUAL HOLDING COMPANY
AND MEMBER INTERESTS; LIQUIDATION ACCOUNT.
(a) On the Effective Date: (i) each share of Bank Common Stock issued and
outstanding immediately prior to the Effective Date and held by the Mutual
Holding Company shall, by virtue of the Mutual Holding Company Merger and
without any action on the part of the holder thereof, be cancelled, (ii) the
interests in the Mutual Holding Company of any person, firm or entity who or
which qualified as a member of the Mutual Holding Company in accordance with its
mutual charter and bylaws and the laws of the United States prior to the
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Mutual Holding Company's conversion from mutual to stock form (the "Members")
shall, by virtue of the Mutual Holding Company Merger and without any action on
the part of the holder thereof, be cancelled, and (iii) the Bank shall establish
a liquidation account on behalf of each depositor member of the Mutual Holding
Company, as defined in the Plan of Conversion, in accordance with Section 20 of
the Plan of Conversion.
(b) At or after the Effective Date and prior to the Bank Merger, each
certificate or certificates theretofore, evidencing issued and outstanding
shares of Bank Common Stock, other than any such certificate or certificates
held by the Mutual Holding Company, which shall be cancelled, shall continue to
represent issued and outstanding shares of Bank Common Stock.
4. DISSENTING SHARES. No Member of the Mutual Holding Company and,
subject to the laws of the State of New Jersey or any successor thereto, no
holder of shares of Bank Common Stock shall have any dissenter or appraisal
rights in connection with the Mutual Holding Company Merger.
5. NAME OF SURVIVING CORPORATION. The name of the Surviving Corporation
shall be "First Savings Bank, SLA."
6. DIRECTORS OF THE SURVIVING CORPORATION. Upon and after the Effective
Date, until changed in accordance with the Certificate of Incorporation and
Bylaws of the Surviving Corporation and applicable law, the number of directors
of the Surviving Corporation shall be seven. The names of those persons who,
upon and after the Effective Date, shall be directors of the Surviving
Corporation are set forth below. Each such director shall serve for the term
which expires at the annual meeting of stockholders of the Surviving Corporation
in the year set forth after his respective name, and until a successor is
elected and qualified.
<TABLE>
<CAPTION>
Name Term Expires
--------------------------------- -----------------------------------
<S> <C>
Donald T. Akey, MD 2000
Harry F. Burke 1999
Christopher P. Martin 1998
Keith McLaughlin 1999
John P. Mulkerin 1998
Philip T. Ruegger, Jr. 2000
Jeffries Shein 1998
Walter K. Timpson 2000
</TABLE>
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<PAGE>
The address of each such director is c/o 1000 Woodbridge Center Drive,
Woodbridge, New Jersey 07095.
7. OFFICERS OF THE SURVIVING CORPORATION. Upon and after the Effective
Date, until changed in accordance with the Certificate of Incorporation and
Bylaws of the Surviving Corporation and applicable law, the officers of the Bank
immediately prior to the Effective Date shall be the officers of the Surviving
Corporation.
8. OFFICES. Upon the Effective Date, all offices of the Bank shall be
offices of the Surviving Corporation. As of the Effective Date, the home office
of the Surviving Corporation shall remain at 1000 Woodbridge Center Drive,
Woodbridge, New Jersey and the location of the other deposit-taking offices of
the Surviving Corporation shall be as set forth in Exhibit 1 hereto, except for
the addition of deposit-taking offices authorized or the deletion of deposit-
taking offices closed subsequent to the date hereof and the Effective Date.
9. CERTIFICATE OF INCORPORATION AND BYLAWS. On and after the Effective
Date, the Certificate of Incorporation of the Bank as in effect immediately
prior to the Effective Date shall be the Certificate of Incorporation of the
Surviving Corporation until amended in accordance with the terms thereof and
applicable law, except that the Certificate of Incorporation be amended to
provide for the establishment of a liquidation account in accordance with
applicable law and regulation.
On and after the Effective Date, the Bylaws of the Bank as in effect
immediately prior to the Effective Date shall be the Bylaws of the Surviving
Corporation until amended in accordance with the terms thereof and applicable
law.
10. STOCKHOLDER AND MEMBER APPROVALS. The affirmative votes of the
holders of Bank Common Stock set forth in Section 3 of the Plan of Conversion
and the Members set forth in Section 3 of the Plan of Conversion shall be
required to approve the Plan of Conversion and Agreement and Plan of
Reorganization, of which this Plan of Merger is a part, on behalf of the Bank
and the Mutual Holding Company, respectively.
11. ABANDONMENT OF PLAN. This Plan of Merger may be abandoned by either
the Mutual Holding Company or the Bank at any time before the Effective Date in
the manner set forth in Section 24 of the Plan of Conversion.
12. AMENDMENTS. This Plan of Merger may be amended in the manner set
forth in Section 24 of the Plan of Conversion by a subsequent writing signed by
the parties hereto upon the approval of the Board of Directors of each of the
parties hereto.
13. SUCCESSORS. This Agreement shall be binding on the successors of the
Mutual Holding Company and the Bank.
4
<PAGE>
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the United States of America and, to the extent not
governed by such laws, the laws of the State of New Jersey.
IN WITNESS WHEREOF, the Mutual Holding Company and the Bank have caused
this Plan of Merger to be executed by their duly authorized officers as of the
day and year first above written.
FIRST SAVINGS BANCSHARES, MHC
Attest:
____________________________ By: _____________________________
Christopher P. Martin John P. Mulkerin
Executive Vice President, Chief President and Chief Executive
Financial Officer Officer
and Corporate Secretary
FIRST SAVINGS BANK, SLA
Attest:
____________________________ By: _____________________________
Christopher P. Martin John P. Mulkerin
Executive Vice President, Chief President and Chief Executive
Financial Officer Officer
and Corporate Secretary
5
<PAGE>
EXHIBIT 1
BRANCH OFFICES:
339 State Street (Main Office)
Perth Amboy, New Jersey 08881
158 Wyckoff Road
Eatontown, New Jersey 07724
980 Amboy Avenue
Edison, New Jersey 08837
2100 Oak Tree Road
Edison, New Jersey 08820
206 South Avenue
Fanwood, New Jersey 07023
33 Lafayette Road
Fords, New Jersey 08863
Rte 35 & Bethany Road
Hazlet, New Jersey 07730
101 New Brunswick Avenue
Hopelawn, New Jersey 08861
1220 Green Street
Iselin, New Jersey 08830
599 Middlesex Avenue
Metuchen, New Jersey 08840
1580 Rte 35 South
Middletown, New Jersey 07748
97 North Main Street
Milltown, New Jersey 08850
Rte 9 & Ticetown Road
Old Bridge, New Jersey 08857
100 Stelton Road
Piscataway, New Jersey 08854
325 Amboy Avenue
Woodbridge, New Jersey 07095
Rte 1 & St. Georges Avenue
Woodbridge, New Jersey 07095
1000 Woodbridge Center Drive
Woodbridge, New Jersey 07095
6
<PAGE>
ANNEX B
PLAN OF REORGANIZATION
Plan of Reorganization, dated as of _________________, 1998, among First
Savings Bank, SLA (the "Bank" or the "Surviving Bank"), a New Jersey-chartered
savings association, First Source Bancorp, Inc., a Delaware capital stock
corporation to be organized by the Bank (the "Holding Company"), and First
Interim Savings Bank, FSB ("Interim B"), a to-be-formed interim savings
association.
WITNESSETH:
WHEREAS, the Bank intends to organize the Holding Company as a first-tier,
wholly owned subsidiary for the purpose of becoming the stock holding company of
the Bank upon completion of the Conversion and Reorganization, as defined in the
Plan of Conversion and Agreement and Plan of Reorganization of First Savings
Bancshares, MHC (the "Mutual Holding Company") and the Bank (the "Plan of
Conversion"); and
WHEREAS, the Mutual Holding Company, a federally-chartered mutual holding
company which owns 51.6% of the common stock of the Bank, par value $.01 per
share ("Bank Common Stock), will convert to a federally-chartered interim stock
savings bank and simultaneously merge with and into the Bank pursuant to the
Plan of Conversion and the Plan of Merger included as Annex A thereto (the
"Mutual Holding Company Merger"), pursuant to which all shares of Bank Common
Stock held by the Mutual Holding Company will be cancelled; and
WHEREAS, the formation of a stock holding company by the Bank will be
facilitated by causing the Holding Company to become the sole stockholder of
Interim B, a newly-formed interim stock savings association, and then merge
Interim B with and into the Bank (the "Reorganization"), pursuant to which the
Bank will become a wholly-owned subsidiary of the Holding Company and, in
connection therewith, all outstanding shares of Bank Common Stock will be
converted automatically into and become shares of common stock of the Holding
Company, par value $.01 per share (AHolding Company Common Stock''); and
WHEREAS, Interim B is being organized as an interim stock savings
association with the Holding Company as its sole stockholder in order to effect
the Reorganization; and
WHEREAS, the Bank and Interim B (the "Constituent Banks") and the Holding
Company desire to provide for the terms and conditions of the Reorganization.
NOW, THEREFORE, the Bank, Interim B and the Holding Company hereby agree as
follows:
<PAGE>
1. EFFECTIVE DATE. The Reorganization shall become effective on the date
specified in the affidavit of merger filed with the State of New Jersey
Department of Banking ("NJDB") ("Effective Date").
2. THE MERGER AND EFFECT THEREOF. Subject to the terms and conditions set
forth herein and the prior approval of the OTS and, if applicable, the NJDB, of
the Conversion and the Reorganization, as defined in the Plan of Conversion, and
the expiration of all applicable waiting periods, Interim B shall merge with and
into the Bank, which shall be the Surviving Bank. Upon consummation of the
Reorganization, the Surviving Bank shall be considered the same business and
corporate entity as each of the Constituent Banks and thereupon and thereafter
all the property, rights, powers and franchises of each of the Constituent Banks
shall vest in the Surviving Bank and the Surviving Bank shall be subject to and
be deemed to have assumed all of the debts, liabilities, obligations and duties
of each of the Constituent Banks and shall have succeeded to all of each of
their relationships, fiduciary or otherwise, fully and to the same extent as if
such property, rights, privileges, powers, franchises, debts, obligations,
duties and relationships had been originally acquired, incurred or entered into
by the Surviving Bank. In addition, any reference to either of the Constituent
Banks in any contract, will or document, whether executed or taking effect
before or after the Effective Date, shall be considered a reference to the Bank
if not inconsistent with the other provisions of the contract, will or document;
and any pending action or other judicial proceeding of which either of the
Constituent Banks is a party shall not be deemed to have abated or to have been
discontinued by reason of the Reorganization, but may be prosecuted to final
judgment, order or decree in the same manner as if the Reorganization had not
occurred or the Surviving Bank may be substituted as a party to such action or
proceeding, and any judgment, order or decree may be rendered for or against it
that might have been rendered for or against either of the Constituent Banks if
the Reorganization had not occurred.
3. CONVERSION OF STOCK.
(a) On the Effective Date, (i) each share of Bank Common Stock issued and
outstanding immediately prior to the Effective Date shall, by virtue of the
Reorganization and without any action on the part of the holder thereof, be
converted into the right to receive Holding Company Common Stock based on the
Exchange Ratio, as defined in the Plan of Conversion plus the right to receive
cash in lieu of any fractional share interest, as determined in accordance with
Section 3(c) hereof, (ii) each share of common stock, par value $.01 per share,
of Interim B ("Interim B Common Stock") issued and outstanding immediately prior
to the Effective Date shall, by virtue of the Reorganization and without any
action on the part of the holder thereof, be converted into one share of Bank
Common Stock, and (ii) each share of Holding Company Common Stock issued and
outstanding immediately prior to the Effective Date shall, by virtue of the
Reorganization and without any action on the part of the holder thereof, be
cancelled. By voting in favor of this Plan of Reorganization, the Holding
Company, as the sole stockholder of Interim B, shall have agreed (i) to issue
shares of Holding Company Common Stock in accordance with the terms hereof and
(ii) to cancel all previously issued and
2
<PAGE>
outstanding shares of Holding Company Common Stock upon the effectiveness of the
Reorganization.
(b) On and after the Effective Date, there shall be no registrations of
transfers on the stock transfer books of Interim B or the Bank of shares of
Interim B Common Stock or Bank Common Stock which were outstanding immediately
prior to the Effective Date.
(c) Notwithstanding any other provision hereof, no fractional shares of
Holding Company Common Stock shall be issued to holders of Bank Common Stock.
In lieu thereof, the holder of shares of Bank Common Stock entitled to a
fraction of a share of Holding Company Common Stock shall, at the time of
surrender of the certificate or certificates representing such holder=s shares,
receive an amount of cash equal to the product arrived at by multiplying such
fraction of a share of Holding Company Common Stock by the Actual Purchase
Price, as defined in the Plan of Conversion. No such holder shall be entitled
to dividends, voting rights or any other rights in respect of any fractional
share.
4. EXCHANGE OF SHARES.
(a) At or after the Effective Date, each holder of a certificate or
certificates theretofore evidencing issued and outstanding shares of Bank Common
Stock, upon surrender of the same to an agent, duly appointed by the Holding
Company ("Exchange Agent"), shall be entitled to receive in exchange therefor
certificate or certificates representing the number full shares of Holding
Company Common Stock for which the shares of Bank Common Stock theretofore
represented by the certificate or certificates so surrendered shall have been
converted as provided in Section 3(a) hereof. The Exchange Agent shall mail to
each holder of record of an outstanding certificate which immediately prior to
the Effective Date evidenced shares of Bank Common Stock, and which is to be
exchanged for Holding Company Common Stock as provided in Section 3(a) hereof, a
form of letter of transmittal which shall specify that delivery shall be
effected, and risk of loss and title to such certificate shall pass, only upon
delivery of such certificate to the Exchange Agent advising such holder of the
terms of the exchange effected by the Reorganization and of the procedure for
surrendering to the Exchange Agent such certificate in exchange for certificate
or certificates evidencing Holding Company Common Stock.
(b) No holder of a certificate theretofore representing shares of Bank
Common Stock shall be entitled to receive any dividends in respect of the
Holding Company Common Stock into which such shares shall have been converted by
virtue of the Bank Merger until the certificate representing such shares of Bank
Common Stock is surrendered in exchange for certificates representing shares of
Holding Company Common Stock. In the event that dividends are declared and paid
by the Holding Company in respect of Holding Company Common Stock after the
Effective Date but prior to surrender of certificates representing shares of
Bank Common Stock, dividends payable in respect of shares of Holding Company
Common Stock not then issued shall accrue (without interest). Any such
dividends shall be paid (without interest) upon
3
<PAGE>
surrender of the certificates representing such shares of Bank Common Stock. The
Holding Company shall be entitled, after the Effective Date, to treat
certificates representing shares of Bank Common Stock as evidencing ownership of
the number of full shares of Holding Company Common Stock into which the shares
of Bank Common Stock represented by such certificates shall have been converted,
notwithstanding the failure on the part of the holder thereof to surrender such
certificates.
(c) The Holding Company shall not be obligated to deliver a certificate or
certificates representing shares of Holding Company Common Stock to which a
holder of Bank Common Stock would otherwise be entitled as a result of the
Reorganization until such holder surrenders the certificate or certificates
representing the shares of Bank Common Stock for exchange as provided in this
Section 4, or, in default thereof, an appropriate Affidavit of Loss and Index
Agreement and/or a bond as may be required in each case by the Holding Company.
If any certificate evidencing shares of Holding Company Common Stock is to be
issued in a name other than that in which the Certificate evidencing Bank Common
Stock surrendered in exchanged therefor is registered, it shall be a condition
of the issuance thereof that the certificate so surrendered shall be properly
endorsed and otherwise in proper form for transfer and that the person
requesting such exchange pay to the Exchange Agent any transfer or other tax
required by reason of the issuance of a certificate for shares of Holding
Company Common Stock in any name other than that of the registered holder of the
certificate surrendered or otherwise establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.
(d) If, between the date hereof and the Effective Date, the shares of Bank
Common Stock shall be changed into a different number or class of shares by
reason of any reclassification, recapitalization, split-up, combination,
exchange of shares or readjustment or a stock dividend thereon shall be declared
with a record date within said period, the Exchange Ratio specified in Section
3(a) hereof shall be adjusted accordingly.
5. DISSENTING SHARES. Subject to the provisions of the New Jersey Banking
Code, or any successor thereto, no holder of shares of Bank Common Stock shall
have any dissenter or appraisal rights in connection with the Reorganization.
6. NAME OF SURVIVING BANK. The name of the Surviving Bank shall be "First
Savings Bank, SLA."
7. DIRECTORS OF THE SURVIVING BANK. Upon and after the Effective Date,
until changed in accordance with the Certificate of Incorporation and Bylaws of
the Surviving Bank and applicable law, the number of directors of the Surviving
Bank shall be seven. The names of those persons who, upon and after the
Effective Date, shall be directors of the Surviving Bank are set forth below.
Each such director shall serve for the term which expires at the annual meeting
of stockholders of the Surviving Bank in the year set forth after his respective
name, and until a successor is elected and qualified.
4
<PAGE>
<TABLE>
<CAPTION>
NAME Term Expires
- -------------------------------- -------------------------------
<S> <C>
Donald T. Akey, MD 2000
Harry F. Burke 1999
Christopher P. Martin 1998
Keith McLaughlin 1999
John P. Mulkerin 1998
Philip T. Ruegger, Jr. 2000
Jeffries Shein 1998
Walter K. Timpson 2000
</TABLE>
The address of each such director is c/o First Savings Bank, SLA, 1000
Woodbridge Center Drive, Woodbridge, New Jersey.
8. OFFICERS OF THE SURVIVING BANK. Upon and after the Effective Date,
until changed in accordance with the Certificate of Incorporation and Bylaws of
the Surviving Bank and applicable law, the officers of the Bank immediately
prior to the Effective Date shall be the officers of the Surviving Bank.
9. OFFICES. Upon the Effective Date, all offices of the Bank shall be
offices of the Surviving Bank. As of the Effective Date, the corporate office
of the Surviving Bank shall remain at 1000 Woodbridge Center Drive, Woodbridge,
New Jersey and the location of the other deposit-taking offices of the Surviving
Bank shall be as set forth in Exhibit 1 hereto.
10. CERTIFICATE OF INCORPORATION AND BYLAWS. On and after the Effective
Date, the Certificate of Incorporation and Bylaws of the Bank as in effect
immediately prior to the Effective Date shall be the Certificate of
Incorporation and Bylaws of the Surviving Bank until amended in accordance with
the terms thereof and applicable law.
11. SAVINGS ACCOUNTS. Upon the Effective Date, any savings accounts of
Interim B, without reissue, shall be and become savings accounts of the
Surviving Bank without change in their respective terms, including, without
limitation, maturity minimum required balances or withdrawal value.
12. STOCK COMPENSATION PLANS. By voting in favor of this Agreement, the
Holding Company shall have approved adoption of the existing First Savings Bank,
SLA 1992 Incentive Stock Option Plan, the First Savings Bank, SLA 1992 Stock
Option Plan for Outside Directors and the First Savings Bank, SLA 1996 Omnibus
Incentive Plan (collectively the "Plans") as
5
<PAGE>
plans of the Holding Company and shall have agreed to issue Holding Company
Common Stock in lieu of Bank Common Stock pursuant to the terms of such Plans.
As of the Effective Date, rights outstanding under the Plans shall be assumed by
the Holding Company and thereafter shall be rights only for shares of Holding
Company Common Stock, with each such right being for a number of shares of
Holding Company Common Stock equal to the number of shares of Bank Common Stock
that were available thereunder immediately prior to the Effective Date times the
Exchange Ratio, as defined in the Plan of Conversion, and the price of each such
right shall be adjusted to reflect the Exchange Ratio and so that the aggregate
purchase price of the right is unaffected, but with no change in any other term
or condition of such right. The Holding Company shall make appropriate
amendments to the Plans to reflect the adoption of the Plans by the Holding
Company without adverse effect upon the rights outstanding thereunder.
13. STOCKHOLDER APPROVAL. The affirmative votes of the holders of Bank
Common Stock set forth in Section 3 of the Plan of Conversion shall be required
to approve the Plan of Conversion and Agreement and Plan of Reorganization, of
which this Plan of Reorganization is a part, on behalf of the Bank. The approval
of the Holding Company, as the sole holder of the Interim B Common Stock, shall
be required to approve the Plan of Conversion, of which this Plan of
Reorganization is a part, on behalf of Interim B.
14. REGISTRATION; OTHER APPROVALS. In addition to the approvals set forth
in Sections 1 and 13 hereof and the Plan of Conversion, the parties' obligations
to consummate the Reorganization shall be subject to the Holding Company Common
Stock to be issued hereunder in exchange for Bank Common Stock being registered
under the Securities Act of 1933, as amended, and registered or qualified under
applicable state securities laws, as well as the receipt of all other approvals,
consents or waivers as the parties may deem necessary or advisable.
15. ABANDONMENT OF PLAN. This Plan of Reorganization may be abandoned by
either the Bank or Interim B at any time before the Effective Date in the manner
set forth in Section 24 of the Plan of Conversion.
16. AMENDMENTS. This Plan of Reorganization may be amended in the manner
set forth in Section 24 of the Plan of Conversion by a subsequent writing signed
by the parties hereto upon the approval of the Board of Directors of each of the
parties hereto.
17. SUCCESSORS. This Plan of Reorganization shall be binding on the
successors of the Bank and Interim B.
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the United States of America and, to the extent not
governed by such laws, the laws of the State of New Jersey.
19. EXECUTION BY INTERIM B. The Bank acknowledges that as of the date
hereof, Interim B is in organization and has not received its charter from the
Office of Thrift Supervision
6
<PAGE>
and the Holding Company has not yet been incorporated. Therefore, neither the
Holding Company nor Interim B have the legal capacity to execute this Plan of
Reorganization as of the date hereof. The Bank agrees to cause the Holding
Company to execute this Plan upon its incorporation and by executing this Plan,
the Holding Company agrees to cause Interim B to execute this Plan promptly
following the organization of Interim B upon receipt of the OTS approval for
Interim B to be organized. The Bank agrees to be bound by this Plan of
Reorganization prior to and following such execution by Interim B and the
Holding Company.
IN WITNESS WHEREOF, the Parties hereto have cause this Plan of
Reorganization to be duly executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
FIRST SAVINGS BANK, SLA
By: _________________________________
John P. Mulkerin
President and Chief Executive Officer
Attest: ___________________________________
Christopher P. Martin
Executive Vice President,
Chief Financial Officer and Secretary
FIRST SOURCE BANCORP, INC.
By: _________________________________
John P. Mulkerin
President and Chief Executive Officer
Attest: _________________________________
Christopher P. Martin
Executive Vice President, Chief Financial Officer
and Secretary
FIRST INTERIM SAVINGS BANK, FSB
(In organization)
By: _________________________________
John P. Mulkerin
President and Chief Executive Officer
Attest: _________________________________
Christopher P. Martin
7
<PAGE>
Executive Vice President, Chief Financial Officer
and Secretary
8
<PAGE>
EXHIBIT 1
BRANCH OFFICES:
339 State Street (Main Office)
Perth Amboy, New Jersey 08881
158 Wyckoff Road
Eatontown, New Jersey 07724
980 Amboy Avenue
Edison, New Jersey 08837
2100 Oak Tree Road
Edison, New Jersey 08820
206 South Avenue
Fanwood, New Jersey 07023
33 Lafayette Road
Fords, New Jersey 08863
Rte 35 & Bethany Road
Hazlet, New Jersey 07730
101 New Brunswick Avenue
Hopelawn, New Jersey 08861
1220 Green Street
Iselin, New Jersey 08830
599 Middlesex Avenue
Metuchen, New Jersey 08840
1580 Rte 35 South
Middletown, New Jersey 07748
97 North Main Street
Milltown, New Jersey 08850
Rte 9 & Ticetown Road
Old Bridge, New Jersey 08857
100 Stelton Road
Piscataway, New Jersey 08854
325 Amboy Avenue
Woodbridge, New Jersey 07095
Rte 1 & St. Georges Avenue
Woodbridge, New Jersey 07095
1000 Woodbridge Center Drive
Woodbridge, New Jersey 07095
9
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
FIRST SOURCE BANCORP, INC.
FIRST: The name of the Corporation is First Source Bancorp, Inc.
-----
(hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
------
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
-----
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
FOURTH:
------
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is ninety-five million
(95,000,000) consisting of:
1. Ten million (10,000,000) shares of Preferred Stock, par value one
cent ($.01) per share (the "Preferred Stock"); and
2. Eighty-five million (85,000,000) shares of Common Stock, par value
one cent ($.01) per share (the "Common Stock").
B. The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred
Stock in series, and by filing a certificate pursuant to the applicable law
of the State of Delaware (such certificate being hereinafter referred to as
a "Preferred Stock Designation"), to establish from time to time the number
of shares to be included in each such series, and to fix the designation,
powers, preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of
authorized shares of Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the Common Stock, without a vote of
the holders of the Preferred Stock, or of any series thereof, unless a vote
of any such holders is required pursuant to the terms of any Preferred
Stock Designation.
C. 1. Notwithstanding any other provision of this Certificate of
Incorporation, in no event shall any record owner of any
outstanding Common Stock which is beneficially owned, directly
or indirectly, by a person who, as of any record date for the
determination of stockholders entitled to vote on any matter,
beneficially owns in excess of 10% of the then-outstanding
shares of Common Stock (the "Limit"), be entitled, or permitted
to any vote in respect of the shares held in excess of the
Limit.
<PAGE>
The number of votes which may be cast by any record owner by
virtue of the provisions hereof in respect of Common Stock
beneficially owned by such person beneficially owning shares in
excess of the Limit shall be a number equal to the total number
of votes which a single record owner of all Common Stock
beneficially owned by such person would be entitled to cast,
(subject to the provisions of this Article FOURTH) multiplied
by a fraction, the numerator of which is the number of shares
of such class or series which are both beneficially owned by
such person and owned of record by such record owner and the
denominator of which is the total number of shares of Common
Stock beneficially owned by such person owning shares in excess
of the Limit.
2. The following definitions shall apply to this Section C of this
Article FOURTH:
a. "Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended, as in effect on
the date of filing of this Certificate of Incorporation.
b. "Beneficial ownership" shall be determined pursuant to Rule
13d-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended, (or any
successor rule or statutory provision), or, if said Rule
13d-3 shall be rescinded and there shall be no successor
rule or provision thereto, pursuant to said Rule 13d-3 as in
effect on the date of filing of this Certificate of
Incorporation; provided, however, that a person shall, in
any event, also be deemed the "beneficial owner" of any
Common Stock:
(1) which such person or any of its affiliates beneficially
owns, directly or indirectly; or
(2) which such person or any of its affiliates has: (i)
the right to acquire (whether such right is exercisable
immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding
(but shall not be deemed to be the beneficial owner of
any voting shares solely by reason of an agreement,
contract, or other arrangement with this Corporation to
effect any transaction which is described in any one or
more of clauses 1 through 5 of Section A of Article
EIGHTH of this Certificate of Incorporation ("Article
EIGHTH")), or upon the exercise of conversion rights,
exchange rights, warrants, or options
2
<PAGE>
or otherwise, or (ii) sole or shared voting or
investment power with respect thereto pursuant to any
agreement, arrangement, understanding, relationship or
otherwise (but shall not be deemed to be the beneficial
owner of any voting shares solely by reason of a
revocable proxy granted for a particular meeting of
stockholders, pursuant to a public solicitation of
proxies for such meeting, with respect to shares of
which neither such person nor any such Affiliate is
otherwise deemed the beneficial owner); or
(3) which are beneficially owned, directly or indirectly,
by any other person with which such first mentioned
person or any of its Affiliates acts as a partnership,
limited partnership, syndicate or other group pursuant
to any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of
any shares of capital stock of this Corporation; and
provided further, however, that: (1) no Director or
Officer of this Corporation (or any Affiliate of any
such Director or Officer) shall, solely by reason of
any or all of such Directors or Officers acting in
their capacities as such, be deemed, for any purposes
hereof, to beneficially own any Common Stock
beneficially owned by any other such Director or
Officer (or any Affiliate thereof); and (2) neither any
employee stock ownership or similar plan of this
Corporation or any subsidiary of this Corporation, nor
any trustee with respect thereto or any Affiliate of
such trustee (solely by reason of such capacity of such
trustee), shall be deemed, for any purposes hereof, to
beneficially own any Common Stock held under any such
plan. For purposes only of computing the percentage of
beneficial ownership of Common Stock of a person, the
outstanding Common Stock shall include shares deemed
owned by such person through application of this
subsection but shall not include any other Common Stock
which may be issuable by this Corporation pursuant to
any agreement, or upon exercise of conversion rights,
warrants or options, or otherwise. For all other
purposes, the outstanding Common Stock shall include
only Common Stock then outstanding and shall not
include any Common Stock which may be issuable by this
Corporation pursuant to any agreement, or upon the
exercise of conversion rights, warrants or options, or
otherwise.
3
<PAGE>
c. The "Limit" shall mean 10% of the then-outstanding shares of
Common Stock.
d. A "person" shall include an individual, a firm, a group
acting in concert, a corporation, a partnership, an
association, a joint venture, a pool, a joint stock company,
a trust, an unincorporated organization or similar company,
a syndicate or any other group formed for the purpose of
acquiring, holding or disposing of securities or any other
entity.
3. The Board of Directors shall have the power to construe and
apply the provisions of this section and to make all
determinations necessary or desirable to implement such
provisions, including but not limited to matters with respect
to: (i) the number of shares of Common Stock beneficially owned
by any person; (ii) whether a person is an affiliate of another;
(iii) whether a person has an agreement, arrangement, or
understanding with another as to the matters referred to in the
definition of beneficial ownership; (iv) the application of any
other definition or operative provision of the section to the
given facts; or (v) any other matter relating to the
applicability or effect of this section.
4. The Board of Directors shall have the right to demand that any
person who is reasonably believed to beneficially own Common
Stock in excess of the Limit (or holds of record Common Stock
beneficially owned by any person in excess of the Limit) supply
the Corporation with complete information as to: (i) the record
owner(s) of all shares beneficially owned by such person who is
reasonably believed to own shares in excess of the Limit; and
(ii) any other factual matter relating to the applicability or
effect of this section as may reasonably be requested of such
person.
5. Except as otherwise provided by law or expressly provided in
this Section C, the presence, in person or by proxy, of the
holders of record of shares of capital stock of the Corporation
entitling the holders thereof to cast a majority of the votes
(after giving effect, if required, to the provisions of this
Section C) entitled to be cast by the holders of shares of
capital stock of the Corporation entitled to vote shall
constitute a quorum at all meetings of the stockholders, and
every reference in this Certificate of Incorporation to a
majority or other proportion of capital stock (or the holders
thereof) for purposes of determining any quorum requirement or
any requirement for stockholder consent or approval shall be
deemed to refer to such majority or other proportion of the
votes (or the holders thereof) then entitled to be cast in
respect of such capital stock.
4
<PAGE>
6. Any constructions, applications, or determinations made by the
Board of Directors pursuant to this section in good faith and on
the basis of such information and assistance as was then
reasonably available for such purpose shall be conclusive and
binding upon the Corporation and its stockholders.
7. In the event any provision (or portion thereof) of this Section
C shall be found to be invalid, prohibited or unenforceable for
any reason, the remaining provisions (or portions thereof) of
this Section shall remain in full force and effect, and shall be
construed as if such invalid, prohibited or unenforceable
provision had been stricken herefrom or otherwise rendered
inapplicable, it being the intent of this Corporation and its
stockholders that each such remaining provision (or portion
thereof) of this Section C remain, to the fullest extent
permitted by law, applicable and enforceable as to all
stockholders, including stockholders owning an amount of stock
over the Limit, notwithstanding any such finding.
FIFTH: The following provisions are inserted for the management of the
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business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers
and authority expressly conferred upon them by statute or by this
Certificate of Incorporation or the Bylaws of the Corporation, the
Directors are hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation.
B. The Directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
C. Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting
of stockholders of the Corporation and may not be effected by any consent
in writing by such stockholders.
D. Special meetings of stockholders of the Corporation may be called
only by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board or as otherwise provided in the Bylaws. The
term "Whole Board" shall mean the total number of authorized directorships
(whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board for
adoption).
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SIXTH:
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A. The number of Directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board. The Directors shall be divided into three
classes, as nearly equal in number as reasonably possible, with the term of
office of the first class to expire at the first annual meeting of
stockholders, the term of office of the second class to expire at the
annual meeting of stockholders one year thereafter and the term of office
of the third class to expire at the annual meeting of stockholders two
years thereafter with each Director to hold office until his or her
successor shall have been duly elected and qualified. At each annual
meeting of stockholders following such initial classification and election,
Directors elected to succeed those Directors whose terms expire shall be
elected for a term of office to expire at the third succeeding annual
meeting of stockholders after their election with each Director to hold
office until his or her successor shall have been duly elected and
qualified.
B. Subject to the rights of holders of any series of Preferred Stock
outstanding, the newly created directorships resulting from any increase in
the authorized number of Directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled only by a majority vote of
the Directors then in office, though less than a quorum, and Directors so
chosen shall hold office for a term expiring at the annual meeting of
stockholders at which the term of office of the class to which they have
been chosen expires. No decrease in the number of Directors constituting
the Board of Directors shall shorten the term of any incumbent Director.
C. Advance notice of stockholder nominations for the election of
Directors and of business to be brought by stockholders before any meeting
of the stockholders of the Corporation shall be given in the manner
provided in the Bylaws of the Corporation.
D. Subject to the rights of holders of any series of Preferred Stock
then outstanding, any Director, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least 80 percent of the voting power
of all of the then-outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving
effect to the provisions of Article FOURTH of this Certificate of
Incorporation ("Article FOURTH")), voting together as a single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
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repeal Bylaws of the Corporation. Any adoption, amendment or repeal of the
Bylaws of the Corporation by the Board of Directors shall require the approval
of a majority of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the Bylaws of the Corporation; provided, however, that,
in addition to any vote of the holders of any class or series of stock of this
Corporation required by law or by this Certificate of Incorporation, the
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<PAGE>
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to adopt, amend or repeal any provisions of the Bylaws of the
Corporation.
EIGHTH:
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A. In addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly provided in
this Article EIGHTH:
1. any merger or consolidation of the Corporation or any Subsidiary
(as hereinafter defined) with: (i) any Interested Stockholder
(as hereinafter defined); or (ii) any other corporation (whether
or not itself an Interested Stockholder) which is, or after such
merger or consolidation would be, an Affiliate (as hereinafter
defined) of an Interested Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to
or with any Interested Stockholder, or any Affiliate of any
Interested Stockholder, of any assets of the Corporation or any
Subsidiary having an aggregate Fair Market Value (as hereinafter
defined) equaling or exceeding 25% or more of the combined
assets of the Corporation and its Subsidiaries; or
3. the issuance or transfer by the Corporation or any Subsidiary
(in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any
Interested Stockholder or any Affiliate of any Interested
Stockholder in exchange for cash, securities or other property
(or a combination thereof) having an aggregate Fair Market Value
(as hereinafter defined) equaling or exceeding 25% of the
combined Fair Market Value of the outstanding common stock of
the Corporation and its Subsidiaries, except for any issuance or
transfer pursuant to an employee benefit plan of the Corporation
or any Subsidiary thereof; or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Stockholder or any Affiliate of any Interested
Stockholder; or
5. any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or
any other transaction (whether or not with or into or otherwise
involving an Interested Stockholder) which has the effect,
directly or indirectly, of increasing
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<PAGE>
the proportionate share of the outstanding shares of any class
of equity or convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any
Interested Stockholder or any Affiliate of any Interested
Stockholder;
shall require the affirmative vote of the holders of at least 80% of the
voting power of the then-outstanding shares of stock of the Corporation
entitled to vote in the election of Directors (the "Voting Stock") (after
giving effect to the provisions of Article FOURTH), voting together as a
single class. Such affirmative vote shall be required notwithstanding the
fact that no vote may be required, or that a lesser percentage may be
specified, by law or by any other provisions of this Certificate of
Incorporation or any Preferred Stock Designation in any agreement with any
national securities exchange or otherwise.
The term "Business Combination" as used in this Article EIGHTH shall
mean any transaction which is referred to in any one or more of paragraphs
1 through 5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only the affirmative vote of the majority of the
outstanding shares of capital stock entitled to vote after giving effect to
the provisions of Article FOURTH, or such vote (if any), as is required by
law or by this Certificate of Incorporation, if, in the case of any
Business Combination that does not involve any cash or other consideration
being received by the stockholders of the Corporation solely in their
capacity as stockholders of the Corporation, the condition specified in the
following paragraph 1 is met or, in the case of any other Business
Combination, all of the conditions specified in either of the following
paragraphs 1 or 2 are met:
1. The Business Combination shall have been approved by a majority of
the Disinterested Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
a. The aggregate amount of the cash and the Fair Market Value as of
the date of the consummation of the Business Combination of
consideration other than cash to be received per share by the
holders of Common Stock in such Business Combination shall at
least be equal to the higher of the following:
(1) (if applicable) the Highest Per Share Price (as hereinafter
defined), including any brokerage commissions, transfer
taxes and soliciting dealers' fees, paid by the Interested
Stockholder or any of its Affiliates for any shares of
Common Stock acquired by it: (i) within the two-year period
immediately prior to the first public
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<PAGE>
announcement of the proposal of the Business Combination
(the "Announcement Date"); or (ii) in the transaction in
which it became an Interested Stockholder, whichever is
higher; or
(2) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (such latter
date is referred to in this Article EIGHTH as the
"Determination Date"), whichever is higher.
b. The aggregate amount of the cash and the Fair Market Value as of
the date of the consummation of the Business Combination of
consideration other than cash to be received per share by
holders of shares of any class of outstanding Voting Stock other
than Common Stock shall be at least equal to the highest of the
following (it being intended that the requirements of this
subparagraph (b) shall be required to be met with respect to
every such class of outstanding Voting Stock, whether or not the
Interested Stockholder has previously acquired any shares of a
particular class of Voting Stock):
(1) (if applicable) the Highest Per Share Price (as hereinafter
defined), including any brokerage commissions, transfer
taxes and soliciting dealers' fees, paid by the Interested
Stockholder for any shares of such class of Voting Stock
acquired by it: (i) within the two-year period immediately
prior to the Announcement Date; or (ii) in the transaction
in which it became an Interested Stockholder, whichever is
higher; or
(2) (if applicable) the highest preferential amount per share to
which the holders of shares of such class of Voting Stock
are entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
or
(3) the Fair Market Value per share of such class of Voting
Stock on the Announcement Date or on the Determination Date,
whichever is higher.
c. The consideration to be received by holders of a particular
class of outstanding Voting Stock (including Common Stock) shall
be in cash or in the same form as the Interested Stockholder has
previously paid for shares of such class of Voting Stock. If
the Interested Stockholder has paid for shares of any class of
Voting Stock with varying forms of consideration, the form of
consideration to be received per share by holders of shares of
such class of Voting Stock shall be either cash or the
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<PAGE>
form used to acquire the largest number of shares of such class
of Voting Stock previously acquired by the Interested
Stockholder. The price determined in accordance with
subparagraph B.2 of this Article EIGHTH shall be subject to
appropriate adjustment in the event of any stock dividend, stock
split, combination of shares or similar event.
d. After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business
Combination: (1) except as approved by a majority of the
Disinterested Directors (as hereinafter defined), there shall
have been no failure to declare and pay at the regular date
therefor any full quarterly dividends (whether or not
cumulative) on any outstanding stock having preference over the
Common Stock as to dividends or liquidation; (2) there shall
have been: (i) no reduction in the annual rate of dividends
paid on the Common Stock (except as necessary to reflect any
subdivision of the Common Stock), except as approved by a
majority of the Disinterested Directors; and (ii) an increase in
such annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction
which has the effect of reducing the number of outstanding
shares of the Common Stock, unless the failure to so increase
such annual rate is approved by a majority of the Disinterested
Directors, and (3) neither such Interested Stockholder or any of
its Affiliates shall have become the beneficial owner of any
additional shares of Voting Stock except as part of the
transaction which results in such Interested Stockholder
becoming an Interested Stockholder.
e. After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received
the benefit, directly or indirectly (except proportionately as a
stockholder), of any loans, advances, guarantees, pledges or
other financial assistance or any tax credits or other tax
advantages provided, directly or indirectly, by the Corporation,
whether in anticipation of or in connection with such Business
Combination or otherwise.
f. A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder (or any subsequent provisions replacing
such Act, and the rules or regulations thereunder) shall be
mailed to stockholders of the Corporation at least 30 days prior
to the consummation of such Business Combination (whether or not
such proxy or information statement is required to be mailed
pursuant to such Act or subsequent provisions).
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<PAGE>
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a firm, a group acting
in concert, a corporation, a partnership, an association, a
joint venture, a pool, a joint stock company, a trust, an
unincorporated organization or similar company, a syndicate or
any other group formed for the purpose of acquiring, holding or
disposing of securities or any other entity.
2. "Interested Stockholder" shall mean any person (other than the
Corporation or any Holding Company or Subsidiary thereof) who or
which:
a. is the beneficial owner, directly or indirectly, of more
than 10% of the voting power of the outstanding Voting
Stock; or
b. is an Affiliate of the Corporation and at any time within
the two-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly,
of 10% or more of the voting power of the then outstanding
Voting Stock; or
c. is an assignee of or has otherwise succeeded to any shares
of Voting Stock which were at any time within the two-year
period immediately prior to the date in question
beneficially owned by any Interested Stockholder, if such
assignment or succession shall have occurred in the course
of a transaction or series of transactions not involving a
public offering within the meaning of the Securities Act of
1933, as amended.
3. For purposes of this Article EIGHTH, "beneficial ownership"
shall be determined in the manner provided in Section C of
Article FOURTH hereof.
4. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in
effect on the date of filing of this Certificate of
Incorporation.
5. "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by
the Corporation; provided, however, that for the purposes of the
definition of Interested Stockholder set forth in Paragraph 2 of
this Section C, the term "Subsidiary" shall mean only a
corporation of which a majority of each
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<PAGE>
class of equity security is owned, directly or indirectly, by
the Corporation.
6. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested Stockholder
and was a member of the Board of Directors prior to the time
that the Interested Stockholder became an Interested
Stockholder, and any Director who is thereafter chosen to fill
any vacancy of the Board of Directors or who is elected and who,
in either event, is unaffiliated with the Interested Stockholder
and in connection with his or her initial assumption of office
is recommended for appointment or election by a majority of
Disinterested Directors then on the Board of Directors.
7. "Fair Market Value" means:
a. in the case of stock, the highest closing sales price of the
stock during the 30-day period immediately preceding the
date in question of a share of such stock on the National
Association of Securities Dealers Automated Quotation System
or any system then in use, or, if such stock is admitted to
trading on a principal United States securities exchange
registered under the Securities Exchange Act of 1934, as
amended, Fair Market Value shall be the highest sale price
reported during the 30-day period preceding the date in
question, or, if no such quotations are available, the Fair
Market Value on the date in question of a share of such
stock as determined by the Board of Directors in good faith,
in each case with respect to any class of stock,
appropriately adjusted for any dividend or distribution in
shares of such stock or any stock split or reclassification
of outstanding shares of such stock into a greater number of
shares of such stock or any combination or reclassification
of outstanding shares of such stock into a smaller number of
shares of such stock; and
b. in the case of property other than cash or stock, the Fair
Market Value of such property on the date in question as
determined by the Board of Directors in good faith.
8. Reference to "Highest Per Share Price" shall in each case with
respect to any class of stock reflect an appropriate adjustment
for any dividend or distribution in shares of such stock or any
stock split or reclassification of outstanding shares of such
stock into a greater number of shares of such stock or any
combination or reclassification of outstanding shares of such
stock into a smaller number of shares of such stock.
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<PAGE>
9. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash
to be received" as used in Subparagraphs (a) and (b) of
Paragraph 2 of Section B of this Article EIGHTH shall include
the shares of Common Stock and/or the shares of any other class
of outstanding Voting Stock retained by the holders of such
shares.
D. A majority of the Disinterested Directors of the Corporation shall
have the power and duty to determine for the purposes of this Article
EIGHTH, on the basis of information known to them after reasonable inquiry:
(a) whether a person is an Interested Stockholder; (b) the number of shares
of Voting Stock beneficially owned by any person; (c) whether a person is
an Affiliate or Associate of another; and (d) whether the assets which are
the subject of any Business Combination have, or the consideration to be
received for the issuance or transfer of securities by the Corporation or
any Subsidiary in any Business Combination has an aggregate Fair Market
Value equaling or exceeding 25% of the combined Fair Market Value of the
Common Stock of the Corporation and its Subsidiaries. A majority of the
Disinterested Directors shall have the further power to interpret all of
the terms and provisions of this Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of
any particular class or series of the Voting Stock required by law, this
Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least 80 percent of the voting power
of all of the then-outstanding shares of the Voting Stock (after giving
effect to the provisions of Article FOURTH), voting together as a single
class, shall be required to alter, amend or repeal this Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any
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offer of another Person (as defined in Article EIGHTH hereof) to: (A) make a
tender or exchange offer for any equity security of the Corporation; (B) merge
or consolidate the Corporation with another corporation or entity; or (C)
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, may, in connection with the exercise of its judgment
in determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, those factors that Directors of any subsidiary of the Corporation
may consider in evaluating any action that may result in a change or potential
change in the control of the subsidiary, and the social and economic effect of
acceptance of such offer: on the Corporation's present and future customers and
employees and those of its Subsidiaries (as defined in Article EIGHTH hereof);
on the communities in which the Corporation and its Subsidiaries operate or are
located; on the ability of the Corporation to fulfill its corporate objective as
a savings and loan holding company under applicable laws and
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<PAGE>
regulations; and on the ability of its subsidiary savings association to fulfill
the objectives of a New Jersey capital stock savings association under
applicable statutes and regulations.
TENTH:
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A. Each person who was or is made a party or is threatened to be made
a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a Director or
an Officer of the Corporation or is or was serving at the request of the
Corporation as a Director, Officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a Director, Officer, employee or agent or in any other
capacity while serving as a Director, Officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide
prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered
by such indemnitee in connection therewith; provided, however, that, except
as provided in Section C hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by
such indemnitee only if such proceeding (or part thereof) was authorized by
the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this Article
TENTH shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final
disposition (hereinafter and "advancement of expenses"); provided, however,
that, if the Delaware General Corporation Law requires, an advancement of
expenses incurred by an indemnitee in his or her capacity as a Director or
Officer (and not in any other capacity in which service was or is rendered
by such indemnitee, including, without limitation, services to an employee
benefit plan) shall be made only upon delivery to the Corporation of an
undertaking (hereinafter an "undertaking"), by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right
to appeal (hereinafter a "final adjudication") that such indemnitee is not
entitled to be indemnified for such expenses under this Section or
otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article TENTH shall be
contract rights and such rights shall continue as to an indemnitee who has
ceased to be a Director, Officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
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C. If a claim under Section A or B of this Article TENTH is not paid
in full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be
twenty days, the indemnitee may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim. If successful
in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. In (i) any suit brought by
the indemnitee to enforce a right to indemnification hereunder (but not in
a suit brought by the indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking the Corporation shall be entitled to recover such expenses
upon a final adjudication that, the indemnitee has not met any applicable
standard for indemnification set forth in the Delaware General Corporation
Law. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification
of the indemnitee is proper in the circumstances because the indemnitee has
met the applicable standard of conduct set forth in the Delaware General
Corporation Law, nor an actual determination by the Corporation (including
its Board of Directors, independent legal counsel, or its stockholders)
that the indemnitee has not met such applicable standard of conduct, shall
create a presumption that the indemnitee has not met the applicable
standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving
that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article TENTH or otherwise shall be on
the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Corporation's Certificate of Incorporation, Bylaws, agreement, vote of
stockholders or Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any Director, Officer, employee or agent of the Corporation or
subsidiary or Affiliate or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether
or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware General
Corporation Law.
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F. The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article TENTH with respect to the
indemnification and advancement of expenses of Directors and Officers of
the Corporation.
ELEVENTH: A Director of this Corporation shall not be personally liable
--------
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a Director, except for liability: (i) for any breach of the
Director's duty of loyalty to the Corporation or its stockholders; (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) under Section 174 of the Delaware General
Corporation Law; or (iv) for any transaction from which the Director derived an
improper personal benefit. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of Directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
Director of the Corporation existing at the time of such repeal or modification.
TWELFTH: The Corporation reserves the right to amend or repeal any
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provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; provided, however, that,
notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to amend or repeal this Article TWELFTH, Section C of Article FOURTH,
Sections C or D of Article FIFTH, Article SIXTH, Article SEVENTH, Article EIGHTH
or Article TENTH.
THIRTEENTH: The name and mailing address of the sole incorporator are as
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follows:
Name Mailing Address
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Siobain Perkins Morris, Nichols, Arsht & Tunnell
1201 North Market Street
P.O. Box 1347
Wilmington, Delaware 19899-1347
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I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation and do certify that the facts herein stated
are true, and accordingly, have hereto set my hand this 15th day of
December, 1997.
/s/ Siobain Perkins
--------------------
Incorporator
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Exhibit 3.2
FIRST SOURCE BANCORP, INC.
BYLAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
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An annual meeting of the stockholders, for the election of Directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix, which date
shall be within thirteen (13) months subsequent to the later of the date of
incorporation or the last annual meeting of stockholders.
Section 2. Special Meetings.
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Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution adopted by
a majority of the total number of Directors which the Corporation would have if
there were no vacancies on the Board of Directors (hereinafter the "Whole
Board").
Section 3. Notice of Meetings.
--------- ------------------
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
--------- ------
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy (after giving effect to the provisions of Article FOURTH of the
Corporation's Certificate of Incorporation), shall constitute a quorum for all
purposes, unless or except to the extent that the presence of a larger number
may be required by law. Where a separate vote by a class or classes is
required, a majority of the
<PAGE>
shares of such class or classes present in person or represented by proxy (after
giving effect to the provisions of Article FOURTH of the Corporation's
Certificate of Incorporation) shall constitute a quorum entitled to take action
with respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present in person or by proxy constituting a quorum, then except as otherwise
required by law, those present in person or by proxy at such adjourned meeting
shall constitute a quorum, and all matters shall be determined by a majority of
the votes cast at such meeting.
Section 5. Organization.
--------- ------------
Such person as the Board of Directors may have designated or, in the
absence of such a person, the Chairman of the Board of the Corporation or, in
his or her absence, such person as may be chosen by the holders of a majority of
the shares entitled to vote who are present, in person or by proxy, shall call
to order any meeting of the stockholders and act as chairman of the meeting. In
the absence of the Secretary of the Corporation, the secretary of the meeting
shall be such person as the chairman appoints.
Section 6. Conduct of Business.
--------- -------------------
(a) The chairman of any meeting of stockholders shall determine the
order of business and the procedures at the meeting, including such regulation
of the manner of voting and the conduct of discussion as seem to him or her in
order. The date and time of the opening and closing of the polls for each
matter upon which the stockholders will vote at the meeting shall be announced
at the meeting.
(b) At any annual meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or mailed
to and received at the principal executive offices of the Corporation not less
than ninety (90) days prior to the date of the annual meeting; provided,
however, that in the event that less than one hundred (100) days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be received not later
than the close of business on the 10th day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made. A stockholder's
2
<PAGE>
notice to the Secretary shall set forth as to each matter such stockholder
proposes to bring before the annual meeting: (i) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and address, as
they appear on the Corporation's books, of the stockholder proposing such
business, (iii) the class and number of shares of the Corporation's capital
stock that are beneficially owned by such stockholder and, (iv) any material
interest of such stockholder in such business. Notwithstanding anything in these
Bylaws to the contrary, no business shall be brought before or conducted at an
annual meeting except in accordance with the provisions of this Section 6(b).
The Officer of the Corporation or other person presiding over the annual meeting
shall, if the facts so warrant, determine and declare to the meeting that
business was not properly brought before the meeting in accordance with the
provisions of this Section 6(b) and, if he or she should so determine, he or she
shall so declare to the meeting and any such business so determined to be not
properly brought before the meeting shall not be transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(c) Only persons who are nominated in accordance with the
procedures set forth in these Bylaws shall be eligible for election as
Directors. Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders at which directors are to
be elected only: (i) by or at the direction of the Board of Directors or, (ii)
by any stockholder of the Corporation entitled to vote for the election of
Directors at the meeting who complies with the notice procedures set forth in
this Section 6(c). Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made by timely notice in writing
to the Secretary of the Corporation. To be timely, a stockholder's notice shall
be delivered or mailed to and received at the principal executive offices of the
Corporation not less than ninety (90) days prior to the date of the meeting;
provided, however, that in the event that less than one hundred (100) days'
notice or prior disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made.
Such stockholder's notice shall set forth: (i) as to each person whom such
stockholder proposes to nominate for election or re-election as a Director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); and (ii) as to
the stockholder giving the notice (x) the name and address, as they appear on
the Corporation's books, of such stockholder and (y) the class and number of
shares of the Corporation's capital stock that are beneficially owned by such
stockholder. At the request of the Board of Directors any person nominated by
the Board of Directors for election as a Director shall furnish to the Secretary
of the Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a Director of the Corporation unless nominated in accordance
with the provisions of this Section 6(c). The Officer of the Corporation
3
<PAGE>
or other person presiding at the meeting shall, if the facts so warrant,
determine that a nomination was not made in accordance with such provisions and,
if he or she shall so determine, he or she shall so declare to the meeting and
the defective nomination shall be disregarded.
Section 7. Proxies and Voting.
--------- ------------------
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting. Any facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including on the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation, may
be made by a voice vote; provided, however, that upon demand therefor by a
stockholder entitled to vote or his or her proxy, a stock vote shall be taken.
Every stock vote shall be taken by ballot, each of which shall state the name of
the stockholder or proxy voting and such other information as may be required
under the procedures established for the meeting. The Corporation shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
the meeting and make a written report thereof. The Corporation may designate
one or more persons as alternate inspectors to replace any inspector who fails
to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the votes cast.
Section 8. Stock List.
--------- ----------
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall
4
<PAGE>
presumptively determine the identity of the stockholders entitled to vote at the
meeting and the number of shares held by each of them.
Section 9. Consent of Stockholders in Lieu of Meeting.
--------- ------------------------------------------
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers, Number and Term of Office.
--------- -----------------------------------------
The business and affairs of the Corporation shall be under the direction of
its Board of Directors. The number of Directors who shall constitute the Whole
Board shall be such number as the Board of Directors shall from time to time
have designated, except that in the absence of such designation the number shall
be eight. The Board of Directors shall annually elect a Chairman of the Board
from among its members who shall, when present, preside at its meetings.
The Directors, other than those who may be elected by the holders of any
class or series of Preferred Stock, shall be divided, with respect to the time
for which they severally hold office, into three classes, with the term of
office of the first class to expire at the first annual meeting of stockholders,
the term of office of the second class to expire at the annual meeting of
stockholders one year thereafter and the term of office of the third class to
expire at the annual meeting of stockholders two years thereafter, with each
Director to hold office until his or her successor shall have been duly elected
and qualified. At each annual meeting of stockholders, Directors elected to
succeed those Directors whose terms then expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders after
their election, with each Director to hold office until his or her successor
shall have been duly elected and qualified.
Section 2. Vacancies and Newly Created Directorships.
--------- -----------------------------------------
Subject to the rights of the holders of any class or series of Preferred
Stock, and unless the Board of Directors otherwise determines, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
only by a majority vote of the Directors then in office, though less than a
quorum, and Directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires and until such Director's successor shall have
been duly elected and qualified. No decrease in the
5
<PAGE>
number of authorized directors constituting the Board shall shorten the term of
any incumbent Director.
Section 3. Regular Meetings.
--------- ----------------
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all Directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
--------- ----------------
Special meetings of the Board of Directors may be called by one-third (1/3)
of the Directors then in office (rounded up to the nearest whole number), by the
Chairman of the Board or the President and shall be held at such place, on such
date, and at such time as they, or he or she, shall fix. Notice of the place,
date, and time of each such special meeting shall be given each Director by whom
it is not waived by mailing written notice not less than five (5) days before
the meeting or by telegraphing or telexing or by facsimile transmission of the
same not less than twenty-four (24) hours before the meeting. Unless otherwise
indicated in the notice thereof, any and all business may be transacted at a
special meeting.
Section 5. Quorum.
--------- ------
At any meeting of the Board of Directors, a majority of the Whole Board
shall constitute a quorum for all purposes. If a quorum shall fail to attend
any meeting, a majority of those present may adjourn the meeting to another
place, date, or time, without further notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
--------- -------------------------------------------------
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
--------- -------------------
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the Directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
6
<PAGE>
Section 8. Powers.
--------- ------
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, including, without limiting the generality of the foregoing,
the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as
it may determine, of written obligations of every kind, negotiable or non-
negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any Officer of the Corporation with or without cause,
and from time to time to devolve the powers and duties of any Officer upon
any other person for the time being;
(5) To confer upon any Officer of the Corporation the power to
appoint, remove and suspend subordinate Officers, employees and agents;
(6) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for Directors, Officers, employees and
agents of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and
other benefit plans for Directors, Officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and,
(8) To adopt from time to time regulations, not inconsistent with
these Bylaws, for the management of the Corporation's business and affairs.
Section 9. Compensation of Directors.
--------- -------------------------
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as Directors,
including, without limitation, their services as members of committees of the
Board of Directors.
7
<PAGE>
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
--------- ------------------------------------
The Board of Directors, by a vote of a majority of the Board of Directors,
may from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the Board and shall, for these committees and any others provided for herein,
elect a Director or Directors to serve as the member or members, designating, if
it desires, other Directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. Any committee so
designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
Section 2. Conduct of Business.
--------- -------------------
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third (1/3) of the members shall
constitute a quorum unless the committee shall consist of one (1) or two (2)
members, in which event one (1) member shall constitute a quorum; and all
matters shall be determined by a majority vote of the members present. Action
may be taken by any committee without a meeting if all members thereof consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of such committee.
Section 3. Nominating Committee.
--------- --------------------
The Board of Directors shall appoint a Nominating Committee of the Board,
consisting of not less than three (3) members. The Nominating Committee shall
have authority: (a) to review any nominations for election to the Board of
Directors made by a stockholder of the Corporation pursuant to Section 6(c)(ii)
of Article I of these Bylaws in order to determine compliance with such Bylaw,
and (b) to recommend to the Whole Board nominees for election to the Board of
Directors to replace those Directors whose terms expire at the annual meeting of
stockholders next ensuing.
8
<PAGE>
ARTICLE IV - OFFICERS
Section 1. Generally.
--------- ---------
(a) The Board of Directors as soon as may be practicable after the
annual meeting of stockholders shall choose a Chairman of the Board, a Chief
Executive Officer, a President, one or more Vice Presidents, a Secretary and a
Chief Financial Officer and/or Treasurer and from time to time may choose such
other officers as it may deem proper. The Chairman of the Board shall be chosen
from among the Directors. Any number of offices may be held by the same person.
(b) The term of office of all Officers shall be until the next
annual election of Officers and until their respective successors are chosen but
any Officer may be removed from office at any time by the affirmative vote of a
majority of the authorized number of Directors then constituting the Board of
Directors.
(c) All Officers chosen by the Board of Directors shall have such
powers and duties as generally pertain to their respective Offices, subject to
the specific provisions of this ARTICLE IV. Such officers shall also have such
powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof.
Section 2. Chairman of the Board of Directors.
--------- ----------------------------------
The Chairman of the Board, subject to the provisions of these Bylaws and to
the direction of the Board of Directors, unless the Board has designated another
person, when present, shall preside at all meetings of the stockholders of the
Corporation. The Chairman of the Board shall perform all duties and have all
powers which are commonly incident to the office of Chairman of the Board or
which are delegated to him or her by the Board of Directors. He or she shall
have power to sign all stock certificates, contracts and other instruments of
the Corporation which are authorized.
Section 3. President and Chief Executive Officer.
--------- -------------------------------------
The President and Chief Executive Officer (the "President") shall have
general responsibility for the management and control of the business and
affairs of the Corporation and shall perform all duties and have all powers
which are commonly incident to the offices of President and Chief Executive
Officer or which are delegated to him or her by the Board of Directors. Subject
to the direction of the Board of Directors, the President and Chief Executive
Officer shall have power to sign all stock certificates, contracts and other
instruments of the Corporation which are authorized and shall have general
supervision of all of the other Officers (other than the Chairman of the Board),
employees and agents of the Corporation.
9
<PAGE>
Section 4. Vice President.
--------- --------------
The Vice President or Vice Presidents shall perform the duties of the
President in his absence or during his inability to act. In addition, the Vice
Presidents shall perform the duties and exercise the powers usually incident to
their respective offices and/or such other duties and powers as may be properly
assigned to them by the Board of Directors, the Chairman of the Board or the
President. A Vice President or Vice Presidents may be designated as Executive
Vice President or Senior Vice President.
Section 5. Secretary.
--------- ---------
The Secretary or Assistant Secretary shall issue notices of meetings, shall
keep their minutes, shall have charge of the seal and the corporate books, shall
perform such other duties and exercise such other powers as are usually incident
to such office and/or such other duties and powers as are properly assigned
thereto by the Board of Directors, the Chairman of the Board or the President.
Subject to the direction of the Board of Directors, the Secretary shall have the
power to sign all stock certificates.
Section 6. Chief Financial Officer/Treasurer.
--------- ---------------------------------
The Chief Financial Officer/Treasurer shall be the Comptroller of the
Corporation and shall have the responsibility for maintaining the financial
records of the Corporation. He or she shall make such disbursements of the
funds of the Corporation as are authorized and shall render from time to time an
account of all such transactions and of the financial condition of the
Corporation. The Chief Financial Officer/Treasurer shall also perform such
other duties as the Board of Directors may from time to time prescribe. Subject
to the direction of the Board of Directors, the Chief Financial
Officer/Treasurer shall have the power to sign all stock certificates.
Section 7. Assistant Secretaries and Other Officers.
--------- ----------------------------------------
The Board of Directors may appoint one or more Assistant Secretaries and
such other Officers who shall have such powers and shall perform such duties as
are provided in these Bylaws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
Section 8. Action with Respect to Securities of Other Corporations.
--------- -------------------------------------------------------
Unless otherwise directed by the Board of Directors, the President or any
Officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
10
<PAGE>
ARTICLE V - STOCK
Section 1. Certificates of Stock.
--------- ---------------------
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the Chairman of the Board or the President, and by
the Secretary or an Assistant Secretary, or any Treasurer or Assistant
Treasurer, certifying the number of shares owned by him or her. Any or all of
the signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
--------- ------------------
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these Bylaws,
an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
--------- -----------
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the next day preceding the day
on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment or rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
11
<PAGE>
Section 4. Lost, Stolen or Destroyed Certificates.
--------- --------------------------------------
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations.
--------- -----------
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI - NOTICES
Section 1. Notices.
--------- -------
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, Director, Officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, or by sending such notice by prepaid telegram or mailgram or other
courier. Any such notice shall be addressed to such stockholder, Director,
Officer, employee or agent at his or her last known address as the same appears
on the books of the Corporation. The time when such notice is received, if hand
delivered, or dispatched, if delivered through the mails or by telegram or
mailgram or other courier, shall be the time of the giving of the notice.
Section 2. Waivers.
--------- -------
A written waiver of any notice, signed by a stockholder, Director, Officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, Director, Officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
ARTICLE VII - MISCELLANEOUS
Section 1. Facsimile Signatures.
--------- --------------------
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
12
<PAGE>
Section 2. Corporate Seal.
--------- --------------
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Treasurer or by an Assistant Secretary or
an assistant to the Treasurer.
Section 3. Reliance Upon Books, Reports and Records.
--------- ----------------------------------------
Each Director, each member of any committee designated by the Board of
Directors, and each Officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its Officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such Director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
--------- -----------
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
--------- ------------
In applying any provision of these Bylaws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
ARTICLE VIII - AMENDMENTS
The Board of Directors may amend, alter or repeal these Bylaws at any
meeting of the Board, provided notice of the proposed change was given not less
than two days prior to the meeting. The stockholders shall also have power to
amend, alter or repeal these Bylaws at any meeting of stockholders provided
notice of the proposed change was given in the notice of the meeting; provided,
however, that, notwithstanding any other provisions of the Bylaws or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the voting stock required by law, the Certificate of Incorporation,
any Preferred Stock Designation or these Bylaws, the affirmative votes of the
holders of at least 80% of the voting power of all the then-outstanding shares
of the Voting Stock, voting together as a single class, shall be required to
alter, amend or repeal any provisions of these Bylaws.
13
<PAGE>
The above Bylaws are effective as of December 15, 1997, the date of
incorporation of First Source Bancorp, Inc.
14
<PAGE>
Exhibit 3.3
CERTIFICATE OF INCORPORATION
OF
FIRST SAVINGS BANK, SLA
SECTION 1. Corporate Title. The name of the proposed savings association
---------------
is First Savings Bank, SLA.
SECTION 2. Office. The principal place of business of the association
------
shall be located at 339 State Street, Perth Amboy, New Jersey.
SECTION 3. Purpose and Powers. The association is incorporated to operate
------------------
as a capital stock savings association pursuant to the New Jersey Savings and
Loan Act of 1963, as amended (N.J.S.A. 17:12B-l et seq.), for the purposes
stated in such Act. The association has and may exercise all express, implied
and incidental powers conferred thereby and by all acts amendatory thereof and
supplemental thereto, subject to the Constitutions and laws of the United States
and the State of New Jersey as they are now in effect, or as they may hereafter
be amended.
SECTION 4. Capital Stock. The total number of shares of all classes of
-------------
capital stock which the association has authority to issue is Four Million
(4,000,000), of which Three Million (3,000,000) shall be common stock, par value
$.01 per share, and of which One Million (1,000,000) shall be preferred stock,
par value $.01 per share. The shares may be issued from time to time as
authorized by the Board of Directors without further approval of stockholders,
except as otherwise provided in this Section 4 or to the extent that such
approval is required by governing law, rule, or regulation. The consideration
for the issuance of the shares shall be paid in full before their issuance and
shall not be less than the par value. Neither promissory notes nor future
services shall constitute payment or part payment for the issuance of shares of
the association. The consideration for the shares shall be cash, tangible or
intangible property (to the extent direct investment in such property would be
permitted), labor or services actually performed for the association, or any
combination of the foregoing. In the absence of actual fraud in the transaction,
the value of such property, labor, or services, as determined by the Board of
Directors of the association, shall be conclusive. Upon payment of such
consideration, such shares shall be deemed to be fully paid and nonassessable.
In the case of a stock dividend, that part of the surplus of the association
which is transferred to stated capital upon the issuance of shares as a share
dividend shall be deemed to be the consideration for their issuance.
Nothing contained in this Section 4 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share.
Provided, that this restriction on voting separately by class or series shall
- --------
not apply:
<PAGE>
(i) To any provision which would authorize the holders of preferred
stock, voting as a class or series, to elect some members of the
Board of Directors, less than a majority thereof, in the event of
default in the payment of dividends on any class or series of
preferred stock;
(ii) To any provision which would require the holders of preferred stock,
voting as a class or series, to approve the merger or consolidation
of the association with another corporation of or the sale, lease, or
conveyance (other than by mortgage or pledge) or properties or
business in exchange for securities of a corporation other than the
association if the preferred stock is exchanged for securities of
such other corporation: Provided, that no provision may require such
--------
approval for transactions undertaken with the assistance or pursuant
to the direction of the New Jersey Department of Banking or the
Office of Thrift Supervision;
(iii) To any amendment which would adversely change the specific terms of
any class or series of capital stock as set forth in this Section 4
(or in any supplementary sections hereto), including any amendment
which would create or enlarge any class or series ranking prior
thereto in rights and preferences. An amendment which increases the
number of authorized shares of any class or series of capital stock,
or substitutes the surviving association in a merger or consolidation
for the association, shall not be considered to be such an adverse
change.
A description of the different classes and series (if any) of the
association's capital stock and a statement of the designations, and the
relative rights, preferences, and limitations of the shares of each class of and
series (if any) of capital stock and a statement of the authority of the Board
of Directors to divide the preferred stock into classes or series or both and to
determine or change for any such class or series its designation, number of
shares, relative rights, preferences and limitations are as follows:
A. Common Stock. Except as provided in this Section 4 the holders of the
------------
common stock shall exclusively possess all voting power. Each holder of shares
of common stock shall be entitled to one vote for each share held by such
holder.
Whenever there shall have been paid, or declared and set aside for payment,
to the holders of the outstanding shares of any class of stock having preference
over the common stock as to the payment of dividends, the full amount of
dividends and of sinking fund, or retirement fund, or other retirement payments,
if any, to which such holders are respectively entitled in preference to the
common stock, then dividends may be paid on the common stock and on any class or
series of stock entitled to participate therewith as to dividends out of any
assets legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
association, the holders of the common stock (and the holders of any class or
series of stock entitled to participate with the
<PAGE>
common stock in the distribution of assets) shall be entitled to receive, in
cash or in kind, the assets of the association available for distribution
remaining after: (i) payment or provision for payment of the association's debts
and liabilities, including the withdrawal of all accounts and deposits; (ii)
distributions or provision for distributions in settlement of its liquidation
account; and (iii) distributions or provision for distributions to holders of
any class or series of stock having preference over the common stock in the
liquidation, dissolution, or winding up of the association. Each share of common
stock shall have the same relative rights as and be identical in all respects
with all the other shares of common stock in the event of such liquidation,
dissolution or winding up of the association.
B. Preferred Stock. The association may provide for one or more classes
---------------
of preferred stock, which shall be separately identified. The shares of any
class may be divided into and issue in series, with each series separately
designated so as to distinguish the shares thereof from the shares of all other
series and classes. All shares of the same class shall be identical except as
to the following relative rights and preferences, as to which there may be
variations between different series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the shares
of such series, whether dividends shall be cumulative and, if so, from which
date(s), the payment date(s) for dividends, and the participating or other
special rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of the shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if so, the
price(s) at which, and the terms and conditions on which, such shares may be
redeemed;
(e) The amount(s) payable upon the shares of such series in the event of
voluntary or involuntary liquidation, dissolution, or winding up of the
association;
(f) Whether the shares of such series shall be entitled to the benefit of a
sinking or retirement fund to be applied to the purchase or redemption of such
shares, and if so entitled, the amount of such fund and the manner of its
application, including the price(s) at which such shares may be redeemed or
purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock of the
association and, if so, the conversion price(s) or the rate(s) of exchange, and
the adjustments thereof, if any, at which such conversion or exchange may be
made, and any other terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such series
shall be issued; and
<PAGE>
(i) Whether the shares of such series which are redeemed or converted shall
have the status of authorized but unissued shares of serial preferred stock and
whether such shares may be reissued as shares of the same or any other series of
serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The Board of Directors shall have authority to divide any authorized class
of preferred stock into classes, or into classes or series, within the
limitations set forth in this section, and to determine or change for any class
or series its designation, number of shares, relative rights, preferences and
limitations.
SECTION 5. Incorporation. The name, residence, post office address and
-------------
occupation of each incorporator of the association are as follows:
NAME RESIDENCE AND ADDRESS OCCUPATION
- ---- --------------------- ----------
Joseph S. Yewaisis 10 Debra Court President, C.E.O.
Scotch Plains, NJ 07076 First Savings Bank, SLA
Donald T. Akey, M.D. 80 Crest Drive Surgeon
Metuchen, NJ 08840
Harry F. Burke 106 High Street Retired
Woodbridge, NJ 07095
Keith H. McLaughlin 17 Bowtell Court President, C.E.O.
Middletown, NJ 07748 Raritan Bay Health Services
Corp.
John P. Molnar 9358 North Olive Lane Retired
Sun Lakes, AZ 85248
Philip T. Ruegger, Jr. 23 Rayle Court Investor
Metuchen, NJ 08840
Jeffries Shein 30 Huntley Road Partner
Holmdel, NJ 07733 Jacobsen, Goldfarb & Shein
Walter K. Timpson 1 Chestnut Lane President
Metuchen, NJ 08840 Walter K. Timpson, Inc.
John P. Mulkerin 6 Oak Grove Lane Executive Vice President
Edison, NJ 08817 First Savings Bank, SLA
<PAGE>
SECTION 6. Preemptive Rights. Holders of the capital stock of the
-----------------
association shall not be entitled to preemptive rights with respect to any
shares of the association which may be issued.
SECTION 7. Certain Provisions Applicable for Five Years. Notwithstanding
--------------------------------------------
anything contained in the association's certificate of incorporation or bylaws
to the contrary, for a period of five years from the date of completion of the
organization of the association, the following provisions shall apply:
A. Beneficial Ownership Limitation. No person other than First Savings
-------------------------------
Bancshares, M.H.C., the mutual holding company of the association, shall
directly or indirectly offer to acquire or acquire the beneficial ownership of
more than 10% of any class of any equity security of the association unless such
offer to acquire or acquisition is approved by a majority of the Board of
Directors. This limitation shall not apply to a transaction in which the
association forms a holding company without change in the respective beneficial
ownership interest of its stockholders other than pursuant to the exercise of
any dissenter and appraisal rights or the purchase of shares by a tax-qualified
employee stock benefit plan which is exempt from the approval requirement under
12 CFR Section 574.3(c)(1)(vi).
In the event shares are acquired in violation of this Section 7, all shares
beneficially owned by any person in excess of 10% shall be considered "excess
shares" and shall not be counted as shares entitled to vote and shall not be
voted by any person or counted as voting shares in connection with any matters
submitted to the stockholders for a vote.
For purposes of this Section 7, the following definitions apply:
(1) The term "person" includes an individual, a group acting in concert, a
corporation, a partnership, a bank, a joint stock company, a trust, an
unincorporated organization or similar company, a syndicate or any other group
formed for the purpose of acquiring, holding or disposing of the equity
securities of the association.
(2) The term "offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value.
(3) The term "acquire" includes every type of acquisition, whether effected
by purchase, exchange, operation of law or otherwise.
(4) The term "acting in concert" means (a) knowing participation in a joint
activity or conscious parallel action towards a common goal whether or not
pursuant to an express agreement, or (b) a combination or pooling of voting or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangements,
whether written or otherwise.
<PAGE>
B. Call for Special Meetings. Special meetings of stockholders relating
-------------------------
to changes in control of the association or amendments to its certificate of
incorporation shall be called only upon direction of the Board of Directors.
SECTION 8. Directors. The association shall be under the direction of a
---------
Board of Directors. The authorized number of directors, as stated in the
association's bylaws, shall not be less than six or more than fifteen except
when a greater number is approved by the Board.
The number of directors constituting the initial Board of Directors upon
organization of the association is eight. The first Board of Directors, to
serve until the first annual meeting of the association, is comprised of the
following individuals:
NAME ADDRESS
- ---- -------
Joseph S. Yewaisis 10 Debra Court
Scotch Plains, NJ 07076
Donald T. Akey, M.D. 80 Crest Drive
Metuchen, NJ 08840
Harry F. Burke 106 High Street
Woodbridge, NJ 07095
Keith H. McLaughlin 17 Bowtell Court
Middletown, NJ 07748
John P. Molnar 9358 North Olive Lane
Sun Lakes, AZ 85248
Philip T. Ruegger, Jr. 23 Rayle Court
Metuchen, NJ 08840
Jeffries Shein 30 Huntley Road
Holmdel, NJ 07733
Walter K. Timpson 1 Chestnut Lane
Metuchen, NJ 08840
SECTION 9. Liability of Directors. No director or officer of the
----------------------
association shall be personally liable to the association or its stockholders
for damages for breach of any duty owed to the association or its stockholders,
except that this Section 9 shall not relieve any director from liability for any
breach of duty based upon an act or omission (a) in breach of such person's duty
<PAGE>
of loyalty to the association or its stockholders, (b) not in good faith or
involving a knowing violation of law, or (c) resulting in receipt by such person
of an improper personal benefit. As used in this Section 9, an act or omission
in breach of a person's duty of loyalty means an act or omission which that
person knows or believes to be contrary to the best interests of the association
or its stockholders in connection with a matter in which he has a material
conflict of interest.
If the Savings and Loan Act of New Jersey (1963) as presently enacted is
amended after the date hereof to authorize further eliminating or limiting the
personal liability of directors or officers, then the liability of a director or
officer of the association shall be eliminated or limited to the fullest extent
permitted by the Savings and Loan Act of New Jersey (1963), as so amended. Any
repeal or modification of this Section 9 by the stockholders of the association
shall be prospective only and shall nor adversely affect any right or protection
of a director or officer existing at the time of such repeal or modification.
SECTION 10. Indemnification of Officers, Directors and Employees. Any
----------------------------------------------------
person shall be indemnified or reimbursed by the association for reasonable
expenses, including, but not limited to, attorney fees, actually incurred by him
in connection with any action, suit or proceeding, instituted or threatened,
judicial or administrative, civil or criminal, to which he is made a party by
reason of his being or having been a director, officer or employee of the
association; provided, however, that no person shall be so indemnified or
-------- -------
reimbursed, nor shall he retain any advancement or allowance for indemnification
which may have been made by the association in advance of final disposition in
relation to such action, suit or proceeding in which, and to the extent that, he
finally shall be adjudicated to have been guilty of a breach of good faith, to
have been negligent in the performance of his duties or to have committed an
action or failed to perform a duty for which there is a common law or statutory
liability; and, provided further, that a person may, with the approval of the
-------- -------
Commissioner of Banking of the State of New Jersey be so indemnified or
reimbursed for:
(l) Amounts paid in compromise or settlement of any action, suit or
proceeding, including reasonable expenses incurred in connection therewith; or
(2) Reasonable expenses, including fines and penalties, incurred in
connection with a criminal or civil action, suit or proceeding in which such
person has been adjudicated guilty, negligent or liable, if it shall be
determined by the Board of Directors and by the Commissioner that such person
was acting in good faith and in what he believed to be the best interest of the
association and without knowledge that the action was illegal, and if such
indemnification or reimbursement is approved at an annual or special meeting of
the members or stockholders by a majority of the votes eligible to be cast.
Amounts paid to the association, whether pursuant to judgment or settlement, by
any person within the meaning of this section shall not be indemnified or
reimbursed in any case.
<PAGE>
SECTION 11. Perpetual Existence. The association shall have a perpetual
-------------------
existence, subject to liquidation and dissolution as provided by law.
SECTION 12. Amendment of Certificate. Except as provided in Section 4,
------------------------
no amendment, addition, alteration, change, or repeal of this certificate of
incorporation shall be made, unless such is first proposed by the Board of
Directors of the association, approved by the stockholders by a majority of the
total votes eligible to be cast and submitted to the Commissioner of Banking of
the State of New Jersey for action as specified by law or regulation.
SECTION 13. Subscribed Shares. First Savings Bancshares, MHC, the parent
-----------------
mutual holding company of the Association has subscribed, subject to the
approval of the Office of Thrift Supervision of its Charter, for a minimum of
175,000 shares, or $1,750,000, as of the date of this Certificate of
Incorporation.
<PAGE>
The undersigned incorporators are of the age of eighteen years or over.
IN WITNESS WHEREOF, this Certificate has been subscribed this 22nd day of
January, 1992, by the undersigned.
NAME OF INCORPORATOR SIGNATURE
- -------------------- ---------
Joseph S. Yewaisis /s/ Joseph S. Yewaisis
--------------------------
Donald T. Akey, M.D. /s/ Donald T. Akey, M.D.
--------------------------
Harry F. Burke /s/ Harry F. Burke
--------------------------
Keith H. McLaughlin /s/ Keith H. McLaughlin
--------------------------
John P. Molnar /s/ John P. Molnar
--------------------------
Philip T. Reugger, Jr. /s/ Philip T. Reugger, Jr.
--------------------------
Jeffries Shein /s/ Jeffries Shein
--------------------------
Walter K. Timpson /s/ Walter K. Timpson
--------------------------
John P. Mulkerin /s/ John P. Mulkerin
--------------------------
<PAGE>
AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
FIRST SAVINGS BANK, SLA
First Savings Bank, SLA, is incorporated as a capital stock savings
association pursuant to the New Jersey Savings and Loan Act of 1963, as amended
(N.J.S.A. 17:12B-1 et. seq.), for the purposes stated in said Act.
Pursuant to the provisions of N.J.S.A. 17:12B-250, First Savings Bank, SLA
hereby certifies that the Board of Directors, at their regular monthly meeting
held on March 24, 1993, unanimously approved the amendment to increase the
authorized shares of Common Stock from 3,000,000 shares to 10,000,000 shares and
that the stockholders approved said amendment by a majority of the votes cast at
the First Annual Meeting of the Stockholders held on April 28, 1993.
The first sentence of Section 4. Capital Stock of the Certificate of
-------------
Incorporation shall be deleted in its entirety and replaced by the following:
Section 4. Capital Stock. The total number of shares of all classes of
-------------
capital stock which the association has authority to issue is eleven million
(11,000,000), of which ten million (10,000,000) shall be common stock, par value
$.01 per share, and of which One Million (1,000,000) shall be preferred stock,
par value $.01 per share.
IN WITNESS WHEREOF, First Savings Bank, SLA, has caused this amendment to
be signed by the President and Secretary and the corporate seal to be affixed
this 29th day of April 1993.
/s/ Joseph S. Yewaisis
-------------------------------------
Joseph S. Yewaisis
President
/s/ John P. Mulkerin
- ---------------------------------
John P. Mulkerin
Secretary
<PAGE>
BYLAWS OF
FIRST SAVINGS BANK, SLA
ARTICLE I. HOME OFFICE
The home office of First Savings Bank, SLA ("Association") is located at
339 State Street, Perth Amboy, New Jersey.
ARTICLE II. SHAREHOLDERS
Section 1. Place of Meetings. All annual and special meetings of
--------- -----------------
shareholders shall be held at the home office of the Association or at such
other place in the State as the board of directors may determine.
Section 2. Annual Meeting. A meting of the shareholders of the
--------- --------------
Association for the election of directors and for the transaction of any other
business of the Association shall be held annually within 120 days after the end
of the Association's fiscal year on such date and at such time as the board of
directors may determine.
Section 3. Special Meetings. For a period of five years from the date of
--------- ----------------
the completion of the organization of the Association, special meetings of the
shareholders relating to a change in control of the Association or to an
amendment of the Certificate of Incorporation of the Association may be called
only by the board of directors. Thereafter, special meetings of the
shareholders for any purpose or purposes may be called at any time by the
chairman of the board, the president, or a majority of the board of directors,
and shall be called by the chairman of the board, the resident or the secretary
upon the written request of the holders of not less than ten percent of all the
outstanding capital stock of the Association entitled to vote at the meeting.
Such written request shall state the purpose or purposes of the meeting and
shall be delivered at the home office of the Association addressed to the
chairman of the board, the president or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
--------- -------------------
conducted in accordance with the rules and procedures adopted by the board of
directors unless otherwise prescribed by these bylaws. The board of directors
shall designate, when present, either the chairman of the board or president to
preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, day and
--------- ------------------
hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 20 nor more than 60 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, the secretary, or the directors calling the meeting,
to each shareholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered at the address as it appears on the stock
transfer books or records of the Association as of the record date prescribed in
Section 6 of this Article II, with postage prepaid. When any shareholders'
meeting, either annual or special, is adjourned for 30 days or more, notice of
the
<PAGE>
adjourned meeting shall be given as in the case of an original meeting. It shall
not be necessary to give any notice of the time and place of any meeting
adjourned for less than 30 days or of the business to be transacted at the
meeting, other than an announcement at the meeting at which such adjournment is
taken.
Section 6. Fixing of Record Date. For the purpose of determining
--------- ---------------------
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to, or dissent from, any proposal
without a meeting, or for the purposes of determining shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the board of directors shall fix in
advance a date as the record date for any such determination of shareholders.
Such date in any case shall be not more than 60 days and, in case of a meeting
of shareholders, not fewer than 10 days prior to the date on which the
particular action, requiring such determination of shareholders, is to be taken.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment.
Section 7. Voting Lists. At least 10 days before each meeting of the
--------- ------------
shareholders, the officer or agent having charge of the stock transfer books for
shares of the Association shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment, arranged in alphabetical
order, with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the home office of the Association and
shall be subject to inspection by any shareholder at any time during usual
business hours, for a period of 10 days prior to such meeting. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to the inspection by any shareholder during the entire time of the
meeting. The original stock transfer book shall constitute prima facie
evidence of the shareholders entitled to examine such list or transfer books or
to vote at any meeting of shareholders.
Section 8. Quorum. A majority of the outstanding shares of the
--------- ------
association entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of
the outstanding shares is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice.
At such adjourned meting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders to constitute less than a quorum.
Section 9. Proxies. At all meetings of shareholders, a shareholder may
--------- -------
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid
more than eleven months from the date of its execution except for a proxy
coupled with an interest.
2
<PAGE>
Section 10. Voting of Shares in the Name of Two or More Persons. When
---------- ---------------------------------------------------
ownership stands in the name of two or more persons, in the absence of written
directions to the Association to the contrary, at any meeting of the
shareholders of the Association any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such and present in person or by proxy at such meeting, but no
votes shall be cast for such stock if a majority cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing in the
---------- -----------------------------------
name of another corporation may be voted by any officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a receiver may be voted by such receiver, and shares
held by or under the control of a receiver may be voted by such receiver without
the transfer into his name if authority to do so is contained in an appropriate
order of the court or other public authority by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Association, nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the
Association, shall be voted at any meting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
Section 12. Cumulative Voting. Shareholders shall not be entitled to
----------- -----------------
cumulate their votes for election of directors.
Section 13. Inspectors of Election. In advance of any meeting of
---------- ----------------------
shareholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails
or refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting, or at the meeting by the chairman of the
board or the president.
3
<PAGE>
The duties of such inspectors shall include: determining the number of
shares and the voting power of each share, the shares represented at the
meeting, the existence of a quorum, and the authenticity, validity and effect of
proxies; receiving votes, ballots, or consents; hearing and determining all
challenges and questions in any way arising in connection with the rights to
vote; counting and tabulating all votes or consents; determining the result; and
such acts as may be proper to conduct the election or vote with fairness to all
shareholders.
Section 14. Nominating Committee. The board of directors shall act as a
---------- --------------------
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 15 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in the principal place of business of the association. No
nominations for directors except those made by the nominating committee shall be
voted upon at the annual meeting unless other nominations by shareholders are
made in writing and delivered to the secretary of the Association at least 60
days prior to the date of the annual meeting. Upon delivery, such nominations
shall be posted in a conspicuous place in the principal place of business of the
association. Ballots bearing the names of all persons nominated by the
nominating committee and by shareholders shall be provided for use at the annual
meeting. However, if the nominating committee shall fail or refuse to act at
least 15 days prior to the annual meeting, nominations for directors may be made
at the annual meeting by any shareholder entitled to vote and shall be voted
upon.
Section 15. New Business. Any new business to be taken up at the annual
---------- ------------
meeting shall be stated in writing and filed with the secretary of the
Association at least 15 days before the date of the annual meeting, and all
business so stated, proposed, and filed shall be considered at the annual
meeting, but no other proposal shall be acted upon at the annual meeting. Any
shareholder may make any other proposal at the annual meting and the same may be
discussed and considered, but unless stated in writing and filed with the
secretary at least 60 days before the meeting, such proposal shall be laid over
for action at an adjourned, special, or annual meeting of the shareholders
taking place at east 60 days thereafter. This provision shall not prevent the
consideration and approval or disapproval at the annual meeting of reports of
officers, directors and committees; but in connection with such reports no new
business shall be acted upon at such annual meeting unless stated and filed as
herein provided.
Section 16. Action by Consent of Shareholders. Any action required to be
---------- ---------------------------------
taken at a meeting of shareholders, or any other action which may be taken at a
meeting of the shareholders must be effected at an annual or special meeting of
shareholders of the association and may not be affected by any consent in
writing by such shareholders.
ARTICLE III. BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the association
--------- --------------
shall be under the direction of its board of directors. The board of directors
shall annually elect a chairman of the board and a president from among its
members and shall designate, when present, either the chairman of the
4
<PAGE>
board or the president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of eight
--------- ---------------
members and shall be divided into three classes as nearly equal in number as
possible. The members of each class shall be elected for a term of three years
and until their successors are elected and qualified. One class shall be
elected by ballot annually.
Section 3. Regular Meetings. A regular meeting of the board of directors
--------- ----------------
shall be held without other notice than this bylaw immediately after, and at the
same place as, the annual meeting of shareholders. The board of directors may
provide, by resolution, the time and place for the holding of additional regular
meetings without other notice than such resolution.
Section 4. Qualification. Each director shall at all times be the
--------- -------------
beneficial owner of not less than [100] shares of capital stock of the
Association unless the Association is wholly owned subsidiary of a holding
company.
Section 5. Special Meetings. Special meetings of the board of directors
--------- ----------------
may be called by or at the request of the chairman of the board, the president
or one-third of the directors. The persons authorized to call special meetings
of the board of directors may fix any place as the place for holding any special
meeting of the board of directors called by such persons.
Section 6. Notice. Written notice of any special meeting shall be given
--------- ------
to each director at least 24 hours prior thereto when delivered personally or by
telegram, or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall
be deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed, or when delivered to the telegraph company if sent by
telegram. Any director may waive notice of any meeting by a writing filed with
the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by Section
--------- ------
2 of this Article III shall constitute a quorum for the transaction of business
at any meeting of the board of directors, but if less than such a majority is
present at a meeting, a majority of the directors present may adjourn the
meeting from time to time. Notice of any adjourned meeting shall be given in
the same manner as prescribed by Section 6 of this Article III.
Section 8. Manner of Acting. The act of the majority of the directors
--------- ----------------
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by regulation of the OTS or
by these bylaws.
5
<PAGE>
Section 9. Action Without a Meeting. Any action required or permitted to
--------- ------------------------
be taken by the board of directors at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the directors.
Section 10. Resignation. Any director may resign at anytime by sending a
---------- -----------
written notice of such resignation to the home office of the Association
addressed to the chairman of the board or president. Unless otherwise specified
such resignation shall take effect upon receipt by the chairman of the board or
president. The board may, in its discretion by a majority vote, remove any
director who has absented without authority of the board from the consecutive
meetings of the board.
Section 11. Vacancies. Any vacancy occurring in the board of directors
---------- ---------
may be filled by the affirmative vote of a majority of the remaining directors,
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve until the next election of directors by
the shareholders. Any directorship to be filled by reason of an increase in the
number of directors may be filled by reason of an increase in the number of
directors may be filled by election by the board of directors for a term of
office continuing only until the next election of directors by the shareholders.
Section 12. Compensation. Directors, as such, may receive stated
---------- ------------
compensation for their services. By resolutions of the board of directors, a
reasonable fixed sum or such other compensation, including reasonable expenses
of attendance, if any, may be allowed for actual attendance at each regular or
special meeting of the board of directors. Members of either standing or
special committees may be allowed such compensation for actual attendance at
committee meetings as the board of directors may determine.
Section 13. Presumption of Assent. A director of the Association who is
---------- ---------------------
present at a meeting of the board of directors at which action on any
Association matter is taken shall be presumed to have assented to the action
taken unless his dissent or abstention shall be entered in the minutes of the
meeting or unless he shall file a written dissent to such action with the person
acting as the secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the secretary of the Association
within five days after the date a copy of the minutes of the meeting is
received. Such right to dissent shall not apply to a director who voted in
favor of such action.
Section 14. Removal of Directors. Any director may be removed for cause
---------- --------------------
by a two-thirds vote of the board. In addition to the foregoing, any director,
or the entire board of directors, may be removed from office at any time, but
only for cause and upon the affirmative vote of the holders of at least eighty
percent (80%) of the voting power of all the then outstanding shares of capital
stock of the Association entitled to vote generally in the election of
directors.
6
<PAGE>
ARTICLE IV. EXECUTIVE AND OTHER COMMITTEES
Section 1. Appointment. The board of directors, by resolution adopted by
--------- -----------
a majority of the full board, may designate the chairman of the board and two or
more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
or any responsibility imposed by law or regulation.
Section 2. Authority. The executive committee, when the board of
--------- ---------
directors is not in session, shall have and may exercise all of the authority of
the board of directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the board of
directors with reference to: the declaration of dividends; the amendment of the
Certificate of Incorporation or bylaws of the Association, or recommending to
the shareholders a plan of merger, consolidation, or conversion; the sale, lease
or other disposition of all or substantially all of the property and assets of
the Association otherwise than in the usual and regular course of business; a
voluntary dissolution of the Association; a revocation of any of the foregoing;
or the approval of a transaction in which any member of the executive committee,
directly or indirectly, has any material beneficial interest.
Section 3. Tenure. Subject to the provisions of Section 8 of this Article
--------- ------
IV, each member of the executive committee shall hold office until the next
regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
Section 4. Meetings. Regular meetings of the executive committee may be
--------- --------
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee
may be called by any member thereof upon not less than 24 hour's notice stating
the place, date and hour of the meeting, which notice may be written or oral.
Any member of the executive committee may waive notice of any meeting and no
notice of any meeting need be given to any member thereof who attends in person.
The notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
--------- ------
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted to
--------- ------------------------
be taken by the executive committee at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be
--------- ---------
filled by a resolution adopted by a majority of the full board of directors.
7
<PAGE>
Section 8. Resignations and Removal. Any member of the executive
--------- ------------------------
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full board of directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the president or secretary of the Association. Unless otherwise
specified, such resignation shall take effect upon its receipt; the acceptance
of such resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
--------- ---------
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the procedure shall have occurred.
Section 10. Other Committees. The board of directors may by resolution
---------- ----------------
establish an audit, loan, or other committees composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
Association and may prescribe the duties, constitution and procedures thereof.
ARTICLE V. OFFICERS
Section 1. Positions. The officers of the Association shall be a
--------- ---------
president, one or more vice presidents, a secretary and a treasurer, each of
whom shall be elected by the board of directors. The board of directors may
also designate the chairman of the board as an officer. The president shall b
the chief executive officer, unless the board of directors designates the
chairman of the board as chief executive officer. The president shall be a
director of the Association. The offices of the secretary and treasurer may be
held by the same person and a vice president may also be either the secretary or
the treasurer. The board of directors may designate one or more vice presidents
as executive vice president or senior vice president. The board of directors
may also elect or authorize the appointment of such other officers as the
business of the Association may require. The officers shall have such authority
and perform such duties as the board of directors may from to time authorize or
determine. In the absence of action by the board of directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
Section 2. Election and Term of Office. The officers of the Association
--------- ---------------------------
shall be elected annually at the first meeting of the board of directors held
after each annual meting of the shareholders. If the election of officers is
not held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly
elected and qualified or until the officer's death, resignation or removal in
the manner hereinafter provided. Election or appointment of an officer,
employee or agent shall not of itself create contractual rights. The board of
directors may authorize the Association to enter into an employment contract
with any officer in accordance with regulations of the OTS; but no such contract
shall impair the right of the board of directors to remove any officer at any
time in accordance with Section 3 of this Article V.
8
<PAGE>
Section 3. Removal. Any officer may be removed by the board of directors
--------- -------
whenever in its judgment the best interests of the Association will be served
thereby, but such removal, other than for cause, shall be without prejudice to
the contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
--------- ---------
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be fixed
--------- ------------
from time to time by the board of directors.
ARTICLE VI. CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. Except as otherwise prescribed by these bylaws with
--------- ---------
respect to certificates for shares, the board of directors may authorize any
officer, employee, or agent of te Association to enter into any contract or
execute and deliver any instrument in the name of and on behalf of the
Association. Such authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
--------- -----
Association and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or confined
to specific instances.
Section 3. Checks, Drafts, Etc. All checks, drafts or other orders for
--------- --------------------
the payment of money, notes or other evidences of indebtedness issued in the
name of the Association shall be signed by one or more officer, employees or
agents of the Association in such manner as shall from time to time be
determined by the board of directors.
Section 4. Deposits. All funds of the Association not otherwise employed
--------- --------
shall be deposited from to time to the credit of the Association in any duly
authorized depositories as the board of directors may select.
ARTICLE VII. CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares of
--------- -----------------------
capital stock of the Association shall be in such form as shall be determined by
the board of directors. Such certificates shall be signed by the chief
executive officer or by any other officer of the Association authorized by the
board of directors, attested by the secretary or an assistant secretary, and
sealed with the corporate seal or a facsimile thereof. The signature of such
officers upon a certificate may be facsimiles if the certificate is manually
signed on behalf of a transfer agent or a registrar, other than the Association
itself or one of its employees. Each certificate for shares of capital stock
shall be consecutively numbered or otherwise identified. The name and address
of the person to whom the shares are issued, with the number of shares and date
of issue, shall be entered on the stock transfer
9
<PAGE>
books of the Association. All certificates surrendered to the Association for
transfer shall be canceled and no new certificate shall be issued until the
former certificate for a like number of shares has been surrendered and
canceled, except that in case of a lost or destroyed certificate, a new
certificate may be issued upon such terms and indemnity to the Association as
the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of the
--------- ------------------
association shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney authorized by a duly executed power of attorney and filed with the
Association. Such transfer shall be made only on surrender for cancellation of
the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the Association shall be deemed by the Association
to be the owner for all purposes.
ARTICLE VIII. FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Association shall end on December 31 of each year.
The Association shall be subject to an annual audit as of the end of its fiscal
year by independent public directors. The appointment of such accountants shall
be subject to annual ratification by the shareholders.
ARTICLE IX DIVIDENDS
Subject to the term of the Association's Certificate of Incorporation, the
board of directors may, from time to tie, declare, and the Association may pay,
dividends on its outstanding shares of capital stock.
ARTICLE X CORPORATE SEAL
The board of directors shall provide an Association seal, which shall be
two concentric circles between which shall be the name of the Association. The
year of incorporation or an emblem may appear in the center.
ARTICLE XI AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of the
New Jersey Department of Banking and at any time by a majority vote of the full
board of directors, or by a majority vote of the votes cast by the shareholders
of the Association at any legal meeting.
10
<PAGE>
Exhibit 4.0
COMMON STOCK COMMON STOCK
PAR VALUE $.01 SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP
FIRST SOURCE BANCORP, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
S P E C I M E N
is the owner of:
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK $.01 PAR VALUE PER SHARE OF
________________
The shares represented by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record thereof, or by his
duly authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation of the Corporation and any amendments thereto
(copies of which are on file with the Transfer Agent), to all of which
provisions the holder by acceptance hereof, assents.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar. The shares represented by this Certificate are
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
IN WITNESS THEREOF, First Source Bancorp, Inc. has caused this
certificate to be executed by the facsimile signatures of its duly authorized
officers and has caused a facsimile of its corporate seal to be hereunto
affixed.
Dated: [SEAL]
President Secretary
<PAGE>
________________
The shares represented by this certificate are subject to a limitation
contained in the Certificate of Incorporation to the effect that in no event
shall any record owner of any outstanding common stock which is beneficially
owned, directly or indirectly, by a person who beneficially owns in excess of
10% of the outstanding shares of common stock (the "Limit") be entitled or
permitted to any vote in respect of shares held in excess of the Limit.
The Board of Directors of the Corporation is authorized by resolution(s),
from time to time adopted, to provide for the issuance of serial preferred stock
in series and to fix and state the voting powers, designations, preferences and
relative, participating, optional, or other special rights of the shares of each
such series and the qualifications, limitations and restrictions thereof. The
Corporation will furnish to any shareholder upon request and without charge a
full description of each class of stock and any series thereof.
The shares represented by this certificate may not be cumulatively voted on
any matter. The affirmative vote of the holders of at least 80% of the voting
stock of the Corporation, voting together as a single class, shall be required
to approve certain business combinations and other transactions, pursuant to the
Certificate of Incorporation or to amend certain provisions of the Certificate
of Incorporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFTS MIN ACT - _______ custodian ________
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act
____________________
(State)
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above list.
For value received, __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFICATION NUMBER OF TRANSFEREE
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of assignee
_______________________________________________ shares of the common stock
represented by the within Certificate, and do hereby irrevocably constitute and
appoint ____________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
DATED ____________________
_____________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED: __________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15
<PAGE>
Exhibit 5.0
DRAFT
December 19, 1997
Board of Directors
First Source Bancorp, Inc.
1000 Woodbridge Center Drive
Woodbridge, New Jersey 07095
Re: The offering of up to 27,600,000 shares of First Source Bancorp, Inc.
Common Stock
Gentlemen:
You have requested our opinion concerning certain matters of Delaware law
in connection with (i) the reorganization of First Savings Bancshares, MHC (the
"Mutual Holding Company"), a federal mutual holding company that owns a majority
of the outstanding stock of First Savings Bank, SLA, a New Jersey chartered
stock savings association (the "Bank"), into the stock form of ownership (the
"Conversion"), and (ii) the subscription and community offering (the
"Offerings"), in connection with the Conversion by First Source Bancorp, Inc., a
Delaware corporation (the "Company"), of up to 27,600,000 shares of its common
stock, par value $0.01 per share (the "Common Stock") (31,740,000 shares if the
Estimated Valuation Range is increased up to 15% to reflect changes in market
and financial conditions following commencement of the Offerings.)
In connection with your request for our opinion, you have provided to us
and we have reviewed the Company's certificate of incorporation filed with the
Delaware Secretary of State on December 15, 1997 (the "Certificate of
Incorporation"); the Company's Bylaws; the Company's Registration Statement on
Form S-1, as filed with the Securities and Exchange Commission initially on
December __, 1997 (the "Registration Statement"); a consent of the sole
incorporator of the Company; resolutions of the Board of Directors of the
Company (the "Board") concerning the organization of the Company, the Offerings
and designation of a Pricing Committee of the Board, and the form of stock
certificate approved by the Board to represent shares of Common Stock. We have
also been furnished a certificate of the Delaware Secretary of State certifying
the Company's good standing as a Delaware corporation. Capitalized terms used
but not defined herein shall have the meaning given them in the Certificate of
Incorporation.
In rendering this opinion, we have relied upon the opinion of Morris,
Nichols, Arsht & Tunnell as to matters of Delaware law upon which opinion we
believe we are justified in relying.
<PAGE>
Board of Directors
First Source Bancorp, Inc.
December 19, 1997
Page 2
We understand that the Company will loan to the trust for the Bank's
Employee Stock Ownership Plan (the "ESOP") the funds the ESOP Trust will use to
purchase shares of Common Stock for which the ESOP Trust subscribes pursuant to
the Offerings, and for purposes of rendering the opinion set forth in paragraph
2 below, we assume that: (a) the Board of Directors of the Company has duly
authorized the loan to the ESOP Trust (the "Loan"); (b) the ESOP serves a valid
corporate purpose for the Company; (c) the Loan will be made at an interest rate
and on other terms that are fair to the Company; (d) the terms of the Loan will
be set forth in customary and appropriate documents including, without
limitation, a promissory note representing the indebtedness of the ESOP Trust to
the Company as a result of the Loan; and (e) the closing for the Loan and for
the sale of Common Stock to the ESOP Trust will be held after the closing for
the sale of the other shares of Common Stock sold in the Offerings and the
receipt by the Company of the proceeds thereof.
Based upon and subject to the foregoing, and limited in all respects to
matters of Delaware law, it is our opinion that:
1. The Company has been duly organized and is validly existing in good
standing as a corporation under the laws of the State of Delaware.
2. Upon the due adoption by the Pricing Committee of a resolution fixing
the number of shares of Common Stock to be sold in the Offerings, the Common
Stock to be issued in the Offerings (including the shares to be issued to the
ESOP Trust) will be duly authorized and, when such shares are sold and paid for
in accordance with the terms set forth in the Prospectus included in the
Company's Registration Statement on Form S-1 and such resolution of the Pricing
Committee and certificates representing such shares in the form provided to us
are duly and properly issued, will be validly issued, fully paid and non-
assessable.
The following provisions of the Certificate of Incorporation may not be
given effect by a court applying Delaware law, but in our opinion the failure to
give effect to such provisions will not affect the duly authorized, validly
issued, fully paid and non-assessable status of the Common Stock:
1. (a) Subsections C.3 and C.6 of Article FOURTH and Section D of
Article EIGHTH, which grant the Board the authority to construe
and apply the provisions of those Articles, subsection C.4 of
Article FOURTH, to the extent that subsection obligates any
person to provide to the Board the information such subsection
authorizes the Board to demand, and the provision of Subsection
C.7 of Article EIGHTH empowering the Board to determine the Fair
Market Value of property offered or paid for the Company's stock
by an Interested Stockholder, in each case to the extent,
<PAGE>
Board of Directors
First Source Bancorp, Inc.
December 19, 1997
Page 3
if any, that a court applying Delaware law were to impose
equitable limitations upon such authority; and
(b) Article NINTH, which authorizes the Board to consider the effect
of any offer to acquire the Company on constituencies other than
stockholders in evaluating any such offer.
We consent to the filing of this opinion as an exhibit to the Registration
Statement on Form S-1 and the Form AC and to the use of the name of our firm
where it appears in the Registration Statement, Form AC and Prospectus.
Very truly yours,
MULDOON, MURPHY & FAUCETTE
<PAGE>
Exhibit 5.1
12/16/97 Draft
--------------
[Morris, Nichols, Arsht & Tunnell Letterhead]
[Date]
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, DC 20016
Ladies and Gentlemen:
You have requested our opinion concerning certain matters of Delaware
law in connection with the reorganization of First Savings Bank, SLA, a New
Jersey state chartered savings and loan association (the "Bank"), and First
Savings Bancshares, MHC, the mutual holding company of the Bank ("MHC"), into a
stock holding company structure (the "Reorganization"), in which each share of
the Bank's common stock held by the Bank's public stockholders will be converted
into shares of common stock, par value $.01 per share ("Common Stock"), of First
Source Bancorp, Inc., a Delaware corporation (the "Company"), and the
subscription and community offering (the "Offering"), in connection with the
Reorganization, by the Company, of up to ________ shares of Common Stock.
In connection with your request for our opinion, you have provided to
us, and we have reviewed, MHC's Plan of Conversion and Agreement and Plan of
Reorganization (the "Plan"), the Company's certificate of incorporation (the
"Certificate of Incorporation"), its by-laws, the Registration Statement filed
with the Securities and Exchange Commission in connection with the Offering (the
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 2
"Registration Statement"), including the prospectus constituting a part thereof
(the "Prospectus"), a consent of the sole incorporator of the Company,
resolutions of the Board of Directors of the Company (the "Board") concerning,
inter alia, the organization of the Company, the Offering and the designation of
- ----- ----
a Pricing Committee of the Board (the "Pricing Committee"), and the form of
stock certificate approved by the Board to represent shares of Common Stock. We
have also obtained a certificate of the Delaware Secretary of State as to the
Company's good standing as a Delaware corporation. Capitalized terms used but
not defined herein shall have the meanings given them in the Certificate of
Incorporation.
We understand that the Company will loan to the Bank's Employee Stock
Ownership Plan (the "ESOP") the funds the ESOP will use to purchase the shares
of Common Stock for which the ESOP has subscribed as part of the Offering. In
this regard, we have assumed, for purposes of rendering the opinion set forth in
paragraph 2 below, that: (a) the Board has duly authorized the loan to the ESOP
(the "Loan"); (b) the Loan serves a valid corporate purpose; (c) the Loan will
be made at an interest rate and on other terms that are fair to the Company; (d)
the terms of the Loan will be set forth in customary and appropriate documents
including, without limitation, a promissory note representing the indebtedness
of the ESOP to the Company as a result of the Loan; and (e) the closing for the
Loan and for the sale of Common Stock to the ESOP
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 3
will be held after the closing for the sale of the other shares of Common Stock
sold in the Offering and the receipt by the Company of the proceeds thereof.
We call your attention to the fact that the opinions expressed herein
are limited in all respects to matters of Delaware corporate law. We express no
opinion concerning the requirements of any other law, rule or regulation, state
or federal, applicable to the Bank, MHC, the Company, the Offering, or the
Reorganization, including, without limitation, those applicable to federally
insured savings and loan associations or their holding companies.
Based upon and subject to the foregoing, it is our opinion that:
1. The Company has been duly organized and is validly existing in
good standing as a corporation under the laws of the State of Delaware, with the
corporate power and authority to own its property and conduct its business as
now conducted as described in the Prospectus.
2. Upon the due adoption by the Pricing Committee of a resolution
fixing the number of shares of Common Stock to be sold in the Offering, the
Common Stock to be issued in the Offering (including the shares to be issued to
the ESOP) will be duly authorized and, when such shares are sold and paid for in
accordance with the terms set forth in the Prospectus and such resolution of the
Pricing Committee, and certificates representing
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 4
such shares in the form provided to us are duly and properly issued, will be
validly issued, fully paid and nonassessable, with no personal liability for the
payment of the Company's debts arising solely by virtue of the ownership
thereof; such issuance and sale will not be in violation of or subject to any
preemptive rights provided for by Delaware law or by the Certificate of
Incorporation.
The following provisions of the Certificate of Incorporation may not
be given effect by a court applying Delaware law, but in our opinion the failure
to give effect to such provisions will not affect the duly authorized, validly
issued, fully paid and nonassessable status of the Common Stock:
(a) Subsections C.3 and C.6 of Article FOURTH and Section D of Article
EIGHTH, which grant the Board the authority to construe and apply the provisions
of those Articles, subsection C.4 of Article FOURTH, to the extent that
provision obligates any person to provide to the Board the information such
subsection authorizes the Board to demand, and the provision of Section C.7 of
Article EIGHTH empowering the Board to determine the Fair Market Value of
property offered or paid for the Company's stock by an Interested Stockholder,
to the extent, if any, that a court applying Delaware law were to impose
equitable limitations upon the authority of the directors of the Company under
such provisions.
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 5
(b) Article NINTH of the Certificate of Incorporation, which purports
to permit the Board to consider the effect of any offer to acquire the Company
on constituencies other than stockholders in evaluating any such offer.
Very truly yours,
<PAGE>
Exhibit 10.1
FIRST SAVINGS BANK, SLA
1992 INCENTIVE STOCK OPTION PLAN
1. PURPOSE. The purpose of the First Savings Bank, SLA (the "Bank") 1992
Incentive Stock Option Plan (the "Plan") is to advance the interests of the Bank
and its shareholders by providing those key employees of the Bank and its
Affiliates, including First Savings Bancshares, MHC (the "Holding Company"),
upon whose judgment, initiative and efforts the successful conduct of the
business of the Bank and its affiliates largely depends, with additional
incentive to perform in a superior manner. A purpose of the Plan is also to
attract people of experience and ability to the service of the Bank and its
Affiliates.
2. DEFINITIONS.
(a) "Affiliate" means (i) a member of a controlled group of corporations
of which the Bank is a member; (ii) an unincorporated trade or business which is
under common control with the Bank as determined in accordance with Section
414(c) of the Internal Revenue Code (the "Code") and the regulations issued
thereunder; or (iii) the Holding Company. For purposes hereof, a "controlled
group of corporations" shall mean a controlled group of corporations as defined
in Section 1563(a) of the Code determined without regard to Section 1563(a)(4)
and (e)(3)(C).
(b) "Award" means a grant of Non-statutory Stock Options, Incentive Stock
Options, and/or Limited Rights under the provisions of this Plan.
(c) "Board of Directors" or "Board" means the Board of Directors of the
Bank.
(d) "Change in Control" of the Bank or the Holding Company shall mean (i) a
plan of reorganization, merger, merger conversion, consolidation or sale of all
or substantially all of the assets of the Bank or the Holding Company or a
similar transaction occurs in which the Bank or the Holding Company is not the
resulting entity; (ii) individuals who constitute the Board of Directors of the
Bank or the Board of Directors of the Holding Company cease for any reason to
constitute a majority thereof; or (iii) a change in control within the meaning
of 12 C.F.R. (S)574.4 occurs, as determined by the Board of Directors of the
Bank or the Holding Company, provided, however, that a change in control shall
not be deemed to occur under 2(d)(i) or 2(d)(iii) of this section, if the
transaction(s) constituting a change in control is approved by a majority of the
Board of Directors of the Bank or the Holding Company, as the case may be. In
the event the Holding Company converts from the mutual form of organization to
the stock form of organization at any time subsequent to the effective date of
this Agreement ("Stock Holding Company"), a "change in control" of the Bank or
the Stock Holding Company for purposes of this Agreement shall mean an event of
a nature that (I) would be required to be reported in response to Item 1 of the
current report on Form
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8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or (II) results in a
Change in Control of the Bank or the Stock Holding Company within the meaning of
the Home Owners' Loan Act of 1933 and the Rules and Regulations promulgated by
the Office of Thrift Supervision (or its predecessor agency), as in effect on
the date hereof; or (III) without limitation such a Change in Control shall be
deemed to have occurred at such time as (a) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Bank or the Stock Holding Company representing
20% or more of the Bank's or the Stock Holding Company's outstanding securities
except for any securities of the Bank purchased by the Stock Holding Company and
any securities purchased by the Bank's Employee Stock Ownership Plan and Trust;
or (b) individuals who constitute the Board of the Bank or the Stock Holding
Company on the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Stock Holding Company's stockholders was
approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (b), considered as though he were a member
of the Incumbent Board; or (c) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the Stock Holding
Company or similar transaction occurs in which the Bank or Stock Holding Company
is not the resulting entity; or (d) a proxy statement soliciting proxies from
stockholders of the Stock Holding Company, by someone other than the current
management of the Stock Holding Company, seeking stockholder approval of a plan
of reorganization, merger or consolidation of the Stock Holding Company or Bank
or similar transaction with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to such plan or
transaction are exchanged for or converted into cash or property or securities
not issued by the Bank or the Stock Holding Company shall be distributed; or (e)
a tender offer is made for 20% or more of the voting securities of the Bank or
Stock Holding Company then outstanding.
(e) "Committee" means a committee consisting of non-employee members of the
Board of Directors, all of whom are "disinterested directors" as such term is
defined under Rule 16b-3 under the Securities Exchange Act, as amended, as
promulgated by the Securities and Exchange Commission.
(f) "Conversion Transaction" means the conversion of the Holding Company
from the mutual to stock form of organization either on a stand-alone basis or
in the context of a merger conversion.
(g) "Common Stock" means the Common Stock of the Bank, par value, $.01 per
share.
(h) "Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of an employee to perform the work
customarily assigned to that employee. Additionally, a medical doctor selected
or approved by the Board of Directors must
2
<PAGE>
advise the Committee that it is either not possible to determine when such
Disability will terminate or that it appears probable that such Disability will
be permanent during the remainder of said participant's lifetime.
(i) "Fair Market Value" means, when used in connection with the Common
Stock on a certain date, the average of the reported bid and ask price of the
Common Stock as reported by the National Association of Securities Dealers
Automated Quotation System (as published by the Wall Street Journal, if
published) or such other quotation system, as may be applicable, on such date or
if the Common Stock was not traded on such date, on the next preceding day on
which the Common Stock was traded thereon or the last previous date on which a
sale is reported. For purposes of the grant of options in connection with the
reorganization of the Bank into a federal mutual holding company and
simultaneous stock offering, Fair Market Value shall mean the initial offering
price of the Common Stock.
(j) "Incentive Stock Option" means an Option granted by the Committee to a
Participant, which Option is designated as an Incentive Stock Option pursuant to
Section 8.
(k) "Limited Right" means the right to receive an amount of cash based upon
the terms set forth in Section 9.
(l) "Non-statutory Stock Option" means an Option granted by the Committee
to a participant and which is not designated by the Committee as an Incentive
Stock Option.
(m) "Normal Retirement" means termination of employment or service which
constitutes retirement with full benefits under any tax-qualified plan
maintained by the Bank or by reaching age 65.
(n) "Option" means Award granted under Section 7 or Section 8.
(o) "Participant" means an employee of the Bank or its affiliates chosen by
the Committee to participate in the Plan.
(p) "Plan Year(s)" means a calendar year or years commencing on or after
January 1, 1992.
(q) "Termination for Cause" means the termination because of the officer or
employee's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order.
3
<PAGE>
3. ADMINISTRATION.
The Plan shall be administered by the Committee. The Committee is
authorized, subject to the provisions of the Plan, to establish such rules and
regulations as it sees necessary for the proper administration of the Plan and
to make whatever determinations and interpretations in connection with the Plan
it sees as necessary or advisable. All determinations and interpretations made
by the Committee shall be binding and conclusive on all Participants in the Plan
and on their legal representatives and beneficiaries.
4. TYPES OF AWARDS.
Awards under the Plan may be granted in any one or a combination of:
(a) Non-statutory Stock Options; and
(b) Incentive Stock Options;
(c) Limited Rights as defined below in paragraphs 7 through 9 of the Plan.
5. STOCK SUBJECT TO THE PLAN.
Subject to adjustment as provided in Section 14, the maximum number of
shares reserved for purchase pursuant to the exercise of options granted under
the Plan is 60,000 shares of Common Stock of the Bank, par value $.01 per share.
These shares of Common Stock may be either authorized but unissued shares or
shares previously issued and reacquired by the Bank. To the extent that options
or Limited Rights are granted under the Plan, the shares underlying such options
will be unavailable for future grants under the Plan except that, to the extent
that options together with any related Limited Rights granted under the Plan
terminate, expire or are cancelled without having been exercised or, in the case
of Limited Rights exercised for cash, new Awards may be made with respect to
these shares.
6. ELIGIBILITY.
Officers and other employees of the Bank or its Affiliates shall be
eligible to receive Incentive Stock Options, Non-statutory Stock Options and/or
Limited Rights under the Plan. Directors who are not employees or officers of
the Bank or its Affiliates shall not be eligible to receive Awards under the
Plan.
7. NON-STATUTORY STOCK OPTIONS.
7.1 Grant of Non-statutory Stock Options.
The Committee may, from time to time, grant Non-statutory Stock Options to
eligible employees and, upon such terms and conditions as the Committee may
determine, grant Non-statutory Options in exchange for and upon surrender of
previously granted Awards under
4
<PAGE>
this Plan. Non-statutory Stock Options granted under this Plan are subject to
the following terms and conditions:
(a) Price. The purchase price per share of Common Stock deliverable upon
the exercise of each Non-statutory Stock Option shall be determined by the
Committee on the date the option is granted. Such purchase price shall not be
less than 100% of the Fair Market Value of the Bank's Common Stock on the Date
of Grant. Shares may be purchased only upon full payment of the purchase price.
Payment of the purchase price may be made, in whole or in part, through the
surrender of shares of the Common Stock of the Bank at the Fair Market Value of
such shares on the date of surrender determined in the manner described in
Section 2(i).
(b) Terms of Options. The term during which each Non-statutory Stock
Option may be exercised shall be determined by the Committee, but in no event
shall a Non-statutory Stock Option be exercisable in whole or in part more than
10 years from the Date of Grant. The Committee shall determine the date on which
each Non-statutory Stock Option shall become exercisable and may provide that a
Non-statutory Stock Option shall become exercisable in installments. The shares
comprising each installment may be purchased in whole or in part at any time
after such installment becomes purchasable. The Committee may, in its sole
discretion, accelerate the time at which any Non-statutory Stock Option may be
exercised in whole or in part. Notwithstanding the above, in the event of a
Change in Control of the Bank or the Holding Company, all Non-statutory Stock
Options shall become immediately exercisable.
(c) Termination of Employment. Upon the termination of a Participant's
service for any reason other than Disability, Normal Retirement, a Change in
Control, death or Termination for Cause, the Participant's Non-statutory Stock
Options shall be exercisable only as to those shares which were immediately
purchasable by the Participant at the date of termination and only for a period
of one year following termination. In the event of Termination for Cause, all
rights under the Participant's Non-statutory Stock Options shall expire upon
termination. In the event of the death, Disability or Normal Retirement of any
Participant or a Change-in-Control, all Non-statutory Stock Options held by the
Participant, whether or not exercisable at such time, shall be exercisable by
the Participant or his legal representatives or beneficiaries of the Participant
for one year or such longer period as determined by the Committee following the
date of the Participant's death, Normal Retirement or cessation of employment
due to disability or a Change-in-Control, provided that in no event shall the
period extend beyond the expiration of the Non-statutory Stock Option term.
8. INCENTIVE STOCK OPTIONS.
8.1 Grant of Incentive Stock Options. The Committee may, from time to
time, grant Incentive Stock Options to eligible employees. Incentive Stock
Options granted pursuant to the Plan shall be subject to the following terms and
conditions:
5
<PAGE>
(a) Price. The purchase price per share of Common Stock deliverable upon
the exercise of each Incentive Stock Option shall be not less than 100% of the
Fair Market Value of the Bank's Common Stock on the Date of Grant. However, if a
Participant owns stock possessing more than 10% of the total combined voting
power of all classes of Common Stock of the Bank, the purchase price per share
of Common Stock deliverable upon the exercise of each Incentive Stock Option
shall not be less than 110% of the Fair Market Value of the Bank's Common Stock
on the Date of Grant. Shares may be purchased only upon payment of the full
purchase price. Payment of the purchase price may be made, in whole or in part,
through the surrender of shares of the Common Stock of the Bank at the Fair
Market Value of such shares on the date of surrender determined in the manner
described in Section 2(i).
(b) Amounts of Options. Incentive Stock Options may be granted to any
eligible employee in such amounts as determined by the Committee. In the case of
an option intended to qualify as an Incentive Stock Option, the aggregate Fair
Market Value (determined as of the time the option is granted) of the Common
Stock with respect to which Incentive Stock Options granted are exercisable for
the first time by the Participant during any calendar year (under all plans of
the Participant's employer corporation and its parent and subsidiary
corporations) shall not exceed $100,000. The provisions of this Section 8.1(b)
shall be construed and applied in accordance with Section 422(d) of the Code and
the regulations, if any, promulgated thereunder. To the extent an award under
this Section 8.1 exceeds this $100,000 limit, the portion of the award in excess
of such limit shall be deemed a Non-statutory Option.
(c) Terms of Options. The term during which each Incentive Stock Option
may be exercised shall be determined by the Committee, but in no event shall an
Incentive Stock Option be exercisable in whole or in part more than 10 years
from the Date of Grant. If at the time an Incentive Stock Option is granted to
an employee, the employee owns Common Stock representing more than 10% of the
total combined voting power of the Bank (or, under Section 425(d) of the Code,
is deemed to own Common Stock representing more than 10% of the total combined
voting power of all such classes of Common Stock, by reason of the ownership of
such classes of Common Stock, directly or indirectly, by or for any brother,
sister, spouse, ancestor or lineal descendent of such employee, or by or for any
corporation, partnership, estate or trust of which such employee is a
shareholder, partner or beneficiary), the Incentive Stock Option granted to such
employee shall not be exercisable after the expiration of five years from the
Date of Grant. No Incentive Stock Option granted under this Plan is transferable
except by will or the laws of descent and distribution and is exercisable in his
lifetime only by the employee to whom it is granted.
The Committee shall determine the date on which each Incentive Stock Option
shall become exercisable and may provide that an Incentive Stock Option shall
become exercisable in installments. The shares comprising each installment may
be purchased in whole or in part at any time after such installment becomes
purchasable, provided that the amount able to be first exercised in a given year
is consistent with the terms of Section 422 of the Code. The Committee may, in
its sole discretion, accelerate the time at which any Incentive Stock Option may
be
6
<PAGE>
exercised in whole or in part, provided that it is consistent with the terms of
Section 422 of the Code. Notwithstanding the above, in the event of a Change in
Control of the Bank, all Incentive Stock Options shall become immediately
exercisable.
(d) Termination of Employment. Upon the termination of a Participant's
service for any reason other than Disability, Normal Retirement, Change in
Control, death or Termination for Cause, the Participant's Incentive Stock
Options shall be exercisable only as to those shares which were immediately
purchasable by the Participant at the date of termination and only for a period
of three months following termination. In the event of Termination for Cause
all rights under the Participant's Incentive Stock Options shall expire upon
termination.
In the event of death or Disability of any employee, all Incentive Stock
Options held by such Participant, whether or not exercisable at such time, shall
be exercisable by the Participant or the Participant's legal representatives or
beneficiaries for one year following the date of the Participant's death or
cessation of employment due to Disability. Upon termination of the Participant's
service due to Normal Retirement, or a Change in Control, all Incentive Stock
Options held by such Participant, whether or not exercisable at such time, shall
be exercisable for a period of one year following the date of Participant's
cessation of employment, provided however, that such option shall not be
eligible for treatment as an Incentive Stock Option in the event such option is
exercised more than three months following the date of the Participant's Normal
Retirement. In no event shall the exercise period extend beyond the expiration
of the Incentive Stock Option term.
(e) Compliance with Code. The options granted under this Section 8 of the
Plan are intended to qualify as incentive stock options within the meaning of
Section 422 of the Code, but the Bank makes no warranty as to the qualification
of any option as an incentive stock option within the meaning of Section 422 of
the Code.
9. LIMITED RIGHTS.
9.1 Grant of Limited Rights.
Simultaneously with the grant of any option, the Committee may grant a
Limited Right with respect to all or some of the shares covered by such option.
Limited Rights granted under this Plan are subject to the following terms and
conditions:
(a) Terms of Rights. In no event shall a Limited Right be exercisable in
whole or in part before the expiration of six months from the Date of Grant of
the Limited Right. A Limited Right may be exercised only in the event of a
Change in Control of the Bank or the Holding Company, except that such rights
may not be exercised in the event of a change in control resulting from a stand-
alone mutual to stock conversion of the Holding Company.
7
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The Limited Right may be exercised only when the underlying option is
eligible to be exercised, and only when the Fair Market Value of the underlying
shares on the day of exercise is greater than the exercise price of the related
option.
Upon exercise of a Limited Right, the related option shall cease to be
exercisable. Upon exercise or termination of an option, any related Limited
Rights shall terminate. The Limited Rights may be for no more than 100% of the
difference between the exercise price and the Fair Market Value of the Common
Stock subject to the underlying option. The Limited Right is transferable only
when the underlying option is transferable and under the same conditions.
(b) Payment. Upon exercise of a Limited Right, the holder shall promptly
receive from the Bank an amount of cash equal to the difference between the Fair
Market Value on the Date of Grant of the related Option and the Fair Market
Value of the underlying shares on the date the Limited Right is exercised,
multiplied by the number of shares with respect to which such Limited Right is
being exercised.
10. LIMITATIONS UPON EXERCISE OF OPTIONS. Notwithstanding any other provision
of this Plan, so long as the Holding Company remains in the mutual form of
organization, an option granted under this Plan may not be exercised if the
exercise of such an option would result in the Holding Company owning less than
50.1 percent of the Common Stock of the Bank.
11. RIGHTS OF A SHAREHOLDER: NONTRANSFERABILITY.
An optionee shall have no rights as a shareholder with respect to any
shares covered by a Non-statutory and/or Incentive Stock Option until the date
of issuance of a stock certificate for such shares. Nothing in this Plan or in
any Award granted confers on any person any right to continue in the employ of
the Bank or its Affiliates or to continue to perform services for the Bank or
its Affiliates or interferes in any way with the right of the Bank or its
Affiliates to terminate a Participant's services as an officer or other employee
at any time.
No Award under the Plan shall be transferable by the optionee other than by
will or the laws of descent and distribution and may only be exercised during
his lifetime by the optionee, or by a guardian or legal representative.
12. AGREEMENT WITH GRANTEES.
Each Award of Options, and/or Limited Rights will be evidenced by a written
agreement, executed by the Participant and the Bank or its Affiliates which
describes the conditions for receiving the Awards including the date of Award,
the purchase price if any, applicable periods, and any other terms and
conditions as may be required by the Board of Directors or applicable securities
law.
8
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13. DESIGNATION OF BENEFICIARY.
A Participant may, with the consent of the Committee, designate a person or
persons to receive, in the event of death, any stock option or Limited Rights
Award to which the Participant would then be entitled. Such designation will be
made upon forms supplied by and delivered to the Bank and may be revoked in
writing. If a Participant fails effectively to designate a beneficiary, then the
Participant's estate will be deemed to be the beneficiary.
14. DILUTION AND OTHER ADJUSTMENTS.
In the event of any change in the outstanding shares of Common Stock of the
Bank by reason of any stock dividend or split, recapitalization, merger,
consolidation, spin-off, reorganization, combination or exchange of shares, or
other similar corporate change, or other increase or decrease in such shares
without receipt or payment of consideration by the Bank, the Committee will make
such adjustments to previously granted Awards, to prevent dilution or
enlargement of the rights of the Participant, including any or all of the
following:
(a) adjustments in the aggregate number or kind of shares of Common Stock
which may be awarded under the Plan;
(b) adjustments in the aggregate number or kind of shares of Common Stock
covered by Awards already made under the Plan;
(c) adjustments in the purchase price of outstanding Incentive and/or Non-
statutory Stock Options, or any Limited Rights attached to such options.
No such adjustments may, however, materially change the value of benefits
available to a Participant under a previously granted Award.
15. TREATMENT OF OPTIONS IN THE EVENT OF A CONVERSION TRANSACTION.
In the event that the Holding Company converts to stock form in a
Conversion Transaction ("Stock Holding Company"), any options outstanding shall,
at the option of the holder, (i) be convertible into options for Common Stock of
the Stock Holding Company, or (ii) be exercised by the holder prior to the
Effective Date of the Conversion Transaction and the holder shall be entitled to
exchange, in the same manner as other minority stockholders of the Bank, the
shares of Common Stock of the Bank received upon such exercise for shares of
Common Stock of the Stock Holding Company. Provided, however, that if for any
reason such options are not to be converted or such shares are not exchanged,
the holders of options under this plan shall receive cash payment for the shares
of stock represented by the options in an amount equal to the initial offering
price of the Common Stock of the Stock Holding Company at the closing of the
Conversion Transaction, less the original exercise price of such options and,
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<PAGE>
with respect to options that have been exercised, the Stock Holding Company
shall redeem such shares for cash in the same manner as such redemption would
occur for other minority stockholders of the Bank. Any exchange, conversion of
options, or cash payment for shares shall be subject to applicable federal and
state regulations and, if necessary, subject to the approval of the appropriate
Regulatory Authorities.
16. WITHHOLDING.
The Bank shall withhold from each distribution of cash and/or Common Stock
under the Plan the amount of tax required by any governmental authority to be
withheld to cover any applicable withholding and employment taxes and if the
amount of such payment is insufficient, the Bank may require the Participant to
pay to the Bank the amount required to be withheld. Alternately, a Participant
may pay to the Bank the amount of cash required to be withheld for taxes in lieu
of any withholding of payments or distributions under the Plan. If a Participant
elects to have such taxes withheld, the election must be made in compliance with
Rule 16b-3 of the Exchange Act in order to receive exemptive treatment.
17. AMENDMENT OF THE PLAN.
The Board of Directors may at any time, and from time to time, modify or
amend the Plan in any respect; provided however, that Sections 7.1 and 8.1
governing grants shall not be amended more than once every six months other than
to comport with the Code or the Employee Retirement Income Security Act of 1974,
as amended, if applicable, and provided further that if it has been determined
to continue to qualify the Plan under the Securities and Exchange Commission
Rule 16b-3, shareholder approval shall be required for any such modification or
amendment which:
(a) increases the maximum number of shares for which options may be
granted under the Plan (subject, however, to the provisions of Section 14
hereof);
(b) reduces the exercise price at which Awards may be granted subject,
however, to the provisions of Section 14 hereof):
(c) extends the period during which options may be granted or exercised
beyond the times originally prescribed; or
(d) changes the persons eligible to participate in the Plan.
Failure to ratify or approve amendments or modifications to subsections (a)
through (d) of this Section by shareholders shall be effective only as to the
specific amendment or modification requiring such ratification. Other
provisions, sections, and subsections of this Plan will remain in full force and
effect.
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No such termination, modification or amendment may affect the rights of a
Participant under an outstanding Award.
18. EFFECTIVE DATE OF PLAN.
The Plan shall become effective upon the consummation of the Reorganization
of First Savings Bank, SLA from a New Jersey savings association into a federal
mutual holding company (the "Effective Date") on July 10, 1992. The Plan shall
be presented to shareholders of the Bank for ratification for purposes of: (i)
obtaining favorable treatment under Section 16(b) of the Securities Exchange Act
of 1934; (ii) obtaining preferential tax treatment for Incentive Stock Options;
and (iii) if applicable, maintaining listing on the Nasdaq National Market. The
failure to obtain shareholder ratification will not affect the validity of the
Plan and the options thereunder, provided, however, that if the Plan is not
ratified, the Plan shall remain in full force and effect, and any Incentive
Stock Options granted under the Plan shall be deemed to be Non-statutory Stock
Options.
19. TERMINATION OF THE PLAN.
The right to grant Awards under the Plan will terminate upon the earlier of
ten (10) years after the Effective Date of the Plan or the issuance of Common
Stock or the exercise of options or related Limited Rights equivalent to the
maximum number of shares reserved under the Plan as set forth in Section 5. The
Board of Directors has the right to suspend or terminate the Plan at any time,
provided that no such action will, without the consent of a Participant,
adversely affect his rights under a previously granted Award.
20. APPLICABLE LAW.
The Plan will be administered in accordance with the laws of the State of
New Jersey to the extent not preempted by Federal law as now or hereafter in
effect.
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21. COMPLIANCE WITH SECTION 16.
With respect to persons subject to Section 16 of the Exchange Act,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent
any provision of the Plan or action by the Committee fails to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee administrator.
FIRST SAVINGS BANK, SLA
_______________________________ ________________________________________
Date Adopted President and Chief Executive Officer
_______________________________ ________________________________________
Date Ratified by Stockholders Secretary
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Exhibit 10.2
FIRST SAVINGS BANK, SLA
1992 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
I. PURPOSE
The purpose of the First Savings Bank, SLA (the "Bank") 1992 Stock Option
Plan for Outside Directors of the Bank and its affiliates, including its parent
holding company First Savings Bancshares, MHC ("Holding Company"), (the
"Directors' Option Plan") is to promote the growth and profitability of the Bank
and the Holding Company by providing outside directors of the Bank and its
affiliates with an incentive to achieve long-term objectives of the Bank and to
attract and retain non-employee directors of outstanding competence by providing
such outside directors with an opportunity to acquire an equity interest in the
Bank.
II. GRANT OF OPTIONS
(a) Initial Grant. Each outside director (for purposes of this Directors'
Option Plan, the term "Outside Director" shall mean a member of the Board of
Directors of the Bank or any of its affiliates not also serving as an employee
of the Bank or any of its affiliates), who is serving in such capacity on the
date of the Bank's reorganization into a federal mutual holding company and at
the effective date of this Directors' Option Plan, shall be granted non-
statutory stock options to purchase 5,715 shares of the common stock of the Bank
("Common Stock") subject to adjustment as provided in Section IV hereof. The
purchase price per share of the Common Stock deliverable upon the exercise of
each non-statutory stock option shall be the initial offering price of the
Common Stock sold in connection with the reorganization of the Bank into a
federal mutual holding company. The effective date of these initial grants shall
be the effective date of the Directors' Option Plan as defined in Section VI
hereof ("Effective Date").
(b) Grants to Subsequent Outside Directors. To the extent options are
available for grant under the Directors' Option Plan, each Outside Director who
is first elected as a director subsequent to the Effective Date ("Subsequent
Outside Director") is hereby granted, as of the date on which such Subsequent
Outside Director is qualified and first begins to serve as an Outside Director,
non-statutory stock options to purchase 5,715 shares of Common Stock, subject to
adjustment pursuant to Section IV, or to purchase such lesser number of shares
of Common Stock as remain in this Directors' Option Plan. The purchase price per
share of the Common Stock deliverable upon exercise of such option shall equal
the Fair Market Value of the Common Stock on the date the grant of this option
is effective as determined under paragraph (d) of this Section II.
If options for sufficient shares are not available under the Directors'
Option Plan to fulfill the grant of options under Section II(b) hereof to any
Subsequent Outside Director first elected
<PAGE>
subsequent to the Effective Date, and thereafter options become available, such
Subsequent Outside Director shall then receive options to purchase an amount of
shares of Common Stock, determined by dividing pro rata among each Subsequent
Outside Director, options for the number of shares then available under the
Outside Directors' Plan, not to exceed 5,715 shares, subject to adjustment as to
any one Subsequent Outside Director. The date of grant shall be the date options
for such shares become available. The purchase price per share of the Common
Stock deliverable upon exercise of such options shall equal the Fair Market
Value of the Common Stock on the date the option is granted as determined under
paragraph (d) of this Section II.
If, pursuant to this paragraph (b), a Subsequent Outside Director receives
options to purchase fewer than 5,715 shares of Common Stock, subject to
adjustment pursuant to Section IV hereof, and options for additional shares
subsequently become available under the Directors' Option Plan, options to
purchase such shares of Common Stock shall first be allocated as of the date of
availability, to any Subsequent Outside Director who has not previously been
granted an option. Such options shall be granted to purchase a number of shares
of Common Stock no greater than the number of shares covered by options granted
to other Subsequent Outside Directors first elected subsequent to the Effective
Date, but who have received options to purchase fewer than 5,715 shares of
Common Stock (subject to adjustment pursuant to Section IV). Thereafter, options
for any remaining shares shall then be granted pro rata among all Subsequent
Outside Directors granted options to purchase fewer than 5,715 shares of Common
Stock. No Outside Director first elected subsequent to the Effective Date shall
receive an option to purchase more than 5,715 shares (subject to adjustment) of
Common Stock.
(c) Ineligibility. An option under the Directors' Option Plan shall not
be granted to any Outside Director who at any previous time was an employee of
either the Bank or the Holding Company and in such capacity was eligible to
receive any options to purchase Common Stock.
(d) Fair Market Value. For purposes of the Directors' Option Plan, when
used in connection with Common Stock on a certain date, Fair Market Value means
the average of the bid and ask prices of the Common Stock as reported by the
National Association of Securities Dealers Automated Quotation System (as
published by the Wall Street Journal, if published), or such other quotation
system, on the effective date of the grant, or if the Common Stock was not
traded on such date, on the next preceding day on which the Common Stock was
traded thereon. For purposes of the grant of options in connection with the
reorganization and stock issuance, as defined in Section VI hereof, of the Bank,
Fair Market Value shall mean the initial offering price of the Common Stock or
$10.00 per share.
2
<PAGE>
III. TERMS AND CONDITIONS
(a) Option Agreement. Each option shall be evidenced by a written option
agreement between the Bank and the outside director specifying the number of
shares of Common Stock that may be acquired through its exercise and containing
such other terms and conditions which are not inconsistent with the terms of
this grant.
(b) Termination of Option. Each option shall expire upon the earlier of
(i) one hundred and twenty (120) months following the date of grant, or (ii) one
(1) year following the date on which the outside director ceases to serve in
such capacity for any reason other than removal for cause. If the Outside
Director dies before fully exercising any portion of an option then exercisable,
such option may be exercised by such Outside Director's personal
representative(s), heir(s) or devisee(s) at any time within the one (1) year
period following his or her death; provided, however, that in no event shall the
option be exercisable more than one hundred and twenty (120) months after the
date of its grant. If the Outside Director is removed for cause all options
awarded to him shall expire upon such termination.
An outside Director may, with the consent of the Committee, designate a
person or persons to receive, in the event of death, any stock option to which
the Outside Director would then be entitled. Such designation will be made upon
forms supplied by and delivered to the Bank and may be revoked in writing. If an
Outside Director fails effectively to designate a beneficiary, then the Outside
Director's estate will be deemed to be the beneficiary.
(c) Manner of Exercise. The options may be exercised from time to time by
delivering a written notice of exercise to the Chief Executive Officer of the
Bank. Such notice is irrevocable and must be accompanied by full payment of the
exercise price (as determined in Section II(d) hereof) in cash or shares of
previously acquired Common Stock of the Bank at the Fair Market Value of such
shares determined on the exercise date by the manner described in Paragraph
II(b) above or by such other means as determined by the Board of Directors. If
previously acquired shares of Common Stock are tendered in payment of all or
part of the exercise price, the value of such shares shall be determined as of
the date of such exercise.
(d) Transferability. Each option granted hereby may be exercised only by
the Outside Director to whom it is issued or in the event of the Outside
Director's death, his or her personal representative(s) or designee(s), heir(s)
or devisee(s) pursuant to the terms of Section III(b) hereof.
(e) Limitations Upon Exercise of Options. Notwithstanding any other
provision of this Directors' Option Plan, so long as the Holding Company remains
in the mutual form of organization an option granted under this Plan may not be
exercised if the exercise of such an option would result in the Holding Company
owning less than 50.1 percent of the Common Stock of the Bank.
3
<PAGE>
IV. COMMON STOCK SUBJECT TO THE DIRECTORS' OPTION PLAN
The shares which shall be issued and delivered upon exercise of options
granted under the Directors' Option Plan may be either authorized and unissued
shares of Common Stock or authorized and issued shares of Common Stock held by
the Bank as treasury stock. The number of shares of Common Stock reserved for
issuance under the Directors' Option Plan shall not exceed 40,000 shares of the
Common Stock of the Bank, par value $.01 per share, subject to adjustments
pursuant to this Section IV. Any shares of Common Stock subject to an option
which for any reason either terminates unexercised or expires, shall again be
available for issuance under the Directors' Option Plan.
In the event of any change or changes in the outstanding Common Stock of
the Bank by reason of any stock dividend or split, recapitalization,
reorganization, merger, consolidation, spin-off, combination or any similar
corporate change, or other increase or decrease in such shares effected without
receipt or payment of consideration by the Bank, the number of shares of Common
Stock which may be issued under this Directors' Option Plan, the number of
shares of Common Stock subject to options granted under this Directors' Option
Plan and the option price of such options, shall be automatically adjusted to
prevent dilution or enlargement of the rights granted to an Outside Director
under the Directors' Option Plan.
V. TREATMENT OF OPTIONS IN THE EVENT OF A CONVERSION TRANSACTION
In the event that the Holding Company converts to stock form in a
Conversion Transaction ("Stock Holding Company"), any options outstanding shall,
at the option of the holder, (i) be convertible into options for Common Stock of
the Stock Holding Company, or (ii) be exercised by the holder prior to the
Effective Date of the Conversion Transaction and the holder shall be entitled to
exchange, in the same manner as other minority stockholders of the Bank, the
shares of Common Stock of the Bank received upon such exercise for shares of
Common Stock of the Stock Holding Company. Provided, however, that if for any
reason such options are not to be converted or such shares are not exchanged,
the holders of options under this plan shall receive cash payment for the shares
of stock represented by the options in an amount equal to the initial offering
price of the Common Stock of the Stock Holding Company at the closing of the
Conversion Transaction tion, less the original exercise price of such options
and, with respect to options that have been exercised, the Stock Holding Company
shall redeem such shares for cash in the same manner as such redemption would
occur for other minority stockholders of the Bank. Any exchange, conversion of
options, or cash payment for shares shall be subject to applicable federal and
state regulations and, if necessary, subject to the approval of the appropriate
Regulatory Authorities.
4
<PAGE>
VI. EFFECTIVE DATE OF THE PLAN; SHAREHOLDER RATIFICATION
The Directors' Option Plan after adoption by the Board of Directors shall
become effective upon the reorganization of the Bank into a federal mutual
holding company ("Reorganization"). Following Reorganization, the Directors'
Option Plan shall be presented to shareholders of the Bank for ratification for
purposes of (i) obtaining favorable treatment under Section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); and (ii) if
applicable, maintaining listing on the Nasdaq National Market; provided,
however, that the failure to obtain shareholder ratification shall not affect
the validity of this Plan and the options granted hereunder.
VII. TERMINATION OF THE PLAN
The right to grant options under the Directors' Option Plan will
terminate upon the earlier of ten years after the Effective Date of the Plan or
the issuance of 40,000 shares of Common Stock (the maximum number of shares of
Common Stock reserved for under this Plan). A majority of the outstanding shares
of the Common Stock entitled to vote is required to terminate the Directors'
Option Plan; provided, however, no such termination shall, without the consent
of the affected individual, affect such individual's rights under a previously
granted option.
VIII. AMENDMENT OF THE PLAN
The Directors' Option Plan may be amended from time to time by the Board
of Directors of the Bank provided that Section II hereof, "Grant of Options"
shall not be amended more than once every six months other than to comport with
the Internal Revenue Code of 1986, as amended, or the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder. Except as provided in
Section IV hereof, rights and obligations under any option granted before an
amendment shall not be altered or impaired by such amendment without the written
consent of the optionee. If the Directors' Option Plan becomes qualified under
17 C.F.R. (S)16(b)-3 of the rules and regulations promulgated under the Exchange
Act and an amendment would require shareholder approval under such rule 16(b)-3
to retain the Plan's qualification, then such amendment shall be presented to
shareholders for ratification, provided, however, that the failure to obtain
shareholder ratification shall not affect the validity of this Plan as so
amended and the options granted thereunder.
IX. APPLICABLE LAW
The Plan will be administered in accordance with the laws of the State of
New Jersey to the extent not preempted by the laws of the United States as now
or hereinafter in effect.
5
<PAGE>
X. COMPLIANCE WITH SECTION 16
With respect to persons subject to Section 16 of the Exchange Act,
transactions under this Directors' Option Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the Exchange Act.
To the extent any provision of the plan fails to so comply, it shall be deemed
null and void, to the extent permitted by law.
FIRST SAVINGS BANK, SLA
________________________________ _____________________________________
Date Adopted by Board President and Chief Executive Officer
________________________________ _____________________________________
Date Ratified by Stockholders Secretary
6
<PAGE>
Exhibit 10.3
FIRST SAVINGS BANK, SLA
OMNIBUS INCENTIVE PLAN
1. DEFINITIONS.
-----------
(a) "Affiliate" means (i) a member of a controlled group of corporations
of which the Bank is a member or (ii) an unincorporated trade or business which
is under common control with the Bank as determined in accordance with Section
414(c) of the Internal Revenue Code of 1986, as amended, (the "Code") and the
regulations issued thereunder. For purposes hereof, a "controlled group of
corporations" shall mean a controlled group of corporations as defined in
Section 1563(a) of the Code determined without regard to Section 1563(a)(4) and
(e)(3)(C).
(b) "Alternate Option Payment Mechanism" refers to one of several methods
available to a Participant to fund the exercise of a stock option set out in
Section 14. These mechanisms include: broker assisted cashless exercise and
stock for stock exchange.
(c) "Award" means a grant of one or some combination of one or more Non-
statutory Stock Options, Incentive Stock Options and Stock Awards under the
provisions of this Plan.
(d) "Bank" means First Savings Bank, SLA.
(e) "Board of Directors" or "Board" means the board of directors of the
Bank.
(f) "Change in Control" means a change in control of the Bank or Holding
Company of a nature that; (i) would be required to be reported in response to
Item I of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 1 5(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"); or (ii) results in a Change in Control within the
meaning of the Home Owners' Loan Act of 1933, as amended ("HOLA") and the Rules
and Regulations promulgated by the Office of Thrift Supervision ("OTS") (or its
predecessor agency), as in effect on the date hereof (provided, that in applying
the definition of change in control as set forth under such rules and
regulations the Board shall substitute its judgment for that of the OTS); or
(iii) without limitation such a Change in Control shall be deemed to have
occurred at such time as (A) any "person" (as the term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Bank or the Holding Company representing 20% or more of the Bank's or the
Holding Company's outstanding securities except for any securities of the Bank
purchased by the Holding Company and any securities purchased by any tax
qualified employee benefit plan of the Bank; or (B) individuals who constitute
the Board on the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors
<PAGE>
comprising the Incumbent Board, or whose nomination for election by the Bank's
stockholders was approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (B), considered as though
he were a member of the Incumbent Board; or (C) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the Bank
or the Holding Company or similar transaction occurs in which the Bank or
Holding Company is not the resulting entity; or (D) a solicitation of
shareholders of the Bank, by someone other than the current management of the
Bank, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Holding Company or Bank or similar transaction with one or
more corporations, as a result of which the outstanding shares of the class of
securities then subject to the plan are exchanged for or converted into cash or
property or securities not issued by the Bank or the Holding Company; or (E) a
tender offer is made for 20% or more of the voting securities of the Bank or the
Holding Company.
(g) "Committee" means a committee consisting of at least two members of
the Board of Directors which are defined as Outside Directors, all of whom are
"disinterested directors" as such term is defined under Rule 16b-3 under the
Securities Exchange Act of 1934, as amended, (the "Exchange Act") as promulgated
by the Securities and Exchange Commission.
(h) "Common Stock" means the Common Stock of the Bank, par value, $.01 per
share or any stock exchanged for shares of Common Stock pursuant to Section 18
hereof.
(i) "Date of Grant" means the effective date of an Award.
(j) "Directors' Awards" means awards of non-statutory stock options
and/or Stock Awards pursuant to the terms of Section 12.
(k) "Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of a Participant to perform the work
customarily assigned to him. Additionally, a medical doctor selected or approved
by the Board of Directors must advise the Committee that it is either not
possible to determine when such Disability will terminate or that it appears
probable that such Disability will be permanent during the remainder of said
Participant's lifetime.
(l) "Dividend Equivalent Rights" means the right to receive an amount of
cash based upon the terms set forth in Section 10.
(m) "Effective Date" means July 12, 1996, the effective date of the Plan.
(n) "Employee" means any person who is currently employed by the Bank or
an Affiliate, including officers, but such term shall not include Outside
Directors.
2
<PAGE>
(o) "Exercise Price" means the purchase price per share of Common Stock
deliverable upon the exercise of each Option in order for the option to be
exchanged for shares of Common Stock.
(p) "Fair Market Value" means, when used in connection with the Common
Stock on a certain date, the average of the high and low bid prices of the
Common Stock as reported by the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") (as published by the Wall Street Journal,
if published) on such date or if the Common Stock was not traded on such date,
on the next preceding day on which the Common Stock was traded thereon or the
last previous date on which a sale is reported. If the Common Stock is no longer
reported on the Nasdaq Stock Market, the Fair Market Value of the Common Stock
is the value so determined by the Board in good faith.
(q) "Holding Company" means First Savings Bancshares, MHC.
(r) "Incentive Stock Option" means an Option granted by the Committee to a
Participant, which Option is designated by the Committee as an Incentive Stock
Option pursuant to Section 7.
(s) "Limited Right" means the right to receive an amount of cash based
upon the terms set forth in Section 8.
(t) "Non-statutory Stock Option" means an Option granted by the Committee
to a Participant pursuant to Section 6, which is not designated by the Committee
as an Incentive Stock Option or which is redesignated by the Committee under
Section 7 as a Non-Statutory Stock Option.
(u) "Option" means the right to buy a fixed amount of Common Stock at the
Exercise Price within a limited period of time designated as the term of the
option as granted under Section 6, 7 or 12 of the Plan.
(v) "Outside Director" means a member of the Board of Directors of the
Bank or its Affiliates, who is not also an Employee.
(w) "Participant" means any Employee who holds an outstanding Award under
the terms of the Plan.
(x) "Retirement" with respect to a Participant means termination of
employment which constitutes retirement under any tax qualified plan maintained
by the Bank. However, "Retirement" will not be deemed to have occurred for
purposes of this Plan if a Participant continues to serve on the Board of
Directors of the Bank or its Affiliates even if such Participant is receiving
retirement benefits under any retirement plan of the Bank or its Affiliates.
With respect to an Outside Director, "Retirement" means the termination of
service from the Board of
3
<PAGE>
Directors of the Bank or its Affiliates following written notice to the Board as
a whole of such Outside Director's intention to retire or retirement as
determined by the Bank (or Affiliate's) bylaws, or by reaching age 65, except
that an Outside Director shall not be deemed to have retired for purposes of the
Plan in the event he continues to serve as a consultant to the Board or as an
advisory director.
(y) "Stock Awards" are Awards of Common Stock which may vest immediately
or over a period of time. Vesting of Stock Awards under Section 9 of this Plan
may be contingent upon the occurrence of named events or the attainment of named
performance goals.
(z) "Termination for Cause" shall mean termination because of a material
loss to the Bank or one of its subsidiaries caused by the Participant's
intentional failure to perform stated duties, personal dishonesty, willful
violation of any law, rule, regulation, (other than traffic violations or
similar offenses) or final cease and desist order. No act, or the failure to
act, on Participant's part shall be "willful" unless done, or omitted to be
done, not in good faith and without reasonable belief that the action or
omission was in the best interest of the Bank or its subsidiaries.
(aa) "Trust" means a trust established by the Board in connection with this
Plan to hold Plan assets for the purposes set forth herein.
(bb) "Trustee" means that person or persons and entity or entities approved
by the Board to hold legal title to any of the Trust assets for the purposes set
forth herein.
2. ADMINISTRATION.
--------------
(a) The Plan as regards Awards to employees of the Bank or its Affiliates,
shall be granted and administered by the Committee. The Committee is authorized,
subject to the provisions of the Plan, to establish such rules and regulations
as it deems necessary for the proper administration of the Plan and to make
whatever determinations and interpretations in connection with the Plan it deems
necessary or advisable. All determinations and interpretations made by the
Committee shall be binding and conclusive on all Participants in the Plan and on
their legal representatives and beneficiaries.
(b) The Plan as regards Awards to non-employee Directors of the Bank or
its Affiliates is self administering. The grant of Awards to non-employee
Directors is made here in this Plan. Actual transference of the Award requires
no, nor allows any discretion by the Trustee.
3. TYPES OF AWARDS.
---------------
The following Awards may be granted under the Plan:
4
<PAGE>
(a) Non-statutory Stock Options;
(b) Incentive Stock Options;
(c) Stock Awards;
(d) Directors' Awards
as described below in paragraphs 6 through 12 of the Plan.
4. STOCK SUBJECT TO THE PLAN.
-------------------------
Subject to adjustment as provided in Section 18, the maximum number of
shares reserved for Awards under the Plan is 78,000 shares. Subject to
adjustment as provided in Section 18, the maximum number of shares reserved
hereby for purchase pursuant to the exercise of Options and Option-related
Awards granted under the Plan is 60,000 shares. The maximum number of the shares
reserved for award as Stock Awards shall not exceed 18,000 shares. These shares
of Common Stock maybe either authorized but unissued shares or authorized shares
previously issued and reacquired by the Bank. To the extent that Options and
Stock Awards are granted under the Plan, the shares underlying such Awards will
be unavailable for any other use including future grants under the Plan except
that, to the extent that Options terminate, expire, are forfeited or are
cancelled without having been exercised (in the case of Limited Rights,
exercised for cash), new Awards may be made with respect to these shares.
5. ELIGIBILITY.
-----------
All Employees shall be eligible to receive Awards under the Plan. Outside
Directors shall not be eligible to receive Awards under the Plan, except for
Awards under Section 12 of this Plan, "Directors' Awards." An Outside Director
who is a former Employee may, however, continue to hold unexercised or unvested
Awards granted while such person was an Employee.
6. NON-STATUTORY STOCK OPTIONS.
---------------------------
The Committee may, subject to the limitations of the Plan, from time to
time, grant Non-statutory Stock Options to Employees and, upon such terms and
conditions as the Committee may determine, grant Non-statutory Stock Options in
exchange for and upon surrender of previously granted Awards under this Plan.
Non-statutory Stock Options granted under this Plan are subject to the following
terms and conditions:
(a) Exercise Price. The Exercise Price of each Non-statutory Stock Option
--------------
shall be determined by the Committee on the date the option is granted. Such
Exercise Price shall not be less than 100% of the Fair Market Value of the
Bank's Common Stock on the Date of Grant. Shares may be purchased only upon full
payment of the Exercise Price or upon operation of an Alternate Option Payment
Mechanism set out in Section 11 of the Plan.
(b) Terms of Options. The term during which each Non-statutory Stock
----------------
Option may be exercised shall be determined by the Committee, but in no event
shall a Non-statutory Stock
5
<PAGE>
Option be exercisable in whole or in part more than 10 years from the Date of
Grant. The Committee shall determine the date on which each Non-statutory Stock
Option shall become exercisable. The shares comprising each installment may be
purchased in whole or in part at any time during the term of such Option after
such installment becomes exercisable. The Committee may, in its sole discretion,
accelerate the time at which any Non-statutory Stock Option may be exercised in
whole or in part. The acceleration of any Non statutory Stock Option under the
authority of this paragraph creates no right, expectation or reliance on the
part of any other Participant or that certain Participant regarding any other
unaccelerated Non-statutory Stock Options.
(c) Termination of Employment. Notwithstanding any provisions set forth
-------------------------
herein or contained in any Agreement relating to an award of an Option, in the
event of termination for Disability or death, or in the event of a change in
control, all Options shall immediately vest and be exercisable for one year
after such termination, and in the event of Termination for Cause all rights
under the Participant's Incentive Stock Options shall expire immediately upon
termination.
7. INCENTIVE STOCK OPTIONS.
-----------------------
The Committee may, subject to the limitations of the Plan, from time to
time, grant Incentive Stock Options to Employees. Incentive Stock Options
granted pursuant to the Plan shall be subject to the following terms and
conditions:
(a) Exercise Price. The Exercise Price of each Incentive Stock Option
--------------
shall be not less than 100% of the Fair Market Value of the Bank's Common Stock
on the Date of Grant. However, if at the time an Incentive Stock Option is
granted to a Participant, the Participant owns Common Stock representing more
than 10% of the total combined voting securities of the Bank (or, under Section
424(d) of the Code, is deemed to own Common Stock representing more than 10% of
the total combined voting power of all classes of stock of the Bank, by reason
of the ownership of such classes of stock, directly or indirectly, by or for any
brother, sister, spouse, ancestor or lineal descendent of such Participant, or
by or for any corporation, partnership, estate or trust of which such
Participant is a shareholder, partner or beneficiary), ("10% Owner"), the
Exercise Price per share of Common Stock deliverable upon the exercise of each
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
the Bank's Common Stock on the Date of Grant. Shares may be purchased only upon
payment of the full Exercise Price or upon operation of an Alternate Option
Payment Mechanism set out in Section 14 of the Plan.
(b) Amounts of Options. Incentive Stock Options may be granted to any
------------------
Employee in such amounts as determined by the Committee; provided that the
amount granted is consistent with the terms of Section 422 of the Code. In the
case of an option intended to qualify as an Incentive Stock Option, the
aggregate Fair Market Value (determined as of the time the Option is granted) of
the Common Stock with respect to which Incentive Stock Options granted are
exercisable for the first time by the Participant during any calendar year
(under all plans of the Participant's employer corporation and its parent and
subsidiary corporations) shall not exceed
6
<PAGE>
$100,000. The provisions of this Section 7(b) shall be construed and applied in
accordance with Section 422(d) of the Code and the regulations, if any,
promulgated thereunder. To the extent an award under this Section 7 exceeds this
$100,000 limit, the portion of the award in excess of such limit shall be deemed
a Non-statutory Stock Option. The Committee shall have discretion to redesignate
Options granted as Incentive Stock Options as Non-Statutory Stock Options. Such
Non-statutory Stock Options shall be subject to Section 6 of the Plan.
(c) Terms of Options. The term during which each Incentive Stock Option
----------------
may be exercised shall be determined by the Committee, but in no event shall an
Incentive Stock Option be exercisable in whole or in part more than 10 years
from the Date of Grant. If at the time an Incentive Stock Option is granted to a
Participant who is a 10% Owner, the Incentive Stock Option granted to such
Participant shall not be exercisable after the expiration of five years from the
Date of Grant. No Incentive Stock Option granted under this Plan is transferable
except by will or the laws of descent and distribution and is exercisable in his
lifetime only by the Participant to whom it is granted.
The Committee shall determine the date on which each Incentive Stock Option
shall become exercisable. The shares comprising each installment may be
purchased in whole or in part at any time during the term of such option after
such installment becomes exercisable. The Committee may, in its sole discretion,
accelerate the time at which any Incentive Stock Option may be exercised in
whole or in part. The acceleration of any Incentive Stock Option under the
authority of this paragraph creates no right, expectation or reliance on the
part of any other Participant or that certain Participant regarding any other
unaccelerated Incentive Stock Options.
(d) Termination of Employment. Unless otherwise determined by the
-------------------------
Committee, upon the termination of a Participant's service for any reason other
than Disability, death, Termination for Cause, or in the event of a Change in
Control, the Participant's Incentive Stock Options shall be exercisable only as
to those shares that were immediately exercisable by the Participant at the date
of termination and only for a period of three months following termination.
Notwithstanding any provisions set forth herein or contained in any Agreement
relating to an award of an Option, in the event of termination for Disability,
death, or in the event of a Change in Control, all Options shall immediately
vest and be exercisable for one year after such termination, and in the event of
Termination for Cause all rights under the Participant's Incentive Stock Options
shall expire immediately upon termination.
(e) Compliance with Code. The Options granted under this Section 7 of the
--------------------
Plan are intended to qualify as incentive stock options within the meaning of
Section 422 of the Code, but the Bank makes no warranty as to the qualification
of any option as an incentive stock option within the meaning of Section 422 of
the Code. All Options that do not so qualify shall be treated as non-statutory
Stock Options.
7
<PAGE>
8. LIMITED RIGHTS.
--------------
Simultaneously with the grant of any Option to an Employee, the Committee
may grant a Limited Right with respect to all or some of the shares covered by
such Option. Limited Rights granted under this Plan are subject to the following
terms and conditions:
(a) Terms of Rights. In no event shall a Limited Right be exercisable in
---------------
whole or in part before the expiration of six months from the Date of Grant of
the Limited Right. A Limited Right may be exercised only in the event of a
Change in Control that is not accounted for as a "pooling of interests," as that
term is opined upon by a certified public accountant chosen by the Bank.
The Limited Right may be exercised only when the underlying Option is
eligible to be exercised, and only when the Fair Market Value of the underlying
shares on the day of exercise is greater than the Exercise Price of the
underlying Option.
Upon exercise of a Limited Right, the underlying Option shall cease to be
exercisable. Upon exercise or termination of an Option, any related Limited
Rights shall terminate. The Limited Rights may be for no more than 100% of the
difference between the purchase price and the Fair Market Value of the Common
Stock subject to the underlying option. The Limited Right is transferable only
when the underlying option is transferable and under the same conditions.
(b) Payment. Upon exercise of a Limited Right, the holder shall promptly
-------
receive from the Bank an amount of cash or some other payment option found in
Section 13, equal to the difference between the Exercise Price of the underlying
option and the Fair Market Value of the Common Stock subject to the underlying
option on the date the Limited Right is exercised, multiplied by the number of
shares with respect to which such Limited Right is being exercised. Payments
shall be less applicable tax withholding as set forth in Section 19.
9. STOCK AWARDS.
------------
The Committee may, subject to the limitations of the Plan, from time to
time, make an Award of some number of shares of Common Stock. The Awards shall
be made subject to the following terms and conditions:
(a) Payment of the Stock Award. The Stock Award may only be made in whole
--------------------------
shares of Common Stock. Shares used in payment may only be granted from shares
reserved under the Plan but unawarded at the time the new Stock Award is made.
(b) Stock Award Agreement. Each Stock Award Agreement shall set forth:
---------------------
(i) the period over which the Stock Award may vest;
8
<PAGE>
(ii) the performance goals, if any, which must be satisfied prior
to the vesting of any portion of the Stock Award. The
performance goals may be set by the Committee on an
individual level, for all Participants, for all Awards made
during a given period of time, or for all Awards for
indefinite periods;
(c) Certification of Attainment of the Performance Goal. No Stock Award
---------------------------------------------------
that is subject to a performance goal is to be distributed to the Participant
until the Committee certifies that the underlying performance goal has been
achieved.
(d) The Committee shall determine the dates on which Stock Awards granted
to a Participant shall vest, provided that all Stock Awards shall immediately
vest in full upon the termination of employment due to Disability or death of
the Participant or in the event of a Change in Control. The Committee,
notwithstanding other paragraphs in this Section, in its sole discretion may
accelerate the vesting of any Stock Award. The acceleration of any Stock Award
under the authority of this paragraph creates no right, expectation or reliance
on the part of any other Participant or that certain Participant regarding any
other unaccelerated Stock Awards.
(e) Except to the extent if any as may be permitted by the Code, the rules
promulgated under Section 16(b) of the Exchange Act or any successor statutes or
rules:
(i) The recipient of a Stock Award payable in shares shall not
sell, transfer, assign, pledge, or otherwise encumber shares subject to the
Award until full vesting has occurred. For purposes of this section, the
separation of beneficial ownership and legal title through the use of any "swap"
transaction is deemed a prohibited encumbrance.
(ii) Stock Awards shall not be transferrable other than by will,
the laws of intestate succession or pursuant to a qualified domestic relations
order. The designation of a beneficiary does not constitute a transfer.
(iii) If a recipient of a Stock Award is subject to the provisions
of Section 16 of the Exchange Act, shares of Common Stock subject to such Award
may not, without the written consent of the Committee, be sold or otherwise
disposed of within six months following the date of grant of the Award.
(f) Accrual of Dividends. Whenever Stock Awards are distributed to a
--------------------
recipient or a beneficiary under the Plan, such recipient or beneficiary shall
also be entitled to receive, with respect to each Stock Award paid, a payment
equal to any cash dividends and a number of shares of Common Stock equal to any
stock dividends, declared and paid with respect to a share of the Common Stock
between the date the relevant Stock Award was granted and the date the Stock
Awards are being distributed. There shall also be distributed an appropriate
amount of net earnings, if any, of the Trust with respect to any cash dividends
paid out.
9
<PAGE>
(g) Voting of Stock Awards. After a Stock Award has been granted, the
----------------------
Participant shall be entitled to direct the Trustee as to the voting of the
Common Stock which the Stock Award covers and which have not yet been earned and
distributed to the Participant pursuant to the Plan, subject to the rules and
procedures adopted by the Committee for this purpose. All shares of common stock
held by the Trust as to which recipients are not entitled to direct, or have not
directed, the voting, shall be voted by the Trustee in the same proportion as
Common Stock covered by Stock Awards which have been awarded and voted.
10. DIVIDEND EQUIVALENT RIGHTS.
--------------------------
Simultaneously with the grant of any option to an Employee, the Committee
may grant a Dividend Equivalent alent Right with respect to all or some of the
shares covered by such Option. Dividend Equivalent Rights granted under this
Plan are subject to the following terms and conditions:
(a) Terms of Rights. The Dividend Equivalent Right provides the Employee
---------------
with a separate cash benefit equal to 100% of the amount of any extraordinary
dividend declared by the Bank on shares of Common Stock subject to an Option.
The Dividend Equivalent Right is transferable only when the underlying option is
transferable and under the same conditions.
(b) Payment. Upon the payment of an extraordinary dividend, the holder of
-------
a Dividend Equivalent Right shall promptly receive from the Bank an amount of
cash or some other payment option found in Section 13, equal to 100% of the
extraordinary dividend paid on shares of Common Stock, multiplied by the number
of shares subject to the underlying option. Payments shall be decreased by the
amount of any applicable tax withholding prior to distribution to the
Participant as set forth in Section 19.
(c) Extraordinary Dividend. For purposes of this Section 10, an
----------------------
extraordinary dividend is any dividend paid on shares of Common Stock where the
rate of the dividend exceeds the Bank's weighted average cost of funds on
interest-bearing liabilities for the current and preceding three quarters.
11. EQUITABLE ADJUSTMENT RIGHT.
--------------------------
Simultaneously with the grant of any Option under this Plan, in the
alternative to a Dividend Equivalent Right the Committee may grant an Equitable
Adjustment Right.
Upon the payment of an extraordinary dividend (as such term is defined in
Section 10(c)), the Committee may adjust the number of shares and/or the
Exercise Price of the Options underlying the Equitable Adjustment Right, as the
Committee deems appropriate.
10
<PAGE>
12. DIRECTORS' AWARDS.
-----------------
Awards to Outside Directors under this Plan ("Directors' Awards") are made
in the plan in the form of Non-statutory Stock Options and Stock Awards.
Directors' Awards shall be made subject to the following terms and conditions:
(a) Initial Grant of the Directors' Award. Each Outside Director who is
-------------------------------------
serving on the Board of Directors on the Effective Date of this Plan shall
receive Non-statutory Stock Options for 3,000 shares of Common Stock, each with
an Equitable Adjustment Right pursuant to Section 11, and Stock Awards for 900
shares of Common Stock as of the Effective Date of the Plan.
(b) Grants to Subsequent Outside Directors. To the extent shares are
--------------------------------------
available for grant under the Plan, each Outside Director who is first appointed
as a director subsequent to the Effective Date ("Subsequent Outside Director")
is hereby granted, as of the date on which such Subsequent Outside Director is
qualified and first begins to serve as an Outside Director, Non-statutory Stock
Options for 3,000 shares of Common Stock, each with an Equitable Adjustment
Right pursuant to Section 11, and Stock awards for 900 shares of Common Stock,
subject to adjustment pursuant to Section 18, or pro rata amounts of Options and
Stock Awards of such lesser number of shares of Common Stock as remain under
reserve but not granted under the Plan.
If shares for sufficient options are not available under the Plan to
fulfill the grant of Options and Stock Awards under this paragraph (b) to any
Subsequent Outside Director, and thereafter shares become available, such
Subsequent Outside Director shall then receive pro rata amounts of Options and
Stock Awards, determined by dividing pro rata among each Subsequent Outside
Director, the number of shares then available, not to exceed the amount granted
with respect to Subsequent Outside Directors, subject to adjustment under
Section 18 as appropriate. The date of grant shall be the date shares for such
Directors' Awards become available.
(c) Vesting. The Non-statutory Stock Options and the Stock Awards made
-------
under this section will vest over a three-year period, with one-third of the
initial number of each Option and Stock Award vesting each year in which the
Outside Director remains on the Board, commencing with the first anniversary of
the date of the grant of the Directors' Award.
(d) Exercise Price. The Exercise Price of each Directors' Award Non-
--------------
statutory Stock Option shall equal the Fair Market Value of the Common Stock on
the date of the grant of the Option. Shares may be purchased only upon full
payment of the Exercise Price or upon operation of an Alternate Option Payment
Mechanism set out in Section 14 of the Plan.
(e) Terms of Directors' Award Non-statutory Stock Options. The term
-----------------------------------------------------
during which each Non-statutory Stock Option may be exercised shall be 10 years
from the Date of Grant. The shares comprising each installment may be purchased
in whole or in part at any time during the term of such option.
11
<PAGE>
(f) Accrual of Dividends on Stock Awards. Whenever Stock Awards are paid
------------------------------------
out to an Outside director or a beneficiary under this section, such Outside
Director or beneficiary shall also be entitled to receive, with respect to each
Stock Award paid, a payment equal to any cash dividends and a number of shares
of Common Stock equal to any stock dividends, declared and paid with respect to
a share of the Common Stock between the date the relevant Stock Award was
granted and the date the Stock Awards are being distributed. There shall also be
distributed an appropriate amount of net earnings, if any, of the Trust with
respect to any cash dividends paid out.
(g) Voting of Stock Awards. After a Stock Award has been granted under
----------------------
this section, the Outside Director shall be entitled to instruct the Trustee as
to the voting of the Common Stock that the Stock Award covers and that has not
yet been earned and distributed to him pursuant to the Plan, subject to the
rules and procedures adopted by the Committee for this purpose. Shares
underlying a Stock Award regarding which an Outside Director has not issued
instructions, shall be voted by the Trustee in accordance with the terms of
paragraph 9(g) of the Plan.
(h) Death or Disability of a Director. If the service of an Outside
---------------------------------
Director as a member of the Board is terminated due to death or Disability, and
the Directors' Award made has not yet vested as provided in this Section 12,
such Directors' Award shall be deemed to be fully vested upon the date of
termination from service on the Board.
(i) Forfeiture. If the service of an Outside Director as a member of the
----------
Board is terminated for any other reason, to the extent that the Outside
Director has not become vested in a Director Award as provided in this Section
12, such Directors' Award shall be forfeited immediately upon such termination
and the Outside Director shall have no further rights with respect to such
Directors' Award.
(j) Amendment of Director Award Terms. The provisions of the Plan
---------------------------------
relating to the number of shares of Common Stock subject to a Directors' Award
and the timing of such Awards may not be amended more than once every six
months, other than to comport with changes in the Code, the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") or the rules thereunder or as
permitted by the rules promulgated under Section 16(b) of the Exchange Act.
13. PAYOUT ALTERNATIVES.
-------------------
Payments due to a Participant upon the exercise or redemption of an Award
may be made according to the following terms and conditions:
(a) Discretion of the Committee. The Committee has the sole discretion to
---------------------------
determine what form of payment (whether monetary, Common Stock, a combination of
payout alternatives or otherwise) it shall use in distributing payments for all
Awards. If the Committee requests any
12
<PAGE>
or all Participants to make an election as to form of payment, it shall not be
considered bound by the election.
(b) Payment in the form of Common Stock. Any shares of Common Stock
-----------------------------------
tendered in payment of an obligation arising under this Plan shall be valued at
the Fair Market Value of the Common Stock at the time of the payment. The
Committee may use Common Stock in Treasury or may direct the market purchase of
such Common Stock to satisfy its obligations under this Plan.
14. ALTERNATE OPTION PAYMENT MECHANISM.
----------------------------------
The Committee has sole discretion to determine what form of payment it will
accept for the exercise of an Option. The Committee may indicate acceptable
forms in the Award Agreement covering such Options or may reserve its decision
to the time of exercise. No Option is to be considered exercised until payment
in full is accepted by the Committee or its agent.
(a) Cash Payment. The exercise price may be paid in cash or by check.
------------
(b) Borrowed Funds. To the extent permitted by law, the Committee may
--------------
permit all or a portion of the exercise price of an Option to be paid through
borrowed funds.
(c) Exchange of Common Stock. (i) The Committee may permit payment by the
------------------------
tendering of previously acquired shares of Common Stock. This includes the use
of "Pyramiding Transactions" whereby some number of Options are exercised. The
shares gained through the exercise are then tendered back to the Plan as payment
for some other number of Options. This transaction may be repeated as needed to
exercise all of the Options available.
(ii) Any shares of Common Stock tendered in payment of the exercise price
of an Option shall be valued at the Fair Market Value of the Common Stock on the
date prior to the date of exercise.
15. RIGHTS OF A SHAREHOLDER: NONTRANSFERABILITY.
--------------------------------------------
No Participant or Outside Director shall have any rights as a shareholder
with respect to any shares covered by an Option until the date of issuance of a
stock certificate for such shares. Nothing in this Plan or in any Award granted
confers on any person any right to continue in the employ or service of the Bank
or its Affiliates or interferes in any way with the right of the Bank or its
Affiliates to terminate a Participant's services as an officer or other employee
at any time.
Except as permitted under the Code and the rules promulgated pursuant to
Section 16(b) of the Exchange Act or any successor statutes or rules, no Award
under the Plan shall be transferable by the Participant or Outside Director
other than by will or the laws of intestate succession or pursuant to a
qualified domestic relations order.
13
<PAGE>
16. AGREEMENT WITH GRANTEES.
-----------------------
Each Award will be evidenced by a written agreement, executed by the
Participant or Outside Director and the Bank or its Affiliates that describes
the conditions for receiving the Awards including the date of Award, the
Exercise Price if any, the terms or other applicable periods, and other terms
and conditions as may be required or imposed by the Plan, the Board of
Directors, tax law consideration or applicable securities law.
17. DESIGNATION OF BENEFICIARY.
--------------------------
A Participant or Outside Director may, with the consent of the Committee,
designate a person or persons to receive, in the event of death, any Award to
which the Participant would then be entitled. Such designation will be made upon
forms supplied by and delivered to the Bank and may be revoked in writing. If a
Participant or Outside Director fails effectively to designate a beneficiary,
then the Participant's or Outside Director's estate will be deemed to be the
beneficiary.
18. DILUTION AND OTHER ADJUSTMENTS.
------------------------------
In the event of any change in the outstanding shares of Common Stock of the
Bank by reason of any stock dividend or split, recapitalization, merger,
consolidation, spin-off, reorganization, combination or exchange of shares. or
other similar corporate change, or other increase or decrease in such shares
without receipt or payment of consideration by the Bank, the Committee will make
such adjustments to prevent dilution or enlargement of the rights of the
Participant or Outside Director, including any or all of the following:
(a) adjustments in the aggregate number or kind of shares of stock that
may underlie future Awards under the Plan;
(b) adjustments in the aggregate number or kind of shares of stock
underlying Awards already made under the Plan;
(c) adjustments in the purchase price of outstanding Incentive and/or Non-
statutory Stock Options, or any Limited Rights attached to such
options.
No such adjustments may, however, materially change the value of benefits
available to a Participant or Outside Director under a previously granted Award.
All awards under this Plan shall be binding upon any successors or assigns of
the Bank.
19. TAX WITHHOLDING.
---------------
Awards under this Plan shall be subject to tax withholding to the extent
required by any governmental authority. If this Plan meets the requirements
under 17 C.F.R. (S)240.16b-3 under
14
<PAGE>
the Exchange Act ("Rule 16b-3"), then any withholdings shall comply with Rule
16b-3 or any amendment or successive rule.
20. AMENDMENT OF THE PLAN.
---------------------
The Board of Directors may at any time, and from time to time, modify or
amend the Plan in any respect, prospectively or retroactively; provided however,
that provisions governing grants of Awards with a stock basis, including Stock
Awards and Limited Rights, unless permitted by the rules promulgated to Section
16(b) of the Exchange Act shall not be amended more than once every six months
other than to comport with the Internal Revenue Code or the ERISA, if applicable
and provided further that, if it has been determined by the Board of Directors
to continue to qualify the Plan under Rule 16b-3, shareholder approval to the
extent required by such rule or any successor to such rule, shall be required
for any such modification or amendment which:
(a) materially increases the maximum number of shares for which Awards may
be granted under the Plan (subject, however, to the provisions of
Section 18 hereof);
(b) reduces the exercise price at which Awards may be granted (subject,
however, to the provisions of Section 18 hereof);
(c) extends the period during which Awards may be granted or exercised
beyond the terms originally prescribed; or
(d) changes the persons subject to Section 16 of the Exchange Act eligible
to participate in the Plan.
Failure to ratify or approve amendments or modifications to subsections (a)
through (d) of this Section by shareholders shall be effective only as to the
specific amendment or modification requiring such ratification. Other
provisions, sections, and subsections of this Plan will remain in full force and
effect.
No such termination, modification or amendment may affect the rights of a
Participant or Outside Director under an outstanding Award without the written
permission of such Participant or Outside Directors.
21. EFFECTIVE DATE OF PLAN.
----------------------
The Plan shall become effective on July 12, 1996, after being presented to
shareholders for ratification for purposes of: (i) obtaining favorable
treatment under Section 16(b) of the Securities Exchange Act; (ii) obtaining
preferential tax treatment for Incentive Stock Options; and (iii) maintaining
listing on The Nasdaq Stock Market. The failure to obtain shareholder
ratification will not affect the validity of the Plan and the options
thereunder, provided, however,
15
<PAGE>
that if the Plan is not ratified, the Plan shall remain in full force and
effect, and any Incentive Stock Options granted under the Plan shall be deemed
to be Non-statutory Stock Options.
22. TERMINATION OF THE PLAN.
-----------------------
The right to grant Awards under the Plan will terminate upon the earlier of
ten (10) years after the Effective Date of the Plan or the issuance of Common
Stock or the exercise of Options, or related Limited Rights equivalent to the
maximum number of shares reserved under the Plan as set forth in Section 4. The
Board of Directors has the right to suspend or terminate the Plan at any time,
provided that no such action will, without the consent of a Participant or
Outside Director, adversely affect his vested rights under a previously granted
Award.
23. APPLICABLE LAW.
--------------
The Plan will be administered in accordance with the laws of the State of
New Jersey and applicable federal law.
24. COMPLIANCE WITH SECTION 16.
--------------------------
If this Plan is qualified under Rule 16b-3-3 (or any successor rule), with
respect to persons subject to Section 16 of the Exchange Act, transactions under
this Plan are intended to comply with all applicable conditions of Rule 16b-3 or
its successors under the Exchange Act. To the extent any provisions of the Plan
or action by the Committee fail to so comply, it shall be deemed null and void,
to the extent permitted by law and deemed advisable by the Committee.
25. DELEGATION OF AUTHORITY.
-----------------------
The Committee may delegate all authority for: the determination of forms of
payment to be made by or received by the Plan; the execution of Award
Agreements; the determination of Fair Market Value; and the determination of all
other aspects of administration of the plan to the executive officer(s) of the
Bank. The Committee may rely on the descriptions, representations, reports and
estimates provided to it by the management of the Bank for determinations to be
made pursuant to the Plan, including the attainment of Performance Goals.
However, only the Committee or a portion of the Committee may certify the
attainment of a Performance Goal.
[remainder of this page intentionally left blank]
16
<PAGE>
IN WITNESS WHEREOF, the Bank has established this Plan, as amended and restated,
to be executed by its duly authorized executive officer and the corporate seal
to be affixed and duly attested, effective as of the ______ day of
______________, 1996.
[CORPORATE SEAL] FIRST SAVINGS BANK, SLA
____________________________ By: ________________________________
Date Chief Executive Officer
ADOPTED BY THE BOARD OF DIRECTORS:
____________________________ By: ________________________________
Date Secretary
APPROVED BY STOCKHOLDERS:
____________________________ By: ________________________________
Date Secretary
17
<PAGE>
Exhibit 10.4
FIRST SAVINGS BANK, SLA
EMPLOYEE STOCK OWNERSHIP PLAN
ADOPTED EFFECTIVE JANUARY 1, 1992
AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1994
<PAGE>
FIRST SAVINGS BANK, SLA
EMPLOYEE STOCK OWNERSHIP PLAN
Section 1. Plan Identity.
-------------
1.1 Name. The name of this Plan is "First Savings Bank, SLA, Employee
----
Stock Ownership Plan."
1.2 Purpose. The purpose of this Plan is to describe the terms and
-------
conditions under which contributions made pursuant to the Plan will be credited
and paid to the Participants and their Beneficiaries.
1.3 Effective Date. The Effective Date of this Plan is January 1,
--------------
1992.
1.4 Fiscal Period. This Plan shall be operated on the basis of a
-------------
January 1- December 31 fiscal year for the purpose of keeping the Plan's books
and records and distributing or filing any reports or returns required by the
law.
1.5 Single Plan for All Employers. This Plan shall be treated as a
-----------------------------
single plan with respect to all participating Employers for the purpose of
crediting contributions and forfeitures and distributing benefits, determining
whether there bas been any termination of Service, and applying the limitations
set forth in Section 5.
1.6 Interpretation of Provisions. The Employers intend this Plan and
----------------------------
the Trust to be a qualified stock bonus plan under Section 401(a) of the Code
and an employee stock ownership plan within the meaning of Section 407(d)(6) of
ERISA and Section 4975(e)(7) of the Code. The Plan is intended to have its
assets invested primarily in qualifying employer securities of one or more
Employers within the meaning of Section 407(d)(5) of ERISA, and to satisfy any
requirement under ERISA or the Code applicable to such a plan. Accordingly, the
Plan and Trust Agreement shall be interpreted and applied in a manner consistent
with this intent and shall be administered at all times and in all respects in a
nondiscriminatory manner.
Section 2. Definitions. The following capitalized words and phrases shall
-----------
have the meanings specified when used in this Plan and in the Trust Agreement,
unless the context clearly indicates otherwise:
"Account" means a Participant's interest in the assets
accumulated under this Plan as expressed in terms of a separate account balance
which is periodically adjusted to reflect his Employer's contributions, the
Plan's investment experience, and distributions and forfeitures.
"Active Participant" means any Employee who has satisfied the
eligibility requirements of Section 3 and who qualifies as an Active Participant
for a particular Plan Year under Section 4.3.
"Beneficiary" means the person or persons who are designated by a
Participant to receive benefits payable under the Plan on the Participant's
death. In the absence of any designation or if all the designated Beneficiaries
shall die before the Participant dies or shall die before all benefits have been
paid, the Participant's Beneficiary shall be his surviving spouse, if any, or
his estate if he is not survived by a spouse. The Committee may rely upon the
advice of the Participant's executor or administrator as to the identify of the
Participant's spouse.
"Break in Service" means any five or more consecutive 12-month
periods beginning January 1 in which an Employee performs no hours or service
per period. Solely for this purpose, an Employee shall be considered employed
for his normal hours of paid employment during a Recognized Absence, unless he
<PAGE>
does not resume his Service at the end of the Recognized Absence. Further, if an
Employee is absent for any period beginning on or after January 1, 1985, (i) by
reason of the Employee's pregnancy, (ii) by reason of the birth of the
Employee's child, (iii) by reason of the placement of a child with the Employee
in connection with the Employee's adoption of the child, or (iv) for purposes of
caring for such child for a period beginning immediately after such birth or
placement, the Employee shall be credited with the Hours of Service which would
normally have been credited but for such absence, up to a maximum of 501 Hours
of Service, in the first 12-month period which would otherwise be counted toward
a Break in Service.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the committee responsible for the
administration of this Plan ix accordance with Section 12.
"Company" means First Savings Bank, SLA and any entity which
succeeds to the business of First Savings Bank, SLA and adopts this Plan as its
own pursuant to Section 13.2.
"Disability" means only a disability which renders the
Participant totally unable, as a result of bodily or mental disease or injury,
to perform any duties for an Employer for which he is reasonably fitted, which
disability is expected to be permanent or of long and indefinite duration.
However, this term shall not include any disability directly or indirectly
resulting from or related to habitual drunkenness or addiction to narcotics, a
criminal act or attempt, service in the armed forces of any country, an act of
war, declared or undeclared, any injury or disease occurring while compensation
to the Participant is suspended, or any injury which is intentionally self-
inflicted. Further, this term shall apply only if (i) the Participant is
sufficiently disabled to qualify for the payment of disability benefits under
the federal Social Security Act or Veterans Disability Act, or (ii) the
Participant's disability is certified by a physician selected by the Committee.
unless the Participant is sufficiently disabled to qualify for disability
benefits under the federal Social Security Act or Veterans Disability Act, the
Committee may require the Participant to be appropriately examined from time to
time by one or more physicians chosen by the Committee, and no Participant who
refuses to be examined shall be treated as having a Disability. In any event,
the Committee's good faith decision is to whether a Participant's Service has
been terminated by Disability shall be final and conclusive.
"Early Retirement" means retirement on or after a Participant's
attainment of age 55 and the completion of ten years of service for an Employer.
"Effective Date" means January 1, 1992.
"Employee" means any individual who is or has been employed or
self-employed by an Employer. "Employee" also means an individual employed by a
leasing organization who, pursuant to an agreement between an Employer and the
leasing organization, has performed services for the Employer and any related
persons (within the meaning of Section 414(n)(6) of the Code) on a substantially
full-time basis for more than one year, if such services are of a type
historically performed by employees in the Employer's business field. However,
such a "leased employee" shall not be considered an Employee if (i) he
participates in a money purchase pension plan sponsored by the leasing
organization which provides for immediate participation, immediate full vesting,
and an annual contribution of at least 10 percent of the Employee's Total
Compensation, and (ii) leased employees do not constitute more than 20 percent
of the Employer's total work force (including leased employees, but excluding
Highly Paid Employees and any other employees who have not performed services
for the Employer on a substantially full-time basis for at least one year).
3
<PAGE>
"Employer" means the Company or any affiliate within the purview
of Sections 414(b), (c) or (m) and 415(h) of the Code, any other corporation,
partnership, or proprietorship which adopts this Plan with the Company's consent
pursuant to Section 13.1, and any entity which succeeds to the business of any
Employer and adopts the Plan pursuant to Section 13.2.
"Entry Date" means the Effective Date of the Plan and each
January 1 and July 1 of each Plan Year thereafter.
"ERISA" means the Employee Retirement Income Security Act of 1974
(P.L. 93-406, as amended).
"Highly Paid Employee" for any Plan Year means an Employee who,
during either of that or the immediately preceding Plan Years, (i) owned more
than five percent of the outstanding equity interest or the outstanding voting
interest in any Employer, (ii) had Total Compensation exceeding $75,000 (as
adjusted pursuant to Section 419(q) of the Code), (iii) had Total Compensation
exceeding $50,000 (as adjusted pursuant to Section 419(q) of the Code) and was
among the most highly compensated one-fifth of all Employees, or (iv) was at any
time an officer of an Employer and had Total Compensation exceeding $45,000 (or
50 percent of the currently applicable dollar limit under Section 415(b)(1)(A)
of the Code). For this purpose:
(a) "Total Compensation" shall include any amount which is excludable
from the Employee's gross income for tax purposes pursuant to Sections 125,
402(e)(3), 402(h)(1)(B), or 403(b) of the Code.
(b) The number of Employees in "the most highly compensated one-fifth
of all Employees" shall be determined by taking into account all individuals
working for all related employer entities described in the definition of
"Service", but excluding any individual who has not completed six months of
Service, who normally works fewer than 17-1/2 hours per week or in fewer than
six months per year, who has not reached age 21, whose employment is covered by
a collective bargaining agreement, or who is a nonresident alien who receives no
earned income from United States sources.
(c) The number of individuals counted as "officers" shall not be more
than the lesser of (i) 50 individuals and (ii) the greater of 3 individuals or
10 percent of the total number of Employees. If no officer earns more than
$45,000 (or the adjusted limit), then the highest paid officer shall be a Highly
Paid Employee.
(d) A former employee shall be treated as a highly compensated
employee if such employee was a highly paid employee when such employee
separated from service, or if such employee was a highly paid employee at any
time after attaining age 55.
"Hours of Service" means hours to be credited to an Employee
under the following rules:
(a) Each hour for which an Employee is paid or is entitled to be paid
for services to an Employer is an Hour of Service.
(b) Each hour for which an Employee is directly or indirectly paid or
is entitled to be paid for a period of vacation, holidays, illness, disability,
lay-off, jury duty, temporary military duty, or leave of absence is an Hour of
Service. However, except as otherwise specifically provided, no more than 501
Hours of Service shall be credited for any single continuous period which an
Employee performs no duties. Further,
4
<PAGE>
no Hours of Service shall be credited on account of payments made solely under a
plan maintained to comply with worker's compensation, unemployment compensation,
or disability insurance laws, or to reimburse an Employee for medical expenses.
(c) Each hour for which back pay ignoring any mitigation of damages)
is either awarded or agreed to by an Employer is an Hour of Service. However, no
more than 501 Hours of Service shall be credited for any single continuous
period during which an Employee would not have performed any duties.
(d) Hours of Service shall be credited in any one period only under
one of the foregoing paragraphs (a), (b) and (c); an Employee may not get double
credit for the same period.
(e) If an Employer finds it impractical to count the actual Hours of
Service for any class or group of non-hourly Employees, each Employee in that
class or group shall be credited with 45 Hours of Service for each weekly pay
period in which he has at least one Hour of Service. However, an Employee shall
be credited only for his normal working hours during a paid absence.
(f) Hours of Service to be credited on account on a payment to an
Employee (including back pay) shall be recorded in the period of Service for
which the payment was made. If the period overlaps two or more Plan Years, the
Hours of Service credit shall be allocated in proportion to the respective
portions of the period included in the several Plan Years. However, in the case
of periods of 31 days or less, the Administrator may apply a uniform policy of
crediting the Hours of Service to either the first plan year or the second.
(g) In all respects an Employee's Hours of Service shall be counted
as required by Section 2530.200b-2(b) and (c) of the Department of Labor's
regulations under Title I of ERISA.
"Investment Fund" means that portion of the Trust Fund consisting
of assets other than Stock.
"Normal Retirement Age" means a Participant's 65th birthday.
"Normal Retirement Date" means the first day of the month
coincident with or next following attainment of Normal Retirement Age.
"Participant" means any Employee who is participating in the
Plan, or who has previously participated in the Plan and still has a balance
credited to his Account.
"Plan Year" means the plan year commencing January 1, 1992 and
ending December 31, 1992 and each period of 12 consecutive months beginning on
January 1 of each succeeding year.
"Recognized Absence" means a period for which -
(a) an Employer grants and Employee a leave of absence for a limited
period, but only if an Employer grants such leaves on a nondiscriminatory basis;
or
(b) an Employee is temporarily laid off by an Employer because of a
change in business conditions; or
5
<PAGE>
(c) an Employee is on active military duty, but only to the extent
that his employment rights are protected by the Military Selective Service Act
of 1967 (38 U.S.C. sec. 2021).
"Service" means an Employee's period(s) of employment or self-
employment with an Employer, excluding for initial eligibility purposes any
period in which the individual was a nonresident alien and did not receive from
an Employer any earned income which constituted income from sources within the
United States. An Employee's Service shall include any service which constitutes
service with a predecessor employer within the meaning of Section 414(a) of the
Code. An Employee's Service shall also include any service with an entity which
is not an Employer, but only either (i) for a period after 1975 in which the
other entity is a member of a controlled group of corporations or is under
common control with other trades and businesses within the meaning of Section
414(b) or 414(c) of the Code, and a member of the controlled group or one of the
trades and businesses is an Employer, or (ii) for a period after 1979 in which
the other entity is a member of an affiliated service group within the meaning
of Section 414(m) of the Code, and a member of the affiliated service group is
an Employer.
"Spouse" means the individual, if any, to whom a Participant is
lawfully married on the date benefit payments to the Participant are to begin,
or on the date of the Participant's death, if earlier.
"Stock" means shares of the Company's (or the Company's holding
company's) voting common stock or preferred stock meeting the requirements of
Section 409(e)(3) of the Code issued by an Employer or an affiliated
corporation.
"Stock Fund" means that portion of the Trust Fund consisting of
Stock.
"Stock Obligation" means an indebtedness arising from any
extension of credit to the Plan or the Trust which was obtained for the purpose
of buying Stock and which satisfies the requirements set forth in Section 6.3.
"Total Compensation" means a Participant's wages, salary,
overtime, bonuses, commissions, and any other amounts received for personal
services rendered while in service from any Employer or an affiliate (within the
purview of Section 414(b), (c), and (m) of the Code), plus his earned income
from any such entity as defined in Section 401(c)(2) of the Code if he is self-
employed. "Total Compensation" shall include (i) amounts excludable from gross
income under Section 911, (ii) amounts described in Sections 104(a)(3), 105(a),
and 105(h) of the Code to the extent includable in gross income, (iii) amounts
received from an Employer for moving expenses which are not deductible under
Section 217 of the Code, (iv) amounts includable in gross income in the year of,
and on account of, the grant of a nonqualified stock option, (v) amounts
includable in gross income pursuant to Section 83(b) of the Code, and (vi)
amounts includable in gross income under an unfunded nonqualified plan of
deferred compensation, but shall exclude (vii) Employer contributions to or
amounts received from a funded or qualified plan of deferred compensation,
(viii) Employer contributions to a simplified employee pension account to the
extent deductible under Section 219 of the Code, (ix) Employer contributions to
a Section 403(b) annuity contract, and (x) amounts includable in gross income
pursuant to Section 83(a) of the Code, (xi) amounts includable in gross income
upon the exercise of nonqualified stock option or upon the disposition of stock
acquired under any stock option, and (xii) any other amounts expended by the
Employer on the Participant's behalf which are excludable from his income or
which receive special tax benefits. A Participant's Total Compensation shall
exclude any compensation in any limitation year beginning after 1988 in excess
of $200,000 (or the limit currently in effect under Section 401(a)(17) of the
Code). Beginning with the Plan
6
<PAGE>
Year after December 31, 1993, a Participant's Total Compensation shall exclude
any compensation in any limitation year in excess of $150,000 (or the limit
currently in effect under section 401(a)(17) of the Code).
"Trust" or "Trust Fund" means the trust fund created under this
Plan.
"Trust Agreement" means the agreement between the Company and the
Trustee concerning the Trust Fund. If any assets of the Trust Fund are held in a
co-mingled trust fund with assets of other qualified retirement plans, "Trust
Agreement" shall be deemed to include the trust agreement governing that co-
mingled trust fund. With respect to the allocation of investment responsibility
for the assets of the Trust Fund, the provisions of Section 2.2 of the Trust
Agreement are incorporated herein by reference.
"Trustee" means one or more corporate persons and individuals
selected from time to time by the Company to serve as trustee or co-trustees of
the Trust Fund.
"Unallocated Stock Fund" means that portion of the Stock Fund
consisting of the Plan's holding of stock which have been acquired in exchange
for one or more Stock obligations and which have not yet been allocated to the
Participant's Accounts in accordance with Section 4.2.
"Valuation Date" means the last day of the Plan Year and each
other date as of which the committee shall determine the investment experience
of the Investment Fund and adjust the Participants' accounts accordingly.
"Valuation Period" means the period following a Valuation Date
and ending with the next Valuation Date.
"Vesting Year" means a unit of Service credited to a Participant
pursuant to Section 9.2 for purposes of determining his vested interest in his
Account.
Section 3. Eligibility for Participation.
-----------------------------
3.1 Initial Eligibility. An Employee shall enter the Plan as of the
-------------------
Entry Date coinciding with or next following the later of the following dates:
(a) the last day of the Employee's first Eligibility Year, and
(b) attainment by the Employee of age 20-1/2
However, if an Employee is not in active Service with an Employer
on the date he would otherwise first enter the Plan, his entry shall be deferred
until the next day he is in Service.
3.2 Definition of Eligibility Year. An "Eligibility Year" means an
------------------------------
applicable eligibility period (as defined below) in which the Employee has at
least 1,000 Hours of Service. For this purpose,
(a) an Employee's first "eligibility period" is the 12 consecutive
month period beginning on the first day on which he has an Hour of Service, and
(b) his subsequent eligibility periods will be 12-consecutive month
periods beginning on each January after that first day of Service.
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<PAGE>
3.3 Terminated or Part-Time Employees. No Employee shall have any
---------------------------------
interest or rights under this Plan if (i) he is never in active Service with an
Employer on or after the Effective Date, or (ii) he had 500 or fewer Hours of
Service in any eligibility period beginning before the Effective Date and he
never has an Eligibility Year after such period.
3.4 Certain Employees Ineligible. No Employee shall participate in
----------------------------
the Plan while his Service is covered by a collective bargaining agreement
between an Employer and the Employee's collective bargaining representative if
(i) retirement benefits have been the subject of good faith bargaining between
the Employer and the representative and (ii) the collective bargaining agreement
does not provide for the Employee's participation in the Plan. No Employee shall
participate in the Plan while he is actually employed by a leasing organization
rather than an Employer.
3.5 Participation and Reparticipation. Subject to the satisfaction of
---------------------------------
the foregoing requirements, an Employee shall participate in the Plan during
each period of his Service from the date on which he first becomes eligible
until his termination. For this purpose, an Employee returning within five years
of his or her termination who previously satisfied the initial eligibility
requirements shall re-enter the Plan as of the date of his return to service
with an Employer.
Section 4. Employer Contributions and Credits.
----------------------------------
4.1 Discretionary Contributions. Each Employer shall from time to
---------------------------
time contribute, with respect to a Plan Year, such amounts as it may determine
from time to time. An Employer shall have no obligation to contribute any amount
under this Plan except as so determined in its sole discretion. The Employers'
contributions and available forfeitures for a Plan Year shall be credited as of
the last day of the year to the Accounts of the Active Participants in
proportion to their amounts of Cash Compensation.
4.2 Contributions for Stock Obligations. If the Trustee, upon
-----------------------------------
instructions from the Committee, incurs any Stock Obligation upon the purchase
of Stock, the Employers shall, contribute for each Plan Year an amount
sufficient to cover all payments of principal and interest as they come due
under the terms of the Stock Obligation. If there is more than one Stock
Obligation, the Employers shall designate the one to which any contribution is
to be applied. The Employer's obligation to make contributions under this
Section 4.2 shall be reduced to the extent of any investment earnings realized
on such contributions and any dividends paid by the Employers on Stock held in
the Unallocated Stock Account, which earnings and dividends shall be applied to
the Stock Obligation related to that Stock.
In each Plan Year in which the Employer contributions, earnings on
contributions, or dividends on unallocated Stock are used as payments under a
Stock Obligation, a certain number of shares of the Stock acquired with that
Stock Obligation which is then held in the Unallocated Stock Fund shall be
released for allocation among the Participants. The number of shares released
shall bear the same ratio to the total number of those shares then held in the
Unallocated Stock Fund (prior to the release) as (i) the principal and interest
payments made on the Stock Obligation in the current Plan Year bears to (ii) the
sum of (i) above, and the remaining principal and interest payments required (or
projected to be required on the basis of the interest rate in effect at the end
of the Plan Year) to satisfy the Stock Obligation.
At the direction of the Committee, the current and projected payments of
interest under a Stock Obligation may be ignored in calculating the number of
shares to be released in each year if (i) the Stock Obligation provides for
annual payments of principal and interest at a cumulative rate that is not less
rapid at any time than level annual payments of such amounts for 10 years, (ii)
the interest included in any payment
8
<PAGE>
is ignored only to the extent that it would be determined to be interest under
standard loan amortization tables, and (iii) the term of the Stock Obligation,
by reason of renewal, extension, or refinancing, has not exceeded 10 years from
the original acquisition of the Stock.
For these purposes, each Stock Obligation, the Stock purchased with it,
and any dividends on such Stock, shall be considered separately. The Stock
released from the Unallocated stock Fund in any Plan Year shall be credited as
of the last day of the year to the Accounts of the Active Participants in
proportion to their amounts of Cash Compensation.
4.3 Definitions Related to Contributions. For the purposes of this
------------------------------------
Plan, the following terms have the meanings specified:
"Active Participant" means a Participant who has satisfied the
eligibility requirements under Section 3. However, a Participant shall not
qualify as an Active Participant unless (i) he is in active Service with ax
Employer as of the last day of the Plan Year, or (ii) he is on a Recognized
Absence as of that date, or (iii) his Service terminated during the Plan Year
after reaching his Normal Retirement Date or by reason of disability or death.
"Cash Compensation" means a Participant's wages, salary,
overtime, and, except as provided below, any other cash amounts received for
personal services rendered while in Service with any Employer or an affiliate
(within the purview of Sections 414(b), (c) and (m) of the Code) during the Plan
Year. A Participant's Cash Compensation also includes compensation that is not
currently includable in the Participant's taxable income by reason of Sections
125, 402(e)(3) or 402(h)(1)(B) of the Code. However, Cash Compensation shall not
include any bonuses and/or commissions. A Participant's Cash Compensation shall
exclude any compensation in excess of $200,000 (or the limit currently in effect
under Section 401(a)(17) of the Code).
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual compensation of each
Participant taken into account under the Plan shall not exceed the Omnibus
Budget Reconciliation Act of 1993 ("OBRA '93") annual compensation limit. The
OBRA '93 annual compensation limit is $150,000, as adjusted by the Commissioner
for increases in the cost of living in accordance with Section 401(a)(17)(B) of
the Code. The cost-of-living adjustment in effect for a calendar year applies to
any period, not exceeding 12 months, over which compensation is determined
(determination period) beginning in such calendar year. If a determination
period consists of fewer than 12 months, the OBRA '93 annual compensation limit
will be multiplied by a fraction, the numerator of which is the number of months
in the determination period, and the denominator is 12.
For Plan Years beginning on or after January 1, 1994, any reference to
this Plan to the limitation under Section 401(a)(17) of the Code shall mean the
OBRA '93 annual compensation limit set forth in this provision.
If compensation for any prior determination period is taken into account
in determining a Participant's benefits accruing in the current Plan Year, the
compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
First Plan Year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
9
<PAGE>
4.4 Conditions as to Contributions. Employers' contributions shall in
------------------------------
all event be subject to the limitation set forth in Section 5. Contributions may
be made in the form of cash, or securities and other property to the extent
permissible under ERISA, including Stock, and shall be held by the Trustee in
accordance with the Trust Agreement. In addition to the provisions of Section
13.3 for the return of an Employer's contributions in connection with a failure
of the Plan to qualify initially under the Code, any amount contributed by an
Employer due to a good faith mistake of fact, or based upon a good faith but
erroneous determination of its deductibility under Section 404 of the Code,
shall be returned to the Employer within one year after the date on which the
contribution was originally made, or within one year after its nondeductibility
has been finally determined. However, the amount to be returned shall be reduced
to take account of any adverse investment experience within the Trust Fund in
order that the balance credited to each Participant's Account is not less than
it would have been if the contribution had never been made.
Section 5. Limitations on Contributions and Allocations.
--------------------------------------------
5.1 Limitation on Annual Additions. Notwithstanding the provisions of
------------------------------
Section 4, the annual addition to a Participant's accounts under this and any
other defined contribution plans maintained by the Employers or an affiliate
(within the purview of Section 414(b), (c), and (m) and Section 415(h) of the
Code, which affiliate shall be deemed an Employer for this purpose) shall not
exceed for any limitation year an amount equal to the lesser of --
5.1-1 $30,000, or the dollar limitation currently in effect; or
5.1-2 25 percent of the Participant's Total Compensation for
such limitation year.
For purposes of this Section 5.1 and the following Section 5.2, the "annual
addition" to a Participant's accounts means the sum of (i) the Employer
contributions and Employee forfeitures credited to a Participant's accounts with
respect to a limitation year, plus (ii) for any limitation year beginning before
1988, the lesser of one-half of the Participant's voluntary contributions
credited within the limitation year, or the excess of his voluntary
contributions over six percent of his Total Compensation for that year, or (iii)
for any limitation year beginning after 1986, the Participant's total voluntary
contributions for that year. The $30,000 and $90,000 limitations referred to
shall, for each limitation year ending after 1988, be automatically adjusted to
the new dollar limitations determined by the Commissioner of Internal Revenue
for the calendar year beginning in that limitation year. Notwithstanding the
foregoing, if the special limitations on annual additions described in Section
415(c)(6) of the Code applies, the limitations described in this section shall
be adjusted accordingly. A "limitation year" means each 12 consecutive month
period beginning January 1.
5.2 Coordinated Limitation With Other Plans. Aside from the
---------------------------------------
limitation prescribed by Section 5.1 with respect to the annual addition to a
Participant's accounts for any single limitation year, if a Participant has ever
participated in one or more defined benefit plans maintained by an Employer or
an affiliate, then the annual additions to his accounts shall be limited on a
cumulative basis so that the sum of his defined contribution plan fraction and
his defined benefit plan fraction does not exceed one. Any such limitations on
annual additions shall first apply to any defined benefit plan or plans in which
the Participant participants, then to any defined contribution plan, other than
this Plan in which the Participant participates, and finally with respect to
annual additions made to the account of the Participant under this Plan. For
this purpose:
5.2-1 A Participant's defined contribution plan fraction with respect
to a Plan Year shall be a fraction, (i) the numerator of which is the
sum of the annual additions to his accounts under all
10
<PAGE>
defined contribution plans (whether or not terminated) maintained by the
Employer for the current and all prior limitation years (including
annual additions to the Participant's nondeductible employee
contributions to all defined benefit plans, whether or not terminated,
maintained by the Employer, and the annual additions attributable to all
welfare benefit plans, individual medical accounts, and simplified
employee pensions, maintained by the Employer), and (ii) the denominator
of which is the sum of the lesser of the following amounts -A- and -B-
determined for the current limitation year and each prior limitation
year of Service with an Employer: -A- is 1.25 times the dollar
limitation determined under Section 415(b)and (d) of the Code in effect
under section 415(c)(1) (A)of the Code, or 1.0 times such dollar
limitation if the Plan is top-heavy, and -B- is 35 percent of the
Participant's Total Compensation for such year. If the Employee was a
participant as of the end of the first limitation year beginning after
December 31, 1986, in one or more defined contribution plans maintained
by the Employer which were in existence on May 6, 1986, the numerator of
this fraction will be adjusted if the sum of this fraction and the
defined benefit fraction (described below) would otherwise exceed 1.0
under the terms of this Plan. Under this adjustment, an amount equal to
the product of (1) the excess of the sum of the fractions over 1.0 times
(Z) the denominator of this fraction, will be permanently subtracted
from the numerator of this fraction. The adjustment is calculated using
the fractions as they would be computed as of the end of the last
limitation year beginning before January 1, 1987, and disregarding any
changes in the terms and conditions of the plan made after May 5, 1986,
but using the Section 415 limitation applicable to the first limitation
year beginning on or after January 1, 1987.
5.2-2 A Participant's defined benefit plan fraction with respect to a
limitation year shall be a fraction, (i) the numerator of which is his
projected annual benefit payable at normal retirement under the
Employers' defined benefit plans, and (ii) the denominator of which is
the lesser of (a) 1.25 times $90,000, or 1.0 times such dollar
limitation if the Plan is top-heavy, and (b) 1.4 times the Participant's
average Total Compensation during his highest-paid three consecutive
limitation years.
Notwithstanding the above, if the Participant was a Participant as of
the first day of the first limitation year beginning after December 31, 1986, in
one or more defined benefit plans maintained by the Employer which were in
existence on May 6, 1986, the denominator of this fraction will not be less than
1.25 times the sum of the annual benefits under such plans which the Participant
had accrued as of the close of the last limitation year beginning before January
1, 1987, disregarding any changes in the terms and conditions of the plan after
May 5, 1986. The preceding sentence applies only if the defined benefit plans
individually and in the aggregate satisfied the requirements of Section 415 for
all limitation years beginning before January 1, 1987.
5.3 Effect of Limitations. The Committee shall take whatever action
---------------------
may be necessary from time to time to assure compliance with the limitations set
forth in Section 5.1 and 5.2. Specifically, the Committee shall see that each
Employer restrict its contributions for any Plan Year to an amount which, taking
into account the amount of available forfeitures, may be completely allocated to
the Participants consistent with those limitations. Where the limitations would
otherwise be exceeded by any Participant, further allocations to the Participant
shall be curtailed to the extent necessary to satisfy the limitations. Where an
excessive amount is contributed on account of a mistake as to one or more
Participants' compensation, or there is an amount of forfeitures which may not
be credited in the Plan Year in which it becomes available, the amount shall be
held in a suspense account to be allocated in lieu of any Employer contributions
in future years until it is eliminated, and to be returned to the Employer if it
cannot be credited consistent with these limitations before the termination of
the Plan.
11
<PAGE>
5.4 Limitations as to Certain Participants. Aside from the
--------------------------------------
limitations set forth in Section 5.1 and 5.2, if the Plan acquires any Stock in
a transaction as to which a selling shareholder or the estate of a deceased
shareholder is claiming the benefit of Section 1042 or 2057 of the Code, the
Committee shall see that none of such Stock, and no other assets in lieu of such
Stock, are allocated to the Accounts of certain Participants in order to comply
with Section 409(n) of the Code.
This restriction shall apply at all times to a Participant who owns
(taking into account the attribution rules under Section 318(a) of the Code,
without regard to the exception for employee plan trusts in Section
318(a)(2)(B)(i) more than 25 percent of any class of stock of a corporation
which issued the Stock acquired by the Plan, or another corporation within the
same controlled group, as defined in Section 409(1)(4) of the Code (any such
class of stock hereafter called a "Related Class"). For this purpose, a
Participant who owns more than 25 percent of any Related Class at any time
within the one year preceding the Plan's purchase of the Stock shall be subject
to the restriction as to all allocations of the Stock, but any other Participant
shall be subject to the restriction only as to allocations which occur at a time
when he owns more than 25 percent of any Related Class.
Further, this restriction shall apply to the selling shareholder
claiming the benefit of Section 1042, the deceased shareholder within the
meaning of Section 267(b) of the Code, during the period beginning on the date
on which the Plan purchases the Stock and ending 10 years after the later of (i)
the date of such purchase, and (ii) the date of the allocation under Section 4.2
attributable to the final payment on whatever Stock Obligations were incurred
with the purchase.
This restriction shall not apply to any Participant who is a lineal
descendant of a deceased shareholder if the aggregate amounts allocated under
the Plan for the benefit of all such descendants do not exceed five percent of
the Stock acquired from the shareholder.
Section 6. Trust Fund and Its Investment.
-----------------------------
6.1 Creation of Trust Fund. All amounts received under the Plan from
----------------------
Employers, other qualified plans, and investments shall be held as the Trust
Fund pursuant to the terms of this Plan and of the Trust Agreement between the
Company and the Trustee. The benefits described in this Plan shall be payable
only from the assets of the Trust Fund, and none of the Company, any other
Employer, its board of directors or trustees, its stockholders, its officers,
its employees, the Committee, and the Trustee shall be liable for payment of any
benefit under this Plan except from the Trust Fund.
6.2 Stock Fund and Investment Fund. The Trust Fund held by the
------------------------------
Trustee shall be divided into the Stock Fund, consisting entirely of Stock, and
the Investment Fund, consisting of all assets of the Trust other than Stock. The
Trustee shall have no investment responsibility for the Stock Fund, but shall
accept any Employer contributions made in the form of Stock, and shall acquire,
sell, exchange, distribute, and otherwise deal with and dispose of Stock in
accordance with the instructions of the Committee. The Trustee shall have full
responsibility for the investment of the Investment Fund, except to the extent
such responsibility may be delegated from time to time to one or more investment
managers pursuant to Section 2.2 of the Trust Agreement.
6.3 Acquisition of Stock. From time to time the Committee may, in its
--------------------
sole discretion, direct the Trustee to acquire Stock from the issuing Employer
or from shareholders, including shareholders who are or have been Employees,
Participants, or fiduciaries with respect to the Plan. The Trustee shall pay for
such Stock no more than its fair market value, which shall be determined
conclusively by the Committee pursuant
12
<PAGE>
to Section 12.4. The Committee may direct the Trustee to finance the acquisition
of Stock by incurring or assuming indebtedness to the seller or another party
which indebtedness shall be called a "Stock Obligation". Any Stock Obligation
shall be subject to the following conditions and limitations:
6.3-1 A Stock Obligation shall be for a specific term, shall not be
payable on demand except in the event of default, and shall bear a
reasonable rate of interest.
6.3-2 A Stock Obligation may, but need not, be secured by a collateral
pledge of either the Stock acquired in exchange for the Stock
Obligation, or the Stock previously pledged in connection with a prior
Stock Obligation which is being repaid with the proceeds of the current
Stock Obligation. No other assets of the Plan and Trust may be used as
collateral for a Stock Obligation, and no creditor under a Stock
Obligation shall have any right or recourse to any Plan and Trust assets
other than Stock remaining subject to a collateral pledge.
6.3-3 Any pledge of Stock to secure a Stock Obligation must provide for
the release of pledged Stock in connection with payments on the Stock
Obligations in the ratio prescribed in Section 4.2.
6.3-4 Repayments of principal and interest on any Stock Obligation
shall be made by the Trustee only from Employer cash contributions
designated for such payments, from earnings on such contributions, and
from cash dividends received on Stock held in the unallocated Stock
Fund.
6.4 Participants' Option to Diversify. The Committee shall provide for a
procedure under which each Participant may, during the first five years
of a certain six-year period, elect to have up to 25 percent of the
value of his Account distributed to him. For the sixth year in this
period, the Participant may elect to have up to 50 percent of the value
of his Account distributed to him. The six-year period shall begin with
the Plan Year following the first Plan Year in which the Participant has
both reached age 55 and completed 10 years of participation in the Plan;
a Participant's election to receive a distribution from his Account must
be made within the 90-day period immediately following the last day of
each of the six Plan Years. The Committee shall see that the elective
amounts shall be distributed to the Participant within 90 days following
the end of the 90-day election period described above.
Section 7. Voting Rights and Dividends on Stock.
------------------------------------
7.1 Voting of Stock. The Trustee generally shall vote all shares of
---------------
Stock held under the Plan in accordance with the written instructions of the
Committee. However, if any Employer has registration-type class of securities
within the meaning of Section 409(e)(4) of the Code, or if a matter submitted to
the holders of the Stock involves a merger, consolidation, recapitalization,
reclassification, liquidation, dissolution, or sale of substantially all assets
of an entity, then (i) the shares of Stock which have been allocated to
Participants' Accounts shall be voted by the Trustee in accordance with the
Participants' written instructions and (ii) the Trustee shall vote any
unallocated stock in a manner calculated to most accurately reflect the
instructions it has received from Participants regarding the allocated Stock. In
the event no shares of Stock have been allocated to Participants' Accounts at
the time Stock is to be voted, each Participant shall be deemed to have one
share of Stock allocated to his or her account for the sole purpose of providing
the Trustee with voting instructions. Notwithstanding any provision hereunder to
the contrary, all unallocated shares of Stock must be voted by the Trustee in a
manner determined by the Trustee to be for the exclusive benefit of the
Participants and Beneficiaries. Whenever such voting rights are to be exercised,
the Employers, the Committee, and the Trustee shall see that all Participants
are provided with the same notices and other
13
<PAGE>
materials as are provided to other holders of the Stock, and are provided with
adequate opportunity to deliver their instructions to the Trustee regarding the
voting of Stock allocated to their Accounts. The instructions of the
Participants' with respect to the voting of allocated shares hereunder shall be
confidential.
7.1-1 In the event of a tender offer, Stock shall be tendered by the
Trustee in the same manner as set forth above with respect to the voting
of Stock. Notwithstanding any provision hereunder to the contrary, Stock
must be tendered by the Trustee in a manner determined by the Trustee to
be for the exclusive benefit of the Participants and Beneficiaries.
7.2 Dividends on Stock. Dividends on Stock which are received by the
------------------
Trustee in the form of additional Stock shall be retained in the Stock Fund, and
shall be allocated among the Participant's accounts and the unallocated Stock
Fund in accordance with their holdings of the Stock on which the dividends have
been paid. Dividends on Stock credited to Participants' Accounts which are
received by the Trustee in the form of cash shall, at the direction of the
Employer paying the dividends, either (i) be credited to the Accounts in
accordance with Section 8.3 and invested as part of the Investment Fund, (ii) be
distributed immediately to the Participants in proportion with the Participants'
Account balance, or (iii) be distributed to the Participants within 90 days of
the close of the Plan Year in which paid, in proportion with the Participants'
Account balance. Dividends on Stock held in the unallocated Stock Fund which are
received by the Trustee in the form of cash shall be applied as soon as
practicable to payments of principal and interest under the Stock Obligation
incurred with the purchase of the Stock.
Section 8. Adjustments to Accounts.
-----------------------
8.1 Adjustments for Transactions. An Employer contribution pursuant
----------------------------
to Section 4.1 shall be credited to the Participants' Accounts as of the last
day of the Plan Year for which it is contributed. Stock released from the
Unallocated Stock Fund upon the Trust's repayment of a Stock Obligation pursuant
to Section 4.2 shall be credited to the Participants' Accounts as of the last
day of the Plan Year in which the repayment occurred. Any excess amounts
remaining from the use of proceeds of a sale of Stock from the Unallocated Stock
fund to repay a Stock Obligation shall be allocated as of the last day of the
Plan Year in which the repayment occurred among the Participants' Accounts in
proportion to the opening balance in each Account. Any benefit which is paid to
a Participant or Beneficiary pursuant to Section 10 shall be charged to the
Participants' Accounts as of the first day of the Valuation Period in which it
is paid. Any forfeiture or restoral shall be charged or credited to the
Participants' Accounts as of the first day of the Valuation Period in which the
forfeiture or restoral occurs pursuant to Section 9.6.
8.2 Valuation of Investment Fund. As of each Valuation Date, the
----------------------------
Trustee shall prepare a balance sheet of the Investment Fund, recording each
asset (including any contribution receivable from an Employer) and liability at
its fair market value. Any liability with respect to short positions or options
and any item of accrued income or expense and unrealized appreciation or
depreciation shall be included; provided, however, that such an item may be
estimated or excluded if it is not readily ascertainable unless estimating or
excluding it would result in a material distortion. The Committee shall then
determine the net gain or loss of the Investment Fund since the preceding
Valuation Date, which shall mean the entire income of the Investment Fund,
including realized and unrealized capital gains and losses, net of any expenses
to be charged to the general Investment Fund and excluding any contributions by
the Employer. The determination of gain or loss shall be consistent with the
balance sheets of the Investment Fund for the current and preceding Valuation
Dates.
14
<PAGE>
8.3 Adjustments for Investment Experience. Any net gain or loss of
-------------------------------------
the Investment Fund during a Valuation Period, as determined pursuant to Section
8.2, shall be allocated as of the last day of the Valuation Period among the
Participants' Accounts in proportion to the opening balance in each Account, as
adjusted for benefit payments and forfeitures during the Valuation Period,
without regard to whatever stock may be credited to an Account.
Section 9. Vesting of Participants' Interests.
----------------------------------
9.1 Deferred Vesting in Accounts. A Participant's vested interest in
----------------------------
his Account shall be based on his Vesting Years in accordance with the following
Table, subject to the balance of this Section 9:
<TABLE>
<CAPTION>
Vesting Percentage of
Years Interest Vested
------ ---------------
<S> <C>
fewer than 3 0%
3 20%
4 40%
5 60%
6 80%
7 or more 100%
</TABLE>
9.2 Computation of Vesting Years. For purposes of this Plan, a
----------------------------
"Vesting Year" means each 12-month period in which an Employee has at least
1,000 Hours of Service, beginning with his initial Service with any Employer,
and including certain Service with other employers as provided in the definition
of "Service". However, a Participant's Vesting Years shall be computed subject
to the following conditions and qualifications:
(a) A Participant's vesting interest in his Account accumulated
before a Break in Service shall be determined without regard to any
Service before the Break. Further, if a Participant has a Break in
Service before his interest in his Account has become vested to some
extent, he shall lose credit for any Vesting Year before the Break.
(b) Unless otherwise specifically excluded, a Participant's
Vesting Years shall include any period of active military duty to the
extent required by the Military Selective Service Act of 1967 (38 U.S.C.
Section 202l).
9.3 Full Vesting Upon Certain Events. Notwithstanding Section 9.1, a
--------------------------------
Participant's interest in his Account shall fully vest on the Participant's
Normal Retirement Date, provided the Participant is in Service on or after that
date. The Participant's interest shall also fully vest in the event that his
Service is terminated by Early Retirement, Disability or by death.
9.4 Full Vesting upon Plan Termination. Notwithstanding Section 9.1,
----------------------------------
a Participant's interest in his Account shall fully vest if he is in active
Service upon termination of this Plan or upon the permanent and complete
discontinuance of contributions by his Employer. In the event of a partial
termination, the interest of each Participant who is in Service shall fully vest
with respect to that part of the Plan which is terminated.
15
<PAGE>
9.5 Forfeiture, Repayment, and Restoral. If a Participant's Service
-----------------------------------
terminates before his interest in his Account is fully vested, that portion
which has not vested shall be forfeited if he either (i) receives a distribution
of his entire vested interest pursuant to Section 10.1, or (ii) attains Normal
Retirement Age. If a Participant Service terminates prior to having any portion
of his Account become vested, such Participant shall be deemed to have received
a distribution of his vested interest as of the Valuation Date next following
his termination of Service.
If a Participant who has received his entire vested interest returns to
Service before he has a Break in Service, he may repay to the Trustee an amount
equal to the distribution. The Participant may repay such amount at any time
within five years after he has returned to Service. The amount shall be credited
to his Account as of the last day of the Plan Year in which it is repaid; an
additional amount equal to the portion of his Account which was previously
forfeited shall be restored to his Account at the same time from other
Employees' forfeitures and, if such forfeitures are insufficient, from a special
contribution by his Employer for that year.
In the case of a terminated Participant who does not receive a
distribution of his entire vested interest and whose Service resumes after a
Break in Service, any undistributed balance from his prior participation which
was not forfeited shall be maintained as a fully vested subaccount within his
Account. If a portion of a Participant's Account is forfeited, assets other than
Stock must be forfeited before any Stock may be forfeited. In the case of a
Participant who has incurred a Break in Service, all years of Service after the
Break in Service will be disregarded for the purpose of vesting the Account that
accrued before such Break in Service, but both pre-break and post-break Service
will count for the purposes of vesting the Account that accrues after the Break
in Service.
9.6 Accounting for Forfeitures. A forfeiture shall be charged to the
--------------------------
Participant's Account as of the first day of the first Valuation Period in which
the forfeiture becomes certain pursuant to Section 9.5. Except as otherwise
provided in that Section, a forfeiture shall be added to the contributions of
the terminated Participant's Employer which are to be credited to other
Participants pursuant to Section 4.1 as of the last day of the Plan Year in
which the forfeiture becomes certain.
9.7 Vesting and Nonforfeitability. A Participant's interest in his
-----------------------------
Account which has become vested shall be nonforfeitable for any reason.
Section 10. Payment of Benefits.
-------------------
10.1 Benefits for Participants. A Participant whose Service ends for
-------------------------
any reason shall receive the vested portion of his Account in a single payment
on a date selected by the Committee. That date shall be on or before the 60th
day after the end of the Plan Year in which his Service ends. Notwithstanding
the foregoing, if the balance credited to the Participant's Account exceeds (or
at the time of any prior distributions exceeded) $3,500, and the Participant's
account is immediately distributable, his benefits shall not be paid before the
latest of his 65th birthday or the tenth anniversary of the year in which he
commenced participation in the Plan unless he elects an early payment date in a
written consent filed with the Committee. The Participant and the Participant's
spouse (or where the Participant or the spouse has died, the survivor) must
consent to any early distribution of the Account. The consent of the Participant
and the Participant's spouse shall be obtained in writing within the 90-day
period ending on the date of the distribution. The date of the distribution is
the first day of the first period for which an amount is paid. The Committee
shall notify the Participant and the Participant's spouse of the right to defer
any distribution until the Participant's Account is no longer immediately
distributable. Such notification shall include a general description of the
16
<PAGE>
material features, and an explanation of the relative values of, the optional
forms of benefit available under the plan in a manner that would satisfy the
notice requirements of section 417(a)(3) of the Code, and shall be provided no
less than 30 days and no more than 90 days prior to the date of the
distributions. However, a distribution may be made less than 30 days after the
notice described in the prior sentence is given, provided the distribution is
one to which sections 401(a)(11) and 417 of the Code do not apply, the Committee
clearly informs the Participant that the Participant has a right to a period of
at least 30 days after receiving the notice to consider the decision of whether
or not to elect a distribution (and, if applicable, a particular distribution
option), and the Participant, after receiving the notice, affirmatively elects a
distribution.
A Participant may modify such an election at any time, provided any new
benefit payment date is at least 30 days after a modified election is delivered
to the Committee. In all events, a Participant's benefits shall be paid by April
1st of the calendar year following the year in which he reaches age 71-1/2. A
Participant's benefits from that portion of his Account committed to the
Investment Fund shall be calculated on the basis of the most recent Valuation
Date before the day of payment.
10.2 Benefits on a Participant's Death. If a Participant dies before
---------------------------------
his benefits are paid pursuant to Section 10.1, the balance credited to his
Account shall be paid to his Beneficiary in a single distribution on or before
the 60th day after the end of the Plan Year in which he died. The benefits from
that portion of the Account committed to the Investment Fund shall be calculated
on the basis of the most recent Valuation Date before the date of payment.
If a married Participant dies before his benefit payments begin, than
unless he has specifically elected otherwise the Committee shall cause the
balance in his Account to be paid to his Spouse. No election by a married
Participant of a different Beneficiary shall be valid unless the election is
accompanied by the Spouse's written consent, which (i) must acknowledge the
effect of the election, (ii) must explicitly provide either that the designated
Beneficiary may not subsequently be changed by the Participant without the
Spouse's further consent, or that it may be changed without such consent, and
(iii) must be witnessed by the Committee, its representative, or a notary
public. This requirement shall not apply if the Participant establishes to the
Committee's satisfaction that the Spouse may not be located.
10.3 Marital Status. The Committee shall from time to time take
--------------
whatever steps it deems appropriate to keep informed of each Participant's
marital status. Each Employer shall provide the Committee with the most reliable
information in the Employer's possession regarding its Participants' marital
status. The Committee, the Plan, the Trustee, and the Employers shall be fully
protected and discharged from any liability to the extent of any benefit
payments made as a result of the Committee's good faith and reasonable reliance
upon information obtained from a Participant and his Employer as to his marital
status.
10.4 Delay in Benefit Determination. If the Committee is unable to
------------------------------
determine the benefits payable to a Participant or Beneficiary on or before the
latest date prescribed for payment pursuant to Section 10.1 or 10.2, the
benefits shall in any event be paid within 60 days after they can first be
determined, with whatever makeup payments may be appropriate in view of the
delay.
10.5 Accounting for Benefit Payments. Any benefit payment shall be
-------------------------------
charged to the Participant's Account as of the first day of the Valuation Period
in which the payment is made.
17
<PAGE>
10.6 Options to Receive and Sell Stock. Unless ownership of virtually
---------------------------------
all Stock is restricted to active Employees and qualified retirement plans for
the benefit of Employees pursuant to the certificates of incorporation or by-
laws of the Employers issuing Stock, a terminated Participant or the Beneficiary
of a deceased Participant may instruct the Committee to distribute the
Participant's entire vested interest in his Account in the form of Stock. In
that event, the Committee shall apply the Participant's vested interest in the
Investment Fund to purchase sufficient Stock from the Stock Fund or from any
owner of stock to make the required distribution. In all other cases, the
Participant's vested interest in the Stock Fund shall be distributed in shares
of Stock, and his vested interest in the Investment Fund shall be distributed in
cash.
Any Participant who receives Stock pursuant to Section 10.1, and any
person who has received Stock from the Plan or from such a Participant by reason
of the Participant's death or incompetency, by reason of divorce or separation
from the Participant, or by reason of a rollover contribution described in
Section 402(c) of the Code, shall have the right to require the Employer which
issued the Stock to purchase the Stock for its current fair market value
(hereinafter referred to as the "put right"). The put right shall be exercisable
by written notice to the Committee during the first 60 days after the Stock is
distributed by the Plan, and, if not exercised in that period, during the first
60 days in the following Plan Year after the Committee has communicated to the
Participant its determination as to the Stock's current fair market value.
However, the put right shall not apply to the extent that the stock, at the time
the put right would otherwise be exercisable, may be sold on an established
market in accordance with federal and state securities laws and regulations. If
the put right is exercised, the Trustee may, if so directed by the Committee in
its sole discretion, assume the Employer's rights and obligations with respect
to purchasing the Stock.
The Employer or the Trustee, as the case may be, may elect to pay for
the Stock in equal periodic installments, not less frequently than annually,
over a period not longer than five years from the 30th day after the put right
is exercised, with adequate security and interest at a reasonable rate on the
unpaid balance, all such terms to be set forth in a promissory note delivered to
the seller with normal terms as to acceleration upon any uncured default.
Nothing contained herein shall be deemed to obligate any Employer to
register any Stock under any federal or state securities law or to create or
maintain a public market to facilitate the transfer or disposition of any Stock.
The put right described herein may only be exercised by a person described in
the second preceding paragraph, and may not be transferred with any Stock to any
other person. As to all Stock purchased by the Plan in exchange for any Stock
Obligation, the put right be nonterminable. The put right for Stock acquired
through a Stock Obligation shall continue with respect to such Stock after the
Stock Obligation is repaid or the Plan ceases to be an employee stock ownership
plan.
10.7 Restrictions on Disposition of Stock. Except in the case of Stock
------------------------------------
which is traded on an established market, a Participant who receives Stock
pursuant to Section 10.1, and any person who has received Stock from the Plan or
from such a Participant by reason of the Participant's death or incompetency, by
reason of divorce or separation from the Participant, or by reason of a rollover
contribution described in Section 402(c) of the Code, shall, prior to any sale
or other transfer of the Stock to any other person, first offer the Stock to the
issuing employer and to the Plan at its current fair market value. This
restriction shall apply to any transfer, whether voluntary, involuntary, or by
operation of law, and whether for consideration or gratuitous. Either the
Employer or the Trustee may accept the offer within 14 days after it is
delivered. Any Stock distributed by the Plan shall bear a conspicuous legend
describing the right of first refusal under this Section 10.7, as well as any
other restrictions upon the transfer of the Stock imposed by federal and state
securities laws and regulations.
18
<PAGE>
10.8 Direct Rollover of Eligible Rollover Distributions. Effective
--------------------------------------------------
January 1, 1993, and notwithstanding any provision of the plan to the contrary
that would otherwise limit a distributee's election under this Section, a
distributee may elect, at the time and in the manner prescribed by the
Committee, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in a direct
rollover.
Definitions:
(a) Eligible rollover distribution: An eligible rollover
distribution is any distribution of all or any portion of the balance to
the credit of the distributee, except that an eligible rollover
distribution does not include: any distribution that is one of a series
of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the distributee or
the joint lives (or joint life expectancies) of the distributee and the
distributee's designated beneficiary, or for a specific period of ten
years or more; any distribution to the extent such distribution is
required under Section 401(a)(9) of the Code; and the portion of any
distribution that is not includable in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to
Stock), and any other distribution(s) that is reasonably expected to
total less than $200 during a year.
(b) Eligible retirement plan: An eligible retirement plan is an
individual retirement account described in section 408(a) of the Code,
an individual retirement annuity described in Section 408(b) of the
Code, an annuity plan described in Section 403(a) of the Code, or a
qualified trust described in Section 401(a) of the Code, that accepts
the distributee's eligible rollover distribution. However, in the case
of an eligible rollover distribution to the surviving spouse, an
eligible retirement plan is an individual retirement account or
individual retirement annuity.
(c) Distributee: A distributee includes a Participant or former
Participant. In addition, the Participant's or former Participant's
surviving spouse and the Participant's or former Participant's spouse or
former spouse who is the alternate payee under a qualified domestic
relations order, as defined in Section 414(p) of the Code, are
distributees with regard to the interest of the spouse or former spouse.
(d) Direct Rollover: A direct rollover is a payment by the plan
to the eligible retirement plan specified by the distributee.
Section 11. Rules Governing Benefit Claims and Review of Appeals.
----------------------------------------------------
11.1 Claim for Benefits. Any Participant or Beneficiary who qualifies
------------------
for the payment of benefits shall file a claim for his benefits with the
Committee on a form provided by the Committee. The claim, including any election
of an alternative benefit form, shall be filed at least 30 days before the date
on which the benefits are to begin. If a Participant or Beneficiary fails to
file a claim by the 30th day before the date on which benefits become payable,
he shall be presumed to have filed a claim for payment for the Participant's
benefits in the standard form prescribed by Sections 10.1 or 10.2
19
<PAGE>
11.2 Notification by Committee. Within 90 days after receiving a claim
-------------------------
for benefits (or within 180 days, if special circumstances require an extension
of time and written notice of the extension is given to the Participant or
Beneficiary within 90 days after receiving the claim for benefits), the
Committee shall notify the Participant or Beneficiary whether the claim has been
approved or denied. If the Committee denies a claim in any respect, the
Committee shall set forth in a written notice to the Participant or Beneficiary:
(i) each specific reason for the denial;
(ii) specific references to the pertinent Plan provisions on which the
denial is based;
(iii) a description of any additional material or information which
could be submitted by the Participant or Beneficiary to support
his claim, with an explanation of the relevance of such
information; and
(iv) an explanation of the claims review procedures set forth in
Section 11.3.
11.3 Claims Review Procedure. Within 60 days after a Participant or
-----------------------
Beneficiary receives notice from the Committee that his claim for benefits has
been denied in any respect, he may file with the Committee a written notice of
appeal setting forth his reasons for disputing the Committee s determination. In
connection with his appeal the Participant or Beneficiary or his representative
may inspect or purchase copies of pertinent documents and records to the extent
not inconsistent with other Participants' and Beneficiaries' rights of privacy.
Within 60 days after receiving a notice of appeal from a prior determination (or
within 120 days, if special circumstances require an extension of time and
written notice of the extension is given to the Participant or Beneficiary and
his representative within 60 days after receiving the notice of appeal), the
Committee shall furnish to the Participant or Beneficiary and his
representative, if any, a written statement of the Committee's final decision
with respect to his claim, including the reasons for such decision and the
particular Plan provisions upon which it is based.
Section 12. The Committee and Its Functions.
-------------------------------
12.l Authority of Committee. The Committee shall be the "plan
----------------------
administrator" within the meaning of ERISA and shall have exclusive
responsibility and authority to control and manage the operation and
administration of the Plan, including the interpretation and application of its
provisions, except to the extent such responsibility and authority are otherwise
specifically (i) allocated to the Company, the Employers, or the Trustee under
the Plan and Trust Agreement, (ii) delegated in writing to other persons by the
Company, the Employers, the Committee, or the Trustee, or (iii) allocated to
other parties by operation of law. The Committee shall have investment
responsibility regarding decisions concerning the payment of benefits under the
Plan. The Committee shall have no investment responsibility with respect to the
Investment Fund except to the extent, if any, specifically provided in the Trust
Agreement. In the discharge of its duties, the Committee may employ accountants,
actuaries, legal counsel, and other agents (who also may be employed by an
Employer or the Trustee in the same or some other capacity) and may pay their
reasonable expenses and compensation.
12.2 Identity of Committee. The Committee shall consists of three or
---------------------
more individuals selected by the Company. Any individual, including a director,
trustee, shareholder, officer, or employee of an Employer, shall be eligible to
service as a member of the Committee. The Company shall have the power to remove
any individual serving on the Committee at any time without cause upon 10 days
written notice, and
20
<PAGE>
any individual may resign from the Committee at any time upon 10 days written
notice to the Company. The Company shall notify the Trustee of any change in
membership of the Committee.
12.3 Duties of Committee. The Committee shall keep whatever records
-------------------
may be necessary to implement the Plan and shall furnish whatever reports may be
required from time to time by the Company. The Committee shall furnish to the
Trustee whatever information may be necessary to properly administer the Trust.
The Committee shall see to the filing with the appropriate government agencies
of all reports and returns required of the plan Committee under ERISA and other
laws.
Further, the Committee shall have exclusive responsibility and authority
with respect to the Plan's holdings of Stock and shall direct the Trustee in all
respects regarding the purchase, retention, sale, exchange, and pledge of Stock
and the creation and satisfaction of Stock Obligations. The Committee shall at
all times act consistently with the Company's long-term intention that the Plan,
as an employee stock ownership plan, be invested primarily in Stock. Subject to
the direction of the Board as to the application of Employer contributions to
Stock Obligations, and subject to the provisions of Sections 6.4 and 10.6 as to
Participants' rights under certain circumstances to have their Accounts invested
in Stock or in assets other than Stock, the Committee shall determine in its
sole discretion the extent to which assets of the Trust shall be used to repay
Stock Obligations, to purchase Stock, or to invest in other assets to be
selected by the Trustee or an investment manager. No provision of the Plan
relating to the allocation or vesting of any interests in the Stock Fund or the
Investment Fund shall restrict the Committee from changing any holdings of the
Trust, whether the changes involve an increase or a decrease in the Stock or
other assets credited to Participants' Accounts. In determining the proper
extent of the Trust's investment in stock, the Committee shall be authorized to
employ investment counsel, legal counsel, appraisers, and other agents to pay
their reasonable expenses and compensation.
12.4 Valuation of Stock. If the valuation of any Stock is not
------------------
established by reported trading on a generally recognized public market, the
Committee shall have the exclusive authority and responsibility to determine its
value for all purposes under the Plan. Such value shall be determined as of each
Valuation Date, and on any other date as of which the Plan purchases or sells
such Stock. The Committee shall use generally accepted methods of valuing stock
of similar corporations for purposes of arm's length business and investment
transactions, and in this connection the Committee shall obtain, and shall be
protected in relying upon, the valuation of such Stock as determined by an
independent appraiser experienced in preparing valuations of similar businesses.
12.5 Compliance with ERISA. The Committee shall perform all acts
---------------------
necessary to comply with ERISA. Each individual member or employee of the
Committee shall discharge his duties in good faith and in accordance with the
applicable requirements of ERISA.
12.6 Action by Committee. All actions of the Committee shall be
-------------------
governed by the affirmative vote of a number of members which is a majority of
the total number of members currently appointed, including vacancies. The
members of the Committee may meet informally and may take any action without
meeting as a group.
12.7 Execution of Documents. Any instrument executed by the Committee
----------------------
shall be signed by any member or employee of the Committee.
12.8 Adoption of Rules. The Committee shall adopt such rules and
-----------------
regulations of uniform applicability as it deems necessary or appropriate for
the proper administration and interpretation of the Plan.
21
<PAGE>
12.9 Responsibilities to Participants. The Committee shall determine
--------------------------------
which Employees qualify to enter the Plan. The Committee shall furnish to each
eligible Employee whatever summary plan descriptions, summary annual reports,
and other notices and information may be required under ERISA. The Committee
also shall determine when a Participant or his Beneficiary qualifies for the
payment of benefits under the Plan. The Committee shall furnish to each such
Participant or Beneficiary whatever information is required under ERISA (or is
otherwise appropriate) to enable the Participant or Beneficiary to make whatever
elections may be available pursuant to Sections 6 and 10, and the Committee
shall provide for the payment of benefits in the proper form and amount from the
assets of the Trust Fund. The Committee may decide in its sole discretion to
permit modifications of elections and to defer or accelerate benefits to the
extent consistent with applicable law and the best interests of the individuals
concerned.
12.10 Alternative Payees in Event of Incapacity. If the Committee finds
-----------------------------------------
at any time that an individual qualifying for benefits under this Plan is a
minor or is incompetent, the Committee may direct the benefits to be paid, in
the case of a minor, to his parents, his legal guardian, a custodian for him
under the Uniform Gifts to Minors Act, or the person having actual custody of
him, or, in the case of an incompetent, to his spouse, his legal guardian, or
the person having actual custody of him, the payments to be used for the
individual's benefit. The Committee and the Trustee shall not be obligated to
inquire as to the actual use of the funds by the person receiving them under
this Section 12.10, and any such payment shall completely discharge the
obligations of the Plan, the Trustee, the Committee, and the Employers to the
extent of the payment.
12.11 Indemnification by Employers. Except as separately agreed in
----------------------------
writing, the Committee, and any member or employee of the Committee, shall be
indemnified and held harmless by the Employers, jointly and severally, to the
fullest extent permitted by law against any and all costs, damages, expenses and
liabilities reasonably incurred by or imposed upon it or him in connection with
any claim made against it or him or in which it or he may be involved by reason
of its or his being, or having been, the Committee, or a member or employee of
the Committee, to the extent such amounts are not paid by insurance.
12.12 Nonparticipation by Interested Member. Any member of the
-------------------------------------
Committee who also is a Participant in the Plan shall take no part in any
determination specifically relating to his own participation or benefits, unless
his abstention would leave the Committee incapable of acting on the matter.
Section 13. Adoption Amendment, or Termination of the Plan.
----------------------------------------------
13.1 Adoption of Plan by Other Employers. With the consent of the
-----------------------------------
Company, any entity may become a participating Employer under the Plan by (i)
taking such action as shall be necessary to adopt the Plan, (ii) becoming a
party to the Trust Agreement establishing the Trust Fund, and (iii) executing
and delivering such instruments and taking such other action as may be necessary
or desirable to put the Plan into effect with respect to the entity's Employees.
13.2 Adoption of Plan by Successor. In the event that any Employer
-----------------------------
shall be reorganized by way of merger, consolidation, transfer of assets or
otherwise, so that an entity other than an Employer shall succeed to all or
substantially all of the Employer's business, the successor entity may be
substituted for the Employer under the Plan by adopting the Plan and becoming a
party to the Trust Agreement. Contributions by the Employer shall be
axiomatically suspended from the effective date of any such reorganization until
the date upon which the substitution of the successor entity for the Employer
under the Plan becomes effective. If, within 90 days following the effective
date of any such reorganization, the successor entity shall not have elected to
become a party to the Plan, or if the Employer shall adopt a plan of complete
liquidation
22
<PAGE>
other than in connection with a reorganization, the Plan shall be automatically
terminated with respect to Employees of the Employer as of the close of business
on the 90th day following the effective date of the reorganization, or as of the
close of business on the date of adoption of a plan of complete liquidation, as
the case may be.
13.3 Plan Adoption Subject to Qualification. Notwithstanding any other
--------------------------------------
provision of the Plan, the adoption of the Plan and the execution of the Trust
Agreement are conditioned upon their being determined initially by the Internal
Revenue Service to meet the qualification requirements of Section 401(a) of the
Code, so that the Employers may deduct currently for federal income tax purposes
their contributions to the Trust and so that the Participants may exclude the
contributions from their gross income and recognize income only when they
receive benefits. In the event that this Plan is held by the Internal Revenue
Service not to qualify initially under Section 401(a), the Plan, may be amended
retroactively to the earliest date permitted by U.S. Treasury Regulations in
order to secure qualification under Section 401(a). If this Plan is held by the
Internal Revenue Service not to qualify initially under Section 401(a) either as
originally adopted or as amended, each Employer's contributions to the Trust
under this Plan (including any earnings thereon) shall be returned to it and
this Plan shall be terminated. In the event that this Plan is amended after its
initial qualification and the Plan as amended is held by the Internal Revenue
Service not to qualify under Section 401(a), the amendment may be modified
retroactively to the earliest date permitted by U.S. Treasury Regulations in
order to secure approval of the amendment under Section 401(a).
13.4 Right to Amend or Terminate. The Company intends to continue this
---------------------------
Plan as a permanent program. However, each participating Employer separately
reserves the right to suspend, supersede, or terminate the Plan at any time and
for any reason, as it applies to that Employer's Employees, and the Company
reserves the right to amend, suspend, supersede, merge, consolidate, or
terminate the Plan at any time and for any reason, as it applies to the
Employees of all Employers. No amendment, suspension, supersession, merger,
consolidation, or termination of the Plan shall reduce any Participant's or
Beneficiary's proportionate interest in the Trust Fund, or shall divert any
portion of the Trust Fund to purposes other than the exclusive benefit of the
Participants and their Beneficiaries prior to the satisfaction of all
liabilities under the Plan. Except as is required for purposes of compliance
with the Code or ERISA, each as amended from time to time, neither the
provisions of Section 4.1 and 4.2 relating to the crediting of contributions,
forfeitures and shares of Stock released from the Unallocated Stock Fund, nor
any other provision of the Plan relating to the allocation of benefits to
Participants may be amended more frequently than once every six months.
Moreover, there shall not be any transfer of assets to a successor plan or
merger or consolidation with another plan unless, in the event of the
termination of the successor plan or the surviving plan immediately following
such transfer, merger, or consolidation, each participant or beneficiary would
be entitled to a benefit equal to or greater than the benefit he would have been
entitled to if the plan in which he was previously a participant or beneficiary
had terminated immediately prior to such transfer, merger or consolidation.
Following a termination of this Plan by the Company, the Trustee shall continue
to administer the Trust and Fay benefits in accordance with the Plan as amended
from time to time and the Committee's instructions.
Section 14. Miscellaneous Provisions.
------------------------
14.1 Plan Creates No Employment Rights. Nothing in this Plan shall be
---------------------------------
interpreted as giving any Employee the right to be retained as an Employee by an
Employer, or as limiting or affecting the rights of an Employer to control its
Employees or to terminate the Service of any Employee at any time and for any
reason, subject to any applicable employment or collective bargaining
agreements.
23
<PAGE>
14.2 Nonassignability of Benefits. No assignment, pledge, or other
----------------------------
anticipation of benefits from the Plan will be permitted or recognized by the
Employers, the Committee, or the Trustee. Moreover, benefits from the Plan shall
not be subject to attachment, garnishment, or other legal process for debts or
liabilities of any Participant or Beneficiary, to the extent permitted by law.
This prohibition on assignment or alienation shall apply to any judgment,
decree, or order (including approval of a property settlement agreement) which
relates to the provision of child support, alimony, or property rights to a
present or former spouse, child or other dependent of a Participant pursuant to
a State domestic relations or community property law, unless the judgment,
decree, or order is determined by the Committee to be a qualified domestic
relations order within the meaning of Section 414(p) of the Code.
14.3 Limit of Employer Liability. The liability of the Employers with
---------------------------
respect to Participants under this Plan shall be limited to making contributions
to the Trust from time to time, in accordance with Section 4.
14.4 Treatment of Expenses. All expenses incurred by the Committee and
---------------------
the Trustee in connection with administering this Plan and Trust Fund shall be
paid by the Trustee from the Trust Fund to the extent the expenses have not been
paid or assumed by the Employers or by the Trustee.
14.5 Number and Gender. Any use of the singular shall be interpreted
-----------------
to include the plural, and the plural the singular. Any use of the masculine,
feminine, or neuter shall be interpreted to include the masculine, feminine, or
neuter, as the context shall require.
14.6 Nondiversion of Assets. Except as provided in Sections 5.3 and
----------------------
13.3, under no circumstances shall any portion of the Trust Fund be diverted to
or used for any purpose other than the exclusive benefit of the Participants and
their Beneficiaries prior to the satisfaction of all liabilities under the Plan.
14.7 Separability of Provisions. If any provision of this Plan is held
--------------------------
to be invalid or unenforceable, the other provisions of the Plan shall not be
affected but shall be applied as if the invalid or unenforceable provision had
not been included in the Plan.
14.8 Service of Process. The agent for the service of process upon the
------------------
Plan shall be the president of the Company, or such other person as may be
designated from time to time by the Company.
14.9 Governing State Law. This Plan shall be interpreted in accordance
-------------------
with the laws of the State of New Jersey to the extent those laws are applicable
under the provisions of ERISA.
14.10 Special Rules for Persons Subject to Section 16(b) Requirements.
---------------------------------------------------------------
Notwithstanding anything herein to the contrary, any former Participant who is
subject to the provisions of Section 16(b) of the Securities Exchange Act of
1934, who becomes eligible to again participate in the Plan, may not become a
Participant prior to the date that is six months from the date such former
Participant terminated participation in the Plan.
In addition, any person subject to the provisions of Section 16(b) of
the 1934 Act receiving a distribution of Stock from the Plan must hold such
Stock for a period of six months commencing with the date of distribution.
However, this restriction will not apply to Stock distributions made in
connection with death, retirement, disability or termination of employment or
made pursuant to the terms of a qualified domestic relations order.
24
<PAGE>
Section 15. Top-Heavy Provisions.
--------------------
15.1 Determination of Top-Heavy Status. The Committee shall determine
on a regular basis whether each Plan Year is or is not a "Top-Heavy
Year" for purposes of implementing the provisions of Sections 15.2,
15.3, 15.4, and 5.2 which apply only to the extent the Plan is top-heavy
or super top-heavy within the meaning of Section 416 and the Treasury
Regulations promulgated thereunder. In making this determination, the
Committee shall use the following definitions and principles:
15.1-1 The "Employer" includes all business entities which are
considered commonly controlled or affiliated within the meaning of
Sections 414(b), 414(c), and 414(m) of the Code.
15.1-2 The "plan aggregation group" includes each qualified
retirement plan maintained by the Employer (i) in which a Key Employee
is a Participant during the Plan Year, or (ii) which enables any plan
described in clause (i) to satisfy the requirements of Sections
401(a)(4) or 410 of the Code, or (iii) which provides contributions or
benefits comparable to those of the plans described in clauses (i) and
(ii) and which is designated by the Committee as part of the plan
aggregation group.
15.1-3 The "determination date", with respect to the first Plan
Year of any plan, means the last day of that Plan Year, and with respect
to each subsequent Plan Year, means the last day of the preceding Plan
Year. If any other plan has a determination date which differs from this
Plan's determination date, the top-heaviness of this Plan shall be
determined on the basis of the other plan's determination date falling
within the same calendar years as this Plan's determination date.
15.1-4 A "Key Employee", with respect to a Plan Year, means an
Employee who at any time during the five years ending on the top-heavy
determination date for the Plan Year has received compensation from an
Employer and has been (i) an officer of the Employer having Total
Compensation greater than 50 percent of the limit then in effect under
Section 415(c)(1)(A) of the Code, (ii) one of the 10 Employees owning
the largest interests in the Employer having Total Compensation greater
than the limit then in effect under Section 415(c)(1)(A), (iii) an owner
of more than five percent of the outstanding equity interest or the
outstanding voting interest in any Employer, or (iv) an owner of more
than one percent of the outstanding equity interest or the outstanding
voting interest in an Employer whose Total Compensation exceeds
$150,000. In determining which individuals are Key Employees, the rules
of Section 415(i) of the Code and Treasury Regulations promulgated
thereunder shall apply. The Beneficiary of a Key Employee shall also be
considered a Key Employee.
15.1-5 A "Non-key Employee" means an Employee who at any time
during the five years ending on the top-heavy determination date for the
Plan Year has received compensation from an Employer and who has never
been a Key Employee, and the Beneficiary of any such Employee.
15.1-6 The "aggregated benefits" for any Plan Year means (i) the
adjusted account balances in defined contribution plans on the
determination date, plus (ii) the adjusted value of accrued benefits in
defined benefit plans, calculated as of the annual valuation date
coinciding with or next preceding the determination date, with respect
to Key Employees and Non-key Employees under all plans within the plan
aggregation group which includes this Plan. For this purpose, the
"adjusted account balance" for and the "adjusted value of accrued
benefit" for any Employee shall be increased by all plan distributions
made with respect to the Employee during the five years ending on the
25
<PAGE>
determination date. Further, the adjusted account balance under a plan
shall not include any amount attributable to a rollover contribution or
similar transfer to the plan initiated by an Employee and made after
1983, unless both plans involved are maintained by the Employer, in
which event the transferred amount shall be counted in the transferee
plan and ignored for all purposes in the transferor plan. Finally, the
adjusted value of accrued benefits under any defined benefit plan shall
be determined by assuming whichever actuarial assumptions were applied
by the Pension Benefit Guaranty Corporation to determine the sufficiency
of plan assets for plans terminating on the valuation date.
15.1-7 This Plan shall be "top-heavy" for any Plan Year in which
the aggregated benefits of the Key Employees exceed 60 percent of the
total aggregated benefits for both Key Employees and Non-key Employees.
15.1-8 This Plan shall be "super top-heavy" for any Plan Year in
which the aggregated benefits of the Key Employees exceed 90 percent of
the total aggregated benefits for both Key Employees and Non-key
Employees.
15.1-9 A "Top-Heavy Year" means a Plan Year in which the Plan is
top-heavy.
15.2 Minimum Contributions. For any Top-Heavy Year, each
Employer shall make a special contribution on behalf of each Participant
to the extent that the total allocations lo his Account pursuant to
section 4 is less than the lesser of (i) four (4) percent of his Total
Compensation for that year, or (ii) the highest ratio of such allocation
to Total Compensation received by any Key Employee for that year. For
purposes of the special contribution of this Section 15.2, a Key
Employee's Total Compensation shall include amounts the Key Employee
elected to defer under a qualified 401(k) arrangement. Such a special
contribution shall be made on behalf of each Participant who is employed
by an Employer on the last day of the Plan Year, regardless of the
number of his Hours of Service, and shall be allocated to his Account.
For any Plan Year when (1) the Plan is top-heavy and (2) a Non-key
Employee is a Participant in both this Plan and a defined benefit plan included
in the plan aggregation group which is top heavy, the sum of the Employer
contributions and forfeitures allocated to the account of each such Non-key
Employee shall be equal to at least five percent (5%) of such Non-key Employee's
Total Compensation for that year.
15.3 Minimum Vesting. If a Participant's vested interest in his
---------------
Account is to be determined in a Top-Heavy Year, it shall be based on the
following "top-heavy table":
<TABLE>
<CAPTION>
Vesting Percentage of
Years Interest Vested
-------- ---------------
<S> <C>
fewer than 2 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
</TABLE>
26
<PAGE>
Exhibit 10.6
FIRST SAVINGS BANK, SLA
1992 DIRECTORS' DEFERRED FEE
STOCK UNIT PLAN
By resolution of the Board of Directors of the First Savings Bank, SLA, the
following plan for the unfunded deferment of payment of directors fees has been
adopted effective February __, 1992.
1. Purpose. The purpose of the 1992 Deferred Fee Stock Unit Plan (the "Plan")
-------
is to provide an opportunity for the members of the Board of Directors of
First Savings Bank, SLA (the "Savings Bank"), active in such capacity on
the effective date of the Plan to defer receipt of fees otherwise currently
payable to them in exchange for the receipt at the time they cease to serve
as Directors with a benefit based on the value of the common stock of the
Savings Bank, and to provide the Savings Bank with the use of the funds for
business activities. The deferment of fees under the Plan applies to all
fees received by directors: regular meeting fees, special meeting fees, and
committee fees.
2. Participants. Any director of the Savings Bank who is active in such
------------
capacity on the effective date of the Plan may elect to become a
participant ("Participant") under this Plan by written notice to the
Savings Bank.
3. Deferred Retainer and Fees.
--------------------------
(a) Any Participant who was a participant in the Agreement for Deferment
of Directors Fees established by resolution of the Board of Directors on May 27,
1981 (the "Prior Plan"), may make a one time, irrevocable election to have all
or any portion of the amounts credited to such participant's account under the
Prior Plan credited as an Initial Deferral under this 1992 Directors' Deferred
Fee Stock Unit Plan. Once a director elects to become a Participant of the Plan,
he or she may no longer participate in the Prior Plan. However, if a Participant
elects to have only a portion of the amount previously deferred under the Prior
Plan credited to him under this Plan, the balance of his deferred amounts under
the Prior Plan shall continue to be deferred under the Prior Plan and in all
events shall be subject to the terms of the Prior Plan.
(b) Any Participant may defer under the Plan all or any portion of his
annual fees as a director which are earned for the year commencing after the
date of said election as he may specify in said written notice to the Savings
Bank, and such amounts so deferred shall be paid only as hereinafter provided.
Any Participant may change the amount of, or suspend, future deferrals with
respect to fees earned for years commencing after the date of change or
suspension as he may specify by written notice to the Savings Bank. Following
any such suspension a director may make a new election to again become a
Participant. No Participant may make such change more often than once in any 12-
month period or again become a Participant within 12 months after the date of
suspension. Any such election to re-participate in the Plan must be made
<PAGE>
during a period beginning on the third business day following the date of
release of the quarterly and annual statements of sales of earnings by the
issuer of the Shares, and ending on the twelfth business day following such
date. The election to defer shall be irrevocable as to the deferred retainer
and fees for the particular 12-month period.
4. Method of Deferral and Distribution.
-----------------------------------
(a) For each Participant electing to participate in this Plan with respect
to the deferral of future retainers and fees, the Savings Bank shall
maintain a deferred money account ("Deferred Money Account") which
shall periodically be converted into a stock unit account ("Stock Unit
Account") for each such Participant. Each Participant will be
furnished annually with a statement of his Account. Each Participant
shall be fully vested in his Account, subject to the provisions of
Section 6 hereof.
(b) For each Participant electing to participate in this Plan by making an
Initial Deferral, the Savings Bank shall credit the amount of the
Initial Deferral to the Participant's Deferred Money Account and
convert such account into a Stock Unit Account for such Participant
all as of the date of the Participant's irrevocable election to make
the Initial Deferral.
(c) Deferred fees of each Participant shall be credited as a dollar amount
to the Participant's Deferred Money Account on the date they otherwise
would be payable and shall be converted into stock units quarterly at
March 31, June 30, September 30 and December 31 in each year by
dividing the dollar amount of such Deferred Money Account as of the
end of each such quarter by the last reported sales price per share of
Common Stock, par value $.01, as traded on the Pink Sheet or such
other market on which the Common Stock is traded on the last day upon
which such stock was traded during each such quarter. The number of
stock units for full shares so determined shall be credited to the
Participant's Stock Unit Account and the aggregate value thereof at
said closing price shall be charged to the Participant's Deferred
Money Account. Any dollar amount remaining in the Participant's
Deferred Money Account after such charge shall be used together with
other dollar amounts credited thereto, to convert such Account to
stock units at the next quarterly conversion date.
(d) The Initial Deferral of each Participant shall be credited as a dollar
amount to the Participant's account on the date of the irrevocable
election to make the Initial Deferral and shall be converted as of the
same date into stock units by dividing the dollar amount of the
Participant's Deferred Money Account as of the end of each such
quarter by the last reported sales price per share of Common Stock,
par value $.01, as traded on the Pink Sheet or such other market on
which the Common Stock is traded on the last day upon which such stock
was traded during
2
<PAGE>
each such quarter. The number of stock units for full shares so
determined shall be credited to the Participant's Stock Unit Account
and the aggregate value thereof at said closing price shall be charged
to the Participant's Deferred Money Account. Any dollar amount
remaining in the Participant's Deferred Money Account after such
charge shall be used, together with dollar amounts credited thereto,
at the next quarterly conversion date.
(e) Additional credits will be made to each Participant's Deferred Money
Account in dollar amounts equal to the cash dividends (or the fair
market value of dividends paid in property) that the Participant would
have received from time to time had he been the owner on the record
dates with respect thereto of the number of shares of the Savings
Bank's Common Stock equal to the number of stock units in his Stock
Unit Account on such dates. Such amounts shall be credited to a
Dividend Subaccount for each Participant. In the case of a stock
dividend or stock split, additional credits will be made to each
Participant's Stock Unit Account of the number of stock units equal to
the number of full shares of the Savings Bank's Common Stock, in the
case of a stock dividend, or a stock split which such Participant
would have received from time to time had he been the owner on the
record dates with respect thereto, of the number of shares of the
Savings Bank's Common Stock equal to the number of stock units in his
Stock Unit Account on such dates.
5. Distribution.
------------
(a) Upon termination of a Participant's services as a director:
(i) payment of the balance of his Deferred Money Account, including
his Dividend Subaccount as of the date of his termination shall
be made to the Participant in cash; and
(ii) payment of the balance in his Stock Unit Account shall be made to
the Participant in shares of Common Stock of the Savings Bank, or
at the option of the Participant as he directs by written notice
delivered to the Savings Bank within thirty (30) days after his
date of termination, in cash equal to the value of such shares as
of the date(s) of distribution, in such number of annual
installments as shall be determined by the Savings Bank in its
sole discretion. The Savings Bank may consult with Participants
prior to such determination. Each annual distribution shall be
made as of January 31, beginning with the January 31 following
the termination of a Participant's services as a director.
3
<PAGE>
(b) The Stock Unit Account of a terminated Participant in the Plan, until
complete distribution of such Account in whole shares of Common Stock
of the Company or cash, shall be credited with additional credits in
accordance with paragraph 3(e) above. Such additional credits to the
extent of the equivalent of whole shares of Common Stock of the
Company shall be distributed in shares or cash, as the case may be. In
the event a terminated Participant's Stock Unit Account is being paid
to him in installments, the Stock Unit Account shall be credited with
additional credits in accordance with paragraph 3(e) above until such
Account is distributed to the Participant in full. Such additional
credits to the extent of the equivalent of whole shares of Common
Stock of the Company shall be distributed in shares or cash, as the
case may be, in the next installment. Any dollar amounts remaining
which do not equal a whole share of Common Stock at the time of the
last installment of Common Stock shall be paid in cash to the
Participant at the time of such distribution.
(c) If such Participant shall cease to be a director by reason of his
death or if he shall die after he shall be entitled to distributions
hereunder but prior to receipt of all distributions, all cash or
Common Stock distributable hereunder at such time shall be distributed
to the beneficiary designated by the Participant in writing and filed
with the Savings Bank, or in the absence of such designation, to his
personal representative, or if none is appointed within six months of
his death to his spouse, or if not then living, to his then living
descendants, per stirpes, in the same manner and at the same intervals
as they would have been made to such Participant had he lived.
6. Participant's Rights Unsecured. The right of any Participant to receive a
------------------------------
distribution hereunder in Common Stock of the Savings Bank or in cash shall be
an unsecured claim against the general assets of the Savings Bank. The deferred
retainers and fees may not be encumbered or assigned by the Participant. From
time to time, the Savings Bank may acquire (but shall be under no obligation to
do so) through an irrevocable grantor's trust shares of the outstanding Common
Stock of the Savings Bank in anticipation of distributions under the Plan. In no
event shall any Participant have any rights in or against any shares of Common
Stock so acquired or in any cash held in his Deferred Money Account. All such
Common Stock and cash shall constitute general assets of the Savings Bank and
may be disposed of by the Savings Bank at such time and for any and all purposes
as it may deem appropriate.
7. Amendments to the Plan. The Board of Directors of the Savings Bank may
----------------------
amend the Plan at any time, without the consent of the Participants or their
beneficiaries, provided, however, that no amendment shall divest any Participant
or beneficiary of rights to which he would have been entitled if the Plan had
been terminated on the effective date of such amendment.
4
<PAGE>
8. Termination of Plan. The Board of Directors of the Savings Bank may
-------------------
terminate the Plan at any time. Upon termination of the Plan, distributions in
respect of credits to a Participant's Accounts as of the date of termination
shall be made in a lump sum.
9. Expenses. Costs of administration of the Plan will be paid by the Savings
--------
Bank.
10. Effective Date. The effective date of this Plan shall be ________________.
--------------
Adopted:
______________________________ ______________________________
Date Signature
5
<PAGE>
ELECTION TO MAKE INITIAL DEFERRAL
UNDER FIRST SAVINGS BANK, SLA
1992 DIRECTORS' DEFERRED FEE PLAN
I, the undersigned _________________________ (insert name), a director of
First Savings Bank, SLA ("Savings Bank") hereby elect to become a Participant
under the First Savings Bank, SLA 1992 Directors' Deferred Fee Plan ("Plan"),
effective as of the date hereof, and I further elect to make an Initial
Deferral, pursuant to the terms of the Plan, (all) (or _____________ percentage)
(select one) of my account under the Agreement for the Deferment of Directors
Fees, established by the Savings Bank, effective May 27, 1981. I understand that
this election to make an Initial Deferral is a one time election and is
irrevocable.
If I shall cease to be a director of the Savings Bank by reason of my
death, or if I shall die after I become entitled to a distribution under the
Plan but prior to receipt of the entire distribution to which I am entitled,
then all of the distribution to which I am entitled under the Plan and which has
not been distributed to me at the date of my death shall be distributed to
___________________________________ (insert name of beneficiary) in the same
manner and at the same time as the distribution would have been made to me.
______________________________ _________________________________
Date Name
6
<PAGE>
Exhibit 10.7
FIRST SAVINGS BANK, SLA
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
JANUARY 1, 1997
<PAGE>
FIRST SAVINGS BANK, SLA
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
INTRODUCTION
First Savings Bank, SLA through its predecessor First Savings and Loan
Association of Perth Amboy, adopted a Retirement Benefit Maintenance Plan on
March 25, 1984. The Retirement Benefit Maintenance Plan was replaced by the
Supplemental Executive Retirement Plan (SERP) effective January 1, 1994.
The Bank, upon review of the provisions of the existing SERP, determined
that a revision and restatement should be undertaken. With the authorization of
the Board of Directors, the revision and restatement set forth in the provisions
of the SERP contained herein are adopted effective January 1, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
Section 1 Name 1
Section 2 Purpose 1
Section 3 Definitions 1
Section 4 Administration 6
Section 5 Eligibility for Participation 9
Section 6 Retirement Benefits 9
Section 7 Distribution of Benefits 11
Section 8 Death Benefits and
Beneficiary Designation 13
Section 9 Funding Obligations of Bank 14
Section 10 Amendment and Termination 15
Section 11 General Provisions 16
Section 12 Effective Date 18
Appendix A 19
</TABLE>
<PAGE>
SECTION 1
NAME
The Deferred Compensation Plan set forth herein shall be known as the First
Savings Bank, SLA Supplemental Executive Retirement Plan.
SECTION 2
PURPOSE
The purposes of the Plan are to assist First Savings Bank, SLA in retaining
the vital and valuable services of certain key employees until their retirement;
to induce the key employees to utilize their best efforts to maintain and
enhance the business of the Bank and to provide certain supplemental benefits to
the key employees. The Plan is intended to constitute an unfunded non-qualified
deferred compensation plan.
SECTION 3
DEFINITIONS
For purposes of the Plan, the following words and phrases shall have the
following meanings unless a different meaning is plainly required by the
context. Wherever used, the masculine pronoun shall include the feminine
pronoun and the feminine pronoun shall include the masculine pronoun and the
singular shall include the plural and the plural shall include the singular.
3.1 "Actuarial Equivalent" shall mean a benefit of a form differing in
time, period or manner of payment from a specific benefit provided under the
Plan but having the same value when computed using mortality rates from the 1983
Individual Annuitant Mortality Table for Males and an interest assumption of 7%.
3.2 "Bank" shall mean FIRST SAVINGS BANK, SLA, or, to the extent provided
in Section 11.7 below, any successor corporation or other entity resulting from
a merger or consolidation with the Bank or transfer or sale of substantially all
of the assets of the Bank.
3.3 "Beneficiary" shall mean the person or persons designated in
accordance with Section 8.3 to receive any benefits under the Plan in the event
of a Participant's death.
-1-
<PAGE>
3.4 "Board of Directors" shall mean the full Board of Directors of the
Bank.
3.5 "Committee" shall mean the Compensation Committee of the Bank, or any
other Committee appointed by the Board of Directors to administer the Plan.
3.6 (a) "Compensation" shall mean the Participant's regular salary and
wages paid or accrued by the Employer in the highest 12 consecutive months
during which the Participant was actively employed excluding bonuses, overtime
pay, commissions, other extraordinary payments, reimbursements or other expense
allowances, fringe benefits (cash and non-cash), moving expenses, deferred
compensation, and welfare benefits paid by the Bank to such Participant.
Amounts contributed by the Employer under the Plan shall not be included within
the definition of Compensation for purposes of this Plan.
(b) Notwithstanding the above, Compensation shall include any amount which
is contributed by the Employer pursuant to a salary reduction agreement and
which is not includible in the gross income of the Participant under Sections
125 or 401(k) of the Internal Revenue Code of 1986. Compensation shall not
include stock or stock grants awarded the Participant by the Bank, or any other
incentive compensation awards.
(c) Notwithstanding the above, for purposes of this Plan, Compensation for
John Mulkerin shall be limited to Two Hundred Fifty Thousand Dollars
($250,000.00).
3.7 "Bank Pension Plan Annual Benefit" shall mean the projected annual
benefit payable from the Pension Plan for Employees of First Savings Bank, SLA
or any successor defined benefit pension plan, to a Participant at age sixty-
five (65) or, in the case of Deferred Retirement (as defined in Section 6.3 of
this Plan) the annual benefit payable to a Participant at actual retirement both
assuming the normal form of benefit, namely a life-only annuity. If the
employment of the Participant terminates before age 65, the Bank Pension Plan
Annual Benefit shall be the benefit accrued under the Pension Plan for Employees
of First Savings Bank, SLA as of the date of termination and payable at age 65.
3.8 "Effective Date" of the restated Plan shall mean January 1, 1997.
3.9 "Employer" shall mean FIRST SAVINGS BANK, SLA.
-2-
<PAGE>
3.10 "Normal Retirement Date" shall mean the first day of the month
coinciding with or next following a Participant's sixty-fifth (65th) birthday.
3.11 "Participant" or "Employee" shall mean any person who has been
designated by the Board of Directors to participate in the Plan in accordance
with the provisions herein set forth.
3.12 "Plan" shall mean the First Savings Bank, SLA Supplemental Executive
Retirement Plan.
3.13 "Plan Year" shall mean the period of twelve (12) consecutive months
commencing on January 1, 1997 and each January 1 thereafter.
3.14 "Primary Social Security Benefit" shall mean the Participant's annual
old age insurance benefit payable at his Normal Retirement Date, computed on the
basis of the Social Security Act in effect at the Normal Retirement Date for a
Participant who retires on or after that date and computed on the basis of the
Social Security Act in effect at the date of retirement or termination for a
Participant who retires or terminates prior to the Normal Retirement Date.
(a) At the Participant's Normal or Deferred Retirement Date, the
Participant's Primary Social Security Benefit shall be calculated based on the
Participant's total Compensation subject to Social Security payroll tax (up to
the Normal or Deferred Retirement Date), disregarding any adjustments provided
by the Social Security Act to reflect deferral of the Primary Social Security
Benefit from age 65 to Normal or Deferred Retirement Date;
(b) At the Participant's date of termination for any reason before Normal
Retirement Date, the Participant's Primary Social Security Benefit shall be
calculated as the monthly Primary Insurance Amount that would have been payable
at his Normal Retirement Date assuming that he continued to receive Compensation
at the rate last recorded by the Bank in the records of the Plan from the date
of termination of employment of the Participant to his Normal Retirement Date
and assuming that the Social Security Taxable Wage Base remains unchanged from
the Social Security Taxable Wage Base in effect on the Participant's last day of
employment with the Bank.
(c) For any calendar year for which compensation information is not
available to the Bank, for purposes of calculating a Participant's Primary
Social Security Benefit, Compensation will be determined by using the following
procedure: It shall be presumed that the Participant's Compensation is equal to
or exceeds the Social Security Taxable Wage Base and that the Social Security
Wage
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<PAGE>
Base remains unchanged from the Social Security Taxable Wage Base in effect
on the Participant's last day of employment with the Bank.
3.15 "Service" shall mean:
(a) All periods of employment with the Employer.
A period of employment begins as of the date the Employee first completes
an Hour of Employment for the Employer and ends on the earlier of the date the
Employee resigns, is discharged, retires, becomes Totally Disabled within the
meaning of Section 3.16, dies or, if the Employee is absent for any other
reason, with the Employer's authorization, on the first day the Employee fails
to return to active employment from such absence. If an Employee is absent for
any reason and returns to the employ of the Employer before incurring a Break-
in-Service, as provided in Subsection (b), he shall receive credit for his
period of absence up to a maximum of 12 months. Service subsequent to a Break-
in-Service will be credited as a separate period of employment.
(b) "Break-in-Service" shall mean a period of 12-consecutive months during
which an Employee fails to accrue an Hour of Employment with the Employer. Such
period begins on the earlier of the date the Employee resigns, is discharged,
retires or dies or, if the Employee is absent for any other reason, on the first
anniversary of the first day of such absence (with or without pay) from the
Employer. If, commencing on or after November 1, 1985, an Employee is absent by
reason of (i) the pregnancy of the Employee, (ii) the birth of a child of the
Employee, (iii) the placement of a child with the Employee for adoption by the
Employee, or the (iv) caring for a child immediately following such birth or
placement, such Employee will not be treated as having retired, resigned or been
discharged and the period between the first and second anniversary of the first
day of such absence shall not be deemed a Break-in-Service.
(c) "Month of Service" shall mean a calendar month any part of which is in
a period of employment or credited absence.
(d) "Year of Service" shall mean, unless otherwise indicated, 12
consecutive Months of Service. A Participant shall be credited with one-twelfth
(1/12) of a year of Service for each completed Month of Service.
-4-
<PAGE>
(e) "Hour of Employment" shall mean
(i) For an Employee paid on an hourly basis or for whom
hourly records of employment are required to be
maintained, each hour for which the person is directly
or indirectly paid or entitled to payment for the
performance of duties or for the period of time when
no duties are performed, irrespective of whether the
employment relationship has terminated, such as
vacation, holiday or illness.
(ii) For an Employee paid on a non-hourly basis or for whom
hourly records of employment are not required to be
maintained, each week for which the person is directly
or indirectly paid or entitled to payment shall be
equal to 45 Hours of Employment.
(iii) A person shall receive an Hour of Employment for each
hour for which back pay has been awarded or agreed to
irrespective of mitigation of damages, provided that
each such hour shall be credited to the applicable
computation period to which it pertains, rather than
the applicable computation period in which the award
or agreement is made, and further provided that no
such award or agreement shall have the effect of
crediting an Hour of Employment for any hour for which
the person previously received credit under (i) and
(ii) above.
(iv) Notwithstanding the forgoing, Hours of Employment
shall be computed and credited in accordance with
Department of Labor Regulation 2530.200b-2,
Subparagraphs (b) and (c).
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<PAGE>
(f) An Employee shall receive credit for the period of his employment with
another business entity to which he had been transferred by the Employer solely
for purposes of determining his vested interest in accordance with Section 7.
3.16 "Total Disability" shall be defined in accordance with the provisions
of any disability insurance policy maintained by the Bank for the Participant
which is then in effect. In the absence of such policy, Total Disability shall
mean the incapacity of the Participant to perform any employment which would be
appropriate for a person of his prior physical status, intellectual ability and
experience, due to mental or physical disability which shall have been certified
to by a physician selected by the Committee.
-6-
<PAGE>
SECTION 4
ADMINISTRATION OF THE PLAN
4.1 Assignment of Administrative Authority
The decisions of the Committee shall be conclusive and binding on all
persons. The Committee shall have the sole responsibility to administer the
Plan.
4.2 Organization and Operation of the Committee
The Committee shall have full power and authority to:
(a) Interpret and construe the Plan and determine all questions of the
status and rights of the Participants hereunder, and its interpretation,
construction or determination, as the case may be, shall be final and conclusive
on both the Bank and the Participants and their respective successors, heirs,
assigns, personal representatives and any Beneficiary.
(b) The Committee shall act by a majority of its members unless unanimous
consent is required by the Plan or by unanimous approval of its members if there
are two or less members in office at the time. In the event of a Committee
deadlock, the Committee shall determine the method for resolving such deadlock.
(c) The Committee may authorize any one or more of its members to execute
documents on behalf of the Committee.
(d) The Committee may, by unanimous consent, delegate specific authority
and responsibility to one or more of its members. The member or members so
designated shall be solely liable, jointly and severally, for their acts or
omissions with respect to such delegated authority and responsibilities. Members
not so designated shall be relieved from liability for any act or omission
resulting from such delegation.
4.3 Authority and Responsibility
The Committee shall have full authority and responsibility for
administration of the Plan. Such authority and responsibility shall include, but
shall not be limited to the following:
(a) Appointment of qualified accountants, benefit consultants,
administrators, legal counsel or investment managers, or other persons it deems
necessary or advisable, who shall serve the Committee as advisors only and shall
not exercise any
-7-
<PAGE>
discretionary authority, responsibility or control with respect to the
management or administration of the Plan.
Any action of the Committee on the basis of advice, opinion, reports, etc.
furnished by such qualified accountants, benefit consultants, administrators,
and legal counsel shall be the sole responsibility of the Committee.
Members of the Committee shall not be precluded from serving the Committee
in any other capacity.
(b) Make in their sole and absolute discretion all determinations of all
benefits and resolve of all questions arising from the administration,
interpretation and application of the Plan;
(c) Provide forms and regulations for the administration of the Plan;
(d) Remedy all errors and inequities as arise from incorrect information
received by or communicated to the Committee, or from administrative error;
(e) Make settlement or compromise of any claims or debts arising from the
operation of the Plan and the commencement of any legal actions or
administrative proceedings;
(f) Provide for direction of the investment of any funds set aside or
earmarked by the Bank to meet its obligations under this Plan.
4.4 Records and Reports
The Committee shall keep a record of its proceedings and acts and shall
keep books of account, records and other data necessary for the proper
administration of the Plan.
4.5 Required Information
The Bank and any Participant or Beneficiary entitled to benefits shall
furnish forms and any information or evidence as requested by the Committee for
the proper administration of the Plan. Failure on the part of any Participant
or Beneficiary to comply with such request within a reasonable period of time
shall be sufficient grounds for delay in the payment of benefits until the
information or evidence requested is received.
-8-
<PAGE>
4.6 Payment of Expenses of Plan
The expenses of the Committee in connection with the administration of the
Plan shall be the responsibility of the Bank.
4.7 Indemnification
The Bank shall indemnify and hold the members of the Committee harmless
against liability incurred in the administration of the Plan, including not but
limited to any and all legal fees and expenses incurred by the members of the
Committee, except for the gross negligence or willful misconduct of any member.
-9-
<PAGE>
SECTION 5
ELIGIBILITY FOR PARTICIPATION
Such persons as may be designated from time to time by the Board of
Directors upon such terms and conditions as the Board of Directors shall agree
upon, shall be eligible to participate in the Plan, and shall be designated on
Appendix A annexed hereto.
SECTION 6
RETIREMENT BENEFITS
6.1 Normal Retirement
A Participant who retires on his Normal Retirement Date, shall be entitled
to an annual retirement benefit equal to seventy-five percent (75%) of his
Compensation reduced by his Bank Pension Plan Annual Benefit and his Primary
Social Security Benefit.
6.2 Early Retirement
A Participant who retires prior to his Normal Retirement Date based on his
voluntary termination shall be entitled to receive an annual retirement benefit
equal to seventy-five percent (75%) of his Compensation, reduced by his Bank
Pension Plan Annual Benefit and his Primary Social Security Benefit and further
reduced by four percent (4%) for each Year of Service less than twenty-five
(25). This benefit will be payable at age 65. Notwithstanding the foregoing,
the Participant may elect to receive this benefit prior to attaining age 65. If
such election is made, the benefit will be further reduced on an Actuarial
Equivalent basis, unless the Participant has attained age 60 and has at least 25
Years of Service, in which case the benefit will not be reduced on an Actuarial
Equivalent Basis.
Notwithstanding the foregoing, upon the occurrence of an Event of Termination as
defined in any applicable Employment Agreement between the Participant and the
Bank (other than a termination governed by any change in control or termination
for cause provisions thereunder), a Participant's retirement benefit shall not
be reduced for Years of Service less than twenty-five (25). However, in such
event, the benefit will be reduced on an Actuarial Equivalent basis, unless the
Participant has attained age 60 and
-10-
<PAGE>
has at least 25 Years of Service in which case the benefit will not be reduced
on an Actuarial Equivalent Basis.
6.3 Deferred Retirement
A Participant may remain in the employ of the Employer after his Normal
Retirement Date for such period or periods as shall be approved by the Employer.
Upon actual retirement, such Participant shall be entitled to receive an annual
retirement benefit equal to seventy-five percent (75%) of his then Compensation
reduced by his Bank Pension Plan Annual Benefit and his Primary Social Security
Benefit.
6.4 Total Disability
A Participant who retires on account of his Total Disability prior to his
Normal Retirement Date shall be entitled to receive an annual retirement benefit
equal to seventy-five percent (75%) of his Compensation, reduced by his Bank
Pension Plan Annual Benefit and his Primary Social Security Benefit. This
benefit will be payable at age 65. If the Participant recovers from his Total
Disability (as determined by the Committee in its sole and absolute discretion)
prior to his commencement of receipt of a retirement benefit and he does not
return to work for the Bank, or if his period of Total Disability ceases by
reason of his death prior to his commencement of receipt of a retirement
benefit, his employment with the Company shall be deemed terminated as of the
date of his recovery or death and in such event the Participant or his
Beneficiary, as the case may be, shall be entitled to such retirement or death
benefit as he would be eligible to receive under the applicable provisions of
this Section 6 or Section 8.
6.5 Normal Form of Payment
(a) A Participant shall receive his annual retirement benefit under this
Plan during his lifetime payable in equal monthly installments equal to one-
twelfth (1/12) of the annual benefit determined in accordance with Sections 6.1,
6.2, 6.3, and 6.4 of the Plan. In the event a Participant dies after
commencement of his retirement benefits but before completion of the payment of
benefits equalling fifteen (15) annual installments of such benefits, then the
balance of the fifteen (15) annual installments shall be paid in equal monthly
installments to his designated Beneficiary, and no further payments will be due
and owing to the Participant's designated Beneficiary.
(b) A Participant who is married at the time of his Normal, Early or
Deferred Retirement Date or at the time of his Total Disability may elect to
receive the value of all of his benefits in the form of a spousal joint and
survivor annuity. The spousal
-11-
<PAGE>
joint and survivor annuity shall be the actuarial equivalent of the
Participant's single life annuity with fifteen (15) years guaranteed. Such joint
and survivor benefits following the Participant's death shall continue to be
paid to the spouse during the spouse's lifetime at a rate equal to 50% of the
rate at which such benefits were payable to the Participant.
6.6 Optional Forms of Benefit Payment
In lieu of the Normal Form of Payment, the Committee may, in its sole
discretion, make payment in any form it deems appropriate. Such payment shall be
based on the actuarial equivalent of the Normal Form of Payment as defined in
Section 6.3 of the Plan. The decision of the Committee shall be binding and
conclusive.
6.7 Benefit Disqualification
For purpose of this Section 6, if a Participant's Employment is terminated
as a result of such Participant's fraud, embezzlement, larceny, misappropriation
or proven dishonesty, then such Participant shall not be entitled to any
benefits hereunder. If after commencement of benefits to a Participant, the
Committee determines that such Participant had committed an act or acts of
fraud, embezzlement, larceny, misappropriation or proven dishonesty while in the
employ of the Bank, then such Participant's benefits shall be terminated upon
such determination by the Committee.
6.8 Change in Control
Upon the occurrence of a termination of employment on account of a Change
in Control as defined in any applicable Employment Agreement between the
Participant and the Bank, the Participant will be entitled to receive a
retirement benefit under Section 6.2 without regard to any reductions for Years
of Service less than twenty-five (25) or receipt of his retirement benefit prior
to attaining age 65.
-12-
<PAGE>
SECTION 7
DISTRIBUTION OF BENEFITS
7.1 Normal Retirement; Early Retirement; Deferred Retirement
A Participant's retirement benefit shall commence within sixty (60) days
after the close of month in which the Participant ceases employment because of:
(a) the Participant's attainment of Normal Retirement Date, or
(b) Early Retirement Date, or
(c) Deferred Retirement Date
7.2 Total Disability
A Participant's retirement benefit payable on account of Total Disability
pursuant to Section 6.4 shall commence within thirty (30) days after the close
of the month in which the Participant would have attained his Normal Retirement
Date.
7.3 Method of Payment
A Participant shall receive his annual retirement benefit in equal monthly
installments as provided under Subsection 6.5.
7.4 Claim Procedure for Benefits
(a) Any request for specific information with respect to benefits under the
Plan must be made to the Committee in writing by a Participant or his
Beneficiary. Oral communications will not be recognized as a formal request or
claim for benefits.
(b) The Committee shall provide adequate notice in writing to any
Participant or Beneficiary whose claim for benefits under the Plan has been
denied, (i) setting forth the specific reasons for such denial; specific
references to pertinent plan provisions; a description of any material and
information which had been requested but not received by the Committee; and (ii)
advising such Participant or Beneficiary that any appeal of such adverse
determination must be in writing to the Committee but, until changed, not more
than 60 days after receipt of such notification, and must include a full
description of the pertinent issues and basis of such claim.
-13-
<PAGE>
(c) If the Participant or Beneficiary fails to appeal such action to the
Committee in writing within the prescribed period of time, the Committee's
adverse determination shall be final.
(d) If an appeal is filed with the Committee, the Participant or
Beneficiary shall submit such issues he feels are pertinent and the Committee
shall reexamine all facts, make a final determination as to whether the denial
of benefits is justified under the circumstances, and advise the Participant or
Beneficiary in writing of its decision and the specific reasons on which such
decision was based, within 60 days of receipt of such written request, unless
special circumstances require a reasonable extension of such 60-day period.
7.5 Substitute Payee
If a Participant or Beneficiary entitled to receive any benefits hereunder
is in his minority, or is, in the judgment of the Committee, legally,
physically, or mentally incapable of personally receiving any distribution, the
Committee may make distributions to a legally appointed guardian or to such
other person or institution as, in the judgment of the Committee, is then
maintaining or has custody of the payee. Any such payment shall be a payment
for such person and a complete discharge of the liability of the Employer
therefore.
7.6 Satisfaction of Liability
After all benefits have been distributed in full to a Participant or to his
Beneficiary, all liability to such Participant or to his Beneficiary shall
cease.
7.7 Nonassignability
No benefit under the Plan shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any
such action shall be void for all purposes of the Plan. No benefit shall in any
manner be subject to the debts, contracts, liabilities, engagements or torts of
any person, nor shall it be subject to attachments or other legal process for or
against any person, except to such extent as may be required by law.
7.8 Reemployment after Commencement of Benefits
In the event that the Participant is reemployed by the Bank as an employee
after commencement of his retirement benefits hereunder, the Participant's
benefit payments will be suspended during the period of such reemployment, and
will resume once the
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<PAGE>
Participant is no longer reemployed, subject to any applicable calculation
adjustments.
SECTION 8
DEATH BENEFITS AND BENEFICIARY DESIGNATION
8.1 Upon the death of a Participant prior to retirement, the benefit
payable to the Participant's Beneficiary shall be an amount equal to seventy-
five percent (75%) of the Participant's Compensation reduced by his Bank Pension
Plan Annual Benefit which the Participant would have been entitled to receive
commencing at age sixty-five (65) determined as of the day before the
Participant's date of death and further reduced by the Primary Social Security
Benefit which the Participant would have received commencing at the
Participant's social security normal retirement date. The benefit will be
payable to the designated Beneficiary or successor Beneficiary for a period of
fifteen (15) years, in monthly installments commencing as soon as
administratively practical but in no event later than the date for commencement
of payment of the death benefit under the Pension Plan for Employees of First
Savings Bank, SLA.
At the option of the Committee, the benefit payable shall be an amount
equal to the present value of the lump sum Actuarial Equivalent of the benefit
that is payable under this Section 8.1. Both the present value and the lump sum
equivalent shall be computed by using the rates defined in Section 3.1.
8.2 Upon the death of a Participant subsequent to the commencement of any
retirement benefit payments to him, the only payment to which Participant's
Beneficiary or estate, as the case may be, shall be entitled shall be those
benefit payments (if any) to be made in accordance with Sections 6.5 or 6.6,
whichever is applicable.
8.3 Each Participant may designate a Beneficiary and/or successor
Beneficiary to receive the benefits payable in the event of his death. Such
designations may be changed from time to time by the Participant. All such
designations and changes shall be made on an appropriate form and shall be filed
with the Committee. In the event the Participant fails to exercise his right to
designate a Beneficiary or if no designated Beneficiary shall survive the
Participant, then such benefits shall be paid to his estate.
-15-
<PAGE>
SECTION 9
FUNDING OBLIGATION OF BANK
9.1 Bank Contributions
(a) Although it is the intention of the Bank to maintain adequate reserves
for the satisfaction of its obligations under the Plan, nothing contained herein
shall create an obligation on the part of the Bank to set aside or earmark any
monies or other assets specifically for this purpose. It is intended that these
benefits be in the form of an unfunded obligation of the Bank.
(b) Should the Bank elect to set aside or earmark any monies or other
assets specifically for the purpose of satisfying its obligation under the Plan,
all such assets shall remain the assets of the Bank and shall remain subject to
the claims of the general creditors of the Bank. Should the Bank elect to
purchase life insurance or annuity contracts as a means of satisfying its
obligations under this Plan, in whole or in part, it reserves the absolute right
in its sole discretion to terminate any such contracts, as well as any other
funding program, at any time, in whole or in part. At no time while a
Participant remains in the employ of the Bank shall a Participant, any
designated Beneficiary or the Participant's estate have any right, title or
interest in or to any specific funds or assets of the Bank including but not
limited to any life insurance or annuity contracts which the Bank may, at any
time, have purchased. As to any claim for benefits under this Plan, the
Participant, any designated Beneficiary and/or the Participant's estate, shall
be a creditor of the Bank in the same manner as any other creditor having a
general claim for unpaid compensation.
(c) The Bank may, in its sole discretion, make contributions in cash or in
kind to a Trust for the First Savings Bank Supplemental Executive Retirement
Plan (Trust) which it may choose to establish in order to satisfy its
obligations under the Plan.
-16-
<PAGE>
SECTION 10
AMENDMENT AND TERMINATION
10.1 Amendment, Suspension or Termination
Subject to Subsection 10.2, the Bank reserves the right at any time and
from time to time to amend, suspend or terminate the Plan by action of its Board
of Directors without the consent of any Participant, Beneficiary or other person
claiming a right under the Plan.
10.2 Benefits Payable
(a) In the event of any amendment, modification or termination of the Plan,
there shall be no reduction in the amount of benefits then being paid or payable
to any Participant or Beneficiary.
(b) In the event of any amendment, modification or termination of the Plan,
each Participant still employed shall be entitled to those benefits to which he
would have been entitled under Section 6 had he then terminated his employment.
-17-
<PAGE>
SECTION 11
GENERAL PROVISIONS
11.1 Limitation of Rights
Neither the establishment of the Plan, nor any modification thereof, nor
the creation of any fund, trust or account, nor the purchase of any policy, nor
the payment of any benefits shall be construed as giving any Participant,
Beneficiary, or any other person whatsoever, any legal or equitable right
against the Bank or the Committee unless such right shall be specifically
provided for in the Plan or conferred by affirmative action of the Committee or
the Bank in accordance with the terms and provisions of the Plan; or as giving
any Participant or any other employee of the Bank the right to be retained in
the service of the Bank, and all Participants and other Employees shall remain
subject to discharge to the same extent as if the Plan had never been adopted.
11.2 Construction of Agreement
The Plan shall be construed according to the laws of the State of New
Jersey, and all provisions hereof shall be administered according to, and its
validity shall be determined under, the laws of such State except where pre-
empted by Federal law.
11.3 Title to Assets
No Participant, Beneficiary or any other person shall have any legal or
equitable right or interest in the funds set aside by the Bank, or otherwise
received or held under the Plan, except as expressly provided in the Plan, and
no Participant, Beneficiary or any other person shall be deemed to possess a
right to any assets except as herein provided.
11.4 Severability
Should any provision of the Plan or any regulations adopted thereunder be
deemed or held to be unlawful or invalid for any reason, such fact shall not
adversely affect the other provisions or regulations unless such invalidity
shall render impossible or impractical the functioning of the Plan and, in such
case, the appropriate parties shall immediately adopt a new provision or
regulation to take the place of the one held illegal or invalid.
-18-
<PAGE>
11.5 Titles and Headings
The titles and headings of the Sections in this instrument are for
convenience of reference only and, in the event of any conflict, the text rather
than such titles or headings shall control.
11.6 Non-Alienation of Benefits
No benefit under the Plan shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any
such action shall be void for all purposes of the Plan. No benefit shall in any
manner be subject to the debts, contracts, liabilities, engagements, or torts of
any person nor shall it be subject to attachments or other legal process for or
against any person, except to such extent as may required by law.
11.7 Binding Upon Successors
All liabilities under the Plan shall be binding upon any successor or
assign of the Bank and any purchaser of the Bank or substantially all of the
assets of the Bank.
11.8 Withholding
The Bank shall withhold from any payment hereunder any required amount of
income or other taxes.
-19-
<PAGE>
SECTION 12
EFFECTIVE DATE
This Plan shall become effective as of January 1, 1997.
IN WITNESS WHEREOF, this Plan has been executed by its duly
authorized officer this day.
First Savings Bank, SLA
By ______________________________
Title ______________________________
Date ______________________________
-20-
<PAGE>
FIRST SAVINGS BANK, SLA
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
APPENDIX A
Eligible Participants (Per Section 5 of the Plan)
- ---------------------
Chris Martin
John Mulkerin
Joseph Yewaisis
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<PAGE>
LABOR DEPARTMENT STATEMENT
To: Pension and Welfare Benefits Administration
U.S. Department of Labor
Room N - 5610
200 Constitution Avenue, N.W.
Washington, D.C. 20210
From: Employer: FIRST SAVINGS BANK, SLA
--------------------------------------------
Employer: Identification Number: 22-1435764
----------------------
Address: 339 State Street, Perth Amboy, NJ 08862
----------------------------------------------
_________________, 19__
This document constitutes the statement required by 29 C.F.R.
(S)2520.104.23(a)(1) to be filed with the Secretary of Labor in respect to the
First Savings Bank, SLA Supplemental Executive Retirement Plan maintained by the
above employer.
The employer currently maintains 1 Plan(s) for executives who are members
of a select group of management or who are highly compensated.
The number of participants in the Plan is as follows: 3
FIRST SAVINGS BANK, SLA
Signed By: ______________________________
<PAGE>
UNANIMOUS CONSENT OF DIRECTORS
IN LIEU OF A SPECIAL MEETING
OF THE BOARD OF DIRECTORS OF
FIRST SAVINGS BANK, SLA
* * * * * * * * * * * * * * * * * * * * * * *
The undersigned, being all the Directors of First Savings Bank, SLA,
("Bank") do hereby consent to and authorize the action set forth in the
following resolutions and do hereby declare that the said action shall be and
hereby is taken and approved by all of the Directors, as of the date hereof:
WHEREAS, it is in the desire of the Bank to restate the
First Savings Bank, SLA Supplemental Executive Retirement
Plan (SERP) effective January 1, 1997; and
WHEREAS, the Bank has reserved its right to amend the
SERP under Section 10.1 thereof.
NOW, THEREFORE, IT IS RESOLVED THAT:
The restated SERP for the benefit of certain key
employees of First Savings Bank, SLA, a copy of which is
attached to this consent, is hereby approved and adopted
effective January 1, 1997.
The undersigned, by affixing their signatures hereto, this day of ,
19 , do hereby consent to, authorize and approve of the foregoing resolutions
in their capacity as all of the Directors of First Savings Bank, SLA.
_______________________________ ______________________________
_______________________________ ______________________________
_______________________________ ______________________________
_______________________________ ______________________________
<PAGE>
FIRST SAVINGS BANK, SLA
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
BENEFICIARY DESIGNATION
I, , being an Employee of the First Savings Bank, SLA and
a Participant in the Supplemental Executive Retirement Plan of said Bank hereby
direct that any of my benefits remaining in said Plan after my death be paid to
the following named beneficiaries. This beneficiary designation form shall
supersede any prior beneficiary designation which I may have completed.
Primary Beneficiary: ______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
Contingent Beneficiaries:______________________________________________________
(if my Primary
Beneficiary is not ______________________________________________________
living at the time
of my death) ______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
____________________ By: ______________________________________________________
Witness Participant
Dated:___________________
<PAGE>
EXHIBIT 10.8
FORM OF
FIRST SAVINGS BANK, SLA
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN II
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ARTICLE I................................................................. 1
PURPOSE OF THE PLAN.................................................. 1
ARTICLE II................................................................ 1
DEFINITIONS.......................................................... 1
2.1 Bank....................................................... 2
----
2.2 Board of Directors......................................... 2
------------------
2.3 Change in Control.......................................... 2
-----------------
2.4 Code....................................................... 2
----
2.5 Committee.................................................. 2
---------
2.6 Company.................................................... 3
-------
2.7 Company Stock.............................................. 3
-------------
2.8 Eligible Employee.......................................... 3
-----------------
2.9 Employee................................................... 3
--------
2.10 ERISA...................................................... 3
-----
2.11 ESOP....................................................... 3
----
2.12 401(k) Plan................................................ 3
-----------
2.13 Nonqualified Plan.......................................... 3
-----------------
2.14 Participant................................................ 3
-----------
2.15 SERP Benefit............................................... 3
------------
2.16 SERP....................................................... 3
----
2.17 Termination for Cause...................................... 3
---------------------
2.18 Termination of Service..................................... 3
----------------------
ARTICLE III............................................................... 4
PARTICIPATION........................................................ 4
3.1 Eligibility for Participation.............................. 4
-----------------------------
3.2 Commencement of Participation.............................. 4
-----------------------------
3.3 Vesting.................................................... 4
-------
3.4 Termination of Participation............................... 5
----------------------------
ARTICLE IV................................................................ 5
BENEFITS TO PARTICIPANTS............................................. 5
4.1 SERP Benefits.............................................. 5
-------------
4.2 Form of Benefits........................................... 6
----------------
ARTICLE V................................................................. 6
ADMINISTRATION....................................................... 6
5.1 The Committee.............................................. 6
-------------
5.2 Duties of the Committee.................................... 6
-----------------------
5.3 Liability of the Committee................................. 7
--------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.4 Expenses.................................................. 8
--------
ARTICLE VI............................................................... 8
AMENDMENT AND TERMINATION........................................... 8
6.1 Amendment and Termination................................. 8
-------------------------
ARTICLE VII.............................................................. 8
MISCELLANEOUS PROVISIONS............................................ 8
7.1 No Right to Continual Employment.......................... 8
--------------------------------
7.2 Non-Alienation of Benefits................................ 9
--------------------------
7.3 Payment if Participant is Incompetent..................... 9
-------------------------------------
7.4 Termination for Cause..................................... 9
---------------------
7.5 The Bank Sole Source of Benefits.......................... 9
--------------------------------
7.6 Lost Participants......................................... 9
-----------------
7.7 Withholding............................................... 10
-----------
7.8 Governing Law............................................. 10
-------------
7.9 Operation as Unfunded Nonqualified Plan................... 10
---------------------------------------
</TABLE>
(iv)
<PAGE>
FORM OF
FIRST SAVINGS BANK, SLA
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN II
EFFECTIVE _________, ____
WHEREAS, the Board of Directors of First Savings Bank, SLA ("Bank") has
adopted the Incentive Savings Plan for Employees of First Savings Bank, SLA
("401(k) Plan") and the First Savings Bank, SLA Employee Stock Ownership Plan
("ESOP") to provide benefits to the employees of the Bank; and
WHEREAS, the Internal Revenue Code of 1986, as amended (the "Code") imposes
limitations on the amounts that may be contributed by Participants to the 401(k)
Plan, the amount of contributions that may be made to the 401(k) Plan and the
ESOP by the Bank on behalf of participants, and limits the amounts of
compensation which may be considered in determining benefits under both of these
plans; and
WHEREAS, the Board of Directors of the Bank desires to implement a plan to
provide certain employees with benefits to replace benefits to which they would
be entitled under the 401(k) Plan and the ESOP but for the application of the
limitations imposed by the Code;
THEREFORE, by resolution of the Board of Directors, the Supplemental
Executive Retirement Plan II ("SERP") has been adopted.
ARTICLE I
---------
PURPOSE OF THE PLAN
The purpose of the SERP is to provide certain key management employees of
the Bank with deferred benefits to which they would otherwise be entitled under
the terms of the 401(k) Plan and the ESOP, but for limitations on benefits and
includible compensation imposed by the Code. This plan is intended to benefit
only a select group of highly compensated employees. The benefits under this
SERP will be paid out of the Bank's general assets exclusively.
ARTICLE II
----------
DEFINITIONS
The following definitions shall apply for the purposes of this SERP unless
a different meaning is clearly indicated by the context.
2.1 Bank means First Savings Bank, SLA, and its successors or assigns.
----
<PAGE>
2.2 Board of Directors means the Board of Directors of the Bank, as duly
------------------
constituted from time to time.
2.3 Change in Control of the Company or the Bank means an event of a
-----------------
nature that: (i) would be required to be reported in response to Item 1(a) of
the Current Report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act");
or (ii) results in a Change in Control of the Bank or the Holding Company within
the meaning of the Home Owners' Loan Act of 1933, as amended, the Federal
Deposit Insurance Act, or the Rules and Regulations promulgated by the Office of
Thrift Supervision ("OTS") (or its predecessor agency), as in effect on the date
hereof (provided, that in applying the definition of change in control as set
forth under the rules and regulations of the OTS, the Board shall substitute its
judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of voting securities of the Bank or the Holding Company
representing 20% or more of the Bank's or the Holding Company's outstanding
voting securities except for any voting securities of the Bank purchased by the
Holding Company in connection with the conversion of the Bank to the stock form
and any voting securities purchased by any employee benefit plan of the Bank, or
(B) individuals who constitute the Board on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a majority thereof, provided
that any person becoming a director subsequent to the date hereof whose election
was approved by a vote of at least three-quarters of the directors comprising
the Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (B), considered as though
he were a member of the Incumbent Board, or (C) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the Bank
or the Holding Company or similar transaction occurs in which the Bank or
Holding Company is not the resulting entity; provided, however, that such an
event listed above will be deemed to have occurred or to have been effectuated
upon the receipt of all required federal regulatory approvals not including the
lapse of any statutory waiting periods, or (D) a proxy statement is distributed
soliciting proxies from stockholders of the Holding Company, by someone other
than the current management of the Holding Company, seeking stockholder approval
of a plan of reorganization, merger or consolidation of the Holding Company or
Bank with one or more corporations as a result of which the outstanding shares
of the class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not issued by the
Bank or the Holding Company shall be distributed, or (E) a tender offer is made
for 20% or more of the voting securities of the Bank or Holding Company then
outstanding.
2.4 Code means the Internal Revenue Code of 1986, as amended.
----
2.5 Committee means the administrative committee appointed by the Board to
---------
administer the SERP pursuant to the terms of Article V hereof.
-2-
<PAGE>
2.6 Company means First Source Bancorp, Inc., the holding company of the
-------
Bank.
2.7 Company Stock means the common stock of the Company.
-------------
2.8 Eligible Employee means an Employee who is eligible for participation
-----------------
in the SERP pursuant to the provisions of Article III hereof.
2.9 Employee means any person, including an officer, who is employed by
--------
the Bank.
2.10 ERISA means the Employee Retirement Income Security Act of 1974, as
-----
amended.
2.11 ESOP means the First Savings Bank, SLA Employee Stock Ownership Plan.
----
2.12 401(k) Plan means the Incentive Savings Plan for Employees of First
-----------
Savings Bank, SLA, as the same may be amended from time to time (including
corresponding provisions of any successor qualified 401(k) plan adopted by the
Bank).
2.13 Nonqualified Plan means a plan of deferred compensation which does
-----------------
not meet the requirements of Section 401(a) of the Code.
2.14 Participant means any person who participates in the SERP in
-----------
accordance with its terms.
2.15 SERP Benefit means the benefit payable to a Participant pursuant to
------------
the terms of the SERP.
2.16 SERP means this First Savings Bank, SLA Supplemental Executive
----
Retirement Plan II, as set forth herein, and as amended from time to time.
2.17 Termination for Cause means termination of employment because of
---------------------
the Employee's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, or willful violation of any law, rule or regulation (other than traffic
violations or similar offenses). The basis for any Employee's Termination for
Cause shall be determined by the Board of Directors in its sole discretion.
2.18 Termination of Service means an Employee's separation from the
----------------------
service of the Bank, whether by resignation, discharge, death, disability,
retirement or otherwise.
-3-
<PAGE>
ARTICLE III
-----------
PARTICIPATION
3.1 Eligibility for Participation.
-----------------------------
Only Eligible Employees may be or become Participants. An Employee shall
become an Eligible Employee for SERP Benefits if:
(a) He is a participant in the ESOP, or
(b) He is a participant in the 401(k) Plan; and
(b) The Board of Directors, in its sole discretion, designates him
as an Eligible Employee.
3.2 Commencement of Participation.
-----------------------------
An Eligible Employee shall become a Participant in the SERP on the date
determined by the Board. However, in no event will an Employee become a
Participant prior to [date].
3.3 Vesting.
-------
A Participant shall vest in his SERP Benefit according to the following
schedule:
<TABLE>
<CAPTION>
Anniversary of SERP Participation Vested Percentage
- ----------------------------------------- ----------------------------------
<S> <C>
1st 20%
2nd 40%
3rd 60%
4th 80%
5th 100%
</TABLE>
Notwithstanding the preceding, a Participant shall vest immediately in his SERP
Benefit upon the occurrence of a Change in Control of the Bank or the Company.
-4-
<PAGE>
3.4 Termination of Participation.
----------------------------
A Participant's participation in the SERP shall cease on the earlier of
(a) the date of the Participant's Termination of Service, or
(b) the date on which the Participant ceases to be an Eligible
Employee.
ARTICLE IV
----------
BENEFITS TO PARTICIPANTS
4.1 SERP Benefits.
-------------
(a) An individual who satisfies the eligibility requirements of
Section 3.1 and becomes a Participant pursuant to Section 3.2 shall be entitled
to an unfunded, unsecured promise from the Bank to receive a SERP Benefit upon
Termination of Service as a result of his attainment of "Normal Retirement Age"
or satisfaction of the requirements for an "Early Retirement Benefit" (as those
terms are defined in the ESOP) under the terms of ESOP.
(b) The SERP Benefit shall be determined by combining together the
ESOP SERP Benefit and the 401(k) SERP Benefit.
(i) The ESOP SERP Benefit shall be determined by:
(A) projecting the total number of shares of Company Stock
that would have been allocated to the Participant's
account under the ESOP had the Participant continued
in the employ of the Bank, measured from the date the
Participant was first eligible to participate in the
ESOP until the ESOP loan would have been repaid in
full and the final allocation of shares of Company
Stock acquired with the ESOP loan would have been
made; and then
(B) reducing the number of shares projected in (i), above,
by the actual number of shares of Company Stock
allocated to the Participant's account under the terms
of the ESOP as of the last day of the final Plan Year
in which the Participant was an "Active Participant"
(as defined in the ESOP) in the ESOP; and then
(C) multiplying the number of shares of Company Stock
determined after application of (ii), above, by the
average
-5-
<PAGE>
fair market value of the Company Stock for the five-
year period immediately preceding the Participant's
Termination of Service (or the number of years the
Participant has participated in the SERP if such
number is fewer than five).
(ii) The 401(k) SERP Benefit is determined by the amount of
annual deferrals of compensation made by the Participant in
an amount equal to the difference between:
(A) The maximum amount the Participant would be permitted
to contribute to the 401(k) Plan for the given year
but for the limitations of Section 401(m), 401(a)(17),
415, or any other section of the Code, and
(B) deferrals made to the 401(k) Plan.
The projection of shares required by (i)(A), above, shall be performed by a
public accountant based on assumptions which the Board of Directors has approved
as reasonable at the time the calculation for the SERP Benefit is performed.
4.2 Form of Benefits.
----------------
(a) SERP Benefits shall be payable in a lump sum payment as soon as
practicable after the Participant's Termination of Service. However, the
Committee reserves the right to make payments in a series of periodic payments.
(b) SERP Benefits, at the discretion of the Committee, shall be paid
in cash, Company Stock or some combination thereof.
ARTICLE V
---------
ADMINISTRATION
5.1 The Committee.
-------------
Except for the functions reserved to the Bank or the Board of Directors,
the administration of the SERP shall be the responsibility of the Committee.
The Committee shall consist of three (3) or more persons designated by the Board
of Directors. Members of the Committee shall serve for such terms as the Board
of Directors shall determine and until their successors are designated and
qualified. Any member of the Committee may resign upon at least sixty (60) days
written notice to the Board, or may be removed from office by the Board of
Directors for failure or inability to carry out his responsibilities in an
effective manner.
-6-
<PAGE>
5.2 Duties of the Committee.
-----------------------
The Committee shall have the power and the duty to take all actions and to
make all decisions necessary or proper to carry out the purpose of the SERP.
The determination of the Committee as to any question involving the general
administration and interpretation of the SERP shall be final, conclusive and
binding. Any discretionary actions to be taken under the SERP by the Committee
shall be uniform in their nature and applicable to all persons similarly
situated. Without limiting the generality of the foregoing, the Committee shall
have the following powers and duties:
(a) the duty to furnish to all Participants, upon request, copies of
the SERP and to require any person to furnish such information as it may request
for the purpose of the proper administration of the SERP as a condition to
receiving any benefits under the SERP;
(b) the duty to make and enforce such rules and regulations and
prescribe the use of such forms as it shall deem necessary for the efficient
administration of the SERP;
(c) the duty to interpret the SERP, and to resolve ambiguities,
inconsistencies and omissions, which findings shall be binding, final and
conclusive;
(d) the duty to decide on questions concerning the SERP in
accordance with the provisions of the SERP;
(e) the duty to determine the amount of benefits which shall be
payable to any person in accordance with the provisions of the SERP and to
provide a full and fair review to any Participant whose claim for benefits has
been denied in whole or in part;
(f) the power to designate a person who may or may not be a member
of the Committee as SERP "Administrator." If the Committee does not so designate
an Administrator, the Bank shall be the SERP Administrator;
(g) the power to allocate any such powers and duties to or among
individual members of the Committee; and
(h) the power to designate persons other than Committee members to
carry out any duty or power which would otherwise be a responsibility of the
Committee or Administrator, under the terms of the SERP.
5.3 Liability of the Committee.
--------------------------
To the extent permitted by law, the Committee and any person to whom it may
delegate any duty or power in connection with administering the SERP, the Bank,
any Employer, and the officers and directors thereof, shall be entitled to rely
conclusively upon, and shall be fully
-7-
<PAGE>
protected in any action taken or suffered by them in good faith in the reliance
upon, any actuary, counsel, accountant, other specialist, or other person
selected by the Committee, or in reliance upon any tables, valuations,
certificates, opinions or reports which shall be furnished by any of them.
Further, to the extent permitted by law, no member of the Committee, nor the
Bank, any Employer, nor the officers or directors thereof, shall be liable for
any neglect, omission or wrongdoing of any other members of the Committee,
agent, officer or employee of the Bank or any Employer. Any person claiming
benefits under the SERP shall look solely to the Bank for redress.
5.4 Expenses.
--------
All expenses incurred prior to the termination of the SERP that shall arise
in connection with the administration of the SERP (including, but not limited to
administrative expenses, proper charges and disbursements, compensation and
other expenses and charges of any actuary, counsel, accountant, specialist, or
other person who shall be retained or employed by the Committee in connection
with the administration of the SERP), shall be paid by the Bank.
ARTICLE VI
----------
AMENDMENT AND TERMINATION
6.1 Amendment and Termination.
-------------------------
The Board of Directors shall have the power to suspend or terminate the
SERP in whole or in part at any time, and from time to time to extend, modify,
amend or revise the SERP in such respects as the Board of Directors, by
resolution, may deem advisable; provided, however, that no such extension,
modification, amendment, revision, or termination shall deprive a Participant or
any beneficiary of any benefit payable under the SERP at the time of such
extension, modification, amendment, revision, or termination.
ARTICLE VII
-----------
MISCELLANEOUS PROVISIONS
7.1 No Right to Continual Employment.
--------------------------------
The SERP shall not be deemed to constitute a contract of employment between
the Bank and any Employee or other person, whether or not in the employ of the
Bank, nor shall anything herein contained be deemed to give any Employee or
other person, whether or not in the employ of the Bank, any right to be retained
in the employ of the Bank, or to interfere with the right of the Bank to
discharge any Employee at any time and to treat such Employee without any regard
to the effect which such treatment might have upon such Employee as a
Participant of the SERP.
-8-
<PAGE>
7.2 Non-Alienation of Benefits.
--------------------------
Except as may otherwise be required by law, no distribution or payment
under the SERP to any Participant or beneficiary shall be subject in any manner
to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
charge, whether voluntary or involuntary, and any attempt to so anticipate,
alienate, sell, transfer, assign, pledge, encumber or charge the same shall be
void; nor shall any such distribution or payment be in any way liable for or
subject to the debts, contracts, liabilities, engagements or torts of any person
entitled to such distribution or payment. If any Participant or beneficiary is
adjudicated bankrupt or purports to anticipate, alienate, sell, transfer,
assign, pledge, encumber or charge any such distribution or payment, voluntarily
or involuntarily, the Committee, in its sole discretion, may cancel such
distribution or payment or may hold or cause to be held or applied such
distribution or payment, or any part thereof, to or for the benefit of such
Participant or beneficiary, in such manner as the Committee shall direct.
7.3 Payment if Participant is Incompetent.
-------------------------------------
If the Bank determines that any person entitled to payments under the SERP
is incompetent by reason of physical or mental disability, it may cause all
payments thereafter becoming due to such person to be made to any other person
for the benefit of the incompetent person, without responsibility to follow
application of amounts so paid. Payments made pursuant to this provision shall
completely discharge the SERP, the Bank and the Committee.
7.4 Termination for Cause.
---------------------
If any Participant entitled to payments under the SERP separates from
service as a result of Termination for Cause, the Bank may cause all payments
thereafter becoming due to such Participant to be forfeited under the SERP.
7.5 The Bank Sole Source of Benefits.
--------------------------------
The Bank shall be the sole source of benefits under the SERP, and each
Employee, Participant, beneficiary, or any other person who shall claim the
right to any payment or benefit under the SERP shall be entitled to look solely
to the Bank for payment of benefits.
7.6 Lost Participants.
-----------------
If the Bank is unable to make payment to any Participant, beneficiary, or
any other person to whom a payment is due under the SERP, because it cannot
ascertain the identity or whereabouts of such Participant, beneficiary, or other
person after reasonable efforts have been made to identify or locate such person
(including a notice of the payment so due mailed to the last known address of
such Participant, beneficiary, or other person shown on the records of the
Bank), such payment and all subsequent payments otherwise due to such
Participant, beneficiary
-9-
<PAGE>
or other person shall be forfeited twenty-four (24) months after the date such
payment first became due; provided, however, that such payment and any
subsequent payments shall be reinstated, retroactively, no later than sixty (60)
days after the date on which the Participant, beneficiary, or other person is
identified or located.
7.7 Withholding.
-----------
If upon the payment of any benefits under the SERP, the Bank shall be
required to withhold any amounts with respect to such payment by reason of any
federal, state or local tax laws, rules or regulations, then the Bank shall be
entitled to deduct and withhold such amounts from any such payments. In any
event, such person shall make available to the Bank, promptly when requested by
the Bank, sufficient funds or other property to meet the requirements of such
withholding. Furthermore, the Bank shall be entitled to take and authorize such
steps as it may deem advisable in order to have the amounts required to be
withheld made available to the Bank out of any funds or property due to become
due to such person, whether under the SERP or otherwise.
7.8 Governing Law.
-------------
The provisions of the SERP shall be construed, administered and governed
under applicable federal laws and the laws of the State of New Jersey.
7.9 Operation as Unfunded Nonqualified Plan.
---------------------------------------
The SERP is intended to be an unfunded, Nonqualified Plan maintained
"primarily for the purpose of providing deferred compensation for a select group
of management or highly compensated employees" as that phrase is used for
purposes of Sections 201, 301 and 401 of ERISA. The SERP is not intended to
comply with the requirements of section 401(a) of the Code. The SERP shall be
administered and construed so as to effectuate this intent.
First Savings Bank, SLA has adopted this SERP, to be executed by a designee
of the Board and duly attested, on this the ___________ day of _______, 199__.
ATTEST: FIRST SAVINGS BANK, SLA
___________________________ By____________________________
-10-
<PAGE>
EXHIBIT 10.9
FIRST SAVINGS BANK, SLA
DIRECTOR RETIREMENT PLAN
Section 1. PURPOSE. The purpose of the Director Retirement Plan (the
-------
"Plan") is to recognize the valuable services provided to First Savings Bank,
SLA (the "Association") by its non-employee Directors and to assist in retaining
present non-employee members and attracting new members of the Board of
Directors, by providing such Directors with retirement benefits under the terms
and conditions set forth in this Plan.
Section 2. ELIGIBILITY. Any Director (i) who is not an active employee of
-----------
the Association at retirement ("active employee" shall mean an employee of the
Association as determined for purposes of the Association's employee benefit
plans), and (ii) has served for at least five years of continuous service as a
Director, and (iii) has retired from service on the Board of Directors (a) on or
after the mandatory retirement age of 70, or (b) prior to age 70, but not before
age 55, or (c) as a result of permanent and total disability, shall be eligible
to participate in the Plan.
Section 3. AMOUNT OF BENEFIT. Each eligible director shall receive as a
-----------------
retirement benefit the applicable payments as follows:
(1) Upon retirement at age 70, with at least ten years of continuous
service, an eligible Director shall be entitled to receive an annual
retirement benefit payable in accordance with Section 4 of the Plan,
equal to the annual retainer received by members of the Board, as such
amount may be changed from time to time.
(2) Upon retirement prior to age 70, but not before age 55, an eligible
Director shall be entitled to receive an annual retirement benefit
payable in accordance with Section 4 of the Plan, equal to the sum of:
(a) 50% of the annual retainer received by members of the Board, as
such amount might be changed from time to time, and
(b) 5% of the annual retainer received by members of the Board, as
such amount might be changed from time to time, multiplied by the
Director's number of years of continuous Board service in excess
of five years (up to a maximum of ten). Partial years shall be
computed using a fractional portion of a full year's credit.
Section 4. MANNER OF PAYMENT. The retirement benefit shall consist of
-----------------
equal monthly payments to the eligible Director, computed as one-twelfth of the
annual retainer then in effect, commencing upon the first of the month following
retirement from the Board and ending with the monthly payment due on the first
day of the month following the Director's death. The
<PAGE>
obligations of the Association hereunder constitute merely the promise of the
Association to make the payments provided for in this Plan. No Director, his or
her spouse, or the estate of either of them shall have, by reason of this Plan,
any right, title or interest of any kind in or to any property of the
Association. To the extent any Director has a right to receive payments under
this Plan, such right shall be no greater than the right of any unsecured
general creditor of the Association.
Section 5. GENERAL PROVISIONS.
------------------
(1) The right to receive any payment under the Plan shall not be
transferable or assignable.
(2) Benefit payments under the Plan shall be made from the general assets
of the Association, and the Association shall not be required to set
aside funds for the payment of its obligations under the Plan.
(3) The Board may at any time amend or terminate the Plan, provided, that
no amendment or termination shall impair the rights of an eligible
Director to receive upon retirement from the Board the payments which
would have been made to such Director had the Plan not been amended or
terminated (based upon such Director's service as a member of the
Board to the date of such amendment or termination).
(4) Nothing in the Plan shall be deemed to create any obligation on the
part of the Board to nominate any Director for reelection by the
Association.
(5) Any questions involving entitlement to payments under the Plan shall
be referred to the Board for resolution. The determination of the
Board shall be conclusive as to any such questions. The Board may
obtain such advice or assistance as they deem appropriate from persons
not serving on the Board.
(6) As used in the Plan, "retirement from the Board" shall include any
termination of service (other than by death) of a Director, except any
termination which the Board determines to have resulted from gross
cause. "Gross cause" shall include fraud, misappropriation of or other
intentional misconduct damaging to the property or business of the
Association of any of its subsidiaries or commission of a crime.
Section 6. EFFECTIVE DATE. The effective date of the Plan is August 1,
--------------
1989.
2
<PAGE>
Exhibit 10.10
FIRST SAVINGS BANK, SLA
EMPLOYMENT AGREEMENT
This AGREEMENT is made effective as of November 20, 1996 by and among First
Savings Bank, SLA (the "Bank"), a New Jersey chartered savings institution, with
its principal administrative office at 3090 Woodbridge Avenue, Edison, New
Jersey, First Savings Bancshares, MHC, a federally chartered mutual holding
company, the holding company for the Bank (the "Holding Company"), and John P.
Mulkerin ("Executive").
WHEREAS, the Bank wishes to assure itself of the services of Executive for
the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Bank on a full-
time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve as
President, Chief Executive Officer and General Counsel of the Bank. Executive
shall render administrative and management services to the Bank such as are
customarily performed by persons situated in a similar executive capacity.
During said period, Executive also agrees to serve, if elected, as an officer of
the Holding Company or any subsidiary of the Bank.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the first anniversary date of this Agreement, and continuing on each anniversary
thereafter, the disinterested members of the board of directors of the Bank
("Board") may extend the Agreement an additional year such that the remaining
term of the Agreement shall be three (3) years unless the Executive elects not
to extend the term of this Agreement by giving written notice in accordance with
Section 9 of this Agreement. The Board will review the Agreement and
Executive's performance annually for purposes of determining whether to extend
the Agreement and the rationale and results thereof shall be included in the
minutes of the Board's meeting. The Board shall give notice to the Executive as
soon as possible after such review as to whether the Agreement is to be
extended.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the
<PAGE>
faithful performance of his duties hereunder including activities and services
related to the organization, operation and management of the Bank and
participation in community and civic organizations; provided, however, that,
with the approval of the Board, as evidenced by a resolution of such Board, from
time to time, Executive may serve, or continue to serve, on the boards of
directors of, and hold any other offices or positions in, companies or
organizations, which, in such Board's judgment, will not present any conflict of
interest with the Bank, or materially affect the performance of Executive's
duties pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, Executive's
employment with the Bank may be terminated by the Bank or the Executive during
the term of this Agreement, subject to the terms and conditions of this
Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Bank shall pay Executive as compensation a salary of $236,250 per
year ("Base Salary"). Base Salary shall include any amounts of compensation
deferred by Executive under any qualified or unqualified plan maintained by the
Bank. Such Base Salary shall be payable bi-weekly. During the period of this
Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by the Board or by a Committee of the
Board, delegated such responsibility by the Board. The Committee or the Board
may increase Executive's Base Salary. Any increase in Base Salary shall become
the "Base Salary" for purposes of this Agreement. In addition to the Base Salary
provided in this Section 3(a), the Bank shall also provide Executive, at no
premium cost to Executive, with all such other benefits as are provided
uniformly to permanent full-time employees of the Bank.
(b) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Bank will not, without
Executive's prior written consent, make any changes in such plans, arrangements
or perquisites which would materially adversely affect Executive's rights or
benefits thereunder; except to the extent such changes are made applicable to
all Bank employees on a non-discriminatory basis. Without limiting the
generality of the foregoing provisions of this Subsection (b), Executive shall
be entitled to participate in or receive benefits under any employee benefit
plans including but not limited to, retirement plans, supplemental retirement
plans, profit-sharing plans, health-and-accident plans, medical coverage or any
other employee benefit plan or arrangement made available by the Bank in the
future to its senior executives and key management employees, subject to and on
a basis consistent with the terms, conditions and overall administration of such
plans and arrangements. Executive shall be entitled to incentive compensation
and bonuses as provided in any plan of the Bank in which Executive is eligible
to participate. Nothing paid to the Executive under any such plan or arrangement
will be deemed to be in lieu of other compensation to which the Executive is
entitled under this Agreement.
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(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Bank shall pay or reimburse Executive for all reasonable travel and other
reasonable expenses incurred by Executive performing his obligations under this
Agreement and may provide such additional compensation in such form and such
amounts as the Board may from time to time determine. The Executive shall be
provided at his option, with an automobile expense allowance or the use of a
recent model automobile which will be owned or leased by the Bank or the Holding
Company, as may be mutually agreed upon by the Executive and the Bank. All
reasonable expenses associated therewith shall be borne by the Bank. In
addition, the Bank shall also pay or reimburse Executive for any other benefits
or perquisites as may be determined by the Board of Directors.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Bank or the Holding Company of Executive's full-time
employment hereunder for any reason other than a termination governed by Section
5(a) hereof, or Termination for Cause, as defined in Section 8 hereof; (ii)
Executive's resignation from the Bank's employ upon any (A) failure to elect or
reelect or to appoint or reappoint Executive as President, Chief Executive
Officer and General Counsel, unless consented to by the Executive, (B) a
material change in Executive's function, duties, or responsibilities, which
change would cause Executive's position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Section 1, above, unless consented to by Executive, (C) a relocation of
Executive's principal place of employment by more than 30 miles from its
location at the effective date of this Agreement, unless consented to by the
Executive, (D) a material reduction in the benefits and perquisites to the
Executive from those being provided as of the effective date of this Agreement,
unless consented to by the Executive, or (E) a liquidation or dissolution of the
Bank or Holding Company, or (F) breach of this Agreement by the Bank. Upon the
occurrence of any event described in clauses (A), (B), (C), (D), (E) or (F),
above, Executive shall have the right to elect to terminate his employment under
this Agreement by resignation upon not less than ninety (90) days prior written
notice given within six full months after the event giving rise to said right to
elect.
(b) Upon the occurrence of an Event of Termination, and in the case of an
Event of Termination as defined in Section 4(a)(ii) above, upon receipt of
written notice of resignation by Executive, on the Date of Termination, as
defined in Section 9, the Bank shall be obligated to pay Executive, or, in the
event of his death subsequent to an Event of Termination, his beneficiary or
beneficiaries, or his estate, as the case may be a sum equal to the sum of: (i)
the amount of the remaining payments that the Executive would have earned if he
had continued his employment with the Bank during the remaining term of this
Agreement at the Executive's Base Salary at the Date of Termination; and (ii)
the amount equal to the annual contributions that would have been made on
Executive's behalf to any employee benefit plans of the Bank or the
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Holding Company during the remaining term of this Agreement based on
contributions made (on an annualized basis) at the Date of Termination;
provided, however, that any payments pursuant to this subsection and subsection
- -------- -------
4(c) below shall not, in the aggregate, exceed three times Executive's average
Base Salary for the three most recent calendar years that Executive has been
employed by the Bank. In the event the Bank is not in compliance with its
minimum capital requirements or if such payments pursuant to this subsection (b)
would cause the Bank's capital to be reduced below its minimum regulatory
capital requirements, such payments shall be deferred until such time as the
Bank or successor thereto is in capital compliance. At the election of the
Executive, which election is to be made prior to an Event of Termination, such
payments shall be made in a lump sum as of the Executive's Date of Termination.
In the event that no election is made, payment to Executive will be made on a
monthly basis in approximately equal installments during the remaining term of
the Agreement. Such payments shall not be reduced in the event the Executive
obtains other employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Bank will cause to
be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the Bank or the Holding Company for
Executive prior to his termination at no premium cost to the Executive, except
to the extent such coverage may be changed in its application to all Bank or
Holding Company employees. Such coverage shall cease upon the expiration of the
remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be payable under this Section 5 unless there shall
have been a change in control of the Bank or the Holding Company. For purposes
of determining under this Agreement whether there has been a change in control
of the Bank or the Holding Company, a "change in control" of the Bank or the
Holding Company shall mean (i) a plan or reorganization, merger, merger
conversion, consolidation or sale of all or substantially all of the assets of
the Bank or the Holding Company or a similar transaction occurs in which the
Bank or the Holding Company is not the resulting entity; (ii) individuals who
constitute the board of directors of the Bank or the board of directors of the
Holding Company cease for any reason to constitute a majority thereof; or (iii)
a change in control within the meaning of 12 C.F.R. (S)574.4 occurs, as
determined by the board of directors of the Bank or the Holding Company,
provided, however, that a change of control shall not be deemed to occur under
5(a) (i) or 5(a) (iii) of this section if the transaction(s) constituting a
change in control is approved by a majority of the board of directors of the
Bank or the Holding Company. In the event the Holding Company converts from the
mutual form of organization to the stock form of organization on a stand-alone
basis at any time subsequent to the effective date of this Agreement ("Stock
Holding Company"), a "change in control" of the Bank or the Stock Holding
Company for purposes of this Agreement shall mean an event of a nature that (i)
would be required to be reported in response to Item 1 of the current report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Stock Holding Company within the meaning of
the Home Owners' Loan Act of 1933 and the Rules and Regulations promulgated by
the Office of Thrift Supervision (or its
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predecessor agency), as in effect on the date hereof (provided that in applying
the definition of change in control as set forth under the Rules and Regulations
of the OTS, the Board shall substitute its judgment for that of the OTS); or
(iii) without limitation such a Change in Control shall be deemed to have
occurred at such time as (a) any "person" (as the term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, or securities of
the Bank or the Stock Holding Company representing 20% or more of the Bank's or
the Stock Holding Company's outstanding securities except for any securities of
the Bank purchased by the Stock Holding Company and any securities purchased by
the Bank's Employee Stock Ownership Plan and Trust; or (b) individuals who
constitute the Board of the Bank or the Stock Holding Company on the date hereof
(the "Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Stock Holding Company's stockholders was approved by the same Nominating
Committee serving under an Incumbent Board, shall be, for purposes of this
clause (b), considered as though he were a member of the Incumbent Board; or (c)
a plan of reorganization, merger, consolidation, sale of all or substantially
all the assets of the Bank or the Stock Holding Company or similar transaction
occurs in which the Bank or Stock Holding Company is not the resulting entity;
provided, however, that such an event listed above will be deemed to have
occurred or to have been effectuated upon the receipt of all required regulatory
approvals not including the lapse of any statutory waiting periods.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c), and (d) of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to: (1) Executive's dismissal or (2) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, material reduction in annual compensation or
benefits or relocation of his principal place of employment by more than 30
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death, disability, retirement or termination for
Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Bank shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to
the greater of: (1) the payments due for the remaining term of the Agreement; or
2) three (3) times Executive's average annual compensation for the three (3)
most recent taxable years that Executive has been employed by the Bank. Such
average annual compensation shall include Base Salary, commissions, bonuses,
contributions on Executive's behalf to any pension and/or profit sharing plan,
severance payments, retirement payments, directors or committee fees, fringe
benefits paid or to be paid to the Executive in any such year and payment of any
expense items without accountability or business purpose or that do not meet the
Internal Revenue Service requirements for deductibility by the Bank; provided
--------
however, that any payment under this provision and subsection 5(d) below shall
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not exceed three
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(3) times the Executive's average annual compensation. In the event the Bank is
not in compliance with its minimum capital requirements or if such payments
would cause the Bank's capital to be reduced below its minimum regulatory
capital requirements, such payments shall be deferred until such time as the
Bank or successor thereto is in capital compliance. At the election of the
Executive, which election is to be made prior to a Change in Control, such
payment shall be made in a lump sum as of the Executive's Date of Termination.
In the event that no election is made, payment to the Executive will be made in
approximately equal installments on a monthly basis over a period of thirty-six
(36) months following the Executive's termination. Such payments shall not be
reduced in the event Executive obtains other employment following termination of
employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Bank will cause to be continued life, medical, dental and disability
coverage substantially identical to the coverage maintained by the Bank for
Executive prior to his severance at no premium cost to the Executive, except to
the extent that such coverage may be changed in its application for all Bank
employees on a non-discriminatory basis. Such coverage and payments shall cease
upon the expiration of thirty-six (36) months following the Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Code or any successor thereto, and in order to avoid
such a result, Termination Benefits will be reduced, if necessary, to an amount
(the "Non-Triggering Amount"), the value of which is one dollar ($1.00) less
than an amount equal to three (3) times Executive's "base amount", as determined
in accordance with said Section 280G. The allocation of the reduction required
hereby among the Termination Benefits provided by Section 5 shall be determined
by Executive.
7. TERMINATION FOR DISABILITY.
(a) If, as a result of Executive's incapacity due to physical or mental
illness, he shall have been absent from his duties with the Bank on a full-time
basis for twelve (12) consecutive months, and within thirty (30) days after
written notice of potential termination is given he shall not have returned to
the full-time performance of his duties, the Bank may terminate Executive's
employment for "Disability."
(b) The Bank will pay Executive, as disability pay, a bi-weekly payment
equal to sixty percent (60%) of Executive's bi-weekly rate of Base Salary on the
effective date of such termination. These disability payments shall commence on
the effective date of Executive's termination and will end on the earlier of (i)
the date Executive returns to the full-time employment of the Bank in the same
capacity as he was employed prior to his termination for Disability and pursuant
to an employment agreement between Executive and the Bank; (ii) Executive's
full-time employment by another employer; (iii) Executive attaining the normal
age
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of retirement or receiving benefits under the Bank's Defined Benefit Plan; (iv)
Executive's death; or (v) Executive's eligibility to collect payments under the
disability provision of the Bank's Defined Benefit Plan. Notwithstanding any
other provision to the contrary, the Bank may apply any proceeds from disability
income insurance for Executive which was paid for by the Bank or Holding Company
as partial satisfaction of its obligations under this Section.
(c) The Bank will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
Bank for Executive prior to his termination for Disability. This coverage and
payments shall cease upon the earlier of (i) the date Executive returns to the
full-time employment of the Bank, in the same capacity as he was employed prior
to his termination for Disability and pursuant to an employment agreement
between Executive and the Bank; (ii) Executive's full-time employment by another
employer; (iii) Executive's attaining the normal age of retirement or receiving
benefits under the Bank's Defined Benefit Plan; (iv) the Executive's death; or
(v) the Executive's eligibility to collect payments under the disability
provision of the Defined Benefit Plan.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to Executive during any period during which
Executive is incapable of performing his duties hereunder by reason of temporary
disability.
8. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order or material
breach of any provision of this Agreement. In determining incompetence, the
acts or omissions shall be measured against standards generally prevailing in
the savings institution industry. For purposes of this section, no act, or the
failure to act, on Executive's part shall be "willful" unless done, or omitted
to be done, not in good faith and without reasonable belief that the action or
omission was in the best interests of the Bank or its affiliates.
Notwithstanding the foregoing, Executive shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to him a
Notice of Termination which shall include a copy of a resolution duly adopted by
the affirmative vote of not less than a majority of the members of the Board at
a meeting of the Board called and held for that purpose (after reasonable notice
to Executive and an opportunity for him, together with counsel, to be heard
before the Board), finding that in the good faith opinion of the Board,
Executive was guilty of conduct justifying Termination for Cause and specifying
the particulars thereof in detail. The Executive shall not have the right to
receive compensation or other benefits for any period after the Date of
Termination for Cause. During the period beginning on the date of the Notice of
Termination for Cause pursuant to Section 9 hereof through the Date of
Termination for Cause, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the Bank,
the Holding Company or any subsidiary or affiliate thereof, vest. At the Date
of Termination for
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Cause, such stock options and related limited rights and any such unvested
awards shall become null and void and shall not be exercisable by or delivered
to Executive at any time subsequent to such Termination for Cause.
9. NOTICE.
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence. The
Bank shall not be obligated to continue to pay Executive his Base Salary during
the pendency of any such dispute. Amounts paid under this Section are in
addition to all other amounts due under this Agreement and shall not be offset
against or reduce any other amounts due under this Agreement.
10. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 10 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Bank. Executive shall, upon reasonable notice,
furnish such information and assistance to the Bank as may reasonably be
required by the Bank in connection with any litigation in which it or any of its
subsidiaries or affiliates is, or may become, a party.
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11. NONCOMPETITION
(a) Upon any termination of Executive's employment hereunder pursuant to
an Event of Termination as provided in Section 4 hereof, Executive agrees not to
compete with the Bank and/or the Holding Company for the greater of (i) a period
of one (1) year following such termination, or (ii) the remainder of Executive's
term under this Agreement, for which Executive shall continue to receive
compensation from the Bank, in any city, town or county in which the Bank and/or
the Holding Company has an office or has filed an application for regulatory
approval to establish an office, determined as of the effective date of such
termination, except as agreed to pursuant to a resolution duly adopted by the
Board. Executive agrees that during such period and within said cities, towns
and counties, Executive shall not work for or advise, consult or otherwise serve
with, directly or indirectly, any entity whose business materially competes with
the depository, lending or other business activities of the Bank and/or the
Holding Company. The parties hereto, recognizing that irreparable injury will
result to the Bank and/or the Holding Company, its business and property in the
event of Executive's breach of this Subsection 11(a) agree that the Bank will be
entitled, in addition to any other remedies and damages available, to an
injunction to restrain the violation hereof by Executive, Executive's partners,
agents, servants, employers, employees and all persons acting for or with
Executive. Nothing herein will be construed as prohibiting the Bank and/or the
Holding Company from pursuing any other remedies available to the Bank and/or
the Holding Company for such breach or threatened breach, including the recovery
of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, during or after the term
of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever.
Notwithstanding the foregoing, Executive may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas which are not solely and
exclusively derived from the business plans and activities of the Bank. Further,
Executive may disclose information regarding the business activities of the Bank
to the OTS and the Federal Deposit Insurance Corporation ("FDIC") pursuant to a
formal regulatory request. In the event of a breach or threatened breach by
Executive of the provisions of this Section, the Bank will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Bank or affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Bank from pursuing any other remedies available to the Bank for
such breach or threatened breach, including the recovery of damages from
Executive.
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12. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Bank. The Holding Company, however,
unconditionally guarantees payment and provision of all amounts and benefits due
hereunder to Executive and, if such amounts and benefits due from the Bank are
not timely paid or provided by the Bank, such amounts and benefits shall be paid
or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated November 20, 1996,
between Executive and the Holding Company, such compensation payments and
benefits paid by the Holding Company will be subtracted from any amounts due
simultaneously to Executive under similar provisions of this Agreement.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment or severance agreement between the Bank or
any predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to Executive of
a kind elsewhere provided. No provision of this Agreement shall be interpreted
to mean that Executive is subject to receiving fewer benefits than those
available to him without reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall
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operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future as to any act other
than that specifically waived.
16. REQUIRED PROVISIONS.
(a) The Bank may terminate Executive's employment at any time, but any
termination by the Bank, other than Termination for Cause, shall not prejudice
Executive's right to compensation or other benefits under this Agreement.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 8 hereinabove.
(b) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(3) or (g)(1); the Bank 's obligations under this contract shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion: (i)
pay Executive all or part of the compensation withheld while their contract
obligations were suspended; and (ii) reinstate (in whole or in part) any of the
obligations which were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(4) or (g)(1), all obligations of the Bank under this contract shall
terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Bank is in default as defined in Section 3(x)(1) of the Federal
Deposit Insurance Act, 12 U.S.C. (S)1813(x)(1) all obligations of the Bank under
this contract shall terminate as of the date of default, but this paragraph
shall not affect any vested rights of the contracting parties.
(e) All obligations of the Bank under this contract shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the institution: (i) by the Director of the OTS
(or his designee) or the FDIC, at the time the FDIC enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 13(c) of the Federal Deposit Insurance Act, 12 U.S.C. (S)1823(c); or
(ii) by the Director of the OTS (or his designee) at the time the Director (or
his designee) approves a supervisory merger to resolve problems related to the
operations of the Bank or when the Bank is determined by the Director to be in
an unsafe or unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and any rules and regulations promulgated thereunder.
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17. REINSTATEMENT OF BENEFITS UNDER SECTION 16(b).
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 16(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Bank will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 5 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
18. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
19. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
20. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of New Jersey, but only to the extent
not superseded by federal law.
21. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Bank, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of Executive, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of all
back-pay, including salary, bonuses and any other cash compensation, fringe
benefits and any compensation and benefits due Executive under this Agreement.
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<PAGE>
22. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Bank if Executive is successful pursuant to a legal
judgment, arbitration or settlement.
23. INDEMNIFICATION.
(a) The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under New Jersey law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Bank (whether or not he continues to be a director or officer
at the time of incurring such expenses or liabilities), such expenses and
liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
24. SUCCESSOR TO THE BANK.
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Holding Company,
expressly and unconditionally to assume and agree to perform the Bank's
obligations under this Agreement, in the same manner and to the same extent that
the Bank would be required to perform if no such succession or assignment had
taken place.
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<PAGE>
SIGNATURES
IN WITNESS WHEREOF, First Savings Bank, SLA and First Savings Bancshares,
MHC have caused this Agreement to be executed and their seals to be affixed
hereunto by their duly authorized officers and directors, and Executive has
signed this Agreement, on the 20th day of November, 1996.
ATTEST: FIRST SAVINGS BANK, SLA
___________________________ By: ______________________________
Secretary Entire Board of Directors
[SEAL]
ATTEST: FIRST SAVINGS BANCSHARES, MHC
(Guarantor)
___________________________ By: ______________________________
Secretary Entire Board of Directors
[SEAL]
WITNESS:
___________________________ __________________________________
Executive
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<PAGE>
FIRST SAVINGS BANK, SLA
EMPLOYMENT AGREEMENT
This AGREEMENT is made effective as of November 20, 1996 by and among First
Savings Bank, SLA (the "Bank"), a New Jersey chartered savings institution, with
its principal administrative office at 3090 Woodbridge Avenue, Edison, New
Jersey, First Savings Bancshares, MHC, a federally chartered mutual holding
company, the holding company for the Bank (the "Holding Company"), and
Christopher P. Martin ("Executive").
WHEREAS, the Bank wishes to assure itself of the services of Executive for
the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Bank on a full-
time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve as
Chief Operating Officer, Chief Financial Officer and Corporate Secretary of the
Bank. Executive shall render administrative and management services to the Bank
such as are customarily performed by persons situated in a similar executive
capacity. During said period, Executive also agrees to serve, if elected, as an
officer of the Holding Company or any subsidiary of the Bank.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the first anniversary date of this Agreement, and continuing on each anniversary
thereafter, the disinterested members of the board of directors of the Bank
("Board") may extend the Agreement an additional year such that the remaining
term of the Agreement shall be three (3) years unless the Executive elects not
to extend the term of this Agreement by giving written notice in accordance with
Section 9 of this Agreement. The Board will review the Agreement and
Executive's performance annually for purposes of determining whether to extend
the Agreement and the rationale and results thereof shall be included in the
minutes of the Board's meeting. The Board shall give notice to the Executive as
soon as possible after such review as to whether the Agreement is to be
extended.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the
<PAGE>
faithful performance of his duties hereunder including activities and services
related to the organization, operation and management of the Bank and
participation in community and civic organizations; provided, however, that,
with the approval of the Board, as evidenced by a resolution of such Board, from
time to time, Executive may serve, or continue to serve, on the boards of
directors of, and hold any other offices or positions in, companies or
organizations, which, in such Board's judgment, will not present any conflict of
interest with the Bank, or materially affect the performance of Executive's
duties pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, Executive's employment
with the Bank may be terminated by the Bank or the Executive during the term of
this Agreement, subject to the terms and conditions of this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Bank shall pay Executive as compensation a salary of $180,000 per
year ("Base Salary"). Base Salary shall include any amounts of compensation
deferred by Executive under any qualified or unqualified plan maintained by the
Bank. Such Base Salary shall be payable bi-weekly. During the period of this
Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by the Board or by a Committee of the
Board, delegated such responsibility by the Board. The Committee or the Board
may increase Executive's Base Salary. Any increase in Base Salary shall become
the "Base Salary" for purposes of this Agreement. In addition to the Base
Salary provided in this Section 3(a), the Bank shall also provide Executive, at
no premium cost to Executive, with all such other benefits as are provided
uniformly to permanent full-time employees of the Bank.
(b) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Bank will not, without
Executive's prior written consent, make any changes in such plans, arrangements
or perquisites which would materially adversely affect Executive's rights or
benefits thereunder; except to the extent such changes are made applicable to
all Bank employees on a non-discriminatory basis. Without limiting the
generality of the foregoing provisions of this Subsection (b), Executive shall
be entitled to participate in or receive benefits under any employee benefit
plans including but not limited to, retirement plans, supplemental retirement
plans, profit-sharing plans, health-and-accident plans, medical coverage or any
other employee benefit plan or arrangement made available by the Bank in the
future to its senior executives and key management employees, subject to and on
a basis consistent with the terms, conditions and overall administration of such
plans and arrangements. Executive shall be entitled to incentive compensation
and bonuses as provided in any plan of the Bank in which Executive is eligible
to participate. Nothing paid to the Executive under any such plan or
arrangement will be deemed to be in lieu of other compensation to which the
Executive is entitled under this Agreement.
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<PAGE>
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Bank shall pay or reimburse Executive for all reasonable travel and other
reasonable expenses incurred by Executive performing his obligations under this
Agreement and may provide such additional compensation in such form and such
amounts as the Board may from time to time determine. The Executive shall be
provided at his option, with an automobile expense allowance or the use of a
recent model automobile which will be owned or leased by the Bank or the Holding
Company, as may be mutually agreed upon by the Executive and the Bank. All
reasonable expenses associated therewith shall be borne by the Bank. In
addition, the Bank shall also pay or reimburse Executive for any other benefits
or perquisites as may be determined by the Board of Directors.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Bank or the Holding Company of Executive's full-time
employment hereunder for any reason other than a termination governed by Section
5(a) hereof, or Termination for Cause, as defined in Section 8 hereof; (ii)
Executive's resignation from the Bank's employ upon any (A) failure to elect or
reelect or to appoint or reappoint Executive as Chief Financial Officer and
Chief Operating Officer, unless consented to by the Executive, (B) a material
change in Executive's function, duties, or responsibilities, which change would
cause Executive's position to become one of lesser responsibility, importance,
or scope from the position and attributes thereof described in Section 1, above,
unless consented to by Executive, (C) a relocation of Executive's principal
place of employment by more than 30 miles from its location at the effective
date of this Agreement, unless consented to by the Executive, (D) a material
reduction in the benefits and perquisites to the Executive from those being
provided as of the effective date of this Agreement, unless consented to by the
Executive, or (E) a liquidation or dissolution of the Bank or Holding Company,
or (F) breach of this Agreement by the Bank. Upon the occurrence of any event
described in clauses (A), (B), (C), (D), (E) or (F), above, Executive shall have
the right to elect to terminate his employment under this Agreement by
resignation upon not less than ninety (90) days prior written notice given
within six full months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, and in the case of an
Event of Termination as defined in Section 4(a)(ii) above, upon receipt of
written notice of resignation by Executive, on the Date of Termination, as
defined in Section 9, the Bank shall be obligated to pay Executive, or, in the
event of his death subsequent to an Event of Termination, his beneficiary or
beneficiaries, or his estate, as the case may be a sum equal to the sum of:
(i) the amount of the remaining payments that the Executive would have earned if
he had continued his employment with the Bank during the remaining term of this
Agreement at the Executive's Base Salary at the Date of Termination; and (ii)
the amount equal to the annual contributions that would have been made on
Executive's behalf to any employee benefit plans of the Bank or the
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<PAGE>
Holding Company during the remaining term of this Agreement based on
contributions made (on an annualized basis) at the Date of Termination;
provided, however, that any payments pursuant to this subsection and subsection
- -------- -------
4(c) below shall not, in the aggregate, exceed three times Executive's average
Base Salary for the three most recent calendar years that Executive has been
employed by the Bank. In the event the Bank is not in compliance with its
minimum capital requirements or if such payments pursuant to this subsection (b)
would cause the Bank's capital to be reduced below its minimum regulatory
capital requirements, such payments shall be deferred until such time as the
Bank or successor thereto is in capital compliance. At the election of the
Executive, which election is to be made prior to an Event of Termination, such
payments shall be made in a lump sum as of the Executive's Date of Termination.
In the event that no election is made, payment to Executive will be made on a
monthly basis in approximately equal installments during the remaining term of
the Agreement. Such payments shall not be reduced in the event the Executive
obtains other employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Bank will cause to
be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the Bank or the Holding Company for
Executive prior to his termination at no premium cost to the Executive, except
to the extent such coverage may be changed in its application to all Bank or
Holding Company employees. Such coverage shall cease upon the expiration of the
remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be payable under this Section 5 unless there shall
have been a change in control of the Bank or the Holding Company. For purposes
of determining under this Agreement whether there has been a change in control
of the Bank or the Holding Company, a "change in control" of the Bank or the
Holding Company shall mean (i) a plan or reorganization, merger, merger
conversion, consolidation or sale of all or substantially all of the assets of
the Bank or the Holding Company or a similar transaction occurs in which the
Bank or the Holding Company is not the resulting entity; (ii) individuals who
constitute the board of directors of the Bank or the board of directors of the
Holding Company cease for any reason to constitute a majority thereof; or (iii)
a change in control within the meaning of 12 C.F.R. (S)574.4 occurs, as
determined by the board of directors of the Bank or the Holding Company,
provided, however, that a change of control shall not be deemed to occur under
5(a) (i) or 5(a) (iii) of this section if the transaction(s) constituting a
change in control is approved by a majority of the board of directors of the
Bank or the Holding Company. In the event the Holding Company converts from the
mutual form of organization to the stock form of organization on a stand-alone
basis at any time subsequent to the effective date of this Agreement ("Stock
Holding Company"), a "change in control" of the Bank or the Stock Holding
Company for purposes of this Agreement shall mean an event of a nature that (i)
would be required to be reported in response to Item 1 of the current report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Stock Holding Company within the meaning of
the Home Owners' Loan Act of 1933 and the Rules and Regulations promulgated by
the Office of Thrift Supervision (or its
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<PAGE>
predecessor agency), as in effect on the date hereof (provided that in applying
the definition of change in control as set forth under the Rules and Regulations
of the OTS, the Board shall substitute its judgment for that of the OTS); or
(iii) without limitation such a Change in Control shall be deemed to have
occurred at such time as (a) any "person" (as the term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, or securities of
the Bank or the Stock Holding Company representing 20% or more of the Bank's or
the Stock Holding Company's outstanding securities except for any securities of
the Bank purchased by the Stock Holding Company and any securities purchased by
the Bank's Employee Stock Ownership Plan and Trust; or (b) individuals who
constitute the Board of the Bank or the Stock Holding Company on the date hereof
(the "Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Stock Holding Company's stockholders was approved by the same Nominating
Committee serving under an Incumbent Board, shall be, for purposes of this
clause (b), considered as though he were a member of the Incumbent Board; or (c)
a plan of reorganization, merger, consolidation, sale of all or substantially
all the assets of the Bank or the Stock Holding Company or similar transaction
occurs in which the Bank or Stock Holding Company is not the resulting entity;
provided, however, that such an event listed above will be deemed to have
occurred or to have been effectuated upon the receipt of all required regulatory
approvals not including the lapse of any statutory waiting periods.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c), and (d) of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to: (1) Executive's dismissal or (2) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, material reduction in annual compensation or
benefits or relocation of his principal place of employment by more than 30
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death, disability, retirement or termination for
Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Bank shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to
the greater of: (1) the payments due for the remaining term of the Agreement;
or 2) three (3) times Executive's average annual compensation for the three (3)
most recent taxable years that Executive has been employed by the Bank. Such
average annual compensation shall include Base Salary, commissions, bonuses,
contributions on Executive's behalf to any pension and/or profit sharing plan,
severance payments, retirement payments, directors or committee fees, fringe
benefits paid or to be paid to the Executive in any such year and payment of any
expense items without accountability or business purpose or that do not meet the
Internal Revenue Service requirements for deductibility by the Bank; provided
--------
however, that any payment under this provision and subsection 5(d) below shall
- -------
not exceed three
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<PAGE>
(3) times the Executive's average annual compensation. In the event the Bank is
not in compliance with its minimum capital requirements or if such payments
would cause the Bank's capital to be reduced below its minimum regulatory
capital requirements, such payments shall be deferred until such time as the
Bank or successor thereto is in capital compliance. At the election of the
Executive, which election is to be made prior to a Change in Control, such
payment shall be made in a lump sum as of the Executive's Date of Termination.
In the event that no election is made, payment to the Executive will be made in
approximately equal installments on a monthly basis over a period of thirty-six
(36) months following the Executive's termination. Such payments shall not be
reduced in the event Executive obtains other employment following termination of
employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Bank will cause to be continued life, medical, dental and disability
coverage substantially identical to the coverage maintained by the Bank for
Executive prior to his severance at no premium cost to the Executive, except to
the extent that such coverage may be changed in its application for all Bank
employees on a non-discriminatory basis. Such coverage and payments shall cease
upon the expiration of thirty-six (36) months following the Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Code or any successor thereto, and in order to avoid
such a result, Termination Benefits will be reduced, if necessary, to an amount
(the "Non-Triggering Amount"), the value of which is one dollar ($1.00) less
than an amount equal to three (3) times Executive's "base amount", as determined
in accordance with said Section 280G. The allocation of the reduction required
hereby among the Termination Benefits provided by Section 5 shall be determined
by Executive.
7. TERMINATION FOR DISABILITY.
(a) If, as a result of Executive's incapacity due to physical or mental
illness, he shall have been absent from his duties with the Bank on a full-time
basis for twelve (12) consecutive months, and within thirty (30) days after
written notice of potential termination is given he shall not have returned to
the full-time performance of his duties, the Bank may terminate Executive's
employment for "Disability."
(b) The Bank will pay Executive, as disability pay, a bi-weekly payment
equal to sixty percent (60%) of Executive's bi-weekly rate of Base Salary on the
effective date of such termination. These disability payments shall commence on
the effective date of Executive's termination and will end on the earlier of (i)
the date Executive returns to the full-time employment of the Bank in the same
capacity as he was employed prior to his termination for Disability and pursuant
to an employment agreement between Executive and the Bank; (ii) Executive's
full-time employment by another employer; (iii) Executive attaining the normal
age
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<PAGE>
of retirement or receiving benefits under the Bank's Defined Benefit Plan; (iv)
Executive's death; or (v) Executive's eligibility to collect payments under the
disability provision of the Bank's Defined Benefit Plan. Notwithstanding any
other provision to the contrary, the Bank may apply any proceeds from disability
income insurance for Executive which was paid for by the Bank or Holding Company
as partial satisfaction of its obligations under this Section.
(c) The Bank will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
Bank for Executive prior to his termination for Disability. This coverage and
payments shall cease upon the earlier of (i) the date Executive returns to the
full-time employment of the Bank, in the same capacity as he was employed prior
to his termination for Disability and pursuant to an employment agreement
between Executive and the Bank; (ii) Executive's full-time employment by another
employer; (iii) Executive's attaining the normal age of retirement or receiving
benefits under the Bank's Defined Benefit Plan; (iv) the Executive's death; or
(v) the Executive's eligibility to collect payments under the disability
provision of the Defined Benefit Plan.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to Executive during any period during which
Executive is incapable of performing his duties hereunder by reason of temporary
disability.
8. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order or material
breach of any provision of this Agreement. In determining incompetence, the
acts or omissions shall be measured against standards generally prevailing in
the savings institution industry. For purposes of this section, no act, or the
failure to act, on Executive's part shall be "willful" unless done, or omitted
to be done, not in good faith and without reasonable belief that the action or
omission was in the best interests of the Bank or its affiliates.
Notwithstanding the foregoing, Executive shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to him a
Notice of Termination which shall include a copy of a resolution duly adopted by
the affirmative vote of not less than a majority of the members of the Board at
a meeting of the Board called and held for that purpose (after reasonable notice
to Executive and an opportunity for him, together with counsel, to be heard
before the Board), finding that in the good faith opinion of the Board,
Executive was guilty of conduct justifying Termination for Cause and specifying
the particulars thereof in detail. The Executive shall not have the right to
receive compensation or other benefits for any period after the Date of
Termination for Cause. During the period beginning on the date of the Notice of
Termination for Cause pursuant to Section 9 hereof through the Date of
Termination for Cause, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the Bank,
the Holding Company or any subsidiary or affiliate thereof, vest. At the Date
of Termination for
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Cause, such stock options and related limited rights and any such unvested
awards shall become null and void and shall not be exercisable by or delivered
to Executive at any time subsequent to such Termination for Cause.
9. NOTICE.
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence. The
Bank shall not be obligated to continue to pay Executive his Base Salary during
the pendency of any such dispute. Amounts paid under this Section are in
addition to all other amounts due under this Agreement and shall not be offset
against or reduce any other amounts due under this Agreement.
10. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 10 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Bank. Executive shall, upon reasonable notice,
furnish such information and assistance to the Bank as may reasonably be
required by the Bank in connection with any litigation in which it or any of its
subsidiaries or affiliates is, or may become, a party.
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11. NONCOMPETITION
(a) Upon any termination of Executive's employment hereunder pursuant to an
Event of Termination as provided in Section 4 hereof, Executive agrees not to
compete with the Bank and/or the Holding Company for the greater of (i) a period
of one (1) year following such termination, or (ii) the remainder of Executive's
term under this Agreement, for which Executive shall continue to receive
compensation from the Bank, in any city, town or county in which the Bank and/or
the Holding Company has an office or has filed an application for regulatory
approval to establish an office, determined as of the effective date of such
termination, except as agreed to pursuant to a resolution duly adopted by the
Board. Executive agrees that during such period and within said cities, towns
and counties, Executive shall not work for or advise, consult or otherwise serve
with, directly or indirectly, any entity whose business materially competes with
the depository, lending or other business activities of the Bank and/or the
Holding Company. The parties hereto, recognizing that irreparable injury will
result to the Bank and/or the Holding Company, its business and property in the
event of Executive's breach of this Subsection 11(a) agree that the Bank will be
entitled, in addition to any other remedies and damages available, to an
injunction to restrain the violation hereof by Executive, Executive's partners,
agents, servants, employers, employees and all persons acting for or with
Executive. Nothing herein will be construed as prohibiting the Bank and/or the
Holding Company from pursuing any other remedies available to the Bank and/or
the Holding Company for such breach or threatened breach, including the recovery
of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, during or after the term
of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever.
Notwithstanding the foregoing, Executive may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas which are not solely and
exclusively derived from the business plans and activities of the Bank.
Further, Executive may disclose information regarding the business activities of
the Bank to the OTS and the Federal Deposit Insurance Corporation ("FDIC")
pursuant to a formal regulatory request. In the event of a breach or threatened
breach by Executive of the provisions of this Section, the Bank will be entitled
to an injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Bank or affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Bank from pursuing any other remedies available to the Bank for
such breach or threatened breach, including the recovery of damages from
Executive.
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<PAGE>
12. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Bank. The Holding Company, however,
unconditionally guarantees payment and provision of all amounts and benefits due
hereunder to Executive and, if such amounts and benefits due from the Bank are
not timely paid or provided by the Bank, such amounts and benefits shall be paid
or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated November 20, 1996,
between Executive and the Holding Company, such compensation payments and
benefits paid by the Holding Company will be subtracted from any amounts due
simultaneously to Executive under similar provisions of this Agreement.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment or severance agreement between the Bank or
any predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to Executive of
a kind elsewhere provided. No provision of this Agreement shall be interpreted
to mean that Executive is subject to receiving fewer benefits than those
available to him without reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall
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operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future as to any act other
than that specifically waived.
16. REQUIRED PROVISIONS.
(a) The Bank may terminate Executive's employment at any time, but any
termination by the Bank, other than Termination for Cause, shall not prejudice
Executive's right to compensation or other benefits under this Agreement.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 8 hereinabove.
(b) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(3) or (g)(1); the Bank's obligations under this contract shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion: (i)
pay Executive all or part of the compensation withheld while their contract
obligations were suspended; and (ii) reinstate (in whole or in part) any of the
obligations which were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(4) or (g)(1), all obligations of the Bank under this contract shall
terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Bank is in default as defined in Section 3(x)(1) of the Federal
Deposit Insurance Act, 12 U.S.C. (S)1813(x)(1) all obligations of the Bank under
this contract shall terminate as of the date of default, but this paragraph
shall not affect any vested rights of the contracting parties.
(e) All obligations of the Bank under this contract shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the institution: (i) by the Director of the OTS
(or his designee) or the FDIC, at the time the FDIC enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 13(c) of the Federal Deposit Insurance Act, 12 U.S.C. (S)1823(c); or
(ii) by the Director of the OTS (or his designee) at the time the Director (or
his designee) approves a supervisory merger to resolve problems related to the
operations of the Bank or when the Bank is determined by the Director to be in
an unsafe or unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and any rules and regulations promulgated thereunder.
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17. REINSTATEMENT OF BENEFITS UNDER SECTION 16(b).
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 16(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Bank will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 5 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
18. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
19. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
20. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of New Jersey, but only to the extent
not superseded by federal law.
21. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Bank, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of Executive, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of all
back-pay, including salary, bonuses and any other cash compensation, fringe
benefits and any compensation and benefits due Executive under this Agreement.
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<PAGE>
22. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Bank if Executive is successful pursuant to a legal
judgment, arbitration or settlement.
23. INDEMNIFICATION.
(a) The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under New Jersey law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Bank (whether or not he continues to be a director or officer
at the time of incurring such expenses or liabilities), such expenses and
liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
24. SUCCESSOR TO THE BANK.
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Holding Company,
expressly and unconditionally to assume and agree to perform the Bank's
obligations under this Agreement, in the same manner and to the same extent that
the Bank would be required to perform if no such succession or assignment had
taken place.
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<PAGE>
SIGNATURES
IN WITNESS WHEREOF, First Savings Bank, SLA and First Savings Bancshares,
MHC have caused this Agreement to be executed and their seals to be affixed
hereunto by their duly authorized officers and directors, and Executive has
signed this Agreement, on the 20th day of November, 1996.
ATTEST: FIRST SAVINGS BANK, SLA
___________________________ By:______________________________
Secretary Entire Board of Directors
[SEAL]
ATTEST: FIRST SAVINGS BANCSHARES, MHC
(Guarantor)
___________________________ By:______________________________
Secretary Entire Board of Directors
[SEAL]
WITNESS:
___________________________ _________________________________
Executive
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Exhibit 10.11
FORM OF
FIRST SOURCE BANCORP, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of _____________, 199_,
by and between First Source Bancorp, Inc. (the "Holding Company"), a corporation
organized under the laws of Delaware, with its principal administrative office
at 1000 Woodbridge Center Drive, Woodbridge, New Jersey and ___________________
(the "Executive"). Any reference to "Institution" herein shall mean First
Savings Bank, SLA or any successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Holding
Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive agrees to
serve as __________________________ of the Holding Company. The Executive shall
render administrative and management services to the Holding Company such as are
customarily performed by persons in a similar executive capacity. During said
period, Executive also agrees to serve, if elected, as an officer and director
of any subsidiary of the Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the date of the execution of this Agreement, the term of this Agreement shall be
extended for one day each day until such time as the board of directors of the
Holding Company (the "Board") or Executive elects not to extend the term of the
Agreement by giving written notice to the other party in accordance with Section
8 of this Agreement, in which case the term of this Agreement shall be fixed and
shall end on the third anniversary of the date of such written notice.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
operation and management of the Holding Company and its direct or indirect
<PAGE>
subsidiaries ("Subsidiaries") and participation in community and civic
organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in such Board's judgment,
will not present any conflict of interest with the Holding Company or its
Subsidiaries, or materially affect the performance of Executive's duties
pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary, Executive's
employment with the Holding Company may be terminated by the Holding Company or
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement. Moreover, in the event the Executive is terminated or
suspended from his position with the Institution, Executive shall not perform,
in any respect, directly or indirectly, during the pendency of his temporary or
permanent suspension or termination from the Institution, duties and
responsibilities formerly performed at the Institution as part of his duties and
responsibilities as ________________________ of the Holding Company.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Executive shall be entitled to a salary from the Holding Company
or its Subsidiaries of $________ per year ("Base Salary"). Base Salary shall
include any amounts of compensation deferred by Executive under any qualified or
unqualified plan maintained by the Holding Company and its Subsidiaries. Such
Base Salary shall be payable bi-weekly. During the period of this Agreement,
Executive's Base Salary shall be reviewed at least annually; the first such
review will be made no later than one year from the date of this Agreement. Such
review shall be conducted by the Board or by a Committee of the Board delegated
such responsibility by the Board. The Committee or the Board may increase
Executive's Base Salary. Any increase in Base Salary shall become the "Base
Salary" for purposes of this Agreement. In addition to the Base Salary provided
in this Section 3(a), the Holding Company shall also provide Executive, at no
premium cost to Executive, with all such other benefits as provided uniformly to
permanent full-time employees of the Holding Company and its Subsidiaries.
(b) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Holding Company and its
Subsidiaries will not, without Executive's prior written consent, make any
changes in such plans, arrangements or perquisites which would materially
adversely affect Executive's rights or benefits thereunder, except to the extent
that such changes are made applicable to all Holding Company and Institution
employees eligible to participate in such plans, arrangements and perquisites on
a non-discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive shall be entitled to participate in
or receive benefits under any employee benefit plans including, but not limited
to, retirement plans, supplemental retirement plans, pension plans, profit-
sharing plans, health-and-accident plans, medical coverage or any other employee
benefit plan or arrangement made available by the Holding Company and its
Subsidiaries in the future to its senior executives
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and key management employees, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans and arrangements.
Executive shall be entitled to incentive compensation and bonuses as provided in
any plan of the Holding Company and its Subsidiaries in which Executive is
eligible to participate. Nothing paid to the Executive under any such plan or
arrangement will be deemed to be in lieu of other compensation to which the
Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Holding Company shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred in the performance of Executive's
obligations under this Agreement and may provide such additional compensation in
such form and such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Holding Company of Executive's full-time employment hereunder
for any reason other than termination governed by Section 5(a) hereof, or for
Cause, as defined in Section 7 hereof; (ii) Executive's resignation from the
Holding Company's employ, upon, any (A) failure to elect or reelect or to
appoint or reappoint Executive as _____________________________, unless
consented to by the Executive, (B) a material change in Executive's function,
duties, or responsibilities with the Holding Company or its Subsidiaries, which
change would cause Executive's position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Section 1, above, unless consented to by the Executive, (C) a relocation of
Executive's principal place of employment by more than 25 miles from its
location at the effective date of this Agreement, unless consented to by the
Executive, (D) a material reduction in the benefits and perquisites to the
Executive from those being provided as of the effective date of this Agreement,
unless consented to by the Executive, (E) a liquidation or dissolution of the
Holding Company or the Institution, or (F) breach of this Agreement by the
Holding Company. Upon the occurrence of any event described in clauses (A),
(B), (C), (D) (E) or (F), above, Executive shall have the right to elect to
terminate his employment under this Agreement by resignation upon not less than
sixty (60) days prior written notice given within six full calendar months after
the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Holding Company shall be obligated to
pay Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, a sum equal to the sum of:
(i) the amount of the remaining payments that the Executive would have earned if
he had continued his employment with the Institution during the remaining term
of this Agreement at the Executive's Base Salary at the Date of Termination; and
(ii) the amount equal
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to the annual contributions that would have been made on Executive's behalf to
any employee benefit plans of the Institution or the Holding Company during the
remaining term of this Agreement based on contributions made (on an annualized
basis) at the Date of Termination. At the election of the Executive, which
election is to be made prior to an Event of Termination, such payments shall be
made in a lump sum. In the event that no election is made, payment to the
Executive will be made on a monthly basis in approximately equal installments
during the remaining term of the Agreement. Such payments shall not be reduced
in the event the Executive obtains other employment following termination of
employment.
(c) Upon the occurrence of an Event of Termination, the Holding Company
will cause to be continued life, medical, dental and disability coverage
substantially equivalent to the coverage maintained by the Holding Company or
its Subsidiaries for Executive prior to his termination at no premium cost to
the Executive. Such coverage shall cease upon the expiration of the remaining
term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Institution shall mean an event of a nature that; (i) would be
required to be reported in response to Item 1(a) of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Institution or the Holding Company within the meaning
of the Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance
Act, or the Rules and Regulations promulgated by the Office of Thrift
Supervision (or its predecessor agency), as in effect on the date hereof
(provided, that in applying the definition of change in control as set forth
under the rules and regulations of the OTS, the Board shall substitute its
judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of voting securities of the Institution or the Holding
Company representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Holding Company
or its Subsidiaries; or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Company's stockholders was approved by a Nominating Committee solely
composed of members which are Incumbent Board members, shall be, for purposes of
this clause (B), considered as though he were a member of the Incumbent Board;
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Institution or the Holding Company or
similar transaction occurs or is effectuated in which the Institution or Holding
Company is not the resulting entity; provided, however, that such an event
listed above will be deemed to have
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occurred or to have been effectuated upon the receipt of all required federal
regulatory approvals not including the lapse of any statutory waiting periods;
or (D) a proxy statement has been distributed soliciting proxies from
stockholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or Institution
with one or more corporations as a result of which the outstanding shares of the
class of securities then subject to such plan or transaction are exchanged for
or converted into cash or property or securities not issued by the Institution
or the Holding Company shall be distributed; or (E) a tender offer is made for
20% or more of the voting securities of the Institution or Holding Company then
outstanding.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and, (d), of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to (i) Executive's dismissal, or (ii) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, reduction in the annual compensation or material
reduction in benefits or relocation of his principal place of employment by more
than 25 miles from its location immediately prior to the change in control,
unless such termination is because of his death or termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Holding Company shall pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to the greater of:
(i) the payments due for the remaining term of the Agreement; or (ii) three (3)
times Executive's average annual compensation for the five (5) preceding taxable
years. Such annual compensation shall include Base Salary, commissions,
bonuses, contributions on behalf of Executive to any pension and profit sharing
plan, severance payments, directors or committee fees and fringe benefits paid
or to be paid to the Executive during such years. At the election of the
Executive, which election is to be made prior to a Change in Control, such
payment shall be made in a lump sum. In the event that no election is made,
payment to the Executive will be made on a monthly basis in approximately equal
installments during the remaining term of the Agreement. Such payments shall
not be reduced in the event Executive obtains other employment following
termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Company will cause to be continued life, medical, dental and disability
coverage substantially equivalent to the coverage maintained by the Institution
for Executive at no premium cost to Executive prior to his severance. Such
coverage and payments shall cease upon the expiration of thirty-six (36) months
following the Change in Control.
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6. CHANGE OF CONTROL RELATED PROVISIONS.
(a) Notwithstanding the provisions of Section 5, in the event that:
(i) the aggregate payments or benefits to be made or afforded to
Executive, which are deemed to be parachute payments as defined
in Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code") or any successor thereof, (the "Termination
Benefits") would be deemed to include an "excess parachute
payment" under Section 280G of the Code; and
(ii) if such Termination Benefits were reduced to an amount (the "Non-
Triggering Amount"), the value of which is one dollar ($1.00)
less than an amount equal to three (3) times Executive's "base
amount," as determined in accordance with said Section 280G and
the Non-Triggering Amount less the product of the marginal rate
of any applicable state and federal income tax and the Non-
Triggering Amount would be greater than the aggregate value of
the Termination Benefits (without such reduction) minus (i) the
amount of tax required to be paid by the Executive thereon by
Section 4999 of the Code and further minus (ii) the product of
the Termination Benefits and the marginal rate of any applicable
state and federal income tax,
then the Termination Benefits shall be reduced to the Non-Triggering Amount.
The allocation of the reduction required hereby among the Termination Benefits
shall be determined by the Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of a
material loss to the Holding Company or one of its Subsidiaries caused by the
Executive's intentional failure to perform stated duties, personal dishonesty,
willful violation of any law, rule, regulation (other than traffic violations or
similar offenses), final cease and desist order or material breach of any
provision of this Agreement. For purposes of this Section, no act, or the
failure to act, on Executive's part shall be "willful" unless done, or omitted
to be done, not in good faith and without reasonable belief that the action or
omission was in the best interest of the Holding Company or its Subsidiaries.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
Notice of Termination which shall include a copy of a resolution duly adopted by
the affirmative vote of not less than three-fourths of the members of the Board
at a meeting of the Board called and held for that purpose (after reasonable
notice to Executive and an opportunity for him, together with counsel, to be
heard before the Board), finding that in the good faith opinion of the Board,
Executive was guilty of conduct justifying Termination for Cause and specifying
the particulars thereof in detail. The Executive shall not have the right to
receive compensation or other
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benefits for any period after Termination for Cause. During the period beginning
on the date of the Notice of Termination for Cause pursuant to Section 8 hereof
through the Date of Termination, stock options and related limited rights
granted to Executive under any stock option plan shall not be exercisable nor
shall any unvested awards granted to Executive under any stock benefit plan of
the Holding Company or its Subsidiaries vest. At the Date of Termination, such
stock options and related limited rights and such unvested awards shall become
null and void and shall not be exercisable by or delivered to Executive at any
time subsequent to such Date of Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive shall
be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay Executive his full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, Base Salary) and
continue him as a participant in all compensation, benefit and insurance plans
in which he was participating when the notice of dispute was given, until the
dispute is finally resolved in accordance with this Agreement. Amounts paid
under this Section are in addition to all other amounts due under this Agreement
and shall not be offset against or reduce any other amounts due under this
Agreement.
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9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
10. NON-COMPETITION.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which the Executive's normal business office is located
and the Holding Company or any of its Subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination, except as agreed to pursuant to a resolution
duly adopted by the Board. Executive agrees that during such period and within
said cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities of
the Holding Company or its Subsidiaries. The parties hereto, recognizing that
irreparable injury will result to the Holding Company or its Subsidiaries, its
business and property in the event of Executive's breach of this Subsection
10(a) agree that in the event of any such breach by Executive, the Holding
Company or its Subsidiaries will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employees and all persons
acting for or under the direction of Executive. Executive represents and admits
that in the event of the termination of his employment pursuant to Section 7
hereof, Executive's experience and capabilities are such that Executive can
obtain employment in a business engaged in other lines and/or of a different
nature than the Holding Company or its Subsidiaries, and that the enforcement of
a remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Holding Company
or its Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries for such breach or threatened breach, including the
recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of banking, financial and/or economic
principles, concepts or ideas which are not solely and
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exclusively derived from the business plans and activities of the Holding
Company. In the event of a breach or threatened breach by the Executive of the
provisions of this Section, the Holding Company will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Holding Company or its Subsidiaries or from rendering any services to any
person, firm, corporation, other entity to whom such knowledge, in whole or in
part, has been disclosed or is threatened to be disclosed. Nothing herein will
be construed as prohibiting the Holding Company from pursuing any other remedies
available to the Holding Company for such breach or threatened breach, including
the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Holding Company subject to this Section
11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated ___________, 1998,
between Executive and the Institution, such compensation payments and benefits
paid by the Institution will be subtracted from any amount due simultaneously to
Executive under similar provisions of this Agreement. Payments pursuant to this
Agreement and the Institution Agreement shall be allocated in proportion to the
level of activity and the time expended on such activities by the Executive as
determined by the Holding Company and the Institution on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Holding Company or any
predecessor of the Holding Company and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to the
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
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<PAGE>
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware,
unless otherwise specified herein.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Institution, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any
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<PAGE>
other cash compensation, fringe benefits and any compensation and benefits due
Executive under this Agreement.
19. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company, if Executive is successful pursuant to a
legal judgment, arbitration or settlement.
20. INDEMNIFICATION.
(a) The Holding Company shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense, and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are subject to
and conditioned upon compliance with 12 U.S.C. Section 1828(k) and 12 C.F.R.
Part 359 and any rules or regulations promulgated thereunder.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
-11-
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, First Source Bancorp, Inc. has caused this Agreement to
be executed and its seal to be affixed hereunto by its duly authorized officer
and its directors, and Executive has signed this Agreement, on the _____ day of
_____, 199_.
ATTEST: FIRST SOURCE BANCORP, INC.
_____________________ By: __________________________________
Secretary Entire Board of Directors
[SEAL]
WITNESS:
_____________________ By: ___________________________________
Executive
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<PAGE>
Exhibit 10.12
FORM OF
FIRST SAVINGS BANK, SLA
THREE YEAR CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of _____________, 199_ by and between
First Savings Bank, SLA (the "Bank"), a New Jersey chartered savings
institution, with its principal administrative office at 1000 Woodbridge Center
Drive, Woodbridge, New Jersey, _____________________ ("Executive"), and First
Source Bancorp, Inc. (the "Holding Company"), a corporation organized under the
laws of the State of Delaware which is the holding company of the Bank.
WHEREAS, the Bank recognizes the substantial contribution Executive has
made to the Bank and wishes to protect Executive's position therewith for the
period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Bank.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
-----------------
The term of the First Savings Bank, SLA Three Year Change in Control
Agreement (the "Agreement") shall be deemed to have commenced as of the date
first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. Commencing on the first anniversary date of this
Agreement and continuing at each anniversary date thereafter, the Board of
Directors of the Bank ("Board") may extend the Agreement for an additional year.
The Board will review the Agreement and Executive's performance annually for
purposes of determining whether to extend the Agreement, and the results thereof
shall be included in the minutes of the Board's meeting.
2. CHANGE IN CONTROL.
-----------------
(a) Upon the occurrence of a Change in Control of the Bank or the Holding
Company (as herein defined) followed at any time during the term of this
Agreement by the termination of Executive's employment, other than for Cause,
as defined in Section 2(c) hereof, the provisions of Section 3 shall apply. Upon
the occurrence of a Change in Control, Executive shall have the right to elect
to voluntarily terminate his employment at any time during the term of this
Agreement following any demotion, loss of title, office or significant
authority, reduction in his annual compensation or benefits, or relocation of
his principal place of employment by more than 25 miles from its location
immediately prior to the Change in Control.
<PAGE>
(b) For purposes of this Plan, a "Change in Control" of the Bank or Holding
Company shall mean an event of a nature that: (i) would be required to be
reported in response to Item 1 of the Current Report on Form 8-K, as in effect
on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (the "Exchange Act"); or (ii) results in a Change in Control of the
Bank or the Holding Company within the meaning of the Home Owners' Loan Act of
1933, as amended, the Federal Deposit Insurance Act, or the Rules and
Regulations promulgated by the Office of Thrift Supervision ("OTS") (or its
predecessor agency), as in effect on the date hereof (provided, that in applying
the definition of change in control as set forth under the Rules and Regulations
of the OTS, the Board shall substitute its judgment for that of the OTS); or
(iii) without limitation such a Change in Control shall be deemed to have
occurred at such time as (A) any "person" (as the term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Bank or the Holding Company representing 25% or more of the Bank's or the
Holding Company's outstanding voting securities or right to acquire such
securities except for any voting securities of the Bank purchased by the Holding
Company in connection with the conversion of the Bank to the stock form and any
voting securities purchased by any employee benefit plan of the Bank or the
Holding Company, or (B) individuals who constitute the Board on the date hereof
(the "Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Holding Company's stockholders was approved by the same Nominating Committee
serving under an Incumbent Board, shall be, for purposes of this clause (B),
considered as though he were a member of the Incumbent Board, or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Holding Company or similar transaction occurs in which
the Bank or Holding Company is not the resulting entity; provided, however, that
such an event listed above will be deemed to have occurred or to have been
effectuated upon the receipt of all required regulatory approvals not including
the lapse of any statutory periods.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of Executive's personal dishonesty,
incompetence, willful misconduct, any breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of any provision
of this Agreement. Notwithstanding the foregoing, Executive shall not be deemed
to have been Terminated for Cause unless and until there shall have been
delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the Board of Directors of the Bank at a meeting of the Board called and held for
that purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive's conduct justified a finding of
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period
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<PAGE>
after the Date of Termination for Cause. During the period beginning on the date
of the Notice of Termination for Cause pursuant to Section 8 hereof through the
Date of Termination for Cause, stock options and related limited rights granted
to Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the Bank,
the Company or any subsidiary or affiliate thereof, vest. At the Date of
Termination for Cause, such stock options and related limited rights and any
such unvested awards shall become null and void and shall not be exercisable by
or delivered to Executive at any time subsequent to such Termination for Cause.
3. TERMINATION BENEFITS.
--------------------
(a) Upon the occurrence of a Change in Control, followed at any time during
the term of this Agreement by termination of the Executive's employment due to:
(1) Executive's dismissal or (2) Executive's voluntary termination pursuant to
Section 2(a), unless such termination is due to Termination for Cause, the Bank
and the Holding Company shall pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, a
sum equal to three (3) times Executive's average annual compensation for the
five most recent taxable years that Executive has been employed by the Bank or
such lesser number of years in the event that Executive shall have been employed
by the Bank for less than five years. Such average annual compensation shall
include Base Salary, commissions, bonuses, contributions on Executive's behalf
to any pension and/or profit sharing plan, severance payments, retirement
payments, directors or committee fees, fringe benefits paid or to be paid to the
Executive in any such year and payment of any expense items without
accountability or business purpose or that do not meet the Internal Revenue
Service requirements for deductibility by the Bank; provided however, that any
-------- -------
payment under this provision and subsection 3(b) below shall not exceed three
(3) times the Executive's average annual compensation. At the election of
Executive, which election is to be made prior to a Change in Control, such
payment shall be made in a lump sum. In the event that no election is made,
payment to Executive will be made on a monthly basis in approximately equal
installments during the remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the Bank or the Holding
Company followed at any time during the term of this Agreement by Executive's
voluntary or involuntary termination of employment, other than for Termination
for Cause, the Bank shall cause to be continued life, medical and disability
coverage substantially identical to the coverage maintained by the Bank or
Holding Company for Executive prior to his severance, except to the extent such
coverage may be changed in its application to all Bank or Holding Company
employees on a nondiscriminatory basis. Such coverage and payments shall cease
upon the expiration of thirty-six (36) full calendar months from the Date of
Termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in no event
shall the aggregate payments or benefits to be made or afforded to Executive
under said paragraphs (the "Termination Benefits") constitute an "excess
parachute payment" under Section 280G of the
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<PAGE>
Code or any successor thereto, and in order to avoid such a result Termination
Benefits will be reduced, if necessary, to an amount (the "Non-Triggering
Amount"), the value of which is one dollar ($1.00) less than an amount equal to
three (3) times Executive's "base amount," as determined in accordance with said
Section 280G. The allocation of the reduction required hereby among the
Termination Benefits provided by the preceding paragraphs of this Section 3
shall be determined by Executive.
4. NOTICE OF TERMINATION.
---------------------
(a) Any purported termination by the Bank or by Executive in connection
with a Change in Control shall be communicated by Notice of Termination to the
other party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a written notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the instance of Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute in connection with a Change in
Control, in the event the Executive is terminated for reasons other than
Termination for Cause, the Bank will continue to pay Executive his full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to his annual salary) and continue him as a
participant in all compensation, benefit and insurance plans in which he was
participating when the notice of dispute was given, until the earlier of: (1)
the resolution of the dispute in accordance with this Agreement or (2) the
expiration of the remaining term of this Agreement as determined as of the Date
of Termination.
5. SOURCE OF PAYMENTS.
------------------
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Bank.
Further, the Holding Company guarantees such payment and provision of all
amounts and benefits due hereunder to Executive
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<PAGE>
and, if such amounts and benefits due from the Bank are not timely paid or
provided by the Bank, such amounts and benefits shall be paid or provided by the
Holding Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
-----------------------------------------------------
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the Bank and Executive, except that
this Agreement shall not affect or operate to reduce any benefit or compensation
inuring to Executive of a kind elsewhere provided. No provision of this
Agreement shall be interpreted to mean that Executive is subject to receiving
fewer benefits than those available to him without reference to this Agreement.
Nothing in this Agreement shall confer upon Executive the right to continue
in the employ of Bank or shall impose on the Bank any obligation to employ or
retain Executive in its employ for any period.
7. NO ATTACHMENT.
-------------
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Bank and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
-----------------------
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
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<PAGE>
9. REQUIRED REGULATORY PROVISIONS.
------------------------------
(a) The board of directors may terminate Executive's employment at any
time, but any termination by the board of directors, other than Termination for
Cause, shall not prejudice Executive's right to compensation or other benefits
under this Agreement. Executive shall not have the right to receive
compensation or other benefits for any period after Termination for Cause as
defined in Section 2 hereinabove.
(b) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act (12 U.S.C.
(s)1818(e)(3) or (g)(1)), the Bank's obligations under this contract shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion (i)
pay Executive all or part of the compensation withheld while their contract
obligations were suspended and (ii) reinstate (in whole or in part) any of the
obligations which were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act (12 U.S.C.
(s)1818(c)(4) or (g)(1)), all obligations of the Bank under this contract shall
terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Bank is in default as defined in Section 3(x)(1) of the Federal
Deposit Insurance Act, all obligations of the Bank under this contract shall
terminate as of the date of default, but this paragraph shall not affect any
vested rights of the contracting parties.
(e) All obligations under this contract shall be terminated, except to the
extent determined that continuation of the contract is necessary for the
continued operation of the institution: (i) by the Director of the Office of
Thrift Supervision (or his or her designee) at the time the Federal Deposit
Insurance Corporation enters into an agreement to provide assistance to or on
behalf of the Bank under the authority contained in Section 13(c) of the Federal
Deposit Insurance Act; or (ii) by the Director of the Office of Thrift
Supervision (or his or her designee) at the time the Director (or his or her
designee) approves a supervisory merger to resolve problems related to operation
of the Bank or when the Bank is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested, however,
shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(s)1828(k) and any rules and regulations promulgated thereunder.
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<PAGE>
10. REINSTATEMENT OF BENEFITS UNDER SECTION 9(b).
--------------------------------------------
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 9(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Bank will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 3 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
11. SEVERABILITY.
------------
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
12. HEADINGS FOR REFERENCE ONLY.
---------------------------
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement. In addition, references to the
masculine shall apply equally to the feminine.
13. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of New Jersey but only to
the extent not preempted by Federal law.
14. ARBITRATION.
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Bank's main office, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement, other
than in the case of a Termination for Cause.
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<PAGE>
15. PAYMENT OF COSTS AND LEGAL FEES.
-------------------------------
All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Bank (which payments are guaranteed by the Holding
Company pursuant to Section 5 hereof) if Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement.
16. INDEMNIFICATION.
---------------
The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, and shall indemnify Executive (and
his heirs, executors and administrators) to the fullest extent permitted under
New Jersey law against all expenses and liabilities reasonably incurred by him
in connection with or arising out of any action, suit or proceeding in which he
may be involved by reason of his having been a director or officer of the Bank
(whether or not he continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
17. SUCCESSOR TO THE BANK
---------------------
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's obligations under this
Agreement, in the same manner and to the same extent that the Bank would be
required to perform if no such succession or assignment had taken place.
-8-
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, First Savings Bank, SLA and First Source Bancorp, Inc.
have caused this Agreement to be executed by their duly authorized officers, and
Executive has signed this Agreement, on the _____ day of __________, 199_ .
ATTEST: FIRST SAVINGS BANK, SLA
_______________________________ By: ___________________________
Secretary Officer
SEAL
ATTEST: FIRST SOURCE BANCORP, INC.
(Guarantor)
______________________________ By: ___________________________
Secretary Officer
SEAL
WITNESS:
______________________________ _______________________________
Executive
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<PAGE>
Exhibit 10.13
FORM OF
FIRST SOURCE BANCORP, INC.
THREE YEAR CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of _____________, 199_, by and between
First Source Bancorp, Inc. (the "Holding Company"), a corporation organized
under the laws of the State of Delaware, with its office at 1000 Woodbridge
Center Drive, Woodbridge, New Jersey, and _________________ ("Executive"). The
term "Bank" refers to First Savings Bank, SLA, the wholly-owned subsidiary of
the Holding Company or any successor thereto.
WHEREAS, the Holding Company recognizes the substantial contribution
Executive has made to the Holding Company and wishes to protect his position
therewith for the period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Holding Company
or an affiliate thereof.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
-----------------
The period of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of thirty-six (36)
full calendar months thereafter. Commencing on the date of the execution of
this Agreement, the term of this Agreement shall be extended for one day each
day until such time as the board of directors of the Holding Company (the
"Board") or Executive elects not to extend the term of the Agreement by giving
written notice to the other party in accordance with Section 8 of this
Agreement, in which case the term of this Agreement shall be fixed and shall end
on the third anniversary of the date of such written notice.
2. CHANGE IN CONTROL.
-----------------
(a) Upon the occurrence of a Change in Control of the Holding Company (as
herein defined) followed at any time during the term of this Agreement by the
termination of Executive's employment, the provisions of Section 3 shall apply.
Upon the occurrence of a Change in Control, Executive shall have the right to
elect to voluntarily terminate his employment at any time during the term of
this Agreement following any demotion, loss of title, office or significant
authority, reduction in annual compensation or material reduction in benefits,
or relocation of his principal place of employment by more than 25 miles from
its location immediately prior to the Change in Control, unless such termination
is because of death or termination for cause.
<PAGE>
(b) For purposes of this Agreement, a "Change in Control" of the Bank or
Holding Company shall mean an event of a nature that: (i) would be required to
be reported in response to Item 1(a) of the Current Report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in
Control of the Bank or the Holding Company within the meaning of the Home
Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance Act, or the
Rules and Regulations promulgated by the Office of Thrift Supervision ("OTS")
(or its predecessor agency), as in effect on the date hereof (provided, that in
applying the definition of change in control as set forth under the rules and
regulations of the OTS, the Board shall substitute its judgment for that of the
OTS); or (iii) without limitation such a Change in Control shall be deemed to
have occurred at such time as (A) any "person" (as the term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of voting
securities of the Bank or the Holding Company representing 20% or more of the
Bank's or the Holding Company's outstanding voting securities except for any
voting securities of the Bank purchased by the Holding Company in connection
with the conversion of the Bank to the stock form and any voting securities
purchased by any employee benefit plan of the Bank, or (B) individuals who
constitute the Board on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was approved by
a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Holding Company's stockholders
was approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (B), considered as though he were a member
of the Incumbent Board, or (C) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the Holding Company
or similar transaction occurs in which the Bank or Holding Company is not the
resulting entity; provided, however, that such an event listed above will be
deemed to have occurred or to have been effectuated upon the receipt of all
required federal regulatory approvals not including the lapse of any statutory
waiting periods, or (D) a proxy statement is distributed soliciting proxies from
stockholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or Bank with one
or more corporations as a result of which the outstanding shares of the class of
securities then subject to such plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Bank or the
Holding Company shall be distributed, or (E) a tender offer is made for 20% or
more of the voting securities of the Bank or Holding Company then outstanding.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of a material loss to the Holding
Company or one of its Subsidiaries caused by Executive's intentional failure to
perform stated duties, personal dishonesty, willful violation of any law, rule,
regulation (other than traffic violations or similar offenses), final cease and
desist order, or any material breach of this Agreement. Notwithstanding the
foregoing, Executive shall not be deemed to have been Terminated for Cause
unless and until there shall have been
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delivered to him a copy of a resolution duly adopted by the affirmative vote of
not less than three-fourths of the members of the Board at a meeting of the
Board called and held for that purpose (after reasonable notice to Executive and
an opportunity for him, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, Executive was guilty of
conduct justifying Termination for Cause and specifying the particulars thereof
in detail. Executive shall not have the right to receive compensation or other
benefits for any period after Termination for Cause. During the period beginning
on the date of the Notice of Termination for Cause pursuant to Section 8 hereof
through the Date of Termination, stock options and related limited rights
granted to Executive under any stock option plan shall not be exercisable nor
shall any unvested awards granted to Executive under any stock benefit plan of
the Bank, the Holding Company or any subsidiary or affiliate thereof, vest. At
the Date of Termination, such stock options and related limited rights and any
such unvested awards, shall become null and void and shall not be exercisable by
or delivered to Executive at any time subsequent to such Termination For Cause.
3. TERMINATION BENEFITS.
--------------------
(a) Upon the occurrence of a Change in Control, followed at any time during
the term of this Agreement by the voluntary or involuntary termination of
Executive's employment, other than for Termination for Cause, the Holding
Company shall be obligated to pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, a
sum equal to three (3) times Executive's average annual compensation for the
five most recent taxable years that Executive has been employed by the Bank or
such lesser number of years in the event that Executive shall have been employed
by the Bank for less than five years. Such annual compensation shall include
Base Salary, commissions, bonuses, contributions on behalf of Executive to any
pension and profit sharing plan, severance payments, director or committee fees
and fringe benefits paid or to be paid to the Executive during such years. At
the election of Executive which election is to be made prior to a Change in
Control, such payment shall be made in a lump sum. In the event that no
election is made, payment to Executive will be made on a monthly basis in
approximately equal installments during the remaining term of this Agreement.
Such payments shall not be reduced in the event Executive obtains other
employment following termination of employment.
(b) Upon the occurrence of a Change in Control of the Bank or the Holding
Company followed at any time during the term of this Agreement by Executive's
termination of employment, other than for Termination for Cause, the Holding
Company shall cause to be continued life, medical and disability coverage
substantially identical to the coverage maintained by the Bank for Executive
prior to his severance, except to the extent such coverage may be changed in its
application to all Bank employees. Such coverage and payments shall cease upon
expiration of thirty-six (36) full calendar months following the Date of
Termination.
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(c) Notwithstanding the preceding paragraphs of this Section 3, in the
event that:
(i) the aggregate payments or benefits to be made or afforded to
Executive, which are deemed to be parachute payments as defined
in Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code") or any successor thereof, (the "Termination
Benefits") would be deemed to include an "excess parachute
payment" under Section 280G of the Code; and
(ii) if such Termination Benefits were reduced to an amount (the "Non-
Triggering Amount"), the value of which is one dollar ($1.00)
less than an amount equal to three (3) times Executive's "base
amount," as determined in accordance with said Section 280G and
the Non-Triggering Amount less the product of the marginal rate
of any applicable state and federal income tax and the Non
Triggering Amount would be greater than the aggregate value of
the Termination Benefits (without such reduction) minus (i) the
amount of tax required to be paid by the Executive thereon by
Section 4999 of the Code and further minus (ii) the product of
the Termination Benefits and the marginal rate of any applicable
state and federal income tax,
then the Termination Benefits shall be reduced to the Non-Triggering
Amount. The allocation of the reduction required hereby among the Termination
Benefits shall be determined by the Executive.
4. NOTICE OF TERMINATION.
---------------------
(a) Any purported termination by the Holding Company, or by Executive
shall be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of Termination for Cause, shall not be less than
thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom
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having expired and no appeal having been perfected) and provided further that
the Date of Termination shall be extended by a notice of dispute only if such
notice is given in good faith and the party giving such notice pursues the
resolution of such dispute with reasonable diligence. Notwithstanding the
pendency of any such dispute, the Holding Company will continue to pay Executive
his full compensation in effect when the notice giving rise to the dispute was
given (including, but not limited to his current annual salary) and continue him
as a participant in all compensation, benefit and insurance plans in which he
was participating when the notice of dispute was given, until the dispute is
finally resolved in accordance with this Agreement. Amounts paid under this
Section 4(c) are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement.
5. SOURCE OF PAYMENTS.
------------------
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Holding
Company. Further, the Holding Company guarantees such payment and provision of
all amounts and benefits due hereunder to Executive and, if such amount and
benefits due from the Bank are not timely paid or provided by the Bank, such
amounts and benefits shall be paid and provided by the Holding Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
-----------------------------------------------------
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the Holding Company and Executive,
except that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to Executive of a kind elsewhere provided. No provision of
this Agreement shall be interpreted to mean that Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
Nothing in this Agreement shall confer upon Executive the right to continue
in the employ of the Holding Company or shall impose on the Holding Company any
obligation to employ or retain Executive in its employ for any period.
7. NO ATTACHMENT.
-------------
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Holding Company and their respective successors and assigns.
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8. MODIFICATION AND WAIVER.
-----------------------
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
9. REINSTATEMENT OF BENEFITS UNDER BANK AGREEMENT.
----------------------------------------------
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 9(b) of the Change-in-Control Agreement between Executive and the Bank
dated _____________, 199_ (the "Bank Agreement") during the term of this
Agreement and a Change in Control, as defined herein, occurs the Holding Company
will assume its obligation to pay and Executive will be entitled to receive all
of the termination benefits provided for under Section 3 of the Bank Agreement
upon the notification of the Holding Company of the Bank's receipt of a
dismissal of charges in the Notice.
10. EFFECT OF ACTION UNDER BANK AGREEMENT.
--------------------------------------
Notwithstanding any provision herein to the contrary, to the extent that
payments and benefits are paid to or received by Executive under the Bank
Agreement between Executive and Bank, the amount of such payments and benefits
paid by the Bank will be subtracted from any amount due simultaneously to
Executive under similar provisions of this Agreement.
11. SEVERABILITY.
-------------
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
12. HEADINGS FOR REFERENCE ONLY.
---------------------------
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement. In addition, references herein to the
masculine shall apply to both the masculine and the feminine.
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<PAGE>
13. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Delaware.
14. ARBITRATION.
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Holding Company, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
15. PAYMENT OF LEGAL FEES.
---------------------
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company if Executive is successful pursuant to a
legal judgment, arbitration or settlement.
16. INDEMNIFICATION.
---------------
(a) The Holding Company shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense, and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law and as provided in the Holding Company's
certificate of incorporation against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are subject to
and conditioned upon compliance with 12 U.S.C. Section 1828(k) and 12 C.F.R.
Part 359 and any rules or regulations promulgated thereunder.
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<PAGE>
17. SUCCESSOR TO THE HOLDING COMPANY.
--------------------------------
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Holding Company,
expressly and unconditionally to assume and agree to perform the Holding
Company's obligations under this Agreement, in the same manner and to the same
extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
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<PAGE>
SIGNATURES
IN WITNESS WHEREOF, First Source Bancorp, Inc. has caused this Agreement to
be executed by its duly authorized officer, and Executive has signed this
Agreement, on the _____ day of _________________, 1997.
ATTEST: FIRST SOURCE BANCORP, INC.
______________________________ By: ____________________________
Secretary Officer
WITNESS:
______________________________ _________________________________
Executive
Seal
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<PAGE>
EXHIBIT 10.14
FORM OF
FIRST SAVINGS BANK, SLA
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of the First Savings Bank, SLA Employee Severance Compensation
Plan is to assure for First Savings Bank, SLA (the "Bank") the services of
Employees of the Bank in the event of a Change in Control (capitalized terms are
defined in section 2.1) of the First Source Bancorp, Inc. (the "Holding
Company") or the Bank. The benefits contemplated by the Plan recognize the
value to the Bank of the services and contributions of the Employees of the Bank
and the effect upon the Bank resulting from the uncertainties of continued
employment, reduced Employee benefits, management changes and relocations that
may arise in the event of a Change in Control of the Bank or the Holding
Company. The Bank's and the Holding Company's Boards of Directors believe that
it is in the best interests of the Bank and the Holding Company to provide
Employees of the Bank who have been with the Bank for a minimum of five years
with such benefits in order to defray the costs and changes in Employee status
that could follow a Change in Control. The Board of Directors believes that the
Plan will also aid the Bank in attracting and retaining highly qualified
individuals who are essential to its success and the Plan's assurance of fair
treatment of the Bank's Employees will reduce the distractions and other adverse
effects on Employees' performance in the event of a Change in Control.
ARTICLE I
ESTABLISHMENT OF PLAN
1.1 Establishment of Plan
---------------------
As of the Effective Date of the Plan as defined herein, the Bank hereby
establishes an employee severance compensation plan to be known as the "First
Savings Bank, SLA Employee Severance Compensation Plan." The purposes of the
Plan are as set forth above.
1.2 Applicability of Plan
---------------------
The benefits provided by this Plan shall be available to all Employees of
the Bank, who, at or after the Effective Date, meet the eligibility requirements
of Article III, except for those executive officers who have entered into, or
who enter into in the future, and continue to be subject to an employment or
change in control agreement with the Employer.
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1.3 Contractual Right to Benefits
-----------------------------
This Plan establishes and vests in each Participant a contractual right to
the benefits to which each Participant is entitled hereunder, enforceable by the
Participant against the Employer, Bank, or both.
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions
-----------
Whenever used in the Plan, the following terms shall have the meanings set
forth below.
(a) "Annual Compensation" of a Participant means and includes all wages,
salary, bonus, and cash compensation, if any, paid (including accrued amounts)
by an Employer as consideration for the Participant's service during the 12
months ended the date as of which Annual Compensation is to be determined, which
are or would be includable in the gross income of the Participant receiving the
same for federal income tax purposes.
(b) "Bank" means First Savings Bank, SLA or any successor as provided for
in Article VII hereof.
(c) "Change in Control" shall mean an event of a nature that: (i) would be
required to be reported in response to Item 1(a) of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Holding Company within the meaning of the
Change in Bank Control Act and the Rules and Regulations promulgated by the
Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R. (S) 303.4(a) with
respect to the Bank and the Board of Governors of the Federal Reserve System
("FRB") at 12 C.F.R. (S)225.41(b) with respect to the Holding Company, as in
effect on the date hereof; or (iii) results in a transaction requiring prior FRB
approval under the Bank Holding Company Act of 1956 and the regulations
promulgated thereunder by the FRB at 12 C.F.R. (S) 225.11, as in effect on the
date hereof except for the Holding Company's acquisition of the Bank; or (iv)
without limitation such a Change in Control shall be deemed to have occurred at
such time as (A) any "person" (as the term is used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the Bank
or the Holding Company representing 20% or more of the Bank's or the Holding
Company's outstanding securities except for any securities of the Bank purchased
by the Holding Company in connection with the conversion of the Bank to the
stock form and any securities purchased by any tax qualified employee benefit
plan of the Bank; or (B) individuals who constitute the Board of Directors on
the date hereof (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the date hereof whose election was approved by a vote of at least
three-quarters of
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the directors comprising the Incumbent Board, or whose nomination for election
by the Holding Company's stockholders was approved by the same Nominating
Committee serving under an Incumbent Board, shall be, for purposes of this
clause (B), considered as though he were a member of the Incumbent Board; or (C)
a plan of reorganization, merger, consolidation, sale of all or substantially
all the assets of the Bank or the Holding Company or similar transaction occurs
in which the Bank or Holding Company is not the resulting entity; or (D)
solicitations of shareholders of the Holding Company, by someone other than the
current management of the Holding Company, seeking stockholder approval of a
plan of reorganization, merger or consolidation of the Holding Company or Bank
or similar transaction with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to the plan or
transaction are exchanged for or converted into cash or property or securities
not issued by the Bank or the Holding Company shall be distributed; or (E) a
tender offer is made for 20% or more of the voting securities of the Bank or the
Holding Company.
(d) "Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of an employee to perform the work
customarily assigned to him . Additionally, a medical doctor selected or
approved by the Board of Directors must advise the Board that it is either not
possible to determine if or when such Disability will terminate or that it
appears probable that such Disability will be permanent during the remainder of
said employees lifetime.
(e) "Effective Date" means the date the Plan is approved by the Board of
Directors of the Bank, or such other date as the Board shall designate in its
resolution approving the Plan.
(f) "Employee" means any full-time Employee of the Bank or any subsidiary
thereof who has completed at least one year of service with the Bank, or any
subsidiary thereof, provided, however, that any Employee who is covered or
hereinafter becomes covered by an employment contract or change in control
agreement with the Employer shall not be considered to be an Employee for
purposes of this Plan.
(g) "Expiration Date" means a date ten (10) years from the Effective Date
unless earlier terminated pursuant to Section 8.2 or extended pursuant to
Section 8.1.
(h) "Employer" means the Bank or a subsidiary of the Bank or a parent of
the Bank which has adopted the Plan pursuant to Article VI hereof.
(i) "Just Cause" shall mean termination because of Participant's personal
dishonesty, incompetence, willful misconduct, any breach of fiduciary duty
involving personal profit, intentional failure or unjustified neglect to perform
stated duties, conviction of or pleading guilty or nolo contendere to any crime
or offense punishable as a felony or to any crime or offense involving moral
turpitude, or violation of any final cease-and desist order. In determining
incompetence, the acts or omissions shall be measured against standards
generally prevailing in the savings institutions industry.
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<PAGE>
(j) "Leave of Absence" and "LOA" mean (i) the taking of an authorized or
approved leave of absence under the provisions of the federal Family and Medical
Leave Act ("FMLA"), (ii) any state law providing qualitatively similar benefits
as the FMLA, or (iii) a leave of absence authorized under the policies of the
Bank. "Leave of Absence" and "LOA" are defined in this paragraph for the
exclusive purposes of this Plan.
(k) "Payment" means the payment of severance compensation as provided in
Article IV hereof.
(l) "Participant" means an Employee who meets the eligibility requirements
of Article III.
(m) "Plan" means First Savings Bank, SLA Employee Severance Compensation
Plan.
(n) "Year of Service" means each consecutive 12 month period, beginning
with an Employee's date of hire and running without a termination of employment
in which an Employee is credited with at least one hour of service in each of
the 12 calendar months in such period. The taking of a LOA shall not eliminate
a period of time from being a Year of Service if such period of time otherwise
qualifies as such. Further if a particular 12 month period of time would not
otherwise qualify under the Plan as a Year of Service because one hour of
service is not credited during each month of such period due to the taking of a
LOA, then such period of time shall be deemed to be a Year of Service for all
other sections of this Plan.
2.2 Applicable Law
--------------
The laws of the State of New Jersey shall be the controlling law in all
matters relating to the Plan to the extent not preempted by Federal law.
2.3 Severability
------------
If a provision of this Plan shall be held illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of the Plan and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
ARTICLE III
ELIGIBILITY
3.1 Participation
-------------
The term Participant shall include all Employees of the Bank who have
completed at least one (1) Year of Service with the Bank at the time of any
termination pursuant to Section 4.2
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herein. Notwithstanding the foregoing, persons who have entered into and
continue to be covered by an employment contract or change in control agreement
with the Employer shall not be entitled to participate in this Plan.
3.2 Duration of Participation
-------------------------
A Participant shall cease to be a Participant in the Plan when the
Participant ceases to be an Employee of an Employer, unless such Participant is
entitled to a Payment as provided in the Plan. A Participant entitled to
receipt of a Payment shall remain a Participant in this Plan until the full
amount of such Payment has been paid to the Participant.
ARTICLE IV
PAYMENTS
4.1 Right to Payment
----------------
A Participant shall be entitled to receive from its respective Employer a
Payment in the amount provided in Section 4.3 if there has been a Change in
Control of the Bank or the Holding Company and if, within one (1) year
thereafter, the Participant's employment by an Employer shall terminate for any
reason specified in Section 4.2, whether the termination is voluntary or
involuntary. A Participant shall not be entitled to a Payment if termination
occurs by reason of death, voluntary retirement, voluntary termination other
than for reasons specified in Section 4.2, Disability, or for Just Cause.
4.2 Reasons for Termination
-----------------------
Following a Change in Control, a Participant shall be entitled to a Payment
if employment by an Employer is terminated, voluntarily or involuntarily, for
any one or more of the following reasons:
(a) The Employer reduces the Participant's base salary or rate of
compensation as in effect immediately prior to the Change in Control.
(b) The Employer materially changes Participant's function, duties or
responsibilities which would cause Participant's position to be one of lesser
responsibility, importance or scope with the Employer than immediately prior to
the change in control.
(c) The Employer requires the Participant to change the location of
the Participant's job or office, so that such Participant will be based at a
location more than thirty (30) miles from the location of the Participant's job
or office immediately prior to the Change in Control provided that such new
location is not closer to Participant's home.
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<PAGE>
(d) The Employer materially reduces the benefits and perquisites
available to the Participant immediately prior to the Change in Control,
provided, however, that a material reduction in benefits and perquisites
generally provided to all Employees of the Bank on a nondiscriminatory basis
would not trigger a payment pursuant to this Plan.
(e) A successor to the Bank fails or refuses to assume the Bank's
obligations under this Plan, as required by Article VII.
(f) The Bank or any successor to the Bank breaches any other
provisions of this Plan.
(g) The Employer terminates the employment of a Participant at or
after a Change in Control other than for Just Cause.
4.3 Amount of Payment
-----------------
(a) Each Participant entitled to a Payment under this Plan shall
receive from the Bank, a lump sum cash payment equal to one-twelfth of Annual
Compensation for each year of service up to a maximum of 100% of Annual
Compensation.
(b) Notwithstanding the provisions of (a) above, if a Payment to a
Participant who is a Disqualified Individual shall be in an amount which
includes an Excess Parachute Payment, the Payment hereunder to that Participant
shall be reduced to the maximum amount which does not include an Excess
Parachute Payment. The terms "Disqualified Individual" and "Excess Parachute
Payment" shall have the same meaning as defined in Section 280G of the Internal
Revenue Code of 1986, as amended, or any successor section thereof.
The Participant shall not be required to mitigate damages on the amount of
the Payment by seeking other employment or otherwise, nor shall the amount of
such Payment be reduced by any compensation earned by the Participant as a
result of employment after termination of employment hereunder.
4.4 Time of Payment
---------------
The Payment to which a Participant is entitled shall be paid to the
Participant by the Employer or the successor to the Employer, in cash and in
full, not later than twenty (20) business days after the termination of the
Participant's employment. If any Participant should die after termination of
the employment but before all amounts have been paid, such unpaid amounts shall
be paid to the Participant's named beneficiary, if living, otherwise to the
personal representative on behalf of or for the benefit of the Participant's
estate.
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ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Other Benefits
--------------
Neither the provisions of this Plan nor the Payment provided for hereunder
shall reduce any amounts otherwise payable, or in any way diminish the
Participant's rights as an Employee of an Employer, whether existing now or
hereafter, under any benefit, incentive, retirement, stock option, stock bonus,
stock ownership or any employment agreement or other plan or arrangement.
5.2 Employment Status
-----------------
This Plan does not constitute a contract of employment or impose on the
Participant or the Participant's Employer any obligation to retain the
Participant as an Employee, to change the status of the Participant's
employment, or to change the Employer's policies regarding termination of
employment.
ARTICLE VI
PARTICIPATING EMPLOYERS
6.1 Upon approval by the Board of Directors of the Bank, this Plan may be
adopted by any Subsidiary or Parent of the Bank. Upon such adoption, the
Subsidiary or Parent shall become an Employer hereunder and the provisions of
the Plan shall be fully applicable to the Employees of that Subsidiary or
Parent. The term "Subsidiary" means any corporation in which the Bank, directly
or indirectly, holds a majority of the voting power of its outstanding shares of
capital stock. The term "Parent" means any corporation which holds a majority
of the voting power of the Bank's outstanding shares of capital stock.
ARTICLE VII
SUCCESSOR TO THE BANK
7.1 The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's obligations under this
plan, in the same manner and to the same extent that the Bank would be required
to perform if no such succession or assignment had taken place.
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<PAGE>
ARTICLE VIII
DURATION, AMENDMENT AND TERMINATION
8.1 Duration
--------
If a Change in Control has not occurred, this Plan shall expire as of the
Expiration Date, unless sooner terminated as provided in Section 8.2, or unless
extended for an additional period or periods by resolution adopted by the Board
of Directors of the Bank.
Notwithstanding the foregoing, if a Change in Control occurs this Plan
shall continue in full force and effect, and shall not terminate or expire until
such date as all Participants who become entitled to Payments hereunder shall
have received such Payments in full.
8.2 Amendment and Termination
-------------------------
The Plan may be terminated or amended in any respect by resolution adopted
by a majority of the Board of Directors of the Bank, unless a Change in Control
has previously occurred. If a Change in Control occurs, the Plan no longer
shall be subject to amendment, change, substitution, deletion, revocation or
termination in any respect whatsoever.
8.3 Form of Amendment
-----------------
The form of any proper amendment or termination of the Plan shall be a
written instrument signed by a duly authorized officer or officers of the Bank,
certifying that the amendment or termination has been approved by the Board of
Directors. A proper amendment of the Plan automatically shall effect a
corresponding amendment to each Participant's rights hereunder. A proper
termination of the Plan automatically shall effect a termination of all
Participants' rights and benefits hereunder.
8.4 No Attachment
-------------
(a) Except as required by law, no right to receive payments under
this Plan shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect such action shall be null, void,
and of no effect.
(b) This Plan shall be binding upon, and inure to the benefit of,
Employee and the Bank and their respective successors and assigns.
-9-
<PAGE>
ARTICLE IX
LEGAL FEES AND EXPENSES
9.1 All reasonable legal fees and other expenses paid or incurred by a
party hereto pursuant to any dispute or question of interpretation relating to
this Plan shall be paid or reimbursed by the prevailing party in any legal
judgment, arbitration or settlement.
ARTICLE X
REQUIRED PROVISIONS
10.1 The Bank may terminate the Employee's employment at any time, but any
termination by the Bank, other than Termination for Cause, shall not prejudice
Employee's right to compensation or other benefits under this Agreement.
Employee shall not have the right to receive compensation or other benefits for
any period after termination for Just Cause as defined in Section 2.1
hereinabove.
10.2 If the Employee is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. (S)
1818(e)(3) or (g)(1), the Bank's obligations under this contract shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion (i)
pay the Employee all or part of the compensation withheld while their contract
obligations were suspended and (ii) reinstate (in whole or in part) any of the
obligations which were suspended.
10.3 If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(4) or (g)(1), all obligations of the Bank under this contract shall
terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
10.4 If the Bank is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. (S)1813(x)(1), all obligations of the
Bank under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
ARTICLE XI
ADMINISTRATIVE PROVISIONS
11.1 Plan Administrator. The administrator of the Plan shall be under the
-------------------
supervision of the Board of Directors of the Bank or a Committee appointed by
the Board (the "Board"). It shall be a principal duty of the Board to see that
the Plan is carried out in accordance with its
-10-
<PAGE>
terms, for the exclusive benefit of persons entitled to participate in the Plan
without discrimination among them. The Board will have full power to administer
the Plan in all of its details subject, however, to the requirements of ERISA.
For this purpose, the Board's powers will include, but will not be limited to,
the following authority, in addition to all other powers provided by this Plan:
(a) to make and enforce such rules and regulations as it deems necessary or
proper for the efficient administration of the Plan; (b) to interpret the Plan,
its interpretation thereof in good faith to be final and conclusive on all
persons claiming benefits under the Plan; (c) to decide all questions concerning
the Plan and the eligibility of any person to participate in the Plan; (d) to
compute the amount of Payment that will be payable to any Participant or other
person in accordance with the provisions of the Plan, and to determine the
person or persons to whom such benefits will be paid; (e) to authorize Payments;
(f) to appoint such agents, counsel, accountants, consultants and actuaries as
may be required to assist in administering the Plan; and (g) to allocate and
delegate its responsibilities under the Plan and to designate other persons to
carry out any of its responsibilities under the Plan, any such allocation,
delegation or designation to be by written instrument and in accordance with
Section 405 of ERISA.
11.2 Named fiduciary. The Board will be a "named fiduciary" for purposes
----------------
of Section 402(a)(1) of ERISA with authority to control and manage the operation
and administration of the Plan, and will be responsible for complying with all
of the reporting and disclosure requirements of Part 1 of Subtitle B of Title I
of ERISA.
11.3 Claims and review procedures.
-----------------------------
(a) Claims procedure. If any person believes he is being denied any
-----------------
rights or benefits under the Plan, such person may file a claim in writing with
the Board. If any such claim is wholly or partially denied, the Board will
notify such person of its decision in writing. Such notification will be
written in a manner calculated to be understood by such person and will contain
(i) specific reasons for the denial, (ii) specific reference to pertinent Plan
provisions, (iii) a description of any additional material or information
necessary for such person to perfect such claim and an explanation of why such
material or information is necessary and (iv) information as to the steps to be
taken if the person wishes to submit a request for review. Such notification
will be given within 90 days after the claim is received by the Board (or within
180 days, if special circumstances require an extension of time for processing
the claim, and if written notice of such extension and circumstances is given to
such person within the initial 90 day period). If such notification is not
given within such period, the claim will be considered denied as of the last day
of such period and such person may request a review of his claim.
(b) Review procedure. Within 60 days after the date on which a
-----------------
person receives a written notice of a denied claim (or, if applicable, within 60
days after the date on which such denial is considered to have occurred) such
person (or his duly authorized representative) may (i) file a written request
with the Board for a review of his denied claim and of pertinent documents and
(ii) submit written issues and comments to the Board. The Board will notify such
person of its decision in writing. Such notification will be written in a manner
-11-
<PAGE>
calculated to be understood by such person and will contain specific reasons for
the decision as well as specific references to pertinent Plan provisions. The
decision on review will be made within 60 days after the request for review is
received by the Board (or within 120 days, if special circumstances require an
extension of time for processing the requests such as an election by the Board
to hold a hearing, and if written notice of such extension and circumstances is
given to such person within the initial 60 day period). If the decision on
review is not made within such period, the claim will be considered denied.
11.4 Nondiscriminatory exercise of authority. Whenever, in the
----------------------------------------
administration of the Plan, any discretionary action by the Board is required,
the Board shall exercise its authority in a nondiscriminatory manner so that all
persons similarly situated will receive substantially the same treatment.
11.5 Indemnification of Board. The Bank will indemnify and defend to the
-------------------------
fullest extent permitted by law any person serving on the Board or as a member
of a committee designated as Board (including any person who formerly served as
a Board member or as a member of such committee) against all liabilities,
damages, costs and expenses (including attorneys fees and amounts paid in
settlement of any claims approved by the Bank) occasioned by any act or omission
to act in connection with the Plan, if such act or omission is in good faith.
11.6 "Plan Year" means the period beginning on the Effective Date and
-----------
ending on _____________ and the 12 consecutive-month period ending each year
thereafter.
11.7 Benefits solely from general assets. The benefits provided hereunder
------------------------------------
will be paid solely from the general assets of the Bank. Nothing herein will be
construed to require the Bank or the Board to maintain any fund or segregate any
amount for the benefit of any Participant, and no Participant or other person
shall have any claim against, right to, or security or other interest in, any
fund, account or asset of the Bank from which any payment under the Plan may be
made.
Having been adopted by its Board of Directors on __________________, this Plan
is executed by its duly authorized officers this __th day of __________, 199__.
Attest FIRST SAVINGS BANK, SLA
______________________________ By: ___________________________
Secretary
-12-
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
First Savings Bank, SLA:
We consent to the use of our report dated January 27, 1997, relating to the
consolidated statements of financial condition of First Savings Bank, SLA, and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1996, included herein, and to the
reference to our firm under the heading "Experts," "Consolidated Statements of
Income," and "Selected Financial and Other Data" in the registration
statement/prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Short Hills, New Jersey
December 18, 1997
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
First Savings Bank, SLA:
We consent to the use of our report dated June 6, 1997, included herein,
relating to the statements of net assets available for plan benefits (with fund
information) of the Incentive Savings Plan for Employees of First Savings Bank,
SLA, as of December 31, 1996 and 1995, and the related statements of changes in
net assets available for plan benefits (with fund information) for years then
ended.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Short Hills, New Jersey
December 18, 1997
<PAGE>
Exhibit 23.2
CONSENT
We hereby consent to the references to this firm and our opinions in the
Registration Statement on Form S-1 filed by First Source Bancorp, Inc., and all
amendments thereto and the Application for Conversion on the Form AC filed by
First Savings Bancshares, MHC (the "MHC") and all amendments thereto, relating
to the conversion of the MHC and the reorganization of the MHC and First Savings
Bank, SLA (the "Bank"), the concurrent sale or exchange of the Bank's
outstanding capital stock to First Source Bancorp, Inc., a holding company
formed for such purpose, and the offering of First Source Bancorp, Inc.'s common
stock.
MULDOON, MURPHY & FAUCETTE
Dated this 19th day of
December, 1997
<PAGE>
Exhibit 23.3
[LETTERHEAD OF MORRIS, NICHOLS, ARSHT & TUNNELL]
December 16, 1997
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, DC 20016
Ladies and Gentlemen:
We hereby consent to the filing of our opinion to you concerning
certain matters of Delaware law in connection with the subscription and
community offering (the "Offering") by First Source Bancorp, Inc., a Delaware
corporation (the "Company"), of shares of its common stock, par value $.01 per
share, in draft or final form, as an exhibit to (i) the Registration Statement
filed with the Securities and Exchange Commission by the Company in connection
with the Offering, and all amendments thereto, and (ii) the Application for
Conversion filed with the Office of Thrift Supervision in connection with the
reorganization of First Savings Bank, SLA, (the "Bank"), and First Savings
Bancshares, MHC, the mutual holding company of the Bank, into a stock holding
company structure, and all amendments thereto, and to the reference to this firm
in the "Legal Matters" section of the Prospectus relating to the Offering.
Very truly yours,
/s/ Morris, Nichols, Arsht & Tunnell
<PAGE>
Exhibit 23.4
[LETTERHEAD OF FINPRO APPEARS HERE]
December 19, 1997
Board of Directors
First Savings Bank, SLA
1000 Woodbridge Avenue
Woodbridge, NJ 07095
Dear Board Members:
We hereby consent to the use of our firm's name, FinPro, Inc. ("FinPro") in the
Form S-1 Registration Statement and Amendments thereto of First Source Bancorp,
Inc. so filed with the Securities and Exchange Commission, the Form AC
Application for Conversion and the prospectus included therein filed by First
Savings Bancshares, M.H.C. and any amendments thereto, for the Valuation
Appraisal Report ("Report") regarding the valuation of First Savings Bank
provided by FinPro, and our opinion regarding subscription rights filed as
exhibits to the Form S-1 and Form AC referred to below. We also consent to the
use of our firm's name and the inclusion of, summary of and references to our
Report and Opinion in the prospectus included in the Form S-1, and any
amendments thereto.
Very Truly Yours,
/s/ Donald J. Musso
Donald J. Musso
Liberty Corner, New Jersey
December 19, 1997
<PAGE>
[LETTERHEAD OF FINPRO APPEARS HERE]
December 19, 1997
Board of Directors
First Savings Bank, SLA
1000 Woodbridge Avenue
Woodbridge, NJ 07095
Dear Board Members:
All capitalized terms not otherwise defined in this letter have the meanings
given such terms in the Plan of Conversion and Agreement and Plan of
Reorganization (the "Plan") adopted by the Board of Directors of First Savings,
SLA (the "Bank") and First Savings Bancshares, M.H.C. (the "MHC"), whereby the
Bank and the MHC will reorganize into the stock holding company structure form
of organization, and issue shares of Common Stock of a newly formed Delaware -
chartered holding company, First Source Bancorp, Inc. (the "Company") in a
Subscription and Community Offering.
We understand that in accordance with the Plan, Subscription Rights to purchase
shares of the Company's Common Stock are to be issued to (i) Eligible Account
Holders; (ii) the ESOP; (iii) Supplemental Eligible Account Holders; and (iv)
Other Members, collectively referred to as the "Recipients". Based solely on
our observation that the Subscription Rights will be available to such
Recipients without cost, will be legally non-transferable and of short duration,
and will afford the Recipients the right only to purchase shares of Common Stock
at the same price as will be paid by members of the general public in the
Selected Community Offering, but without undertaking any independent
investigation of state or federal law or the position of the Internal Revenue
Service with respect to this issue, we are of the opinion that:
(1) the Subscription Rights will have no ascertainable market value;
and
(2) the price at which the Subscription Rights are excercisable will
not be more or less than the pro forma market value of the shares
upon issuance.
Changes in the local and national economy, the legislative and regulatory
environment, the stock market, interest rates, and other external forces (such
as natural disasters or significant world events) may occur from time to time,
often with great unpredictability and may materially impact the value of thrift
stocks as a whole or the Bank's value alone. Accordingly, no assurance can be
given that persons who subscribe to shares of Common Stock in the offering will
thereafter be able to buy or sell such shares at the same price paid in the
Subscription Offering.
Very Truly Yours,
FinPro, Inc.
/s/ Donald J. Musso
Donald J. Musso
President
<PAGE>
Exhibit 24.1
CONFORMED
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints John P. Mulkerin and Christopher P. Martin as the
true and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any or all amendments to the Application for Conversion on
Form AC and the Form S-1 Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the Office
of Thrift Supervision or the U.S. Securities and Exchange Commission,
respectively, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and things requisite and
necessary to be done as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of Part 563b of the OTS Rules and Regulations
and the Securities Act of 1933, as amended, and any rules and regulations
promulgated thereunder, the foregoing Powers of Attorney prepared in conjunction
with the Application for Conversion on Form AC and the Form S-1 Registration
Statement have been duly signed by the following persons in the capacities and
on the dates indicated.
NAME DATE
---- ----
/s/ John P. Mulkerin December 19, 1997
- -----------------------------------------
John P. Mulkerin
President, Chief Executive Officer
and Director
(principal executive officer)
First Source Bancorp, Inc.
President, Chief Executive Officer, General Counsel
and Director
(principal executive officer)
First Savings Bank, SLA
/s/ Christopher P. Martin December 19, 1997
- -----------------------------------------
Christopher P. Martin
Executive Vice President,
Chief Financial Officer and Director
(principal financial and accounting officer)
First Source Bancorp, Inc.
Executive Vice President, Chief
Financial Officer and Chief Operating Officer
and Director
(principal accounting and financial officer)
First Savings Bank, SLA
<PAGE>
/s/ Walter K. Timpson December 19, 1997
- ----------------------------------------
Walter K. Timpson
Chairman of the Board
First Source Bancorp, Inc.
Chairman of the Board
First Savings Bank, SLA
/s/ Donald T. Akey, M.D. December 19, 1997
- ----------------------------------------
Donald T. Akey, M.D.
Director
First Source Bancorp, Inc.
Director
First Savings Bank, SLA
/s/ Harry F. Burke December 19, 1997
- ----------------------------------------
Harry F. Burke
Director
First Source Bancorp, Inc.
Director
First Savings Bank, SLA
/s/ Keith H. McLaughlin December 19, 1997
- ----------------------------------------
Keith H. McLaughlin
Director
First Source Bancorp, Inc.
Director
First Savings Bank, SLA
/s/ Philip T. Ruegger, Jr. December 19, 1997
- ----------------------------------------
Philip T. Ruegger, Jr.
Director
First Source Bancorp, Inc.
Director
First Savings Bank, SLA
/s/ Jeffries Shein December 19, 1997
- ----------------------------------------
Jeffries Shein
Director
First Source Bancorp, Inc.
Director
First Savings Bank, SLA
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,873
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 17,925
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 140,395
<INVESTMENTS-CARRYING> 277,162
<INVESTMENTS-MARKET> 280,820
<LOANS> 567,197
<ALLOWANCE> 5,982
<TOTAL-ASSETS> 1,044,513
<DEPOSITS> 809,449
<SHORT-TERM> 55,994
<LIABILITIES-OTHER> 11,386
<LONG-TERM> 68,471
0
0
<COMMON> 73
<OTHER-SE> 99,140
<TOTAL-LIABILITIES-AND-EQUITY> 1,044,513
<INTEREST-LOAN> 32,216
<INTEREST-INVEST> 22,420
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 54,636
<INTEREST-DEPOSIT> 25,467
<INTEREST-EXPENSE> 30,591
<INTEREST-INCOME-NET> 24,045
<LOAN-LOSSES> 900
<SECURITIES-GAINS> 593
<EXPENSE-OTHER> 14,581
<INCOME-PRETAX> 10,750
<INCOME-PRE-EXTRAORDINARY> 10,750
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,760
<EPS-PRIMARY> 0.84
<EPS-DILUTED> 0.84
<YIELD-ACTUAL> 3.25
<LOANS-NON> 3,561
<LOANS-PAST> 379
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,322
<CHARGE-OFFS> 240
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 5,982
<ALLOWANCE-DOMESTIC> 5,982
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
Exhibit 99.3
FIRST SAVINGS BANK, SLA
WOODBRIDGE, NEW JERSEY
__________________, 1998
Dear Shareholder:
You are invited to attend a special meeting of shareholders of First
Savings Bank, SLA, Woodbridge, New Jersey (the "Bank") on _________________,
1998 at _____ _.m., Eastern Time, at the main office of the Bank, 1000
Woodbridge Center Drive, Woodbridge, New Jersey (the "Special Meeting"). Only
shareholders of record of the Bank as of _______________, 1998, will be entitled
to vote at the Special Meeting.
At the Special Meeting, shareholders will be asked to approve a Plan of
Conversion and Agreement and Plan of Reorganization (the "Plan") adopted by the
Bank, whereby the Bank and First Savings Bancshares, MHC, the Bank's mutual
holding company (the "MHC"), will reorganize into a stock holding company
structure (the "Conversion"). In connection with the Conversion, First Source
Bancorp, Inc., the proposed new holding company of the Bank, will issue shares
of common stock to current shareholders of the Bank in exchange for shares of
the Bank's common stock and sell additional shares to the Bank's depositors and
borrowers and the public in a subscription and community offering. The
Conversion will not affect any deposit accounts or borrower relationships that
you may have with the Bank, and all deposits in the Bank will continue to be
insured by the Federal Deposit Insurance Corporation on the same terms up to the
applicable limits of insurance coverage.
It is very important for your shares to be represented at the Special
Meeting, regardless of whether you plan to attend in person. The affirmative
vote of two-thirds of the Bank's shares outstanding and the affirmative vote of
a majority of the Bank's shares present in person or by proxy (other than those
held by the MHC) is required to approve the Conversion. Consequently, a failure
to vote will have the same effect as a vote against the Conversion.
Accordingly, it is important that you take the time to consider and vote upon
these matters. I urge you to execute, date and return the enclosed proxy card
in the enclosed postage-paid envelope as soon as possible to ensure that your
shares will be voted at the Special Meeting.
YOUR VOTE IS IMPORTANT
The Board of Directors of the Bank has determined that the Conversion is in
the best interests of the Bank and its shareholders. The enclosed proxy
materials and prospectus for the stock of First Source Bancorp, Inc. contain a
more detailed analysis of the Conversion. For the reasons set forth in the
proxy statement and the prospectus the Board of Directors unanimously recommends
a vote FOR the Conversion. Thank you for taking the time to consider this
matter.
Sincerely,
John P. Mulkerin
President and Chief Executive Officer
First Savings Bank, SLA
<PAGE>
FIRST SAVINGS BANK, SLA
1000 WOODBRIDGE CENTER DRIVE
WOODBRIDGE, NEW JERSEY 07095
(732) 726-9700
____________________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ____________, 1998
NOTICE IS HEREBY GIVEN that a special meeting of shareholders (the "Special
Meeting of Shareholders") of First Savings Bank, SLA (the "Bank") will be held
at the main office of the Bank, 1000 Woodbridge Center Drive, Woodbridge, New
Jersey on ____________, 1998 at _______ _.m., Eastern Time, to consider and vote
upon:
1. The adoption of a Plan of Conversion and Agreement and Plan of
Reorganization (the "Plan of Conversion" or "Plan") providing for the
conversion of First Savings Bancshares, MHC, the mutual holding
company of the Bank (the "MHC"), to a stock form savings and loan
holding company, with the concurrent issuance and sale of all of the
Bank's outstanding common stock to First Source Bancorp, Inc., a
Delaware corporation (the "Company"), and the issuance and sale of the
Company's common stock to the public; and the other transactions
provided for in the Plan;
2. The authorization of the Board of Directors of the Bank, in its
discretion, to vote upon such other business as may properly come
before the Special Meeting of Shareholders and any adjournment or
postponement thereof, including, without limitation, a motion to
adjourn or postpone the Special Meeting of Shareholders to another
time or place for the purpose of soliciting additional proxies in
order to approve and adopt the Plan of Conversion or otherwise.
Note: Management is not aware of any such other business at this time.
The Board of Directors has fixed __________, 1998, as the record date (the
"Record Date") for the determination of shareholders entitled to notice of and
to vote at the Special Meeting of Shareholders and at any adjournment thereof.
Only holders of the Bank's common stock as of the close of business on the
Record Date will be entitled to vote at the Special Meeting of Shareholders or
any adjournment or postponement thereof. In the event there are not sufficient
votes to approve the foregoing proposal at the time of the Special Meeting of
Shareholders, the meeting may be adjourned in order to permit further
solicitation of proxies by the Bank. A list of shareholders entitled to vote at
the Special Meeting of Shareholders will be available for inspection at 1000
Woodbridge Center Drive, Woodbridge, New Jersey, for a period of twenty (20)
days prior to the Special Meeting of Shareholders and also will be available at
the Special Meeting of Shareholders.
The following Proxy Statement is a summary of information about the Bank,
the MHC, the Company and the proposed Conversion. A more detailed description
of the Bank, the MHC, the Company and the proposed Conversion is included in the
Prospectus you are receiving herewith. A copy of the Plan of Conversion is
available upon written request to the Bank. Upon written request addressed to
the Secretary of the Bank at the address given above, shareholders may obtain an
additional copy of the Prospectus, and/or
<PAGE>
a copy of the Plan of Conversion and exhibits thereto, including the Certificate
of Incorporation and the Bylaws of the Company. In order to assure timely
receipt of the additional copy of the Prospectus and/or the Plan, the written
request should be received by the Bank by __________________, 1998. In addition,
all such documents may be obtained at any office of the Bank.
By Order of the Board of Directors
Woodbridge, New Jersey Christopher P. Martin
_____________, 1998 Corporate Secretary
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU SIGN, DATE AND MARK THE ENCLOSED
PROXY CARD IN FAVOR OF THE ADOPTION OF THE PLAN OF CONVERSION AS SOON AS
POSSIBLE AND RETURN IT IN THE ENCLOSED SELF-ADDRESSED POSTAGE-PREPAID ENVELOPE.
PROXY CARDS MUST BE RECEIVED PRIOR TO THE COMMENCEMENT OF THE SPECIAL MEETING.
RETURNING THE PROXY CARD WILL NOT PREVENT YOU FROM VOTING IN PERSON IF YOU
ATTEND THE SPECIAL MEETING OF SHAREHOLDERS.
THE AFFIRMATIVE VOTE OF TWO-THIRDS OF THE OUTSTANDING SHARES OF THE BANK'S
COMMON STOCK IS REQUIRED TO APPROVE THE PROPOSAL. IN ADDITION, THE AFFIRMATIVE
VOTE OF A MAJORITY OF THE BANK'S SHARES OF COMMON STOCK PRESENT IN PERSON OR BY
PROXY (OTHER THAN THOSE HELD BY THE MHC) IS REQUIRED TO APPROVE THE PROPOSAL.
WE URGE YOU TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS
POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. THE PROXY
MAY BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE IN THE MANNER DESCRIBED IN THE
ATTACHED PROXY STATEMENT. ANY SHAREHOLDER PRESENT AT THE SPECIAL MEETING OF
SHAREHOLDERS, INCLUDING ANY ADJOURNMENT OR POSTPONEMENT THEREOF, MAY REVOKE SUCH
HOLDER'S PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT BEFORE THE SPECIAL
MEETING OF SHAREHOLDERS.
YOUR VOTE IS VERY IMPORTANT. A FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A
VOTE AGAINST THE PLAN.
<PAGE>
FIRST SAVINGS BANK, SLA
______________________
PROXY STATEMENT FOR THE
SPECIAL MEETING OF SHAREHOLDERS
To Be Held on ______________, 1998
___________________________
INTRODUCTION
This Proxy Statement is being furnished to you in connection with the
solicitation by the Board of Directors of First Savings Bank, SLA (the "Bank")
of proxies to be voted at the Special Meeting of Shareholders to be held at the
main office of the Bank, 1000 Woodbridge Center Drive, Woodbridge, New Jersey on
____________, 1998, at _____ _.m., Eastern Time, and any adjournment thereof,
and, together with the accompanying proxy card, is being furnished to holders of
the Bank's common stock as of the close of the business on ____________, 1998
(the "Record Date") in connection with the solicitation of proxies by the Board
of Directors of the Bank for use at the Special Meeting of Shareholders.
The purpose of the Special Meeting of Shareholders is to consider and vote
upon a Plan of Conversion and Agreement and Plan of Reorganization (the "Plan of
Conversion" or "Plan"), pursuant to which the Bank organized First Source
Bancorp, Inc. (the "Company") and, upon consummation of the following
transactions, will become a wholly-owned subsidiary of the Company: (1) First
Savings Bancshares, MHC, the mutual holding company of the Bank (the "MHC"),
which currently owns approximately 51.61% of the Bank's common stock, will
convert to a stock form interim federal savings bank ("Interim A") and
simultaneously merge with and into the Bank, with the Bank being the surviving
entity; (2) immediately thereafter, a stock form interim savings bank subsidiary
of the Company ("Interim B") will merge with and into the Bank, with the Bank
being the surviving entity; (3) each share of the Bank's common stock held by
the MHC will be canceled and each share of the Bank's common stock held by
members of the public other than the MHC and by the Bank's employee stock
ownership plan (the "ESOP") will be converted into shares of the Company's
common stock (the "Common Stock") pursuant to an exchange ratio which will
result in these stockholders receiving the same percentage of the Common Stock
as the percentage of the Bank's common stock held by them just prior to the
exchange, before giving effect to such stockholders purchasing additional shares
or receiving cash in lieu of any fractional shares; and (4) the contemporaneous
offer and sale of shares of the Common Stock to the general public in a
subscription offering, community offering and syndicated community offering or
public offering (the "Offerings"). The reorganization and conversion of the
Bank and the MHC, the exchange of Bank common stock for the Common Stock and the
issuance of additional shares of Common Stock in the Offerings is referred to in
the Plan and herein as the "Conversion."
This Proxy Statement, together with the accompanying proxy card and
Prospectus, is first being mailed or delivered to shareholders on or about
__________________, 1998.
A MORE DETAILED DESCRIPTION OF THE MHC, THE COMPANY, THE BANK AND THE
PROPOSED CONVERSION IS INCLUDED IN THE PROSPECTUS THAT YOU ARE RECEIVING
HEREWITH. UPON WRITTEN REQUEST ADDRESSED TO THE SECRETARY OF THE BANK AT THE
ADDRESS GIVEN ABOVE, SHAREHOLDERS MAY OBTAIN AN ADDITIONAL COPY OF THE
PROSPECTUS, AND/OR A COPY OF THE PLAN OF CONVERSION AND EXHIBITS THERETO,
INCLUDING THE CERTIFICATE OF
<PAGE>
INCORPORATION AND THE BYLAWS OF THE COMPANY. IN ORDER TO ASSURE TIMELY RECEIPT
OF THE ADDITIONAL COPY OF THE PROSPECTUS AND/OR THE PLAN, THE WRITTEN REQUEST
SHOULD BE RECEIVED BY THE BANK BY _________________, 1998. IN ADDITION, ALL SUCH
DOCUMENTS MAY BE OBTAINED AT ANY OFFICE OF THE BANK.
VOTING IN FAVOR OF OR AGAINST THE PLAN OF CONVERSION INCLUDES A VOTE FOR OR
AGAINST THE CONVERSION OF THE MHC INTO AN INTERIM FEDERAL STOCK SAVINGS BANK AND
THE SIMULTANEOUS MERGER OF THE MHC WITH THE BANK, AND ALL OTHER TRANSACTIONS
CONTEMPLATED BY THE PLAN.
VOTING IN FAVOR OF THE PLAN OF CONVERSION WILL NOT OBLIGATE ANY PERSON TO
PURCHASE ANY COMMON STOCK AND WILL NOT AFFECT THE BALANCE, INTEREST RATE OR
FEDERAL DEPOSIT INSURANCE OF ANY DEPOSITS.
HOLDERS OF THE BANK'S COMMON STOCK ARE REQUESTED TO SIGN, DATE AND RETURN
THE ACCOMPANYING PROXY CARD PROMPTLY TO THE BANK IN THE ENCLOSED POSTAGE-PAID,
ADDRESSED ENVELOPE. FAILURE TO RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE
AT THE MEETING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE PROPOSAL.
RECORD DATE AND VOTING RIGHTS
The Board of Directors of the Bank has fixed ___________, 1998, as the
Record Date for the determination of shareholders entitled to notice of and to
vote at the Special Meeting of Shareholders. Only holders of record of the
Bank's common stock at the close of business on the Record Date will be entitled
to vote at the Special Meeting of Shareholders and at any adjournment or
postponement thereof. At the close of business on the Record Date, there were
_____________ shares of the Bank's common stock outstanding.
Each holder of shares of the Bank's common stock outstanding on the Record
Date will be entitled to one vote for each share held of record upon each matter
properly submitted at the Special Meeting of Shareholders and at any adjournment
or postponement thereof. The presence, in person or by proxy, of the holders of
at least a majority of the total number of outstanding shares of the Bank's
common stock entitled to vote at the Special Meeting of Shareholders is
necessary to constitute a quorum at the Special Meeting of Shareholders. If a
quorum is not obtained, or if fewer shares of the Bank's common stock are voted
in favor of the proposal than the number required for approval, it is expected
that the Special Meeting of Shareholders will be postponed or adjourned for the
purpose of allowing additional time for obtaining additional proxies or votes,
and, at any subsequent reconvening of the Special Meeting of Shareholders, all
proxies will be voted in the same manner as such proxies would have been voted
at the original meeting (except for any proxies which have theretofore
effectively been revoked or withdrawn).
If the enclosed proxy card is properly executed and received by the Bank in
time to be voted at the Special Meeting of Shareholders, the shares represented
thereby will be voted in accordance with the instructions marked thereon.
EXECUTED PROXIES WITH NO INSTRUCTIONS INDICATED THEREON WILL BE VOTED FOR EACH
OF THE PROPOSALS SET FORTH IN THE ACCOMPANYING NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS.
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VOTES REQUIRED
In accordance with state law, the affirmative vote of two-thirds of the
shares of the Bank's common stock outstanding on the Record Date is required in
order to approve the Conversion, proposal 1. In addition, the affirmative vote
of a majority of the shares of the Bank's common stock present in person or by
proxy (other than those shares held by the MHC) is required to approve the
Conversion. As of the Record Date, there were __________ shares of the Bank's
common stock outstanding and entitled to vote at the Special Meeting of
Shareholders, of which 4,134,812 were owned by the MHC, with each share being
entitled to one vote. Approval of proposal 2 will require the affirmative vote
of a majority of votes present in person or by proxy at the Special Meeting of
Shareholders.
THE STATE LAW REQUIRED VOTE OF THE BANK'S SHAREHOLDERS ON PROPOSAL 1 IS
BASED ON THE NUMBER OF OUTSTANDING SHARES OF THE BANK'S COMMON STOCK, AND NOT
THE NUMBER OF THOSE SHARES THAT ARE ACTUALLY VOTED. ACCORDINGLY, THE FAILURE TO
SUBMIT A PROXY CARD OR TO VOTE IN PERSON AT THE SPECIAL MEETING OF SHAREHOLDERS
OR THE ABSTENTION FROM VOTING BY A SHAREHOLDER WILL HAVE THE SAME EFFECT AS A
"NO" VOTE WITH RESPECT TO PROPOSAL 1. BROKER NON-VOTES WILL NOT BE COUNTED AS
HAVING BEEN VOTED IN PERSON OR BY PROXY AT THE SPECIAL MEETING OF SHAREHOLDERS
AND WILL HAVE THE SAME EFFECT AS A "NO" VOTE ON PROPOSAL 1.
PROXIES
The Bank's shareholders may vote at the Special Meeting of Shareholders or
at any adjournment thereof in person or by proxy. Enclosed is a proxy card
which may be used by any shareholder to vote on the Plan of Conversion. ALL
PROPERLY EXECUTED PROXIES RECEIVED BY THE BANK WILL BE VOTED IN ACCORDANCE WITH
THE INSTRUCTIONS INDICATED THEREON BY THE SHAREHOLDERS GIVING SUCH PROXIES. IF
NO INSTRUCTIONS ARE GIVEN, EXECUTED PROXIES WILL BE VOTED FOR ADOPTION OF THE
PLAN OF CONVERSION AND FOR PROPOSAL 2. If any other matters are properly
presented at the Special Meeting of Shareholders and may properly be voted on,
all proxies will be voted on such matters in accordance with the best judgment
of the proxy holders named therein. Management is not aware of any other
business to be presented at the Special Meeting of Shareholders.
REVOCABILITY OF PROXIES
A proxy may be revoked at any time before it is voted by filing written
revocation of the proxy to the Secretary of the Bank, by submitting a duly
executed proxy bearing a later date or by attending and voting in person at the
Special Meeting of Shareholders or any adjournment thereof. The presence of a
shareholder at the Special Meeting of Shareholders shall not revoke a proxy
unless a written revocation is filed with the Secretary of the Special Meeting
of Shareholders prior to the voting of such proxy. The proxies being solicited
by the Board of Directors of the Bank are only for use at the Special Meeting of
Shareholders and at any and all adjournments thereof and will not be used for
any other meeting.
SOLICITATION OF PROXIES
This Proxy Statement and the accompanying proxy card are being furnished in
connection with the solicitation of proxies for the Special Meeting of
Shareholders by the Board of Directors. To the extent necessary to permit
approval of the Plan of Conversion, proxies may be solicited by officers,
directors or employees of the Bank, by telephone or through other forms of
communication and, if necessary, the Special
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Meeting of Shareholders may be adjourned to a later date. Such persons will be
reimbursed by the Bank for their reasonable out-of-pocket expenses incurred in
connection with such solicitation. The Bank has retained Sandler O'Neill to
provide advisory services in connection with the Conversion, including
solicitation of proxies, account consolidation, proxy tabulation and inspection,
for an aggregate fee of $10,000 plus reimbursement of reasonable out-of-pocket
expenses. The Bank will bear all costs of this solicitation.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ADOPTION OF THE
PLAN OF CONVERSION. SEE "THE CONVERSION -- PURPOSE OF CONVERSION" IN THE
PROSPECTUS.
THE PROSPECTUS CONTAINS DETAILED INFORMATION ABOUT THE BANK, THE MHC, THE
COMPANY AND THE CONVERSION, INCLUDING THE RIGHTS OF HOLDERS OF THE BANK'S COMMON
STOCK TO EXCHANGE THEIR SHARES FOR SHARES OF THE COMPANY'S COMMON STOCK.
SHAREHOLDERS ARE URGED TO CONSIDER SUCH INFORMATION CAREFULLY PRIOR TO
SUBMITTING THEIR PROXIES.
THE OTS HAS APPROVED THE PLAN OF CONVERSION SUBJECT TO THE APPROVAL OF THE
BANK'S SHAREHOLDERS AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS. HOWEVER,
OTS APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN BY
THE OTS.
INTEREST OF MANAGEMENT AND DIRECTORS IN MATTERS TO BE ACTED UPON
Management and Directors of the MHC, the Company and the Bank have an
interest in the matters that will be acted upon because the Bank and the Company
have implemented a tax-qualified employee stock ownership plan and intend to
implement employment agreements at the time of the Conversion and a stock
incentive plan for employees and directors after six months following the
Conversion. The Company and the Bank currently intend to adopt such plans and
make awards as are described in the "Management of the Bank" section of the
Prospectus.
PROPOSAL 1 - APPROVAL OF THE PLAN OF CONVERSION
All persons receiving this proxy are also being given a prospectus (the
"Prospectus") that describes the Conversion. The Prospectus, in its entirety,
is incorporated herein and made a part hereof. Although the Prospectus is
incorporated herein, this proxy statement does not constitute an offer or a
solicitation of an offer to purchase the common stock offered thereby. The Bank
urges you to carefully read the sections of the Prospectus that describe the
Conversion (see "The Conversion") and the Bank's, the Company's, and/or the
MHC's: (i) management and directors and compensation of such persons (see
"Management of the Bank"); (ii) business (see "Business of the Bank"); (iii)
reasons for the Conversion and management's belief that the Conversion is in the
best interest of the MHC and its members (see "The Conversion"); (iv) employment
agreements, change in control agreements and employee stock benefit plans that
the Bank and/or the Company intend to implement (see "Management of the Bank");
(v) common stock (see "Description of Capital Stock of the Company"); (vi) pro
forma capitalization, capital compliance, and pro forma information with respect
to the Conversion (see "Regulatory Capital Compliance," "Capitalization" and
"Pro Forma Data"); (vii) intended use of proceeds from the Offering ("Use of
Proceeds"); (viii) restrictions and anti-takeover devices on acquisitions of the
Company and the Bank (see "Restrictions on Acquisition of the Company and the
Bank"); and (ix) consolidated financial statements.
4
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PROPOSAL 2 - AUTHORITY TO ADJOURN THE SPECIAL MEETING
Proposal 1, as described above, must be approved by a two-thirds of the
votes of the Bank's shareholders eligible to be cast and by a majority of the
shares present in person or by proxy (other than those held by the MHC) at the
Special Meeting of Shareholders. The form of Revocable Proxy sent to
shareholders with the proxy statement sets forth a proposal to permit the full
Board of Directors of the Bank to vote the proxy in favor of an adjournment of
the Special Meeting of Shareholders in order to solicit further proxies if
holders of two-thirds of the votes eligible to be cast or a majority of the
shares voted at the Special Meeting of Shareholders do not submit proxies voting
in favor of Proposal 1. The proposal to authorize such adjournment must be
approved by a majority of the votes present in person or by proxy at the Special
Meeting of Shareholders. The Board of Directors recommends a vote "FOR" the
ratification of Proposal 2 and requests that shareholders check the box
permitting adjournment of the Special Meeting of Shareholders in the event
sufficient votes are not cast in favor of Proposal 1.
LEGAL AND TAX OPINIONS
The legality of the Company's Common Stock will be passed upon for the Bank
and the Company by Muldoon, Murphy & Faucette, Washington, D.C., special counsel
to the Bank and the Company. The federal income and New Jersey state tax
consequences of the Conversion also will be passed upon for the Bank and the
Company by Muldoon, Murphy & Faucette. Certain legal matters will be passed
upon for Sandler O'Neill by Breyer & Aguggia.
REVIEW OF OTS ACTION
Any person aggrieved by a final action of the OTS which approves, with or
without conditions, or disapproves a plan of conversion may obtain review of
such action by filing in the court of appeals of the United States for the
circuit in which the principal office or residence of such person is located, or
in the United States Court of Appeals for the District of Columbia, a written
petition praying that the final action of the OTS be modified, terminated or set
aside. Such petition must be filed within 30 days after the publication of
notice of such final action in the Federal Register, or 30 days after the
mailing by the applicant of the notice to members as provided in 12 C.F.R.
(S)563b.6(c), whichever is later. The further procedure for review is as
follows: A copy of the petition is forthwith transmitted to the OTS by the clerk
of the court and thereupon the OTS files in the court the record in the
proceeding, as provided in Section 2112 of Title 28 of the United States Code.
Upon the filing of the petition, the court has jurisdiction, which upon the
filing of the record is exclusive, to affirm, modify, terminate, or set aside in
whole or in part, the final action of the OTS. Review of such proceedings is as
provided in Chapter 7 of Title 5 of the United States Code. The judgement and
decree of the court is final, except that they are subject to review by the
Supreme Court upon certiorari as provided in Section 1254 of Title 28 of the
United States Code.
HOW TO OBTAIN ADDITIONAL INFORMATION
The Prospectus contains audited financial statements of the Bank, including
statements of income for the past three years; management's discussion and
analysis; a description of lending, savings and investment activities;
remuneration and other benefits of directors and officers; further information
about the business and financial condition of the Bank; and additional
information about the Conversion, the Subscription Offering, the Community
Offering and, if held, the Syndicated Community Offering or Public Offering.
The Plan of Conversion sets forth the terms, conditions and provisions of the
proposed
5
<PAGE>
Conversion. The Certificate of Incorporation and Bylaws of the Company are
exhibits to the Plan of Conversion.
If you would like to receive an additional copy of the Prospectus, or a
copy of the Plan of Conversion and the Certificate of Incorporation and Bylaws
of the Company, you must request such material in writing, addressed to the
Secretary of the Bank at the Bank's address given above. Such requests must be
received by the Bank no later than ____________, 1998. Requesting such materials
does not obligate you to purchase the shares. If the Bank does not receive your
request by _______________, 1998, you will not be entitled to have such
materials mailed to you. You will, however, be able to obtain a Prospectus and a
Stock Order Form from the nearest office of the Bank.
OTHER MATTERS
As of the date of this Proxy Statement, management is not aware of any
matters other than those set forth in the Notice of Special Meeting of
Shareholders that may be brought before the Special Meeting of Shareholders. If
any other matters properly come before the Special Meeting of Shareholders,
including, among other things, a motion to adjourn or postpone the Special
Meeting of Shareholders to another time or place or both for the purpose of
soliciting additional proxies or otherwise, the persons named in the
accompanying proxy will vote the shares represented by all properly executed
proxies on such matters in such manner as shall be determined by a majority of
the Board of Directors of the Bank.
By Order of the Board of Directors
Christopher P. Martin
Corporate Secretary
Woodbridge, New Jersey
_______________, 1998
TO ASSURE THAT YOU ARE REPRESENTED AT THE SPECIAL
MEETING OF SHAREHOLDERS, PLEASE SIGN, DATE AND PROMPTLY RETURN
THE ACCOMPANYING PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED.
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY COMMON STOCK.
THE OFFER IS MADE ONLY BY THE PROSPECTUS.
6
<PAGE>
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF FIRST SAVINGS BANK, SLA
The undersigned hereby acknowledges prior receipt of the Notice of Special
Meeting of Stockholders ("Special Meeting") and the Proxy Statement describing
the matters set forth below, and indicating the date, time and place of the
Special Meeting, and hereby appoints the Board of Directors of First Savings
Bank, SLA (the "Bank"), the Proxy of the undersigned, to cast all votes to which
the undersigned is entitled at the Special Meeting, and at any adjournment or
adjournments thereof, on the matters referred to below in the manner specified
on the reverse side hereof:
FOR OR AGAINST the adoption of the Plan of Conversion and Agreement and
Plan of Reorganization, as amended (the "Plan" or "Plan of Conversion"), between
the MHC and First Savings Bank, SLA (the "Bank") pursuant to which the Bank
organized First Source Bancorp, Inc. (the "Company"), and upon consummation of
the following transactions, will become a wholly owned subsidiary of the
Company: (1) the MHC, which currently owns approximately 51.6% of the
outstanding shares of common stock of the Bank, will convert from mutual form to
a federal interim stock savings institution and simultaneously merge into the
Bank, with the Bank being the surviving entity; (2) the Bank will then merge
with an interim institution to be formed as a wholly owned subsidiary of the
Company, with the Bank being the surviving entity; (3) the outstanding shares of
Bank common stock (other than those held by the MHC, which will be cancelled)
will be converted into shares of the Company's common stock pursuant to a ratio
that will result in the holders of such shares owning in the aggregate the same
percentage of the Company as they currently own of the Bank, before giving
effect to such stockholders purchasing additional shares in a concurrent stock
offering by the Company or by the Bank's Employee Stock Ownership Plan ("ESOP")
in the Offerings or thereafter, or receiving cash in lieu of fractional shares;
and (4) the offer and sale of shares of the Company's common stock.
In their discretion, upon any other matters that may properly come before
the Special Meeting or any adjournments thereof.
NOTE: The Board of Directors is not aware of any other matter that may
come before the Special Meeting.
THIS PROXY WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED STOCKHOLDER.
UNLESS OTHERWISE MARKED, THIS PROXY WILL BE VOTED FOR APPROVAL OF THE PLAN OF
CONVERSION. IF ANY OTHER BUSINESS IS PRESENTED AT THE SPECIAL MEETING, THIS
PROXY SHALL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF MANAGEMENT. THIS
PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED EITHER BY A WRITTEN
REVOCATION OF THE PROXY FILED WITH THE SECRETARY OF THE BANK OR BY SUBMITTING A
LATER DATED PROXY. THE PRESENCE OF A STOCKHOLDER AT THE SPECIAL MEETING SHALL
NOT REVOKE A PROXY UNLESS A WRITTEN NOTICE OF SUCH REVOCATION IS FILED WITH THE
SECRETARY OF THE SPECIAL MEETING PRIOR TO THE VOTING OF SUCH PROXY.
IMPORTANT: PLEASE DATE AND SIGN THE PROXY ON THE REVERSE SIDE.
VOTING FOR THE PLAN OF CONVERSION AND SIGNING THIS PROXY CARD DOES NOT
OBLIGATE YOU TO BUY ANY STOCK.
<PAGE>
IMPORTANT: Please sign your name exactly as it appears hereon. Joint
accounts need only one signature, but all account holders should
sign if possible. When signing as an attorney, administrator,
agent, corporation, officer, executor, trustee, guardian or
similar position, please add your full title to your signature.
Approval of the Plan of Conversion.
[X] Please vote by marking one of the following boxes as shown.
FOR [_] AGAINST [_]
Signature: _____________________ Date:___________, 1997
Signature: ____________________ Date:___________, 1997
PLEASE RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED POSTAGE-PAID ENVELOPE.
