<PAGE>
As filed with the Securities and Exchange Commission on September 17, 1998
Registration No. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
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 incorporation or organization)
BEING APPLIED FOR
(IRS Employer Identification No.)
6036
(Primary Standard Industrial 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 registrants' principal executive offices)
__________________________
JOHN P. MULKERIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
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: Copies to:
JOSEPH G. PASSAIC, JR., ESQUIRE SAMUEL J. MALIZIA, ESQUIRE
PHILIP G. FEIGEN, ESQUIRE MALIZIA, SPIDI, SLOAN & FISCH, P.C.
MICHELE J. BIANCO, ESQUIRE ONE FRANKLIN SQUARE
PATTON BOGGS LLP 1301 K STREET, N.W.
2550 M STREET, N.W. SUITE 700 EAST
WASHINGTON, D.C. 20037 WASHINGTON, D.C. 20005
(202) 457-6000 (202) 434-4660
__________________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
---
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
---
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
---
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE(1)
<S> <C> <C> <C> <C>
Common Stock, Par Value $0.01 per share........... 13,625,152 $6.01 $81,819,038 $24,137
=======================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee has
been computed pursuant to Rule 457(f)(1) under the Securities Act of 1933,
as amended, based on the average of the high and low prices for shares of
Common Stock of Pulse Bancorp, Inc. ("Pulse") reported on the Nasdaq Stock
Market on September 10, 1998, and the maximum number of such shares
(3,406,288) that may be exchanged for the securities being registered. The
proposed maximum offering price per share has been determined by dividing
the portion of the proposed maximum aggregate offering price by the number
of shares being registered.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS 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 BETWEEN ITEMS IN FORM S-4 AND PROSPECTUS PURSUANT TO ITEM
501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NO. FORM S-4 CAPTION HEADING IN PROSPECTUS
- ---------- ---------------------------------------------------- --------------------------------------------------------
<S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
Item 1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus...................... Cover Page of Registration Statement; Cross Reference
Sheet; Outside Front Cover Page of Prospectus
Item 2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front Cover Page of Prospectus; Table of Contents;
Available Information; Incorporation of Certain Documents
by Reference
Item 3. Risk Factors; Ratio of Earnings to Fixed Charges
and Other Information............................... Summary; The Meetings; The Merger
Item 4. Terms of the Transaction............................ Summary; The Merger; Certain Related Transactions;
Description of First Source Capital Stock; Comparison of
Stockholder Rights
Item 5. Pro Forma Financial Information..................... Summary; Unaudited Pro Forma Combined Selected
Financial Data; Unaudited pro Forma Condensed
Combined Financial Statements
Item 6. Material Contracts with the Company Being
Acquired............................................ Summary; The Merger; Certain Related Transactions
Item 7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters....... *
Item 8. Interests of Named Experts and Counsel.............. *
Item 9. Disclosure of Commission Position of
Indemnification for Securities Act Liabilities...... *
B. INFORMATION ABOUT THE REGISTRANT
Item 10. Information with Respect to S-3 Registrants......... Available Information; Incorporation of Certain Documents
by Reference; Summary; The Merger; Unaudited Pro
Forma Combined Selected Financial Data; Unaudited Pro
Forma Condensed Combined Financial Information
Item 11. Incorporation of Certain Information by
Reference........................................... Incorporation of Certain Documents by Reference
Item 12. Information with Respect to S-2 or S-3
Registrants......................................... *
Item 13. Incorporation of Certain Information by
Reference........................................... *
Item 14. Information with Respect to Registrants Other than
S-2 or S-3 Registrants.............................. *
C. INFORMATION ABOUT THE COMPANY
BEING ACQUIRED
Item 15. Information with Respect to S-3 Companies........... Available Information; Incorporation of Certain Documents
by Reference; Summary
Item 16. Information with Respect to S-2 or S-3
Companies........................................... *
Item 17. Information with Respect to Companies Other than
S-2 or S-3 Companies................................ *
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
D. VOTING AND MANAGEMENT
INFORMATION
Item 18. Information if Proxies, Consents or Authorizations
Are to be Solicited................................. Summary; The Meetings; The Merger
Item 19. Information if Proxies, Consents or Authorizations
Are Not to be Solicited in an Exchange Offer........ *
</TABLE>
__________________________
* Omitted because inapplicable or answer is in the negative.
<PAGE>
[FIRST SOURCE LETTERHEAD]
Dear First Source Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
First Source Bancorp, Inc. ("First Source") which will be held on [___________,
, 1998] at _____ a.m., local time, at the _________________ (the "Special
Meeting"). At this meeting, you will be asked to consider and vote upon (i) a
proposal to approve an Agreement and Plan of Merger, dated July 9, 1998 (the
"Merger Agreement"), pursuant to which Pulse Bancorp, Inc. ("Pulse") will be
merged with and into First Source and the stockholders of Pulse will become
stockholders of First Source (ii) a proposal to approve and adopt the First
Source Bancorp, Inc. 1998 Stock-Based Incentive Plan (the "Incentive Plan") and
(iii) a proposal to approve and adopt an amendment to the First Source
Certificate of Incorporation to change the name of the company to _________ (the
"Corporate Name Amendment").
Your shares of First Source Common Stock will be unaffected by the merger.
Upon consummation of the merger, Pulse's former stockholders will own
approximately 25.5% of First Source's outstanding common stock.
The proposed merger has been unanimously approved by the Board of Directors
of each company. Your Board of Directors believes that the merger will provide
significant value to First Source's stockholders by extending the markets served
by First Source and allowing First Source to provide a broader array of services
to Pulse's customers. Your Board has determined that the merger is in the best
interests of First Source and its stockholders and unanimously recommends that
you vote FOR approval of the Merger Agreement. The investment banking firm of
Ryan, Beck & Co. has issued a written opinion to your Board of Directors that,
as of the date of such opinion, the aggregate consideration to be paid by First
Source in the merger was fair to First Source and its stockholders from a
financial point of view. The written opinion of Ryan, Beck & Co. is reproduced
in full as Annex D to the accompanying Joint Proxy Statement/Prospectus, and
First Source's stockholders are urged to read carefully such opinion in its
entirety.
Consummation of the merger is subject to certain conditions, including the
approval of the Merger Agreement by the holders of a majority of the shares of
each of First Source's and Pulse's common stock and the approval of the merger
by various regulatory agencies.
The Incentive Plan has been unanimously approved by the Board of Directors
of First Source. The Board of Directors has determined that the Incentive Plan
is in the best interest of First Source as it will help attract and retain
qualified personnel in key positions, provide such personnel with a proprietary
interest in First Source as an incentive to contribute to the success of First
Source, continue to promote the attention of management to other stockholder's
concerns and reward employees for outstanding performance. A copy of the
Incentive Plan is attached as Annex E.
The Corporate Name Amendment has been unanimously approved by the Board of
Directors of First Source. The Board of Directors believes it is in the best
interest of the company to change its name to _________. A copy of the
Corporate Name Amendment is attached as Annex F.
Specific information regarding the Special Meeting is contained in the
enclosed Notice of Special Meeting and Joint Proxy Statement/Prospectus. Please
read these materials carefully.
It is very important that your shares are represented at the Special
Meeting, whether or not you plan to attend in person. A failure to vote for
approval of the Merger Agreement or any of the other matters presented will have
the same effect as a vote against the Merger Agreement or such other matter.
Therefore, I urge you to execute, date and return the enclosed proxy card in the
enclosed postage-paid envelope as soon as possible to assure that your shares
will be voted at the Special Meeting.
<PAGE>
On behalf of the Board of Directors, I thank you for your support and urge
you to vote FOR approval of the Merger Agreement, the Incentive Plan and the
Corporate Name Amendment.
Sincerely,
John P. Mulkerin
President and Chief
Executive Officer
THE BOARD OF DIRECTORS RECOMMENDS THAT
YOU VOTE FOR THE PROPOSALS
TO APPROVE AND ADOPT THE MERGER AGREEMENT,
TO APPROVE AND ADOPT THE INCENTIVE PLAN, AND
TO APPROVE AND ADOPT THE CORPORATE NAME AMENDMENT.
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY
AND MAIL IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE.
<PAGE>
FIRST SOURCE BANCORP, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [ ,1998]
To the Stockholders of
First Source Bancorp, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of First
Source Bancorp, Inc. ("First Source") will be held at the ___________ on
[________, , 199], at __________.m. local time (the "Special Meeting"), for the
following purposes, all of which are more fully described in the accompanying
Joint Proxy Statement/Prospectus:
1. To Consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of July 9, 1998 (the "Merger
Agreement"), between First Source and Pulse Bancorp, Inc. ("Pulse"), and
the consummation of the transactions contemplated thereby, including the
merger of Pulse with and into First Source and the issuance of First Source
common stock to the holders of Pulse common stock. A copy of the Merger
Agreement is attached as Annex A to this Joint Proxy Statement/Prospectus.
2. To consider and vote upon a proposal to approve and adopt First
Source's 1998 Stock-Based Incentive Plan (the "Incentive Plan").
3. To consider and vote upon a proposal to approve and adopt an amendment
to the First Source Certificate of Incorporation to change the name of the
company to __________(the "Corporate Name Amendment").
4. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
The First Source Board of Directors has fixed the close of business on
[ ,1998] as the record date for the determination of stockholders entitled
to notice of and to vote at the Special Meeting and any adjournments or
postponements thereof. Only stockholders of record at the close of business on
such date are entitled to notice of and to vote at the Special Meeting. A list
of First Source stockholders entitled to vote at the Special Meeting will be
available for examination for any purpose germane to the Special Meeting, during
ordinary business hours, at the principal executive offices of First Source,
located at First Source Bancorp, Inc., 1000 Woodbridge Center Drive. Woodbridge,
New Jersey, for 10 days prior to the Special Meeting.
The common stock, par value $0.01 per share, of First Source is the only
security of First Source whose holders are entitled to vote upon the proposals
to be presented at the Special Meeting.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. EACH
STOCKHOLDER, EVEN THOUGH HE OR SHE NOW PLANS TO ATTEND THE SPECIAL MEETING, IS
REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY WITHOUT DELAY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO
ITS EXERCISE. ANY STOCKHOLDER PRESENT AT THE SPECIAL MEETING OR AT ANY
ADJOURNMENTS OR POSTPONEMENTS THEREOF MAY REVOKE HIS OR HER PROXY AND VOTE
PERSONALLY ON EACH MATTER BROUGHT BEFORE THE SPECIAL MEETING.
BY ORDER OF THE BOARD OF DIRECTORS,
CHRISTOPHER MARTIN
SECRETARY
<PAGE>
_________, 1998
THE BOARD OF DIRECTORS RECOMMENDS THAT
YOU VOTE FOR THE PROPOSALS
TO APPROVE AND ADOPT THE MERGER AGREEMENT, TO
APPROVE AND ADOPT THE INCENTIVE PLAN, AND TO
APPROVE AND ADOPT THE CORPORATE NAME AMENDMENT.
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY
AND MAIL IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE.
<PAGE>
[Pulse Bancorp, Inc. Letterhead]
[_______________, 1998]
Dear Fellow Stockholder:
On behalf of the Board of Directors and management of Pulse Bancorp, Inc.
("Pulse"), I cordially invite you to attend a special meeting of stockholders to
be held at the Forsgate Country Club, Forsgate Drive, Jamesburg, New Jersey, on
____________, 1998, at 10:00 a.m. The attached Notice of the Meeting of the
Stockholders and Joint Proxy Statement/Prospectus describe the formal business
to be transacted at the meeting.
At this important meeting, stockholders will be asked to approve a merger
agreement between First Source Bancorp, Inc. ("First Source") and Pulse,
pursuant to which Pulse will merge with and into First Source, with First Source
as the surviving corporation, and First Source will issue shares of its common
stock to shareholders of Pulse. The terms of the merger, including the method
for determining the amount of First Source common stock to be issued as well as
other important information relating to First Source and the combined company,
are contained in the accompanying Joint Proxy Statement/Prospectus. Please give
this document your careful attention.
The Board of Directors of Pulse has carefully reviewed and considered the
terms and conditions of the merger agreement. THE BOARD OF DIRECTORS OF PULSE
HAS CONCLUDED THAT THE MERGER AGREEMENT AND THE PROPOSED MERGER ARE IN THE BEST
INTEREST OF STOCKHOLDERS OF PULSE, AND UNANIMOUSLY RECOMMENDS THAT PULSE
STOCKHOLDERS VOTE "FOR" THE MERGER AGREEMENT. THE INVESTMENT BANKING FIRM OF
SANDLER O'NEILL & PARTNERS, L.P. HAS ISSUED A WRITTEN OPINION THAT THE
CONSIDERATION TO BE PAID TO PULSE STOCKHOLDERS IS FAIR FROM A FINANCIAL POINT OF
VIEW, AND THE OPINION IS ATTACHED AS ANNEX C OF THIS JOINT PROXY
STATEMENT/PROSPECTUS.
I encourage you to attend the meeting in person. Whether or not you do,
please read the Joint Proxy Statement/Prospectus and then complete, sign and
date the proxy card and return it in the enclosed postage-paid envelope. This
will save the Pulse additional expense in soliciting proxies and will ensure
that your shares are represented. You may vote in person at the meeting even if
you have previously returned the proxy. However, if you are a stockholder whose
shares are not registered in your own name, you will need additional
documentation from your record holder to vote in person at the meeting.
Thank you for your prompt attention to this important matter.
Sincerely,
George T. Hornyak, Jr.
President and Chief
Executive Officer
<PAGE>
PULSE BANCORP, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [ ], 1998
The special meeting of stockholders (the "Meeting") of Pulse Bancorp, Inc.
(the "Company" or "Pulse"), will be held at the Forsgate Country Club, Forsgate
Drive, Jamesburg, New Jersey, on [ ], 1998, at 10:00 a.m.
A proxy card and a Joint Proxy Statement/Prospectus for the Meeting are
enclosed. The Meeting is for the purpose of considering and acting upon:
1. The approval of the Agreement and Plan of Merger, dated as of July 9,
1998, by and between First Source Bancorp, Inc. ("First Source") and
Pulse, pursuant to which Pulse will merge with and into First Source,
as more fully described in the accompanying Joint Proxy
Statement/Prospectus; and
such other matters as may properly come before the Meeting or any adjournments
or postponements thereof. The Board of Directors is not aware of any other
business to come before the Meeting. Action may be taken on the foregoing
proposals at the Meeting on the date specified above, or on any date or dates to
which the Meeting may be adjourned or postponed. Stockholders of record at the
close of business on [ ], 1998 are the stockholders entitled to vote at the
Meeting, and any adjournments or postponements thereof.
You are requested to complete and sign the enclosed form of proxy which is
solicited by the Board of Directors and to mail it promptly in the enclosed
envelope. The proxy will not be used if you attend and vote at the Meeting in
person.
BY ORDER OF THE BOARD OF DIRECTORS
NANCY M. JANOSKO
SECRETARY
South River, New Jersey
[ ], 1998
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE PULSE THE EXPENSE OF FURTHER
REQUESTS FOR PROXIES IN ORDER TO ENSURE A QUORUM. A SELF-ADDRESSED ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES.
<PAGE>
FIRST SOURCE BANCORP, INC.
PULSE BANCORP, INC.
JOINT PROXY STATEMENT
__________________________
FIRST SOURCE BANCORP, INC.
PROSPECTUS
__________________________
______________ SHARES OF COMMON STOCK
This Joint Proxy Statement/Prospectus (the "Joint Proxy
Statement/Prospectus") is being furnished to stockholders of Pulse Bancorp, Inc.
("Pulse") in connection with the solicitation of proxies by the Board of
Directors of Pulse for use at a special meeting of stockholders of Pulse
(including any adjournments or postponements thereof) to be held on [ , 1998]
(the "Pulse Meeting"). At the Pulse Meeting, Pulse's stockholders will consider
and vote upon a proposal to approve and adopt the Agreement and Plan of Merger,
dated as of July 9, 1998 (the "Merger Agreement"), between First Source Bancorp,
Inc. ("First Source") and Pulse, and the consummation of the transactions
contemplated thereby. Pursuant to the Merger Agreement, First Source will
acquire Pulse by means of a merger (the "Merger") of Pulse with and into First
Source.
This Joint Proxy Statement/Prospectus is also being furnished to
stockholders of First Source in connection with the solicitation of proxies by
First Source's Board of Directors for use at a special meeting of stockholders
of First Source (including any adjournments or postponements thereof) to be held
on [ , 1998] (the "First Source Meeting," and together with the Pulse
Meeting, the "Special Meetings"). At the First Source Meeting, First Source's
stockholders will consider and vote upon proposals to (i) approve and adopt the
Merger Agreement and the consummation of the transactions contemplated thereby
(ii) approve and adopt the First Source 1998 Stock-Based Incentive Plan (the
"Incentive Plan") and (iii) approve and adopt an amendment to the First Source
Certificate of Incorporation to change the company's name to ____________ (the
"Corporate Name Amendment").
The Merger Agreement is attached as Annex A hereto and is incorporated
herein by reference. The Incentive Plan is attached as Annex E hereto and is
incorporated herein by reference. The amendment to the First Source Certificate
of Incorporation to change the company's name to __________ is attached as Annex
F and is incorporated herein by reference.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
First Source with respect to up to ____________ shares of common stock, par
value $0.01 per share, of First Source ("First Source Common Stock") issuable to
approximately _______ holders of common stock, par value $1.00 per share, of
Pulse ("Pulse Common Stock") in the Merger. Upon consummation of the Merger,
each outstanding share of Pulse Common Stock will, with certain exceptions, be
converted into and exchangeable for a number of shares of First Source Common
Stock based upon the exchange ratio as set forth in the Merger Agreement
("Exchange Ratio"). Subject to certain qualifications, the Exchange Ratio will
be as follows: (i) subject to certain provisions of the Merger Agreement, if
the Average Closing Price of First Source Common Stock is equal to or greater
than $11.50, the Exchange Ratio shall be equal to 3.2; (ii) if the Average
Closing Price is $10.00 or greater but less than $11.50, the Exchange Ratio
shall be 3.2; (iii) if the Average Closing Price is greater than $8.50 but less
than $10.00 the Exchange Ratio shall equal $32.00 divided by the Average Closing
Price; or (iv) subject to certain provisions of the Merger Agreement, if the
Average Closing Price is equal to or less than $8.50, the Exchange Ratio shall
be 3.764.
Pulse has the right to terminate the Merger Agreement if the Average
Closing Price of First Source is less than $8.50 per share, unless First Source
provides notice pursuant to the Merger Agreement that it wants to proceed with
the Merger, in which event First Source will exchange $32.00 of First Source
Common Stock for each share of Pulse common stock.
First Source has the right to terminate the Merger Agreement if the Average
Closing Price of First Source is greater than $11.50 per share, unless Pulse
provides notice pursuant to the Agreement that it wants to proceed with the
<PAGE>
Merger, in which event First Source will exchange $36.80 of First Source Common
Stock for each share of Pulse common stock.
The Average Closing Price is defined as the average closing sales price of
First Source Common Stock on The Nasdaq Stock Market for the 10 consecutive
trading days ending on the fifth business day (the "Valuation Date") prior to
the date on which the later of approval of First Source's stockholders, Pulse's
stockholders, or the date the last required regulatory approval for the Merger
and the other transactions contemplated by the Merger Agreement is obtained,
without regard to any requisite waiting periods in respect thereof. Under the
terms of the Merger Agreement, cash will be paid in lieu of the issuance of
fractional shares of First Source Common Stock.
This Joint Proxy Statement/Prospectus does not cover any resales of the
First Source Common Stock offered hereby to be received by the stockholders
deemed to be affiliates of First Source or Pulse upon consummation of the
Merger. No person is authorized to make use of this Joint Proxy
Statement/Prospectus in connection with such resales, although such securities
may be traded without the use of this Joint Proxy Statement/Prospectus by those
stockholders of Pulse not deemed to be affiliates of First Source or Pulse.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
___________________
THE SHARES OF FIRST SOURCE COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
___________________
This Joint Proxy Statement/Prospectus, the accompanying notice and the
accompanying forms of proxy are first being mailed to stockholders of First
Source and Pulse on for about_________________, 1998.
No persons have been authorized to give any information or to make any
representations other than those contained in this Joint Proxy
Statement/Prospectus or incorporated by reference herein in connection with the
solicitation of proxies or the offering of securities made hereby and, if given
or made, such information or representations must not be relied upon as having
been authorized by First Source or Pulse. This Joint Proxy Statement/Prospectus
does not constitute an offer to sell, or a solicitation of an offer to buy, any
securities, or the solicitation of a proxy, in any jurisdiction to or from any
person to whom it is not lawful to make any such offer or solicitation in such
jurisdiction. Neither the delivery of this Joint Proxy Statement/Prospectus nor
any distribution of securities made hereunder shall, under any circumstances,
create an implication that there has been no change in the affairs of First
Source or Pulse since the date of this Joint Proxy Statement/Prospectus or that
the information herein or the documents or reports incorporated by reference
herein is correct as of any time subsequent to such date. All information
contained in this Joint Proxy Statement/Prospectus relating to First Source and
its subsidiary has been supplied by First Source and all information contained
in this Joint Proxy Statement/Prospectus relating to Pulse and its subsidiaries
has been supplied by Pulse.
THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING INFORMATION
REGARDING THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR FIRST SOURCE AND
PULSE AND THE PRO FORMA INFORMATION REGARDING THE COMBINED COMPANIES. THIS
INFORMATION IS SUBJECT TO NUMEROUS ASSUMPTIONS, RISKS AND UNCERTAINTIES. THE
INFORMATION FOR FUTURE PERIODS IS SUBJECT TO GREATER UNCERTAINTY BECAUSE OF THE
INCREASED LIKELIHOOD OF CHANGES IN THE UNDERLYING
<PAGE>
FACTORS AND ASSUMPTIONS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE
FORWARD-LOOKING INFORMATION PRESENTED HEREIN.
THE FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE
FORWARD-LOOKING INFORMATION CONTAINED HEREIN INCLUDE THE FOLLOWING: PRICING
PRESSURES ON LOAN AND DEPOSIT PRODUCTS, ACTIONS OF COMPETITORS, CHANGES IN
ECONOMIC CONDITIONS, THE EXTENT AND TIMING OF ACTIONS OF THE FEDERAL RESERVE
BOARD AS TO INTEREST RATES, CONTINUED CONSUMER DISINTERMEDIATION, CUSTOMERS'
ACCEPTANCE OF PRODUCTS AND SERVICES, THE EXTENT AND TIMING OF LEGISLATIVE AND
REGULATORY ACTIONS AND CHANGES, AND THE ABILITY OF FIRST SOURCE TO REALIZE THE
BENEFITS OF ITS INTEGRATION OF THE OPERATIONS OF PULSE.
THE FORWARD-LOOKING INFORMATION CONTAINED HEREIN SPEAKS ONLY AS OF THE DATE
OF THIS PRESENTATION. THE COMPANIES ASSUME NO DUTY TO UPDATE THE INFORMATION
CONTAINED HEREIN TO REFLECT CHANGING OR UNANTICIPATED EVENTS OR CIRCUMSTANCES.
The date of this Joint Proxy Statement/Prospectus is [ , 1998]
<PAGE>
TABLE OF CONTENTS
AVAILABLE INFORMATION
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
SUMMARY
MARKET PRICES AND DIVIDEND INFORMATION
UNAUDITED SELECTED FINANCIAL DATA
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL DATA
THE MEETINGS
Pulse Meeting
First Source Meeting
THE MERGER
General
Exchange Ratio
Background of the Merger
Recommendations of the Boards of Directors; Reasons for the Merger
Opinions of Financial Advisors
Interests of Certain Persons in the Merger
Employee Matters
Effective Time
Conversion of Shares; Procedures for Exchange of Certificates; Fractional Shares
Conditions to the Merger
Regulatory Approvals Required for the Merger
Conduct of Business Pending the Merger
Waiver and Amendment; Termination
No Solicitation of Transactions
Resales of First Source Common Stock Received in the Merger
Stock Exchange Listing
Anticipated Accounting Treatment
Certain Federal Income Tax Consequences of the Merger
No Appraisal Rights
Consolidation of Operations; Projected Cost Savings
Merger and Restructuring Charges
CERTAIN RELATED TRANSACTIONS
Stock Option Agreement; Termination Fee
Subsidiary Bank Merger Agreement
DESCRIPTION OF FIRST SOURCE CAPITAL STOCK
COMPARISON OF STOCKHOLDER RIGHTS
FIRST SOURCE BANCORP, INC. 1998 STOCK-BASED INCENTIVE PLAN
AMENDMENT TO THE FIRST SOURCE BANCORP, INC. CERTIFICATE OF INCORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
LEGAL MATTERS
EXPERTS
STOCKHOLDER PROPOSALS
Annex A AGREEMENT AND PLAN OF MERGER
Annex B STOCK OPTION AGREEMENT
Annex C OPINION OF SANDLER O'NEILL & PARTNERS, L.P.
Annex D OPINION OF RYAN BECK & CO.
Annex E FIRST SOURCE BANCORP, INC. 1998 STOCK-BASED INCENTIVE PLAN
Annex F AMENDMENT TO THE FIRST SOURCE BANCORP, INC. CERTIFICATE OF
INCORPORATION
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AVAILABLE INFORMATION
First Source and Pulse are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by First Source and Pulse with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission's Public Reference Room, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as the following Regional Offices
of the Commission: 7 World Trade Center, 13th Floor, New York, New York 10048
and Citicorp Center, 500 West Madison, Suite 1400, Chicago, Illinois 60661.
Copies of such material also can be obtained by mail from the Commission's
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. If available, such reports and other information may also be
accessed through the Commission's Electronic Data Gathering, Analysis and
Retrieval System ("EDGAR") via electronic means, including the Commission's web
site on the Internet (http://www.sec.gov). In addition, material filed by First
Source and Pulse can be inspected at the offices of The Nasdaq Stock Market,
1735 K Street, N.W., Washington, D.C. 20006.
First Source has filed with the Commission a Registration Statement on Form
S-4 (together with any amendments thereof, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the shares of First Source Common Stock to be issued pursuant to the Merger
Agreement. This Joint Proxy Statement/Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits thereto.
Such additional information may be inspected and copied as set forth above.
Statements contained in this Joint Proxy Statement/Prospectus or in any document
incorporated by reference in this Joint Proxy Statement/Prospectus as to the
contents of any contract or other document referred to herein or therein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement or
such other document, each such statement being qualified in all respects by such
reference.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by First Source (File No.
000-23809) and Pulse (File No. 000-18764) are incorporated by reference in this
Joint Proxy Statement/Prospectus:
1. First Source's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 (the "1997 First Source Form 10-K").
2. First Source's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998 and June 30, 1998.
3. First Source's Current Reports on Form 8-K, dated July 17, 1998.
4. The description of First Source Common Stock set forth in First
Source's Registration Statement filed on Form 8-A, dated February 13, 1998, and
any amendments or updates thereto.
5. Pulse's Annual Report on Form 10-K for the fiscal year ended September
30, 1997 (the "1997 Pulse Form 10-K").
6. Pulse's Quarterly Reports on Form 10-Q for the quarters ended December
31, 1997, March 31, 1998 and June 30, 1998.
7. Pulse's Current Report on Form 8-K dated July 9, 1998.
8. The description of Pulse Common Stock set forth in Pulse's
Registration Statement filed on Form S-4 (File No. 33-23154) dated November 17,
1989, and any amendments or updates thereto, and on Form 8-K dated June 4, 1990.
10. The portions of Pulse's Proxy Statement for the Annual Meeting of
Stockholders held on January 22, 1998 that have been incorporated by reference
in the 1997 Pulse Form 10-K.
All documents and reports filed by First Source or Pulse pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Joint Proxy Statement/Prospectus and prior to the date of the Special Meetings
shall be deemed to be incorporated by reference in this Joint Proxy
Statement/Prospectus and to be a part hereof from the dates of filing of such
documents or reports. Any statement contained in a document or report
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Joint Proxy Statement/Prospectus
to the extent that a statement contained herein, or in any other subsequently
filed document or report which also is deemed to be incorporated by reference
herein, modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Joint Proxy Statement/Prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, ON
WRITTEN OR ORAL REQUEST, IN THE CASE OF DOCUMENTS RELATING TO FIRST SOURCE, TO
FIRST SOURCE BANCORP, INC., 1000 WOODBRIDGE CENTER DRIVE, WOODBRIDGE, NEW JERSEY
07095, ATTENTION: CHRISTOPHER MARTIN, CORPORATE SECRETARY, TELEPHONE NUMBER
(732) 726-9700, AND IN THE CASE OF DOCUMENTS RELATING TO PULSE, TO PULSE
BANCORP, INC., 6 JACKSON STREET, P.O. BOX 193, SOUTH RIVER, NJ 08882, ATTENTION:
NANCY M. JANOSKO, SECRETARY, TELEPHONE NUMBER (732) 257-2400. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, REQUESTS SHOULD BE RECEIVED BY
________________________________________.
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/Prospectus. As this summary is necessarily
incomplete, reference is made to, and this summary is qualified in its entirety
by, the more detailed information contained or incorporated by reference in this
Joint Proxy Statement/Prospectus and the Annexes hereto. First Source and Pulse
stockholders are urged to read this Joint Proxy Statement/Prospectus and the
Annexes hereto in their entirety. Certain capitalized terms which are used but
not defined in this summary are defined elsewhere in this Joint Proxy
Statement/Prospectus.
PARTIES TO THE MERGER
Pulse. Pulse Bancorp, Inc. ("Pulse") is the holding company for Pulse
Savings Bank ("Pulse Bank"). Pulse is incorporated under the laws of the State
of New Jersey. At June 30, 1998, Pulse had total assets, deposits and
stockholders' equity of approximately $544.1 million, $434.6 million, and $45.9
million, respectively.
The principal activity of Pulse is its oversight of Pulse Bank. Pulse Bank
is a New Jersey-chartered savings bank. Pulse Bank's deposits are insured by
the Federal Deposit Insurance Corporation ("FDIC") under the Savings Association
Insurance Fund ("SAIF").
Pulse Bank conducts its business through five offices located in South
River, South Amboy, Monroe Township, East Brunswick, and Lawrenceville, New
Jersey. An additional branch office is expected to open in Monroe Township by
the end of 1998. The Bank's executive offices are located at 6 Jackson Street,
South River, New Jersey 08882, and its telephone number is (732) 257-2400.
The principal business of Pulse Bank is the acceptance of deposits from the
general public and the origination of mortgage loans obtained for the purpose of
constructing, financing or refinancing one-to four-family dwellings and other
improved residential and commercial real estate. In addition, Pulse Bank
purchases investment and mortgage-backed securities. Its income is derived
largely from interest income on interest-earning assets such as loans, mortgage-
backed securities and investments. Its principal expenses are interest paid on
deposits, borrowings and operating expenses.
For additional information regarding Pulse, reference is made to the 1997
Pulse 10-K and to Pulse's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998, which are incorporated herein by reference. See "AVAILABLE
INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
First Source. First Source is a Delaware Corporation, incorporated in
1997, which acquired all of the stock of First Savings Bank, SLA ("First
Savings") upon First Savings' conversion and reorganization from a mutual
holding company ownership format to a stock holding company format. The
conversion and reorganization was completed in April 1998 (the "1998 Conversion
and Reorganization").
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, First Savings 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 (the
"Mutual Holding Company"), and simultaneously formed a newly-chartered New
Jersey stock-savings association, First Savings Bank, SLA, as a majority-owned
subsidiary of the Mutual Holding Company (the "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 association in
exchange for 1,660,000 shares of First Savings Common Stock. Concurrently with
the 1992 MHC Reorganization, First Savings 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 First
Savings Common Stock outstanding was held by the Mutual Holding Company.
Subsequently, First Savings completed a Secondary Stock
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Offering of 600,000 shares of common stock at $13.00 per share on July 11, 1995,
which resulted in a decrease in the Mutual Holding Company's ownership interest
from 62.4% to 52.5%. By October 31, 1997, the Mutual Holding Company's ownership
interest had decreased to 51.6% due to the exercise of stock options by public
stockholders. In connection with the 1998 Conversion and Reorganization, First
Savings became the wholly-owned subsidiary of First Source, and the Mutual
Holding Company was dissolved.
First Savings' deposits are insured by the FDIC under the SAIF. First
Savings has been a member of the Federal Home Loan Bank System ("FHLB") System
since 1945.
First Savings 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. First Savings'
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 single-family residential
mortgage loans, real estate construction loans, commercial real estate loans and
home equity loans and lines of credit. First Savings also invests in U.S.
Government and federal agency securities and other marketable securities. First
Savings' revenues are derived principally from interest on its mortgage loan and
mortgage-backed securities portfolios, and revenues are derived principally from
interest on its mortgage loan and mortgage-backed securities portfolios, and
interest and dividends on its investment securities.
At June 30, 1998, First Source had assets of $1.2 billion, deposits of
$807.6 million and stockholders' equity of $259.3 million. The principal
executive offices of First Source are located at 1000 Woodbridge Center Drive,
Woodbridge, New Jersey 07095 and its telephone number is (732) 726-9700.
For more information about First Source, reference is made to the 1997
First Source Form 10-K and to First Source's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998 which are incorporated herein by reference. See
"AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
THE MEETINGS
Pulse. The Pulse Meeting will be held at ________.m. on [ , 1998]
at the Forsgate Country Club, Forsgate Drive, Jamesburg, New Jersey. The purpose
of the Pulse Meeting is to consider and vote upon (i) a proposal to approve the
Merger Agreement and the consummation of the transactions contemplated thereby,
and (ii) such other matters as may properly be brought before the meeting and
any adjournments or postponements thereof.
Only holders of record of Pulse Common Stock at the close of business on [
, 1998] (the "Pulse Record Date") will be entitled to vote at the Pulse
Meeting. The affirmative vote of a majority of the outstanding shares of Pulse
Common Stock entitled to vote on such date is required to approve the Merger
Agreement. As of the Pulse Record Date, there were 3,140,300 shares of Pulse
Common Stock outstanding and entitled to be voted at the Pulse Meeting.
The directors and executive officers of Pulse and their affiliates
beneficially owned, as of , 1998, 453,821 shares, or approximately 14.5%
of the outstanding shares, of Pulse Common Stock entitled to vote at the Pulse
Meeting and all such persons have indicated a present intent to vote their
shares in favor of the Merger. As of the Pulse Record Date, neither First Source
and its subsidiaries, nor the directors and executive officers of First Source,
beneficially owned any outstanding shares of Pulse Common Stock. See "THE
MEETINGS -- Pulse Meeting -- General."
First Source. The First Source Meeting will be held at __________.m. on
[________________, ________________, 1998] at the _____________________________.
The purpose of the First Source Meeting is to consider and vote upon (i) a
proposal to approve the Merger Agreement and the consummation of the
transactions contemplated thereby; (ii) a proposal to approve and adopt the
First Source Incentive Plan; (iii) a proposal to approve and adopt the Corporate
Name
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Amendment; and (iv) such other matters as may properly be brought before the
meeting and any adjournments or postponements thereof.
Only holders of record of First Source Common Stock at the close of
business on [ , 1998] (the "First Source Record Date") will be entitled to
vote at the First Source Meeting. The affirmative vote of the holders of a
majority of the outstanding shares of First Source Common Stock entitled to
vote on such date is required to approve the Merger Agreement, the Incentive
Plan and the Corporate Name Amendment. As of the First Source Record Date, there
were ____ shares of First Source Common Stock outstanding and entitled to be
voted as the First Source Meeting.
The directors and executive officers of First Source and their affiliates
beneficially owned, as of , 1998, [3,517,722] shares, or approximately %
of the outstanding shares, of First Source Common Stock entitled to vote at the
First Source Meeting and all such persons have indicated a present intent to
vote their shares in favor of the Merger. As of the First Source Record Date,
Pulse, including the directors and executive officers of Pulse, beneficially
owned approximately ______ shares of First Source Common Stock. See "THE
MEETINGS -- First Source Meeting -- General."
RECOMMENDATIONS OF BOARDS OF DIRECTORS
Pulse. The Pulse Board of Directors (the "Pulse Board") has unanimously
approved the Merger Agreement and has determined that the Merger is fair to, and
in the best interests of, Pulse and its stockholders. The Pulse Board therefore
unanimously recommends that Pulse's stockholders vote FOR approval of the Merger
Agreement. See "THE MEETINGS --Pulse Meeting -- Recommendation of the Board of
Directors" and "THE MERGER -- Background of the Merger" and "-- Recommendation
of the Boards of Directors; Reasons for the Merger."
First Source. The First Source Board of Directors (the "First Source
Board") has unanimously approved the Merger Agreement and has determined that
the merger is fair to, and in the best interests of, First Source and its
stockholders. The First Source Board recommends unanimously that First Source's
stockholders vote FOR approval of the Merger Agreement. See "THE MEETINGS --
First Source Meeting -- Recommendation of the Board of Directors" and "THE
MERGER -- Background of the Merger" and "-- Recommendation of the Boards of
Directors; Reasons for the Merger".
EFFECT OF THE MERGER AND THE SUBSIDIARY BANK MERGER
Pursuant to the Merger Agreement, at the Effective Time (as defined below),
Pulse will be merged with and into First Source, and Pulse stockholders will
become stockholders of First Source. See "THE MERGER -- General."
Immediately following the consummation of the Merger, Pulse Savings Bank
("Pulse Bank") will merge with and into First Savings (the "Subsidiary Bank
Merger"). First Savings will continue as a New Jersey chartered savings and loan
association and a wholly owned subsidiary of First Source for the foreseeable
future. See "THE MERGER -- General" and "CERTAIN RELATED TRANSACTIONS --
Subsidiary Bank Merger Agreement."
EFFECTIVE TIME
The Merger will become effective upon the filing of a certificate of
merger with the Secretary of State of the State of Delaware in accordance with
applicable law or on such later date as the certificate may specify (the
"Effective Time"). The certificate will be filed on the first day which is (i)
the last business day of a month and (ii) at least two business days after
satisfaction or waiver of the latest to occur of certain conditions to the
Merger specified in the Merger Agreement, unless another date is agreed to by
First Source and Pulse. See "THE MERGER -- Effective time."
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EXCHANGE RATIO
At the Effective Time, each issued and outstanding share of Pulse Common
Stock, except for shares held directly or indirectly by First Source or Pulse
(other than Trust Account Shares and DPC Shares), will be converted into and
exchangeable for the number of shares of First Source Common Stock (the
"Exchange Ratio"). Subject to certain qualifications, the Exchange Ratio will be
as follows; (i) subject to certain provisions of the Merger Agreement, if the
Average Closing Price of First Source Common Stock is equal to or greater than
$11.50, the Exchange Ratio shall be equal to 3.2; (ii) if the Average Closing
Price is $10.00 or greater but less than $11.50, the Exchange Ratio shall be
3.2; (iii) if the Average Closing Price is greater than $8.50 but less than
$10.00, the Exchange Ratio shall equal $32.00 divided by the Average Closing
Price; or (iv) subject to certain provisions of the Merger Agreement, if the
Average Closing Price is equal to or less than $8.50, the Exchange Ratio shall
be 3.764.
The formula for determining the Exchange Ratio was arrived at through
arms-length negotiations between Pulse and First Source.
If the Valuation Date had been _____________________, the Exchange Ratio
would have been ____. For further information concerning the market prices of
First Source Common Stock and Pulse Common Stock, see "MARKET PRICES AND
DIVIDEND INFORMATION."
Pulse has the right to terminate the Agreement if the Average Closing Price
of First Source is less than $8.50 per share, unless First Source provides
notice pursuant to the Agreement that it wants to proceed with the Merger, in
which event First Source will pay $32.00 per share for Pulse common stock.
Assuming the Merger is approved by Pulse stockholders, the Pulse Board may elect
not to terminate the Merger Agreement and to consummate the Merger without
resoliciting Pulse stockholders if the Average Closing Price is less than $8.50
and First Source chooses not to increase the consideration, even though, as a
result of the application of the Exchange Ratio, the value of the shares of
First Source Common Stock (valued at the Average Closing Price) issued in
exchange for each share of Pulse Common Stock would be less than $32.00. In such
a situation, in considering whether to consummate the Merger without the
resolicitation of Pulse stockholders, the Pulse Board will take into account,
consistent with its fiduciary duties, all relevant facts and circumstances that
exist at such time including, without limitation, its evaluation of the
then-existing economic conditions and trends, its evaluation of the respective
business, financial condition, results of operations and prospects of each of
Pulse and First Source, its evaluation of the overall condition of the thrift
and commercial banking industry and the advice of its financial advisor and
legal counsel.
Assuming the Merger is approved by the holders of First Source Common Stock
and the Average Closing Price is less than $8.50, the First Source Board may
elect to increase the Exchange Ratio and to consummate the Merger without
resoliciting First Source stockholders even though, a result of such adjustment,
the number of shares of First Source Common Stock to be issued in the Merger
would increase. In such a situation, in considering whether to increase the
Exchange Ratio and consummate the Merger without the resolicitation of First
Source stockholders, the First Source Board will take into account, consistent
with its fiduciary duties, all relevant facts and circumstances that exist at
such time, including, without limitation, the advice of its financial advisor
and legal counsel. Such relevant facts and circumstances would include the First
Source Board's evaluation of the dilutive impact of a higher Exchange Ratio to
First Source's stockholders, its evaluation of the strategic importance to First
Source of the acquisition of Pulse relative to any such dilutive impact and the
accretive prospects of the acquisition, its evaluation of the synergies of
Pulse's business relative to First Source, Pulse's financial condition,
operating performance and prospects, and the advice of First Source's financial
advisor as to the fairness of such higher Exchange Ratio to First Source
stockholders from a financial point of view.
First Source has the right to terminate the Agreement if the Average
Closing Price of First Source is greater than $11.50 per share, unless Pulse
provides notice pursuant to the Agreement that it wants to proceed with the
Merger, in which event First Source will pay $36.80 per share for Pulse common
stock. Assuming the Merger is approved by First Source stockholders, the First
Source Board may elect not to terminate the Merger Agreement and to consummate
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the Merger without resoliciting First Source stockholders if the Average Closing
Price is greater than $11.50 and Pulse chooses not to decrease the
consideration, even though, as a result of the application of the Exchange
Ratio, the value of the shares of First Source Common Stock (valued at the
Average Closing Price) issued in exchange for each share of Pulse Common Stock
would be greater that $36.80. In such a situation, in considering whether to
consummate the Merger without the resolicitation of First Source stockholders,
the First Source Board will take into account, consistent with its fiduciary
duties, all relevant facts and circumstances that exist at such time including,
without limitation, its evaluation of the then-existing economic conditions and
trends, its evaluation of the respective business, financial condition, results
of operations and prospects of each of Pulse and First Source, its evaluation of
the overall condition of the thrift and commercial banking industry and the
advice of its financial advisor and legal counsel.
Assuming the Merger is approved by the holders of Pulse Common Stock and
the Average Closing Price is greater than $11.50, the Pulse Board may elect to
decrease the Exchange Ratio and to consummate the Merger without resoliciting
Pulse stockholders even though, a result of such adjustment, the number of
shares of Pulse Common Stock to be issued in the Merger would decrease. In such
a situation, in considering whether to decrease the Exchange Ratio and
consummate the Merger without the resolicitation of Pulse stockholders, the
Pulse Board will take into account, consistent with its fiduciary duties, all
relevant facts and circumstances that exist at such time, including, without
limitation, the advice of its financial advisor and legal counsel. Such
relevant facts and circumstances would include the status of the overall stock
market, the market prices of the stock of comparable financial institutions, the
economy and the performance of Pulse and First Source. See "THE MERGER -
Exchange Ratio" and " -- Waiver and Amendment; Termination."
OPINION OF FINANCIAL ADVISORS
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") has rendered a written
opinion to the Pulse Board, dated as of the date of this Joint Proxy
Statement/Prospectus, to the effect that, as of such date, the Exchange Ratio
was fair, from financial point of view, to the holders of Pulse Common Stock. As
discussed in "THE MERGER - Recommendation of the Boards of Directors; Reasons
for the Merger," Sandler O'Neill's opinion and presentation to the Pulse Board,
together with a review by the Pulse Board of the assumptions used by Sandler
O'Neill, were among the factors considered by the Pulse Board in reaching its
determination to approve the Merger. The opinion of Sandler O'Neill is attached
as Annex C to this Joint Proxy Statement/Prospectus. Stockholders are urged to
read such opinion in its entirety for a description of the procedures followed,
assumptions made, matters considered and qualifications on the review undertaken
by Sandler O'Neill in connection therewith. See "THE MERGER -- Opinions of
Financial Advisors --Pulse."
Ryan, Beck & Co. ("Ryan, Beck") has rendered a written opinion to the First
Source Board, dated as of the date of this Joint Proxy Statement/Prospectus, to
the effect that, as of such date, the aggregate consideration to be paid by
First Source in the Merger was fair to First Source's stockholders from a
financial point of view. As discussed in "THE MERGER -- Recommendation of the
Boards of Directors; Reasons for the Merger," Ryan, Beck's opinion and
presentation to the First Source Board, together with a review by the First
Source Board of the assumptions used by Ryan, Beck, were among the factors
considered by the First Source Board in reaching its determination to approve
the Merger. The opinion of Ryan, Beck is attached as Annex D to this Joint Proxy
Statement/Prospectus. Stockholders are urged to read such opinion in its
entirety for a description of the procedures followed, assumptions made, matters
considered and qualifications on the review undertaken by Ryan, Beck in
connection therewith. See "THE MERGER-- Opinions of Financial Advisors -- First
Source."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors, officers and employees of Pulse have certain interests
in the Merger in addition to their interests generally as stockholders of Pulse.
It is intended that George T. Hornyak, Jr., the President and Chief Executive
Officer of Pulse, and Joseph Chadwick, a director of Pulse, will serve as
directors of First Source and First Savings following the Merger pursuant to the
Merger Agreement. Other Pulse directors will receive payments as
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advisory directors for a period for three years and certain executive officers
will receive payments upon the termination of their employment agreements. In
addition, the Merger Agreement provides that Mr. Hornyak receive a three year
consulting contract with First Source. See "THE MERGER - Interests of Certain
Persons in the Merger."
EMPLOYEE MATTERS
The Merger Agreement provides for Pulse employees to participate in the
benefit plans maintained by First Source and provides, in certain instances,
recognition of prior service of Pulse with respect to such participation and the
treatment of Pulse employees following the Merger. See "THE MERGER -- Employee
Matters."
CONDITIONS; REGULATORY APPROVALS
Consummation of the Merger is subject to various mutual conditions,
including, among others, receipt of the stockholder approvals solicited hereby,
receipt of necessary regulatory approvals, receipt of opinions of counsel
regarding certain federal income tax consequences of the Merger, and the
satisfaction of other customary closing conditions. First Source's obligation to
consummate the Merger is also subject to receipt of a letter from First Source's
independent accountants that the Merger qualifies for pooling of interests
accounting treatment unless such firm advises First Source that it is unable to
issue a letter to such effect solely by reason of First Source having exercised
its rights to purchase Pulse Common Stock pursuant to the Stock Option
Agreement. See "THE MERGER -- Conditions to the Merger."
Consummation of the Merger and the transactions contemplated thereby
(including the Subsidiary Bank Merger) are subject to the prior approval of the
OTS and New Jersey Department of Banking and Insurance (the "Department").
Applications have been filed with each of the aforementioned agencies.
WAIVERS AND AMENDMENT; TERMINATION
Subject to the terms, conditions and procedures set forth in the Merger
Agreement, both Pulse and First Source may jointly waive compliance with any
provision of the Merger Agreement. The Merger Agreement may be amended by First
Source and Pulse. The Merger Agreement may be terminated in the following ways:
(a) by mutual consent; (b) by either First Source or Pulse after a request or
application for approval has been denied or withdrawn and is not resubmitted, or
a final governmental order is issued that prohibits the Merger, unless the party
seeking to terminate the Merger Agreement is responsible for the denial,
withdrawal or final governmental order; (c) by either First Source or Pulse if
the Merger is not consummated on or before March 31, 1999, unless the delay is
due to a failure by the party seeking to terminate the Merger Agreement to
perform or observe the covenants and provisions of the Merger Agreement; (d) by
either First Source or Pulse if stockholders do not approve the merger; (e) by
either First Source or Pulse (provided that the terminating party has not
materially breached the Merger Agreement) if there has been a material breach of
the Merger Agreement that can not be readily cured; (f) by Pulse, if the First
Source stock price is less than $8.50 per share, unless First Source increases
the value of consideration to $32.00 per share; (g) by First Source, if its
price is greater than $11.50 per share, unless Pulse permits a decrease in the
value of consideration to $36.80 per share; or (h) by First Source, if the Board
of Directors of Pulse withdraws, modifies or amends its recommendation that
stockholders approve and adopt the Merger Agreement in any respect materially
adverse to First Source. Termination may result in the payment of substantial
fees. See "THE MERGER -- Exchange Ratio" and "-- Waiver and Amendment;
Termination."
NO SOLICITATION
Pulse has agreed in the Merger Agreement that neither it nor any of its
subsidiaries will solicit, initiate or encourage inquiries or proposals with
respect to, or, subject to the fiduciary duties of the Pulse Board, participate
in any negotiations or discussions concerning any acquisition or purchase of all
or a substantial portion of its assets, or of a substantial equity interest in
it or any of its subsidiaries, or any merger or other business combination with
it or any of
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its subsidiaries, other than as contemplated by the Merger Agreement, except
that Pulse may communicate information about any such proposal to its
stockholders if and to the extent that the fiduciary duties of the Pulse Board
require it to do so (as advised by its counsel); Pulse also agreed in the
Merger Agreement that it would immediately cease and cause to be terminated any
existing activities, discussions or negotiations previously conducted with any
parties other than First Source with respect to the foregoing; it will notify
First Source immediately if any such inquiries or proposals are received by, any
such information is requested from, or any such negotiations or discussions are
sought to be initiated with it or any of its subsidiaries and will promptly
inform First Source in writing of the relevant details with respect to the
foregoing; and it will instruct its officers, directors, agents, advisors and
affiliates to comply with the same restrictions. See "THE MERGER -- No
Solicitation of Transactions."
STOCK EXCHANGE LISTING
First Source Common Stock is listed on The Nasdaq Stock Market. First
Source has agreed to cause the shares of First Source Common Stock to be issued
in the Merger to be approved for listing on The Nasdaq Stock Market. The
obligation of each of Pulse and First Source to consummate the Merger is
subject to approval for listing by The Nasdaq Stock Market of such shares. See
"THE MERGER -- Conditions to the Merger."
ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to qualify as a pooling of interests for accounting
and financial reporting purposes. It is a condition to First Source's obligation
to consummate the Merger that it receives a letter from its independent
accountants to the effect that the Merger qualifies for pooling of interests
accounting treatment. See "THE MERGER -- Conditions to the Merger" and "--
Anticipated Accounting Treatment."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
It is a condition to the obligation of First Source to consummate the
Merger that First Source shall have received an opinion of its counsel, that the
Merger and the Subsidiary Bank Merger will each be treated as reorganizations
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and, accordingly, for federal income tax purposes no gain
or loss will be recognized by First Source, Pulse, First Savings Bank, SLA or
Pulse Savings Bank as a result of the Merger or the Subsidiary Bank Merger. It
is a condition to the obligation of First Savings to consummate the Merger that
First Source and Pulse shall have received an opinion of First Source's counsel
that the Merger and the Subsidiary Bank Merger will each be treated as
reorganizations within the meaning of Section 368(a) of the Code and,
accordingly, for federal income tax purposes that (i) no gain or loss will be
recognized by Pulse as a result of the Merger; (ii) no gain or loss will be
recognized by Pulse Bank as a result of the Subsidiary Bank Merger, (iii) no
gain or loss will be recognized by First Source as a result of the Merger, (iv)
no gain or loss will be recognized by First Savings as a result of the
Subsidiary Bank Merger, (v) no gain or loss will be recognized by the
stockholders of Pulse who exchange all of their Pulse Common Stock solely for
First Source Common Stock pursuant to the Merger (except with respect to cash
received in lieu of a fractional share interest in First Source Common Stock)
and (vi) the aggregate tax basis of First Source Common Stock received by
stockholders who exchange all of their Pulse Common Stock solely for First
Source Common Stock pursuant to the Merger will be the same as the aggregate tax
basis of the Pulse Common Stock surrendered in exchange therefor (reduced by any
amount allocable to a fractional share interest for which cash is received).
Each of these conditions is waivable at the option of the party entitled to
receive the requisite opinion.
The holding period of the First Source Common Stock received by Pulse
stockholders pursuant to the Merger will include the period during which the
Pulse Common Stock surrendered therefor was held, provided the Pulse Common
Stock was held as a capital asset on the date of the Merger. Pulse stockholders
are urged to consult their tax advisors with respect to their personal tax
situation and the specific tax consequences to them of the Merger, including the
applicability and effect of various state, local and foreign tax laws. "See
"THE MERGER -- Certain Federal Income Tax Consequences of the Merger" and "-
Conditions to the Merger."
9
<PAGE>
NO APPRAISAL RIGHTS
No stockholders of Pulse or First Source are entitled to appraisal rights
in connection with, or as a result of, the Merger. See "THE MERGER -- No
Appraisal Rights."
CONSOLIDATION OF OPERATIONS, PROJECTED COST SAVINGS
First Source expects to achieve significant cost savings subsequent to the
Merger. The cost will be derived from implementation of operating synergies,
including reductions in compensation and other employee benefit expenses.
Further, the separate corporate existence of Pulse will cease with the
consummation of the Merger. Consequently, operating costs associated with
requirements imposed on Pulse as a publicly held entity will also be eliminated.
The aggregate annual cost savings are estimated to range between $2.4 to $2.8
million on a pre-tax basis. Management of First Source believes that realization
of these cost savings will occur by December 31, 1999. There can be no assurance
as to when, or whether, cost savings will be realized. However, such realization
will depend, among other things, upon the regulatory and economic environment
that exists following the Merger, business changes implemented by First Source
management and other factors, many of which are beyond the control of First
Source.
MERGER AND RESTRUCTURING CHARGES
A non-recurring merger and restructuring charge estimated in the range of
$5.5 to $5.9 million, before tax effect, will be made upon consummation of the
Merger. It is expected that this charge will be made in the quarter in which the
Merger is consummated. Merger expenses of approximately $1.26 million for
primarily investment banking and professional fees are included in such
estimated restructuring charge. The merger and restructuring charges primarily
include severance and employee related expenses, and, to a lesser extent,
facility and system termination costs and other general costs. See "THE MERGER
- -- Merger and Restructuring Charges" and -- Certain Federal Income Tax
Consequences of the Merger" and "UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS."
TERMINATION FEE AND STOCK OPTION AGREEMENT
The inclusion of the provisions in the Merger Agreement relating to the
Termination Fee and the Stock Option Agreement were conditions to First Source's
merger proposal. Pursuant to the Stock Option Agreement, the provisions of the
Merger Agreement relating to the Termination Fee provide that upon the
termination of the Merger Agreement, Pulse will pay First Source $3.2 million,
subject to the terms and conditions set forth therein. The Option may only be
exercised, and the Termination Fee is only payable, upon the occurrence of
certain events (none of which has occurred). The aggregate value which First
Source may potentially realize upon exercise of the Option and payment of the
Termination Fee is limited within certain parameters. The Merger Agreement
(which includes the provisions providing for the Termination Fee) is attached
as Annex A to this Joint Proxy Statement/Prospectus. See "CERTAIN RELATED
TRANSACTIONS -- Stock Option Agreement; Termination Fee."
The Termination fee is intended to increase the likelihood that the Merger
will be consummated in accordance with the terms of the Merger Agreement.
Consequently, certain aspects of the Termination Fee may have the effect of
discouraging persons who might now or prior to the Effective Time be interested
in acquiring all or a significant interest in Pulse from considering or
proposing such an acquisition, even if such persons were prepared to pay a
higher price per share for Pulse Common Stock than the price per share implicit
in the Exchange Ratio.
COMPARISON OF STOCKHOLDER RIGHTS
At the Effective Time, Pulse stockholders automatically will become
stockholders of First Source and their rights as stockholders of First Source
will be governed by the Delaware General Corporation Law and by First Source's
Certificate of Incorporation and Bylaws. The rights of stockholders of First
Source differ from the rights of the
10
<PAGE>
stockholders of Pulse with respect to certain matters. For a summary of these
differences, see "COMPARISON OF STOCKHOLDER RIGHTS."
MARKET PRICES AND DIVIDEND INFORMATION
First Source Common Stock is listed and traded on the Nasdaq Stock Market
under the symbol "FSLA." Pulse Common Stock is listed and traded principally on
the Nasdaq Stock Market under the symbol "PLUS".
The following table sets forth, for the periods indicated, the high and low
sale prices per share for the First Source Common Stock as reported on the
Nasdaq Stock Market, the high and low sale prices per share of the Pulse Common
Stock as reported on the Nasdaq Stock Market, and the quarterly cash dividends
declared by each of First Source and Pulse, for the periods indicated.
<TABLE>
<CAPTION>
First Source Common Stock Pulse Common Stock
------------------------- ------------------
High Low Dividends High Low Dividends
---- --- --------- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C>
1996
Quarter ended September 30...... $ 4.12 $ 3.49 $0.0100 $ 18.00 $16.88 0.1750
Quarter ended December 31....... 3.59 3.27 0.0101 17.75 15.50 0.1750
1997
Quarter ended March 31.......... 5.46 4.24 0.0112 18.88 15.75 0.1750
Quarter ended June 30........... 6.79 4.88 0.0135 20.50 17.88 0.1750
Quarter ended September 30...... 7.55 6.24 0.0135 26.00 19.50 0.1750
Quarter ended December 31....... 13.93 8.27 0.0149 30.25 24.50 0.2000
1998
Quarter ended March 31.......... 13.93 10.48 0.0307 27.50 24.50 0.2000
Quarter ended June 30........... 10.94 9.25 0.0300 28.50 27.75 0.2000
Third quarter (through 1998)....
</TABLE>
The trading prices and cash dividends for First Source have been adjusted
for the dilutive effects of stock dividends and the conversion exchange ratio
described below. As part of the 1998 Conversion and Reorganization, existing
shares of First Savings were converted to First Source Common Stock at an
exchange ratio of 3.9133 on April 8, 1998. First Savings declared 10% stock
dividends in the fourth quarter of 1996 and 1997.
The following table sets forth the last reported sale price per share of
First Source Common Stock and Pulse Common Stock and the equivalent per share
price for Pulse Common Stock giving effect to the Merger on (i) _____________,
the last business day preceding public announcement of the signing of the Merger
Agreement; and (ii) ______________, the last practicable date prior to the
mailing of this Joint Proxy Statement/Prospectus:
<TABLE>
<CAPTION>
First Source
Common Stock Pulse Common Stock Price Per Pulse Share
------------------ ------------------------ ---------------------------
<S> <C> <C> <C>
July 8, 1998..........
____________, 1998....
</TABLE>
_____________
(1) The equivalent price per share of Pulse Common Stock at each specified date
was determined by multiplying the last reported sale price of a share of
First Source Common Stock on such date by the Exchange Ratio. For
11
<PAGE>
purposes of determining the Exchange Ratio, the Average Closing Price was
assumed to be equal to the last reported sale price of First Source Common
Stock at each specified date (resulting in an Exchange Rate of ____ on July
8, 1998 and ___ on _____________). The actual Exchange Ratio will be
determined based on the Average Closing Price on the Valuation Date.
Pulse and First Source stockholders are advised to obtain current market
quotations for Pulse Common Stock and First Source Common Stock. The market
price of First Source Common Stock will fluctuate between the date of this Joint
Proxy Statement/Prospectus and the Valuation Date, and between the Valuation
Date and the Effective Time. Although the Merger Agreement provides that the
Exchange Ratio will adjust to absorb fluctuations in the market price of First
Source Common Stock within certain ranges prior to the Valuation Date,
fluctuations in such market price prior to the Effective Time could result in an
increase or decrease in the market price as of the Effective Time of the shares
of First Source Common Stock to be received by Pulse stockholders in the Merger.
No assurance can be given concerning the market price of First Source Common
Stock before or after the Effective Time.
APPROVAL OF THE FIRST SOURCE BANCORP, INC.
1998 STOCK-BASED INCENTIVE PLAN
The Board of Directors of First Source is also presenting for stockholder
approval the First Source Bancorp, Inc. 1998 Stock-Based Incentive Plan
("Incentive Plan"), in the form attached hereto as Annex E. The purpose of the
Incentive Plan is to attract and retain qualified personnel in key positions,
provide officers, employees and non-employee directors ("Outside Directors")
with a proprietary interest in First Source as an incentive to contribute to its
success, promote the attention of management to other stockholder's concerns and
reward employees for outstanding performance. The summary of the material terms
of the Incentive Plan is qualified in its entirety by the complete provisions of
the Incentive Plan attached as Annex E. The First Source Board recommends
unanimously that First Source stockholders vote FOR the approval of the
Incentive Plan. See "The First Source Bancorp, Inc. 1998 Stock-Based Incentive
Plan."
AMENDMENT TO THE FIRST SOURCE BANCORP, INC.
CERTIFICATE OF INFORMATION
The Board of Directors of First Source is also presenting for stockholder
approval an amendment to its Certificate of Incorporation to change the
company's name to ____________. The First Source Board recommends unanimously
that First Source stockholders vote FOR approval of the Corporate Name
Amendment. A copy of the amendment to the Certificate of Incorporation is
attached at Annex F. See "Amendment to the First Source Certificate of
Incorporation."
SELECTED FINANCIAL DATA
The following tables set forth selected historical consolidated financial
data for First Source for the five years ended December 31, 1997 and the six
months ended June 30, 1998 and 1997, and for Pulse for the five years ended
September 30, 1997 and the six months ended June 30, 1998 and 1997. Because
Pulse's fiscal year ends on September 30 and First Source's fiscal year ends on
December 31, the financial data for Pulse for the six months ended June 30 has
been presented to coincide with the fiscal reporting period for First Source.
Following the Merger, the combined company's fiscal year, like that of First
Source, will end on December 31. The selected data presented in the tables under
the captions "Selected Financial Data" and "Selected Operating Data" as of and
for the end of each of the years in the five year period ended December 31, 1997
as it relates to First Source and September 30, 1997, as it relates to Pulse
have been derived from audited financial statements of First Source and Pulse.
See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." The unaudited financial
data for the six months ended June 30, 1998 and 1997 for First Source and Pulse
reflects, in the opinions of the management of First Source and Pulse,
respectively, all adjustments necessary for a fair presentation of such data.
Results for the 1998 interim periods are not necessarily indicative of the
results which may be expected for any other interim period or for the year as a
whole.
12
<PAGE>
FIRST SOURCE BANCORP, INC. AND SUBSIDIARY
SELECTED FINANCIAL DATA
CONSOLIDATED FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31,
--------------- ----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Unaudited) (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Total assets..................................... $1,221,038 $1,032,809 $1,049,316 $987,115 $945,012 $798,350 $783,846
Loans receivable, net............................ 644,385 546,081 588,500 509,627 457,756 415,902 415,010
Loans available for sale......................... - - - 287 424 148 1,595
Investment securities............................ 15,994 40,959 31,031 38,955 39,003 23,997 19,019
Investment securities available for sale......... 57,053 18,870 17,701 14,831 2,058 13,206 41,064
Other income-earning assets (1).................. 22,352 11,945 14,095 9,278 24,151 10,066 9,967
Mortgage-backed securities, net.................. - 244,062 207,157 252,383 288,143 283,263 244,187
Mortgage-backed securities available for sale.... 432,785 120,885 147,137 120,797 89,339 24,367 28,314
Deposits......................................... 807,591 815,166 816,283 794,595 806,338 681,613 678,961
Borrowed funds................................... 139,544 110,390 118,990 88,640 39,496 34,300 26,400
Stockholders' equity............................. 259,320 97,281 101,686 92,863 89,713 74,064 68,809
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30 YEAR ENDED DECEMBER 31,
--------------- -------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Unaudited) (Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income..................................... $39,072 $36,054 $73,222 $68,039 $64,573 $52,909 $54,665
Interest expense.................................... 20,527 20,090 41,183 37,264 35,691 25,135 26,448
------ ------ ------ ------ ------ ------ ------
Net interest income before provision for loan losses 18,545 15,964 32,039 30,775 28,882 27,774 28,217
Provision for loan losses........................... 740 600 1,200 550 310 300 1,200
------ ------ ------ ------ ------ ------ ------
Net interest income after provision for loan losses 17,805 15,364 30,839 30,225 28,572 27,474 27,017
Other operating income.............................. 2,467 1,051 2,801 1,995 2,171 1,734 2,791
Operating expenses (2).............................. 8,811 8,541 18,863 24,701 17,830 16,021 15,551
------ ------ ------ ------ ------ ------ ------
Income before income taxes and accounting changes... 11,461 7,874 14,777 7,519 12,913 13,187 14,257
Income taxes........................................ 4,243 2,919 5,482 2,809 4,611 4,912 5,352
------ ------ ------ ------ ------ ------ ------
Income before accounting changes.................... 7,218 4,955 9,295 4,710 8,302 8,275 8,905
Cumulative effect of accounting changes (3)......... - - - - - - 398
------ ------ ------ ------ ------ ------ ------
Net income....................................... $7,218 $4,955 $9,295 $4,710 $8,302 $8,275 $9,303
====== ====== ====== ====== ====== ====== ======
Basic earnings per share before cumulative effect of
accounting changes(4)............................ $0.24 $0.16 $0.30 $0.15 $0.27 $0.27 $0.29
Cumulative effect of accounting changes (3)(4)...... - - - - - - 0.01
Basic earnings per share after cumulative effect of
accounting changes (4)........................... $0.24 0.16 $0.30 $0.15 $0.27 $0.27 $0.30
Diluted earnings per share (4)...................... $0.23 0.16 $0.30 $0.15 $0.27 $0.26 $0.30
Dividends paid per share, as adjusted (4)........... $0.06 0.02 $0.05 $0.04 $0.03 $0.03 $0.02
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR SIX
MONTHS ENDED
JUNE 30 AT OR FOR THE YEAR ENDED DECEMBER 31,
----------------- ------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:
Return on average assets (2)..................... 1.27 % 0.97 % 0.90 % 0.49 % 0.91 % 1.04 % 1.21 %
Return on average stockholders' equity (2)....... 8.26 10.38 9.55 5.12 10.14 11.63 14.71
Average stockholders' equity to average assets... 15.41 9.38 9.37 9.52 8.96 8.92 8.19
Stockholders' equity to total assets............. 21.24 9.42 9.69 9.41 9.49 9.28 8.78
Interest rate spread............................. 2.57 2.84 2.80 2.88 2.77 3.26 3.40
Net interest margin (5).......................... 3.39 3.27 3.23 3.30 3.22 3.58 3.74
Operating expenses to average assets (2)(6)...... 1.48 1.59 1.61 2.42 1.83 1.98 1.99
Net interest income before provision for loan
losses to operating expenses(2)(6)............ 2.21 x 1.97 x 1.92 x 1.32 x 1.72 x 1.76 x 1.84 x
Non-performing loans to loans receivable, net.... 0.39 % 0.96 % 0.74 % 0.94 % 1.32 % 2.17 % 2.78 %
Non-performing assets to total assets............ 0.33 0.66 0.54 0.64 0.97 1.34 1.73
Allowance for loan losses to non-performing loans 269.14 111.04 140.74 110.58 86.90 63.52 51.09
Allowance for loan losses to non-performing assets 166.74 85.86 106.74 84.08 57.23 53.81 43.42
Allowance for loan losses to loans receivable, net 1.05 1.07 1.04 1.04 1.15 1.38 1.42
Dividend payout ratio............................ 26.52 15.49 17.81 26.29 12.09 9.51 7.36
Average interest-earning assets to average
interest-bearing liabilities.................. 1.20 x 1.10 x 1.10 x 1.11 x 1.11 x 1.10 x 1.10 x
Full service offices............................. 17 17 17 16 17 15 15
</TABLE>
- -------------
(1) Includes federal funds sold and investment in the stock of the Federal Home
Loan Bank of New York.
(2) Includes the effect of non-recurring items in 1997 and 1996. The
non-recurring item for 1997 was an impairment writedown of core deposit
goodwill totaling $1.3 million, or $867,000 net of tax. Non-recurring items
for 1996 included the Savings Association Insurance Fund ("SAIF")
assessment of $5.2 million, or $3.3 million net of tax, a writedown of
$334,000 of core deposit goodwill, and a provision for benefits payable as
a result of the passing of the First Savings's long-time President.
(3) Reflects the implementation of Statement of Financial Accounting Standards
("SFAS") No. 106 - Accounting for Post-retirement Benefits and SFAS No.
109 -Accounting for Income Taxes.
(4) Per share data reflects a 10% stock dividend paid July 1, 1993, April 1,
1994, December 16, 1996 and October 30, 1997, a 2-for-1 stock split on
December 1, 1994, and a conversion ratio of 3.9133 relating to the 1998
Conversion and Reorganization adjusted retroactively.
(5) Calculation is based upon the net interest income before provision for loan
losses divided by average interest-earning assets.
(6) For purposes of calculating these ratios, operating expenses is equal to
total operating expenses less amortization of intangibles.
14
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
JUNE 30 (1) SEPTEMBER 30,
------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
Unaudited) (Dollars in thousands)
SELECTED FINANCIAL DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets..................................... $544,102 $520,203 $526,016 $502,500 $445,779 $447,684 $435,177
Loans receivable, net............................ 146,681 119,704 127,311 134,548 134,277 139,975 175,835
Investment securities............................ 71,553 102,551 96,552 105,549 114,381 87,917 49,277
Investment securities available for sale......... 111,838 39,398 60,742 39,055 - - -
Other income-earning assets (2).................. 34,137 16,976 14,701 3,043 6,465 14,885 3,667
Mortgage-backed securities, net.................. 126,193 172,403 162,764 164,092 174,969 182,000 186,309
Mortgage-backed securities available for sale.... 40,357 56,081 53,393 40,255 - - -
Deposits......................................... 434,646 413,003 411,021 394,581 391,038 396,190 387,704
Borrowed funds................................... 59,675 60,900 67,675 64,275 - - -
Stockholders' equity (3)......................... 45,900 41,865 43,207 38,459 52,274 49,292 45,310
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30(1) YEAR ENDED SEPTEMBER 30,
------------ --------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Unaudited) (Dollars in thousands)
SELECTED OPERATING DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income...................................... $18,717 $18,101 $36,019 $32,733 $30,739 $30,348 $31,586
Interest expense..................................... 11,630 11,153 22,375 19,133 17,230 13,780 14,492
-------- -------- -------- -------- -------- -------- --------
Net interest income before provision for loan losses 7,087 6,948 13,644 13,600 13,509 16,568 17,094
Provision for loan losses............................ - - - - - 2,650 2,101
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision for loan losses 7,087 6,948 13,644 13,600 13,509 13,918 14,993
Other operating income............................... 134 261 510 326 294 357 252
Operating expenses (4)............................... 2,911 2,677 5,275 8,474 5,643 5,003 5,148
-------- -------- -------- -------- -------- -------- --------
Income before income taxes........................... 4,310 4,532 8,879 5,452 8,160 9,272 10,097
Income taxes......................................... 1,544 1,623 3,204 1,959 2,895 3,254 3,634
-------- -------- -------- -------- -------- -------- --------
Net income........................................ $2,766 $2,909 $5,675 $3,493 $5,265 $ 6,018 $ 6,463
======== ======== ======== ======== ======== ======== ========
Basic earnings per share............................. $0.89 $0.95 $1.85 $0.96 $1.37 $1.59 $1.76
Diluted earnings per share........................... $0.89 $0.93 $1.80 $0.94 $1.34 $1.56 $1.70
Dividends per share, as adjusted..................... $0.40 $0.35 $0.70 $0.70 $0.70 $0.60 $0.65
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
At or for the
six months ended At or for the year ended
June 30 (1) September 30,
----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
SELECTED FINANCIAL RATIOS AND OTHER DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Return on average assets (4)........................ 1.03 % 1.13 % 1.10 % 0.74 % 1.22 % 1.35 % 1.53 %
Return on average stockholders' equity (4).......... 12.26 14.39 14.08 7.02 10.29 12.37 14.87
Average stockholders' equity to average assets...... 8.37 7.85 7.84 10.56 11.82 10.92 10.30
Stockholders' equity to total assets................ 8.44 8.05 8.21 7.65 11.73 11.01 10.41
Interest rate spread................................ 2.33 2.37 2.35 2.53 2.70 3.47 3.82
Net interest margin (5)............................. 2.69 2.77 2.71 2.96 3.12 3.81 4.16
Operating expenses to average assets (4)............ 1.08 1.04 1.03 1.80 1.30 1.12 1.22
Net interest income before provision for loan
losses to operating expenses (4)................. 2.43 x 2.60 x 2.59 x 1.60 x 2.39 x 3.31 x 3.32 x
Non-performing loans to loans receivable, net....... 0.80 % 1.16 % 1.35 % 1.36 % 2.44 % 1.82 % 2.55 %
Non-performing assets to total assets............... 0.46 0.29 0.35 0.81 1.33 1.30 1.97
Allowance for loan losses to non-performing loans... 168.74 169.32 137.01 134.08 79.32 132.33 99.96
Allowance for loan losses to non-performing assets.. 78.83 156.61 126.98 60.46 44.05 57.82 52.30
Allowance for loan losses to loans receivable, net.. 1.35 1.97 1.85 1.83 1.94 2.41 2.55
Dividend payout ratio............................... 45.05 36.89 37.81 69.37 51.21 37.67 37.29
Average interest-earning assets to average
interest-bearing liabilities..................... 1.08 x 1.07 x 1.08 x 1.11 x 1.11 x 1.11 x 1.10 x
Full service offices................................ 5 4 4 4 4 4 4
</TABLE>
________________
(1) Pulse's operating results for the six months ended June 30, 1998 and 1997
are presented to conform with the reporting period of First Source. Pulse's
operating results for the three month periods ended December 31, 1997 and
1996 have not been included in the foregoing and are presented in the
following table:
<TABLE>
<CAPTION>
Unaudited
Three Months Ended
December 31.
------------------
1997 1996
---- ----
<S> <C> <C>
Net Interest Income (000's) $3,389 $3,356
Net Income (000's) $1,362 $1,332
Basic earnings per share $0.44 $0.44
Diluted earnings per share $.042 $0.43
</TABLE>
(2) Includes federal funds sold and investment in the stock of the FHLB-NY.
(3) During 1996, Pulse completed a buyback of 837,080 shares of its common
stock under a Stock Repurchase Plan utilizing the modified Dutch Auction
Method of repurchase.
(4) Includes the SAIF assessment of $2.7 million, or $1.7 million net of tax, a
non-recurring item in 1996.
(5) Calculation is based upon the net interest income before provision for loan
losses divided by average interest-earing assets.
16
<PAGE>
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL DATA
The following tables set forth certain selected condensed financial data
for First Source and Pulse on an unaudited pro forma combined basis giving
effect to the Merger as if the Merger had become effective on June 30, 1998, in
the case of the balance sheet data presented, and if the Merger had become
effective at the beginning of the periods indicated, in the case of the income
statement data presented. The pro forma data in the tables assumes that the
Merger is accounted for using the pooling of interests method of accounting. See
"THE MERGER -- Anticipated Accounting Treatment." The unaudited pro forma
combined condensed selected year-end balance sheet data reflects First Source
and Pulse at their respective year-end reporting periods of December 31 and
September 30 and for the periods then ended for the income statement data.
Because Pulse's fiscal year ends on September 30 and First Source's fiscal year
ends on December 31, financial data for the six months ended June 30, 1998 and
1997 combine First Source's with Pulse's interim results to coincide with the
reporting periods for First Source. Following the Merger, the combined company's
fiscal year, like that of First Source, will end on December 31. These tables
should be read in conjunction with, and are qualified in their entirety by, the
historical financial statements, including the notes thereto, of First Source
and Pulse incorporated by reference herein and the more detailed pro forma
financial information, including the notes thereto, appearing elsewhere in this
Joint Proxy Statement/Prospectus. Certain Pulse financial information has been
restated to conform with First Source. See "INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE" and "UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS."
The pro forma data and ratios set forth in the following tables do not
reflect the expected cost savings and revenue enhancement opportunities that
could result from the Merger or any other items of income or expense which may
result from the Merger. The pro forma balance sheet data and certain ratios do
reflect a $4.1 million reduction to stockholders' equity at June 30, 1998, which
represents the estimated cost of merger expenses and restructuring charges, net
of tax. The unaudited pro forma combined selected financial data is presented
for informational purposes only and is not necessarily indicative of the
combined financial position or results of operations that would have occurred if
the Merger had been consummated on June 30, 1998, or at the beginning of the
periods indicated or which may be obtained in the future.
17
<PAGE>
FIRST SOURCE BANCORP, INC. AND SUBSIDIARY
AND PULSE BANCORP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL DATA (1)
<TABLE>
<CAPTION>
AT JUNE 30 AT DECEMBER 31 / SEPTEMBER 30
-------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Total assets..................................... $1,765,140 $1,553,012 $1,575,332 $1,489,615 $1,390,791 $1,246,034 $1,219,023
Loans receivable, net............................ 791,066 665,785 715,811 644,175 592,033 555,877 590,845
Loans available for sale......................... - - - 287 424 148 1,595
Investment securities............................ 87,547 143,510 127,583 144,504 153,384 111,914 68,296
Investment securities available for sale......... 168,891 58,268 78,443 53,886 2,058 13,206 41,064
Other income-earning assets (2).................. 56,489 28,921 28,796 12,321 30,616 24,951 13,634
Mortgage-backed securities, net.................. 126,193 416,465 369,921 416,475 463,112 465,263 430,496
Mortgage-backed securities available for sale.... 473,142 176,966 200,530 161,052 89,339 24,367 28,314
Deposits......................................... 1,242,237 1,228,169 1,227,304 1,189,176 1,197,376 1,077,803 1,066,665
Borrowed funds................................... 199,219 171,290 186,665 152,915 39,496 34,300 26,400
Stockholders' equity............................. 301,059 139,146 144,893 131,322 141,987 123,356 114,119
</TABLE>
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED AT OR FOR THE
-------------
JUNE 30 YEAR ENDED DECEMBER 31 / SEPTEMBER 30
---------------- --------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands, except per share data))
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income........................................ $57,789 $54,155 $109,241 $100,772 $95,312 $83,257 $86,251
Interest expense....................................... 32,157 31,243 63,558 56,397 52,921 38,915 40,940
------- ------- -------- -------- ------- ------- -------
Net interest income before provision for loan losses 25,632 22,912 45,683 44,375 42,391 44,342 45,311
Provision for loan losses.............................. 740 600 1,200 550 310 2,950 3,301
------- ------- -------- -------- ------- ------- -------
Net interest income after provision for loan losses. 24,892 22,312 44,483 43,825 42,081 41,392 42,010
Other operating income................................. 2,601 1,312 3,311 2,321 2,465 2,091 3,043
Operating expenses .................................... 11,722 11,218 24,138 33,175 23,473 21,024 20,699
------- ------- -------- -------- ------- ------- -------
Income before income taxes, and cumulative effect of
accounting changes (4)................................. 15,771 12,406 23,656 12,971 21,073 22,459 24,354
Income taxes........................................... 5,787 4,542 8,686 4,768 7,506 8,166 8,986
------- ------- -------- -------- ------- ------- -------
Income before cumulative effect of accounting changes (4) 9,984 7,864 14,970 8,203 13,567 14,293 15,368
Cumulative effect of accounting changes (4)............ - - - - - - 398
------- ------- -------- -------- ------- ------- -------
Net income.......................................... $ 9,984 $ 7,864 $ 14,970 $ 8,203 $13,567 $14,293 $15,766
======= ======= ======== ======== ======= ======= =======
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED AT OR FOR THE
JUNE 30 YEAR ENDED DECEMBER 31 / SEPTEMBER 30
---------------- -----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA):
Return on average assets (3): 1.19 % 1.03 % 0.96 % 0.57 % 1.01 % 1.15 % 1.32 %
Return on average stockholders' equity (3) 9.08 11.57 10.88 5.79 10.20 11.93 14.78
Average stockholders' equity to average assets 13.14 8.86 8.86 9.86 9.88 9.64 8.94
Stockholders' equity to total assets 17.06 8.96 9.20 8.82 10.21 9.90 9.36
Interest rate spread 2.54 2.72 2.65 2.76 2.75 3.34 3.55
Net interest margin (5) 3.17 3.10 3.05 3.19 3.19 3.67 3.89
Operating expenses to average assets (3)(6) 1.35 1.41 1.42 2.22 1.66 1.67 1.71
Net interest income before provision for loan losses to
operating expenses(3)(6) 2.27 x 2.12 x 2.08 x 1.39 x 1.89 x 2.13 x 2.21 X
Non-performing loans to total loans receivable, net 0.47 % 1.00 % 0.85 % 1.03 % 1.57 % 2.08 % 2.71 %
Non-performing assets to total assets 0.37 0.53 0.48 0.70 1.08 1.32 1.82
Allowance for loan losses to non-performing loans 237.15 123.24 139.68 117.06 84.23 78.64 64.77
Allowance for loan losses to non-performing assets 133.09 98.69 111.71 74.84 52.06 55.22 46.86
Allowance for loan losses to total loans receivable, net 1.10 1.23 1.18 1.21 1.33 1.64 1.76
Dividend payout ratio 31.65 23.40 25.40 44.63 27.27 21.37 19.63
Average interest-earning assets to average interest-bearing
liabilities 1.16 x 1.09 x 1.10 x 1.11 x 1.11 x 1.10 x 1.10 x
Full service offices 22 21 21 20 21 19 19
</TABLE>
________________
(1) The following table sets forth unaudited pro forma combined selected
financial data for First Source and Pulse. The historical data has been
derived from the financial statements of First Source and Pulse which are
incorporated by reference herein. The pro forma combined share data have
been derived after giving effect to the Merger as if it occurred at the
beginning of the period presented using the pooling- of-interest method of
accounting. Under a pooling-of-interest method, a business combination is
accounted as the uniting of the ownership interests of two or more
enterprises through an exchange of equity interests. The assets and
liabilities of Pulse are carried forward to First Source at their recorded
amounts. The income of the First Source and Pulse, for the current period
and all prior periods, is combined and reported as income of the combined
enterprise.
(2) Includes federal funds sold and investment in the stock of FHLB-NY.
(3) Includes the effect of non-recurring items in 1997 and 1996. Non-recurring
items for 1997 included a writedown of the core deposit goodwill totaling
$1.3 million, or $867,000 net of tax. Non-recurring items for 1996 included
the SAIF assessment of $7.9 million, or $5.0 million net of tax, a
writedown of the $334,000 of core deposit goodwill, and a provision for
benefits payable as a result of the passing of First Savings' long-time
President.
(4) Reflects the implementation of SFAS No. 106 - Accounting for Post-
Retirement Benefits and SFAS No. 109 - Accounting for Income Taxes.
(5) Calculation is based upon the net interest income before provision for loan
losses divided by average interest-earning assets.
(6) For purposes of calculating these ratios, operating expenses is equal to
total operating expenses less amortization of intangibles.
19
<PAGE>
The following table sets forth the basic and diluted income per share,
period-end stated and tangible book value per share and cash dividends per share
of First Source Common Stock and Pulse Common Stock at or for the six months
ended June 30, 1998 and 1997 and for each of the years in the three-year period
ended December 31, 1997, on a historical and pro forma basis, as well as pro
forma equivalent per share data for Pulse. The historical per share data have
been derived from the financial statements of First Source and Pulse which are
incorporated by reference herein. The pro forma combined share data have been
derived after giving effect to the Merger as if it occurred at the beginning of
the period presented using the pooling-of-interest method of accounting.
The historical per share for First Source has been restated to
retroactively reflect the effect of stock dividends, a stock split and a
conversion. See "Pro Forma Combined Financial Information;" "Summary --Selected
Financial Data of First Source" and "Summary -- Selected Financial Data of
Pulse."
UNAUDITED COMPARATIVE PER SHARE DATA AT EXCHANGE RATIO OF 3.764
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEARS ENDED
-------------- ----------------------
1998 1997 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
First Source..................... $ 0.24 $ 0.16 $ 0.30 $ 0.15 $ 0.27
Pulse............................ 0.89 0.95 1.85 0.96 1.37
First Source Pro Forma........... 0.24 0.19 0.35 0.18 0.30
Pulse Pro Forma Equivalent (1)... 0.89 0.70 1.33 0.70 1.13
DILUTED EARNINGS PER SHARE
First Source..................... $ 0.23 $ 0.16 $ 0.30 $ 0.15 $ 0.27
Pulse............................ 0.85 0.93 1.80 0.94 1.34
First Source Pro Forma........... 0.23 0.18 0.35 0.18 0.30
Pulse Pro Forma Equivalent (1)... 0.87 0.68 1.31 0.68 1.11
DIVIDENDS PAID PER SHARE (2)
First Source..................... $ 0.06 $ 0.02 $ 0.05 $ 0.04 $ 0.03
Pulse............................ 0.40 0.35 0.70 0.70 0.70
First Source Pro Forma........... 0.06 0.02 0.05 0.04 0.03
Pulse Pro Forma Equivalent (1)... 0.23 0.09 0.20 0.15 0.12
STATED BOOK VALUE PER SHARE (3)
First Source..................... $ 8.17 $ 3.11 $ 3.24 $ 3.00 $ 2.91
Pulse............................ 14.71 13.63 14.03 12.61 13.57
First Source Pro Forma........... 6.92 3.25 3.37 3.10 3.13
Pulse Pro Forma Equivalent (1)... 26.06 12.23 12.69 11.66 11.80
TANGIBLE BOOK VALUE PER SHARE (4)
First Source..................... $ 7.91 $ 2.77 $ 2.96 $ 2.65 $ 2.51
Pulse............................ 14.71 13.63 14.03 12.61 13.57
First Source Pro Forma........... 6.73 3.00 3.17 2.84 2.86
Pulse Pro Forma Equivalent (1)... 25.33 11.30 11.92 10.68 10.77
</TABLE>
_______________
(1) Pulse pro forma equivalent per share data is computed by multiplying the
First Source Pro Forma per share data by the Exchange Ratio of 3.764.
(2) The amount of future dividends payable by First Source, if any, is subject
to the discretion of First Source's Board of Directors. The Directors
normally consider First Source's and First Savings Bank's cash needs, First
Source's net income, general business conditions, dividends from
subsidiaries and applicable government regulations and policies.
20
<PAGE>
(3) Stated book value is equal to total stockholders' equity divided by total
shares outstanding.
(4) Tangible book value is equal to total stockholders' equity less goodwill,
divided by total shares outstanding.
21
<PAGE>
The following table sets forth the basic and diluted income per share,
period-end stated and tangible book value per share and cash dividends per share
of First Source Common Stock and Pulse Common Stock at or for the six months
ended June 30, 1998 and 1997 and for each of the years in the three-year period
ended December 31, 1997, on a historical and pro forma basis, as well as pro
forma equivalent per share data for Pulse. The historical per share data have
been derived from the financial statements of First Source and Pulse which are
incorporated by reference herein. The pro forma combined share data have been
derived after giving effect to the Merger as if it occurred at the beginning of
the period presented using the pooling-of-interest method of accounting.
The historical per share for First Source has been restated to
retroactively reflect the effect of stock dividends, a stock split and a
conversion. See "Pro Forma Combined Financial Information;" "Summary -- Selected
Financial Data of First Source" and "Summary -- Selected Financial Data of
Pulse."
UNAUDITED COMPARATIVE PER SHARE DATA AT EXCHANGE RATIO OF 3.2
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEARS ENDED
-------------- ----------------------
1998 1997 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
First Source..................... $ 0.24 $ 0.16 $ 0.30 $ 0.15 $ 0.27
Pulse............................ 0.89 0.95 1.85 0.96 1.37
First Source Pro Forma........... 0.25 0.19 0.37 0.19 0.32
Pulse Pro Forma Equivalent (1)... 0.79 0.62 1.17 0.62 1.01
DILUTED EARNINGS PER SHARE
First Source..................... $ 0.23 $ 0.16 $ 0.30 $ 0.15 $ 0.27
Pulse............................ 0.85 0.93 1.80 0.94 1.34
First Source Pro Forma........... 0.24 0.19 0.36 0.19 0.31
Pulse Pro Forma Equivalent (1)... 0.78 0.61 1.16 0.61 0.99
DIVIDENDS PAID PER SHARE (2)
First Source..................... $ 0.06 $ 0.02 $ 0.05 $ 0.04 $ 0.03
Pulse............................ 0.40 0.35 0.70 0.70 0.70
First Source Pro Forma........... 0.06 0.02 0.05 0.04 0.03
Pulse Pro Forma Equivalent (1)... 0.19 0.08 0.17 0.13 0.10
STATED BOOK VALUE PER SHARE (3)
First Source..................... $ 8.17 $ 3.11 $ 3.24 $ 3.00 $ 2.91
Pulse............................ 14.71 13.63 14.03 12.61 13.57
First Source Pro Forma........... 7.22 3.39 3.51 3.23 3.29
Pulse Pro Forma Equivalent (1)... 26.06 10.84 11.25 10.33 10.53
TANGIBLE BOOK VALUE PER SHARE (4)
First Source..................... $ 7.91 $ 2.77 $ 2.96 $ 2.65 $ 2.51
Pulse............................ 14.71 13.63 14.03 12.61 13.57
First Source Pro Forma........... 7.01 3.13 3.30 2.96 3.01
Pulse Pro Forma Equivalent (1)... 22.45 10.02 10.56 9.47 9.62
</TABLE>
_______________
(1) Pulse pro forma equivalent per share data is computed by multiplying the
First Source Pro Forma per share data by the Exchange Ratio of 3.2.
22
<PAGE>
(2) The amount of future dividends payable by First Source, if any, is subject
to the discretion of First Source's Board of Directors. The Directors
normally consider First Source's and First Savings Bank's cash needs, First
Source's net income, general business conditions, dividends from
subsidiaries and applicable government regulations and policies.
(3) Stated book value is equal to total stockholders' equity divided by total
shares outstanding.
(4) Tangible book value is equal to total stockholders' equity less goodwill,
divided by total shares outstanding.
23
<PAGE>
THE MEETINGS
PULSE MEETING
General. This Joint Proxy Statement/Prospectus is being furnished to
stockholders of Pulse Bancorp, Inc. ("Pulse") in connection with the
solicitation of proxies by the Board of Directors of Pulse (the "Pulse Board")
for use at the special meeting of stockholders of Pulse and at any adjournments
or postponements thereof (the "Pulse Meeting") to be held at the Forsgate
Country Club, Forsgate Drive, Jamesburg, New Jersey, on _______________________,
at _____ __.m. local time. At the Pulse Meeting, the stockholders of Pulse will
be asked to: (i) approve and adopt the Agreement and Plan of Merger, dated as
of July 9, 1998 (the "Merger Agreement"), between First Source Bancorp, Inc.
("First Source") and Pulse and the consummation of the transactions contemplated
thereby, which are more fully described herein; and (ii) act upon such other
matters as may properly be brought before the Pulse Meeting and at any
adjournments or postponements thereof. A copy of the Merger Agreement is
attached as Annex A hereto. The Merger Agreement provides for the acquisition
of Pulse by First Source by means of the merger of Pulse with and into First
Source (the "Merger"). Upon consummation of the Merger, each share of the
common stock of Pulse, par value $1.00 per share ("Pulse Common Stock")
outstanding on the date of the Merger (except for certain specified shares
described below) will be converted into and exchangeable for the number of
shares of the common stock, par value $0.01 per share, of First Source ("First
Source Common Stock"), equal to the Exchange Ratio. See "THE MERGER -- Exchange
Ratio."
This Joint Proxy Statement/Prospectus constitutes a prospectus of First
Source with respect to the shares of First Source Common Stock to be issued in
connection with the Merger. The information in this Joint Proxy
Statement/Prospectus concerning First Source and Pulse has been furnished by
each of such entities, respectively.
HOLDERS OF PULSE COMMON STOCK ARE REQUESTED TO PROMPTLY COMPLETE, SIGN AND
DATE THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY TO PULSE IN THE ENCLOSED
POSTAGE-PAID ADDRESSED ENVELOPE.
PULSE STOCKHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
Recommendation of the Board of Directors. The Pulse Board has unanimously
approved the Merger Agreement and has determined that the Merger is fair to, and
in the best interests of, Pulse and its stockholders. The Pulse Board therefore
unanimously recommends that Pulse's stockholders vote FOR approval of the Merger
Agreement. See "THE MERGER -- Background of the Merger" and "-- Recommendation
of the Boards of Directors; Reasons for the Merger -- Pulse."
Record Date; Voting; Solicitation and Revocation of Proxies. The Pulse
Board has fixed [ , 1998] as the record date (the "Pulse Record Date")
for the determination of those Pulse stockholders entitled to notice of and to
vote at the Pulse Meeting. Only holders of record of Pulse Common Stock at the
close of business on the Pulse Record Date will be entitled to notice of and to
vote at the Pulse Meeting. As of the Pulse Record Date, there were [3,140,300]
shares of Pulse Common Stock outstanding, entitled to vote and held by
approximately 800 holders of record. Each holder of record of shares of Pulse
Common Stock on the Pulse Record Date is entitled to cast one vote per share on
the proposal to approve and adopt the Merger Agreement, and on any other matter
properly submitted for the vote of the Pulse stockholders at the Pulse Meeting.
The presence, either in person or by properly executed proxy, of the holders of
a majority of the outstanding shares of Pulse Common Stock entitled to vote at
the Pulse Meeting is necessary to constitute a quorum at the Pulse Meeting.
Abstentions will be counted as present for purposes of determining the presence
or absence of a quorum at the Pulse Meeting.
The approval and adoption of the Merger Agreement by Pulse stockholders
will require the affirmative vote of the holders of a majority of the
outstanding shares of Pulse Common Stock entitled to vote thereon. As described
24
<PAGE>
in "THE MERGER -- Conditions to the Merger," such stockholder approval is a
condition to consummation of the Merger. Under applicable New Jersey law, in
determining whether the Merger proposal has received the requisite number of
affirmative votes, abstentions and broker non-votes will be counted and will
have the same effect as a vote against the proposal to approve and adopt the
Merger Agreement.
As of the Pulse Record Date, directors and executive officers of Pulse and
their affiliates may be deemed to be beneficial owners of 453,821 shares, or
approximately 14.5% of the shares, of Pulse Common Stock outstanding as of the
Record Date. Such persons have informed Pulse that they intend to vote or
direct the vote of all such shares of Pulse Common Stock FOR approval and
adoption of the Merger Agreement and the transactions contemplated thereby. As
of the Pulse Record Date, neither First Source and its subsidiaries, nor the
directors and executive officers of First Source, beneficially owned any
outstanding shares of Pulse Common Stock.
All shares of Pulse Common Stock which are entitled to be voted and are
represented at the Pulse Meeting by properly executed proxies received prior to
or at the meeting, and not revoked, will be voted at such meeting, and any
adjournments or postponements thereof, in accordance with the instructions
indicated on such proxies. If no instructions are indicated, such proxies will
be voted FOR: (i) approval and adoption of the Merger Agreement, and (ii)
otherwise in the discretion of the proxy holders as to any other matter which
may come before the Pulse Meeting or any adjournment or postponement thereof,
including, among other things, a motion to adjourn or postpone the Pulse Meeting
to another time and/or place, for the purpose of soliciting additional proxies
or otherwise; provided, however, that no proxy which is voted against the
proposal to approve and adopt the Merger Agreement will be voted in favor of any
such adjournment or postponement.
If any other matters are properly presented at the Pulse Meeting for
consideration, the persons named in the form of proxy enclosed herewith and
acting thereunder will have discretionary authority to vote on such matters in
accordance with their best judgment; provided, however, that such discretionary
authority will only be exercised to the extent possible under applicable federal
and state securities and corporation laws. Pulse does not have any knowledge of
any matters to be presented at the Pulse Meeting other than the matters set
forth above.
Any proxy given by a Pulse stockholder pursuant to this solicitation may be
revoked by the person giving it at any time before it is voted. Proxies may be
revoked by (i) filing with the Secretary of Pulse, at or before the taking of
the vote at the Pulse Meeting, a written notice of revocation bearing a later
date than the proxy, (ii) duly executing a later-dated proxy relating to the
same shares and delivering it to the Secretary of Pulse before the taking of the
vote at the Pulse Meeting, or (iii) attending the Pulse Meeting and voting in
person (although attendance at the meeting will not in and of itself constitute
a revocation of a proxy). Any written notice of revocation or subsequently
executed proxy should be sent so as to be delivered to Pulse Bancorp, Inc., 6
Jackson Street, South River, New Jersey 08882, Attention: Nancy M. Janosko,
Secretary, or hand delivered to Ms. Janosko at or before the taking of the vote
at the Pulse Meeting.
Pulse will bear all expenses of this solicitation of proxies from the
holders of Pulse Common Stock, except that the cost of preparing and mailing
this Joint Proxy Statement/Prospectus will be borne equally by Pulse and First
Source. In addition to solicitation by use of the mails, proxies may be
solicited by directors, officers and employees of Pulse in person or by
telephone, telegram or other means of communication. Such directors, officers
and employees will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation. Pulse
has retained its transfer agent, American Stock Transfer and Trust Company, to
assist in such solicitation. The fee to be paid to such firm is not expected to
exceed $_____ plus reasonable out-of-pocket costs and expenses. In addition,
Pulse will make arrangements with brokerage firms and other custodians, nominees
and fiduciaries to send proxy materials to their principals and will reimburse
such parties for their expenses in doing so.
FIRST SOURCE MEETING
General. This Joint Proxy Statement/Prospectus is being furnished to
stockholders of First Source in connection with the solicitation of proxies by
the Board of Directors of First Source (the "First Source Board") for use
25
<PAGE>
at the special meeting of stockholders of First Source and at any adjournments
or postponements thereof (the "First Source Meeting", and together with the
Pulse Meeting, the "Special Meetings") to be held at the Forsgate Country Club,
Jamesburg, New Jersey, on [ , 1998] at ______ local time. At the First Source
Meeting, the stockholders of First Source will be asked to: (i) approve and
adopt the Merger Agreement and the consummation of the transactions contemplated
thereby, which are more fully described herein; (ii) approve and adopt the First
Source Incentive Plan; (iii) approve and adopt the Corporate Name Amendment and
(iv) act upon such other matters as may properly be brought before the First
Source Meeting and at any adjournments or postponements thereof. A copy of the
Merger Agreement is attached as Annex A hereto. A copy of the Incentive Plan is
attached as Annex E hereto. A copy of the Amendment to the First Source
Certificate of Incorporation is attached as Annex F hereto.
HOLDERS OF FIRST SOURCE COMMON STOCK ARE REQUESTED TO PROMPTLY COMPLETE,
SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY TO FIRST SOURCE
IN THE ENCLOSED POSTAGE-PAID ADDRESSED ENVELOPE.
FIRST SOURCE STOCKHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH
THEIR PROXY CARDS.
Recommendation of the Board of Directors. The First Source Board has
unanimously approved the Merger Agreement and has determined that the Merger is
fair to, and in the best interests of, First Source and its stockholders. The
First Source Board therefore unanimously recommends that First Source's
stockholders vote FOR approval of the Merger Agreement. The First Source board
has also unanimously approved the First Source Incentive Plan and the Corporate
Name Amendment and unanimously recommends that First Source's stockholders vote
FOR approval and adoption of the First Source Incentive Plan and the Corporate
Name Amendment. See "THE MERGER -- Background of the Merger" and "--
Recommendation of the Boards of Directors; Reasons for the Merger -- First
Source"; "The First Source Bancorp, Inc. 1998 Stock-Based Incentive Plan"; and
"Amendment of the First Source Bancorp, Inc. Certificate of Incorporation."
Record Date; Voting; Solicitation and Revocation of Proxies. The First
Source Board has fixed [ , 1998] as the record date (the "First
Source Record Date") for the determination of those First Source stockholders
entitled to notice of and to vote at the First Source Meeting. Only holders of
record of First Source Common Stock at the close of business on the First Source
Record Date will be entitled to notice of and to vote at the First Source
Meeting. As of the First Source Record Date, there were ________ shares of First
Source Common Stock outstanding, entitled to vote and held by approximately
________ holders of record. Each holder of record of shares of First Source
Common Stock on the First Source Record Date is entitled to cast one vote per
share on the proposals to approve and adopt the Merger Agreement, the First
Source Incentive Plan and the Corporate Name Amendment and on any other matter
properly submitted for the vote of the First Source stockholders at the First
Source Meeting. The presence, either in person or by properly executed proxy,
of the holders of a majority of the outstanding shares of First Source Common
Stock entitled to vote at the First Source Meeting is necessary to constitute a
quorum at the First Source Meeting. Abstentions will be counted as present for
purposes of determining the presence or absence of a quorum at the First Source
Meeting.
The approval and adoption of the Merger Agreement by First Source
stockholders will require the affirmative vote of the holders of a majority of
the outstanding shares of First Source Common Stock entitled to vote thereon.
As described in "THE MERGER -- Conditions to the Merger," such stockholder
approval is a condition to consummation of the Merger. The approval and
adoption of the First Source Incentive Plan and the Corporate Name Amendment
will require the affirmative vote of the holders of a majority of the
outstanding shares of First Source Common Stock entitled to vote thereon. Under
applicable Delaware law, in determining whether the Merger, the Incentive Plan
and the Corporate Name Amendment proposals have received the requisite number of
affirmative votes, abstentions and broker non-votes will be counted and will
have the same effect as a vote against the proposals presented.
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As of the First Source Record Date, directors and executive officers of
First Source and their affiliates may be deemed to be beneficial owners of
________ shares of First Source Common Stock, or approximately ____% of the
shares of First Source Common Stock outstanding as of the Record Date. Such
persons have informed First Source that they intend to vote or direct the vote
of all such shares of First Source Common Stock FOR approval and adoption of the
Merger Agreement, approval and adoption of the First Source Incentive Plan
approval and adoption of the Corporate Name Amendment and the transactions
contemplated thereby. As of the First Source Record Date, Pulse and the
directors and executive officers of Pulse, beneficially owned ______ shares of
First Source Common Stock.
All shares of First Source Common Stock which are entitled to be voted and
are represented at the First Source Meeting by properly executed proxies
received prior to or at the meeting, and not revoked, will be voted at such
meeting, and any adjournments or postponements thereof, in accordance with the
instructions indicated on such proxies. If no instructions are indicated, such
proxies will be voted FOR: (i) approval and adoption of the Merger Agreement;
(ii) approval and adoption of the Incentive Plan; (iii) approval and adoption of
the Corporate Name Amendment; and (iv) otherwise in the discretion of the proxy
holders as to any other matter which may come before the First Source Meeting or
any adjournment or postponement thereof, including, among other things, a motion
to adjourn or postpone the First Source Meeting to another time and/or place,
for the purpose of soliciting additional proxies or otherwise; provided,
however, that no proxy which is voted against the proposals will be voted in
favor of any such adjournment or postponement.
If any other matters are properly presented at the First Source Meeting for
consideration, the persons named in the form of proxy enclosed herewith and
acting thereunder will have discretionary authority to vote on such matters in
accordance with their best judgment; provided, however, that such discretionary
authority will only be exercised to the extent possible under applicable federal
and state securities and corporation laws. First Source does not have any
knowledge of any matters to be presented at the First Source Meeting other than
the matters set forth above.
Any proxy given by a First Source stockholder pursuant to this solicitation
may be revoked by the person giving it at any time before it is voted. Proxies
may be revoked by (i) filing with the Secretary of First Source, at or before
the taking of the vote at the First Source Meeting, a written notice of
revocation bearing a later date than the proxy, (ii) duly executing a later
dated proxy relating to the same shares and delivering it to the Secretary of
First Source before the taking of the vote at the First Source Meeting, or (iii)
attending the First Source Meeting and voting in person (although attendance at
the meeting will not in and of itself constitute a revocation of a proxy). Any
written notice of revocation or subsequently executed proxy should be sent so as
to be delivered to First Source Bancorp, Inc., 1000 Woodbridge Center Drive,
Woodbridge, NJ 07095, Attention: Christopher Martin, Corporate Secretary, or
hand delivered to Mr. Martin at such address at or before the taking of the vote
at the First Source Meeting.
First Source will bear all expenses of this solicitation of proxies from
the holders of First Source Common Stock, except that the cost of preparing and
mailing this Joint Proxy Statement/Prospectus will be borne equally by Pulse and
First Source. In addition to solicitation by use of the mails, proxies may be
solicited by directors, officers and employees of First Source in person or by
telephone, telegram or other means of communication. Such directors, officers
and employees will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation. First
Source has retained Kissel-Blake, Inc., a proxy soliciting firm, to assist in
such solicitation. The fee to be paid to such firm is not expected to exceed [$
] plus reasonable out-of-pocket costs and expenses. In addition, First Source
will make arrangements with brokerage firms and other custodians, nominees and
fiduciaries to send proxy materials to their principals and will reimburse such
parties for their expenses in doing so.
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THE MERGER
The following information concerning the Merger, insofar as it relates to
matters contained in the Merger Agreement, describes the material aspects of the
Merger but does not purport to be a complete description and is qualified in its
entirety by reference to the Merger Agreement which is incorporated herein by
reference and attached hereto as Annex A. First Source and Pulse stockholders
are urged to read carefully the Merger Agreement.
GENERAL
Pursuant to the terms of the Merger Agreement, subject to the satisfaction
or waiver (where permissible) of certain conditions, including, among other
things, the receipt of all necessary regulatory approvals, the expiration of all
waiting periods in respect thereof, and the approval of the Merger Agreement by
the requisite vote of the stockholders of First Source and Pulse, Pulse will be
merged with and into First Source. First Source shall be the surviving
corporation in the Merger, and shall continue its corporate existence under the
laws of the State of Delaware. Upon consummation of the Merger, the separate
corporate existence of Pulse shall terminate.
Immediately after the consummation of the Merger, Pulse Savings Bank, a New
Jersey stock savings bank and a wholly owned subsidiary of Pulse ("Pulse Bank"),
will merge (the "Subsidiary Bank Merger") with and into First Savings Bank, SLA,
a New Jersey savings and loan association and a wholly owned subsidiary of First
Source ("First Savings"). See "CERTAIN RELATED TRANSACTIONS -- Subsidiary Bank
Merger Agreement."
EXCHANGE RATIO
At the Effective Time (as defined below), each issued and outstanding share
of Pulse Common Stock, except for shares held directly or indirectly by Pulse or
First Source (other than shares held by First Source or Pulse in a fiduciary
capacity ("Trust Account Shares") or in respect of a debt previously contracted
("DPC Shares")), will be converted into and exchangeable for the number of
shares (the "Exchange Ratio") of First Source Common Stock determined as
follows: (i) subject to certain provisions of the Agreement, if the Average
Closing Price of First Source Common Stock is equal to or greater than $11.50,
the Exchange Ratio shall be equal to 3.2; (ii) if the Average Closing Price is
$10.00 or greater but less than $11.50, the Exchange Ratio shall be 3.2; (iii)
if the Average Closing Price is greater than $8.50 but less than $10.00 the
Exchange Ratio shall equal $32.00 divided by the Average Closing Price; or (iv)
subject to certain provisions of the Agreement, if the Average Closing Price is
equal to or less than $8.50, the Exchange Ratio shall be 3.764. The Average
Closing Price is defined as the average closing sales price of the First Source
Common Stock on the Nasdaq Stock Market for the 10 consecutive trading days
ending on the fifth business day (the "Valuation Date") prior to the date on
which the later of approval of First Source's stockholders, Pulse's
Stockholders, or the date the last required regulatory approval for the Merger
and the other transactions contemplated by the Merger Agreement is obtained,
without regard to any requisite waiting periods in respect thereof. Under the
terms of the Merger Agreement, cash will be paid in lieu of the issuance of
fractional shares of First Source Common Stock.
If the Average Closing Price is less than $8.50 and, in response to an
election by Pulse to terminate the Merger Agreement, First Source elects to
increase the Exchange Ratio, the Exchange Ratio will be equal to $32.00 per
share. See "-- Waiver and Amendment; Termination" below. Assuming the Merger is
approved by the holders of Pulse Common Stock, the Pulse Board may elect not to
terminate the Merger Agreement and to consummate the Merger without resoliciting
Pulse stockholders if the Average Closing Price is less than $8.50, even though,
as a result of the application of the Exchange Ratio, the value of the shares of
First Source Common Stock (valued at the Average Closing Price) issued in
exchange for each share of Pulse Common Stock would be less than $32.00. In
such a situation, in considering whether to consummate the Merger without the
resolicitation of Pulse stockholders, the Pulse Board will take into account,
consistent with its fiduciary duties, all relevant facts and circumstances that
exist at such time, including, without limitation, its evaluation of the then-
existing economic conditions and trends, its evaluation of the respective
business, financial condition, results of operations and prospects of each of
Pulse and First Source, its
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evaluation of the overall condition of the thrift and commercial banking
industries and the advice of its financial advisor and legal counsel. Pulse
stockholders will have no vote in the decision of the Pulse Board to either
terminate the Merger Agreement or elect to consummate the Merger in the event
that the Average Closing Price is less than $8.50. See "--Waiver and Amendment;
Termination" below.
Assuming the Merger is approved by the holders of First Source Common Stock
and the Average Closing Price is less than $8.50, the First Source Board may
elect to increase the Exchange Ratio and to consummate the Merger without
resoliciting First Source stockholders even though, as a result of such
adjustment, the number of shares of First Source Common Stock to be issued in
the Merger would increase. In such a situation, in considering whether to
increase the Exchange Ratio and consummate the Merger without the resolicitation
of First Source stockholders, the First Source Board will take into account,
consistent with its fiduciary duties, all relevant facts and circumstances that
exist at such time, including, without limitation, the advice of its financial
advisor and legal counsel. Such relevant facts and circumstances would include
the First Source Board's evaluation of the dilutive impact of a higher Exchange
Ratio to First Source's stockholders, its evaluation of the strategic importance
to First Source of the acquisition of Pulse relative to any such dilutive impact
and the accretive prospects of the acquisition, its evaluation of the synergies
of Pulse's business relative to First Source, Pulse's financial condition,
operating performance, and prospects, and the advice of First Source's financial
advisor as to the fairness of such higher Exchange Ratio to First Source
stockholders from a financial point of view. First Source stockholders will
have no vote in the decision of the First Source Board to either permit Pulse to
terminate the Merger Agreement or elect to increase the Exchange Ratio in the
event that the Average Closing Price is less than $8.50.
First Source has the right to terminate the Agreement if the Average
Closing Price of First Source is greater than $11.50 per share, unless Pulse
provides notice pursuant to the Agreement that it wants to proceed with the
Merger, in which event First Source will pay $36.80 per share for Pulse common
stock. Assuming the Merger is approved by First Source stockholders, the First
Source Board may elect not to terminate the Merger Agreement and to consummate
the Merger without resoliciting First Source stockholders if the Average Closing
Price is greater than $11.50 and Pulse chooses not to decrease the
consideration, even though, as a result of the application of the Exchange
Ratio, the value of the shares of First Source Common Stock (valued at the
Average Closing Price) issued in exchange for each share of Pulse Common Stock
would be greater that $36.80. In such a situation, in considering whether to
consummate the Merger without the resolicitation of First Source stockholders,
the First Source Board will take into account, consistent with its fiduciary
duties, all relevant facts and circumstances that exist at such time including,
without limitation, its evaluation of the then-existing economic conditions and
trends, its evaluation of the respective business, financial condition, results
of operations and prospects of each of Pulse and First Source, its evaluation of
the overall condition of the thrift banking industry and the advice of its
financial advisor and legal counsel.
Assuming the Merger is approved by the holders of Pulse Common Stock and
the Average Closing Price is greater than $11.50, the Pulse Board may elect to
decrease the Exchange Ratio and to consummate the Merger without resoliciting
Pulse stockholders even though, a result of such adjustment, the number of
shares of First Source Common Stock to be issued in the Merger would decrease.
In such a situation, in considering whether to decrease the Exchange Ratio and
consummate the Merger without the resolicitation of Pulse stockholders, the
Pulse Board will take into account, consistent with its fiduciary duties, all
relevant facts and circumstances that exist at such time, including, without
limitation, the advice of its financial advisor and legal counsel. Such
relevant facts and circumstances would include the status of the overall stock,
the market prices of stock of comparable financial institutions, the economy and
the performance of Pulse and First Source. See "THE MERGER -- Exchange Ratio"
and "-- Waiver and Amendment; Termination."
The formula for determining the Exchange Ratio was arrived at through arms-
length negotiations between Pulse and First Source. If First Source effects a
stock dividend, split-up or combination, or other distribution in First Source
Common Stock prior to consummation of the Merger, an appropriate adjustment to
the Exchange Ratio will be made.
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Under the terms of the Merger Agreement, the Exchange Ratio will be
determined by reference to the Average Closing Price of First Source Common
Stock as of the Valuation Date. Due to the requirements of applicable law,
among other reasons, it is possible that the Valuation Date will occur 30 days
or more prior to the Effective Time. The market price of First Source Common
Stock will fluctuate between the date of this Joint Proxy Statement/Prospectus
and the Valuation Date, and between the Valuation Date and the Effective Time.
Although the Merger Agreement provides that the Exchange Ratio will adjust to
absorb fluctuations in the market price of First Source Common Stock within
certain ranges prior to the Valuation Date, fluctuations in such market price
prior to the Effective Time could result in an increase or decrease in the
market price as of the Effective Time of the shares of First Source Common Stock
to be received by Pulse stockholders in the Merger. If the Valuation Date had
been [ ], the Exchange Ratio would have been [ ]. For further
information concerning the market prices of First Source Common Stock and Pulse
Common Stock, see "MARKET PRICES AND DIVIDEND INFORMATION." No assurance can be
given concerning the market price of First Source Common Stock before or after
the Effective Time.
No fractional shares of First Source Common Stock will be issued in
connection with the Merger. In lieu of the issuance of fractional shares, First
Source will make a cash payment to each Pulse stockholder who otherwise would be
entitled to receive a fractional share equal to the product of (i) the
fractional interest which a Pulse stockholder would otherwise receive and (ii)
the average of the closing sale prices of First Source Common Stock on the
Nasdaq National Market for the five trading days immediately preceding the
Effective Time.
Upon consummation of the Merger, any shares of Pulse Common Stock that were
owned by Pulse as treasury stock or that were held directly or indirectly by
First Source other than in a fiduciary capacity or in respect of a debt
previously contracted will be canceled and retired and no payment will be made
with respect thereto.
Based on the capitalization of First Source and Pulse as of _____, upon
consummation of the Merger, the stockholders of Pulse will own First Source
Common Stock representing approximately [ %] of the outstanding First
Source Common Stock following the Merger assuming an Exchange Ratio of [ ]
or approximately [ %] of the outstanding First Source Common Stock
following the Merger assuming an Exchange Ratio of [ ]. As more fully
described above, the Exchange Ratio could be as low as 3.2 and as high as 3.764.
Such percentages would range from [ %] to [ %], depending on
whether the shares of Pulse Common Stock and First Source Common Stock issuable
upon exercise of outstanding Pulse stock options and First Source stock options
and warrants (vested and unvested) are issued. For purposes of these
calculations, except as set forth above, it is assumed that no other shares of
First Source Common Stock and Pulse Common Stock are issued.
If the Merger had been consummated on_____, First Source and Pulse would
have accounted for [ %] and [ %], respectively, of the revenue
of the combined entity. Further, First Source and Pulse would have represented
[ %] and [ %], respectively, of the total assets and [ %]
and [ %], respectively, of the stockholders' equity of the combined
company. Such amounts exclude consideration of merger and restructuring charges
expected to be made in connection with the Merger.
In addition, at the Effective Time, each outstanding and unexercised option
to purchase shares of Pulse Common Stock (a "Pulse Option") will either be
assumed by First Source or converted in shares of First Source pursuant to a
formula described below. If the Pulse options are converted into First Source
options, after the Effective Time, each Pulse Option will be deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such Pulse Option immediately prior to the Effective Time (with
the exception of a limited rights feature contained in certain Pulse Options
which has been eliminated in order to ensure that the Merger qualifies for
pooling of interests accounting treatment), the number of shares of First Source
Common Stock equal to the product, rounded down to the nearest share, of the
number of shares of Pulse Common Stock subject to the Pulse Option and the
Exchange Ratio, at a price per share equal to the exercise price per share of
Pulse Common Stock otherwise purchasable pursuant to such Pulse Option divided
by the Exchange Ratio, rounded up to the nearest cent. If the Pulse options are
converted into First Source Common Stock, each Pulse option will be exchanged
for such number of shares (rounded to the nearest whole share) of First Source
Common Stock as are equal in value (determined by valuing each share of First
Source
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Common Stock at the Average Closing Price) to the excess of (i) the number of
shares of Pulse Common Stock subject to such option multiplied by the Exchange
Ratio multiplied by the Average Closing Price of the First Source Common Stock
over (ii) the aggregate exercise price of such option.
BACKGROUND OF THE MERGER
Pulse is a unitary savings and loan holding company that is chartered by
the State of New Jersey. In 1990, Pulse exchanged its common stock for all of
the issued and outstanding common stock of a predecessor of Pulse Savings Bank.
The common stock of this predecessor, first chartered as a mutual institution in
1916, had been issued in 1986. Pulse directs and plans the activities of Pulse
Bank, Pulse's primary asset. Pulse Bank is a New Jersey-chartered capital stock
savings bank headquartered in South River, New Jersey.
In connection with its normal strategic review, Pulse regularly examines
its strategic business alternatives, devoting particular attention to the
continuing consolidation and increasing competition in the banking and financial
services industries in the New Jersey market. The New Jersey market is home to
many large, aggressive regional commercial banking entities, and the banking
market in New Jersey in particular has been subject to significant consolidation
in recent years. As a result, competition in the local banking and financial
services industries has intensified, especially for smaller thrift institutions
like Pulse. This review by Pulse has included, from time to time, presentations
to the Pulse board of directors from investment banking firms, including Sandler
O'Neill. These presentations have included an overview of the market for bank
and thrift mergers, an assessment of Pulse's then current strategic business
plan, and a preliminary estimate of Pulse's market value were it to pursue a
strategic merger transaction. The president of Pulse (Mr. Hornyak) and several
of the members of the board of directors of Pulse, were aware during the month
of May 1998 that the stock prices of certain thrift institutions in New Jersey
had dropped, or failed to rise (as had been typical), following their recent
conversions from the mutual holding company structure to a stock holding company
structure.
During early June 1998, Mr. Hornyak was approached by Ryan, Beck & Co.,
Inc., an investment banker, which informed Mr. Hornyak that a financial
institution located in New Jersey was interested in discussing the possibility
of pursuing a negotiated merger with Pulse. Mr. Hornyak advised the investment
banker that Pulse was not inclined to pursue a merger but agreed with the
investment banker that the recent drop in share price for certain thrift
institutions could present an opportunity for Pulse if the consideration to be
received by Pulse was based on the then current share price of such a thrift
institution as the potential acquiror.
Following that discussion, in mid-June 1998, Mr. Hornyak advised the
members of the board of directors about his discussions with Ryan, Beck and that
there was an opportunity for shareholders of Pulse to realize value in
exchanging shares of Pulse for what could be relatively low priced shares of an
acquiror. Mr. Hornyak was informally advised by the members of the board of
directors to pursue his discussions. Mr. Hornyak did so and was told by Ryan,
Beck that First Source was the interested party. During the second half of June
1998, an outline of terms was discussed with the Pulse Board of Directors, First
Source and Ryan, Beck. On June 23, 1998, with counsel present, a special
meeting of the Pulse board of directors was held to discuss the proposed terms
of the potential merger that management and certain directors had drafted.
Discussion at this meeting included the consideration received in recent merger
transactions as well as consideration that had been offered to Pulse in the past
several years during its exploration of its potential value in a merger. The
Board of Directors considered the relative merits in a tax free merger of
exchanging Pulse shares for either relatively high priced shares (on a book
value per share basis) of other financial institutions or for relatively low
priced shares (on a book value per share basis) of an institution such as First
Source. The market value of thrift institutions, such as First Source, that had
recently completed the conversion from mutual holding company to stock form was
evaluated, as was the value to Pulse of merging with another thrift institution
located in the same market area of Middlesex County, New Jersey. At this
meeting, counsel and the Board of Directors discussed termination fees and lock-
up options at great length, as well as accounting and tax issues, and treatment
of employee and other plans and other potential impacts on Pulse. Between June
23 and 25, 1998, discussions between the parties continued with additional
revision to the proposed terms. A regular meeting of the Pulse Board of
Directors was held
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on June 25, 1998. At this meeting, the Board of Directors continued its
discussion of many of the issues discussed on June 23, 1998 and the revised
terms were discussed and further revised. Management was authorized on June 25,
1998 to submit a list of terms to First Source and, if accepted by First Source,
to begin a review of the operations of First Source and negotiate a merger
agreement, lock-up option and related documents.
During the remainder of June 1998 and during the early part of July 1998,
the form and amount of consideration, the Exchange Ratio, the treatment of Pulse
stock options, the termination provisions, and issues relating to the management
and operations of Pulse and Pulse Savings Bank following the Merger were
determined on the basis of arms-length-negotiation between Pulse representatives
and the First Source representatives and agreement on other proposed terms was
reached. Pulse began to interview management of First Source and examine
documents. In early July 1998, because of Pulse's long term relationship with
Sandler O'Neill, Sandler O'Neill was engaged and Pulse, First Source, and their
respective legal counsel and financial advisors conducted reciprocal due
diligence analyses.
During early July 1998, negotiations continued, members of the Board of
Directors of Pulse discussed the drafts of the merger agreement and Pulse's
counsel and accountants and Sandler O'Neill were consulted about various aspects
of the proposed merger. During this time Mr. Hornyak continued to confer with
members of the Board of Directors and First Source continued to revise a merger
agreement.
On July 9, 1998, the Pulse Board of Directors held a special meeting with
its counsel and Sandler O'Neill to discuss the Merger Agreement and other
aspects of the Merger. At that meeting, the reasons for, and the potential
benefits of the Merger were discussed; Pulse's legal counsel reviewed the terms
of the Merger Agreement, related agreements and the transactions contemplated
thereby; final revisions to the Merger Agreement were made; Sandler O'Neill made
a presentation regarding the financial terms of the Merger Agreement and the
fairness, from a financial point of view, of the consideration to holders of
Pulse Common Stock. After a thorough discussion and consideration of the
factors discussed below under "The Merger - Recommendation of the Boards of
Directors; Reasons for the Merger" the Pulse Board of Directors unanimously
approved the Merger Agreement and the transactions contemplated in the Merger
Agreement as in the best interests of Pulse and its stockholders, and authorized
the execution of the Merger Agreement. The Merger Agreement was entered into on
July 9, 1998.
RECOMMENDATION OF THE BOARDS OF DIRECTORS; REASONS FOR THE MERGER
Pulse. In reaching for its decision to approve the Merger Agreement, the
Pulse Board considered a number of factors. The Pulse Board did not assign any
relative or specific weights to the factors considered. Among other things, the
Pulse Board considered: (i) the Merger consideration in relation to the book
value, assets and earnings of Pulse; (ii) information concerning the financial
condition, results of operations and prospects of First Source and Pulse
including the return on the assets and return on equity of the respective
companies; (iii) the financial terms of other recent business combinations in
the banking industry; and (iv) the opinion of Sandler O'Neill as to the fairness
of the Exchange Ratio, as of such date, to Pulse stockholders from a financial
point of view.
The Pulse Board believes that the terms of the Merger Agreement, which are
the product of arms-length negotiations between First Source and Pulse, are in
the best interest of Pulse and its stockholders. In the course of reaching its
determination, the Pulse Board consulted with legal counsel with respect to its
legal duties, the terms of the Merger Agreement and the issues related thereto;
with its financial advisor with respect to the financial aspects of the
transaction; and with senior management regarding, among other things,
operational matters.
In reaching its determination to approve the Merger Agreement, the Pulse
Board also considered the following factors:
(a) The Pulse Board analyzed information with respect to the financial
condition, results of operations, business and prospects of First Source and
Pulse.
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(b) The Pulse Board considered the written opinion of Sandler O'Neill that
as of July 9, 1998, the Exchange Ratio was fair to Pulse shareholders from a
financial point of view. See "--Opinion of Pulse's Financial Advisor."
(c) The Pulse Board considered the current operating environment,
including, but not limited to, the continuing consolidation and increasing
competition in the banking and financial services industries, the prospect for
further changes in these industries, and the importance of being able to
capitalize on developing opportunities in these industries. This information
had been periodically reviewed by the Pulse Board at its regular board meetings
and was also discussed between the Pulse Board and Pulse's various advisors.
(d) The Pulse Board considered the other terms of the Merger Agreement and
exhibits, including the tax-free nature of the transaction.
(e) The Pulse Board considered the detailed financial analyses and other
information with respect to First Source and Pulse discussed by Sandler O'Neill,
as well as the Pulse Board's knowledge of Pulse, First Source and their
respective businesses. In this regard, the latest publicly-available financial
and other information for First Source and Pulse were analyzed, including a
comparison to publicly-available financial and other information for other
similar institutions.
(f) The Pulse Board considered the value of Pulse Common Stock if Pulse
continued as a stand-alone entity compared to the effect of Pulse combining with
First Source in light of the factors summarized above and the current economic
and financial environment, including, but not limited to, other possible
strategic alternatives, the results of the contacts and discussions between
Pulse and its financial advisor and various third parties and the belief of the
Pulse Board and management that the Merger offered the best transaction
available to Pulse and its shareholders.
(g) The Pulse Board considered the likelihood of the Merger being approved
by the appropriate regulatory authorities, including factors such as market
share analysis, First Source's Community Reinvestment Act rating and the
estimated pro forma financial impact of the Merger on First Source.
(h) The Pulse Board considered the effect of the Merger on Pulse's
employees, customers and the communities it serves.
The foregoing discussion of the information and factors considered by
Pulse's Board is not intended to be exhaustive, but constitutes the material
factors considered by Pulse's Board. In reaching its determination to approve
and recommend the Merger Agreement, although Pulse's Board did not assign any
relative or specific weights to the foregoing factors, individual directors may
have weighed factors differently. After deliberating with respect to the Merger
and the other transactions contemplated by the Merger Agreement, considering,
among other things, the matters discussed above and the opinion of Sandler
O'Neill referred to above, the Pulse Board approved and adopted the Merger
Agreement and the transactions contemplated thereby as being in the best
interests of Pulse and its shareholders.
First Source. The First Source Board believes that the Merger is fair to,
and in the best interests of, First Source and its stockholders. Accordingly,
the First Source Board has unanimously approved the Merger Agreement and
recommends that First Source's stockholders vote FOR the approval and adoption
of the Merger Agreement and consummation of the transactions contemplated
thereby.
In reaching its decision to approve the Merger Agreement, the First Source
Board consulted with its legal advisors regarding the legal terms of the
transaction and the First Source Board's obligations in its consideration of the
proposed transaction, its financial advisors regarding the financial aspects and
fairness of the proposed transaction, as well as with management of First
Source, and, without assigning any relative or specific weights, considered a
number of factors, both from a short-term and a longer-term perspective,
including the following:
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(i) the First Source Board's familiarity with and review of First
Source's business, operations, financial condition, earnings and prospects,
including, but not limited to, its potential growth, development,
productivity and profitability and the business risks associated therewith;
(ii) the First Source Board's review, based in part on a presentation
by First Source management regarding its due diligence on Pulse, of the
business, operations, earnings and financial condition of Pulse on an
historical, prospective and pro forma basis, and the enhanced opportunities
for growth that the Merger makes possible;
(iii) a variety of factors affecting and relating to the overall
strategic focus of First Source including, without limitation,
opportunities for growth in deposits, assets and earnings, and
opportunities available to First Source in the market areas where Pulse
conducts business;
(iv) the current and prospective economic, competitive and regulatory
environment facing financial institutions, including First Source;
(v) the terms of the Merger Agreement, the Stock Option Agreement and
the other documents executed in connection with the Merger;
(vi) the anticipated revenue enhancement, cost savings and
efficiencies available from the Merger; and
(vii) the financial advice rendered by Ryan, Beck and the opinion of
Ryan, Beck as to the fairness to First Source's stockholders from a
financial point of view of the aggregate consideration to be paid by First
Source in the Merger.
OPINION OF FINANCIAL ADVISORS
Pulse. Pursuant to an engagement letter dated as of July 1, 1998 (the
"Sandler O'Neill Agreement"), Pulse retained Sandler O'Neill as an independent
financial advisor to render an opinion as to the fairness, from a financial
point of view, of the Exchange Ratio to the holders of Pulse Common Stock.
Sandler O'Neill is a nationally recognized investment banking firm whose
principal business specialty is banks and savings institutions. In the ordinary
course of its investment banking business, Sandler O'Neill is regularly engaged
in the valuation of such businesses and their securities in connection with
mergers and acquisitions and other corporate transactions.
On July 9, 1998, Sandler O'Neill delivered to the Pulse Board its oral and
written opinion, that, as of such date, the Exchange Ratio was fair to the
holders of shares of Pulse Common, from a financial point of view. Sandler
O'Neill has also delivered to the Pulse Board a written opinion dated the date
of this Joint Proxy Statement/Prospectus (the "Sandler O'Neill Fairness
Opinion") which is substantially identical to the July 9, 1998 opinion. THE
FULL TEXT OF THE SANDLER O'NEILL FAIRNESS OPINION, WHICH SETS FORTH THE
PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND QUALIFICATIONS AND
LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH SUCH OPINION, IS
ATTACHED AS APPENDIX C TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. THE DESCRIPTION OF THE OPINION SET FORTH
HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO APPENDIX C. HOLDERS OF
SHARES OF PULSE COMMON STOCK ARE URGED TO READ THE SANDLER O'NEILL FAIRNESS
OPINION IN ITS ENTIRETY IN CONNECTION WITH THEIR CONSIDERATION OF THE PROPOSED
MERGER.
THE SANDLER O'NEILL FAIRNESS OPINION WAS PROVIDED TO THE PULSE BOARD FOR
ITS INFORMATION AND IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF
VIEW, OF THE EXCHANGE RATIO TO HOLDERS OF SHARES OF PULSE COMMON STOCK. IT DOES
NOT ADDRESS THE UNDERLYING BUSINESS DECISION OF PULSE TO ENGAGE IN THE MERGER OR
ANY OTHER ASPECT OF THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
HOLDER OF SHARES OF PULSE COMMON STOCK AS TO
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HOW SUCH STOCKHOLDER SHOULD VOTE AT THE PULSE MEETING WITH RESPECT TO THE MERGER
OR ANY OTHER MATTER RELATED THERETO.
In connection with rendering its July 9, 1998 opinion, Sandler O'Neill
performed a variety of financial analyses. The following is a summary of the
material analyses performed by Sandler O'Neill, but does not purport to be a
complete description of all the analyses underlying Sandler O'Neill's opinion.
The preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to a partial analysis or summary
description. Sandler O'Neill believes that its analyses must be considered as a
whole and that selecting portions of such analyses and the factors considered
therein, without considering all factors and analyses, could create an
incomplete view of the analyses and processes underlying its opinion. In
performing its analyses, Sandler O'Neill made numerous assumptions with respect
to industry performance, business and economic conditions and various other
matters, many of which cannot be predicted and are beyond the control of Pulse,
First Source and Sandler O'Neill. Any estimates contained in Sandler O'Neill's
analyses are not necessarily indicative of future results or values, which may
be significantly more or less favorable than such estimates. Estimates on the
values of companies do not purport to be appraisals or necessarily reflect the
prices at which companies or their securities may actually be sold. Because
such estimates are inherently subject to uncertainty, neither Pulse nor Sandler
O'Neill assumes responsibility for their accuracy.
SUMMARY OF PROPOSAL. Sandler O'Neill reviewed the financial terms of the
-------------------
proposed transaction. Based on the closing price of First Source Common on July
8, 1998 of $9.88 and an Exchange Ratio of 3.241, Sandler calculated an implied
transaction value per share of Pulse of $32.00. Based upon such implied
transaction value and Pulse's March 31, 1998 financial information, Sandler
O'Neill calculated the price to tangible book value and price to last twelve
months' normalized earnings. This analysis yielded a price to tangible book
value multiple of 2.21x and a price to last twelve months' earnings multiple of
18.2x.
STOCK TRADING HISTORY. Sandler O'Neill reviewed the history of the
---------------------
reported trading prices and volume of Pulse Common and the First Source Common,
and the relationship between the movements in the prices of Pulse Common and the
First Source Common, respectively, to movements in certain stock indices,
including the Standard & Poor's 500 Index (the "S&P Index"), the NASDAQ Banking
Index (the "Bank Index") and selected composite groups of publicly traded
savings institutions (in the case of Pulse) and larger publicly traded savings
institutions (in the case of First Source), identified below. During the one-
year period ended July 8, 1998, Pulse Common outperformed the S&P Index and the
Bank Index, and slightly underperformed the peer group index. During the six-
year period ended July 8, 1998, First Source Common outperformed each of the
indices to which it was compared. During the three-month period since First
Source's public offering, ended July 8, 1998, First Source Common underperformed
each of the indices to which it was compared.
COMPARABLE COMPANY ANALYSIS. Sandler O'Neill used publicly available
---------------------------
information to compare selected financial and market trading information,
including balance sheet composition, asset quality ratios, loan loss reserve
levels, profitability, capital adequacy, dividends and trading multiples, for
Pulse and two groups of savings institutions. The first group consisted of Pulse
and the following twelve publicly traded regional savings institutions (the
"Regional Group"): Ambanc Holding Co., Bayonne Bancshares Inc., Carver Bancorp
Inc., Fidelity Bancorp Inc., First Bell Bancorp Inc., FMS Financial Corp.,
Lakeview Financial Corp., Northeast PA Financial Corp., Progress Financial
Corp., Raritan Bancorp Inc., TF Financial Corp., and Statewide Financial Corp.
Sandler O'Neill also compared Pulse to a group of ten publicly traded savings
institutions which had a return on average equity (based on last twelve months'
earnings) of greater than 14.3% and a price to tangible book value of greater
than 218% (the "Highly Valued Group"). The Highly Valued Group included the
following institutions: American Bank of Connecticut, Coastal Financial Corp.,
FMS Financial Corp., Highland Bancorp Inc., Home Federal Bancorp, Lakeview
Financial Corp., MetroWest Bank, First Mutual Savings Bank, Progress Financial
Corp., and PVF Capital Corp. The analysis compared publicly available financial
information for Pulse and the median data for each of the Regional Group and the
Highly Valued Group as of and for each of the years ended December 31, 1993
through December 31, 1997 and as of and for the twelve months ended March 31,
1998.
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Sandler O'Neill also used publicly available information to perform a similar
comparison of selected financial and market trading information for First Source
and two different groups of savings institutions. The first group consisted of
First Source and the following twelve publicly traded savings institutions (the
"Peer Group"): Dime Community Bancshares Inc., ESB Financial Corp., Flushing
Financial Corp., GA Financial Inc., JSB Financial Inc., Ocean Financial Corp.,
Parkvale Financial Corp., PennFed Financial Services Inc., Peoples Bancorp Inc.,
Richmond County Financial Corp., WSFS Financial Corp., and York Financial Corp.
Sandler O'Neill also compared First Source to a group of fourteen publicly
savings institutions which had a return on average equity (based on last twelve
months' earnings) of greater than 15.5% and a price to tangible book value of
greater than 169% (the "Larger Highly Valued Group"). The Larger Highly Valued
Group included American Bank of Connecticut, Anchor BanCorp Wisconsin, CFSB
Bancorp Inc., Coastal Financial Corp., D&N Financial Corp., First Federal
Capital Corp., Highland Bancorp Inc., Home Federal Bancorp, Lakeview Financial
Corp., MECH Financial Inc., Metropolitan Financial Corp., MetroWest Bank,
People's Bancshares Inc., and WSFS Financial Corp. The analysis compared
publicly available financial information for First Source and the median data
for each of the Peer Group and the Larger Highly Valued Group as of and for each
of the years ended December 31, 1993 through December 31, 1997 and as of and for
the twelve months ended March 31, 1998.
ANALYSIS OF SELECTED MERGER TRANSACTIONS. Sandler O'Neill reviewed 72
----------------------------------------
transactions announced from January 1, 1998 through July 8, 1998 involving
publicly traded savings institutions nationwide as acquired institutions with
transaction values greater than $15 million ("Nationwide Transactions") and 17
transactions announced from January 1, 1998 through July 8, 1998 involving
public savings institutions in the Mid-Atlantic Region (Maryland, New Jersey,
New York, and Pennsylvania) as acquired institutions with transaction values
greater than $15 million ("Regional Transactions"). Sandler O'Neill reviewed the
ratios of transaction values to last four quarters' earnings, transaction value
to book value, transaction value to tangible book value, tangible book premium
to core deposits, transaction value to total deposits and transaction value to
total assets and computed high, low, mean, and median ratios and premiums for
the respective groups of transactions. These multiples were applied to Pulse's
financial information as of and for the twelve months ended March 31, 1998.
Based upon the median multiples for Nationwide Transactions, Sandler O'Neill
derived an imputed range of values per share of Pulse Common of $29.68 to
$41.02. Based upon the median multiples for Regional Transactions, Sandler
O'Neill derived an imputed range of values per share of Pulse Common of $28.97
to $44.97.
No company involved in the transactions included in the above analysis is
identical to Pulse and no transaction included in the above analysis is
identical to the Merger. Accordingly, an analysis of the results of the
foregoing analysis is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of Pulse and First Source and the companies to which they are
being compared.
DISCOUNTED DIVIDEND STREAM AND TERMINAL VALUE ANALYSIS. Sandler O'Neill
------------------------------------------------------
also performed an analysis which estimated the future stream of after-tax
dividend flows of Pulse through the year 2004 under various circumstances,
assuming Pulse performed in accordance with earnings forecasts of its management
and certain variations thereof. To approximate the terminal value of Pulse
Common at December 31, 2004, Sandler O'Neill applied price to earnings multiples
ranging from 12x to 27x and applied multiples of tangible book value ranging
from 100% to 350%. The dividend income streams and terminal values were then
discounted to present values using different discount rates (ranging from 9% to
15%) chosen to reflect different assumptions regarding required rates of return
of holders or prospective buyers of Pulse Common. This analysis, assuming the
current dividend payout ratio and management's earnings forecasts, indicated an
imputed range of values per share of Pulse Common of between $14.65 and $39.65
when applying the price to earnings multiples, and an imputed range of values
per share of Pulse Common of between $12.06 and $47.07 when applying multiples
of tangible book value. In connection with its analysis, Sandler O'Neill used
sensitivity analyses to consider the effects changes in the underlying
assumptions (including variations with respect to the growth rate of assets, net
interest spread, non-interest income, non-interest expense and dividend payout
ratio) would have on the resulting present value and discussed these effects
with the Pulse Board. Sandler O'Neill noted that the discounted dividend stream
and terminal value analysis is a widely used valuation methodology, but the
results of
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such methodology are highly dependent upon the numerous assumptions that must be
made, and the results thereof are not necessarily indicative of actual values or
actual future results.
PRO FORMA MERGER ANALYSIS. Sandler O'Neill analyzed certain potential pro
-------------------------
forma effects of the Merger through December 31, 2003, based upon an Exchange
Ratio of 3.241, Pulse's and First Source's current and projected income
statements and balance sheets, and assumptions regarding the economic
environment, accounting and tax treatment of the Merger, charges associated with
the Merger, operating efficiencies and other adjustments discussed with senior
managements of Pulse and First Source. This analysis indicated that the Merger
would be slightly accretive to First Source's earnings per share for all periods
analyzed and dilutive to tangible book value per share of First Source's Common
for all periods analyzed. This analysis also indicated that, from a Pulse
shareholder's perspective, as compared to the projected stand-alone performance
of Pulse, the Merger would be dilutive to Pulse's earnings per share and
accretive to tangible book value per share for all periods analyzed. The actual
results achieved by the combined company may vary from projected results and the
variations may be material.
In connection with rendering its July 9, 1998 opinion, Sandler O'Neill
reviewed, among other things: (i) the Merger Agreement and exhibits thereto;
(ii) the Stock Option Agreement; (iii) certain publicly available financial
statements of Pulse and other historical financial information provided by Pulse
that Sandler O'Neill deemed relevant; (iv) certain publicly available financial
statements of First Source and other historical financial information provided
by First Source that Sandler O'Neill deemed relevant; (v) certain financial
analyses and forecasts of Pulse prepared by and reviewed with management of
Pulse and the views of senior management of Pulse regarding Pulse's past and
current business operations, results thereof, financial condition and future
prospects; (vi) certain financial analyses and forecasts of First Source
prepared by and reviewed with management of First Source and the views of senior
management of First Source regarding First Source's past and current business
operations, results thereof, financial condition and future prospects; (vii) the
pro forma impact of the Merger; (viii) the publicly reported historical price
and trading activity for Pulse's and First Source's common stock, including a
comparison of certain financial and stock market information for Pulse and First
Source with similar publicly available information for certain other companies
the securities of which are publicly traded; (ix) the financial terms of recent
business combinations in the savings institution industry, to the extent
publicly available; (x) the current market environment generally and the banking
environment in particular; and (xi) such other information, financial studies,
analyses and investigations and financial, economic and market criteria as
Sandler O'Neill considered relevant. Sandler O'Neill did not act as Pulse's
financial advisor in connection with its consideration of the Merger or in
connection with the negotiation of the Merger Agreement, and Sandler O'Neill was
not asked to, and did not, solicit indications of interest in a potential
transaction from third parties.
In connection with rendering the Sandler O'Neill Fairness Opinion, Sandler
O'Neill confirmed the appropriateness of its reliance on the analyses used to
render its July 9, 1998 opinion by performing procedures to update certain of
such analyses and by reviewing the assumptions upon which such analyses were
based and the factors considered in connection therewith.
In performing its reviews and analyses, Sandler O'Neill assumed and relied
upon, without independent verification, the accuracy and completeness of all the
financial information, analyses and other information that was publicly
available or otherwise furnished to, reviewed by or discussed with it, and
Sandler O'Neill does not assume any responsibility or liability therefor.
Sandler O'Neill did not make an independent evaluation or appraisal of the
specific assets, the collateral securing assets or the liabilities (contingent
or otherwise) of Pulse or First Source or any of their respective subsidiaries,
or the collectibility of any such assets, nor was it furnished with any such
evaluations or appraisals. Sandler O'Neill is not an expert in the evaluation
of allowances for loan losses and it has not made an independent evaluation of
the adequacy of the allowance for loan losses of Pulse or First Source, nor has
it reviewed any individual credit files relating to Pulse or First Source. With
Pulse's consent, Sandler O'Neill has assumed that the respective aggregate
allowances for loan losses for both Pulse and First Source are adequate to cover
such losses and will be adequate on a pro forma basis for the combined entity.
In addition, Sandler O'Neill has not conducted any physical inspection of the
properties or facilities of Pulse or First Source. With respect to all
financial information and projections reviewed with each company's management,
Sandler O'Neill assumed that they have been reasonably
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prepared on bases reflecting the best currently available estimates and
judgments of the respective managements of the respective future financial
performances of Pulse and First Source and that such performances will be
achieved. Sandler O'Neill expressed no opinion as to such financial projections
or the assumptions on which they were based.
Sandler O'Neill's opinion was necessarily based upon market, economic and
other conditions as they existed on, and could be evaluated as of, the date of
such opinion. Sandler O'Neill assumed, in all respects material to its
analysis, that all of the representations and warranties contained in the Merger
Agreement and all related agreements are true and correct, that each party to
such agreements will perform all of the covenants required to be performed by
such party under such agreements and that the conditions precedent in the Merger
Agreement are not waived. Sandler O'Neill also assumed, with Pulse's consent,
that there has been no material change in Pulse's or First Source's assets,
financial condition, results of operations, business or prospects since the date
of the last publicly filed financial statements available to them, that Pulse
and First Source will remain as going concerns for all periods relevant to its
analyses, and that the Merger will be accounted for as a pooling of interests
and will qualify as a tax-free reorganization for federal income tax purposes.
Under the Sandler O'Neill Agreement, Sandler O'Neill has received a fee of
$200,000 for rendering its fairness opinion. Pulse has also agreed to reimburse
Sandler O'Neill for its reasonable out-of-pocket expenses incurred in connection
with its engagement and to indemnify Sandler O'Neill and its affiliates and
their respective partners, directors, officers, employees, agents, and
controlling persons against certain expenses and liabilities, including
liabilities under securities laws.
Sandler O'Neill has in the past provided certain other investment banking
services to Pulse and has received compensation for such services. Sandler
O'Neill has in the past provided certain investment banking services to First
Source and currently provides general advisory services to First Source and has
received compensation for such services. In addition, Sandler O'Neill may in the
future provide certain other investment banking services for First Source and
will receive compensation for such services. In the ordinary course of its
business, Sandler O'Neill may actively trade the equity securities of Pulse and
First Source and their respective affiliates for its own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
First Source. On July 8, 1998 First Source formally retained Ryan, Beck to
advise First Source on the acquisition of Pulse. Ryan, Beck is regularly
engaged in the valuation of banks, bank holding companies, savings and loan
associations and savings and loan holding companies in connection with mergers,
acquisitions and other securities-related transactions. Ryan, Beck has
knowledge of, and experience with, the New Jersey banking market and banking
organizations operating in that market, and was selected by First Source because
of its knowledge of, experience with, and reputation in the financial services
industry.
In its capacity as First Source's financial advisor, Ryan, Beck
participated in the negotiations with respect to the pricing and other terms and
conditions of the Merger, but the decision as to whether to acquire Pulse and
the final pricing of the Merger was ultimately made by the Board of Directors of
First Source on July 9, 1998. Ryan, Beck rendered its oral opinion to the First
Source Board on July 9, 1998, subsequently confirmed by a formal written opinion
dated as of the same date, and rendered an additional written opinion dated
October __, 1998 (the "Opinion") that based on and subject to the assumptions,
factors and limitations as set forth in the Opinion and as described below, that
the Exchange Ratio is "fair" to First Source's shareholders from a financial
point of view. No limitations were imposed by the First Source Board of
Directors upon Ryan, Beck with respect to the investigations made or procedures
followed by it in arriving at its opinion.
THE FULL TEXT OF THE RYAN, BECK OPINION DATED AS OF OCTOBER __, 1998, WHICH
SETS FORTH ASSUMPTIONS MADE AND MATTERS CONSIDERED, IS SUBSTANTIALLY THE SAME AS
THE OPINION RENDERED BY RYAN, BECK ON JULY 9, 1998, AND IS ATTACHED AS APPENDIX
D TO THIS JOINT PROXY STATEMENT/PROSPECTUS. SHAREHOLDERS OF FIRST SOURCE ARE
URGED TO READ THIS OPINION IN ITS ENTIRETY. RYAN, BECK'S OPINION IS DIRECTED
ONLY TO THE EXCHANGE RATIO AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY FIRST
SOURCE SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE SPECIAL
MEETING. THE SUMMARY OF THE OPINION OF RYAN, BECK SET FORTH IN THIS JOINT PROXY
STATEMENT/PROSPECTUS
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<PAGE>
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
RYAN, BECK DOES NOT ADMIT THAT IT IS AN EXPERT WITHIN THE MEANING OF THE TERM
"EXPERT" AS USED IN THE SECURITIES ACT AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER, OR THAT ITS OPINIONS CONSTITUTE A REPORT OR VALUATION WITHIN THE
MEANING OF SECTION 11 OF THE ACT AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER.
In connection with its analysis, Ryan, Beck: (i) reviewed the Merger
Agreement and related documents; (ii) reviewed this Joint Proxy Statement /
Prospectus; (iii) reviewed First Source's Annual Reports to Shareholders and
Annual Reports on Form 10-K for the years ended December 31, 1997, 1996, and
1995, and First Source's Quarterly Reports on Form 10-Q for the periods ended
June 30, 1998, March 31, 1998, September 30, 1997, June 30, 1997 and March 31,
1997; (iv) reviewed First Source's Registration Statement filed on Form S-1/A
dated February 9, 1998 in connection with its conversion from a mutual holding
company structure to a stock holding company structure; (v) reviewed Pulse's
Annual Reports to Shareholders and Annual Reports on Form 10-K for the years
ended September 30, 1997, 1996, and 1995, and Pulse's Quarterly Reports on Form
10-Q for the periods ended June 30, 1998, March 31, 1998, December 31, 1997,
June 30, 1997 and March 31, 1997; (vi) reviewed the historical stock prices and
trading volume of First Source's common stock; (vii) reviewed the historical
stock prices and trading volume of Pulse's common stock; (viii) reviewed the
publicly available financial data of thrift organizations which Ryan, Beck
deemed generally comparable to First Source; (ix) reviewed the publicly
available financial data of thrift organizations which Ryan, Beck deemed
generally comparable to Pulse; (x) reviewed the terms of recent acquisitions of
thrift organizations which Ryan, Beck deemed generally comparable in whole or in
part to Pulse; and (xi) reviewed the potential pro forma impact of the Merger on
First Source's financial condition, operating results and per share figures. We
also conducted or reviewed such other studies, analyses, inquiries and
examinations as we deemed appropriate. Ryan, Beck also reviewed certain
financial projections provided by First Source and Pulse for the year ending
December 31, 1998 and met with certain members of First Source and Pulse's
senior management to discuss First Source and Pulse's past and current business
operations, financial condition, strategic plan and future prospects, including
the prospects for the combined company and any potential operating efficiencies
and synergies which may arise from the Merger.
In connection with its review, Ryan, Beck relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information regarding First Source and Pulse provided to Ryan, Beck by
First Source and Pulse and their representatives. Ryan, Beck is not an expert
in the evaluation of allowances for loan losses. Therefore, Ryan, Beck has not
assumed any responsibility for making an independent evaluation of the adequacy
of the allowances for loan losses as set forth on First Source and Pulse's
balance sheets at June 30, 1998, and Ryan, Beck assumed such allowances were
adequate and complied fully with applicable law, regulatory policy and prudent
banking practice as of the date of such financial statements. Ryan, Beck has
reviewed certain historical financial data and financial projections (and the
assumptions and bases therefor) provided by First Source and Pulse. Ryan, Beck
assumed that such forecasts and projections reflected the best currently
available estimates and judgments of the respective managements. In certain
instances, for the purposes of its analyses, Ryan, Beck made adjustments to such
financial and operating forecasts which in Ryan, Beck's judgment were
appropriate under the circumstances. Ryan, Beck was not retained to nor did it
make any independent evaluation or appraisal of the assets or liabilities of
First Source or Pulse nor did Ryan, Beck review any loan files of First Source
or Pulse or their respective subsidiaries. Ryan, Beck also assumed that the
Merger in all respects is, and will be, undertaken and consummated in compliance
with all laws and regulations that are applicable to First Source and Pulse.
The preparation of a fairness opinion on a transaction such as the Merger
involves various determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to the particular
circumstances and, therefore, the Opinion is not readily susceptible to summary
description. In arriving at its opinion, Ryan, Beck performed a variety of
financial analyses. Ryan, Beck believes that its analyses must be considered as
a whole and the consideration of portions of such analyses and the factors
considered therein, without considering all factors and analyses, could create
an incomplete view of the analyses and the process underlying Ryan, Beck's
Opinion. No one of the analyses was assigned a greater significance than any
other.
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The projections furnished to Ryan, Beck were prepared by the respective
managements of First Source and Pulse, without input or guidance by Ryan, Beck.
First Source and Pulse do not publicly disclose internal management projections
of the type provided to Ryan, Beck in connection with the review of the Merger.
Such projections were not prepared with a view towards public disclosure. The
public disclosure of such projections could be misleading since the projections
were based on numerous variables and assumptions which are inherently uncertain,
including, without limitation, factors related to general economic and
competitive conditions. Accordingly, actual results could vary significantly
from those set forth in such projections.
In its analyses, Ryan, Beck made numerous assumptions with respect to
industry performance, business and economic conditions, and other matters, many
of which are beyond the control of First Source or Pulse. Any estimates
contained in Ryan, Beck's analyses are not necessarily indicative of future
results or values, which may be significantly more or less favorable than such
estimates. Estimates of values of companies do not purport to be appraisals nor
do they necessarily reflect the prices at which companies or their securities
may actually be sold.
The following is a brief summary of the analyses and procedures performed
by Ryan, Beck in the course of arriving at its opinion.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES: Ryan, Beck compared
----------------------------------------------
Pulse's financial data as of March 31, 1998 to a peer group of fifteen thrift
organizations located in the Mid-Atlantic region with assets between $400
million and $1.1 billion. Ryan, Beck deemed this group to be generally
comparable to Pulse. At or for the twelve months ended March 31, 1998, Pulse
had tangible equity to tangible assets of 8.34%, a return on average assets of
1.07%, a return on average equity of 13.17%, a net interest margin of 2.67%, a
ratio of non-interest expenses to average assets of 1.04%, a ratio of non-
performing loans (including loans 90 days past due and still accruing interest)
to total loans of 0.85%, a ratio of non-performing assets (including loans 90
days past due and still accruing interest) to total assets of 0.60%, a ratio of
loan loss reserves to non-performing loans (including loans 90 days past due and
still accruing interest) of 170.00%, an efficiency ratio of 38.65%, total loans
to total assets of 26.35%, and non-interest income to average assets of 0.08%.
These ratios were compared to the median ratios of the fifteen selected thrift
organizations, which were, as calculated, a tangible equity to tangible assets
ratio of 7.78%, a return on average assets of 0.85%, a return on average equity
of 8.69%, a net interest margin of 3.26%, a ratio of non-interest expenses to
average assets of 2.15%, a ratio of non-performing loans (including loans 90
days past due and still accruing interest) to total loans of 0.65%, a ratio of
non-performing assets (including loans 90 days past due and still accruing
interest) to total assets of 0.47%, a ratio of loan loss reserves to non-
performing loans (including loans 90 days past due and still accruing interest)
of 125.97%, an efficiency ratio of 58.28%, total loans to total assets of
49.75%, and non-interest income to average assets of 0.27%. Ryan, Beck noted
that the performance of Pulse as measured by a return on average assets and
average equity ratio was superior to that of the peer group. Additionally,
Ryan, Beck noted that Pulse's low level of non-interest expenses as a percent
average assets more than compensates for their lower net interest margin and
non-interest income as a percent of average assets when compared to the peer
group. This is evidenced by their superior efficiency ratio. Ryan, Beck also
noted the significantly lower level of loans at Pulse relative to its peers.
Ryan, Beck also compared First Source's financial data as of May 31, 1998
(pro forma for their "second step" conversion from mutual holding company
structure to stock holding company structure) with that of a group of nineteen
selected thrift organizations located in the Mid-Atlantic region with assets
between $500 million and $2.0 billion. Ryan, Beck deemed this group to be
generally comparable to First Source. At or for the twelve months ended May 31,
1998, First Source had tangible equity to tangible assets of 20.87%, a return on
average assets of 1.18%, a return on average equity of 5.50%, a dividend yield
of 1.19%, a net interest margin of 2.98%, an efficiency ratio of 42.05%, a ratio
of non-performing loans (including loans 90 days past due and still accruing
interest) to total loans of 0.51%, a ratio of non-performing assets (including
loans 90 days past due and still accruing interest) to total assets of 0.38% and
a ratio of reserves to non-performing loans (including loans 90 days past due
and still accruing interest) of 208.36%. These ratios were compared to the
median ratios of the nineteen selected thrift organizations, which were, as
calculated, a tangible equity to tangible assets ratio of 9.82%, a return on
average assets ratio of 0.92%, a return on average equity ratio of 10.15%, a
dividend yield of 1.84%, a net interest margin of 3.26%, an efficiency ratio of
51.31%, a ratio of non-
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performing loans (including loans 90 days past due and still accruing interest)
to total loans of 0.85%, a ratio of non-performing assets (including loans 90
days past due and still accruing interest) to total assets of 0.51% and a ratio
of reserves to non-performing loans (including loans 90 days past due and still
accruing interest) of 125.97%. Using First Source's July 6, 1998 Common Stock
price of $10.06, its price to LTM earnings was 23.4 times, price to book value
was 123.77% and price to tangible book value was 127.86%. The peer group's
median price to LTM earnings was 17.0 times, price to book value was 166.04% and
price to tangible book value was 173.42%. Financial data for the peer group was
generally as of March 31, 1998.
ANALYSIS OF SELECTED TRANSACTIONS: Ryan, Beck compared Pulse's financial
---------------------------------
data at or for the twelve months ended March 31, 1998 with that of a group of
eight selected thrift organizations being acquired in transactions accounted for
as pooling-of-interests, announced since June 1, 1997, and for which pricing
data pertaining to the transactions was publicly available. The criteria for
this group was thrifts in the New England and Mid-Atlantic regions with assets
between $350 million and $750 million and equity to assets less than 15%. Ryan,
Beck deemed this group to be generally comparable to Pulse. The median ratios
of the eight selected companies, as calculated, represented a 7.88% tangible
equity to tangible assets ratio, a non-performing assets to assets ratio of
0.78%, an annualized year-to-date return on average assets of 0.96% and an
annualized year-to-date return on average equity of 11.34%. These ratios were
compared to Pulse's ratios, which were, as calculated, a 8.34% tangible equity
to tangible assets ratio, a non-performing assets to assets ratio of 0.60%, a
return on average assets of 1.07%, and a return on average equity of 13.17%.
Ryan, Beck also calculated certain ratios based on the $32.00 of First
Source common stock to be issued for each share of Pulse. This price
represented 221.15% of book value at March 31, 1998, 221.15% of tangible book
value at March 31, 1998, 18.18 times LTM diluted earnings, and a core deposit
premium to tangible book value at March 31, 1998 of 12.73%. The median ratios
for the Comparable Transactions, as calculated, represented a price to book
value of 237.14%, a price to tangible book value of 238.93%, a price to latest
twelve months diluted earnings of 21.02 times and a core deposit premium to
tangible book value of 17.35%. The imputed value of Pulse based on the median
multiples of the above mentioned acquisition peer group was $34.31 based on
price to book value, $34.57 based on price to tangible book value, $37.00 based
on price to LTM diluted earnings and $38.35 based on the core deposit premium to
tangible book value.
No company or transaction used in the Analysis of Selected Publicly Traded
Companies and Transactions sections is identical to Pulse, First Source or the
Merger. Accordingly, an analysis of the results of the foregoing is not
mathematical; rather it involves complex considerations and judgments concerning
differences in financial and operating characteristics of the companies involved
and other factors that could affect the trading values of the securities of the
company or companies to which they are being compared.
IMPACT ANALYSIS: Ryan, Beck analyzed the Merger in terms of its effect on
---------------
First Source's projected earnings per share, current book value, tangible book
value, and capital ratios. Ryan, Beck based its analysis on First Source and
Pulse's projected 1999 earnings, as provided by the management of First Source
and Pulse, assumed to grow thereafter at a compound annual growth rate of 7%,
and certain assumptions with respect to cost savings and other synergies and the
amount of the restructuring charge resulting from the Merger. Based upon the
stand alone earnings projections provided by First Source and Pulse and First
Source's closing stock price on July 6, 1998 of $10.06 per share, the analysis
showed that the Merger would be accretive to First Source's estimated 1999
earnings per share by approximately 6.9% and accretive to 2000 earnings per
share by approximately 6.4%. Based upon First Source's and Pulse's May 31, 1998
and March 31, 1998 estimated financial data, respectively, the Merger would be
dilutive to First Source's book value per share by approximately 11.1%, and
dilutive to First Source's tangible book value per share by approximately 10.6%.
Based upon May 31, 1998 estimated financial data, First Source's pro forma total
equity to total assets would decrease from 21.76% to 17.60%, its tangible equity
to tangible assets would decrease from 21.21% to 17.20%, and its intangible
assets to total equity would be reduced from 3.21% to 2.74%. The actual results
achieved may vary from the projected results and the variations may be material.
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<PAGE>
DISCOUNTED DIVIDEND ANALYSIS: Using a discounted dividend analysis, Ryan,
----------------------------
Beck estimated the present value of the future dividend streams that Pulse could
produce in perpetuity. Projection ranges for Pulse's five-year balance sheet
and income statement were provided by Pulse's management. Management's
projections were based upon various factors and assumptions, many of which are
beyond the control of Pulse. These projections are, by their nature, forward-
looking and may differ materially from the actual values or actual future
results which may be significantly more or less favorable than suggested by such
projections. In producing a range of per share Pulse values, Ryan, Beck
utilized the following assumptions: discount rates range from 11.0% to 13.0%,
terminal price/earnings multiples range from 14.0x to 16.0x (which when applied
to terminal year estimated earnings produces a value which approximates the net
present value of the dividends in perpetuity, given certain assumptions
regarding growth rates and discount rates) and earnings that include estimated
savings in Pulse's non-interest expenses equal to 41.8% in 1999 and 2000 with an
assumed 5% annual growth in synergies in years thereafter. The discounted
dividend analysis produced a range of net present values per share of Pulse
Common Stock from $28.43 to $33.46. These analyses do not purport to be
indicative of actual values or expected values or an appraisal range of the
shares of Pulse Common Stock. Ryan, Beck noted that the discounted dividend
analysis is a widely used valuation methodology, but noted that it relies on
numerous assumptions, including expense savings levels, dividend payout rates,
terminal values and discount rates, the future values of which may be
significantly more or less than such assumptions. Any variation from these
assumptions would most likely produce different results.
In connection with its written Opinion dated as of October __, 1998, Ryan,
Beck confirmed the appropriateness of its reliance on the analyses used to
render its July 9, 1998 oral and written opinions by performing procedures to
update certain of such analyses and by reviewing the assumptions and conclusions
contained in the July 9, 1998 opinion.
RYAN, BECK'S WRITTEN OPINION DATED OCTOBER __, 1998 WAS BASED SOLELY UPON
THE INFORMATION AVAILABLE TO IT AND THE ECONOMIC, MARKET AND OTHER CIRCUMSTANCES
AS THEY EXISTED AS OF THE DATE OF SUCH OPINION. RYAN, BECK DID NOT EXPRESS ANY
OPINION AS TO THE PRICE OR RANGE OF PRICES AT WHICH FIRST SOURCE COMMON STOCK
MIGHT TRADE SUBSEQUENT TO THE MERGER. EVENTS OCCURRING AFTER SUCH DATE COULD
MATERIALLY AFFECT THE ASSUMPTIONS AND CONCLUSIONS CONTAINED IN SUCH OPINION.
RYAN, BECK HAS NOT UNDERTAKEN TO REAFFIRM OR REVISE ITS OPINION OR OTHERWISE
COMMENT UPON ANY EVENTS OCCURRING AFTER THE DATE OF THE OPINION.
The opinion of Ryan, Beck that the Exchange Ratio is fair to First Source's
shareholders from a financial point of view does not include situations in which
Pulse elects to terminate the Merger Agreement as a result of a decline in the
price of First Source Common Stock to $8.50 or less. Under such circumstances,
First Source can override such termination by increasing the number of shares of
First Source Common Stock issuable for each share of Pulse Common Stock from 3.2
shares to such number of shares of First Source Common Stock having an aggregate
market value of $27.20 based upon the First Source Market Value as of the
determination date. Whether or not First Source would agree to increase the
Exchange Ratio would have to be evaluated by First Source's Board of Directors
at the time of any such termination by Pulse based upon the facts and
circumstances existing at that time. In connection with any such evaluation by
First Source's Board of Directors, First Source intends to request Ryan, Beck to
reevaluate the transaction to determine whether the revised Exchange Ratio was
fair to First Source's shareholders from a financial point of view. Ryan, Beck
has been advised by First Source that it would be requested to update its
opinion under such circumstances and that, in the event that Ryan, Beck is
unable to deliver an opinion under such circumstances and First Source
nonetheless elects to override Pulse's termination of the Merger Agreement and
proceed with the Merger, First Source would resolicit its shareholders to advise
them of such facts.
The summary set forth above does not purport to be a complete description,
but is a brief summary of the material analyses and procedures performed by
Ryan, Beck in the course of arriving at its Opinion.
With regard to Ryan, Beck's services in connection with the Merger
Agreement, First Source has agreed to pay Ryan, Beck an advisory fee of
approximately $800,000. A portion of Ryan, Beck's advisory fee equal to
approximately $200,000 was paid upon execution of the Merger Agreement and the
remainder will be paid at the time of the closing of the Merger. First Source
has also agreed to pay Ryan, Beck an additional $50,000 for issuing an opinion
at the
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completion of the Merger, should an additional opinion be requested. In
addition, First Source has agreed to reimburse Ryan, Beck for its reasonable
out-of-pocket expenses, which shall not exceed $5,000 without the prior consent
of First Source. First Source has also agreed to indemnify Ryan, Beck and
certain related persons against certain liabilities, including liabilities under
federal securities law, incurred in connection with its services. The amounts of
Ryan, Beck's fees were determined by negotiation between First Source and Ryan,
Beck.
Ryan, Beck has had a prior investment banking relationship with First
Source. Ryan, Beck was the sole underwriter for First Source, which was then
known as First Savings Bank, in both its May, 1992 reorganization from a mutual
to a mutual holding company structure and its May, 1995 secondary stock
offering. Ryan, Beck was also a financial advisor, but not an underwriter for
First Source in its "second step" conversion dated April 9, 1998 from a mutual
holding company structure to a stock holding company structure. Additionally,
Ryan, Beck acted as financial advisor with respect to the sale of a branch
office. Additionally, Ryan, Beck's research department has issued research
reports on First Source and comments on First Source in its periodic
commentaries. Ryan, Beck is also a market maker in First Source's stock.
Ryan, Beck has not had an investment banking relationship with Pulse since
1986. Ryan, Beck was the sole underwriter of Pulse's conversion, which was then
known as Pulawski Savings and Loan Association, from a mutual to a stock savings
and loan association in September, 1986. Ryan, Beck is a market maker in Pulse's
stock. Ryan, Beck's research department does not cover Pulse.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Pulse Stock Options. The following table sets forth, as of ____________,
1998, information regarding outstanding options under the Pulse Option Plans
held by directors and certain executive officers of Pulse and Pulse Savings
Bank. Unless exercised before the Effective Time, such options will be
converted into options to acquire First Source Common Stock, adjusted for the
Exchange Ratio. For a description of the manner in which these options will be
treated in connection with the Merger, See "--Exchange Ratio."
<TABLE>
<CAPTION>
Principal Position Outstanding Stock
Name with Pulse Option Shares
- ------------------------ ---------------------------------- -----------------
<S> <C> <C>
George T. Hornyak, Jr. President and Chief Executive [69,448]
Officer
Benjamin S. Konopacki Chairman of the Board [39,448]
Joseph Chadwick Director [20,448]
Edwin A. Kolodziej Director [14,448]
Wayne A. Kronowski Director [20,448]
Edwin A. Roginski Director [14,448]
Thomas Konopacki Executive Vice President and [32,000]
Chief Financial Officer
Ronald E. Vaughn, Jr. Senior Vice President and Chief [5,000]
Lending Officer
</TABLE>
Consultant Agreement. It is intended that upon the Effective Date of the
Merger, First Source will enter into a consultant agreement with George T.
Hornyak, Jr. The agreement with Mr. Hornyak will have a term of three years
43
<PAGE>
during which time he will serve as consultant with an annual fee of $150,000.
During the term of the consulting agreement Mr. Hornyak will continue to receive
reimbursement for coverage for family medial insurance benefits; existing
supplemental life insurance covering Mr. Hornyak will be prepaid in an amount up
to $36,000 and country club dues and automobile benefits will continue to be
provided in an aggregate amount of up to $60,000.
Directorships. On or before the Effective Time, the First Source Board
will appoint George T. Hornyak, Jr. and Joseph Chadwick, directors of Pulse, to
newly-created directorships on the First Source Board for a term to expire in
the year 2001 and 1999, respectively. Messrs. Hornyak and Chadwick will also be
appointed to the board of directors of First Savings Bank for a term expiring in
the year 1999. Following their terms, they will be considered for re-election
to the boards of directors of First Source and First Savings Bank. All other
directors of Pulse will serve on the Advisory Board of First Source for at least
three (3) years. Each advisory director will be entitled to an initial payment
of $45,000 during the first year of their term and $12,000 in each of the first,
second and third years of their term, or, instead, annuities of comparable
value. See "Management After the Merger."
Termination of Existing Employment Agreements. As of the Effective Time,
Pulse will terminate the employment of George T. Hornyak, Jr., Benjamin S.
Konopacki, and Thomas Konopacki, and make payments in accordance with their
employment agreements. As a result, the estimated amounts of payment at that
time is $958,000 for Mr. Hornyak, $165,000 for Mr. B. Konopacki, and $442,000
for Mr. T. Konopacki.
Continued Retainer of General Counsel. Director Kolodziej, the general
counsel to Pulse, will continue with the current retainer agreement for a period
of three years after the Merger with a prepaid aggregate retainer of $39,000 for
the three year period.
Severance Benefits. First Source has agreed that in the event any Pulse
Savings Bank employee loses his/her job within one year of the merger, the
employee will be entitled to two weeks pay per year of employment.
Indemnification of and Continued Insurance Coverage for Pulse Management.
First Source has agreed that for a period of six (6) years following the closing
date of the Merger, the Merger will not affect or diminish any of Pulse's duties
and obligations of indemnification existing as of the closing date of the Merger
in favor of employees, agents, directors or officers of Pulse or any of its
subsidiaries arising by virtue of Pulse's Certificate of Incorporation or Bylaws
in the form in effect at the date of the Merger Agreement or arising by
operation of law. First Source will cause the persons serving as officers and
directors of Pulse immediately prior to the closing date of the Merger to be
covered for a period of six (6) years from the closing date of the Merger by the
directors' and officers' liability insurance policy maintained by Pulse
(provided that First Source may substitute therefor policies of at least the
same coverage and amounts containing terms and conditions which are not
materially less advantageous than such policy) with respect to acts or omissions
occurring prior to the closing date of the Merger which were committed by such
officers and directors in their capacity as such.
EMPLOYEE MATTERS
Pursuant to the terms of the Merger Agreement, employees of Pulse shall
become entitled to participate in certain benefit plans maintained by First
Source on the same terms and conditions as applicable to comparable employees of
First Source and shall be granted credit for service with Pulse for certain
purposes under certain of such plans. Pursuant to the terms of the Merger
Agreement, First Source has agreed to honor in accordance with their terms,
certain employment, severance and other compensation agreements and arrangements
between Pulse and certain of its directors, officers and employees.
EFFECTIVE TIME
The Merger will become effective upon the filing of a certificate of merger
with the Secretary of State of the State of Delaware in accordance with
applicable law or such later time as is specified in such certificate (the
"Effective
44
<PAGE>
Time"). The filing with respect to the Merger will occur on the first day (the
"Closing Date") which is (i) the last business day of a month and (ii) at least
two business days after satisfaction or waiver of the latest to occur of certain
conditions to the Merger specified in the Merger Agreement, unless another date
is agreed to in writing by First Source and Pulse. See "--Conditions to the
Merger" below. It is expected that a period of time will elapse between the
Special Meetings and the Effective Time while the parties seek to obtain the
regulatory approvals required to consummate the Merger. There can be no
assurance that such regulatory approvals will be obtained, and if obtained,
there can be no assurance as to the date of any such approval. There can also be
no assurance that any such approvals will not contain a Burdensome Condition (as
defined below) which causes such approvals to fail to satisfy the conditions set
forth in the Merger Agreement and described below under "-- Conditions to the
Merger." There can likewise be no assurance that the United States Department of
Justice or the New Jersey Attorney General will not challenge the Merger or, if
such a challenge is made, as to the result thereof. See "-- Regulatory Approvals
Required for the Merger" below. The Merger Agreement may be terminated by either
party if, among other reasons, the Merger has not been consummated on or before
March 31, 1999. See "-- Waiver and Amendment; Termination" below.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
Pulse. As promptly as practicable after the Effective Time, and in no
event more than three business days thereafter, a bank or trust company selected
by First Source and reasonably satisfactory to Pulse, acting in the capacity of
exchange agent (the "Exchange Agent"), will mail to each former holder of record
of Pulse Common Stock a form of letter of transmittal, together with
instructions for the exchange of such holder's certificates representing shares
of Pulse Common Stock for certificates representing shares of First Source
Common Stock and cash in lieu of fractional shares.
HOLDERS OF PULSE COMMON STOCK SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL
THEY RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS FROM THE EXCHANGE
AGENT, AND SHOULD NOT RETURN SUCH STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
Upon surrender to the Exchange Agent of one or more certificates
representing shares of Pulse Common Stock, together with a properly completed
letter of transmittal, there will be issued and mailed to the holder of Pulse
Common Stock surrendering such items a certificate or certificates representing
the number of shares of First Source Common Stock to which such holder is
entitled, if any, and, where applicable, a check for the amount representing any
fractional share determined in the manner described below, without interest.
The Pulse certificate or certificates so surrendered will be cancelled.
No dividend or other distribution declared after the Effective Time with
respect to First Source Common Stock will be paid to the holder of any
unsurrendered Pulse certificate until the holder surrenders such certificate, at
which time the holder will be entitled to receive all previously withheld
dividends and distributions, without interest. No holder of an unsurrendered
Pulse certificate will be entitled, until the surrender of such certificate, to
vote the shares of First Source Common Stock into which his or her shares of
Pulse Common Stock have been converted.
After the Effective Time, there will be no transfers on the stock transfer
books of Pulse of shares of Pulse Common Stock issued and outstanding
immediately prior to the Effective Time. If certificates representing shares of
Pulse Common Stock are presented for transfer after the Effective Time, they
will be cancelled and exchanged for certificates representing shares of First
Source Common Stock.
None of the Exchange Agent, First Source or Pulse, or any other person,
will be liable to any former holder of Pulse Common Stock for any amount
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
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<PAGE>
If a certificate for Pulse Common Stock has been lost, stolen or destroyed,
the Exchange Agent will issue the consideration properly payable in accordance
with the Merger Agreement upon receipt of appropriate evidence as to such loss,
theft or destruction, appropriate evidence as to the ownership of such
certificate by the claimant, and appropriate and customary indemnification.
No fractional shares of First Source Common Stock will be issued in the
Merger. Instead, the Merger Agreement provides that each holder of shares of
Pulse Common Stock exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fraction of a share of First Source Common Stock will
receive, in lieu thereof, cash in an amount equal to such fractional part of a
share of First Source Common Stock multiplied by the average of the closing sale
prices of First Source Common Stock on the Nasdaq Stock Market for the five
trading days immediately preceding the Effective Time. No such holder will be
entitled to dividends, voting rights or any other rights as a stockholder in
respect of any fractional share to which such holder would otherwise have been
entitled to receive.
First Source. Shares of First Source Common Stock issued and outstanding
immediately prior to the Effective Time will remain issued and outstanding and
be unaffected by the Merger, and holders of such stock will not be required to
exchange the certificates representing such stock or take any other action by
reason of the consummation of the Merger.
CONDITIONS TO THE MERGER
The respective obligations of First Source and Pulse to effect the Merger
are subject to the satisfaction of the following conditions at or prior to the
Effective Time: (i) approval of the Merger Agreement by the affirmative vote of
the holders of at least a majority of the outstanding shares of Pulse Common
Stock entitled to vote thereon and by the affirmative vote of the holders of at
least a majority of the outstanding shares of First Source Common Stock entitled
to vote thereon; (ii) the shares of First Source Common Stock issuable to
holders of Pulse Common Stock pursuant to the Merger shall have been authorized
for listing on the Nasdaq Stock Market, subject to official notice of issuance;
(iii) approval of the Merger Agreement and the transactions contemplated thereby
(including the Merger and the Subsidiary Bank Merger by the appropriate
governmental authorities (all such governmental authorities being referred to as
the "Governmental Entities"), and the expiration of any statutory waiting
periods in respect thereof (collectively, the "Requisite Regulatory Approvals")
(see "-- Regulatory Approvals Required for the Merger" below); (iv) receipt of
all necessary state securities laws and "blue sky" permits and other
authorizations required in connection with the issuance of First Source Common
Stock in the Merger; (v) the Registration Statement of which this Joint Proxy
Statement/Prospectus forms a part will have become effective under the
Securities Act of 1933, as amended (the "Securities Act") and no stop order
suspending the effectiveness of the Registration Statement will have been issued
and no proceedings for that purpose will have been initiated or threatened by
the Commission; (vi) no order, injunction or decree issued by any court or
agency of competent jurisdiction or other legal restraint or prohibition (an
"Injunction") which prohibits the consummation of the Merger, the Subsidiary
Bank Merger or any of the other transactions contemplated by the Merger
Agreement or the Subsidiary Bank Merger Agreement (as defined below) will be in
effect; (vii) no statute, rule, regulation, order, injunction or decree will
have been enacted, entered, promulgated or enforced by any Governmental Entity
which prohibits, restricts or makes illegal consummation of the Merger or the
Subsidiary Bank Merger and (viii) the receipt of a letter from the accountants
of First Source that the merger will qualify as a "pooling of interests."
The obligations of First Source to effect the Merger are further subject to
the satisfaction, or waiver by First Source, of the following conditions: (i)
the representations and warranties of Pulse contained in the Merger Agreement
shall be true and correct in all material respects as of the date of the Merger
Agreement and (except to the extent that such representations and warranties
relate to an earlier date) as of the Effective Time as though made at and as of
the Effective Time and (y) the representations and warranties of Pulse contained
in the Merger Agreement shall be true and correct in all material respects as of
the date of the Merger Agreement and (except to the extent that such
representations and warranties relate to an earlier date) as of the Effective
Time as though made at and as of the Effective Time, provided, that for purposes
of determining the satisfaction of the condition described in this clause
(i)(y), no effect shall
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<PAGE>
be given to any exception in such representations and warranties relating to
materiality or a Material Adverse Effect (as defined below), and provided
further, that the representations and warranties of Pulse will be deemed true
and correct in all material respects unless the failure or failures of such
representations and warranties to be so true and correct, in the aggregate,
represent a material adverse change from the business, assets, financial
condition or results of operations of Pulse and its subsidiaries taken
individually or as a whole as represented in the Merger Agreement; (ii) Pulse
shall have duly performed in all material respects all obligations required to
be performed by it under the Merger Agreement at or prior to the Effective Time;
(iii) none of the Requisite Regulatory Approvals shall impose any term,
condition or restriction upon First Source, Pulse, First Savings Bank, SLA or
Pulse Bank or any of their respective subsidiaries that First Source or Pulse,
in good faith, reasonably determines would so materially adversely affect the
economic or business benefits of the transactions contemplated by the Merger
Agreement to First Source or Pulse as to render inadvisable the consummation of
the Merger ("a Burdensome Condition"); (iv) the consent, approval or waiver of
each person (other than the Governmental Entities) whose consent or approval
shall be required in order to permit the succession by the surviving corporation
in the Merger or the surviving bank in the Subsidiary Bank Merger to any
obligation, right or interest of Pulse or any subsidiary of Pulse under any
agreement shall have been obtained, except where the failure to obtain such
consent, approval or waiver would not so materially adversely affect the
economic or business benefits of the transactions contemplated by the Merger
Agreement to First Source as to render inadvisable, in the reasonable good faith
judgment of First Source, the consummation of the Merger; (v) no proceeding
initiated by a Governmental Entity seeking an Injunction shall be pending; (vi)
First Source shall have received an opinion of its counsel, substantially to the
effect that, on the basis of facts, representations and assumptions set forth in
such opinion, which are consistent with the state of facts existing at the
Effective Time, the Merger and the Subsidiary Bank Merger will each be treated
as reorganizations within the meaning of Section 368(a) of the Code (see "--
Certain Federal Income Tax Consequences of the Merger" below); (vii) First
Source shall have received a customary legal opinion from counsel for Pulse;
(viii) First Source shall have received a letter addressed to First Source,
dated as of the Effective Time, from First Source's independent public
accountants to the effect that the Merger will qualify for pooling of interests
accounting treatment unless such firm advises First Source that it is unable to
issue a letter to such effect solely by reason of First Source having exercised
its right to purchase Pulse Common Stock pursuant to the Stock Option Agreement;
(ix) First Source shall have received from Pulse's independent public
accountants certain customary letters with respect to certain financial
information of Pulse; and (x) nothing shall have come to the attention of First
Source which would preclude consummation of the Subsidiary Bank Merger.
The Merger Agreement defines a "Material Adverse Effect," when applied to a
party to the Merger Agreement, as a material adverse effect on the business,
properties, assets, liabilities, results of operations or financial condition of
such party and its subsidiaries taken as a whole, other than any such effect
attributable to or resulting from general, political or economic conditions or a
change in law, rule, regulation, generally accepted accounting principles, or
regulatory accounting principles, which in each case affects banking
institutions or their holding companies generally, except to the extent any such
condition or change affects the referenced party to a materially greater extent
than banking institutions or their holding companies generally.
The obligations of Pulse to effect the Merger are further subject to the
satisfaction, or waiver by Pulse, of the following conditions: (i)(x) the
representations and warranties of First Source contained in the Merger Agreement
shall be true and correct in all material respects as of the date of the Merger
Agreement and (except to the extent that such representations and warranties
relate to an earlier date) as of the Effective Time as though made at and as of
the Effective Time and (y) the representations and warranties of First Source
set forth in the Merger Agreement shall be true and correct in all material
respects as of the date of the Merger Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Effective
Time as though made at and as of the Effective Time, provided, that for purposes
of determining the satisfaction of the condition described in this clause
(i)(y), no effect shall be given to any exception in such representations and
warranties relating to materiality or a Material Adverse Effect, and provided
further, that such representations and warranties will be deemed true and
correct in all material respects unless the failure or failures of such
representations and warranties to be so true and correct, individually or in the
aggregate, represent a material adverse change from the business, assets,
financial condition or results of operations of First Source and its
subsidiaries taken as a whole as represented in the Merger Agreement; (ii)
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<PAGE>
First Source shall have performed in all material respects all obligations
required to be performed by it under the Merger Agreement at or prior to the
Effective Time; (iii) the consent or approval of each person (other than the
Governmental Entities) whose consent or approval shall be required in connection
with the transactions contemplated thereby under any agreement to which First
Source or any of its subsidiaries is a party or is otherwise bound, except those
for which the failure to obtain such consents and approvals would not,
individually or in the aggregate, have a material adverse effect on the
business, operations or financial condition of First Source and its subsidiaries
taken as a whole (after giving effect to the transactions contemplated by the
Merger Agreement), shall have been obtained; (iv) no proceeding initiated by any
Governmental Entity seeking an Injunction shall be pending; (v) Pulse shall have
received from its counsel an opinion dated as of the Effective Time,
substantially to the effect that for Federal income tax purposes the Merger and
the Subsidiary Bank Merger each be treated as reorganizations within the meaning
of Section 368(a) of the Code (see "-- Certain Federal Income Tax Consequences
of the Merger" below); (vi) Pulse shall have received a customary legal opinion
from counsel to First Source.
No assurance can be provided as to when, or whether, the regulatory
consents and approvals necessary to consummate the Merger and the Subsidiary
Bank Merger will be obtained or whether all of the other conditions precedent to
the Merger will be satisfied or waived by the party permitted to do so. See "--
Regulatory Approvals Required for the Merger" below. If the Merger is not
effected on or before March 31, 1999, the Merger Agreement may be terminated by
a vote of a majority of the Board of Directors of either First Source or Pulse,
unless the failure to effect the Merger by such date is due to the breach of the
Merger Agreement by the party seeking to terminate the Merger Agreement.
REGULATORY APPROVALS REQUIRED FOR THE MERGER
Consummation of each of the Merger and the Subsidiary Bank Merger is
subject to a number of regulatory approvals and consents.
Pursuant to the Bank Merger Act, the Home Owners' Loan Act and the OTS
Regulations promulgated thereunder, the Merger is subject to the approval of the
OTS. First Source filed an application for approval of the Merger with the OTS
on _____, 1998. This application is currently under review by the OTS. There
can be no assurance as to the timing of such approval or that the OTS will
approve the Merger. The OTS is required to evaluate the applications by taking
into consideration, among other things, the capital level of the resulting
institution, the financial and managerial resources and future prospects of the
institutions involved, the convenience and needs of the communities to be served
and the conformity of the transaction to applicable law, regulation and
supervisory policies. In addition, the OTS may not approve any proposed
acquisition (i) which would result in a monopoly or which would be in
furtherance of any combination or conspiracy to monopolize or attempt to
monopolize the savings and loan business in any part of the United States or
(ii) which in any section of the country may have the effect of substantially
lessening competition or tending to create a monopoly or which in any manner
would be in restraint of trade, unless the OTS finds that the anti-competitive
effects of the proposed acquisition are clearly outweighed in the public
interest by the probable effect of the acquisition in meeting the convenience
and needs of the community to be served. Under the Community Reinvestment Act
of 1977 (the "CRA"), the OTS must take into account First Savings' record of
performance in meeting the credit needs of the entire community, including low-
and moderate-income neighborhoods, served by First Savings. The OTS also
considers, among other things, the fairness and disclosure of the plan
(including compensation to officers, directors and controlling persons of the
disappearing association by the surviving association), the justification, need
for and compensation to be paid to any advisory board, fees paid to each person
or firm rendering legal or other professional services in connection with a
merger and the accounting and tax treatment of the Merger. The regulations of
the OTS also provide for the publication of notice and the opportunity for
public comments relating to the application for approval discussed above.
In addition, under federal law, a period of 30 days must expire following
approval by the OTS within which period the Department of Justice may file
objections to the Merger under the federal antitrust laws. The post-approval
waiting period may be reduced by the OTS to 15 days, with the concurrence of the
Department of Justice. The
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Department of Justice could take such action under the antitrust laws as it
deems necessary or desirable in the public interest, including seeking to enjoin
the Merger unless divestiture of an acceptable number of branches to a
competitively suitable purchaser could be made. While First Source believes that
the likelihood of such action by the Department of Justice is remote in this
case, there can be no assurance that the Department of Justice will not initiate
such proceeding, or that the Attorney General of the State of New Jersey will
not challenge the Merger, or if such proceeding is instituted or challenge is
made, as to the result thereof.
The Merger is also subject to the prior approval of the Commissioner of the
New Jersey Department of Banking and Insurance ("Department"). First Source
filed an application for approval of the Merger with the New Jersey Banking
Department on _____, 1998. This application is currently under review by the
Banking Department. There can be no assurance as to the timing of such approval
or that the Banking Department will approve the Merger. In determining whether
to approve the application for the Merger of Pulse Bank with and into First
Savings, the Department will consider, among other factors, whether the Merger
would be consistent with adequate or sound banking and would not result in
concentration of assets beyond limits consistent with effective competition, and
whether the Merger would result in such a lessening of competition as to be
injurious to the interest of the public or tend toward monopoly. The Department
will also consider the public interest and the needs and convenience thereof.
Further, it is the policy of the State of New Jersey to ensure the safe and
sound conduct of banking organizations, to conserve assets of banking
organizations, to prevent hoarding of money, to eliminate unsound and
destructive competition among banking organizations and to maintain public
confidence in the business of banking and protect the public interest and the
interests of depositors, creditors and stockholders, and such factors will be
considered by the Commissioner in connection with First Source's application.
First Source is not aware of any other regulatory approvals that would be
required for consummation of the Merger or the Subsidiary Bank Merger, except as
described above. Should any other approvals be required, it is presently
contemplated that such approvals would be sought. There can be no assurance
that any other approvals, if required, will be obtained.
Applications have been submitted seeking the approvals of OTS and the
Department. The Merger cannot proceed in the absence of the requisite regulatory
approvals. See "-- Conditions to the Merger" and "-- Waiver and Amendment;
Termination." There can be no assurance that such regulatory approvals will be
obtained, and if obtained, there can be no assurance as to the date of any such
approval. There can also be no assurance that any such approvals will not
contain a Burdensome Condition which causes such approvals to fail to satisfy
the conditions set forth in the Merger Agreement and described above under "--
Conditions to the Merger." There can likewise be no assurance that the
Department of Justice or the New Jersey State Attorney General will not
challenge the Merger or, if such a challenge is made, as to the result thereof.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, Pulse has agreed that until the Effective
Time, except as provided in the Merger Agreement, the Subsidiary Bank Merger
Agreement, the Stock Option Agreement or with the prior consent of First Source,
Pulse and its subsidiaries will carry on their respective businesses in the
ordinary course consistent with past practice and consistent with prudent
banking practices. Pulse has agreed to use its best efforts to (x) preserve its
business organization and that of its subsidiaries' intact, (y) keep available
to itself and First Source the present services of its and its subsidiaries'
employees and (z) preserve for itself and First Source the goodwill of its and
its subsidiaries' customers and others with whom business relationships exist.
The Merger Agreement also contains certain restrictions on the conduct of
Pulse's business pending consummation of the Merger. In particular, the Merger
Agreement provides that, except as provided in the Merger Agreement or with the
prior written consent of First Source, Pulse and its subsidiaries may not, among
other things: (i) solely in the case of Pulse, declare or pay any dividends on,
or make other distributions in respect of, any of its capital stock, other than
normal quarterly dividends in an amount of no more than $0.20 per share of Pulse
Common Stock,
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except that on or after January 1, 1999, Pulse may increase the quarterly
dividends to no more than $0.225 per share; (ii)(a) split, combine or reclassify
any shares of its capital stock or (b) repurchase, redeem or otherwise acquire
(except for the acquisition of Trust Account Shares and DPC Shares) any shares
of the capital stock of Pulse or any of its subsidiaries or securities
convertible into or exchangeable therefor; (iii) subject to certain exceptions,
issue, deliver or sell, or authorize or propose the issuance, delivery or sale
of, any shares of its capital stock or securities convertible into or
exchangeable therefor; (iv) amend its Certificate of Incorporation or Bylaws;
(v) make any capital expenditures other than in the ordinary course of business
or as necessary to maintain existing assets in good repair, and in any event
which are in an amount of no more than $50,000 individually and $75,000 in the
aggregate; (vi) enter into any new line of business; (vii) subject to certain
exceptions, acquire or agree to acquire any business or entity or otherwise
acquire any assets which would be material to Pulse; (viii) take any action that
is intended or may reasonably be expected to result in any of its
representations and warranties set forth in the Merger Agreement being or
becoming untrue in any material respect, or in any of the conditions to the
Merger not being satisfied, or in a violation of any provision of the Merger
Agreement or the Subsidiary Bank Merger Agreement, except as may be required by
applicable law; (ix) change its methods of accounting in effect at September 30,
1997, subject to certain exceptions; (x) (a) adopt, amend, renew or terminate
(except as may be required by law) any employee benefit plan or agreement,
arrangement, plan or policy between Pulse or any of its subsidiaries and any of
its current or former directors, officers and employees, (b) except for normal
increases in the ordinary course of business consistent with past practice or
except as required by applicable law, increase in any manner the compensation or
fringe benefits of any director, officer or employee and except for continuation
of contributions to Pulse's retirement plan, not to exceed $45,000 per quarter;
(xi) take or cause to be taken any action that would cause the Merger to fail to
qualify (a) for pooling of interests accounting treatment or (b) as a tax-free
reorganization under Section 368(a) of the Code, except that nothing contained
in the Merger Agreement will limit the ability of First Source to exercise its
rights under the Stock Option Agreement; (xii) dispose or agree to dispose of
its material assets, properties or other rights or agreements; (xiii) incur any
indebtedness for borrowed money, or assume, guarantee, endorse or otherwise
become responsible for the obligations of any other entity; (xiv) file any
application to relocate or terminate the operations of any of Pulse's or its
subsidiaries' banking offices; (xv) breach any regulatory agreement or material
contract or license to which Pulse or any of its subsidiaries is a party or by
which any of them or their respective properties is bound; (xvi) except in the
ordinary course of business, restructure, compromise or extend any real estate,
commercial or construction loan; (xvii) except in the ordinary course of
business consistent with past practice, make or commit to make any commercial
business loan or any commercial real estate loan or construction loan secured by
non 1-4 family residential property; (xviii) purchase or commit to purchase any
bulk loan portfolio (xix) engage in or enter into any structured transactions,
derivative securities, arbitrage or hedging; (xx) subject to certain exceptions,
invest or commit to invest in real estate or any real estate development
project; (xxi) create, renew, amend or terminate or give notice to do the same
to any material contract, agreement or lease for goods, services or office space
to which Pulse or any of its subsidiaries is a party or by which Pulse or any of
its subsidiaries or their respective property is bound; or (xxii) take any
action which would cause the termination or cancellation by the FDIC of
insurance in respect of Pulse's deposits; or (xxiii) agree to do any of the
foregoing.
Pursuant to the Merger Agreement, First Source has also agreed that until
the Effective Time, except as provided in the Merger Agreement, the Subsidiary
Bank Merger Agreement, or with the prior written consent of Pulse, First Source
and its subsidiaries will carry on their respective businesses in the ordinary
course consistent with prudent banking practices and shall use all reasonable
efforts to preserve intact their present business organizations and
relationships. The Merger Agreement also provides, among other things, that
First Source will not: (i) declare, pay or make any extraordinary or special
dividends or distributions in respect of its capital stock, except that nothing
contained in the Merger Agreement will prohibit First Source from increasing the
quarterly cash dividend on the First Source Common Stock; (ii) take any action
that is intended or may reasonably be expected to result in any of its
representations and warranties set forth in the Merger Agreement being or
becoming untrue in any material respect, or in any of the conditions to the
Merger not being satisfied, or in a violation of any provision of the Merger
Agreement or the Subsidiary Bank Merger Agreement, except as may be required by
applicable law; (iii) change its methods of accounting in effect at December 31,
1997, subject to certain exceptions; (iv) take or cause to be taken any action
that would cause the Merger to fail to qualify (a) for pooling of interests
accounting treatment or (b) as a tax-free reorganization under Section 368 of
the Code, except that nothing contained in the Merger Agreement will limit the
ability of First Source
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to exercise its rights under the Stock Option Agreement; or (v) take any action
which would cause the termination or cancellation by the FDIC of insurance in
respect of First Source's deposits; or (vi) agree to do any of the foregoing.
WAIVER AND AMENDMENT; TERMINATION
Prior to the Effective Time, any provision of the Merger Agreement may be
waived by the party benefitted by the provision or, subject to applicable law,
amended or modified (including the structure of the transaction) by an agreement
in writing approved by the Boards of Directors of First Source and Pulse,
provided that, after the vote of the stockholders of Pulse, the Merger Agreement
may not be amended, without further approval of such stockholders, to reduce the
amount or change the form of the consideration to be received by Pulse
stockholders other than as contemplated by the Merger Agreement.
The Merger Agreement may be terminated at any time prior to the Effective
Time, either before or after approval of the matters presented in connection
with the Merger by the stockholders of both Pulse and First Source, as follows:
(i) by the mutual consent of First Source and Pulse if the Boards of Directors
of each so determines; (ii) by either First Source or Pulse upon written notice
to the other (a) 60 days after the date on which any request or application for
a Requisite Regulatory Approval is denied or withdrawn at the request of the
Governmental Entity which must grant such approval, unless within such 60-day
period a petition for rehearing or an amended application has been filed with
the applicable Governmental Entity (or unless the failure to obtain the
necessary regulatory approval is due to the failure of the party seeking to
terminate the Merger Agreement to perform or observe its covenants and
agreements set forth in the Merger Agreement) or (b) if any Governmental Entity
of competent jurisdiction issues a final nonappealable order enjoining or
otherwise prohibiting the consummation of any of the transactions contemplated
by the Merger Agreement; (iii) by either First Source or Pulse if its Board of
Directors so determines, in the event that the Merger has not been consummated
by March 31, 1999, unless the failure to consummate the Merger is due to a
breach of the Merger Agreement by the party seeking to terminate the Merger
Agreement; (iv) by either First Source or Pulse (provided that the terminating
party is not in breach of its obligations in the Merger Agreement with respect
to the meeting of its stockholders to approve the Merger Agreement), if any
approval of the stockholders of either of First Source or Pulse required for
consummation of the Merger Agreement shall not have been obtained; (v) by either
First Source or Pulse in the event of (a) a material breach by the other of any
of its representations or warranties contained in the Merger Agreement which is
not cured within 30 days after written notice of such breach is given to the
breaching party or which breach, by its nature, cannot be cured prior to the
Effective Time or (b) a material breach of any of the covenants or agreements
contained in the Merger Agreement by the other which is not cured within 30 days
after written notice of such breach is given to the breaching party; (vi) by
Pulse, by action of its Board of Directors, by giving written notice of such
election to First Source within two trading days after the Valuation Date, in
the event the Average Closing Price is less than $8.50, provided that no right
of termination will arise under this provision if First Source elects within
five business days of receipt of such written notice to increase the Exchange
Ratio such that the value of the First Source Common Stock (valued at the
Average Closing Price) to be paid in respect of each share of Pulse Common Stock
is $32.00 (see "-- Exchange Ratio" above); or (vii) by First Source, by action
of its Board of Directors, by giving written notice of such election to Pulse
within two trading days after the Valuation Date, in the event the Average
Closing Price is greater than $11.50, provided that no right of termination will
arise under this provision if Pulse elects within five business days, of receipt
of such written notice to decrease the Exchange Ratio such that the value of the
First Source Common Stock is $36.80 (see "Exchange Ratio" above); (viii) by
First Source if the Board of Directors of Pulse does not publicly recommend in
the Joint Proxy Statement/Prospectus that Pulse's stockholders approve and adopt
this agreement or if after recommending in the Joint Proxy Statement/Prospectus
that stockholders approve and adopt this agreement, the Pulse Board shall have
withdrawn, modified or amended such recommendation.
In the event of the termination of the Merger Agreement by either First
Source or Pulse, neither First Source nor Pulse will have any further
obligations under the Merger Agreement except (i) for certain specified
provisions of the Merger Agreement relating to confidentiality and expenses and
(ii) that no party will be relieved or released from any liabilities or damages
arising out of its willful breach of any provisions of the Merger Agreement. In
addition, if the Merger Agreement is terminated subsequent to the occurrence of
a Purchase Event (as defined below) or is
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terminated by First Source for a breach of covenant by Pulse, and within 12
months following such termination a Purchase Event occurs, then in addition to
any other amounts payable or stock issuable by Pulse pursuant to the Merger
Agreement or the Stock Option Agreement, as the case may be, Pulse must pay
First Source a termination fee of $3.2 million. Within certain parameters, the
aggregate value which First Source could potentially realize as a result of the
exercise of the Option (as defined below) and the payment of the Termination Fee
is $_____. See "CERTAIN RELATED TRANSACTIONS -- Stock Option Agreement;
Termination Fee."
NO SOLICITATION OF TRANSACTIONS
Pulse has agreed in the Merger Agreement that neither it nor any of its
subsidiaries will authorize or permit any of its officers, directors, employees
or agents to directly or indirectly solicit, initiate or encourage any inquiries
relating to, or the making of any proposal which constitutes, a "takeover
proposal" (as defined below), or, except to the extent legally required for the
discharge of the fiduciary duties of the Pulse Board, recommend or endorse any
takeover proposal, or participate in any discussions or negotiations, or provide
third parties with any non-public information, relating to any such inquiry or
proposal or otherwise facilitate any effort or attempt to make or implement a
takeover proposal, provided that Pulse may communicate information about any
such takeover proposal to its stockholders if, in the judgment of the Pulse
Board, based upon the advice of outside counsel, such communication is required
under applicable law; Pulse has agreed to cease any activities, discussions or
negotiations previously conducted with any parties other than First Source with
respect to any of the foregoing; it will notify First Source immediately if any
such inquiries or proposals are received by, any such information is requested
from, or any such negotiations or discussions are sought to be initiated or
continued with it, and will promptly inform First Source in writing of the
relevant details with respect to the foregoing. As used in the Merger
Agreement, "takeover proposal" means any tender or exchange offer, proposal for
a merger, consolidation or other business combination involving Pulse or any
subsidiary of Pulse or any proposal or offer to acquire in any manner a
substantial equity interest in, or a substantial portion of the assets of, Pulse
or any subsidiary of Pulse other than the transactions contemplated or permitted
by the Merger Agreement, the Subsidiary Bank Merger Agreement and the Stock
Option Agreement.
RESALES OF FIRST SOURCE COMMON STOCK RECEIVED IN THE MERGER
The shares of First Source Common Stock to be issued in the Merger will be
registered under the Securities Act and will be freely transferable under the
Securities Act, except for shares issued to any Pulse stockholder who may be
deemed to be an "affiliate" of Pulse for purposes of Rule 145 under the
Securities Act. Affiliates may not sell their shares of First Source Common
Stock acquired in connection with the Merger except pursuant to an effective
registration statement under the Securities Act covering such shares or in
compliance with Rule 145 or another applicable exemption from the registration
requirements of the Securities Act. This Joint Proxy Statement/Prospectus does
not cover any resales of First Source Common Stock received in the Merger by
persons who may be deemed to be affiliates of Pulse. Persons who may be deemed
to be affiliates of Pulse generally include individuals or entities that
control, are controlled by or are under common control with Pulse, and may
include certain officers and directors as well as principal stockholders of
Pulse.
Commission guidelines regarding qualifying for the pooling of interests
method of accounting also limit sales by affiliates of the acquiring and
acquired company in a business combination. Commission guidelines indicate
further that the pooling of interests method of accounting will generally not be
challenged on the basis of sales by affiliates of the acquiring or acquired
company if they do not dispose of any of the shares of the corporation they own
or shares of a corporation they receive in connection with a merger during the
period beginning 30 days before the effective date of the merger and ending when
financial results covering at least 30 days of post-merger operations of the
combined entity have been published.
First Source and Pulse have each agreed in the Merger Agreement to use
their best efforts to cause each person who is an affiliate (for purposes of
Rule 145 of the Securities Act and for purposes of qualifying the Merger for
pooling
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of interests accounting treatment) of such party to deliver to the other party a
written agreement intended to ensure compliance with the Securities Act and
preserve the ability to treat the Merger as a pooling of interests.
STOCK EXCHANGE LISTING
The First Source Common Stock is listed on the Nasdaq National Market.
First Source has agreed to cause the shares of First Source Common Stock to be
issued in the Merger to be approved for listing on the Nasdaq National Market,
subject to official notice of issuance, prior to or at the Effective Time. The
obligations of the parties to consummate the Merger are subject to approval for
listing by the Nasdaq National Market of such shares. See "--Conditions to the
Merger" above.
ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to qualify as a pooling of interests for accounting
and financial reporting purposes. Under this method of accounting, the recorded
amount of assets and liabilities of First Source and Pulse will be combined at
the Effective Time and carried forward at their previously recorded amounts and
the stockholders' equity accounts of First Source and Pulse will be combined on
First Source's consolidated balance sheet. Income and other financial
statements of First Source issued after the Effective Time will be restated
retroactively to reflect the consolidated operations of First Source and Pulse
as if First Source and Pulse have always been combined.
The Merger Agreement provides that a condition to First Source's obligation
to consummate the Merger is the receipt of a letter from First Source's
independent accountants to the effect that the Merger qualifies for pooling of
interests accounting treatment unless such firm advises First Source that it is
unable to issue a letter to such effect solely by reason of First Source having
exercised its right to purchase Pulse Common Stock pursuant to the Stock Option
Agreement. See "-- Conditions to the Merger" above.
The issuance of shares of Pulse Common Stock pursuant to the Stock Option
Agreement may prevent the Merger from qualifying as a pooling of interests for
accounting and financial reporting purposes. See "CERTAIN RELATED TRANSACTIONS
- -- Stock Option Agreement; Termination Fee."
For information concerning certain restrictions to be imposed on the
transferability of First Source Common Stock to be received by affiliates in
order, among other things, to ensure the availability of pooling of interests
accounting treatment, see "-- Resales of First Source Common Stock Received in
the Merger" above.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a discussion of the material federal income tax
consequences of the Merger and the Subsidiary Bank Merger to First Source, Pulse
and holders of Pulse Common Stock. The discussion is based upon the Code,
Treasury regulations, Internal Revenue Service (the "Service") rulings, and
judicial and administrative decisions in effect as of the date hereof, all of
which are subject to change at any time, possibly with retroactive effect. This
discussion assumes that the Pulse Common Stock is held as a "capital asset"
within the meaning of Section 1221 of the Code (i.e., property generally held
for investment). In addition, this discussion does not address all of the tax
consequences that may be relevant to a holder of Pulse Common Stock in light of
his or her particular circumstances or to holders subject to special rules, such
as foreign persons, financial institutions, tax-exempt organizations or
insurance companies. The opinions of such counsel referred to in this section
will be based on facts existing at the Effective Time, and in rendering such
opinions, such counsel will require and rely upon representations contained in
certificates of officers of First Source, Pulse and others.
HOLDERS OF PULSE COMMON STOCK SHOULD CONSULT THEIR TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE
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APPLICABILITY AND EFFECT OF ANY FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX LAWS.
It is a condition to the obligation of First Source to consummate the
Merger that First Source and Pulse shall have received an opinion from Patton
Boggs LLP, counsel to First Source, that the Merger and the Subsidiary Bank
Merger will each be treated as reorganizations within the meaning of Section
368(a) of the Code and, accordingly, for federal income tax purposes, that:
i) no gain or loss will be recognized by First Source as a result of
the Merger;
ii) no gain or loss will be recognized by First Savings Bank as a
result of the merger;
iii) no gain or loss will be recognized by Pulse as a result of the
Merger;
iv) no gain or loss will be recognized by Pulse Bank as a result of
the Subsidiary Bank Merger;
v) no gain or loss will be recognized by the stockholders of Pulse
who exchange all of their Pulse Common Stock solely for First Source Common
Stock pursuant to the Merger (except with respect to cash received in lieu
of a fractional share interest in First Source Common Stock); and
vi) the aggregate tax basis of the First Source Common Stock received
by a holder of Pulse Common Stock in the Merger will be the same as the
aggregate tax basis of the Pulse Common Stock surrendered in exchange
therefor (reduced by any amount allocable to a fractional share interest in
First Source Common Stock for which cash is received).
The holding period of the First Source Common Stock received by Pulse
Stockholders pursuant to the Merger will include the period during which the
Pulse Common Stock was held as a capital asset on the date of the Merger. Based
upon the current ruling position of the Service, cash received by a holder of
Pulse Common Stock in lieu of a fractional share interest in First Source Common
Stock will be treated as received in exchange for such fractional share
interest, and gain or loss will be recognized for federal income tax purposes
measured by the difference between the amount of cash received and the portion
of the basis of the share of Pulse Common Stock allocable to such fractional
share interest. Such gain or loss should be long-term capital gain or loss if
such share of Pulse Common Stock has been held for more than one year at the
Effective Time.
Pursuant to the Subsidiary Bank Merger Agreement, Pulse Bank will be merged
with and into First Savings Bank, and, consequently, will no longer be entitled
to use the reserve method for computing and deducting its losses for bad debts.
NO APPRAISAL RIGHTS
Pursuant to Article 14A:11-1 of the New Jersey Business Corporations Act,
the stockholders of a constituent corporation in a merger generally are not
entitled to appraisal rights if (a) the shares of stock they own are, as of the
record date fixed to determine stockholders entitled to notice of and to vote at
the meeting to act upon the agreement providing for such merger, either listed
on a national securities exchange or held by more than 1,000 stockholders or (b)
pursuant to a plan of merger such stockholders will receive (i) cash, (ii)
shares of stock which are either listed on a national securities exchange or
held of record by more than 1,000 stockholders, or (iii) any combination of (i)
and (ii). Pulse stockholders are not entitled to appraisal rights in connection
with the Merger because there are more than 1,000 holders of record of First
Source Common Stock.
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CONSOLIDATION OF OPERATIONS; PROJECTED COST SAVINGS
First Source expects to achieve significant cost savings subsequent to the
Merger. The cost savings will be derived primarily from reduced compensation and
benefits. Further, the separate corporate existence of Pulse will cease with the
consummation of the Merger. Consequently, operating costs associated with
requirements imposed on Pulse as a publicly held entity will also be eliminated.
The aggregate annual pre-tax cost savings are estimated to range between $4.8
million to $5.2 million. Management of First Source believes that realization of
these cost savings will begin by June 30, 1999. There can be no assurance as to
when, or whether, the cost savings will be realized. However, such realization
will depend upon, among other things, the regulatory and economic environment,
business changes implemented by First Source management and other factors, many
of which are beyond the control of First Source.
MERGER AND RESTRUCTURING CHARGES
A non-recurring merger and restructuring charge estimated in the range of
$5.5 to $5.9 million, before tax effect, will be made upon consummation of the
Merger. It is expected that the charge will be made in the quarter in which the
Merger is consummated. Merger expenses of approximately $1.26 million for
investment banking and professional fees are included in such estimated
restructuring charge. The restructuring charge primarily includes severance and
employee related expenses, and, to a lesser extent, facility and system
termination costs and other general costs. See "THE MERGER -- Certain Federal
Income Tax Consequences of the Merger."
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CERTAIN RELATED TRANSACTIONS
TERMINATION FEE
The following is a summary of the material provisions of certain provisions
of the Merger Agreement (which is attached hereto as Annex A) which provide for
the payment by Pulse to First Source of a $3.2 million fee (the "Termination
Fee") in certain circumstances. The following summary is qualified in its
entirety by reference to the Stock Option Agreement and the relevant provisions
of the Merger Agreement.
Purchase Events. The Option is exercisable, and the Termination Fee
payable, only upon the occurrence of one of the following events (each a
"Purchase Event"):
(a) Pulse fails to publicly oppose a Tender Offer or an Exchange
Offer (as defined below), or authorizes, recommends, publicly proposes,
fails to publicly oppose or enters into an agreement with any person (other
than First Source or any of its subsidiaries) to (i) effect a merger,
consolidation or similar transaction involving Pulse or any of its
subsidiaries (other than internal mergers, reorganizations, consolidations
or dissolutions involving only existing subsidiaries), (ii) sell, lease,
exchange or otherwise dispose of assets of Pulse or any of its subsidiaries
representing 20% or more of the consolidated assets of Pulse and its
subsidiaries, or (iii) issue, sell or otherwise dispose of (including by
merger, consolidation, share exchange or similar transaction) securities
representing 20% or more of the voting power of Pulse or any of its
subsidiaries (any of the foregoing, an "Acquisition Transaction");
(b) any person (other than First Source or its subsidiaries) shall
have acquired Beneficial Ownership (as defined in Rule 13d-3 promulgated
under the Exchange Act) of, or the right to acquire Beneficial Ownership
of, or any Group (as defined in the Exchange Act) shall have been formed
which has acquired Beneficial Ownership of, or has the right to acquire
Beneficial Ownership of, 20% or more of the then outstanding shares of
Pulse Common Stock;
(c) any person (other than First Source or any subsidiary of First
Source) shall have (i) commenced (as such term is defined in Rule 14d-2
under the Exchange Act) or shall have filed a registration statement under
the Securities Act with respect to a Tender Offer or Exchange Offer to
purchase any shares of Pulse Common Stock such that, upon consummation of
such offer, such person would own or control 20% or more of the then-
outstanding shares of Pulse Common Stock (such an offer being referred to
herein as a "Tender Offer" or an "Exchange Offer," respectively);
(d) the stockholders of Pulse shall not have approved the Merger
Agreement at the meeting of such stockholders held for the purpose of
voting on the Merger Agreement, or such meeting shall not have been held or
shall have been cancelled prior to termination of the Merger Agreement, in
each case after it shall have been publicly announced that any person
(other than First Source or any subsidiary of First Source) shall have
made, or disclosed an intention to make, a proposal to engage in an
Acquisition Transaction; or
(e) Pulse's Board of Directors shall not have recommended to Pulse's
stockholders that such stockholders vote in favor of the approval of the
Merger Agreement and the transactions contemplated thereby or shall have
withdrawn or modified such recommendation in a manner adverse to First
Source.
Termination Fee; Increase in Exercise Price. The Merger Agreement provides
that in addition to the rights granted to First Source under the Stock Option
Agreement, in the event the Merger Agreement (i) is terminated subsequent to the
occurrence of a Purchase Event or (ii) is terminated by First Source as a result
of a breach by Pulse of its covenants under the Merger Agreement, and within 12
months after such termination by First Source a Purchase Event shall occur, then
Pulse must pay to First Source the Termination Fee of $3.2 million.
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The Stock Option Agreement provides that in addition to any other amounts
payable by First Source to Pulse upon the exercise of the option, upon the first
such exercise, First Source will pay to Pulse an amount, if any, by which (i)
$1,055,600 plus the product of (A) the total number of Option Shares and (B) the
difference between the Market/Tender Offer Price (as defined below) and the
Purchase Price exceeds (ii) $_____, provided, however, that in no event will the
amount payable pursuant to this sentence exceed $3.78 million. The
"Market/Tender Offer Price" means the higher of the highest per share at which a
Tender Offer or Exchange Offer has been made by any person other than First
Source or any affiliate of First Source or person acting in concert in any
respect with First Source for at least 20% of the shares of Pulse Common Stock
then outstanding or the highest closing sales price per share of Pulse Common
Stock quoted on The Nasdaq Stock Market (or if Pulse Common Stock is not quoted
on The Nasdaq Stock Market, the highest bid price per share as quoted on the
principal trading market or securities exchange on which such shares are traded
as reported by a recognized source) within the six month period immediately
preceding the execution of the Stock Option Agreement.
The provisions described in the preceding paragraph were intended to limit,
within certain parameters, the aggregate value (the "Aggregate Value") which
First Source could potentially realize as a result of the exercise of the Option
and the payment of the Termination Fee to $_____. In the event that a Purchase
Event occurs and the Market/Tender Offer Price is equal to or greater than
$_____ and equal to or less than $_____, (A) the Termination Fee payable by
Pulse, plus (B) the difference between the aggregate value of the Option Shares
(valued at the Market/Tender Offer Price) and the aggregate exercise price for
the Option Shares, less (C) the amount payable by First Source to Pulse pursuant
to the preceding paragraph, will equal $_____. If the Market/Tender Offer price
exceeds $_____, the Aggregate Value will exceed $_____ by an amount equal to the
amount of such excess multiplied by the number of Option Shares.
Effect of Stock Option Agreement and Termination Fee. The Stock Option
Agreement and the Termination Fee are intended to increase the likelihood that
the Merger will be consummated in accordance with the terms of the Merger
Agreement. Consequently, certain aspects of the Stock Option Agreement and the
Termination Fee may have the effect of discouraging persons who might now or
prior to the Effective Time be interested in acquiring all of or a significant
interest in Pulse from considering or proposing such an acquisition, even if
such persons were prepared to pay a higher price per share for Pulse Common
Stock than the price per share implicit in the Exchange Ratio. The acquisition
of Pulse or an interest in Pulse, or an agreement to do either, could cause the
Option to become exercisable and the Termination Fee to become payable. The
existence of the Option and the Termination Fee could significantly increase the
cost to a potential acquiror of acquiring Pulse compared to its cost had the
Stock Option Agreement and the Merger Agreement not been entered into. Such
increased cost might discourage a potential acquiror from considering or
proposing an acquisition or might result in a potential acquiror proposing to
pay a lower per share price to acquire Pulse than it might otherwise have
proposed to pay. Moreover, following consultation with First Source's
independent accountants, the management of First Source believes that the
exercise of the Option is likely to prohibit any acquiror of Pulse from
accounting for any acquisition of Pulse using the pooling of interests
accounting method for a period of two years. Accordingly, the existence of the
Stock Option Agreement may deter significantly, or completely preclude, an
acquisition of Pulse by certain other banking organizations. The Pulse Board
took this factor into account before approving the Stock Option Agreement. See
"THE MERGER -- Recommendation of the Boards of Directors; Reasons for the
Merger--Pulse."
SUBSIDIARY BANK MERGER AGREEMENT
In connection with the Merger, First Savings and Pulse Bank have entered
into the Subsidiary Bank Merger Agreement pursuant to which Pulse Bank will be
merged with and into First Savings, which will continue as a wholly owned
subsidiary of First Source. The Subsidiary Bank Merger Agreement may be
terminated by mutual consent of the parties at any time and will be terminated
automatically in the event the Merger Agreement is terminated.
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THE FOREGOING SUMMARIES OF THE STOCK OPTION AGREEMENT, THE SUBSIDIARY BANK
MERGER AGREEMENT AND THE PROVISIONS OF THE MERGER AGREEMENT RELATING TO THE
TERMINATION FEE ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO SUCH AGREEMENTS.
THE MERGER AGREEMENT IS ATTACHED HERETO AS ANNEX A AND STOCK OPTION AGREEMENT IS
ATTACHED HERETO AS ANNEX B. SEE "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
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CERTAIN REGULATORY CONSIDERATIONS
GENERAL
First Source is a non-diversified unitary savings and loan holding company
within the meaning of the Home Owners' Loan Act ("HOLA"). As such, First Source
is subject to OTS regulations, examinations, supervision and reporting
requirements. In addition, the OTS has enforcement authority over First Source
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. First Source must notify the
OTS 30 days before declaring any dividend to First Source.
As a unitary savings and loan holding company, First Source generally is
not restricted under existing laws as to the types of business activities in
which it may engage, provided that First Savings continues to be a Qualified
Thrift Lender ("QTL"). See"-Federal Regulation of Savings Institutions-QTL Test"
for a discussion of the QTL requirements. Upon any non-supervisory acquisition
by First Source of another savings association, First Source would become a
multiple savings and loan holding company (if the acquired institution is held
as a separate subsidiary) and would be subject to extensive limitations on the
types of business activities in which it could engage. The HOLA limits the
activities of a multiple savings and loan holding company and its non-insured
institution subsidiaries primarily to activities permissible for bank holding
companies under Section 4(c)(8) of the Bank Holding Company ("BHC") Act, subject
to the prior approval of the OTS, and to other activities authorized by OTS
regulation. Previously 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 and 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.
First Savings 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. First Savings is a
member of the FHLB System. First Savings' deposit accounts are insured up to
applicable limits by the SAIF managed by the FDIC. First Savings 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 First
Savings'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
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OTS, the FDIC or the Congress, could have a material adverse impact on First
Source, First Savings and their operations. First Source, 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 First Source, First Savings, 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, First Savings 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 First Savings and to
First Source 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 First Savings and First Source 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 First Savings' 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 June 30, 1998, First Savings' general policy is to
limit loans-to-one borrower to $18.0 million. At June 30, 1998, First Savings'
largest aggregate amount of loans-to-one borrower totaled $13.2 million.
QTL Test. The HOLA requires savings institutions to meet a QTL test. Under
the QTL test, a savings association is required to maintain at least 65% of
its"portfolio assets" (total assets less: (i) specified liquid assets up to 20%
of total assets; (ii) intangibles, including goodwill; and (iii) the value of
property used to conduct business) in certain "qualified thrift
investments"(primarily residential mortgages and related investments, including
certain mortgage-backed and related securities) in at least nine months out of
each 12 month period. A savings association that fails the QTL test must either
convert to a bank charter or operate under certain restrictions. As of June 30,
1998, First Savings maintained 84% 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 First Savings, 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 First Savings's capital fell below its
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capital requirements or the OTS notified it that it was in need of more than
normal supervision, First Savings' 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. First Savings 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. First Savings' average liquidity ratio at
June 30, 1998 was 47%, which exceeded the applicable requirements. First Savings
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 OTS and the New Jersey Department of Banking to fund the
various agency's operations and periodic Bank examinations. The assessments paid
by First Savings to these agencies for the six months ended June 30, 1998 and
for the years ended December 31, 1997 and 1996 totaled $161,000, $251,000 and
$271,000, respectively.
Transactions with Related Parties. First Savings' 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 First Source
and any non-savings institution subsidiaries that First Source 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 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.
First Savings' 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
First Savings may make to insiders based, in part, on First Savings' 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 betaken 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
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benefits and such other operational and managerial standards as the agency deems
appropriate. The federal banking agencies have adopted final regulations and
Interagency Guidelines Establishing Standards for Safety and Soundness
("Guidelines") to implement these safety and soundness standards. The Guidelines
set forth the safety and soundness standards that the federal banking agencies
use to identify and address problems at insured depository institutions before
capital becomes impaired. The Guidelines address internal controls and
information systems; internal audit system; credit underwriting; loan
documentation; interest rate risk exposure; asset growth; asset quality;
earnings; and compensation, fees and benefits. If the appropriate federal
banking agency determines that an institution fails to meet any standard
prescribed by the Guidelines, the agency may require the institution to submit
to the agency an acceptable plan to achieve compliance with the standard, as
required by the FDI Act. The final regulations establish deadlines for the
submission and review of such safety and soundness compliance plans.
Capital Requirements. The OTS capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital standard,
a 3% leverage (core capital) ratio and an 8% risk based capital standard. Core
capital is defined as common stockholder's equity (including retained earnings),
certain non-cumulative perpetual preferred stock and related surplus, minority
interests in equity accounts of consolidated subsidiaries less intangibles other
than certain mortgage servicing rights ("MSRs") and credit card relationships.
The OTS regulations require that, in meeting the leverage ratio, tangible and
risk-based capital standards institutions generally must deduct investments in
and loans to subsidiaries engaged in activities not permissible for a national
bank. In addition, the OTS prompt corrective action regulation provides that a
savings institution that has a leverage capital ratio of less than 4% (3% for
institutions receiving the highest CAMEL examination rating) will be deemed to
be "undercapitalized" and may be subject to certain restrictions. See "-Prompt
Corrective Regulatory Action."
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 June 30, 1998, First Savings 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, First Savings' historical amounts
and percentages at June 30, 1998, 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 First Source.
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
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the regulation of holding companies. First Savings 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. First Savings
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
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 First Savings 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. First Savings' assessment rate for the six months ended
June 30, 1998 was 6.4 basis points for $100 in insurable deposits and the
regular premium expense for this period was $250,000.
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 First Savings.
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 First Savings does not know of any practice, condition
or violation that might lead to termination of deposit insurance.
FEDERAL HOME LOAN BANK SYSTEM
First Savings is a member of the FHLB System, which consists of 12 regional
FHLBs. The FHLB provides a central credit facility primarily for member
institutions. First Savings, 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
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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. First Savings was in compliance with this requirement with an
investment in FHLB stock at June 30, 1998 of $8.4 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
June 30,1998, First Savings had $13.0 million in FHLB advances and $81.9 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 six months ended June 30, 1998 and the years
ended December 31, 1997 and 1996, dividends from FHLB stock to First Savings
amounted to $305,000, $525,000 and $469,000, respectively. If dividends were
reduced, First Savings' 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 First Savings.
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 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. First Savings 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 First Savings' 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 New Jersey Banking and Insurance Commissioner (the "Commissioner")
regulates, among other things, the First Savings' internal business procedures
as well as its deposits, lending and investment activities. The Commissioner
must approve changes to First Savings' Certificate of Incorporation,
establishment or relocation of branch offices, mergers and the issuance of
additional stock. In addition, the Commissioner conducts periodic examinations
of First Savings. 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 First Savings, 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.
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DESCRIPTION OF FIRST SOURCE CAPITAL STOCK
GENERAL
First Source 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"). At
______________, there were ________ shares of Common Stock and no shares of
Preferred Stock outstanding.
COMMON STOCK
Dividends. First Source 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 First Source is subject to limitations which are imposed
by law and applicable regulation. The holders of Common Stock of First Source
are entitled to receive and share equally in such dividends as may be declared
by the Board of Directors of First Source out of funds legally available
therefor. If First Source issues Preferred Stock, the holders thereof may have
a priority over the holders of the Common Stock with respect to dividends.
Voting Rights. The holders of Common Stock of First Source possess
exclusive voting rights in First Source. They elect First Source's Board of
Directors and act on such other matters as are required to be presented to them
under Delaware law or First Source's Certificate of Incorporation or as are
otherwise presented to them by the Board of Directors. Except with respect to
certain voting limitations for holders of greater than 10% of the First Source
Common Stock, each holder of Common Stock is entitled to one vote per share and
does not have any right to cumulate votes in the election of directors. If
First Source issues Preferred Stock, holders of the Preferred Stock may also
possess voting rights. Certain matters require an 80% stockholder vote.
Liquidation. In the event of any liquidation, dissolution or winding up of
First Source, as holder of First Savings' capital stock, would be entitled to
receive, after payment or provision for payment of all debts and liabilities of
First Savings (including all deposit accounts and accrued interest thereon) and
after distribution of the balance in the special liquidation account related to
First Source's Conversion, all assets of First Savings available for
distribution. In the event of liquidation, dissolution or winding up of First
Source, 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 First Source 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 First Source 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 First Source's authorized Preferred Stock have been
issued. 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.
65
<PAGE>
COMPARISON OF STOCKHOLDER RIGHTS
Upon the consummation of the transactions contemplated in the Merger
Agreement, the stockholders of Pulse will become stockholders of First Source.
First Source is a Delaware-chartered corporation, while Pulse is a New-Jersey-
chartered corporation. Therefore, the rights presently enjoyed by Pulse's
stockholders under the relevant provisions of the New Jersey Business
Corporation Act ("NJBCA"), the Certificate of Incorporation (the "Pulse
Certificate") and the Bylaws (the "Pulse Bylaws") of Pulse may differ in some
respects from the rights they would have as stockholders of First Source under
the relevant provisions of the Delaware General Corporation Law ("DGCL"), First
Sources' Certificate of Incorporation ("First Source Certificate") and First
Source's Bylaws (the "First Source Bylaws"). This summary contains a list of the
material differences, but is not meant to be relied upon as an exhaustive list
or a detailed description of the provisions discussed and is qualified in its
entirety by reference to the First Source Certificate, the First Source Bylaws,
the Pulse Certificate, the Pulse Bylaws, the DGCL and the NJBCA.
ISSUANCE OF CAPITAL STOCK
Pulse. The Pulse Certificate authorizes the issuance of 10,000,000 shares
of Pulse Common Stock, $1.00 par value per share, and 5,000,000 shares of Serial
Preferred Stock. At __________, 1998, [3,120,300] shares of Pulse Common Stock
were issued and outstanding, and no shares of preferred stock were issued and
outstanding.
First Source. The First Source Certificate authorizes the issuance of
85,000,000 shares of Common Stock, $0.01 per value, and 10,000,000 shares of
Preferred Stock, $0.01 par value. At ____________, 1998, ________ shares of
First Source Common Stock were outstanding and no shares of Preferred Stock were
outstanding.
ADVANCE NOTICE REQUIREMENTS FOR NOMINATIONS OF DIRECTORS AND SHAREHOLDER
PROPOSALS
Pulse. The Pulse Certificate provides that nominations for the election of
directors may be made by any shareholder entitled to vote generally in the
election of directors by following certain procedures set forth therein. In
order for a Pulse shareholder to make a nomination, he or she must give notice
in writing to Pulse not fewer than 60 days prior to the anniversary date of the
immediately preceding annual meeting of shareholders of Pulse. The
shareholder's notice must contain certain information specified by the
Certificate.
First Source. The First Source Certificate contains similar notice
requirements, however, notice of a shareholder nomination or proposal must be
received by First Source at least 90 days prior to any meeting date, except that
if less than 100 days notice of the meeting is given than such shareholder
notice or nomination must be received no later than the tenth day following
notice of the meeting.
SPECIAL MEETINGS OF SHAREHOLDERS
Pulse. Special meetings of shareholders of Pulse may be called by the
President, Chairman, the Board of Directors, or a committee of the board of
directors of Pulse. Shareholders are not entitled under the Pulse Certificate
to call a special meeting.
First Source. Special meetings of shareholders of First Source may only be
called by resolution of the Board of Directors of First Source.
NUMBER AND TERM OF DIRECTORS
Pulse. The Pulse Board consists of six directors. The Pulse Certificate
provides that the number of directors may be changed by the affirmative vote of
two-thirds of the then-current members of the Pulse Board. Under the Pulse
Certificate, the number of directors may not be fewer than five or more than 15.
The Pulse Board is divided into three classes with two members in each class.
66
<PAGE>
First Source. The First Source Board currently consists of eight
directors, and following the Merger will be expanded to 10 directors. The First
Source Certificate provides that the Board of Directors may set, by resolution,
the number of directors. The First Source Board is divided into three classes,
as equal in number as possible.
FILING VACANCIES ON THE BOARD OF DIRECTORS
Pulse. The Pulse Certificate provides that any vacancy (including one
resulting from a newly created directorship) that occurs on the Pulse Board may
be filled by a majority vote of the Pulse Board and that any director appointed
to fill the vacancy will hold office for a term expiring at the next annual
meeting of shareholders.
First Source. The First Source Certificate provides that any vacancy
(including one resulting from a newly created directorship) that occurs on the
First Source Board may be filled by a majority vote of the First Source Board
and any director appointed to fill the vacancy will hold office for a term
expiring at the annual meeting in which the term of the class to which such
director is appointed expires.
REMOVAL OF DIRECTORS
Pulse. The Pulse Certificate provides that one or more directors may be
removed for cause upon the affirmative vote of the holders of at least 80% of
the outstanding shares entitled to vote generally in the election of directors.
A director may also be removed for cause by the board of directors.
First Source. The First Source Certificate provides that one or more
directors may be removed for cause upon the affirmative vote of the holders of
at least 80% of the outstanding shares entitled to vote generally in the
election of directors.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS
Pulse. New Jersey law generally requires that an amendment to the Pulse
certificate must be approved by the Pulse board of directors and a majority of
votes cast by the holders of shares entitled to vote. The Pulse Certificate
provides that certain amendments to the Pulse Certificate must be approved by
the holders not less than 80% of the shares entitled to vote generally in the
election of directors. This 80% vote is required for amendments relating to (i)
the number, election, classification and removal of directors; (ii) preemptive
rights; (iii) elimination of directors' liability; (iv) indemnification of
directors, officers, employees and agents; (v) meetings of shareholders and
shareholder proposals; (vi) restrictions on voting Pulse Common Stock; (vii)
approval of certain business combinations; and (viii) amendment of the Pulse
Bylaws.
The Pulse Certificate provides that the Pulse Bylaws may be amended by
either (i) the affirmative vote of two-thirds of the directors or (ii) the
shareholders of Pulse, by the affirmative vote of the holders of not less than
80% of the shares of Pulse entitled to vote generally in the election of
directors.
First Source. Delaware law and the First Source Certificate are
substantially similar to the provisions with respect to amendment of the Pulse
Certificate stated above.
The First Source Bylaws may be amended by a majority vote of the First
Source Board.
PAYMENT OF DIVIDENDS
The ability of First Source and Pulse to pay dividends on their common
stock is governed by New Jersey and Delaware law, respectively.
67
<PAGE>
New Jersey law provides that Pulse may make distributions to its
shareholders unless, after paying the dividend (i) Pulse would be unable to pay
its debts as they become due in the usual course of its business, or (ii) the
total assets of Pulse would be less than its total liabilities.
Delaware law provides that First Source may pay dividends only out of
either (i) surplus, which is defined as the excess of net assets over First
Source's capital or (ii) if no surplus, out of the net profits of First Source
for the fiscal year in which the dividend is declared or the previous fiscal
year.
The ability of First Source and Pulse to pay dividends is also affected by
regulatory restrictions on the abilities of their subsidiaries to make capital
distributions.
68
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following tables set forth certain selected condensed financial data
for First Source and Pulse on an unaudited pro forma combined basis giving
effect to the Merger as if the Merger had become effective on June 30, 1998, in
the case of the balance sheet data presented, and if the Merger had become
effective at the beginning of the periods indicated, in the case of the income
statement data presented. The pro forma data in the tables assumes that the
Merger is accounted for using the pooling of interests method of accounting.
See "THE MERGER -- Anticipated Accounting Treatment." Financial data for the
six months ended June 30, 1998 and 1997 combine First Source with Pulse's
interim results presented to coincide with the reporting periods for First
Source. These tables should be read in conjunction with, and are qualified in
their entirety by, the historical financial statements, including the notes
thereto, of First Source and Pulse incorporated by reference herein, including
the notes thereto, appearing elsewhere in this Joint Proxy Statement/Prospectus.
See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
The pro forma data and ratios set forth in the following tables do not
reflect the expected cost savings and revenue enhancement opportunities that
could result from the Merger or any other items of income or expense which may
result from the Merger. The pro forma balance sheet data and certain ratios do
reflect a $4.1 million reduction to retained earnings and a corresponding
increase to other liabilities at June 30, 1998. This adjustment represents the
accrual of the estimated cost of merger expenses and restructuring charges, net
of tax. The unaudited pro forma combined selected financial data is presented
for informational purposes only and is not necessarily indicative of the
combined financial position or results of operations that would have occurred if
the Merger had been consummated on June 30, 1998, or at the beginning of the
periods indicated, or which may be obtained in the future.
69
<PAGE>
FIRST SOURCE BANCORP, INC. - PULSE BANCORP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA FIRST SOURCE
FIRST SOURCE PULSE ADJUSTMENTS(1) PRO FORMA
------------ ------------- ---------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks................................ $ 11,680 $ 3,929 $ 15,609
Federal funds sold..................................... 14,000 31,300 45,300
Total cash and cash equivalents............... 25,680 35,229 60,909
FHLB-NY stock, at cost................................. 8,352 2,837 11,189
Investment securities, at amortized cost............... 15,994 71,553 87,547
Investment securities available for sale............... 57,053 111,838 168,891
Mortgage-backed securities, net........................ - 126,193 126,193
Mortgage backed securities available for sale.......... 432,785 40,357 473,142
Loans receivable, net.................................. 644,385 146,680 791,065
Interest and dividends receivable...................... 8,702 5,076 13,778
Premises and equipment, net............................ 14,088 2,149 16,237
Excess of cost over fair value of net assets acquired.. 8,381 - 8,381
Other assets........................................... 5,618 2,190 7,808
--------- ------- --------- ---------
Total assets.................................. $ 1,221,038 $ 544,102 $ 1,785,140
=========== ========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits............................................... $ 807,591 $ 434,646 $ 1,242,237
Borrowed funds......................................... 139,544 59,675 199,219
Advances by borrowers for taxes and insurance.......... 6,344 893 7,237
Other liabilities...................................... 8,239 2,988 4,161 15,388
------- ------- ----- ----------
Total liabilities............................. 961,718 498,202 4,161 1,464,081
======= ======= ======= ==========
STOCKHOLDERS' EQUITY
Common Stock........................................... 317 4,182 (4,082) 417
Paid-in capital........................................ 206,948 12,756 (12,595) 207,109
Retained earnings...................................... 63,812 44,941 (4,161) 104,592
Accumulated other comprehensive income................. 1,886 698 2,584
Less: Unallocated Common Stock acquired by the
ESOP................................................... (13,512) - (13,512)
Unearned Common Stock acquired by the
RRP............................................... (131) - (131)
Treasury Stock, at cost........................... - (16,677) 16,677 0
Total stockholders' equity...................... 259,320 45,900 (4,161) 301,059
--------- ------- ---------- ----------
Total liabilities and stockholders' equity...... $ 1,221,038 $ 544,102 $ 1,765,140
=========== ========= ========== ===========
</TABLE>
- ---------------
(1) Adjustments detailed are to eliminate Pulse's investment in treasury
stock, to conform the ending balance of common stock outstanding to First
Source's par value and to accrue for estimated restructure charges, net
of tax.
70
<PAGE>
FIRST SOURCE BANCORP, INC. - PULSE BANCORP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FIRST SOURCE
FIRST SOURCE PULSE PRO FORMA
------------ ----------- ------------
<S> <C> <C> <C>
Interest Income............................................... $ 39,072 $ 18,717 $ 57,789
Interest Expense.............................................. 20,547 11,630 32,157
-------- -------- --------
Net interest income before provision for loan losses.......... 18,545 7,087 25,632
Provision for loan losses.................................... 740 - 740
-------- -------- --------
Net interest income after provision for loan losses........... 17,805 7,087 24,892
Other operating income........................................ 2,467 134 2,601
Operating expenses............................................ 8,811 2,911 11,722
-------- -------- --------
Income before income taxes.................................... 11,461 4,310 15,771
Income Taxes.................................................. 4,243 1,544 5,787
-------- -------- --------
Net Income.................................................... $ 7,218 $ 2,766 $ 9,984
======== ======== ========
PRO FORMA WEIGHTED AVERAGE EQUIVALENT BASIC SHARES
outstanding:
at the Exchange Ratio of 3.2.................................. 30,518 3,106 40,457
at the Exchange Ratio of 3.764................................ 30,518 3,106 42,209
Pro Forma Basic Earnings Per Share:
at the Exchange Ratio of 3.2.................................. $ 0.24 $ 0.89 $ 0.25
At the Exchange Ratio of 3.764................................ $ 0.24 $ 0.89 $ 0.24
PRO FORMA WEIGHTED AVERAGE EQUIVALENT DILUTED SHARES
Outstanding:
at the Exchange Ratio of 3.2.................................. 30,842 3,238 41,204
at the Exchange Ratio of 3.764................................ 30,842 3,238 43,031
PRO FORMA DILUTED EARNINGS PER SHARE:
at the Exchange Ratio of 3.2.................................. $ 0.23 $ 0.85 $ 0.24
at the Exchange Ratio of 3.764................................ $ 0.23 $ 0.85 $ 0.23
</TABLE>
71
<PAGE>
FIRST SOURCE BANCORP, INC. - PULSE BANCORP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FIRST SOURCE
FIRST SOURCE PULSE PRO FORMA
------------ ------------- ------------
<S> <C> <C> <C>
Interest Income............................................... $36,054 $ 18,101 $ 54,155
Interest Expense.............................................. 20,090 11,153 31,243
------- -------- --------
Net interest income before provision for loan losses.......... 15,964 6,948 22,912
Provision for loan losses..................................... 600 - 600
------- -------- --------
Net interest income after provision for loan losses........... 15,364 6,948 22,312
Other operating income........................................ 1,051 261 1,312
Operating expenses............................................ 8,541 2,677 11,218
------- -------- --------
Income before income taxes.................................... 7,874 4,532 12,406
Income Taxes.................................................. 2,919 1,623 4,542
------- ------- -------
Net Income.................................................... $ 4,955 $ 2,909 $ 7,864
======= ======= =======
PRO FORMA WEIGHTED AVERAGE EQUIVALENT BASIC SHARES
OUTSTANDING:
at the Exchange Ratio of 3.2.................................. 30,981 3,058 40,678
at the Exchange Ratio of 3.764................................ 30,981 3,058 42,403
PRO FORMA BASIC EARNINGS PER SHARE:
at the Exchange Ratio of 3.2.................................. $ 0.16 $ 0.95 $ 0.19
at the Exchange Ratio of 3.764................................ $ 0.16 $ 0.95 $ 0.19
PRO FORMA WEIGHTED AVERAGE EQUIVALENT DILUTED SHARES
OUTSTANDING:
at the Exchange Ratio of 3.2.................................. 31,459 3,135 41,492
at the Exchange Ratio of 3.764................................ 31,459 3,135 43,261
PRO FORMA DILUTED EARNINGS PER SHARE:
at the Exchange Ratio of 3.2.................................. $ 0.16 $ 0.93 $ 0.19
at the Exchange Ratio of 3.764................................ $ 0.16 $ 0.93 $ 0.18
</TABLE>
72
<PAGE>
FIRST SOURCE BANCORP, INC. - PULSE BANCORP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 FOR FIRST SOURCE AND SEPTEMBER 30, 1997
FOR PULSE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FIRST SOURCE
FIRST SOURCE PULSE PRO FORMA
------------ ----------- ------------
<S> <C> <C> <C>
Interest Income............................................... $73,222 $ 36,019 $ 109,241
Interest Expense.............................................. 41,183 22,375 63,558
------- -------- ---------
Net interest income before provision for loan losses.......... 32,039 13,644 45,683
Provision for loan losses.................................... 1,200 - 1,200
------- -------- ---------
Net interest income after provision for loan losses........... 30,839 13,644 44,483
Other operating income........................................ 2,801 510 3,311
Operating expenses............................................ 18,863 5,275 24,138
------- -------- ---------
Income before income taxes.................................... 14,777 8,879 23,656
Income Taxes.................................................. 5,482 3,204 8,686
------- -------- ---------
Net Income.................................................... $ 9,295 $ 5,675 $ 14,970
======= ======== =========
PRO FORMA WEIGHTED AVERAGE EQUIVALENT BASIC SHARES
OUTSTANDING:
at the Exchange Ratio of 3.2.................................. 30,981 3,063 40,783
at the Exchange Ratio of 3.764................................ 30,981 3,063 42,511
PRO FORMA BASIC EARNINGS PER SHARE:
at the Exchange Ratio of 3.2.................................. $ 0.30 $ 1.85 $ 0.37
at the Exchange Ratio of 3.764................................ $ 0.30 $ 1.85 $ 0.35
PRO FORMA WEIGHTED AVERAGE EQUIVALENT DILUTED SHARES
OUTSTANDING:
at the Exchange Ratio of 3.2.................................. 31,335 3,146 41,401
at the Exchange Ratio of 3.764................................ 31,335 3,146 43,176
PRO FORMA DILUTED EARNINGS PER SHARE:
at the Exchange Ratio of 3.2.................................. $ 0.30 $ 1.80 $ 0.36
at the Exchange Ratio of 3.764................................ $ 0.30 $ 1.80 $ 0.35
</TABLE>
73
<PAGE>
FIRST SOURCE BANCORP, INC. - PULSE BANCORP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the years ended December 31, 1996 for First Source and September 30, 1996
for Pulse
(In thousands, except per share data)
<TABLE>
<CAPTION>
First Source
First Source Pulse Pro Forma
------------------ -------------- --------------
<S> <C> <C> <C>
Interest Income............................................... $68,039 $ 32,733 $100,772
Interest Expense.............................................. 37,264 19,133 56,397
-------- ---------- --------
Net interest income before provision for loan losses.......... 30,775 13,600 44,375
Provision for loan losses .................................... 550 - 550
-------- ---------- --------
Net interest income after provision for loan losses........... 30,225 13,600 43,825
Other operating income........................................ 1,995 326 2,321
Operating expenses............................................ 24,701 8,474 33,175
-------- ---------- --------
Income before income taxes.................................... 7,519 5,452 12,971
Income Taxes.................................................. 2,809 1,959 4,768
-------- ---------- --------
Net Income.................................................... $ 4,710 $ 3,493 $ 8,203
======== ========== ========
PRO FORMA WEIGHTED AVERAGE EQUIVALENT BASIC SHARES
outstanding:
at the Exchange Ratio of 3.2.................................. 30,635 3,646 42,300
at the Exchange Ratio of 3.764................................ 30,635 3,646 44,357
PRO FORMA BASIC EARNINGS PER SHARE:
at the Exchange Ratio of 3.2.................................. $ 0.15 $ 0.96 $ 0.19
at the Exchange Ratio of 3.764................................ $ 0.15 $ 0.96 $ 0.18
PRO FORMA WEIGHTED AVERAGE EQUIVALENT DILUTED SHARES
Outstanding:
at the Exchange Ratio of 3.2.................................. 31,243 3,718 43,141
at the Exchange Ratio of 3.764................................ 31,243 3,718 45,238
PRO FORMA DILUTED EARNINGS PER SHARE:
at the Exchange Ratio of 3.2.................................. $ 0.15 $ 0.94 $ 0.19
at the Exchange Ratio of 3.764................................ $ 0.15 $ 0.94 $ 0.18
</TABLE>
74
<PAGE>
FIRST SOURCE BANCORP, INC. - PULSE BANCORP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the years ended December 31, 1995 for First Source and September 30, 1995
for Pulse
(In thousands, except per share data)
<TABLE>
<CAPTION>
First Source
First Source Pulse Pro Forma
---------------- ----------- -----------------
<S> <C> <C> <C>
Interest Income............................................... $64,573 $ 30,739 $ 95,312
Interest Expense.............................................. 35,691 17,230 52,921
--------- --------- ---------
Net interest income before provision for loan losses.......... 28,882 13,509 42,391
Provision for loan losses .................................... 310 - 310
--------- --------- ---------
Net interest income after provision for loan losses........... 28,572 13,509 42,081
Other operating income........................................ 2,171 294 2,465
Operating expenses............................................ 17,830 5,643 23,473
--------- --------- ---------
Income before income taxes.................................... 12,913 8,160 21,073
Income Taxes.................................................. 4,611 2,895 7,506
--------- --------- ---------
Net Income.................................................... $ 8,302 $ 5,265 $ 13,567
========= ========= =========
PRO FORMA WEIGHTED AVERAGE EQUIVALENT BASIC SHARES
OUTSTANDING:
at the Exchange Ratio of 3.2.................................. 30,607 3,848 42,920
at the Exchange Ratio of 3.764................................ 30,607 3,848 45,090
PRO FORMA BASIC EARNINGS PER SHARE:
at the Exchange Ratio of 3.2.................................. $ 0.27 $ 1.37 $ 0.32
at the Exchange Ratio of 3.764................................ $ 0.27 $ 1.37 $ 0.30
PRO FORMA WEIGHTED AVERAGE EQUIVALENT DILUTED SHARES
OUTSTANDING:
at the Exchange Ratio of 3.2.................................. 31,207 3,917 43,740
at the Exchange Ratio of 3.764................................ 31,207 3,917 45,949
PRO FORMA DILUTED EARNINGS PER SHARE:
at the Exchange Ratio of 3.2.................................. $ 0.27 $ 1.34 $ 0.31
at the Exchange Ratio of 3.764................................ $ 0.27 $ 1.34 $ 0.30
</TABLE>
75
<PAGE>
FIRST SOURCE BANCORP, INC. 1998 STOCK-BASED INCENTIVE PLAN
In connection with First Savings, 1998 Conversion and Reorganization, the
Board of Directors of First Source is presenting for shareholder approval the
First Source Bancorp, Inc. 1998 Stock-Based Incentive Plan ("Incentive Plan"),
in the form attached hereto as Annex E. The purpose of the Incentive Plan is to
attract and retain qualified personnel in key positions, provide officers,
employees and non-employee directors ("Outside Directors") with a proprietary
interest in First Source as an incentive to contribute to the success of First
Source, promote the attention of management to other stockholder's concerns and
reward employees for outstanding performance.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as to those persons believed by
management to be beneficial owners of more than 5% of First Source's outstanding
shares of Common Stock on the Record Date or as disclosed in certain reports
received to date regarding such ownership filed by such persons with First
Source and with the Securities and Exchange Commission ("SEC"), in accordance
with Sections 13(d) and 13(g) of the Securities Exchange Act of 1934, as amended
("Exchange Act"). Other than those persons listed below, First Source is not
aware of any person, as such term is defined in the Exchange Act, that owns more
than 5% of First Source's Common Stock as of the Record Date.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial
Name and Address Ownership as of Percent of
Title of Class of Beneficial Owner , 1998(1)(2) Common Stock
- ---------------- --------------------------- ------------------- -----------------
<S> <C> <C> <C>
Common Stock First Savings Bank, SLA
_____________ _______%
Employee Stock Ownership Plan
("ESOP")
1000 Woodbridge Center Drive
Woodbridge, New Jersey 07095
</TABLE>
_____________________
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed to
be the beneficial owners for purposes of this table, of any shares of
Common Stock if he has voting or investment power with respect to such
security, or has the 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) Based upon filings made pursuant to the Exchange Act and information
furnished by the respective individuals.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of the Record Date as to
shares of Common Stock beneficially owned by directors and executive officers
individually (as defined below) and by all executive officers and directors as a
group. Ownership information is based upon information furnished by the
respective individuals.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
BENEFICIALLY PERCENT OF
NAME TITLE OWNED (2)(3)(4) CLASS (4)
- ----------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
DIRECTORS
Walter K. Thompson Director
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
BENEFICIALLY PERCENT OF
NAME TITLE OWNED (2)(3)(4) CLASS (4)
- ----------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
Donald T. Akey, M.D. Director
Harry F. Burke Director
Keith H. McLaughlin Director
Philip T. Ruegger, Jr. Director
Jeffries Shein Director
John P. Mulkerin President, Chief
Executive
Officer and
Director
Christopher P. Martin Executive Vice
President, Chief
Financial and
Operating
Officer and
Director
EXECUTIVE OFFICERS
John F. Cerulo, Jr. Senior Vice
President/Retail
Banking
Karen I. Martino Senior Vice
President/Audit
and Compliance
Richard Spengler Senior Vice
President/Chief
Lending Officer
All Directors and
Executive Officers as a
Group (11 persons)
</TABLE>
_________________________
* Does not exceed .01% of First Sources's voting securities.
(1) Titles are for both First Source and First Savings unless otherwise
indicated.
(2) Each person effectively exercises sole (or shares with spouse or other
immediate family member) voting and dispositive power as to shares
reported.
(3) Does not include options and awards intended to be granted under the
Incentive Plan, which is subject to stockholder approval. For a discussion
of the options and awards that are intended to be granted under the
Incentive Plan, see Proposal. Includes the following amount of unvested
shares of restricts stock awarded under the 1996 Incentive Plan which may
be
77
<PAGE>
voted by the recipient pending vesting and distribution: ____ shares to
each of Messrs. Akey, Burke, McLaughlin, Ruegger and Shein; ____ shares to
both Messrs. Mulkerin and Martin; and ____ shares to each of Mr. Cerulo,
Ms. Martino, and Mr. Spengler. Includes options to purchase stock pursuant
to First Savings' 1992 Stock Option Plans which were vested as of
__________, 1998: ____ shares to each of Messrs. Timpson, McLaughlin,
Ruegger and Shein, _____ shares to each of Messrs. Akey and Burke; ____
share to Mr. Mulkerin; ____ shares to Mr. Martin; and ____ shares to each
of Messrs. Cerulo, Spengler and Ms. Martino.
(4) Under applicable regulations, a person is deemed to have beneficial
ownership of any share of Common Stock which may be acquired within 60 days
of ______________, 1998 pursuant to the exercise of outstanding stock
options. Shares of Common Stock which are subject to stock options are
deemed to be outstanding for the purpose of computing the percentage of
outstanding Common Stock owned by such person or group but not deemed
outstanding for the purpose of computing the percentage of Common Stock
owned by any other person or group.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Upon obtaining stockholder approval, First Source and First Savings intend
to grant to non-employee directors, and selected officers and employees of First
Savings and First Source stock options and awards in the form of shares of
Common Stock under the Incentive Plan, being presented for approval in the
Proposal.
DIRECTORS' COMPENSATION
FEE AGREEMENT. Non-employee 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 First Savings
as a liability in the year the fees are earned; however, First Savings does not
specifically fund the amount so deferred. First Savings 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 First Savings determines it serves its best interests or
the best interests of the director to disburse these funds at an earlier date.
First Savings also maintains the First Savings Bank, SLA Directors'
Deferred Fee Stock Unit Plan (the "Deferred Fee Stock Unit Plan"). During First
Savings's 1992 and 1995 stock offerings and in connection with the 1998
Conversion and Reorganization of First Savings and its mutual holding company,
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.
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, First Savings' Board
of Directors adopted the First Savings Bank, SLA 1992 Stock Option Plan for
Outside Directors (the "Directors' Stock Option Plan") of First Savings and its
affiliates. Under the terms of the Director's Stock Option Plan, [100,399]
shares of the Common Stock were reserved for issuance to directors who are not
employees of First Savings or First Source. The Directors' Stock Option Plan is
a self administering plan and provides that each member of the Board of
Directors of First Savings who is not an officer or employee of First Savings is
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). Upon completion
78
<PAGE>
of First Savings' 1998 Conversion and Reorganization, First Source adopted the
Directors' Stock Option Plan and options for First Source Common Stock were
exchanged for options in First Savings Common Stock on a 3.9133-to-1 basis. All
stock options granted under this plan are currently exercisable at an exercise
price of $_____ per share, as adjusted the four 10% stock dividends, the stock
split and the exchange for First Source Common Stock. As of December 31, 1997,
33,466 options had been exercised under this plan. As of ___________, 1998,
______ options, as adjusted, remain exercisable.
1996 INCENTIVE PLAN. During 1996, the Board of Directors adopted the First
Savings Bank, SLA 1996 Omnibus Incentive Plan for directors, officers and
certain employees of First Savings and its affiliates. Under the terms of the
Incentive Plan, 21,780 shares of the First Savings Common Stock were reserved
for issuance to directors who are not employees of First Savings. 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 First Savings or First Source is granted non-statutory options to
purchase 3,630 shares of First Savings' 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. Upon
consummation of First Savings' 1998 Conversion and Reorganization, First Source
adopted the 1996 Omnibus Incentive Plan and all shares and options awarded under
the plan were exchanged for shares and options in Company Common Stock at the
3.9133 exchange ratio. As of _________, 1998, _______ options, as adjusted,
were currently exercisable and ____ options, as adjusted, had been granted but
were not yet exercisable under the 1996 Incentive Plan.
EXECUTIVE COMPENSATION. The following table sets forth certain information
as to the total remuneration paid by First Savings 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, 1997 ("Named Executive
Officers"). In addition, the table sets forth information regarding total
remuneration for the years ended December 31, 1996 and 1995.
79
<PAGE>
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation(1) Awards
-------------------------------------------------------- ---------------------------------
Fiscal Other Restricted Securities
Name and Principal Years Annual Stock Underlying
Positions Ended Salary(1)(2) Bonus(3) Compensation(4) Awards(5) Options/SARs(6)
- ----------------------------------- -------- -------------- ----------- --------------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
John P. Mulkerin(10)........... 1997 $ 257,250 $ 70,875 $ -- $ -- $ --
President, Chief Executive Officer 1996 202,250 67,500 -- 66,138 13,915
and Chief Counsel 1995 152,000 30,400 -- -- --
Christopher P. Martin(11)...... 1997 201,250 56,700 -- -- --
Executive Vice President, Chief 1996 160,460 54,000 -- 66,138 13,915
Financial Officer, Chief 1995 125,000 25,000 -- -- --
Operating Offer and Corporate
Secretary
Richard Spengler............... 1997 105,000 15,750 -- -- --
Senior Vice President, Chief 1996 100,000 15,000 -- 17,875 2,420
Lending Officer 1995 74,480 11,250 -- -- --
<CAPTION>
Payouts
---------------
Name and Principal LTIP All Other
Positions Payouts(7) Compensation(8)(9)
- ----------------------------------- --------------- ------------------
<S> <C> <C>
John P. Mulkerin(10)........... $ -- $ 52,004
President, Chief Executive Officer -- 19,813
and Chief Counsel -- 17,062
Christopher P. Martin(11)...... -- 52,004
Executive Vice President, Chief -- 18,905
Financial Officer, Chief -- 14,168
Operating Offer and Corporate
Secretary
Richard Spengler............... -- 34,176
Senior Vice President, Chief -- 13,042
Lending Officer -- 7,995
</TABLE>
_______________________________
(1) Includes directors' fees paid to Mr. Mulkerin in 1997 and 1996, and paid to
Mr. Martin for 1997.
(2) Includes amounts of salary deferred pursuant to First Savings' Incentive
Savings Plan for Employees of First Savings Bank, SLA 401(k).
(3) Includes bonuses granted pursuant to First Savings' 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.
(4) First Savings provides certain executive officers with the use of 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 $219,373, $219,373 and
$59,290, respectively, at December 31, 1997. 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
vest over a three-year period from the date of grant.
(6) First Savings 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. First
Savings 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 1997, 1996, and 1995, First Savings had no long-term incentive plan;
accordingly, there were no payouts or awards under any long-term incentive
plan.
(8) Includes $4,725, 4,725 and $3,150 contributed by First Savings in 1997 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 $47,279, $7,279 and $31,026, contributed by First Savings pursuant
to First Savings' ESOP in 1997 allocated for the benefit of Messrs.
Mulkerin, Martin and Spengler.
(10) Mr. Mulkerin was appointed to the positions of President and Chief
Executive Officer on June 12, 1996.
(11) Mr. Martin was appointed to the added positions of Chief Operating Officer
and Corporate Secretary on June 13, 1996.
80
<PAGE>
1996 Incentive Plan. On April 24, 1996, First Savings' stockholders
approved the First Savings Bank, SLA 1996 Omnibus Incentive Plan under which all
employees of First Savings were 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. There were no stock options
under the Incentive Plan granted to Named Executive Officers for the year ended
December 31, 1997.
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, 1997, 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.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1997(1) DECEMBER 31, 1997(1)(2)
-------------------- -----------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John P. Mulkerin .............. 6,768 9,277 $ 255,845 $ 300,410
Christopher P. Martin ......... 4,638 9,277 158,745 300,410
Richard Spengler .............. 807 1,613 27,621 55,208
</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. The number and exercise price of options have been
adjusted as appropriate to reflect four stock dividends, a stock split, and
a 3.9133 exchange for options in First Source Common Stock.
(2) The market value of the Common Stock at December 31, 1997, prior to the
1998 Conversion and Reorganization, was $49.00 per share.
A Committee of the Board of Directors of First Savings and First Source
comprised of non-employee 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 First Savings or its successors. Upon
consummation of First Savings' 1998 Conversion and Reorganization, First Source
adopted the 1996 Incentive Plan in its entirety, and all options and awards for
shares of First Savings Common Stock were exchanged for shares of First Source
Common Stock at the 3.9133 exchange ratio.
EMPLOYMENT AGREEMENTS
First Savings and First Source have entered into employment agreements
(collectively, the "Employment Agreements") with Messrs. Mulkerin and Martin
(the "Executives"). The Employment Agreements are intended to ensure that First
Savings and First Source will be able to maintain a stable and competent
management base. The continued success of First Savings and First Source depends
to a significant degree on the skills and competence of Messrs. Mulkerin and
Martin.
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<PAGE>
The Employment Agreements provide for a three-year term for the Executives.
First Savings' Employment Agreement would provide that, commencing on the first
anniversary date and continuing each anniversary date thereafter, the Board of
Directors of First Savings and First Source will review the agreements and the
Executive's performance for purposes of determining whether to extend the
agreements with First Savings and First Source for an additional year such that
the remaining terms would be the amount of the original terms. The annual base
salary for Messrs. Mulkerin and Martin under the Employment Agreements is
$260,000 and $210,000, respectively. In addition to the base salary, the
Employment Agreements 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 First Savings or First Source
for cause, as defined in the agreements, at any time. In the event First
Savings or First Source chooses to terminate the Executive's employment for
reasons other than for cause, or in the event of the Executive's resignation
from First Savings and First Source 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
First Savings or First Source; or (v) a breach of the agreement by First Savings
or First Source, the Executive or, in the event of death, his beneficiary, is
entitled to receive the remaining base salary payments due to the Executive and
the contributions that would have been made on the Executive's behalf to any
employee benefit plans of First Savings or First Source during the remaining
term of the agreement. First Savings and First Source would also continue and
pay for the Executive's life, health and disability coverage for the remaining
term of the Employment Agreements.
Under the Employment Agreements, if voluntary or involuntary termination
follows a "change in control" of First Savings or First Source, as defined in
the Employment Agreements, the Executive or, in the event of death, his
beneficiary, will be entitled to a payment equal to the greater of: (1) the
payments due for the remaining term of the agreement; or (2) a severance payment
equal to three times the average of the five preceding taxable years'
compensation. First Savings and First Source would also continue the
Executive's life, health, and disability coverage for 36 months.
Notwithstanding that both agreements will 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 First Savings' Employment Agreement are
guaranteed by First Source in the event that payments or benefits are not paid
by First Savings. Payment under First Source's Employment Agreement will be
made by First Source. 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 will be paid by First Savings or First Source,
respectively, if the Executive is successful on the merits pursuant to a legal
judgment, arbitration or settlement. The Employment Agreements also provide that
First Savings and First Source indemnify the Executive to the fullest extent
allowable under federal and Delaware law, respectively. In the event of a
"change in control" of First Savings or First Source, 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 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
First Savings has also entered into Change in Control Agreements ("CIC
Agreements") with certain other officers of First Savings. Such agreements have
terms ranging from one to three years. The CIC Agreements provide that
commencing on the first anniversary date and continuing on each anniversary
thereafter, First Savings' CIC Agreements may be renewed by the Board of
Directors for an additional year. The CIC Agreements with First Savings will
also provide that in the event voluntary or involuntary termination follows a
change in control of First Savings or First Source, the officer is 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. First Source and First Savings will 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 First
Savings' CIC Agreements will be guaranteed by First Source in the event that
payments or benefits are not paid by First Savings. In the event of a change in
control of First Savings or First Source, the total payments that would be due
under the CIC Agreements, based solely on the cash
82
<PAGE>
compensation paid to the officers covered by the CIC Agreements over the past
three fiscal years and excluding any benefits under any employee benefit plan
that may be payable, would be approximately $2.0 million.
EMPLOYEE SEVERANCE COMPENSATION PLAN
First Savings' Board of Directors has also established First Savings Bank,
SLA Employee Severance Compensation Plan ("Severance Plan"), which provides
eligible employees with severance pay benefits in the event of a change in
control of First Savings or First Source. Management personnel with Employment
or CIC Agreements are not eligible to participate in the Severance Plan.
Generally, all employees are eligible to participate in the Severance Plan.
Under the Severance Plan, in the event of a change in control of First Savings
or First Source, 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), are entitled to receive a severance payment. The
participant is entitled to a cash severance payment equal to one-twelfth of
annual compensation for each year of service up to a maximum of 100% of annual
compensation. Such payments may tend to discourage takeover attempts by
increasing costs to be incurred by First Savings 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, 1997, would be approximately $2.5 million.
BENEFIT PLANS
Pension Plan. First Savings is a participant in the Financial Institutions
Retirement Fund, a multi-employer defined benefit plan. All employees age 21 or
older who have completed 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 First Savings cannot be ascertained.
83
<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
----------------
High 5 year
Final Average
Earnings(1) 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 25,000 25,000
$ 75,000 15,000 22,000 30,000 37,000
$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 60,000 90,000 130,000(2) 130,000(2)
and over(1)
</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."
As of December 31, 1997, John P. Mulkerin, Christopher P. Martin and
Richard Spengler had 10, 14 and 15 years of credited service, respectively.
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.
First Savings also implemented in 1998 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
84
<PAGE>
plan remains subject to the claims of First Savings' general creditors until
they are paid to plan participants. First Savings may establish a grantor trust
in connection with the plan to satisfy the obligations of First Savings under
the plan. The grantor trust would be permitted to invest in a wide-variety of
investments, including First Source Common Stock.
Employee Stock Ownership Plan and Trust. On July 10, 1992, First
Savings established the First Savings Bank, SLA Employee Stock Ownership Plan
(the "ESOP") and related trust for eligible employees, who were employed with
First Savings as of January 1, 1992 and employees of First Source and First
Savings 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. The ESOP
acquired 70,000 shares of common stock. On July 11, 1995, First Savings
completed a secondary offering of common stock, and the ESOP purchased 42,000
shares of common stock at $13.00 per share. Stock dividends and splits have
caused the restatement of the shares originally purchased to equal 204,974
shares and stock dividends have caused the shares purchased in the secondary
offering to equal 50,820 shares. Funds for the purchase of the additional
shares were borrowed from First Source. Shares purchased by the ESOP are held
by a trustee for allocation among participants as the loan is repaid. First
Savings, 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. First Savings recognizes compensation expense when debt payments
are made.
First Savings accounts for the allocation of ESOP shares purchased
prior to 1995 at their original issue price. First Savings 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 had a fair value of $2.8 million at December 31, 1997. The ESOP
allocated [29,282, 29,282 and 26,62] shares for the years ended December 31,
1997, 1996 and 1995, respectively, inclusive of four stock dividends of 10%, a
2-for-1 stock split and the 3.9133 exchange ratio for shares of First Source
Common Stock. The compensation expense for payments made to the ESOP totaled
$75,000 for each of the years ended December 31, 1997, 1996 and 1995.
The ESOP acquired an additional _____ shares of Common Stock in the
1998 Conversion and Reorganization. The funds used to acquire such shares were
borrowed from First Source. The loan was aggregated with First Source's
existing loan to the ESOP and refinanced with a 15 year payout term. The loan
will be repaid principally from First Savings' contributions to the ESOP over
the 15 year term, and the collateral for the loan is the Common Stock purchased
by the ESOP. Contributions to the ESOP will be discretionary, however, First
Source or First Savings intend to make annual contributions to the ESOP in an
aggregate amount at least equal to the principal and interest requirement on the
debt.
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
First Savings' 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.
First Savings currently makes loans to its directors and executive
officers on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons and do not involve more than the normal risk of collectibility or
present other unfavorable features. First Savings may, in the future, determine
to offer loans to executive officers and directors on terms not available to the
public, but available to other employees, in accordance with recently modified
federal regulations. Under First Savings' existing policy, any loan to an
executive officer or director, must be approved, in advance, by a majority of
the disinterested members of the Board of Directors.
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<PAGE>
Prior to the enactment of FIRREA, First Savings provided loans to
directors and executive officers at reduced rates and/or with points waived or
reduced. There were no loans to First Savings' current executive officers and
directors that exceeded $500,000 as of December 31, 1997. Set forth below is
certain information as of December 31, 1997, as to loans made by First Savings
prior to the enactment of FIRREA (August 9, 1989), to any director or executive
officer and associates of directors and executive officers whose aggregate
indebtedness to First Savings exceeded $60,000 at any time since January 1,
1997, and who were extended accommodations on origination fees and application
fees on first mortgage loans and as to rate on home equity credit lines.
<TABLE>
<CAPTION>
ORIGINAL OUTSTANDING
DATE AMOUNT BALANCE AT INTEREST
NAME OF OFFICER OR DIRECTOR ORIGINATED OF LOAN DECEMBER 31, 1997 RATE LOAN TYPE
- ------------------------------- ---------- --------- ----------------- --------- ------------
<S> <C> <C> <C> <C> <C>
Keith H. McLaughlin, Director.. 11/87 $100,000 $ 23,261 9.50% Home Equity
Credit Line
John F. Cerulo, Sr., V.P....... 4/88 165,000 149,000 8.00% Mortgage
-------- --------
$265,000 $172,369
======== ========
</TABLE>
APPROVAL OF THE FIRST SOURCE BANCORP, INC.
1998 STOCK-BASED INCENTIVE PLAN
The Board of Directors of First Source is presenting for shareholder
approval the First Source Bancorp, Inc. 1998 Stock-Based Incentive Plan in the
form attached hereto as Annex E. The following is a summary of the material
terms of the Incentive Plan which is qualified in its entirety by the complete
provisions of the Incentive Plan attached as Annex E. For a description of
prior awards granted by First Savings, see "1996 Incentive Plan" and
"Recognition and Retention Plan."
GENERAL
The Incentive Plan authorizes the granting of options to purchase Common
Stock, option-related awards and awards of Common Stock (collectively,
"Awards"). Subject to certain adjustments to prevent dilution of Awards to
participants, the maximum number of shares reserved for Awards under the
Incentive Plan is 2,317,051 shares. All officers, other employees, Outside
Directors, and consultants and advisers of First Source and its affiliates are
eligible to receive Awards under the Incentive Plan. The Incentive Plan will be
administered by a committee of non-employee directors of First Source (the
"Committee"). Authorized but unissued shares or shares previously issued and
reacquired by First Source may be used to satisfy Awards under the Incentive
Plan. The grant of stock awards and the exercise of options granted under the
Incentive Plan will result in an increase in the number of shares outstanding,
and may have a dilutive effect on the holdings of existing shareholders.
AWARDS
TYPES OF AWARDS. The Incentive Plan authorizes the grant of Awards to
officers, employees and Outside Directors in the form of: (i) options to
purchase First Source's Common Stock intended to qualify as incentive stock
options under Section 422 of the Code (options that afford tax benefits to the
recipients upon compliance with certain conditions and do not result in tax
deductions to First Source), referred to as "Incentive Stock Options"; (ii)
options that do not so qualify (options that do not afford income tax benefits
to recipients, but which may provide tax deductions to First Source), referred
to as "Non-statutory Stock Options"; (iii) limited rights that are exercisable
only upon a change
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in control of First Source (as defined in the Incentive Plan) ("Limited
Rights"); and (iv) Stock Awards, which provide a grant of Common Stock that
vests over time (a portion of such vesting would be contingent upon the
attainment of stated performance goals for all officers, employees and Outside
Directors who receive such Stock Awards).
OPTIONS. The Incentive Plan provides for the granting of options to
purchase Common Stock of First Source ("Options") to employees, officers and
Outside Directors for up to 1,655,037 shares. Pursuant to the Incentive Plan,
the Committee has the authority to determine the date, or dates, on which
Options shall become exercisable and any other conditions which must be met
prior to becoming exercisable. The exercise price of an Option may be paid in
cash or in Common Stock at the discretion of the Committee. See "--Method of
Exercise of Options."
All options granted to employees will be qualified as Incentive Stock
Options to the extent permitted under Section 422 of the Code. Incentive Stock
Options, at the discretion of the Committee with the concurrence of the holder,
may be converted into Non-Statutory Stock Options. The exercise price of all
Incentive Stock Options must be 100% of the fair market value of the underlying
Common Stock at the time of grant, except as provided below. In order to
qualify as Incentive Stock Options under Section 422 of the Code, the option
must be granted to an employee, the exercise price must not be less than 100% of
the fair market value on the date of grant, the term of the option may not
exceed ten years from the date of grant, and no more than $100,000 of options
may become exercisable or vest in any fiscal year. Incentive Stock Options
granted to any person who is the beneficial owner of more than 10% of the
outstanding voting stock may be exercised only for a period of five years from
the date of grant and the exercise price must be at least equal to 110% of the
fair market value of the underlying Common Stock on the date of grant.
Each Outside Director of First Source or its affiliates will be eligible to
receive Non-Statutory Stock Options to purchase shares of Common Stock.
Additionally, officers and employees are eligible to receive Non-Statutory Stock
Options under the Plan to the extent they are ineligible to receive Incentive
Stock Options. The exercise price of each Non-Statutory Stock Options shall be
equal to the fair market value of the Common Stock on the date the option is
granted.
Options granted under the Incentive Plan may be exercised at such times as
the Committee determines, but in no event shall an Option be exercisable more
than ten years from the date of grant (or five years from date of grant for a
10% owner). Unless otherwise determined by the Committee, upon termination of
an optionee's services for any reason other than death, disability, change in
control, retirement or termination for cause, all exercisable Options shall
remain exercisable for a period of three (3) months following termination and
all unexercised Options shall be canceled. Unless otherwise determined by the
Committee, in the event of the death or disability of the optionee, all
unexercisable Options held by such optionee will become fully exercisable and
remain exercisable for up to one (1) year thereafter. In the event of
termination for cause, all exercisable and unexercisable options held by the
optionee shall be canceled. In the event of the retirement of an optionee, all
exercisable options shall remain exercisable for a period of one (1) year, and
the Committee shall have the discretion to allow unexercisable options to
continue to vest in accordance with their original terms, provided the optionee
is immediately engaged as a consultant, advisor or advisory director of First
Source or any of its affiliates. Any option originally designated as an
Incentive Stock Option shall be treated as a Non-statutory Stock Option to the
extent the optionee exercises such option more than three (3) months after
retirement. In the event of the termination of an optionee due to a change in
control of First Source or First Savings, the optionee may exercise only those
options that were exercisable upon termination and only for a period of one (1)
year with respect to Non-Statutory Stock Options and three (3) months with
respect to Incentive Stock Options.
LIMITED RIGHTS. The Incentive Plan also provides the Committee with the
ability to grant a Limited Right concurrently with any Option. Limited Rights
are related to specific Options granted and become exercisable only upon a
change in control of First Savings or First Source. Upon exercise, the holder
will be entitled to receive in lieu of purchasing the stock underlying the
Option, a lump sum cash payment equal to the difference between the exercise
price of the related Option and the fair market value of the shares of Common
Stock subject to the Option on the date of exercise of the right less any
applicable tax withholding.
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STOCK AWARDS. The Incentive Plan also authorizes the granting of Stock
Awards to employees and Outside Directors, in an amount not to exceed 662,014
shares in the aggregate. The Committee has the authority to determine the dates
on which Stock Awards granted will vest or any other conditions that must be
satisfied prior to vesting.
When stock awards are distributed in accordance with the Incentive Plan,
the recipients will also receive amounts equal to accumulated cash and stock
dividends (if any) with respect thereto plus earnings thereon minus any required
tax withholding amounts. Prior to vesting, recipients of Awards may direct the
voting of shares of Common Stock granted to them and held in a trust established
to hold shares of Common Stock which may be granted under the Incentive Plan.
Shares of Common Stock held by the Incentive Plan trust which have not been
allocated or for which voting has not been directed are voted by the trustee in
the same proportion as the awarded shares are voted in accordance with the
directions given by all recipients of Awards.
Unless otherwise determined by the Committee, upon termination of the
services of a holder of a Stock Award for any reason other than death,
disability, change in control, retirement or termination for cause, all such
holder's rights in unvested Stock Awards shall be canceled. Unless otherwise
determined by the Committee, in the event of the death or disability of the
holder of the Stock Award, all unvested Stock Awards held by such individual
will become fully vested. In the event of the termination of a holder of a
Stock Award due to a change in control of First Source or First Savings, or
termination for cause of a holder of a Stock Award, all unvested Stock Awards
held by such individual shall be canceled. In the event of a Stock Award
holder's retirement, the Committee shall have the discretion to determine that
all unvested Stock Awards shall continue to vest in accordance with their
original terms, provided the holder is engaged as a consultant, advisor or
advisory director of First Source or any of its affiliates.
TAX TREATMENT
OPTIONS. An optionee will generally not be deemed to have recognized
taxable income upon grant or exercise of any Incentive Stock Option, provided
that shares transferred in connection with the exercise are not disposed of by
the optionee for at least one year after the date the shares are transferred in
connection with the exercise of the option and two years after the date of grant
of the option. If certain holding periods are satisfied, upon disposal of the
shares, the aggregate difference between the per share option exercise price and
the fair market value of the Common Stock is recognized as income taxable at
long-term capital gains rates. No compensation deduction may be taken by First
Source as a result of the grant or exercise of Incentive Stock Options, assuming
these holding periods are met.
In the case of the exercise of a Non-Statutory Stock Option, an optionee
will be deemed to have received ordinary income upon exercise of the stock
option in an amount equal to the aggregate amount by which the per share
exercise price is exceeded by the fair market value of the Common Stock. In the
event shares received through the exercise of an Incentive Stock Option are
disposed of prior to the satisfaction of the holding periods (a "disqualifying
disposition"), the exercise of the option will be treated as the exercise of a
Non-Statutory Stock Option, except that the optionee will recognize the ordinary
income for the year in which the disqualifying disposition occurs. The amount
of any ordinary income deemed to have been received by an optionee upon the
exercise of a Non-Statutory Stock Option or due to a disqualifying disposition
will be a deductible expense of First Source for tax purposes.
LIMITED RIGHTS. In the case of Limited Rights, the holder would have to
include the amount paid to him upon the exercise of the Limited Right in his
gross income for federal income tax purposes in the year in which the payment is
made and First Source would be entitled to a deduction for federal income tax
purposes of the amount paid.
STOCK AWARDS. When shares of Common Stock, as Stock Awards, are
distributed, the recipient is deemed to receive ordinary income equal to the
fair market value of such shares at the date of distribution plus any dividends
and earnings on such shares (provided such date is more than six months after
the date of grant) and First Source is permitted a commensurate compensation
expense deduction for income tax purposes.
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PERFORMANCE AWARDS
GENERAL. The Incentive Plan provides the Committee with the ability to
condition or restrict the vesting or exercisability of any Award upon the
achievement of performance targets or goals as set forth under the Incentive
Plan. Any Award subject to such conditions or restrictions is considered to be a
"Performance Award." Subject to the express provisions of the Plan and as
discussed in this paragraph, the Committee has discretion to determine the terms
of any Performance Award, including the amount of the award, or a formula for
determining such, the performance criteria and level of achievement related to
these criteria which determine the amount of the award granted, issued,
retainable and/or vested, the period as to which performance shall be measured
for determining achievement of performance (a "performance period"), the timing
of delivery of any awards earned, forfeiture provisions, the effect of
termination of employment for various reasons, and such further terms and
conditions, in each case not inconsistent with the Plan, as may be determined
from time to time by the Committee. The performance criteria upon which
Performance Awards are granted, issued, retained and/or vested may be based on
financial performance and/or personal performance evaluations, except that for
any Performance Award that is intended by the Committee to satisfy the
requirements for "performance-based compensation" under Code Section 162(m), the
performance criteria shall be a measure based on one or more Qualifying
Performance Criteria (as defined below). Notwithstanding satisfaction of any
performance goals, the number of shares granted, issued, retainable and/or
vested under a Performance Award may be adjusted by the Committee on the basis
of such further considerations as the Committee in its sole discretion shall
determine. However, the Committee may not increase the amount earned upon
satisfaction of any performance goal by any Participant who is a "covered
employee" within the meaning of Section 162(m) of the Code.
QUALIFYING PERFORMANCE CRITERIA AND SECTION 162(M) LIMITS. Subject to
stockholder approval of the Plan, the performance criteria for any Performance
Award that is intended to satisfy the requirements for "performance-based
compensation" under the Code Section 162(m) shall be based upon any one or more
of the following performance criteria, either individually, alternatively or in
any combination, applied to either First Source as a whole or to a business unit
or subsidiary, either individually, alternatively or in any combination, and
measured either on an absolute basis or relative to a pre-established target, to
previous years' results or to a designated comparison group, in each case as
pre-established by the Committee under the terms of the Award; net income, as
adjusted for non-recurring items; cash earnings; earnings per share; cash
earnings per share; return on equity; return on assets; assets; stock price;
total shareholder return; capital; net interest income; market share; cost
control or efficiency ratio; and asset growth.
The aggregate amount of Options granted under the Plan during any 60-month
period to any one Participant may not exceed 25% of the total amount of options
available to be granted under the Incentive Plan. The aggregate amount of
shares of Common Stock issuable under a Stock Award granted under the Plan for
any 60-month period to any one Participant may not exceed 25% of the total
amount of Stock Awards available to be granted under the Incentive Plan.
PAYOUT OF AWARDS. Payment due to a participant upon the exercise of an
option or the redemption of a Stock Award shall be in the form of shares of
Common Stock. Payment upon the exercise of a Limited Right shall be made in
cash. Any shares of Common Stock tendered in payment of an obligation arising
under the Incentive Plan or applied to tax withholding amounts shall be valued
at the fair market value of the Common Stock. The Committee may use treasury
stock, authorized but unissued stock or it may direct the market purchase of
shares of Common Stock to satisfy its obligations under the Incentive Plan.
METHOD OF EXERCISE OF OPTIONS
Subject to the terms of the Incentive Plan, the Committee has discretion to
determine the form of payment for the exercise of an Option. The Committee may
indicate acceptable forms in the Award Agreement covering such Options or may
reserve its decision to the time of exercise. No Option is to be considered
exercised until payment in full is accepted by the Committee. The Committee may
permit the following forms of payment for Options: (a) in cash or by certified
or cashiers check, or (b) by tendering previously acquired shares of Common
Stock. Any shares of
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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 due date prior to the
date of exercise.
AMENDMENT
The Board of Directors may amend the Incentive Plan in any respect, at any
time, provided that no amendment may affect the rights of the holder of an Award
without his or her permission. In addition, no amendment may adversely affect
the rights of an Award recipient without his or her permission.
ADJUSTMENTS
In the event of any change in the outstanding shares of Common Stock of
First Source 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 First Source, or in the event an
extraordinary capital distribution is made, including the payment of an
extraordinary dividend, the Committee may make such adjustments to previously
granted Awards, to prevent dilution, diminution or enlargement of the rights of
the holder. All Awards under this Incentive Plan shall be binding upon any
successors or assigns of First Source.
NONTRANSFERABILITY
Unless determined otherwise by the Committee, awards under the Incentive
Plan shall not be transferable by the recipient other than by will or the laws
of intestate succession or pursuant to a domestic relations order. With the
consent of the Committee, a participant may designate a person or his or her
estate as beneficiary of any award to which the recipient would then be
entitled, in the event of the death of the participant.
SHAREHOLDER APPROVAL
The Incentive Plan complies with the regulations of the Office of Thrift
Supervision ("OTS"). The OTS has not endorsed or approved the Incentive Plan.
Pursuant to OTS regulations, the Incentive Plan may not be implemented during
the first year after First Savings' 1998 Conversion and Reorganization unless
the affirmative vote of the holders of a majority of the total votes eligible to
be cast at this Special Meeting is received. If such approval is not obtained,
but the Incentive Plan receives the affirmative vote of a majority of the shares
present at the Special Meeting and eligible to be cast on the Proposal, the
Incentive Plan will not become effective at this time, but will become effective
immediately following a period of one year after the 1998 Conversion and
Reorganization without further shareholder approval. The Board of Directors
also could determine to have the Incentive Plan become effective one year after
the 1998 Conversion and Reorganization even if the Incentive Plan does not
receive the requisite affirmative vote of shareholders at this Special Meeting.
In the absence of shareholder approval, the option awards under the Incentive
Plan would not qualify as Incentive Stock Options under the Code, and First
Source's qualification to have its stock traded on the Nasdaq National Market
could be adversely affected.
UNLESS MARKED TO THE CONTRARY, THE SHARES REPRESENTED BY THE ENCLOSED PROXY
CARD, IF EXECUTED AND RETURNED, WILL BE VOTED "FOR" THE APPROVAL OF THE FIRST
SOURCE BANCORP, INC. 1998 STOCK-BASED INCENTIVE PLAN.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE
FIRST SOURCE BANCORP, INC. 1998 STOCK-BASED INCENTIVE PLAN.
NEW PLAN BENEFITS
The following table provides certain information with respect to all Awards
that are intended to be granted immediately after the Special Meeting, assuming
stockholder approval is obtained, under the Incentive Plan, specifying
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the amounts to be granted to the named executive officers individually, all
current executive officers as a group, all current directors who are not
executive officers as a group, and all employees, including all current officers
who are not executive officers, as a group.
All awards granted to the officers and directors of First Source and First
Savings reflected in the table below become vested and exercisable in equal
annual installments of 20% each year commencing one year from the date of grant.
All such awards will immediately vest and become exercisable upon termination of
employment due to death or disability. Additionally, on or after April 8, 1999,
the Board of Directors intends to amend the Incentive Plan or the awards
reflected below to provide for acceleration of the vesting of such previously
granted awards upon a change in control of First Source or First Savings (as
defined in the Incentive Plan). The Incentive Plan generally defines a change
in control 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, such as the
Common Stock of First Source or First Savings, or in the event of a tender offer
or exchange offer, merger or other form of business combination, sale of assets
or contested election of directors which results in a change in control of a
majority of the incumbent Board of Directors of First Source or First Savings.
First Source will present any such amendment made more than one year after the
1998 Conversion and Reorganization to stockholders for approval, if required by
the OTS. First Source is not otherwise required to obtain stockholder approval
of amendments to the Incentive Plan.
<TABLE>
<CAPTION>
NEW PLAN BENEFITS
-------------------------------------------------
STOCK OPTION AWARDS STOCK AWARDS
-------------------- -----------------------
DOLLAR NUMBER DOLLAR NUMBER
Name and Position VALUE (1) OF UNITS (2) VALUE (3) OF UNITS (2)
- ---------------------------- --------- ------------ --------- -------------
<S> <C> <C> <C> <C>
John P. Mulkerin
President, Chief
Executive Officer and
Director.................. -- 300,000 103,000
Christopher P. Martin
Executive Vice
President, Chief
Financial and Operating
Officer and Director...... -- 260,000 95,000
Richard Spengler
Senior Vice President,
Chief Lending Officer..... -- 87,500 42,000
All current executive
officers as a group
(__ persons).............. -- 727,500 275,000
All other current
directors of First Source
and First Savings as a
group (6 persons)......... -- 496,511 198,604
Other employees (__
persons).................. -- 241,000 116,000
</TABLE>
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____________________
(1) The "dollar value" for options to be granted pursuant to the Incentive Plan
on the date of grant will be zero , as the exercise price for such options
will be the fair market value on the date of grant which is intended to be
the date stockholder approval is obtained.
(2) __________________ Stock Option Awards and _____________ Stock Awards
remain unallocated under the Incentive Plan.
(3) Based upon $____, the closing price of the Common Stock, as reported on the
Nasdaq National Market on ____________, 1998.
AMENDMENT OF FIRST SOURCE CERTIFICATE OF INCORPORATION
The Board of Directors of First Source has proposed that the Company's
Certificate of Incorporation be amended to change the name of the Company from
First Source Bancorp., Inc. A copy of the Corporate Name Amendment is attached
at Annex F and incorporated herein by reference.
The Corporate name Amendment, if passed, would become effective upon the
filing with the Secretary of State of Delaware a Certificate of Amendment, which
filing is expected to take place shortly after the Shareholders approve the
amendment. The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock entitled to vote on the Amendment is required to approve
the Corporate Name Amendment.
The Board of Directors believe that a name change would be beneficial to
the Company because it allows for a diversity of operations which is consistent
with the future plans of the Company.
UNLESS MARKED TO THE CONTRARY, THE SHARES REPRESENTED BY THE ENCLOSED PROXY
CARD, IF EXECUTED AND RETURNED, WILL BE VOTED "FOR" THE APPROVAL OF THE
CORPORATE NAME AMENDMENT.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE
CORPORATE NAME AMENDMENT.
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LEGAL MATTERS
The validity of the shares of First Source Common Stock which will be
issued in the Merger will be passed upon for First Source by Patton Boggs LLP,
Washington, D.C.
Legal matters in connection with the Merger will be passed upon for Pulse
by Malizia, Spidi, Sloane & Fisch, P.C., Washington, D.C.
EXPERTS
The consolidated financial statements of First Source Bancorp, Inc. and
subsidiaries as of December 31, 1997 and 1996 and for each of the years in the
three year period ended December 31, 1997, included in First Source's 1997
Annual Report or Form 10-K, as amended, incorporated by reference into this
Joint Proxy Statement/Prospectus, have been incorporated by reference herein and
in the Registration Statement of which this Joint Proxy Statement/Prospectus is
a part in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, included in First Sources' 1997 Annual Report or
Form 10-K and incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The consolidated financial statements of Pulse Bancorp, Inc. and
subsidiaries as of September 30, 1997 and 1996 and for each of the years in the
three-year period ended September 30, 1997, included in Pulse's 1997 Annual
Report or Form 10-K incorporated by reference into this Joint Proxy
Statement/Prospectus have been incorporated by reference herein and in the
Registration Statement of which the Joint Proxy Statement/Prospectus is a part
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, included in Pulse's 1997 Annual Report or Form 10-K and
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
Representatives of KPMG Peat Marwick LLP are expected to be present at the
First Source Meeting and the Pulse Meeting, and are expected to be available to
respond to appropriate questions.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1998 Annual
Meeting of Stockholders of First Source must be received by First Source no
later than _______________ for inclusion in First Source Proxy Statement and
Form of Proxy relating to that meeting.
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OTHER MATTERS
The Boards of Directors of First Source Bancorp, Inc. and Pulse Bancorp,
Inc. are not aware of any business to come before the Special Meetings other
than those matters described above in this Joint Proxy Statement/Prospectus.
However, if any other matter should properly come before the Special Meetings,
including proposals to adjourn a Special Meeting to permit further solicitation
of proxies in the event that there are not sufficient votes to approve the
Merger and/or the Incentive Plan proposal at the time of the Special Meeting, it
is intended that holders of the proxies will act in accordance with their best
judgment.
BY ORDER OF THE BOARD OF BY ORDER OF THE
BOARD OF DIRECTORS BOARD OF DIRECTORS
OF FIRST SOURCE BANCORP, INC. OF PULSE BANCORP, INC.
John P. Mulkerin George T. Hornyak, Inc.
President and Chief Executive Officer President and Chief Executive
Officer
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Annex A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of July 9, 1998, by and among First
Source Bancorp, Inc., a Delaware corporation ("Buyer") and Pulse Bancorp, Inc.,
a New Jersey corporation (the "Company"). (Buyer and the Company are herein
sometimes collectively referred to herein as the "Constituent Corporations".)
WHEREAS, the Boards of Directors of Buyer and the Company have determined
that it is in the best interests of their respective companies and their
shareholders to consummate the business combination transaction provided for
herein in which the Company will, subject to the terms and conditions set forth
herein, merge (the "Merger") with and into Buyer; and
WHEREAS, as soon as practicable after the execution and delivery of this
Agreement and Plan of Merger ("Agreement"), First Savings Bank, SLA, a New
Jersey chartered stock savings and loan association and a wholly owned
subsidiary of Buyer ("First Savings Bank", and sometimes referred to herein as
the "Surviving Bank"), and Pulse Savings Bank, a New Jersey chartered stock
savings bank and a wholly owned subsidiary of the Company (the "Company Bank"),
will enter into a Subsidiary Agreement and Plan of Merger (the "Bank Merger
Agreement") providing for the merger (the "Subsidiary Merger") of the Company
Bank with and into First Savings Bank, and it is intended that the Subsidiary
Merger be consummated immediately following the consummation of the Merger; and
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and also to prescribe certain
conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement,
----------
in accordance with the Delaware General Corporation Law (the "DGCL") and the New
Jersey Business Corporations Act ("NJBCA"), at the Effective Time (as defined in
Section 1.2 hereof), the Company shall merge with and into Buyer. Buyer shall be
the surviving corporation (hereinafter sometimes called the "Surviving
Corporation") in the Merger, and shall continue its corporate existence under
the laws of the State of Delaware. The name of the Surviving Corporation shall
be First Source Bancorp, Inc., or such other name as may be determined by the
Buyer. Upon consummation of the Merger, the separate corporate existence of the
Company shall terminate.
<PAGE>
1.2 Effective Time. The Merger shall become effective as set forth in the
--------------
certificate of merger (the "Certificate of Merger") which shall be filed with
appropriate authorities in the States of New Jersey and Delaware (the
"Authorities") on the Closing Date (as defined in Section 9.1 hereof). The term
"Effective Time" shall be the date and time when the Merger becomes effective,
as set forth in the Certificate of Merger.
1.3 Effects of the Merger. At and after the Effective Time, the Merger
---------------------
shall have the effects set forth in Sections 259 and 261 of the DGCL and Section
14A:10-6 of NJBCA.
1.4 Conversion of Company Common Stock.
----------------------------------
a) At the Effective Time, subject to Section 2.2 (e) hereof, each share
of the common stock, par value $1.00 per share, of the Company (the "Company
Common Stock") issued and outstanding immediately prior to the Effective Time
(other than shares of Company Common Stock held (x) in the Company's treasury or
(y) directly or indirectly by Buyer or the Company or any of their respective
Subsidiaries (as defined below) (except for Trust Account Shares and DPC shares,
as such terms are defined in Section 1.4 (b) hereof)) shall, by virtue of this
Agreement and without any action on the part of the holder thereof, be converted
into and exchangeable for the number of shares (the "Exchange Ratio") of the
common stock, par value $0.01 per share, of Buyer ("Buyer Common Stock"),
determined as follows (I) subject to the provisions of Section 8.1(h), if the
Average Closing Price (as defined below) is equal to or greater than $11.50, the
Exchange Ratio shall be equal to 3.2 (the "Minimum Exchange Ratio"); (II) if the
Average Closing Price is $10.00 or greater but less than $11.50, the Exchange
Ratio shall be 3.2; (III) if the Average Closing Price is greater than $8.50 but
less than $10.00 the Exchange Ratio shall equal $32.00 divide d by the Average
Closing Price; or (IV) subject to the provisions of Section 8.1(g) hereof, if
the Average Closing Price is equal to or less than $8.50, the Exchange Ratio
shall be 3.764 (the "Maximum Exchange Ratio"). As used herein, the term "Average
Closing Price" means the average of the last reported daily sales price (or if
no sale on such date, then the mean of the closing bid/ask price) per share of
Buyer Common Stock on the Nasdaq Stock Market ("Nasdaq"), for the 10 consecutive
trading days (the "Valuation Period") ending on the fifth business day prior to
the later of approval of the Buyer's stockholders, approval of the Company's
stockholders or the date on which the last of all regulatory approvals required
to consummate the transactions contemplated hereby (including the Merger and the
Subsidiary Merger) are obtained, without regard to any requisite waiting periods
in respect thereof. All of the shares of Company Common Stock converted into
Buyer Common Stock pursuant to this Article I shall no longer be outstanding and
shall automatically be cancelled and shall cease to exist, and each certificate
(each a "Certificate") previously representing any such shares of Company Common
Stock shall thereafter only represent the right to receive (i) the number of
whole shares of Buyer Common Stock and (ii) the cash in lieu of fractional
shares into which the shares of Company Common Stock represented by such
Certificate have been converted pursuant to this Section 1.4(a) and Section
2.2(e) hereof. Certificates previously representing shares of Company Common
Stock shall be exchanged for certificates representing whole shares of Buyer
Common Stock and cash in lieu of fractional shares issued in consideration
therefor upon the surrender of such Certificates in accordance with Section 2.2
hereof, without any interest thereon. If prior to the Effective Time Buyer
should split or combine
<PAGE>
its common stock, or pay a dividend or other distribution in such common stock,
then the Exchange Ratio, Minimum Exchange Ratio and Maximum Exchange Ratio shall
be appropriately adjusted to reflect such split, combination, dividend or
distribution.
(b) At the Effective Time, all shares of Company Common Stock that are
owned by the Company as treasury stock and all shares of Company Common Stock
that are owned directly or indirectly by Buyer or the Company or any of their
respective Subsidiaries (other than shares of Company Common Stock (x) held
directly or indirectly in trust accounts, managed accounts and the like or
otherwise held in a fiduciary capacity that are beneficially owned by third
parties (any such shares, and shares of Buyer Common Stock which are similarly
held, whether held directly or indirectly by Buyer or the Company, as the case
may be, being referred to herein as "Trust Account Shares") and (y) shares of
Company Common Stock held by Buyer or the Company or any of their respective
Subsidiaries in respect of a debt previously contracted (any such shares of
Company Common Stock, and shares of Buyer Common Stock which are similarly held,
whether held directly or indirectly by Buyer or the Company being referred to
herein as "DPC Shares")) shall be cancelled and shall cease to exist and no
stock of Buyer or other consideration shall be delivered in exchange therefor.
All shares of Buyer Common Stock that are owned by the Company or any of its
Subsidiaries (other than Trust Account Shares and DPC Shares) shall become
treasury stock of Buyer.
1.5 Stock Options.
-------------
(a) At the Effective Time, all options granted by the Company
("Company Options") to purchase shares of Company Common Stock which are
outstanding and unexercised immediately prior thereto shall, at the Company's
election to be made by written notice to the Buyer within 30 days of the date
hereof, be converted, in their entirety, automatically into either options to
purchase shares of Buyer Common Stock in an amount and at an exercise price
determined as provided below (and otherwise subject to the terms of the
Company's 1986 and 1993 Stock Option and Incentive Plans and the Company's 1997
Directors Stock Option Plan and 1997 Stock Compensation Plan (collectively, the
"Company's Stock Plans")) or shares of Buyer Common Stock in an amount and at an
exercise price determined as provided below, provided, however, that such
conversion does not impair the pooling of interests accounting treatment:
(1) The number of shares of Buyer Common Stock to be subject to the
new opt ions or to the exchange for Company Options shall be equal to the
product of the number of shares of Company Common Stock subject to the
original options and the Exchange Ratio, provided that any fractional
shares of Buyer Common Stock resulting from such multiplication shall be
rounded down to the nearest share; and
(2) The exercise price per share of the Company Options if exchanged
for shares of Buyer Common Stock, or of Buyer Common Stock under the new
options if exchanged for options for Buyer Common Stock shall be equal to
the exercise price per share of Company Common Stock under the original
option divided by the Exchange Ratio, provided that such exercise price
shall be rounded up to the nearest cent.
-3-
<PAGE>
The adjustment provided herein with respect to any options which are "incentive
stock options" (as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code")) shall be and is intended to be effected in a manner
which is consistent with Section 424(a) of the Code. The duration and other
terms of the new option shall be the same as the original option, except that
all references to the Company shall be deemed to be references to Buyer.
(b) Shares of Buyer Common Stock issuable upon exercise of Company
Stock Options shall be covered by an effective registration statement on Form S-
8, and Buyer shall file a registration statement on Form S-8 covering such
shares as soon as practicable after the Effective Time, but in no event later
than 30 days after the Effective Time.
(c) It is understood that the holders of a Company Option may exercise
such options, in accordance with the terms of the option, and applicable
regulations, prior to the Effective Time.
1.6 Buyer Common Stock. Except for shares of Buyer Common Stock owned by
------------------
the Company or any of its Subsidiaries (other than Trust Account Shares and DPC
Shares), which shall be converted into treasury stock of Buyer as contemplated
by Section 1.4 hereof, the shares of Buyer Common Stock issued and outstanding
immediately prior to the Effective Time shall be unaffected by the Merger and at
the Effective Time, such shares shall remain issued and outstanding.
1.7 Certificate of Incorporation. At the Effective Time, the Certificate
----------------------------
of Incorporation of Buyer, as in effect at the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation.
1.8 By-Laws. At the Effective Time, the By-Laws of Buyer, as in effect
-------
immediately prior to the Effective Time, shall be the By-Laws of the Surviving
Corporation until thereafter amended in accordance with applicable law, subject
to amendment to increase the number of director seats by two.
1.9 Directors and Officers. Except as provided in Section 6.14 hereof,
----------------------
the directors and officers of Buyer immediately prior to the Effective Time
shall be the directors and officers of the Surviving Corporation, each to hold
office in accordance with the Certificate of Incorporation and By-Laws of the
Surviving Corporation until their respective successors are duly elected or
appointed and qualified.
1.10 Tax Consequences. It is intended that the Merger and the Subsidiary
----------------
Merger each constitute a reorganization within the meaning of Section 368(a) of
the Code, and that this Agreement shall constitute a "plan of reorganization"
for the purposes of Section 368 of the Code.
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<PAGE>
ARTICLE II
EXCHANGE OF SHARES
2.1 Buyer to Make Shares Available. At or prior to the Effective Time,
------------------------------
Buyer shall deposit, or shall cause to be deposited, with a bank or trust
company (which may be a Subsidiary of Buyer) (the "Exchange Agent"), selected by
Buyer and reasonably satisfactory to the Company, for the benefit of the holders
of Certificates, for exchange in accordance with this Article II, certificates
representing the shares of Buyer Common Stock and the cash in lieu of fractional
shares (such cash and certificates for shares of Buyer Common Stock, together
with any dividends or distributions with respect thereto, being hereinafter
referred to as the "Exchange Fund") to be issued pursuant to Section 1.4 and
paid pursuant to Section 2.2(a) in exchange for outstanding shares of Company
Common Stock.
2.2 Exchange of Shares.
------------------
(a) As soon as practicable after the Effective Time, and in no event
more than three busi ness days thereafter, the Exchange Agent shall mail to each
holder of record of a Certificate or Certificates a form letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent) and instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing the shares of Buyer
Common Stock and the cash in lieu of fractional shares into which the shares of
Company Common Stock represented by such Certificate or Certificates shall have
been converted pursuant to this Agreement. The Company shall have the right to
review both the letter of transmittal and the instructions prior to the
Effective Time and provide reasonable comments thereon. Upon surrender of a
Certificate for exchange and cancellation to the Exchange Agent, together with
such letter of transmittal, duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor (x) a certificate representing that
number of whole shares of Buyer Common Stock to which such holder of Company
Common Stock shall have become entitled pursuant to the provisions of Article I
hereof and (y) a check representing the amount of cash in lieu of fractional
shares, if any, which such holder has the right to receive in respect of the
Certificate surrendered pursuant to the provisions of this Article II, and the
Certificate so surrendered shall forthwith be cancelled. No interest will be
paid or accrued on the cash in lieu of fractional shares and unpaid dividends
and distributions, if any, payable to holders of Certificates.
(b) No dividends or other distributions declared after the Effective
Time with respect to Buyer Common Stock and payable to the holders of record
thereof shall be paid to the holder of any unsurrendered Certificate until the
holder thereof shall surrender such Certificate in accordance with this Article
II. After the surrender of a Certificate in accordance with this Article II, the
record holder thereof shall be entitled to receive any such dividends or other
distributions, without any interest thereon, which theretofore had become
payable with respect to shares of Buyer Common Stock represented by such
Certificate. No holder of an unsurrendered Certificate shall be entitled, until
the surrender of such Certificate, to vote the shares of Buyer Common Stock into
which his Company Common Stock shall have been converted.
-5-
<PAGE>
(c) If any certificate representing shares of Buyer Common Stock is
to be issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it shall be a condition of the issuance thereof
that the Certificate so surrendered shall be properly endorsed (or accompanied
by an appropriate instrument of transfer) and otherwise in proper form for
transfer, and that the person requesting such exchange shall pay to the Exchange
Agent in advance any transfer or other taxes required by reason of the issuance
of a certificate representing shares of Buyer Common Stock in any name other
than that of the registered holder of the Certificate surrendered, or required
for any other reason, or shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not payable.
(d) After the Effective Time, there shall be no transfers on the
stock transfer books of the Company of the shares of Company Common Stock which
were issued and outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates representing such shares are presented for
transfer to the Exchange Agent, they shall be cancelled and exchanged for
certificates representing shares of Buyer Common Stock as provided in this
Article II.
(e) Notwithstanding anything to the contrary contained herein, no
certificates or scrip representing fractional shares of Buyer Common Stock shall
be issued upon the surrender for exchange of Certificates, no dividend or
distribution with respect to Buyer Common Stock shall be payable on or with
respect to any fractional share, and such fractional share interests shall not
entitle the owner thereof to vote or to any other rights of a shareholder of
Buyer. In lieu of the issuance of any such fractional share, Buyer shall pay to
each former stockholder of the Company who otherwise would be entitled to
receive a fractional share of Buyer Common Stock an amount in cash determined by
multiplying (i) the product of the Average Closing Price and the Exchange Ratio
by (ii) the fraction of a share of B uyer Common Stock to which such holder
would otherwise be entitled to receive pursuant to Section 1.4 hereof.
(f) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of the Company for six months after the Effective Time shall be
paid to Buyer. Any stockholders of the Company who have not theretofore complied
with this Article II shall thereafter look only to Buyer for payment of their
shares of Buyer Common Stock, cash in lieu of fractional shares and unpaid
dividends and distributions on the Buyer Common Stock deliverable in respect of
each share of Company Common Stock such stockholder holds as determined pursuant
to this Agreement, in each case, without any interest thereon. Notwithstanding
the foregoing, none of Buyer, the Company, the Exchange Agent or any other
person shall be liable to any former holder of shares of Company Common Stock
for any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(g) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and the posting by such person
of a bond in such amount as Buyer may direct as indemnity against any claim that
may be made against it with respect to such Certificate, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed Certificate the shares of
-6-
<PAGE>
Buyer Common Stock and cash in lieu of fractional shares deliverable in respect
thereof pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Buyer as follows:
3.1 Corporate Organization.
----------------------
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of New Jersey. The Company has the
corporate power and authority to own or lease all of its properties and assets
and to carry on its business as it is now being conducted, and is duly licensed
or qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not have a
Material Adverse Effect (as defined below) on the Company. The Company is duly
registered as a unitary savings and loan holding company under the Home Owners'
Loan Act of 1933, as amended. The Certificate of Incorporation and By-laws of
the Company, copies of which have previously been delivered to Buyer, are true,
complete and correct copies of such documents as in effect as of the date of
this Agreement. As used in this Agreement, the term "Material Adverse Effect"
means, with respect to Buyer, the Company or the Surviving Corporation, as the
case may be, a material adverse effect on the business, properties, assets,
liabilities, results of operations or financial condition of such party and its
Subsidiaries taken as a whole, other than any such effect attributable to or
resulting from general economic conditions. As used in this Agreement, the word
"Subsidiary" when used with respect to any party means any corporation,
partnership or other organization, whether incorporated or unincorporated, which
is consolidated with such party for financial reporting purposes.
(b) The Company Bank is a savings bank duly organized, validly
existing and in good standing under the laws of the State of New Jersey. The
deposit accounts of the Company Bank are insured by the Federal Deposit
Insurance Corporation (the "FDIC") through the Savings Association Insurance
Fund to the fullest extent permitted by law, and all premiums and assessments
required to be paid in connection therewith have been paid when due by the
Company Bank. Each of the Company's other Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization. Each of the Company's
Subsidiaries has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being conducted
and is duly licensed or qualified to do business in each jurisdiction in which
the nature of the business conducted by it or the character or the location of
the properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not have a Material Adverse Effect on the Company. The articles of
incorporation, by-laws and similar governing documents of each Subsidiary of the
Company,
-7-
<PAGE>
copies of which have previously been delivered to Buyer, are true, complete and
correct copies of such documents as in effect as of the date of this Agreement.
(c) The minute books of the Company and each of its Subsidiaries
contain true, complete and accurate records in all material respects of all
meetings and other corporate actions held or taken since December 31, 1993 of
their respective stockholders and Boards of Directors (including committees of
their respective Boards of Directors).
3.2 Capitalization.
--------------
(a) The authorized capital stock of the Company consists of
10,000,000 shares of Company Common Stock and 5,000,000 shares of preferred
stock (the "Company Preferred Stock"). As of the date of this Agreement, there
are (x) 3,120,300 shares of Company Common Stock issued and outstanding and
1,062,080 shares of Company Common Stock held in the Company's treasury, (y) no
shares of Company Common Stock reserved for issuance upon exercise of
outstanding stock options or otherwise except for (i) 297,988 shares of Company
Common Stock reserved for issuance pursuant to the Company Option Plans and
described in Section 3.2(a) of the Disclosure Schedule which is being delivered
to Buyer concurrently herewith (the "Company Disclosure Schedule") and (ii)
620,940 shares of Company Common Stock reserved for issuance upon exercise of
the option issued to Buyer pursuant to the Stock Option Agreement, dated July 9,
1998, between Buyer and the Company (the "Option Agreement") and (z) no shares
of Company Preferred Stock issued or outstanding, held in the Company's treasury
or reserved for issuance upon exercise of outstanding stock options or
otherwise. All of the issued and outstanding shares of Company Common Stock have
been duly authorized and validly issued and are fully paid, nonassessable and
free of preemptive rights. Except as referred to above or reflected in Section
3.2(a) of the Company Disclosure Schedule, and except for the Option Agreement,
the Company does not have and is not bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling for
the purchase or issuance of any shares of Company Common Stock or Company
Preferred Stock or any other equity security of the Company or any securities
representing the right to purchase or otherwise receive any shares of Company
Common Stock or any other equity security of the Company. The names of the
optionees, the date of each option to purchase Company Common Stock granted, the
number of shares subject to each such option, the expiration date of each such
option, and the price at which each such option may be exercised under the
Option Plan, the Incentive Plan, as applicable, are set forth in Section 3.2(a)
of the Company Disclosure Schedule.
(b) Section 3.2(b) of the Company Disclosure Schedule sets forth a
true and correct list of all of the Subsidiaries of the Company as of the date
of this Agreement. Except as set forth in Section 3.2(b) of the Company
Disclosure Schedule, the Company owns, directly or indirectly, all of the issued
and outstanding shares of the capital stock of each of such Subsidiaries, free
and clear of all liens, charges, encumbrances and security interests whatsoever,
and all of such shares are duly authorized and validly issued and are fully
paid, nonassessable and free of preemptive rights. No Subsidiary of the Company
has or is bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for
-8-
<PAGE>
the purchase or issuance of any shares of capital stock or any other equity
security of such Subsidiary or any securities representing the right to purchase
or otherwise receive any shares of capital stock or any other equity security of
such Subsidiary. Assuming compliance by Buyer with Section 1.5 hereof, at the
Effective Time, there will not be any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character by which the Company
or any of its Subsidiaries will be bound calling for the purchase or issuance of
any shares of the capital stock of the Compa ny or any of its Subsidiaries.
3.3 Authority; No Violation.
-----------------------
(a) The Company has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of the Company. The Board of Directors of the Company has
directed that this Agreement and the transactions contemplated hereby be
submitted to the Company's stockholders for approval at a meeting of such
stockholders and, except for the adoption of this Agreement by the requisite
vote of the Company's stockholders, no other corporate proceedings (except for
regulatory approvals) on the part of the Company are necessary to approve this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by the Company and (assuming
due authorization, execution and delivery by Buyer) constitutes a valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as enforcement may be limited by general principles of
equity whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally.
(b) The Company Bank has full corporate power and authority to
execute and deliver the Bank Merger Agreement and to consummate the transactions
contemplated thereby. The execution and delivery of the Bank Merger Agreement
and the consummation of the transactions contemplated thereby will be duly and
validly approved by the Board of Directors of the Company Bank. Upon the due and
valid approval of the Bank Merger Agreement by the Company as the sole
stockholder of the Company Bank and by the Board of Directors of the Company
Bank, no other corporate proceedings on the part of the Company Bank will be
necessary to consummate the transactions contemplated thereby. The Bank Merger
Agreement, upon execution and delivery by the Company Bank, will be duly and
validly executed and delivered by the Company Bank and will (assuming due
authorization, execution and delivery by First Savings Bank) constitute a valid
and binding obligation of the Company Bank, enforceable against the Company Bank
in accordance with its terms, except as enforcement may be limited by general
principles of equity whether applied in a court of law or a court of equity and
by bankruptcy, insolvency and similar laws affecting creditors' rights and
remedies generally.
(c) Except as set forth in Section 3.3(c) of the Company Disclosure
Schedule, neither the execution and delivery of this Agreement by the Company or
the Bank Merger Agreement by the Company Bank, nor the consummation by the
Company or the Company Bank, as the case may be, of the transactions
contemplated hereby or thereby, nor compliance by
-9-
<PAGE>
the Company or the Company Bank, as the case may be, with any of the terms or
provisions hereof or thereof, will (i) violate any provision of the Certificate
of Incorporation or By-Laws of the Company or the certificate of incorporation,
by-laws or similar governing documents of any of its Subsidiaries, or (ii)
assuming that the consents and approvals referred to in Section 3.4 hereof are
duly obtained, (x) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to the Company or any of
its Subsidiaries, or any of their respective properties or assets, or (y)
violate, conflict with, result in a breach of any provision of or the loss of
any benefit under, constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under, result in the termination
of or a right of termination or cancellation under, accelerate the performance
required by, or result in the creation of any lien, pledge, security interest,
charge or other encumbrance upon any of the respective properties or assets of
the Company or any of its Subsidiaries under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which the Company or any
of its Subsidiaries is a party, or by which they or any of their respective
properties or assets may be bound or affected, except (in the case of clause (y)
above) for such violations, conflicts, breaches or defaults which, either
individually or in the aggregate, would not have or be reasonably likely to have
a Material Adverse Effect on the Company.
3.4 Consents and Approvals. Except for (a) the filing of applications
----------------------
with the Office of Thrift Supervision (the "OTS") and, if necessary, the Federal
Deposit Insurance Corporation ("FDIC") and approval of such applications, (b)
the filing of an application with the New Jersey Department of Banking and
Insurance (the "Banking Department") and approval of such application, (c) the
filing with the Securities and Exchange Commission (the "SEC") of a joint proxy
statement in definitive form relating to the meetings of the Company's
stockholders and Buyer's stockholders to be held in connection with this
Agreement and the transactions contemplated hereby (collectively, the "Proxy
Statement"), (d) the approval of this Agreement by the requisite vote of the
stockholders of the Company, (e) the filing of the Certificate of Merger with
the Secretary of New Jersey pursuant to the NJBCA, (f) the filings required by
the Bank Merger Agreement, (g) the approval of the Bank Merger Agreement by the
Company as the sole stockholder of the Company Bank and (h) such filings,
authorizations or approvals as may be set forth in Section 3.4 of the Company
Disclosure Schedule, no consents or approvals of or filings or registrations
with any court, administrative agency or commission or other governmental
authority or instrumentality (each a "Governmental Entity") or with any third
party are necessary in connection with (1) the execution and delivery by the
Company of this Agreement, (2) the consummation by the Company of the Merger and
the other transactions contemplated hereby, (3) the execution and delivery by
the Company Bank of the Bank Merger Agreement, and (4) the consummation by the
Company Bank of the Subsidiary Merger and the transactions contemplated thereby.
3.5 Reports. The Company and each of its Subsidiaries have timely filed
-------
all material reports, registrations and statements, together with any amendments
required to be made with respect thereto, that they were required to file since
December 31, 1994 with (i) the OTS, (ii) the FDIC, (iii) any state banking
commissions or any other state regulatory authority (each a "State Regulator")
and (iv) any other self-regulatory organization ("SRO") (collectively, the
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<PAGE>
"Regulatory Agencies"), and all other material reports and statements required
to be filed by them since December 31, 1994, including, without limitation, any
report or statement required to be filed pursuant to the laws, rules or
regulations of the United States, the OTS, the FDIC, any State Regulator or any
SRO, and have paid all fees and assessments due and payable in connection
therewith. Except for normal examinations conducted by a Regulatory Agency in
the regular course of the business of the Company and its Subsidiaries, except
as set forth in Section 3.5 of the Company Disclosure Schedule, no Regulatory
Agency has initiated any proceeding or, to the best knowledge of the Company,
investigation into the business or operations of the Company or any of its
Subsidiaries since December 31, 1994. There is no unresolved material violation,
criticism, or exception by any Regulatory Agency with respect to any report or
statement relating to any examinations of the Company or any of its
Subsidiaries.
3.6 Financial Statements. The Company has previously delivered to Buyer
--------------------
copies of (a) the consolidated balance sheets of the Company and its
Subsidiaries as of September 30 for the fiscal years 1995, 1996 and 1997, and
the related consolidated statements of income, changes in stockholders' equity
and cash flows for the fiscal years 1994 through 1997, inclusive, as reported in
the Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1997 filed with the SEC under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), in each case accompanied by the audit report of KPMG Peat
Marwick, independent public accountants with respect to the Company, and (b) the
unaudited consolidated balance sheets of the Company and its Subsidiaries as of
March 31, 1998 and March 31, 1997 and the related unaudited consolidated
statements of income, cash flows and changes in stockholders' equity for the six
month periods then ended as reported in the Company's Quarterly Report on Form
10-Q for the period ended March 31, 1998 filed with the SEC under the Exchange
Act. The September 30, 1997 consolidated balance sheet of the Company (including
the related notes, where applicable) fairly presents the consolidated financial
position of the Company and its Subsidiaries as of the date thereof, and the
other financial statements referred to in this Section 3.6 (including the
related notes, where applicable) fairly present, and the financial statements
referred to in Section 6.9 hereof will fairly present (subject, in the case of
the unaudited statements, to recurring audit adjustments normal in nature and
amount), the results of the consolidated operations and consolidated financial
position of the Company an d its Subsidiaries for the respective fiscal periods
or as of the respective dates therein set forth; each of such statements
(including the related notes, where applicable) comply, and the financial
statements referred to in Section 6.9 hereof will comply, in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto; and each of such statements
(including the related notes, where applicable) has been, and the financial
statements referred to in Section 6.9 hereof will be, prepared in accordance
with generally accepted accounting principles ("GAAP") consistently applied
during the periods involved, except as indicated in the notes thereto or, in the
case of unaudited statements, as permitted by Form 10-Q. The books and records
of the Company and its Subsidiaries have been, and are being, maintained in all
material respects in accordance with GAAP and any other applicable legal and
accounting requirements and reflect only actual transactions.
3.7 Broker's Fees. Neither the Company nor any Subsidiary of the Company
-------------
nor any of their respective officers or directors has employed any broker or
finder or incurred any
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<PAGE>
liability for any broker's fees, commissions or finder's fees in connection with
any of the transactions contemplated by this Agreement, the Bank Merger
Agreement or the Option Agreement, except that the Company has engaged, and will
pay a fee or commission to, Sandler O'Neill & Partners, L.P. ("Sandler O'Neill")
in accordance with the terms of a letter agreement between Sandler O'Neill and
the Company concerning the issuance of an opinion regarding the fairness of the
Exchange Ratio, a true, complete and correct copy of which has been previously
delivered by the Company to Buyer.
3.8 Absence of Certain Changes or Events.
------------------------------------
(a) Except as may be set forth in Section 3.8(a) of the Company
Disclosure Schedule or as disclosed in the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998 (a true, complete and correct copy of
which has previously been delivered to Buyer), since September 30, 1997, (i)
neither the Company nor any of its Subsidiaries has incurred any material
liability, except in the ordinary course of their business consistent with their
past practices, and (ii) no event has occurred which has caused, or is
reasonably likely to cause, individually or in the aggregate, a Material Adverse
Effect on the Company.
(b) Except as set forth in Section 3.8(b) of the Company Disclosure
Schedule, since March 31, 1998, the Company and its Subsidiaries have carried on
their respective businesses in the ordinary course consistent with their past
practices.
(c) Except as set forth in Section 3.8(c) of the Company Disclosure
Schedule, since March 31, 1998, neither the Company nor any of its Subsidiaries
has (i) increased the wages, salaries, compensation, pension, or other fringe
benefits or perquisites payable to any executive officer, employee, or director
from the amount thereof in effect as of March 31, 1998 (which amounts have been
previously disclosed to Buyer), granted any severance or termination pay,
entered into any contract to make or grant any severance or termination pay, or
paid any bonus other than year-end bonuses for fiscal 1998 as listed in Section
3.8 of the Company Disclosure Schedule or (ii) suffered any strike, work
stoppage, slow-down, or other labor disturbance.
3.9 Legal Proceedings.
-----------------
(a) Except as set forth in Section 3.9 of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries is a party to any, and
there are no pending or, to the best of the Company's knowledge, threatened,
legal, administrative, arbitral or other proceedings, claims, actions or
governmental or regulatory investigations of any nature against the Company or
any of its Subsidiaries or challenging the validity or propriety of the
transactions contemplated by this Agreement, the Bank Merger Agreement or the
Option Agreement as to which there is a reasonable probability of an adverse
determination and which, if adversely determined, would, individually or in the
aggregate, have or be reasonably likely to have a Material Adverse Effect on the
Company.
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<PAGE>
(b) There is no injunction, order, judgment, decree, or regulatory
restriction imposed upon the Company, any of its Subsidiaries or the assets of
the Company or any of its Subsidiaries which has had, or could reasonably be
expected to have, a Material Adverse Effect on the Company.
3.10 Taxes.
-----
(a) Except as set forth in Section 3.10(a) of the Company Disclosure
Schedule, each of the Company and its Subsidiaries has (i) duly and timely filed
or will duly and timely file (including applicable extensions granted without
penalty) all Tax Returns (as hereinafter defined) required to be filed at or
prior to the Effective Time, and such Tax Returns which have heretofore been
filed are, and those to be hereinafter filed will be, true, correct and complete
and (ii) paid in full or have made adequate provision for on the financial
statements of the Company (in accordance with GAAP) all Taxes (as hereinafter
defined) and will pay in full or make adequate provision for all Taxes. There
are no material liens for Taxes upon the assets of either the Company or its
Subsidiaries except for statutory liens for current Taxes not yet due. Except as
set forth in Section 3.10(a) of the Company Disclosure Schedule, neither the
Company nor any of its Subsidiaries has requested any extension of time within
which to file any Tax Returns in respect of any fiscal year which have not since
been filed and no request for waivers of the time to assess any Taxes are
pending or outstanding. The federal and state income Tax Returns of the Company
and its Subsidiaries have been audited by the Internal Revenue Service or
appropriate state tax authorities with respect to those periods and
jurisdictions set forth on Section 3.10(a) of the Company Disclosure Schedule.
Except as set forth in Section 3.10(a) of the Company Disclosure Schedule,
neither the Company nor any of its Subsidiaries (i) is a party to any agreement
providing for the allocation or sharing of Taxes (other than the allocation of
federal income taxes as provided by Regulation 1.1552-l(a)(l) under the Code;
(ii) is required to include in income any adjustment pursuant to Section 481(a)
of the Code, by reason of the voluntary change in accounting method (nor has any
taxing authority proposed in writing any such adjustment or change of accounting
method); or (iii) has filed a consent pursuant to Section 341(f) of the Code.
For the purposes of this Agreement, "Taxes" shall mean all taxes, charges,
fees, levies, penalties or other assessments imposed by any United States
federal, state, local or foreign taxing authority, including, but not limited to
income, excise, property, sales, transfer, franchise, payroll, withholding,
social security or other taxes, including any interest, penalties or additions
attributable thereto.
For purposes of this Agreement, "Tax Return" shall mean any return, report,
information return or other document (including any related or supporting
information) with respect to Taxes.
3.11 Employees.
---------
(a) Section 3.11(a) of the Company Disclosure Schedule sets forth a
true and complete list of each employee benefit plan, arrangement or agreement
that is maintained or contributed to or required to be contributed to as of the
date of this Agreement (the "Plans") by
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<PAGE>
the Company, any of its Subsidiaries or by any trade or business, whether or not
incorporated (an "ERISA Affiliate"), all of which together with the Company
would be deemed a "single employer" within the meaning of Section 4001 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), for the
benefit of any employee or former employee of the Company, any Subsidiary or any
ERISA Affiliate.
(b) The Company has heretofore delivered to Buyer true and complete
copies of each of the Plans and all related documents, including but not limited
to (i) the actuarial report for any Plan (if applicable) for each of the last
two years, and (ii) the most recent determination letter from the Internal
Revenue Service (if applicable) for any Plan.
(c) Except as set forth in Section 3.11(c) of the Company Disclosure
Schedule, (i) each of the Plans has been operated and administered in all
material respects in accordance with its terms and applicable law, including but
not limited to ERISA and the Code, (ii) each of the Plans intended to be
"qualified" within the meaning of Section 401(a) of the Code either (1) has
received a favorable determination letter from the IRS, or (2) is or will be the
subject of an application for a favorable determination letter, and the Company
is not aware of any circumstances likely to result in the revocation or denial
of any such favorable determination letter, (iii) with respect to each Plan
which is subject to Title IV of ERISA, the present value of accrued benefits
under such Plan, based upon the actuarial assumptions used for funding purposes
in the most recent actuarial report prepared by such Plan's actuary with respect
to such Plan, did not, as of its latest valuation date, exceed the then current
value of the assets of such Plan allocable to such accrued benefits, (iv) no
Plan provides benefits, including without limitation death or medical benefits
(whether or not insured), with respect to current or former employees of the
Company, its Subsidiaries or any ERISA Affiliate beyond their retirement or
other termination of service, other than (w) coverage mandated by applicable
law, (x) death benefits or retirement benefits under any "employee pension
plan," as that term is defined in Section 3(2) of ERISA, (y) deferred
compensation benefits accrued as liabilities on the books of the Company, its
Subsidiaries or the ERISA Affiliates or (z) benefits the full cost of which is
borne by the current or former employee (or his beneficiary), (v) no liability
under Title IV of ERISA has been incurred by the Company, its Subsidiaries or
any ERISA Affiliate that has not been satisfied in full, and no condition exists
that presents a material risk to the Company, its Subsidiaries or an ERISA
Affiliate of incurring a material liability thereunder, (vi) no Plan is a
"multiemployer pension plan," as such term is defined in Section 3(37) of ERISA,
(vii) all contributions or other amounts payable by the Company, its
Subsidiaries or any ERISA Affiliates as of the Effective Time with respect to
each Plan in respect of current or prior plan years have been paid or accrued in
accordance with generally accepted accounting practices and Section 412 of the
Code, (viii) neither the Company, its Subsidiaries nor any ERISA Affiliate has
engaged in a transaction in connection with which the Company, its Subsidiaries
or any ERISA Affiliate could be subject to either a civil penalty assessed
pursuant to Section 409 or 502(i) of ERISA or a tax imposed pursuant to Section
4975 or 4976 of the Code, (ix) there are no pending, or, to the best knowledge
of the Company, threatened or anticipated claims (other than routine claims for
benefits) by, on behalf of or against any of the Plans or any trusts related
thereto and (x) the consummation of the transactions contemplated by this
Agreement will not (y) entitle any current or former employee or officer of the
Company or any ERISA Affiliate to severance pay,
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<PAGE>
termination pay or any other payment, except as expressly provided in this
Agreement or (z) accelerate the time of payment or vesting or increase the
amount of compensation due any such employee or officer.
3.12 SEC Reports. The Company has previously made available to Buyer an
-----------
accurate and complete copy of each (a) final registration statement, prospectus,
report, schedule and definitive proxy statement filed since September 30, 1994
by the Company with the SEC pursuant to the Securities Act of 1933, as amended
(the "Securities Act") or the Exchange Act (the "Company Reports") and (b)
communication mailed by the Company to its stockholders since September 30,
1994, and no such registration statement, prospectus, report, schedule, proxy
statement or communication contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances in which
they were made, not misleading, except that information as of a later date shall
be deemed to modify information as of an earlier date. The Company has timely
filed all Company Reports and other documents required to be filed by it under
the Securities Act and the Exchange Act, and, as of their respective dates, all
Company Reports complied in all material respects with the published rules and
regulations of the SEC with respect thereto.
3.13 Company Information. The information relating to the Company and
-------------------
its Subsidiaries to be contained in the Proxy Statement and the Registration
Statement on Form S-4 (the "S-4") of which the Proxy Statement will be included
as a prospectus, or in any other document filed with any other regulatory
agency in connection herewith, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances in which they are made, not misleading.
The sections of the Proxy Statement relating to the Company will comply in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
3.13A Ownership of Buyer Common Stock: Affiliates and Associates. Except
----- -------------------------------- -------------------------
for the Stock Option Agreement, neither Company nor any of its Subsidiaries, (i)
beneficially own, directly or indirectly, or (ii) is a party to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of, in each case, any shares of capital stock of the Buyer (other than
Trust Account Shares and DPC Shares).
3.14 Compliance with Applicable Law. The Company and each of its
------------------------------
Subsidiaries hold, and have at all times held, all material licenses,
franchises, permits and authorizations necessary for the lawful conduct of their
respective businesses under and pursuant to all, and have complied with and are
not, to its knowledge, in default in any respect under any applicable law,
statute, order, rule, regulation, policy and/or guideline of any Governmental
Entity relating to the Company or any of its Subsidiaries, except where the
failure to hold such license, franchise, permit or authorization or such
noncompliance or default would not, individually or in the aggregate, have or be
reasonably likely to have a Material Adverse Effect on the Company, and neither
the Company nor any of its Subsidiaries knows of, or has received notice of, any
material violations of any of the above.
-15-
<PAGE>
3.15 Certain Contracts.
-----------------
(a) Except as set forth in Section 3.15(a) of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries; is a party
to or bound by any contract, arrangement, commitment or understanding (whether
written or oral) (i) with respect to the employment of any directors, officers,
employees or consultants, (ii) which, upon the consummation of the transactions
contemplated by this Agreement or the Bank Merger Agreement will (either alone
or upon the occurrence of any additional acts or events) result in any payment
(whether of severance pay or otherwise) becoming due from Buyer, the Company,
the Surviving Corporation, the Surviving Bank or any of their respective
Subsidiaries to any officer or employee thereof, (iii) which is a material
contract (as defined in Item 601(b)(10) of Regulation S-K of the SEC) to be
performed after the date of this Agreement that has not been filed or
incorporated by reference in the Company Reports, (iv) which is a consulting
agreement (including data processing, software programming and licensing
contracts) not terminable on 60 days or less notice involving the payment of
more than $50,000 per annum, in the case of any such agreement with an
individual, or $100,000 per annum, in the case of any other such agreement, (v)
which materially restricts the conduct of any line of business by the Company or
any of its Subsidiaries, (vi) with or to a labor union or guild (including any
collective bargaining agreement) or (vii) (including any stock option plan,
stock appreciation rights plan, restricted stock plan or stock purchase plan)
any of the benefits of which will be increased, or the vesting of the benefits
of which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the Bank Merger Agreement, or the value of any
of the benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement or the Bank Merger Agreement. Each
contract, arrangement, commitment or understanding of the type described in this
Section 3.15(a), whether or not set forth in Section 3.15(a) of the Company
Disclosure Schedule, is referred to herein as a "Company Contract". The Company
has previously delivered to Buyer true and correct copies of each Company
Contract.
(b) Except as set forth in Section 3.15(b) of the Company
Disclosure Schedule, (i) each Company Contract is valid and binding and in full
force and effect, (ii) the Company and each of its Subsidiaries have in all
material respects performed all obligations required to be performed by it to
date under each Company Contract, except where such noncompliance, individually
or in the aggregate, would not have or be reasonably likely to have a Material
Adverse Effect on the Company, (iii) no event or condition exists which
constitutes or, after notice or lapse of time or both, would constitute, a
material default on the part of the Company or any of its Subsidiaries under any
such Company Contract, except where such default, individually or in the
aggregate, would not have or be reasonably likely to have a Material Adverse
Effect on the Company and (iv) no other party to such Company Contract is, to
the best knowledge of the Company, in default in any respect thereunder.
3.16 Agreements with Regulatory Agencies. Except as set forth in Section
-----------------------------------
3.16 of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries is subject to any cease-and-desist or other order issued by, or is
a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or
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<PAGE>
similar undertaking to, or is subject to any order or directive by, or is a
recipient of any extraordinary supervisory letter from, or has adopted any board
resolutions at the request of (each, whether or not set forth on Section 3.16 of
the Company Disclosure Schedule, a "Regulatory Agreement"), any Regulatory
Agency or other Governmental Entity that restricts the conduct of its business
or that in any manner relates to its capital adequacy, its credit policies, its
management or its business, nor has the Company or any of its Subsidiaries been
advised by any Regulatory Agency or other Governmental Entity that it is
considering issuing or requesting any Regulatory Agreement.
3.17 Investment Securities. Section 3.17 of the Company Disclosure
---------------------
Schedule sets forth the book and market value as of March 31, 1998 of the
investment securities, mortgage backed securities and securities held for sale
of the Company and its Subsidiaries. Section 3.17 of the Company Disclosure
Schedule sets forth an investment securities report which includes, security
descriptions, CUSIP numbers, pool face values, book values, coupon rates and
current market values.
3.18 Intellectual Property. Except where there would be no Material
---------------------
Adverse Effect on the Company, the Company and each of its Subsidiaries owns or
possesses valid and binding licenses and other rights to use without payment all
material patents, copyrights, trade secrets, trade names, servicemarks,
trademarks and computer software used in its businesses; and neither the Company
nor any of its Subsidiaries has received any notice of conflict with respect
thereto that asserts the right of others. The Company and each of its
Subsidiaries have in all material respects performed all the obligations
required to be performed by them and are not in default in any material respect
under any contract, agreement, arrangement or commitment relating to any of the
foregoing, except where such non-performance or default would not, individually
or in the aggregate, have or be reasonably likely to have a Material Adverse
Effect on the Company.
3.19 Undisclosed Liabilities. Except (a) as set forth in Section 3.19 of
-----------------------
the Company Disclosure Schedule, (b) for those liabilities that are fully
reflected or reserved against on the consolidated balance sheet of the Company
as of March 31, 1998 included in its Form 10-Q for the period ended March 31,
1998 and (c) for liabilities incurred in the ordinary course of business
consistent with past practice since March 31, 1998 that, either alone or when
combined with all similar liabilities, have not had, and could not reasonably be
expected to have, a Material Adverse Effect on the Company, neither the Company
nor any of its Subsidiaries has incurred any liability of any nature whatsoever
(whether absolute, accrued, contingent or otherwise and whether due or to become
due).
3.20 State Takeover Laws. The provisions of Article XV of the Company's
-------------------
Certificate of Incorporation will not, assuming the accuracy of the
representations contained in Section 4.12 hereof, apply to the Agreement, the
Bank Merger Agreement or the Stock Option Agreement or any of the transactions
contemplated hereby or thereby.
3.21 Administration of Fiduciary Accounts. The Company and each of its
------------------------------------
Subsidiaries has properly administered in all material respects all accounts for
which it acts as a fiduciary, including but not limited to accounts for which it
serves as a trustee, agent, custodian, personal
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<PAGE>
representative, guardian, conservator or investment advisor, in accordance with
the terms of the governing documents and applicable state and federal law and
regulation and common law. Neither the Company nor any of its Subsidiaries nor
any of their respective directors, officers or employees has committed any
breach of trust with respect to any such fiduciary account which has had or
could reasonably be expected to have a Material Adverse Effect on the Company,
and the accountings for each such fiduciary account are true and correct in all
material respects and accurately reflect the assets of such fiduciary account.
3.22 Environmental Matters. Except as set forth in Section 3.22 of the
---------------------
Company Disclosure Schedule:
(a) Each of the Company, its Subsidiaries, the Participation
Facilities and the Loan Properties (each as hereinafter defined) are, and have
been, in compliance with all applicable federal, state and local laws including
common law, regulations and ordinances and with all applicable decrees, orders
and contractual obligations relating to pollution, the discharge of, or exposure
to materials in the environment or workplace ("Environmental Laws"), except for
violations which, either individually or in the aggregate, have not had and
cannot reasonably be expected to have a Material Adverse Effect on the Company;
(b) There is no suit, claim, action or proceeding, pending or
threatened, before any Governmental Entity or other forum in which the Company,
any of its Subsidiaries, any Participation Facility or any Loan Property, has
been or, with respect to threatened proceedings , may be, named as a defendant
(x) for alleged noncompliance (including by any predecessor), with any
Environmental Laws, or (y) relating to the release, threatened release or
exposure to any material whether or not occurring at or on a site owned, leased
or operated by the Company or any of its Subsidiaries, any Participation
Facility or any Loan Property, except where such noncompliance or release has
not resulted, and cannot be reasonably expected to result, either individually
or in the aggregate, a Material Adverse Effect on the Company;
(c) During the period of (x) the Company's or any of its
Subsidiaries' ownership or operation of any of their respective current
properties, (y) the Company's or any of its Subsidiaries' participation in the
management of any Participation Facility, or (z) the Company's or any of its
Subsidiaries' holding of a security interest in a Loan Property, there has been
no release of materials in, on, under or affecting any such property, except
where such release has not had and cannot reasonably be expected to result in,
either individually or in the aggregate, a Material Adverse Effect on the
Company. Prior to the period of (x) the Company's or any of its Subsidiaries'
ownership or operation of any of their respective current properties, (y) the
Company's or any of its Subsidiaries' participation in the management of any
Participation Facility, or (z) the Company's or any of its Subsidiaries' holding
of a security interest in a Loan Property, there was no release or threatened
release of materials in, on, under or affecting any such property, Participation
Facility or Loan Property, except where such release has not had and cannot be
reasonably expected to have, either individually or in the aggregate, a Material
Adverse Effect on the Company;
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<PAGE>
(d) All property formerly owned or leased by the Company and its
Subsidiaries which was subject to the provisions of the Industrial Site Recovery
Act, N.J.S.A. 13:1K-6, et seq. as amended ("ISRA"), compiled with all applicable
provisions of ISRA at the time such property was sold or transferred; and
(e) The following definitions apply for purposes of this Section
3.22: (x) "Loan Property" means any property in which the Company or any of its
Subsidiaries holds a security interest, and, where required by the context, said
term means the owner or operator of such property; and (y) "Participation
Facility" means any facility in which the Company or any of its Subsidiaries
participates in the management and, where required by the context, said term
means the owner or operator of such property.
3.23 Derivative Transactions. Except as set forth in Section 3.23 of the
-----------------------
Company Disclosure Schedule, since September 30, 1997, neither Company nor any
of its Subsidiaries has engaged in transactions in or involving forwards,
futures, options on futures, swaps or other derivative instruments except (i) as
agent on the order and for the account of others, or (ii) as principal for
purposes of hedging interest rate risk on U.S. dollar denominated securities and
other financial instruments. None of the counterparts to any contract or
agreement with respect to any such instrument is in default with respect to such
contract or agreement and no such contract or agreement, were it to be a Loan
(as defined below) held by the Company or any of its Subsidiaries, would be
classified as "Other Loans Specially Mentioned", "Special Mention",
"Substandard", "Doubtful", "Loss", "Classified", "Criticized", "Credit Risk
Assets", "Concerned Loans" or words of similar import. The financial position of
the Company and its Subsidiaries on a consolidated basis under or with respect
to each such instrument has been reflected in the books and records of the
Company and such Subsidiaries in accordance with GAAP consistently applied, and
no open exposure of the Company or any of its Subsidiaries with respect to any
such instrument (or with respect to multiple instruments with respect to any
single counterparty) exceeds $500,000.
3.24 Opinion. The Company has received a written opinion, dated the date
-------
hereof, from Sandler O'Neill to the effect that, subject to the terms,
conditions and qualifications set forth therein, as of the date thereof the
Exchange Ratio is fair to such stockholders from a financial point of view. Such
opinion has not been amended or rescinded as of the date of this Agreement, and
will be updated at the time the Proxy Statement is mailed to stockholders of the
Company.
3.25 Assistance Agreements. Neither the Company nor any of its
---------------------
Subsidiaries is a party to any agreement or arrangement entered into in
connection with the consummation of a federally assisted acquisition of a
depository institution pursuant to which the Company or any of its Subsidiaries
is e ntitled to receive financial assistance or indemnification from any
governmental agency.
3.26 Approvals. As of the date of this Agreement, the Company knows of no
---------
reason why all regulatory approvals required for the consummation of the
transactions contemplated
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hereby (including, without limitation, the Merger and the Subsidiary Merger)
should not be obtained without the imposition of a Burdensome Condition (as
defined below).
3.27 Loan Portfolio.
--------------
(a) In the Company's reasonable judgment, the allowance for loan
losses reflected in the Company's audited statement of condition at September
30, 1997 was, and the allowance for loan losses shown on the balance sheets in
its Reports for periods ending after September 30, 1997 have been and will be,
adequate in all material respects, as of the dates thereof, under generally
accepted accounting principles, and no Regulatory Agencies have required or
requested Company to increase the allowance for loan losses for such periods.
(b) Except as set forth in Section 3.27 of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries is a party to any
written or oral (i) loan agreement, note or borrowing arrangement (including,
without limitation, leases, credit enhancements, commitments, guarantees and
interest-bearing assets) (collectively, "Loans"), other than Loans the unpaid
principal balance of which does not exceed $50,000, under the terms of which the
obligor is, as of the date of this Agreement, over 90 days delinquent in payment
of principal or interest or in default of any other provision, or (ii) Loan with
any director, executive officer or ten percent stockholder of the Company or any
of its Subsidiaries, or to the best knowledge of the Company, any person,
corporation or enterprise controlling, controlled by or under common control
with any of the foregoing. Section 3.27 of the Company Disclosure Schedule sets
forth (i) all of the Loans in original principal amount in excess of $50,000 of
the Company or any of its Subsidiaries that as of the date of this Agreement are
classified by any bank examiner (whether regulatory or internal) as "Other Loans
Specially Mentioned," "Special Mention," "Substandard," "Doubtful," "Loss,"
"Classified," "Criticized," "Credit Risk Assets," "Concerned Loans," "Watch
List" or words of similar import, together with the principal amount of and
accrued and unpaid interest on each such Loan and the identity of the borrower
thereunder, and (ii) by category of Loan (i.e., commercial, consumer, etc.), all
of the other Loans of the Company and its Subsidiaries that as of the date of
this Agreement are classified as such, together with the aggregate principal
amount of and accrued and unpaid interest on such Loans by category. The Company
shall promptly inform Buyer in writing of any Loan that becomes classified in
the manner described in the previous sentence, or any Loan the classification of
which is changed, at any time after the date of this Agreement.
(c) To the best of its knowledge, each loan reflected as an asset
in the Company Disclosure Schedule (i) is evidenced by notes, agreements or
other evidences of indebtedness which are true, genuine and correct in all
material respects, (ii) to the extent secured, has been secured by valid liens
and security interests which have been perfected, and (iii) is the legal, valid
and binding obligation of the obligor named therein, enforceable in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and
other laws of general applicability relating to or affecting creditors' rights
and to general equity principles, in each case other than loans as to which the
failure to satisfy the foregoing standards would not have a Material Adverse
Effect on the Company.
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3.28 Year 2000 Compliance. The Company and the Company's Subsidiaries have
--------------------
taken all reasonable steps necessary to address the software, accounting and
record keeping issues raised in order for the data processing systems used in
the business conducted by the Company and its Subsidiaries to be substantially
Year 2000 compliant on or before the end of 1999 and, except as set forth in the
Company Disclosure Schedule, the Company does not expect the future cost of
addressing such issues to be material. Neither the Company nor any of its
Subsidiaries has received a rating of less than satisfactory from any bank
regulatory agency with respect to Year 2000 compliance.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Company as follows:
4.1 Corporate Organization.
----------------------
(a) Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Buyer has the corporate
power and authority to own or lease all of its properties and assets and to
carry on its business as it is now being conducted, and is duly licensed or
qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not have a
Material Adverse Effect on Buyer. Buyer is duly registered as a bank holding
company under the BHC Act. The Certificate of Incorporation and By-laws of
Buyer, copies of which have previously been made available to the Company, are
true, complete and correct copies of such documents as in effect as of the date
of this Agreement.
(b) First Savings Bank is a savings and loan association duly
organized, validly existing and in good standing under the laws of the State of
New Jersey. The deposit accounts of First Savings Bank are insured by the FDIC
through the SAIF Insurance Fund to the fullest extent permitted by law, and all
premiums and assessments required in connection therewith have been paid by
First Savings Bank. Each of Buyer's other Subsidiaries is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation. Each Subsidiary of Buyer has the corporate power and authority to
own or lease all of its properties and assets and to carry on its business as it
is now being conducted, and is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed or qualified would not have a Material Adverse Effect on Buyer. The
Certificate of Incorporation and Bylaws of each subsidiary of the Buyer, copies
of which have previously been made available to the Company, are true, complete
and correct copies of such documents as in effect as of the date of this
Agreement.
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<PAGE>
(C) The minute books of Buyer and each of its Subsidiaries contain
true, complete and accurate records in all material respects of all meetings and
other corporate actions held or taken since December 31, 1993 of their
respective stockholders and Boards of Directors (including committees of their
respective Boards of Directors).
4.2 Capitalization.
--------------
(a) As of the date of this Agreement, the authorized capital stock
of Buyer consists of 85,000,000 shares of Buyer Common Stock and 10,000,000
shares of preferred stock, par value $.01 per share ("Buyer Preferred Stock").
As of June 30, 1998, there were 31,740,000 shares of Buyer Common Stock and no
shares of Buyer Preferred Stock issued and outstanding, and no shares of Buyer
Common Stock held in Buyer's treasury. As of the date of this Agreement, no
shares of Buyer Common Stock or Buyer Preferred Stock were reserved for
issuance, except that 11,775 shares of Buyer Common Stock were reserved for
issuance upon the exercise of stock options pursuant to the First Savings Bank,
SLA 1992 Incentive Stock Option Plan and the 1992 Stock Option Plan for Outside
Directors and 261,924 shares of Buyer Common Stock were reserved for issuance
upon the exercise of stock options pursuant to the Buyer 1996 Omnibus Incentive
Plan (collectively, the "Buyer Stock Plans"). All of the issued and outstanding
shares of Buyer Common Stock and Buyer Preferred Stock have been duly authorized
and validly issued and are fully paid, nonassessable and free of preemptive
rights, with no personal liability attaching to the ownership thereof. As of the
date of this Agreement, except as referred to above or reflected in Section
4.2(a) of the Buyer Disclosure Schedule and the Buyer Shareholder Rights
Agreement, Buyer does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of Buyer Common
Stock or Buyer Preferred Stock or any other equity securities of Buyer or any
securities representing the right to purchase or otherwise receive any shares of
Buyer Common Stock or Buyer Preferred Stock. The shares of Buyer Common Stock to
be issued pursuant to the Merger will be duly authorized and va lidly issued
and, at the Effective Time, all such shares will be fully paid, nonassessable
and free of preemptive rights.
(b) Section 4.2(b) of the Buyer Disclosure Schedule sets forth a
true and correct list of all of the Buyer Subsidiaries as of the date of this
Agreement. Except as set forth in Section 4.2(b) of the Buyer Disclosure
Schedule, Buyer owns, directly or indirectly, all of the issued and outstanding
shares of capital stock of each of the Subsidiaries of the Buyer, free and clear
of all liens, charges, encumbrances and security interests whatsoever, and all
of such shares are duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights. No Subsidiary of the Buyer has or
is bound by any outstanding subscriptions, options, warrants, calls, commitments
or agreements of any character with any party that is not a direct or indirect
Subsidiary of Buyer calling for the purchase or issuance of any shares of
capital stock or any other equity security of such Subsidiary or any securities
representing the right to purchase or otherwise receive any shares of capital
stock or any other equity security of such Subsidiary.
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<PAGE>
4.3 Authority. No Violation.
------------------------
(a) Buyer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of Buyer. The Board of Directors of Buyer has directed that
this Agreement and the transactions contemplated hereby be submitted to Buyer's
stockholders for approval at a meeting of such stockholders and, except for the
adoption of this Agreement by the requisite vote of Buyer's stockholders, no
other corporate proceedings on the part of Buyer are necessary to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Buyer and (assuming due authorization, execution and
delivery by the Company) constitutes a valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms, except as enforcement
may be limited by general principles of equity whether applied in a court of law
or a court of equity and by bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally.
(b) First Savings Bank has full corporate power and authority to
execute and deliver the Bank Merger Agreement and to consummate the transactions
contemplated thereby. The execution and delivery of the Bank Merger Agreement
and the consummation of the transactions contemplated thereby will be duly and
validly approved by the Board of Directors of First Savings Bank. Upon the due
and valid approval of the Bank Merger Agreement by Buyer as the sole stockholder
of First Savings Bank, and by the Board of Directors of First Savings Bank, no
other corporate proceedings on the part of First Savings Bank will be necessary
to consummate the transactions contemplated thereby. The Bank Merger Agreement,
upon execution and delivery by First Savings Bank, will be duly and validly
executed and delivered by First Savings Bank and will (assuming due
authorization, execution and delivery by the Company Bank) constitute a valid
and binding obligation of First Savings Bank, enforceable against First Savings
Bank in accordance with its terms, except as enforcement may be limited by
general principles of equity whether applied in a court of law or a court of
equity and by bankruptcy, insolvency and similar laws affecting creditors'
rights and remedies generally.
(c) Except as set forth in Section 4.3(c) of the Buyer Disclosure
Schedule, neither the execution and delivery of this Agreement by Buyer or the
Bank Merger Agreement by First Savings Bank, nor the consummation by Buyer or
First Savings Bank, as the case may be, of the transactions contemplated hereby
or thereby, nor compliance by Buyer or First Savings Bank, as the case may be,
with any of the terms or provisions hereof or thereof, will (i) violate any
provision of the Certificate of Incorporation or By-Laws of Buyer, or the
articles of incorporation or by-laws or similar governing documents of any of
its Subsidiaries or (ii) assuming that the consents and approvals referred to in
Section 4.4 are duly obtained, (x) violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction applicable to Buyer or
any of its Subsidiaries or any of their respective properties or assets, or (y)
violate, conflict with, result in a breach of any provision of or the loss of
any benefit under, constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under, result in the termination
of or a right of termination or cancellation under, accelerate the performance
required by, or result in the creation of any lien, pledge, security
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interest, charge or other encumbrance upon any of the respective properties or
assets of Buyer or any of its Subsidiaries under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which Buyer or any of its
Subsidiaries is a party, or by which they or any of their respective properties
or assets may be bound or affected, except (in the case of clause (y) above) for
such violations, conflicts, breaches or defaults which either individually or in
the aggregate will not have or be reasonably likely to have a Material Adverse
Effect on Buyer.
4.4 Consents and Approvals. Except for (a) the filing of applications with
----------------------
the OTS and approval of such applications, (b) the state banking approvals, (c)
the filing with the SEC of the Proxy Statement and the S-4, (d) the approval of
this Agreement by the requisite vote of the stockholders of Buyer, (e) the
filing of the Certificate of Merger with the Secretary, (f) such filings and
approvals as are required to be made or obtained under the securities or "Blue
Sky" laws of various states in connection with the issuance of the shares of
Buyer Common Stock pursuant to this Agreement, (g) filings required by the Bank
Merger Agreement, (h) the approval of the Bank Merger Agreement by the
stockholder of First Savings Bank, and (i) such filings, authorizations or
approvals as may be set forth in Section 4.4 of the Buyer Disclosure Schedule,
no consents or approvals of or filings or registrations with any Governmental
Entity or with any third party are necessary in connection with (1) the
execution and delivery by Buyer of this Agreement, (2) the consummation by Buyer
of the Merger and the other transactions contemplated hereby, (3) the execution
and delivery by First Savings Bank of the Bank Merger Agreement, and (4) the
consummation of First Savings Bank of the transactions contemplated by the Bank
Merger Agreement.
4.5 Financial Statements. Buyer has previously delivered to the Company
--------------------
copies of (a) the consolidated balance sheets of Buyer and its Subsidiaries as
of December 31 for the years 1997 and 1996 and the related consolidated
statements of income, changes in shareholders' equity and cash flows for the
fiscal years 1995 through 1997, inclusive, as reported in Buyer's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997 filed with the SEC
under the Exchange Act, in each case accompanied by the audit report of KPMG
Peat Marwick LLP, independent public accountants with respect to Buyer, and (b)
the unaudited consolidated balance sheet of Buyer and its Subsidiaries as of
March 31, 1998 and March 31, 1997 and the related unaudited consolidated
statements of income, changes in shareholders' equity and cash flows for the
three-month periods then ended as reported in Buyer's Quarterly Report on Form
10-Q for the period ended March 31, 1998 filed with the SEC under the Exchange
Act. The December 31, 1997 consolidated balance sheet of Buyer (including the
related notes, where applicable) fairly presents the consolidated financial
position of Buyer and its Subsidiaries as of the date thereof, and the other
financial statements referred to in this Section 4.5 (including the related
notes, where applicable) fairly present and the financial statements referred to
in Section 6.9 hereof will fairly present (subject, in the case of the unaudited
statements, to recurring audit adjustments normal in nature and amount), the
results of the consolidated operations and changes in shareholders' equity and
consolidated financial position of Buyer and its Subsidiaries for the respective
fiscal periods or as of the respective dates therein set forth; each of such
statements (including the related notes, where applicable) comply, and the
financial statements referred to in Section 6.9 hereof will comply, in all
material respects with applicable accounting requirements
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<PAGE>
and with the published rules and regulations of the SEC with respect thereto;
and each of such statements (including the related notes, where applicable) has
been, and the financial statements referred to in Section 6.9 hereof will be,
prepared in accordance with GAAP consistently applied during the periods
involved, except as indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-Q. The books and records of Buyer and its
Subsidiaries have been, and are being, maintained in all material respects in
accordance with GAAP and any other applicable legal and accounting requirements
and reflect only actual transactions.
4.6 Broker's Fees. Neither Buyer nor any Subsidiary of Buyer, nor any of
-------------
their respective officers or directors, has employed any broker or finder or
incurred any liability for any broker's fees, commissions or finder's fees in
connection with any of the transactions contemplated by this Agreement, the Bank
Merger Agreement or the Option Agreement, except that Buyer has engaged, and
will pay a fee or commission to Ryan, Beck & Co. A copy of the Agreement with
Ryan, Beck & Co. has been provided to the Company.
4.7 Absence of Certain Changes or Events.
------------------------------------
(a) Except as may be set forth in Section 4.7 of the Buyer
Disclosure Schedule, or as disclosed in Buyer's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998 (a true, complete and correct copy of which
has previously been delivered to the Company), since December 31, 1997, (i)
neither Buyer nor any of its Subsidiaries has incurred any material liability,
except in the ordinary course of their business consistent with their past
practices, and (ii) no event has occurred which has caused, or is reasonably
likely to cause, individually or in the aggregate, a Material Adverse Effect on
Buyer.
(b) Except as set forth in Section 4.7(b) of the Buyer Disclosure
Schedule, since March 31, 1998, the Buyer and its Subsidiaries have carried on
their respective businesses in the ordinary course consistent with their past
practices.
4.8 Legal Proceedings.
-----------------
(a) Except as set forth in Section 4.8 of the Buyer Disclosure
Schedule or in Buyer's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998, neither Buyer nor any of its Subsidiaries is a party to any and there
are no pending or to the best of Buyer's knowledge, threatened, material legal,
administrative, arbitral or other proceedings, claims, actions or governmental
or regulatory investigations of any nature against Buyer or any of its
Subsidiaries or challenging the validity or propriety of the transactions
contemplated by this Agreement, the Bank Merger Agreement or the Option
Agreement as to which there is a reasonable probability of an adverse
determination and which, if adversely determined, would have or be reasonably
likely to have a Material Adverse Effect on Buyer.
(b) There is no injunction, order, judgment, decree, or regulatory
restriction imposed upon Buyer, any of its Subsidiaries or the assets of Buyer
or any of its Subsidiaries which has had, or could reasonably be expected to
have, a Material Adverse Effect on Buyer.
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<PAGE>
4.9 Compliance with Applicable Law. Buyer and each of its Subsidiaries
------------------------------
holds, and has at all times held, all material licenses, franchises, permits and
authorizations necessary for the lawful conduct of their respective businesses
under and pursuant to all, and have complied with and are not in default in any
respect under any, applicable law, statute, order, rule, regulation, policy
and/or guideline of any Governmental Entity relating to Buyer or any of its
Subsidiaries, except where the failure to hold such license, franchise, permit
or authorization or such non-compliance or default would not, individually or in
the aggregate, have, or be reasonably likely to have, a Material Adverse Effect
on Buyer, and neither Buyer nor any of its Subsidiaries knows of, or has
received notice of violation of, any material violations of any of the above.
4.10 SEC Reports. Buyer has previously made available to the Company an
-----------
accurate and complete copy of each (a) final registration statement, prospectus,
report, schedule and definitive proxy statement filed since January 1, 1995 by
Buyer with the SEC pursuant to the Securities Act or the Exchange Act (the
"Buyer Reports") and (b) communication mailed by Buyer to its shareholders since
January 1, 1995, and no such registration statement, prospectus, report,
schedule, proxy statement or communication contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading, except that information
as of a later date shall be deemed to modify information as of an earlier date.
Buyer has timely filed all Buyer Reports and other documents required to be
filed by it under the Securities Act and the Exchange Act, and, as of their
respective dates, all Buyer Reports complied in all material respects with the
published rules and regulations of the SEC with respect thereto.
4.11 Buyer Information. The information relating to Buyer and its
-----------------
Subsidiaries to be contained in the Proxy Statement and the S-4, or in any other
document filed with any other regulatory agency in connection herewith, will not
contain any untrue statement of a material fact or omit to state a m aterial
fact necessary to make the statements therein, in light of the circumstances in
which they are made, not misleading. The S-4 (except for such portions thereof
that relate only to the Company or any of its Subsidiaries) will comply in all
material respects with the provisions of the Securities Act of 1933 and the
rules and regulations thereunder and the Exchange Act and the rules and
regulations thereunder.
4.12 Ownership of Company Common Stock: Affiliates and Associates.
---------------------------------- -------------------------
(a) Except for the Stock Option Agreement, neither Buyer nor any
of its affiliates or associates (as such terms are defined under the Exchange
Act), (i) beneficially own, directly or indirectly, or (ii) is a party to any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of, in each case, any shares of capital stock of the Company
(other than Trust Account Shares and DPC Shares); and
(b) Neither Buyer nor any of its Subsidiaries is an "affiliate"
(as such term is defined in DGCL 203(c)(1)), an "associate" (as such term is
defined in DGCL 203(c)(2)) of the
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<PAGE>
Company or an "Interested Stockholder" (as such term is defined in Section 8 of
the Company's Certificate of Incorporation).
4.13 Taxes. Except as set forth in Section 4.13 of the Buyer Disclosure
-----
Schedule, each of Buyer and its Subsidiaries has (i) duly and timely filed or
will duly and timely file (including applicable extensions granted without
penalty) all Tax Returns required to be filed at or prior to the Effective Time,
and such Tax Returns which have heretofore been filed are, and those to be
hereinafter filed will be, true, correct and complete, and (ii) paid in full or
have made adequate provision for on the financial statements of Buyer (in
accordance with GAAP) all Taxes and will pay in full or make adequate provision
for all Taxes. There are no material liens for Taxes upon the assets of either
Buyer or its Subsidiaries except for statutory liens for current Taxes not yet
due. Except as set forth in Section 4.13 of the Buyer Disclosure Schedule,
neither Buyer nor any of its Subsidiaries has requested any extension of time
within which to file any Tax Returns in respect of any fiscal year which have
not since been filed and no request for waivers of the time to assess any Taxes
are pending or outstanding. The federal and state income Tax Returns of Buyer
and its Subsidiaries have been audited by the Internal Revenue Service or
appropriate state tax authorities with respect to those periods and
jurisdictions set forth on Section 4.13 of the Buyer Disclosure Schedule. Except
as set forth in Section 4.13 of the Buyer Disclosure Schedule, neither Buyer nor
any of its Subsidiaries (i) is a party to any agreement providing for the
allocation or sharing of Taxes (other than the allocation of federal income
taxes as provided by Regulation 1.1552 l(a)(1) under the Code); (ii) is required
to include in income any adjustment pursuant to Section 481(a) of the Code, by
reason of the voluntary change in accounting method (nor has any taxing
authority proposed in writing any such adjustment or change of accounting
method); or (iii) has filed a consent pursuant to Section 341(f) of the Code.
4.14 Employees.
---------
(a) Section 4.14(a) of the Buyer Disclosure Schedule sets forth a
true and complete list of each employee benefit plan, arrangement or agreement
that is maintained or contributed to or required to be contributed to as of the
date of this Agreement (the "Buyer Plans") by Buyer, any of its Subsidiaries or
by any trade or business, whether or not incorporated (a "Buyer ERISA
Affiliate"), all of which together with Buyer would be deemed a "single
employer" within the meaning of Section 4001 of ERISA, for the benefit of any
employee or former employee of Buyer, any Subsidiary or any ERISA Affiliate.
(b) Except as set forth in Section 4.14(b) of the Buyer Disclosure
Schedule, (i) each of the Buyer Plans has been operated and administered in all
material respects in accordance with its terms and applicable law, including but
not limited to ERISA and the Code, (ii) each of the Buyer Plans intended to be
"qualified" within the meaning of Section 401(a) of the Code has either (1)
received a favorable determination letter from the IRS, or (2) is or will be the
subject of an application for a favorable determination letter, and Buyer is not
aware of any circumstances likely to result in the revocation or denial of any
such favorable determination letter, (iii) with respect to each Buyer Plan which
is subject to Title IV of ERISA, the present value of accrued benefits under
such Buyer Plan, based upon the actuarial assumptions used for funding purposes
in the most recent actuarial report prepared by such Buyer Plan's actuary with
respect to such
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<PAGE>
Buyer Plan, did not, as of its latest valuation date, exceed the then current
value of the assets of such Buyer Plan allocable to such accrued benefits, (iv)
no Plan provides benefits, including without limitation death or medical
benefits (whether or not insured), with respect to current or former employees
of Buyer, its Subsidiaries or any ERISA Affiliate beyond their retirement or
other termination of service, other than (w) coverage mandated by applicable
law, (x) death benefits or retirement benefits under any "employee pension
plan," as that term is defined in Section 3(2) of ERISA, (y) deferred
compensation benefits accrued as liabilities on the books of Buyer, its
Subsidiaries or the ERISA Affiliates or (z) benefits the full cost of which is
borne by the current or former employee (or his beneficiary), (v) no liability
under Title IV of ERISA has been incurred by Buyer, its Subsidiaries or any
Buyer ERISA Affiliate that has not been satisfied in full, (vi) no Buyer Plan is
a "multiemployer pension plan," as such term is defined in Section 3(37) of
ERISA, (vii) all contributions or other amounts payable by Buyer, its
Subsidiaries or any ERISA Affiliate as of the Effective Time with respect to
each Plan in respect of current or prior plan years have been paid or accrued in
accordance with generally accepted accounting practices and Section 412 of the
Code, (viii) neither Buyer, its Subsidiaries nor any ERISA Affiliate has engaged
in a transaction in connection with which Buyer, its Subsidiaries or any ERISA
Affiliate could be subject to either a civil penalty assessed pursuant to
Section 409 or 502(i) of ERISA or a tax imposed pursuant to Section 4975 or 4976
of the Code, (ix) there are no pending, or, to the best knowledge of Buyer,
threatened or anticipated claims (other than routine claims for benefits) by, on
behalf of or against any of the Buyer Plans or any trusts related thereto and
(x) the consummation of the transactions contemplated by this Agreement will not
(y) entitle any current or former employee or officer of Buyer or any ERISA
Affiliate to severance pay, termination pay or any other payment, except as
expressly provided in this Agreement or (z) accelerate the time of payment or
vesting or increase in the amount of compensation due any such employee or
officer.
4.15 Agreements with Regulatory Agencies. Except as set forth in Section
-----------------------------------
4.15 of the Buyer Disclosure Schedule or as disclosed in Buyer's Annual Report
on Form 10-K for the year ended December 31, 1997, neither Buyer nor any of its
Subsidiaries is subject to any cease-and-desist or other order issued by, or is
a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, or has adopted any board resolutions
at the request of (each, whether or not set forth in Section 4.15 of the Buyer
Disclosure Schedule, a "Buyer Regulatory Agreement"), any Regulatory Agency or
other Governmental Entity that restricts the conduct of its business or that in
any manner relates to its capital adequacy, its credit policies, its management
or its business, nor has Buyer or any of its Subsidiaries been advised by any
Regulatory Agency or other Governmental Entity that it is considering issuing or
requesting any Regulatory Agreement.
4.15A Investments Securities. Section 4.15A of the Buyer Disclosure
----------------------
Schedule sets forth the book and market value as of March 31, 1998 of the
investment securities, mortgage backed securities and securities held for sale
of the Buyer and its Subsidiaries. Section 4.15A of the Buyer Disclosure
Schedule sets forth an investment securities report which includes, security
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<PAGE>
descriptions, CUSIP numbers, pool face values, book values, coupon rates and
current market values.
4.16 Undisclosed Liabilities. Except (a) as set forth in Section 4.16 of
-----------------------
the Buyer Disclosure Schedule, (b) for those liabilities that are fully
reflected or reserved against on the consolidated balance sheet of Buyer
included in its Form 10-Q for the period ended March 31, 1998 and (c) for
liabilities incurred in the ordinary course of business consistent with past
practice since March 31, 1998 that, either alone or when combined with all
similar liabilities, have not had, and could not reasonably be expected to have,
a Material Adverse Effect on Buyer, neither Buyer nor any of its Subsidiaries
has incurred any liability of any nature whatsoever (whether absolute, accrued,
contingent or otherwise and whether due or to become due).
4.17 Administration of Fiduciary Accounts. Buyer and each of its
------------------------------------
Subsidiaries has properly administered in all material respects all accounts for
which it acts as a fiduciary, including but not limite d to accounts for which
it serves as a trustee, agent, custodian, personal representative, guardian,
conservator or investment advisor, in accordance with the terms of the governing
documents and applicable state and federal law and regulation and common law.
Neither Buyer nor any of its Subsidiaries nor any of their respective directors,
officers or employees has committed any breach of trust with respect to any such
fiduciary account which has or could reasonably be expected to have a Material
Adverse Effect on Buyer, and the accountings for each such fiduciary account are
true and correct in all material respects and accurately reflect the assets of
such fiduciary account.
4.18 Approvals. As of the date of this Agreement, Buyer knows of no reason
---------
why all regulatory approvals required for the consummation of the transactions
contemplated hereby (including, without limitation, the Merger and the
Subsidiary Merger) should not be obtained without the imposition of a Burdensome
Condition.
4.19 Reports. Buyer and each of its Subsidiaries have timely filed all
-------
material reports, registrations and statements, together with any amendments
required to be made with respect thereto, that they were required to file since
December 31, 1994 with any Regulatory Agency, and all other material reports and
statements required to be filed by them since December 31, 1994, including,
without limitation, any report or statement required to be filed pursuant to the
laws, rules or regulations of the United States, the Federal Reserve Board, the
FDIC, any State Regulator or any SRO, and have paid all fees and assessments due
and payable in connection therewith. Except for normal examinations conducted by
a Regulatory Agency in the regular course of the business of Buyer and its
Subsidiaries; except as set forth in Section 4.19 of Buyer Disclosure Schedule,
no Regulatory Agency has initiated any proceeding or, to the best knowledge of
Buyer, investigation into the business or operations of Buyer or any of its
Subsidiaries since December 31, 1994. There is no unresolved material violation,
criticism, or exception by any Regulatory Agency with respect to any report or
statement relating to any examinations of Buyer or any of its Subsidiaries.
4.19A State Takeover Laws. The provisions of Article VIII of Buyer's
-------------------
Certificate of Incorporation will not, assuming the accuracy of the
representations contained in Section 3.13A
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<PAGE>
hereof, apply to the Agreement, the Bank Merger Agreement or the Stock Option
Agreement or any of the transactions contemplated hereby or thereby.
4.20 Environmental Matters. Except as set forth in Section 4.20 of the
---------------------
Buyer Disclosure Schedule:
(a) Each of Buyer, its Subsidiaries, the Participation Facilities
and the Loan Properties (each as hereinafter defined) are, and have been, in
compliance with Environmental Laws, except for violations which, either
individually or in the aggregate, have not had and cannot reasonably be expected
to have a Material Adverse Effect on Buyer;
(b) There is no suit, claim, action or proceeding, pending or
threatened, before any Governmental Entity or other forum in which Buyer, any of
its Subsidiaries, any Participation Facility or any Loan Property, has been or,
with respect to threatened proceedings, may be, named as a defendant (x) for
alleged noncompliance (including by any predecessor), with any Environmental
Laws, or (y) relating to the release, threatened release or exposure to any
material whether or not occurring at or on a site owned, leased or operated by
Buyer or any of its Subsidiaries, any Participation Facility or any Loan
Property, except where such noncompliance or release has not resulted, and
cannot be reasonably expected to result, either individually or in the
aggregate, a Material Adverse Effect on Buyer;
(c) During the period of (x) Buyer's or any of its Subsidiaries'
ownership or operation of any of their respective current properties, (y)
Buyer's or any of its Subsidiaries' participation in the management of any
Participation Facility, or (z) Buyer's or any of its Subsidiaries' holding of a
security interest in a Loan Property, there has been no release of materials in,
on, under or affecting any such property, except where such release has not had
and cannot reasonably be expected to result in, either individually or in the
aggregate, a Material Adverse Effect on Buyer. Prior to the period of (x)
Buyer's or any of its Subsidiaries' ownership or operation of any of their
respective current properties, (y) Buyer's or any of its Subsidiaries'
participation in the management of any Participation Facility, or (z) Buy er's
or any of its Subsidiaries' holding of a security interest in a Loan Property,
there was no release or threatened release of materials in, on, under or
affecting any such property, Participation Facility or Loan Property, except
where such release has not had and cannot be reasonably expected to have, either
individually or in the aggregate, a Material Adverse Effect on Buyer; and
(d) The following definitions apply for purposes of this Section
4.20: (x) "Loan Property" means any property in which Buyer or any of its
Subsidiaries holds a security interest, and, where required by the context, said
term means the owner or operator of such property; and (y) "Participation
Facility" means any facility in which Buyer or any of its Subsidiaries
participates in the management and, where required by the context, said term
means the owner or operator of such property.
4.21 Derivative Transactions. Except as set forth in Section 4.21 of the
-----------------------
Buyer Disclosure Schedule, since December 31, 1997, neither Buyer nor any of its
Subsidiaries has engaged in transactions in or involving forwards, futures,
options on futures, swaps or other
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<PAGE>
derivative instruments except (i) as agent on the order and for the account of
others, or (ii) as principal for purposes of hedging interest rate risk on U.S.
dollar denominated securities and other financial instruments. None of the
counterparts to any contract or agreement with respect to any such instrument is
in default with respect to such contract or agreement and no such contract or
agreement, were it to be a Loan held by Buyer or any of its Subsidiaries, would
be classified as "Other Loans Specially Mentioned," "Special Mention,"
"Substandard," "Doubtful," "Loss," "Classified," "Criticized," "Credit Risk
Assets," "Concerned Loans" or words of similar import. The financial position of
Buyer and its Subsidiaries on a consolidated basis under or with respect to each
such instrument has been reflected in the books and records of Buyer and such
Subsidiaries in accordance with GAAP consistently applied, and no open exposure
of Buyer or any of its Subsidiaries with respect to any such instrument (or with
respect to multiple instruments with respect to any single counterparty) exceeds
$500,000.
4.22 Loan Portfolio.
--------------
(a) Except as set forth in Section 4.22 of the Buyer Disclosure
Schedule, neither Buyer nor any of its Subsidiaries is a party to any written or
oral (i) Loan, other than Loans the unpaid principal balance of which does not
exceed $50,000, under the terms of which the obligor is, as of the date of this
Agreement, over 90 days delinquent in payment of principal or interest or in
default of any other provision, or (ii) Loan as of the date of this Agreement
with any director, executive officer or ten percent stockholder of Buyer or any
of its Subsidiaries, or to the best knowledge of Buyer, any person, corporation
or enterprise controlling, controlled by or under common control with any of the
foregoing. Section 4.22 of the Buyer Disclosure Schedule sets forth (i) all of
the Loans in original principal amount in excess of $50,000 of Buyer or any of
its Subsidiaries that as of the date of this Agreement are classified by any
bank examiner (whether regulatory or internal) as "Other Loans Specially
Mentioned", "Special Mention", "Substandard", "Doubtful", "Loss", "Classified",
"Criticized", "Credit Risk Assets", "Concerned Loans", "Watch List" or words of
similar import, together with the principal amount of and accrued and unpaid
interest on each such Loan and the identity of the borrower thereunder, and (ii)
by category of Loan (i.e., commercial, consumer, etc.), all of the other Loans
of Buyer and its Subsidiaries that as of the date of this Agreement are
classified as such, together with the aggregate principal amount of and accrued
and unpaid interest on such Loans by category. Buyer shall promptly inform the
Company in writing of any loan that becomes classified in the manner described
in the previous sentence, or any Loan the classification of which is changed, at
any time after the date of this Agreement.
(b) To the best of its knowledge, each loan reflected as an asset in
the Buyer Disclosure Schedule (i) is evidenced by notes, agreements or other
evidences of indebtedness which are true, genuine and correct in all material
respects, (ii) to the extent secured, has been secured by valid liens and
security interests which have been perfected, and (iii) is the legal, valid and
binding obligation of the obligor named therein, enforceable in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent conveyance and other
laws of g eneral applicability relating to or affecting creditors' rights and to
general equity principles, in each case other than loans as to which the failure
to satisfy the foregoing standards would not have a Material Adverse Effect on
the Buyer.
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ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Covenants of the Company. During the period from the date of this
------------------------
Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement, the Bank Merger Agreement or the
Option Agreement or with the prior written consent of Buyer, the Company and its
Subsidiaries shall carry on their respective businesses in the ordinary course
consistent with past practice and consistent with prudent banking practice. The
Company will use its best efforts to (x) preserve its business organization and
that of its Subsidiaries intact, (y) keep available to itself and Buyer the
present services of the employees of the Company and its Subsidiaries and (z)
preserve for itself and Buyer the goodwill of the customers of the Company and
its Subsidiaries and others with whom business relationships exist. Without
limiting the generality of the foregoing, and except as set forth on Section 5.1
of the Company Disclosure Schedule or as otherwise contemplated by this
Agreement or consented to in writing by Buyer, the Company shall not, and shall
not permit any of its Subsidiaries to:
(a) solely in the case of the Company, declare or pay any dividends
on, or make other distributions in respect of, any of its capital stock, other
than normal quarterly dividends in an amount of no more than $0.20 per share of
Company Common Stock, provided, however, that on or after January 1, 1999, the
Company may increase its quarterly dividend to no more than $0.225 per share if
such increase will not prevent the Merger from being accounted for as a pooling
of interests;
(b) (i) split, combine or reclassify any shares of its capital stock
or issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock except upon
the exercise or fulfillment of rights or options issued or existing pursuant to
employee benefit plans, programs or arrangements, all to the extent outstanding
and in existence on the date of this Agreement and in accordance with their
present terms, and except pursuant to the Option Agreement, or (ii) repurchase,
redeem or otherwise acquire (except for the acquisition of Trust Account Shares
and DPC Shares, as such terms are defined in Section 1.4(b) hereof) any shares
of the capital stock of the Company or any Subsidiary of the Company, or any
securities convertible into or exercisable for any shares of the capital stock
of the Company or any Subsidiary of the Company;
(c) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or any securities
convertible into or exercisable for, or any rights, warrants or options to
acquire, any such shares, or enter into any agreement with respect to any of the
foregoing, other than (i) the issuance of Company Common Stock pursuant to stock
options or similar rights to acquire Company Common Stock granted pursuant to
the Company Stock Plans and outstanding prior to the date of this Agreement, in
each case in accordance with their present terms and (ii) pursuant to the Option
Agreement;
(d) amend its Certificate of Incorporation, By-laws or other similar
governing documents;
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(e) authorize or permit any of its officers, directors, employees or
agents to directly or indirectly solicit, initiate or encourage any inquiries
relating to, or the making of any proposal which constitutes, a "takeover
proposal" (as defined below), or, except to the extent legally required for the
discharge of the fiduciary duties of the Board of Directors of the Company,
recommend or endorse any takeover proposal, or participate in any discussions or
negotiations, or provide third parties with any nonpublic information, relating
to any such inquiry or proposal or otherwise facilitate any effort or attempt to
make or implement a take over proposal; provided, however, that the Company may
-------- -------
communicate information about any such takeover proposal to its stockholders if,
in the judgment of the Company's Board of Directors, based upon the written
opinion of outside counsel, such communication is required under applicable law.
The Company will immediately cease and cause to be terminated any existing
activities, discussions or negotiations previously conducted with any parties
other than Buyer with respect to any of the foregoing. The Company will take all
actions necessary or advisable to inform the appropriate individuals or entities
referred to in the first sentence hereof of the obligations undertaken in this
Section 5.1(e). The Company will notify Buyer immediately if any such inquiries
or takeover proposals are received by, any such information is requested from,
or any such negotiations or discussions are sought to be initiated or continued
with, the Company, and the Company will promptly inform Buyer in writing of all
of the relevant details with respect to the foregoing. As used in this
Agreement, "takeover proposal" shall mean any tender or exchange offer, proposal
for a merger, consolidation or other business combination involving the Company
or any Subsidiary of the Company or any proposal or offer to acquire in any
manner a substantial equity interest in, or a substantial portion of the assets
of the Company or any Subsidiary of the Company other than the transactions
contemplated or permitted by this Agreement, the Bank Merger Agreement and the
Option Agreement;
(f) make any capital expenditures other than the expenses which are
set forth in Section 5.1(f) of the Company Disclosure Schedule and expenses
which (i) are made in the ordinary course of business or are necessary to
maintain existing assets in good repair, or (ii) in an amount of no more than
$50,000 individually and $75,000 in the aggregate;
(g) enter into any new line of business;
(h) acquire or agree to acquire, by merging or consolidating with, or
by purchasing a substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire any assets, which would be material, individually or in the aggregate,
to the Company, other than in connection with foreclosures, settlements in lieu
of foreclosure or troubled loan or debt restructurings in the ordinary course of
business consistent with prudent banking practices;
(i) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in this Agreement
being or becoming untrue in any material respect, or in any of the conditions to
the Merger set forth in Article VII not being satisfied, or in a violation of
any provision of this Agreement or the Bank Merger Agreement, except, in every
case, as may be required by applicable law;
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(j) change its methods of accounting in effect at September 30, 1997,
except as required by changes in GAAP or regulatory accounting principles as
concurred to by the Company's independent auditors;
(k) (i) except as required by applicable law or to maintain
qualification pursuant to the Code, adopt, amend, renew or terminate any Plan or
any agreement, arrangement, plan or policy between the Company or any Subsidiary
of the Company and one or more of its current or former directors, officers or
employees or (ii) except for normal increases in the ordinary course of business
consistent with past practice or except as required by applicable law, increase
in any manner the compensation or fringe benefits of any director, officer or
employee or pay any benefit not required by any plan or agreement as in effect
as of the date hereof (including, without limitation, the granting of stock
options, stock appreciation rights, restricted stock, restricted stock units or
performance units or shares), except for continuation of contributions to the
Company's retirement plan in accordance with past practice, such contributions
not to exceed $45,000 per calendar quarter;
(l) take or cause to be taken any action which would disqualify the
Merger as a "pooling of interests" for accounting purposes or a tax free
reorganization under Section 368 of the Code, provided, however, that nothing
-------- -------
contained herein shall limit the ability of Buyer to exercise its rights under
the Stock Option Agreement;
(m) except as set forth in Section 5.1(m) of the Company Disclosure
Schedule, other than activities in the ordinary course of business consistent
with prior practice, sell, lease, encumber, assign or otherwise dispose of, or
agree to sell, lease, encumber, assign or otherwise dispose of, any of its
material assets, properties or other rights or agreements;
(n) other than in the ordinary course of business consistent with
past practice, incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise as an accommodation become responsible for the obligations
of any other individual, corporation or other entity;
(o) file any application to relocate or terminate the operations of
any banking office of it or any of its Subsidiaries;
(p) commit any act or omission which constitutes a material breach or
default by the Company or any of its Subsidiaries under any Regulatory Agreement
or under any material contract or material license to which the Company or any
of its Subsidiaries is a party or by which any of them or their respective
properties is bound;
(q) except as set forth in Disclosure Schedule 3.27, compromise,
extend or restructure any real estate loan, construction loan or commercial loan
with an unpaid principal balance except in the ordinary course of business
consistent with past practices;
(r) make or commit to any commercial business loan (including,
without limitation, lines of credit and letters of credit) or any commercial
real estate or construction loan
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(including, without limitation, lines of credit and letters of credit) secured
by any non-1-4 family residential properties, except in the ordinary course of
business consistent with past practices;
(s) purchase or commit to purchase any bulk loan portfolio;
(t) engage in or enter into any structured transactions, derivative
securities, arbitrage or hedging activity;
(u) make any equity investment or commitment to make such an
investment in real estate or in any real estate development project, other than
in connection with foreclosures, settlements in lieu of foreclosure or troubled
loan or debt restructurings in the ordinary course of business consistent with
prudent banking practices, or for goods, services or other items necessary in
the ordinary course of business relating to foreclosures, settlements in lieu of
foreclosure or troubled loan or debt restructurings;
(v) create, renew, amend or terminate or give notice of a proposed
renewal, amendment or termination of, any material contract, agreement or lease
for goods, services or office space to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries or
their respective properties is bound;
(w) take any action which would cause the termination or cancellation
by the FDIC of insurance in respect of the Company Bank's deposits; or
(x) agree to do any of the foregoing.
5.2 Covenants of Buyer. During the period from the date of this Agreement
------------------
and continuing until the Effective Time, except as expressly contemplated or
permitted by this Agreement, the Bank Merger Agreement or the Option Agreement
or with the prior written consent of the Company, Buyer and its Subsidiaries
shall carry on their respective businesses in the ordinary course consistent
with past practice and consistent with prudent banking practice. Buyer will use
its best efforts to (x) preserve its business organization and that of its
Subsidiaries intact and (y) preserve for itself and the Company the goodwill of
the customers of Buyer and its Subsidiaries and others with whom business
relationships exist. Without limiting the generality of the foregoing and except
as set forth on Section 5.2 of the Buyer Disclosure Schedule or as otherwise
contemplated by this Agreement or consented to in writing by the Company, Buyer
shall not, and shall not permit any of its Subsidiaries to:
(a) declare or pay any extraordinary or special dividends on or make
any other extraordinary or special distributions in respect of any of its
capital stock; provided, however, that nothing contained herein shall prohibit
-------- -------
Buyer from increasing the quarterly cash dividend on the Buyer Common Stock;
(b) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in this Agreement
being or becoming untrue in any material respect, or in any of the conditions to
the Merger set forth in Article VII not being
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satisfied or in a violation of any provision of this Agreement or the Bank
Merger Agreement, except, in every case, as may be required by applicable law;
(c) change its methods of accounting in effect at December 31, 1997,
except in accordance with changes in GAAP or regulatory accounting principles
as concurred to by Buyer's independent auditors;
(d) take or cause to be taken any action which would disqualify the
Merger as a "pooling of interests" for accounting purposes or a tax free
reorganization under Section 368 of the Code, provided, however, that nothing
-------- -------
contained herein shall limit the ability of Buyer to exercise its rights under
the Option Agreement;
(e) take any action which would cause the termination or cancellation
by the FDIC of insurance in respect of First Savings Bank's deposits; or
(f) agree to do any of the foregoing.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Regulatory Matters.
------------------
(a) The Company and Buyer shall promptly prepare and file with the
SEC Proxy Statements (the "Joint Proxy Statement") and Buyer shall promptly
prepare and file with the SEC the S-4, in which the Joint Proxy Statement will
be included as a prospectus. Each of the Company and Buyer shall use all
reasonable efforts to have the S-4 declared effective under the Securities Act
as promptly as practicable after such filing, and each of the Company and Buyer
shall thereafter mail the Joint Proxy Statement to each of its respective
stockholders. Buyer shall also use all reasonable efforts to obtain all
necessary state securities law or "Blue Sky" permits and approvals required to
carry out the transactions contemplated by this Agreement and the Bank Merger
Agreement, and the Company shall furnish all information concerning the Company
and the holders of Company Common Stock as may be reasonably requested in
connection with any such action.
(b) The parties hereto shall cooperate with each other and use their
best efforts to promptly prepare and file all necessary documentation, to effect
all applications, notices, petitions and filings, and to obtain as promptly as
practicable all permits, consents, approvals and authorizations of all third
parties and Governmental Entities which are necessary or advisable to consummate
the transactions contemplated by this Agreement (including without limitation
the Merger and the Subsidiary Merger) (it being understood that any amendments
to the S-4 or a resolicitation of proxies as consequence of a subsequent
proposed merger, stock purchase or similar acquisition by Buyer or any of its
Subsidiaries shall not violate this covenant). The Company and Buyer shall have
the right to review in advance, and to the extent practicable each will consult
the other on, in each case subject to applicable laws relating to the exchange
of
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information, all the information relating to the Company or Buyer, as the case
may be, and any of their respective Subsidiaries, which appear in any filing
made with, or written materials submitted to, any third party or any
Governmental Entity in connection with the transactions contemplated by this
Agreement. In exercising the foregoing right, each of the parties hereto shall
act reasonably and as promptly as practicable. The parties hereto agree that
they will consult with each other with respect to the obtaining of all permits,
consents, approvals and authorizations of all third parties and Governmental
Entities necessary or advisable to consummate the transactions contemplated by
this Agreement and each party will keep the other apprised of the status of
matters relating to completion of the transactions contemplated herein.
(c) Buyer and the Company shall, upon request, furnish each other
with all information concerning themselves, their Subsidiaries, directors,
officers and stockholders and such other matters as may be reasonably necessary
or advisable in connection with the Proxy Statement, the S-4 or any other
statement, filing, notice or application made by or on behalf of Buyer, the
Company or any of their respective Subsidiaries to any Governmental Entity in
connection with the Merger and the other transactions contemplated by this
Agreement.
(d) Buyer and the Company shall promptly furnish each other with
copies of written communications received by Buyer or the Company, as the case
may be, or any of their respective Subsidiaries, Affiliates or Associates (as
such terms are defined in Rule 12b-2 under the Exchange Act as in effect on the
date of this Agreement) from, or delivered by any o f the foregoing to, any
Governmental Entity in respect of the transactions contemplated hereby.
6.2 Access to Information.
---------------------
(a) Upon reasonable notice and subject to applicable laws relating to
the exchange of information, the Company shall, and shall cause each of its
Subsidiaries to, afford to the officers, employees, accountants, counsel and
other representatives of Buyer, access, during normal business hours during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments, records, officers, employees, accountants, counsel and other
representatives and, during such period, the Company shall, and shall cause its
Subsidiaries to, make available to Buyer (i) a copy of each report, schedule,
registration statement and other document filed or received by it during such
period pursuant to the requirements of Federal securities laws or Federal or
state banking laws (other than reports or documents which the Company is not
permitted to disclose under applicable law) and (ii) all other information
concerning its business, properties and personnel as Buyer may reasonably
request. Neither the Company nor any of its Subsidiaries shall be required to
provide access to or to disclose information where such access or disclosure
would violate or prejudice the rights of the Company's customers, jeopardize any
attorney-client privilege or contravene any law, rule, regulation, order,
judgment, decree, fiduciary duty or binding agreement entered into prior to the
date of this Agreement. The parties hereto will make appropriate substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply. Buyer will hold all such information in confidence to
the extent required by, and in accordance with, the provisions of the
confidentiality agreement, dated July 9, 1998, between Buyer and the Company
(the "Confidentiality Agreement").
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(b) Upon reasonable notice and subject to applicable laws relating to
the exchange of information, Buyer shall, and shall cause its Subsidiaries to,
afford to the officers, employees, accountants, counsel and other
representatives of the Company, access, during normal business hours during the
period prior to the Effective Time, to such information regarding Buyer and its
Subsidiaries as shall be reasonably necessary for the Company to fulfill its
obligations pursuant to this Agreement to prepare the Proxy Statement or which
may be reasonably necessary for the Company to confirm that the representations
and warranties of Buyer contained herein are true and correct and that the
covenants of Buyer contained herein have been performed in all material
respects. Neither Buyer nor any of its Subsidiaries shall be required to provide
access to or to disclose information where such access or disclosure would
violate or prejudice the rights of Buyer's customers, jeopardize any attorney-
client privilege or contravene any law, rule, regulation, order, judgment,
decree, fiduciary duty or binding agreement entered into prior to the date of
this Agreement. The parties hereto will make appropriate substitute disclosure
arrangements under circumstances in which the restrictions of the preceding
sentence apply.
(c) All information furnished by Buyer to the Company or its
representatives pursuant hereto shall be treated as the sole property of Buyer
and, if the Merger shall not occur, the Company and its representatives shall
return to Buyer all of such written information and all documents, notes,
summaries or other materials containing, reflecting or referring to, or derived
from, such information. The Company shall, and shall use its best efforts to
cause its representatives to, keep confidential all such information, and shall
not directly or indirectly use such information for any competitive or other
commercial purpose. The obligation to keep such information confidential shall
continue for two years from the date the proposed Merger is abandoned and shall
not apply to (i) any information which (x) was already in the Company's
possession prior to the disclosure thereof by Buyer; (y) was then generally
known to the public; or (z) was disclosed to the Company by a third party not
bound by an obligation of confidentiality or (ii) disclosures made as required
by law. It is further agreed that, if in the absence of a protective order or
the receipt of a waiver hereunder the Company is nonetheless, in the opinion of
its counsel, compelled to disclose information concerning Buyer to any tribunal
or governmental body or agency or else stand liable for contempt or suffer other
censure or penalty, the Company may disclose such information to such tribunal
or governmental body or agency without liability hereunder.
(d) All information furnished by Company to the Buyer or its
representatives pursuant hereto shall be treated as the sole property of Company
and, if the Merger shall not occur, the Buyer and its representatives shall
return to Company all of such written information and all documents, notes,
summaries or other materials containing, reflecting or referring to, or derived
from, such information. The Buyer shall, and shall use its best efforts to cause
its representatives to, keep confidential all such information, and shall not
directly or indirectly use such information for any competitive or other
commercial purpose. The obligation to keep such information confidential shall
continue for two years from the date the proposed Merger is abandoned and shall
not apply to (i) any information which (x) was already in the Buyer's possession
prior to the disclosure thereof by Company; (y) was then generally known to the
public; or (z) was disclosed to the Buyer by a third party not bound by an
obligation of
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confidentiality or (ii) disclosures made as required by law. It is further
agreed that, if in the absence of a protective order or the receipt of a waiver
hereunder the Buyer is nonetheless, in the opinion of its counsel, compelled to
disclose information concerning Company to any tribunal or governmental body or
agency or else stand liable for contempt or suffer other censure or penalty, the
Buyer may disclose such information to such tribunal or governmental body or
agency without liability hereunder.
(e) No investigation by either of the parties or their respective
representatives shall affect the representations, warranties, covenants or
agreements of the other set forth herein.
(f) Company shall respond reasonably and in good faith to any timely
request of Buyer to permit a representative of Buyer to attend any meeting of
Company's Board of Directors or the Executive Committee thereof, except to the
extent that such meeting, or portion thereof, relates to the Merger.
6.3 (a) Stockholder Meetings. The Company and Buyer each shall take all
--------------------
steps necessary to duly call, give notice of, convene and hold a special or
annual meeting of its respective stockholders to be held as soon as is
reasonably practicable after the date on which the S-4 becomes effective for the
purpose of voting upon the approval of this Agreement and the consummation of
the transactions contemplated hereby. The Company and Buyer each will, through
its respective Board of Directors, except to the extent legally required for the
discharge of the fiduciary duties of such board, recommend to its respective
stockholders approval of this Agreement and the transactions contemplated hereby
and such other matters as may be submitted to its stockholders in connection
with this Agreement. The Company and Buyer shall coordinate and cooperate with
respect to the foregoing matters, with a view towards, among other things,
holding the respective meetings of each party's stockholders on the same day.
(b) Voting Agreements. Each of the Company's directors have
-----------------
entered into a Voting Agreement, a form of which is attached as Exhibit 6.3(b),
hereto.
6.4 Legal Conditions to Merger. Each of Buyer and the Company shall, and
--------------------------
shall cause its Subsidiaries to, use their best efforts (a) to take, or cause to
be taken, all actions necessary, proper or advisable to comply promptly with all
legal requirements which may be imposed on such party or its Subsidiaries with
respect to the Merger or the Subsidiary Merger and, subject to the conditions
set forth in Article VII hereof, to consummate the transactions contemplated by
this Agreement and (b) to obtain (and to cooperate with the other party to
obtain) any consent, authorization, order or approval of, or any exemption by,
any Governmental Entity and any other third party which is required to be
obtained by the Company or Buyer or any of their respective Subsidiaries in
connection with the Merger and the Subsidiary Merger and the other transactions
contemplated by this Agreement, and to comply with the terms and conditions of
such consent, authorization, order or approval; provided, however, that neither
-------- -------
Buyer nor the Company shall be obligated to take any action pursuant to the
foregoing if the taking of such action or such compliance or the obtaining of
such consent, authorization, order or approval is likely, in the good faith
reasonable opinion of Buyer, to result in the imposition of a Burdensome
Condition.
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6.5 Affiliates. Each of Buyer and the Company shall use its best efforts
----------
to cause each director, executive officer and other person who is an "affiliate"
(for purposes of Rule 145 under the Securities Act and for purposes of
qualifying the Merger for "pooling-of- interests" accounting treatment) of such
party to deliver to the other party hereto, as soon as practicable after the
date of this Agreement, and in any event prior to the earlier of the date of the
stockholders meeting called by the Company to approve this Agreement and the
date of the stockholders meeting called by Buyer to approve this Agreement, a
written agreement, in the form of Exhibit 6.5(a) hereto (in the case of
affiliates of Buyer) or 6.5(b) hereto (in the case of affiliates of the
Company), providing that such person will not sell, pledge, transfer or
otherwise dispose of any shares of Buyer Common Stock or Company Common Stock
held by such "affiliate" and, in the case of the "affiliates" of the Company,
the shares of Buyer Common Stock to be received by such "affiliate" in the
Merger: (1) in the case of shares of Buyer Common Stock to be received by
"affiliates" of the Company in the Merger, except in compliance with the
applicable provisions of the Securities Act and the rules and regulations
thereunder; and (2) during the period commencing 30 days prior to the Merger and
ending at the time of the publication of financial results covering at least 30
days of combined operations of Buyer and the Company.
6.6 Stock Exchange Listing. Buyer shall cause the shares of Buyer Common
----------------------
Stock to be issued in the Merger to be approved for listing on the Nasdaq,
subject to official notice of issuance, as of the Effective Time.
6.7 Employee Benefit Plans; Existing Agreements.
--------------------------------------------
(a) The employees of the Company (the "Company Employees") shall be
entitled to participate in Buyer's employee benefit plans in which similarly
situated employees of Buyer participate, to the same extent as comparable
employees of Buyer. As of the Effective Time, Buyer shall permit the Company
Employees to participate in Buyer's group hospitalization, medical, life and
disability insurance plans on the same terms and conditions as applicable to
comparable employees of Buyer and its Subsidiaries; provided, however, that all
Company employees and dependents will be eligible to participate in medical
insurance plans of First Savings Bank upon the merger without regard to any pre-
existing conditions or exclusions and with no uninsured waiting periods, and the
carry over of all current plan year deductibles and annual out-of-pocket
contribution, to the extent permitted by the Buyer's medical insurance plans. As
of the next entry date immediately following the Effective Time, Buyer shall
permit the Company Employees to participate in Buyer's defined benefit pension
plan, 401(k) savings plan, employee stock ownership plan ("ESOP") and similar
plans on the same terms and conditions as employees of Buyer and its
Subsidiaries, giving effect to years of service with the Company and its
Subsidiaries (to the extent the Company gave effect) as if such service were
with Buyer, for purposes of eligibility and vesting, but not for benefit accrual
purposes, provided, however, in no event shall said Company employees be
credited with more than three (3) years of service for vesting purposes under
the ESOP as of the Effective Time. Buyer shall as of the Effective Time enter
into a Consulting Agreement as contained at Disclosure Schedule 6.7(b) (2)
including the provisions detailed at 6.7(b)(2)(ii) of said Disclosure Schedule
with respect to Mr. George Hornyak. As of the merger date, Company Employees
retain accrual or payout for
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short-term disability, unused sick leave benefits and vacation pay, provided
such amounts have been fully accrued for by Company as of the Effective Time and
are in accordance with such amounts provided in past practice by the Company. As
of the Effective Time, all participants under the Company's defined contribution
plan shall become 100% vested in all participant accounts. With respect to
Buyer's welfare benefit plans, (including by example, vacation, sick leave,
severance), Company employees shall have prior service with the Company
recognized for purposes of eligibility to participate, vesting and benefits
accrual purposes.
(b) Following the Effective Time, Buyer shall honor and shall cause
the Surviving Bank to honor in accordance with their terms all employment,
severance and other compensation agreements and arrangements, including, but not
limited to, severance benefit plans listed in Section 6.7(b)(1) of the Company
Disclosure Schedule, existing prior to the execution of this Agreement and the
agreements and arrangement, as set forth in Section 6.7(b)(2) of the Company
Disclosure Schedule which are between the Company and any director , officer or
employee thereof and which have been disclosed in the Company Disclosure
Schedule and previously have been delivered to Buyer and agrees to make the
payments and provide the benefits pursuant thereto described in Section 6.7(b)
of the Company Disclosure Schedule.
(c) As of the Effective Time, Buyer will assume, or will cause First
Savings Bank to assume, the tax qualified plans of the Company Bank as listed in
Section 3.11(a) of the Company Disclosure Schedule. Neither Buyer nor First
Savings Bank shall be required to make further contributions to such plans. As
of the Effective Time, all accrued benefits under the plans shall be fully
vested and nonforfeitable. As soon as practicable after the Effective Time,
Buyer shall terminate or shall cause First Savings Bank to terminate the tax
qualified plans of the Company Bank assumed by Buyer, or First Savings Bank,
pursuant to this Section 6.7(c), and distribution of the accounts of active
participants immediately prior to the Effective Time under the plans shall be
made to the participants and beneficiaries in accordance with the terms of such
plans.
(d) Buyer and Surviving Bank shall implement the programs detailed at
items (i), (ii), (iii), (iv), (v) and (vii) of Disclosure Schedule 6.7(b)(2).
6.8 Indemnification.
---------------
(a) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil or administrative, including, without
limitation, any such claim, action, suit, proceeding or investigation in which
any person who is now, or has been at any time prior to the date of this
Agreement, or who becomes prior to the Effective Time, a director or officer or
employee of the Company or any of its Subsidiaries (the "Indemnified Parties")
is, or is threatened to be, made a party based in whole or in part on, or
arising in whole or in part out of, or pertaining to (i) the fact that he is or
was a director, officer or employee of the Company, any of the Subsidiaries of
the Company or any of their respective predecessors or (ii) this Agreement or
any of the transactions contemplated hereby, whether in any case asserted or
arising before or after the Effective Time, the parties hereto agree to
cooperate and use their best efforts to defend against and respond thereto. It
is understood and agreed that after the Effective Time, Buyer
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shall indemnify and hold harmless, as and to the extent permitted by Delaware
law, each such Indemnified Party against any losses, claims, damages,
liabilities, costs, expenses (including reasonable attorney's fees and expenses
in advance of the final disposition of any claim, suit, proceeding or
investigation to each Indemnified Party to the fullest extent permitted by law
upon receipt of any undertaking required by applicable law), judgments, fines
and amounts paid in settlement in connection with any such threatened or actual
claim, action, suit, proceeding or investigation, and in the event of any such
threatened or actual claim, action, suit, proceeding or investigation (whether
asserted or arising before or after the Effective Time), the Indemnified Parties
may retain counsel reasonably satisfactory to them after consultation with
Buyer; provided, however, that (1) Buyer shall have the right to assume the
-------- -------
defense thereof and upon such assumption Buyer shall not be liable to any
Indemnified Party for any legal expenses of other counsel or any other expenses
subsequently incurred by any Indemnified Party in connection with the defense
thereof, except that if Buyer elects not to assume such defense or counsel for
the Indemnified Parties reasonably advises that there are issues which raise
conflicts of interest between Buyer and the Indemnified Parties, the Indemnified
Parties may retain counsel reasonably satisfactory to them after consultation
with Buyer, and Buyer shall pay the reasonable fees and expenses of such counsel
for the Indemnified Parties, (2) Buyer shall in all cases be obligated pursuant
to this paragraph to pay for only one firm of counsel for all Indemnified
Parties, (3) Buyer shall not be liable for any settlement effected without its
prior written consent (which consent shall not be unreasonably withheld) and (4)
Buyer shall have no obligation hereunder to any Indemnified Party when and if a
court of competent jurisdiction shall ultimately determine, and such
determination shall have become final and nonappealable, that indemnification of
such Indemnified Party in the manner contemplated hereby is prohibited by
applicable law. Any Indemnified Party wishing to claim Indemnification under
this Section 6.8, upon learning of any such claim, action, suit, proceeding or
investigation, shall notify promptly Buyer thereof, provided that the failure to
so notify shall not affect the obligations of Buyer under this Section 6.8
except to the extent such failure to notify prejudices Buyer. Buyer's
obligations under this Section 6.8 continue in full force and effect for a
period of six (6) years from the Effective Time; provided, however, that all
-------- -------
rights to indemnification in respect of any claim (a "Claim") asserted or made
within such period shall continue until the final disposition of such Claim.
Notwithstanding anything to the contrary contained in this Section 6.8(a), in no
event shall Buyer's obligations under this Section 6.8(a) with respect to
indemnification or the advancement of expenses be greater than the obligations
of the Company and its Subsidiaries with respect thereto set forth as of the
date of this Agreement in the Certificate of Incorporation, Bylaws or similar
governing documents of the Company and its Subsidiaries.
(b) Buyer shall cause the persons serving as officers and directors
of the Company immediately prior to the Effective Time to be covered for a
period of six years from the Effective Time by the directors' and officers'
liability insurance policy maintained by the Company (provided that Buyer may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are not less advantageous than such
policy) with respect to acts or omissions occurring prior to the Effective Time
which were committed by such officers and directors in their capacity as such.
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(c) In the event Buyer or the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger, or (ii) transfers or conveys all or substantially all
of its properties and assets to any person, then, and in each such case, to the
extent necessary, proper provision shall be made so that the successors and
assigns of Buyer or the Surviving Corporation, as the case may be, assume the
obligations set forth in this section.
(d) The provisions of this Section 6.8 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and his or her
heirs and representatives; and the provisions of this Section 6.8 will survive
the Effective Time.
6.9 Subsequent Interim and Annual Financial Statements. As soon as
--------------------------------------------------
reasonably available, but in no event later than April 1, 1999 or, in the case
of the Company, December 31, 1998, Buyer will deliver to the Company and the
Company will deliver to Buyer their respective Annual Reports on Form 10-K for,
year ending December 31, 1998 and, in the case of the Company, the fiscal year
ending September 30, 1998, as filed with the SEC under the Exchange Act. As soon
as reasonably available, but in no event more than 45 days after the end of each
fiscal quarter ending after the date of this Agreement, Buyer will deliver to
the Company and the Company will deliver to Buyer their respective Quarterly
Reports on Form 10-Q, as filed with the SEC under the Exchange Act.
6.10 Additional Agreements. In case at any time after the Effective Time
---------------------
any further action is necessary or desirable to carry out the purposes of this
Agreement, or the Bank Merger Agreement, or to vest the Surviving Corporation or
the Surviving Bank with full title to all properties, assets, rights, approvals,
immunities and franchises of any of the parties to the Merger or the Subsidiary
Merger, the proper officers and directors of each party to this Agreement and
their respective Subsidiaries shall take all such necessary action as may be
reasonably requested by Buyer.
6.11 Advice of Changes. Buyer and the Company shall promptly advise the
-----------------
other party of any change or event having a Material Adverse Effect on it or
which it believes would or would be reasonably likely to cause or constitute a
material breach of any of its representations, warranties or covenants contained
herein. From time to time prior to the Effective Time (and on the date prior to
the Closing Date), each party will promptly supplement or amend the Disclosure
Schedules delivered in connection with the execution of this Agreement to
reflect any matter which, if existing, occurring or known at the date of this
Agreement, would have been required to be set forth or described in such
Disclosure Schedules or which is necessary to correct any information in such
Disclosure Schedules which has been rendered inaccurate thereby. No supplement
or amendment to such Disclosure Schedules shall have any effect for the purpose
of determining satisfaction of the conditions set forth in Sections 7.2(a) or
7.3(a) hereof, as the case may be, or the compliance by the Company or Buyer, as
the case may be, with the respective covenants and agreements of such parties
contained herein.
6.12 Current Information. During the period from the date of this
-------------------
Agreement to the Effective Time, the Company will cause one or more of its
designated representatives to notify
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on a regular and frequent basis (not less than monthly) representatives of Buyer
and to report (i) the general status of the ongoing operations of the Company
and its Subsidiaries; (ii) the status of, and the action proposed to be taken
with respect to, those Loans held by the Company or any Subsidiary of the
Company which, individually or in combination with one or more other Loans to
the same borrower thereunder, have an original principal amount of $250,000 or
more and are non-performing assets; (iii) the origination of all loans other
than 1-4 family residential mortgage loans and consumer loans; and (iv) any
material changes in the Company's pricing of deposits. The Company will promptly
notify Buyer of any material change in the normal course of business or in the
operation of the properties of the Company or any of its Subsidiaries and of any
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or the institution or the threat
of significant litigation involving the Company or any of its Subsidiaries, and
will keep Buyer fully informed of such events.
6.13 Execution and Authorization of Bank Merger Agreement. As soon as
----------------------------------------------------
reasonably practicable after the date of this Agreement, (a) Buyer shall (i)
cause the Board of Directors of First Savings Bank to approve the Bank Merger
Agreement, (ii) cause First Savings Bank to execute and deliver the Bank Merger
Agreement, and (iii) approve the Bank Merger Agreement as the sole stockholder
of First Savings Bank, and (b) the Company shall (i) cause the Board of
Directors of the Company Bank to approve the Bank Merger Agreement, (ii) cause
the Company Bank to execute and deliver the Bank Merger Agreement, and (iii)
approve the Bank Merger Agreement as the sole stockholder of the Company Bank.
The Bank Merger Agreement shall contain terms that are normal and customary in
light of the transactions contemplated hereby and such additional terms as are
necessary to carry out the purposes of this Agreement.
6.14 Directorships. Buyer and Surviving Bank shall cause its Board of
-------------
Directors to be expanded by two members and shall appoint two of the current
directors of the Company George T. Hornyak, Jr. and Joseph Chadwick as nominees
to fill the vacancies on Buyer's Board of Directors created by such increase as
of the Effective Time. The initial term for Mr. Hornyak on the Buyer's Board
shall expire in 2001 and for Mr. Chadwick in 1999. The initial term for both
Messrs. Hornyak and Chadwick on the Surviving Bank's Board shall expire in 1999.
Upon expiration of the initial terms, Messrs. Hornyak and Chadwick will be
considered by the respective Board Nominating Committees to stand for election
for a new three-year term.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation To Effect the Merger. The
----------------------------------------------------------
respective obligation of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) Stockholder Approval. This Agreement shall have been approved
--------------------
and adopted by the affirmative vote of the holders of at least a majority of the
outstanding shares of Company Common Stock entitled to vote thereon and by the
affirmative vote of the holders of at least a majority of the outstanding shares
of Buyer Common Stock entitled to vote thereon.
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(b) Nasdaq Stock Market Listing. The shares of Buyer Common Stock
---------------------------
which shall be issued to the stockholders of the Company upon consummation of
the Merger shall have been authorized for listing on the Nasdaq Stock Market,
subject to official notice of issuance.
(c) Other Approvals. All regulatory approvals required to
---------------
consummate the transactions contemplated hereby (including the Merger, the
Subsidiary Merger and, if necessary to consummate the Subsidiary Merger) shall
have been obtained and shall remain in full force and effect and all statutory
waiting periods in respect thereof shall have expired (all such approvals and
the expiration of all such waiting periods being referred to herein as the
"Requisite Regulatory Approvals").
(d) S-4. The S-4 shall have become effective under the Securities
---
Act and no stop order suspending the effectiveness of the S-4 shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC.
(e) No Injunctions or Restraints; Illegality. No order, injunction
----------------------------------------
or decree issued by any court or agency of competent jurisdiction or other
legal restraint or prohibition (an "Injunction") preventing the consummation of
the Merger, the Subsidiary Merger or any of the other transactions contemplated
by this Agreement or the Bank Merger Agreement shall be in effect. No statute,
rule, regulation, order, injunction or decree shall have been enacted, entered,
promulgated or enforced by any Governmental Entity which prohibits, restricts
or makes illegal consummation of the Merger or the Subsidiary Merger.
7.2 Conditions to Obligations of Buyer. The obligation of Buyer to effect
----------------------------------
the Merger is also subject to the satisfaction or waiver by Buyer at or prior to
the Effective Time of the following conditions:
(a) Representations and Warranties. (I) The representations and
------------------------------
warranties of the Company set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as of
the Closing Date as though made on and as of the Closing Date; and (II) the
representations and warranties of the Company set forth in this Agreement shall
be true and correct in all material respects as of the date of this Agreement
and (except to the extent such representations and warranties speak as of an
earlier date) as of the Closing Date as though made on and as of the Closing
Date; provided, however, that, for purposes of this clause (II), such
-------- -------
representations and warranties shall be deemed to be true and correct in all
material respects unless the failure or failures of such representations and
warranties to be so true and correct, individually or in the aggregate,
represent a material adverse change from the business, assets, financial
condition or results of operations of the Company and its Subsidiaries taken as
a whole as represented herein. Buyer shall have received a certificate signed on
behalf of the Company by the Chief Executive Officer and the Chief Financial
Officer of the Company to the foregoing effect.
(d) Performance of Obligations of the Company. The Company shall
-----------------------------------------
have performed in all material respects all obligations required to be performed
by it under this
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Agreement at or prior to the Closing Date, and Buyer shall have received a
certificate signed on behalf of the Company by the Chief Executive Officer and
the Chief Financial Officer of the Company to such effect.
(c) No Burdensome Condition. None of the Requisite Regulatory
-----------------------
Approvals shall impose any term, condition or restriction upon Buyer, the
Company, the Company Bank, the Surviving Corporation, the Surviving Bank or any
of their respective Subsidiaries that Buyer, or the Company, in good faith,
reasonably determines would so materially adversely affect the economic or
business benefits of the transactions contemplated by this Agreement to Buyer or
the Company as to render inadvisable in the reasonable good faith judgment of
Buyer or the Company, the consummation of the Merger (a "Burdensome Condition").
(d) Consents Under Agreements. The consent, approval or waiver of
-------------------------
each person (other than the Governmental Entities) whose consent or approval
shall be required in order to permit the succession by the Surviving Corporation
or the Surviving Bank pursuant to the Merger or the Subsidiary Merger, as the
case may be, to any obligation, right or interest of the Company or any
Subsidiary of the Company under any loan or credit agreement, note, mortgage,
indenture, lease, license or other agreement or instrument shall have been
obtained, except where the failure to obtain such consent, approval or waiver
would not so materially adversely affect the economic or business benefits of
the transactions contemplated by this Agreement to Buyer as to render
inadvisable, in the reasonable good faith judgment of Buyer, the consummation of
the Merger.
(e) No Pending Governmental Actions. No proceeding initiated by any
-------------------------------
Governmental Entity seeking an Injunction shall be pending.
(f) Federal Tax Opinion. Buyer and Company shall have received an
-------------------
opinion of Patton Boggs, LLP, counsel to Buyer ("Buyer's Counsel"), in form and
substance reasonably satisfactory to Buyer, substantially to the effect that,
on the basis of facts, representations and assumptions set forth in such opinion
which are consistent with the state of facts existing at the Effective Time, the
Merger and Subsidiary Merger will be treated as reorganizations within the
meaning of Section 368(a) of the Code and that, accordingly, for federal income
tax purposes:
(i) No gain or loss will be recognized by the Buyer as a result
of the Merger;
(ii) No gain or loss will be recognized by First Savings Bank as
a result of the Subsidiary Merger;
(iii) No gain or loss will be recognized by the Company as a
result of the Merger;
(iv) No gain or loss will be recognized by the Company Bank as a
result of the Subsidiary Merger;
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(v) No gain or loss will be recognized by the shareholders of
the Company who exchange all of their Company Common Stock solely for Buyer
Common Stock pursuant to the Merger (except with respect to cash received in
lieu of a fractional share interest in Buyer Common Stock;
(vi) The aggregate tax basis of the Buyer Common Stock received
by shareholders who exchange all of their Company Common Stock solely for Common
Stock pursuant to the Merger will be the same as the aggregate tax basis of the
Company Common Stock surrendered in exchange therefor (reduced by any amount
allocable to a fractional share interest for which cash is received).
In rendering such opinion, the Buyer's Counsel may require and
rely upon representations and covenants contained in certificates of officers of
Buyer, the Company, the Company Bank and others, including certain shareholders
of the Company.
(g) Legal Opinion. Buyer shall have received the opinion of Malizia,
-------------
Spidi, Sloane & Fisch, P.C., counsel to the Company (the "Company's Counsel"),
dated the Closing Date, substantially in the form attached hereto as Exhibit
7.2(g). As to any matter in such opinion which involves matters of fact or
matters relating to laws other than Federal securities or New Jersey corporate
law, such counsel may rely upon the certificates of officers and directors of
the Company and of public officials and opinions of local counsel, reasonably
acceptable to Buyer, provided a copy of such reliance opinion shall be attached
as an exhibit to the opinion of such counsel.
(h) Pooling of Interests. Buyer shall have received a letter from
--------------------
its accountants (at the expense of the Buyer) addressed to Buyer, to the effect
that the Merger will qualify for "pooling of interests" accounting treatment,
unless such firm advises Buyer that it is unable to issue a letter to such
effect solely by reason of Buyer having exercised its right to purchase Company
Common Stock pursuant to the Option Agreement.
(i) Accountant's Letter. The Company shall have caused to be
-------------------
delivered to Buyer (at Buyer's expense) letters from KPMG Peat Marwick,
independent public accountants with respect to the Company, dated the date on
which the Registration Statement or last amendment thereto shall become
effective, and dated the date of the Closing, and addressed to Buyer, with
respect to the Company's consolidated financial position and results of
operations, which letters shall be based upon agreed upon procedures to be
specified by Buyer, which procedures shall be consistent with applicable
professional standards for letters delivered by independent accountants in
connection with comparable transactions; provided, however, that if the Merger
is terminated, all costs incurred in connection with the preparation of such
letters shall be borne equally by the Buyer and the Company.
(j) Subsidiary Merger. Nothing shall have come to the attention of
-----------------
Buyer which would preclude consummation of the Subsidiary Merger immediately
following consummation of the Merger.
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7.3 Conditions to Obligations of the Company. The obligation of the
----------------------------------------
Company to effect the Merger is also subject to the satisfaction or waiver by
the Company at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. (I) The representations and
------------------------------
warranties of Buyer set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date; and (II) the
representations and warranties of Buyer set forth in this Agreement shall be
true and correct in all material respects as of the date of this Agreement and
(except to the extent such representations and warranties speak as of an earlier
date) as of the Closing Date as though made on and as of the Closing Date;
provided, however, that, for purposes of this clause (II), such representations
- -------- -------
and warranties shall be deemed to be true and correct in all material respects
unless the failure or failures of such representations and warranties to be so
true and correct, individually or in the aggregate, represent a material adverse
change from the business, assets, financial condition or results of operations
of Buyer and its Subsidiaries taken as a whole as represented herein. The
Company shall have received a certificate signed on behalf of Buyer by the Chief
Executive Officer and the Chief Financial Officer of Buyer to the foregoing
effect.
(b) Performance of Obligations of Buyer. Buyer shall have performed in
-----------------------------------
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and the Company shall have received a
certificate signed on behalf of Buyer by the Chief Executive Officer and the
Chief Financial Officer of Buyer to such effect.
(c) Consents Under Agreements. The consent, approval or waiver of each
-------------------------
person (other than the Governmental Entities) whose consent or approval shall be
required in order to permit the succession by the Surviving Corporation or the
Surviving Bank pursuant to the Merger or the Subsidiary Merger, as the case may
be, to any obligation, right or interest of the Buyer or any Subsidiary of the
Buyer under any loan or credit agreement, note, mortgage, indenture, lease,
license or other agreement or instrument shall have been obtained, except those
for which failure to obtain such consent, approval or waiver would not so
materially adversely affect the economic or business benefits of the
transactions contemplated by this Agreement to Buyer as to render inadvisable,
in the reasonable good faith judgment of the Buyer, the consummation of the
Merger.
(d) No Pending Governmental Actions. No proceeding initiated by any
-------------------------------
Governmental Entity seeking an injunction shall be pending.
(e) Pooling of Interests. Buyer shall have received a letter from its
--------------------
accountants (at the expense of the Buyer) addressed to Buyer, to the effect that
the Merger will qualify for "pooling of interests" accounting treatment, unless
such firm advises Buyer that it is unable to issue a letter to such effect
solely by reason of Buyer having exercised its right to purchase Company Common
Stock pursuant to the Stock Option Agreement.
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(f) Federal Tax Opinion. The Company shall have received an opinion of
-------------------
the Buyer's Counsel, in form and substance satisfactory to the Company, dated as
of the Effective Time, substantially to the effect as set forth in Section
7.2(f) hereof.
(g) Legal Opinion. The Company shall have received the opinion of Buyer's
-------------
Counsel, dated the Closing Date, substantially in the form attached hereto as
Exhibit 7.3(f). As to any matter in such opinion. which involves matters of fact
or matters relating to laws other than Federal securities law or Delaware
corporate law, such counsel may rely upon the certificates of officers and
directors of Buyer and of public officials and opinions of local counsel,
reasonably acceptable to the Company, provided a copy of such reliance opinions
shall be attached as an exhibit to the opinion of such counsel.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the stockholders of both the Company and Buyer:
(a) by mutual consent of the Company and Buyer in a written
instrument, if the Board of Directors of each so determines by a vote of a
majority of the members of its entire Board;
(b) by either Buyer or the Company upon written notice to the other
party (i) 60 days after the date on which any request or application for a
Requisite Regulatory Approval shall have been denied or withdrawn at the request
or recommendation of the Governmental Entity which must grant such Requisite
Regulatory Approval, unless within the 60-day period following such denial or
withdrawal a petition for rehearing or an amended application has been filed
with the applicable Governmental Entity, provided, however, that no party shall
-------- -------
have the right to terminate this Agreement pursuant to this Section 8.1(b)(i) if
such denial or request or recommendation for withdrawal shall be due to the
failure of the party seeking to terminate this Agreement to perform or observe
the covenants and agreements of such party set forth herein or (ii) if any
Governmental Entity of competent jurisdiction shall have issued a final
nonappealable order enjoining or otherwise prohibiting the consummation of any
of the transactions contemplated by this Agreement;
(c) by either Buyer or the Company if the Merger shall not have been
consummated on or before March 31, 1999, unless the failure of the Closing to
occur by such date shall be due to the failure of the party seeking to terminate
this Agreement to perform or observe the covenants and agreements of such party
set forth herein;
(d) by either Buyer or the Company (provided that the terminating party
shall not be in material breach of any of its obligations under Section 6.3) if
any approval of the stockholders of either of the Company or Buyer required for
the consummation of the Merger
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shall not have been obtained by reason of the failure to obtain the required
vote at a duly held meeting of such stockholders or at any adjournment or
postponement thereof;
(e) by either Buyer or the Company (provided that the terminating party is
not then in material breach of any representation, warranty, covenant or other
agreement contained herein) if there shall have been a material breach of any of
the representations or warranties set forth in this Agreement on the part of the
other party, which breach is not cured within thirty days following written
notice to the party committing such breach, or which breach, by its nature,
cannot be cured prior to the Closing; provided, however, that neither party
-------- -------
shall have the right to terminate this Agreement pursuant to this Section 8.1(e)
unless the breach of representation or warranty, together with all other such
breaches, would entitle the party receiving such representation not to
consummate the transactions contemplated hereby under Section 7.2(a) (in the
case of a breach of representation or warranty by the Company) or Section 7.3(a)
(in the case of a breach of representation or warranty by Buyer);
(f) by either Buyer or the Company (provided that the terminating party is
not then in material breach of any representation, warranty, covenant or other
agreement contained herein) if there shall have been a material breach of any of
the covenants or agreements set forth in this Agreement on the part of the other
party, which breach shall not have been cured within thirty days following
receipt by the breaching party of written notice of such breach from the other
party hereto;
(g) by the Company, by giving written notice of such election to Buyer
within two trading days after the Valuation Period in the event the Average
Closing Price is less than $8.50 per share; provided, however, that no right of
-------- -------
termination shall arise under this Section 8.1(g) if Buyer, within 5 business
days of receipt of such written notice, notifies the Company in writing that it
has waived its right to utilize the Maximum Exchange Ratio and has increased the
Exchange Ratio such that the value of the consideration (valued at the Average
Closing Price) to be paid in respect of each share of Company Common Stock to be
converted into Buyer Common Stock and cash in lieu of fractional shares upon
consummation of the Merger is $32.00 per share;
(h) by Buyer, by given written notice of such election to Company within
two trading days after the Valuation Period in the event the Average Closing
Price is greater than $11.50 per share; provided, however, that no right of
-------- -------
termination shall arise under this Section 8.1(h) if the Company, within 5
business days of receipt of such written notice, notifies the Buyer in writing
that it has waived its right to utilize the Minimum Exchange Ratio and has
decreased the Exchange Ratio such that the value of the consideration (valued at
the Average Closing Price) to be paid in respect of each share of Company Common
Stock to be converted into Buyer Common Stock and cash in lieu of fractional
shares upon consummation of the Merger is $36.80 per share; or
(i) by Buyer, if the Board of Directors of the Company does not publicly
recommend in the Proxy Statement that the Company's stockholders approve and
adopt this Agreement or if, after recommending in the Proxy Statement that
stockholders approve and adopt
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this Agreement, the Board of Directors of the Company shall have withdrawn,
modified or amended such recommendation in any respect materially adverse to
Buyer.
8.2 Effect of Termination; Expenses. In the event of termination of this
-------------------------------
Agreement by either Buyer or the Company as provided in Section 8.1, this
Agreement shall forthwith become void and have no effect except (i) the last
sentence of Section 6.2(a), and Sections 6.2(c), 6.2(d), 8.2 and 9.4, shall
survive any termination of this Agreement, (ii) that notwithstanding anything to
the contrary contained in this Agreement, no party shall be relieved or released
from any liabilities or damages arising out of its willful breach of any
provision of this Agreement, and (iii) in the event this Agreement (x) is
terminated subsequent to the occurrence of a Purchase Event (as such term is
defined in the Option Agreement) or (y) is terminated by Buyer pursuant to
Section 8.1(e) and (f) hereof, and within 12 months after such termination by
Buyer pursuant to Section 8.1(e) and (f) hereof a Purchase Event shall occur,
then in addition to any other amounts payable or stock issuable by the Company
pursuant to this Agreement or the Option Agreement, as the case may be, the
Company shall pay to Buyer a termination fee of $3.2 million.
8.3 Amendment. Subject to compliance with applicable law, this Agreement
---------
may be amended by the parties hereto, by action taken or authorized by their
respective Boards of Directors, at any time before or after approval of the
matters presented in connection with the Merger by the stockholders of either
the Company or Buyer; provided, however, that after any approval of the
-------- -------
transactions contemplated by this Agreement by the Company's stockholders, there
may not be, without further approval of such stockholders, any amendment of this
Agreement which reduces the amount or changes the form of the consideration to
be delivered to the Company stockholders hereunder other than as contemplated by
this Agreement. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, the
-----------------
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party, but such
extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
ARTICLE IX
GENERAL PROVISIONS
9.1 Closing. Subject to the terms and conditions of this Agreement and the
-------
Bank Merger Agreement, the closing of the Merger (the "Closing") will take place
at 10:00 a.m. on a
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<PAGE>
date to be specified by the parties, which shall be the first day which is (a)
the last business day of a month and (b) at least two business days after the
satisfaction or waiver (subject to applicable law) of the latest to occur of the
conditions set forth in Article VII hereof (the "Closing Date"), at the offices
of Buyer's counsel unless another time, date or place is agreed to in writing by
the parties hereto.
9.2 Alternative Structure. Notwithstanding anything to the contrary
---------------------
contained in this Agreement, subject to the Company's consent, which consent
shall not be unreasonably withheld, prior to the Effective Time, Buyer shall be
entitled to revise the structure of the Merger and/or the Subsidiary Merger and
related transactions provided that each of the transactions comprising such
revised structure shall (i) fully qualify as, or fully be treated as part of,
one or more tax-free reorganizations within the meaning of Section 368(a) of the
Code, and not subject any of the stockholders of the Company to adverse tax
consequences or change the amount of consideration to be received by such
stockholders, (ii) be properly treated for financial reporting purposes as a
pooling of interests, (iii) be capable of consummation in as timely a manner as
the structure contemplated herein and (iv) not otherwise be prejudicial to the
interests of the stockholders of the Company. This Agreem ent and any related
documents shall be appropriately amended in order to reflect any such revised
structure.
9.3 Nonsurvival of Representations, Warranties and Agreements. None of
---------------------------------------------------------
the representations, warranties, covenants and agreements in this Agreement or
in any instrument delivered pursuant to this Agreement (other than pursuant to
the Option Agreement, which shall terminate in accordance with its terms) shall
survive the Effective Time, except for those covenants and agreements contained
herein and therein which by their terms apply in whole or in part after the
Effective Time.
9.4 Expenses. All costs and expenses incurred in connection with this
--------
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense, provided, however, that the costs and expenses of
-------- -------
printing and mailing the Proxy Statement to the stockholders of the Company and
Buyer shall be borne equally by Buyer and the Company, provided, however, that
-------- -------
all filing and other fees paid to the SEC or any other Governmental Entity in
connection with the Merger, the Subsidiary Merger and other transactions
contemplated thereby shall be borne by the Buyer; provided, further, however,
-------- ------- ------
that nothing contained herein shall limit either party's rights to recover any
liabilities or damages arising out of the other party's willful breach of any
provision of this Agreement.
9.5 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally, telecopied (with
confirmation), mailed by registered or certified mail (return receipt requested)
or delivered by an express courier (with confirmation) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
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<PAGE>
(a) if to Buyer, to:
Pulse Bancorp, Inc.
6 Jackson Street
P.O. Box 193
South River, New Jersey
Attention: George T. Hornyak, Jr.
President and Chief Executive Officer
with a copy to:
Malizia, Spidi, Sloane & Fisch, P.C.
One Franklin Square
1301 K Street, N.W.
Suite 700 East
Washington, D.C. 20005
Attention: Samuel J. Malizia
and
(b) First Source Bancorp, Inc.
1000 Woodbridge Center Drive
Woodbridge, New Jersey 07095
Attention: John P. Mulkerin
President and Chief Executive Officer
with a copy to:
Patton Boggs LLP
2550 M Street, N.W.
Washington, D.C. 20037
Attention: Joseph G. Passaic, Jr.
9.6 Interpretation. When a reference is made in this Agreement to
--------------
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
"include", "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation". The phrases "the date
of this Agreement", "the date hereof" and terms of similar import, unless the
context otherwise requires, shall be deemed to refer to July 9, 1998.
9.7 Counterparts. This Agreement may be executed in counterparts, all of
------------
which shall be considered one and the same agreement and shall become effective
when counterparts have
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<PAGE>
been signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
9.8 Entire Agreement. This Agreement (including the documents and the
----------------
instruments referred to herein) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof, other than the
Confidentiality Agreement, the Bank Merger Agreement and the Option Agreement.
9.9 Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the States of Delaware and New Jersey, as
applicable, without regard to any applicable conflicts of law.
9.10 Enforcement of Agreement. The parties hereto agree that irreparable
------------------------
damage would occur in the event that the provisions contained in the last
sentence of Section 6.2(a) and in Section. 6.2(c) of this Agreement were not
performed in accordance with its specific terms or was otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of the last sentence of Section 6.2(a) and
Section 6.2(c) of this Agreement and to enforce specifically the terms and
provisions thereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
9.11 Severability. Any term or provision of this Agreement which is
------------
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
9.12 Publicity. Except as otherwise required by law or the rules of the
---------
Nasdaq Stock Market, so long as this Agreement is in effect, neither Buyer nor
the Company shall, or shall permit any of its Subsidiaries to, issue or cause
the publication of any press release or other public announcement with respect
to, or otherwise make any public statement concerning, the transactions
contemplated by this Agreement without the consent of the other party, which
consent shall not be unreasonably withheld.
9.13 Assignment; No Third Party Beneficiaries. Neither this Agreement nor
----------------------------------------
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns. Except as otherwise
expressly provided herein, this Agreement (including the documents and
instruments referred to herein) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
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<PAGE>
IN WITNESS WHEREOF, Buyer and the Company have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
FIRST SOURCE BANCORP, INC.
By: /s/ John P. Mulkerin
-----------------------------------
Name: John P. Mulkerin
Title: President and Chief Executive Officer
Attest:
/s/Christopher Martin
- -------------------------
Name: Christopher Martin
PULSE BANCORP, INC.
By: /s/ George T. Hornyak, Jr.
--------------------------------
Name: George T. Hornyak, Jr.
Title: President and Chief Executive Officer
Attest:
/s/ Nancy M. Janosko
- ---------------------------
Name: Nancy M. Janosko
Secretary
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<PAGE>
Annex B
THE TRANSFER OF THIS AGREEMENT IS
SUBJECT TO CERTAIN PROVISIONS CONTAINED
HEREIN AND TO RESALE RESTRICTIONS UNDER
THE SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of July 9, 1998 (the "Agreement"), by and
between Pulse Bancorp, Inc., a New Jersey corporation ("Issuer"), and First
Source Bancorp, Inc., a Delaware corporation ("Grantee").
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger (the "Merger Agreement"), dated July 9, 1998 herewith, providing for,
among other things, the merger of Issuer with and into Grantee; and
WHEREAS, as a condition and inducement to Grantee's execution of the Merger
Agreement, Grantee has requested that Issuer agree, and Issuer has agreed, to
grant Grantee the Option (as defined below);
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Merger Agreement, and intending to be legally bound hereby, Issuer and
Grantee agree as follows:
1. Defined Terms. Capitalized terms which are used but not defined herein
shall have the meanings ascribed to such terms in the Merger Agreement.
2. Grant of option. Subject to the terms and conditions set forth herein,
Issuer hereby grants to Grantee an irrevocable option (the "Option") to purchase
620,940 shares (subject to adjustment as set forth herein) (the "Option Shares")
of common stock, par value $1.00 per share, of Issuer ("Issuer Common Stock") at
a purchase price (subject to adjustment as set forth herein) of $30.30 per
Option Share (the "Purchase Price").
3. Exercise of Option. (a) Grantee may exercise the Option, in whole or
in part, at any time and from time to time following the occurrence of a
Purchase Event (as defined below); provided, however, that the Option, to the
extent not previously exercised, shall terminate and be of no further force and
effect upon the earliest to occur of (i) the Effective Time, (ii) 12 months
after the first occurrence of a Purchase Event (as defined below), (iii)
termination of the Merger Agreement in accordance with the terms thereof prior
to the occurrence of a Purchase Event (other than a termination of the Merger
Agreement by Grantee pursuant to Section 8.1 (f) thereof) or (iv) 12 months
after the termination of the Merger Agreement by Grantee pursuant to Section 8.1
(f) thereof, provided, however, that if within 12 months after a termination of
the Merger Agreement by Grantee pursuant to Section 8.1 (f) thereof a Purchase
Event shall occur, then notwithstanding anything to the contrary contained
herein, this Option shall terminate 12
<PAGE>
months after the first occurrence of such Purchase Event; and provided further,
however, that any purchase of shares upon exercise of the Option shall be
subject to compliance with applicable law, including, without limitation, the
Bank Holding Company Act of 1956, as amended (the "Act"); and provided further,
however, that if the Option cannot be exercised on any day because of any
injunction, order or similar restraint issued by a court of competent
jurisdiction, the period during which the Option may be exercised shall be
extended so that the Option shall expire no earlier than on the 10th business
day after such injunction, order or restraint shall have been dissolved or when
such injunction, order or restraint shall have become permanent and no longer
subject to appeal, as the case may be. Notwithstanding anything to the contrary
contained herein, (i) the Option may not be exercised at any time when Grantee
shall be in material breach of any of its covenants or agreements contained in
the Merger Agreement such that Issuer shall be entitled to terminate the Merger
Agreement pursuant to Section 8.1(f) thereof and (ii) this Agreement shall
automatically terminate upon the proper termination of the Merger Agreement by
Issuer pursuant to Section 8.1(f) thereof as a result of the material breach by
Grantee of its covenants or agreements contained in the Merger Agreement.
(b) As used herein, a "Purchase Event" means any of the following events:
(i) Issuer shall have authorized, recommended, publicly proposed or
entered into an agreement with any person (other than Grantee or any
affiliate of Grantee or any person acting in concert in any respect with
Grantee) to effect an Acquisition Transaction (as defined below). As used
herein, the term Acquisition Transaction shall mean (A) a merger,
consolidation or similar transaction involving Issuer or any of its
Subsidiaries (other than internal mergers, reorganizations, consolidations
or dissolutions involving only existing Subsidiaries), (B) the disposition,
by sale, lease, exchange or otherwise, of assets of Issuer or any of its
Subsidiaries representing 25% or more of the consolidated assets of Issuer
and its Subsidiaries or (C) the issuance, sale or other disposition of
(including by way of merger, consolidation, share exchange or any similar
transaction) securities representing 25% or more of the voting power of
Issuer or any of its Subsidiaries;
(ii) any person (other than Grantee or any affiliate of Grantee or
any person acting in concert in any respect with Grantee) shall have
acquired Beneficial Ownership (as such term is defined in Rule l3d-3
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of, or the right to acquire Beneficial Ownership of, or
any Group (as such term is defined under the Exchange Act) shall have been
formed which shall have acquired Beneficial Ownership of, or the right to
acquire Beneficial Ownership of, 25% or more of the then outstanding shares
of Issuer Common stock,
(iii) any person (other than Grantee or any affiliate of Grantee or
any person acting in concert in any respect with Grantee) shall have
commenced (as such term is defined in Rule l4d-2 under the Exchange Act) or
shall have filed a registration statement under the Securities Act of 1933,
as amended (the "Securities Act") with respect to, a tender offer or
exchange offer to purchase any shares of Issuer Common Stock and, upon
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<PAGE>
consummation of such offer, such person owns or controls 25% or more of the
then outstanding shares of Issuer Common Stock (such an offer being
referred to herein as a "Tender Offer" or an "Exchange Offer,"
respectively);
(iv) the holders of Issuer Common Stock shall not have approved the
Merger Agreement and the transactions contemplated thereby, at the meeting
of such stockholders held for the purpose of voting on such agreement, or
such meeting shall not have been held or shall have been cancelled prior to
termination of the Merger Agreement, in each case after it shall have been
publicly announced that any person (other than Grantee or any affiliate of
Grantee or any person acting in concert in any respect with Grantee) shall
have made, or disclosed an intention to make, a proposal to engage in an
Acquisition Transaction; or
(v) Issuer's Board of Directors shall not have recommended to the
stockholders of Issuer that such stockholders vote in favor of the approval
of the Merger Agreement and the transactions contemplated thereby or shall
have withdrawn or modified such recommendation in a manner adverse to
Grantee.
As used in this Agreement, "person" shall have the meaning specified in
Sections 3 (a) (9) and 13 (d) (3) of the Exchange Act.
(c) In the event Grantee wishes to exercise the Option, it shall send to
Issuer a written notice (the date of which being herein referred to as the
"Notice Date") specifying (i) the total number of Option Shares it intends to
purchase pursuant to such exercise and (ii) a place and date not earlier than
three business days nor later than 30 business days from the Notice Date for the
closing (the "Closing") of such purchase (the "Closing Date"). If prior
notification to or approval of the Office of Thrift Supervision (the "OTS") or
---------------------------- ---
any other regulatory authority is required in connection with such purchase,
Issuer shall cooperate in good faith with Grantee in the filing of the required
notice or application for approval and the obtaining of any such approval and
the period of time that otherwise would run pursuant to the preceding sentence
shall run instead from the date on which, as the case may be (i) any required
notification period has expired or been terminated or (ii) such approval has
been obtained, and in either event, any requisite waiting period shall have
passed.
4. Payment and Delivery of Certificates. (a) On each Closing Date, Grantee
shall (i) pay to Issuer, in immediately available funds by wire transfer to a
bank account designated by Issuer, an amount equal to the Purchase Price
multiplied by the number of Option Shares to be purchased on such Closing Date
and (ii) present and surrender this Agreement to the Issuer at the address of
the Issuer specified in Section 12(f) hereof. In addition to any other amounts
payable pursuant to this Section 4(a), upon the first exercise of the Option,
Grantee shall pay an amount, if any, by which (i) $1,055,600 plus the product of
(A) the total number of Option Shares and (B) the difference between the
Market/Tender Offer Price (as defined below) and the Purchase Price exceeds (ii)
$32.00 provided, however, that in no event shall the amount payable pursuant to
this sentence exceed $3,780,000. As used herein, the "Market/Tender Offer
Price" shall mean the higher of the highest price per share at which a Tender
Offer or Exchange Offer has been made
B-3
<PAGE>
by any person other than Grantee or any affiliate of Grantee or person acting in
concert in any respect with Grantee for at least 25% of the shares of Issuer
Common Stock then outstanding or the highest closing sales price per share of
Issuer Common Stock quoted on the Nasdaq Stock Market ("Nasdaq") (or if Issuer
Common Stock is not quoted on the Nasdaq, the highest bid price per share as
quoted on the principal trading market or securities exchange on which such
shares are traded as reported by a recognized source) within the six-month
period immediately preceding this Agreement.
(b) At each Closing, simultaneously with the delivery of immediately
available funds and surrender of this Agreement as provided in Section 4(a)
hereof, Issuer shall deliver to Grantee (A) a certificate or certificates
representing the Option Shares to be purchased at such Closing, which Option
Shares shall be free and clear of all liens, claims, charges and encumbrances of
any kind whatsoever, other than any such lien or encumbrance created by Grantee
and (B) if the Option is exercised in part only, an executed new agreement with
the same terms as this Agreement evidencing the right to purchase the balance of
the shares of Issuer Common Stock purchasable hereunder. If Issuer shall have
issued rights or any similar securities ("Rights") pursuant to any shareholder
rights, poison pill or similar plan (a "Shareholder Rights Plan") prior or
subsequent to the date of this Agreement and such Rights remain outstanding and
attached to shares of Issuer Common Stock at the time of the issuance of any
Option Shares pursuant to an exercise of all or part of the Option hereunder,
then each Option Share issued pursuant to such exercise shall also represent the
number of Rights issued per share of Issuer Common Stock with terms
substantially the same as and at least as favorable to Grantee as are provided
under the Shareholder Rights Plan as then in effect.
(c) Certificates for the Option Shares delivered at each Closing shall be
endorsed with a restrictive legend which shall read substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE MAY BE
SUBJECT TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF
JULY 9, 1998. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER
HEREOF WITHOUT CHARGE UPON RECEIPT BY THE ISSUER OF A WRITTEN REQUEST
THEREFOR.
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act in the above legend shall be removed by
delivery of substitute certificate (s) without such legend if Grantee shall
have delivered to issuer a copy of a letter from the staff of the
Securities And Exchange Commission (the "Sec"), or an opinion of outside
counsel reasonably satisfactory to issuer in form and substance reasonably
satisfactory to Issuer and its counsel, to the effect that such legend is
not required for purposes of the Securities Act; (ii) the reference to the
provisions of this Agreement in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if the shares
have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall
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<PAGE>
be removed in its entirety if the conditions in the preceding clauses
(i) and (ii) are both satisfied. In addition, such certificates shall
bear any other legend as may be required by law.
5. Representations and Warranties of Issuer. Issuer hereby represents and
warrants to Grantee as follows:
(a) Due Authorization. Issuer has full corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Issuer. This Agreement has been duly and validly
executed and delivered by Issuer.
(b) No Violation. Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, nor compliance by
Issuer with any of the terms or provisions hereof, will (i) violate any
provision of the Certificate of Incorporation (the "Certificate of
Incorporation") or By-Laws of Issuer or the certificates of incorporation, by-
laws or similar governing documents of any of its Subsidiaries or (ii) (x)
assuming that all of the consents and approvals required under applicable law
for the purchase of shares upon the exercise of the Option are duly obtained,
violate any statute, code, ordinance, rule, regulation, judgment, order, writ,
decree or injunction applicable to Issuer or any of its Subsidiaries, or any of
their respective properties or assets, or (y) violate, conflict with, result in
a breach of any provisions of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any lien, pledge, security interest, charge or other
encumbrance upon any of the respective properties or assets of Issuer or any of
its Subsidiaries under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Issuer or any of its Subsidiaries is a party,
or by which they or any of their respective properties or assets may be bound or
affected.
(c) Authorized Stock. Issuer has taken all necessary corporate and other
action to authorize and reserve and to permit it to issue, and, at all times
from the date of this Agreement until the obligation to deliver Issuer Common
Stock upon the exercise of the Option, will have reserved for issuance, upon
exercise of the Option, shares of Issuer Common Stock necessary for Grantee to
exercise the Option, and Issuer will take all necessary corporate action to
authorize and reserve for issuance all additional shares of Issuer Common Stock
(together with any Rights which may have been issued with respect thereto) or
other securities which may be issued pursuant to Section 7 upon exercise of the
Option. The shares of Issuer Common Stock to be issued upon due exercise of the
Option, including all additional shares of Issuer Common Stock (together with
any Rights which may have been issued with respect thereto) or other securities
which may be issuable pursuant to Section 7, upon issuance pursuant hereto,
shall be duly and validly issued, fully paid and nonassessable, and shall be
delivered free and clear of all liens, claims, charges and encumbrances of any
kind or nature whatsoever (except any such lien or encumbrance created by
Grantee), including any preemptive rights of any stockholder of Issuer.
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<PAGE>
(d) Board Action. By action of the Board of Directors of Issuer prior to the
execution of this Agreement, resolutions were duly adopted approving the
execution, delivery and performance of this Agreement, any purchase or other
transaction respecting Issuer Common Stock provided for herein, and the other
transactions contemplated hereby. Accordingly, the provisions of the New Jersey
Business Corporations Act as they relate to Issuer and Article XV of Issuer's
Certificate of Incorporation do not and will not apply to this Agreement or any
of the other transactions contemplated hereby.
6. Representations and Warranties of Grantee. Grantee hereby represents
and warrants to Issuer that:
(a) Due Authorization. Grantee has corporate power and authority to enter
into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Grantee. This Agreement has been duly executed and delivered by Grantee.
(b) Purchase Not for Distribution. This Option is not being acquired with a
view to the public distribution thereof and neither this Option nor any Option
Shares will be transferred or otherwise disposed of except in a transaction
registered or exempt from registration under the Securities Act.
7. Adjustment upon Changes in Capitalization, etc. (a) In the event (i)
of any change in Issuer Common Stock by reason of a stock dividend, stock split,
split-up, recapitalization, combination, exchange of shares or similar
transaction or (ii) that any Rights issued by Issuer shall become exercisable,
the type and number of shares or securities subject to the Option, and the
Purchase Price therefor, shall be adjusted appropriately, and, in the case of
any of the transactions described in clause (i) above, proper provision shall be
made in the agreements governing such transaction so that Grantee shall receive,
upon exercise of the Option, the number and class of shares or other securities
or property that Grantee would have received in respect of Issuer Common Stock
if the Option had been exercised immediately prior to such event, or the record
date therefor, as applicable. If any additional shares of Issuer Common Stock
are issued after the date of this Agreement (other than pursuant to an event
described in the first sentence of this Section 7 (a), the number of shares of
Issuer Common Stock subject to the option shall be adjusted so that, after such
issuance, the Option, together with any shares of Issuer Common Stock previously
issued pursuant hereto, equals 19.9% of the number of shares of Issuer Common
Stock then issued and outstanding, without giving effect to any shares subject
to or Previously issued pursuant to the option.
(b) In the event that Issuer shall enter into an agreement (i) to
consolidate with or merge into any person, other than Grantee or one of its
Subsidiaries, and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than Grantee or one of
its Subsidiaries, to merge into Issuer and Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the then outstanding
shares of Issuer
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<PAGE>
Common Stock shall be changed into or exchanged for stock or other securities of
Issuer or any other person or cash or any other property or the outstanding
shares of Issuer Common Stock immediately prior to such merger shall after such
merger represent less than 50% of the outstanding shares and share equivalents
of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or one of its
Subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provisions so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of Grantee, of either (I) the Acquiring Corporation
(as defined below), (II) any person that controls the Acquiring Corporation, or
(III) in the case of a merger described in clause (ii), the Issuer (such person
being referred to as the "Substitute Option Issuer").
(c) The Substitute Option shall have the same terms as the Option, provided,
that if the terms of the Substitute Option cannot, for legal reasons, be the
same as the Option, such terms shall be as similar as possible and in no event
less advantageous to Grantee. The Substitute Option Issuer shall also enter into
an agreement with the then holder or holders of the Substitute Option in
substantially the same form as this Agreement, which shall be applicable to the
Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
the Substitute Common Stock (as hereinafter defined) as is equal to the Assigned
Value (as hereinafter defined) multiplied by the number of shares of Issuer
Common Stock for which the Option was theretofore exercisable, divided by the
Average Price (as hereinafter defined). The exercise price of the Substitute
Option per share of the Substitute Common Stock (the "Substitute Purchase
Price") shall then be equal to the Purchase Price multiplied by a fraction in
which the numerator is the number of shares of the Issuer Common Stock for which
the Option was theretofore exercisable and the denominator is the number of
shares of the Substitute Common Stock for which the Substitute Option is
exercisable.
(e) The following terms have the meanings indicated:
(I) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if other
than Issuer), (ii) Issuer in a merger in which Issuer is the continuing
or surviving person, and (iii) the transferee of all or substantially
all of the Issuer's assets (or the assets of its Subsidiaries).
(II) "Substitute Common Stock" shall mean the common stock
issued by the Substitute Option Issuer upon exercise of the Substitute
Option.
(III) "Assigned Value" shall mean the highest of (i) the price
per share of Issuer Common Stock at which a tender offer or exchange
offer therefor has been made by any person (other than Grantee), (ii)
the price per share of Issuer Common Stock to be paid by any person
(other than the Grantee) pursuant to an agreement with Issuer, and (iii)
the highest closing sales price per share of Issuer Common Stock quoted
on the Nasdaq (or if
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<PAGE>
Issuer Common Stock is not quoted on the Nasdaq, the highest bid price
per share as quoted on the principal trading market or securities
exchange on which such shares are traded as reported by a recognized
source) within the six-month period immediately preceding the
agreement; provided, however, that in the event of a sale of less than
all of Issuer's assets, the Assigned Value shall be the sum of the
price paid in such sale for such assets and the current market value of
the remaining assets of Issuer as determined by a nationally recognized
investment banking firm selected by Grantee or by a Grantee Majority,
divided by the number of shares of Issuer Common Stock outstanding at
the time of such sale. In the event that an exchange offer is made for
the Issuer Common Stock or an agreement is entered into for a merger or
consolidation involving consideration other than cash, the value of the
securities or other property issuable or deliverable in exchange for
the Issuer Common Stock shall be determined by a nationally recognized
investment banking firm mutually selected by Grantee and Issuer (or if
applicable, Acquiring Corporation), provided that if a mutual selection
cannot be made as to such investment banking firm, it shall be selected
by Grantee (or a majority of interest of the Grantees if there shall be
more than one Grantee (a "Grantee Majority").
(IV) "Average Price" shall mean the average closing price of a
share of the Substitute Common Stock for the one year immediately
preceding the consolidation, merger or sale in question; but in no
event higher than the closing price of the shares of the Substitute
Common Stock on the day preceding such consolidation, merger or sale;
provided that if Issuer is the issuer of the Substitute Option, the
Average Price shall be computed with respect to a share of common stock
issued by Issuer, the person merging into Issuer or by any company
which controls or is controlled by such merging person, as Grantee may
elect.
(f) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the aggregate of the
shares of the Substitute Common Stock outstanding prior to exercise of the
Substitute Option. In the event that the Substitute Option would be exercisable
for more than 19.9% of the aggregate of the shares of Substitute Common Stock
but for this clause (f), the Substitute Option Issuer shall make a cash payment
to Grantee equal to the excess of (i) the value of the Substitute Option without
giving effect to the limitation in this clause (f) over (ii) the value of the
Substitute Option after giving effect to the limitation in this clause (f). This
difference in value shall be determined by a nationally recognized investment
banking firm selected by Grantee (or a Grantee Majority).
(g) Issuer shall not enter into any transaction described in subsection (b)
of this Section 7 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder and take all other actions that may be necessary so that the
provisions of this Section 7 are given full force and effect (including, without
limitation, any action that may be necessary so that the shares of Substitute
Common Stock are in no way distinguishable from or have lesser economic value
than other shares of common stock issued by the Substitute Option Issuer).
B-8
<PAGE>
(h) The provisions of Sections 8 and 9 shall apply to any securities for
which the Option becomes exercisable pursuant to this Section 7 and as
applicable, references in such sections to "Issuer", "Option", "Purchase Price"
and "Issuer Common Stock" shall be deemed to be references to "Substitute Option
Issuer", "Substitute Option", "Substitute Purchase Price" and "Substitute Common
Stock", respectively.
8. Registration Rights. Issuer shall, if requested by Grantee (or if
applicable, a Grantee Majority) at any time and from time to time within three
years of the date on which the Option first becomes exercisable, as
expeditiously as possible prepare and file up to two registration statements
under the Securities Act if such registration is necessary in order to permit
the sale or other disposition of any or all shares of Issuer Common Stock or
other securities that have been acquired by or are issuable to Grantee upon
exercise of the Option in accordance with the intended method of sale or other
disposition stated by Grantee, including a "shelf" registration statement under
Rule 415 under the Securities Act or any successor provision, and Issuer shall
use its best efforts to qualify such shares or other securities under any
applicable state securities laws. Issuer shall use its best efforts to cause
each such registration statement to become effective, to obtain all consents or
waivers of other parties which are required therefor and to keep such
registration statement effective for such period not in excess of 180 days from
the day such registration statement first becomes effective as may be reasonably
necessary to effect such sale or other disposition. Any registration statement
prepared and filed under this Section 8, and any sale covered thereby, shall be
at Issuer's expense except for underwriting discounts or commissions, brokers'
fees and the fees and disbursements of Grantee's counsel related thereto.
Grantee shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If during the
time periods referred to in the first sentence of this Section 8 Issuer effects
a registration under the Securities Act of Issuer Common Stock for its own
account or for any other stockholders of Issuer (other than on Form S-4 or Form
S-8, or any successor forms or any form with respect to a dividend reinvestment
or similar plan), it shall allow Grantee the right to participate in such
registration, and such participation shall not affect the obligation of Issuer
to effect two registration statements for Grantee under this Section 8;
provided, however, that, if the managing underwriters of such offering advise
Issuer in writing that in their opinion the number of shares of Issuer Common
Stock requested by Grantee to be included in such registration, together with
the shares of Issuer Common Stock proposed to be included in such registration,
exceeds the number which can be sold in such offering, Issuer shall include the
shares requested to be included therein by Grantee pro rata with the shares
intended to be included therein by Issuer. In connection with any registration
pursuant to this Section 8, Issuer and Grantee shall provide each other and any
underwriter of the offering with customary representations, warranties,
covenants, indemnification and contribution in connection with such
registration. Notwithstanding anything to the contrary contained herein, in no
event shall Issuer be obligated to effect more than two registrations pursuant
to the first sentence of this Section 8 by reason of the fact that there shall
be more than one Grantee as a result of any assignment of this Agreement or
division of this Agreement pursuant to Section 10 hereof.
9. Listing. If Issuer Common Stock or any other securities to be acquired
upon exercise of the Option are then authorized for quotation on the Nasdaq or
any securities exchange, Issuer,
B-9
<PAGE>
upon the request of Grantee, will promptly file an application to authorize for
quotation the shares of Issuer Common Stock or other securities to be acquired
upon exercise of the Option on the Nasdaq or such other securities exchange and
will use its best efforts to obtain approval of such listing as soon as
practicable.
10. Division of Option. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of Grantee, upon presentation and
surrender of this Agreement at the principal office of Issuer for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Issuer Common
Stock purchasable hereunder. The terms "Agreement" and "Option" as used herein
include any other Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
11. Rights Agreement. Issuer shall not approve or adopt, or propose the
approval and adoption of, any Shareholder Rights Plan unless such Shareholder
Rights Plan contains terms which provide, to the reasonable satisfaction of
Grantee, that (a) the Rights issued pursuant thereto will not become exercisable
by virtue of the fact that (i) Grantee is the Beneficial Owner of shares of
Issuer Common Stock (x) acquired or acquirable pursuant to the grant or exercise
of this Option and (y) held by Grantee or any of its Subsidiaries as Trust
Account Shares or DPC Shares or (ii) while Grantee is the Beneficial Owner of
the shares of Issuer Common Stock described in clause (a) (i), an Acquisition
Transaction involving Issuer or any of its Subsidiaries, on the one hand, and
Grantee, any of its Subsidiaries, on the other hand, is proposed, agreed to or
consummated and (b) no restrictions or limitations with respect to the exercise
of any Rights acquired or acquirable by Grantee will result or be imposed by
virtue of the fact that Grantee is the Beneficial Owner of the shares of Issuer
Common Stock described in clause (a) (i) of this Section 11.
12. Miscellaneous. (a) Expenses. Except as otherwise provided in
Section 8 hereof, each of the parties hereto shall bear and pay all costs and
expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants and counsel.
(b) Waiver and Amendment. Any provision of this Agreement may be waived
at any time by the party that is entitled to the benefits of such provision.
This Agreement may not be modified, amended, altered or supplemented except upon
the execution and delivery of a written agreement executed by the parties
hereto.
(c) Entire Agreement; No Third-Party Beneficiary; Severability. This
Agreement, together with the Merger Agreement and the other agreements and
instruments referred to herein
B-10
<PAGE>
and therein, (a) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof and (b) is not intended to confer upon any
person other than the parties hereto any rights or remedies hereunder.
Notwithstanding anything to the contrary contained in this Agreement or the
Merger Agreement, this Agreement shall be deemed to amend the confidentiality
agreement between Issuer and Grantee so as to permit Grantee to enter into this
Agreement and exercise all of its rights hereunder, including its right to
acquire Issuer Common Stock upon exercise of the Option. If any term, provision,
covenant or restriction of this Agreement is held by a court of competent
jurisdiction or a federal or state regulatory agency to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated. If for any reason such court or
regulatory agency determines that the Option does not permit Grantee to acquire
the full number of shares of Issuer Common Stock as provided in Section 3 hereof
(as adjusted pursuant to Section 7 hereof), it is the express intention of
Issuer to allow Grantee to acquire such lesser number of shares as may be
permissible without any amendment or modification hereof.
(d) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New Jersey without regard to any
applicable conflicts of law rules.
(e) Descriptive Headings. The descriptive headings contained herein are
for convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
If to Issuer to:
Pulse Bancorp, Inc.
6 Jackson Street
P.O. Box 193
South River, New Jersey
Attention: George T. Hornyak, Jr.
President and Chief Executive Officer
with a copy to:
Malizia, Spidi, Sloane & Fisch, P.C.
One Franklin Square
1301 K Street, N.W.
Suite 700 East
Washington, D.C. 20005
Attention: Samuel J. Malizia, Esq.
B-11
<PAGE>
If to Grantee to:
First Source Bancorp, Inc.
1000 Woodbridge Center Drive
Woodbridge, New Jersey 07095
Attention: John P. Mulkerin
President and Chief Executive Officer
with a copy to:
Patton Boggs LLP
2550 M Street, NW
Washington, D.C. 20037
Attention: Joseph G. Passaic, Jr., Esq.
(g) Counterparts. This Agreement and any amendments hereto may be executed
in two counterparts, each of which shall be considered one and the same
agreement and shall become effective when both counterparts have been signed, it
being understood that both parties need not sign the same counterpart.
(h) Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder or under the Option shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other party, except that Grantee may assign this
Agreement to a wholly owned subsidiary of Grantee and after the occurrence of a
Purchase Event Grantee may assign its rights under this Agreement to one or more
third parties, provided, however, that Grantee may not assign this Agreement,
without the written consent of Issuer, to any third party who, to Grantee's
knowledge, would, upon exercise of the Option, own in excess of 6% of Issuer's
then issued and outstanding common stock. Subject to the preceding sentence,
this Agreement shall be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns. As used in this
Agreement, Grantee shall include any person to whom this Agreement or the Option
shall be assigned by a previous Grantee in accordance with the terms hereof .
(i) Further Assurances. In the event of any exercise of the Option by
Grantee, Issuer and Grantee shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(j) Specific Performance. The parties hereto agree that this Agreement may
be enforced by either party through specific performance, injunctive relief and
other equitable relief. Both parties further agree to waive any requirement for
the securing or posting of any bond in connection with the obtaining of any such
equitable relief and that this provision is without prejudice to any other
rights that the parties hereto may have for any failure to perform this
Agreement.
B-12
<PAGE>
IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.
PULSE BANCORP, INC.
BY: /s/ George T. Hornyak, Jr.
-------------------------------
Name: George T. Hornyak, Jr.
Title: President and Chief Executive Officer
FIRST SOURCE BANCORP, INC.
BY: /s/ John P. Mulkerin
-------------------------------
Name: John P. Mulkerin
Title: President and Chief Executive Officer
B-13
<PAGE>
Annex C
________, 1998
Board of Directors
Pulse Bancorp, Inc.
6 Jackson Street
South River, NJ 08882
Ladies and Gentlemen:
Pulse Bancorp, Inc. ("Pulse") and First Source Bancorp, Inc. ("First
Source") have entered into an Agreement and Plan of Reorganization, dated as of
July 9, 1998 (the "Agreement"), pursuant to which Pulse will be merged with and
into First Source (the "Merger"). Upon consummation of the Merger, each share
of Pulse common stock, par value $1.00 per share, issued and outstanding
immediately prior to the Merger will be converted into the right to receive 3.2
shares (the "Exchange Ratio") of First Source common stock, par value $0.01 per
share, subject to adjustment as described in the Agreement. The terms and
conditions of the Merger are more fully set forth in the Agreement. You have
requested our opinion as to the fairness, from a financial point of view, of the
Exchange Ratio to the holders of Pulse Shares.
Sandler O'Neill & Partners, L.P., as part of its investment banking
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with mergers and acquisitions and other corporate
transactions. In connection with this opinion, we have reviewed, among other
things: (i) the Agreement and exhibits thereto; (ii) the Stock Option Agreement,
dated as of July 9, 1998, by and between Pulse and First Source; (iii) certain
publicly available financial statements of Pulse and other historical financial
information provided by Pulse that we deemed relevant; (iv) certain publicly
available financial statements of First Source and other historical financial
information provided by First Source that we deemed relevant; (v) certain
financial analyses and forecasts of Pulse prepared by and reviewed with
management of Pulse and the views of senior management of Pulse regarding
Pulse's past and current business operations, results thereof, financial
condition and future prospects; (vi) certain financial analyses and forecasts of
First Source prepared by and reviewed with management of First Source and the
views of senior management of First Source regarding First Source's past and
current business operations, results thereof, financial condition and future
prospects; (vii) the pro forma impact of the Merger; (viii) the publicly
reported historical price and trading activity for Pulse's and First Source's
common stock, including a comparison of certain financial and stock market
information for Pulse and First Source with similar publicly available
information for certain other companies the securities of which are publicly
traded; (ix) the financial terms of recent business combinations in the savings
institution industry, to the extent publicly available; (x) the current market
environment generally and the
<PAGE>
Board of Directors
Pulse Bancorp, Inc.
___________, 1998
Page 2
banking environment in particular; and (xi) such other information, financial
studies, analyses and investigations and financial, economic and market criteria
as we considered relevant. We did not act as Pulse's financial advisor in
connection with its consideration of the Merger or in connection with the
negotiation of the Agreement, and we have not been asked to, and did not,
solicit indications of interest in a potential transaction from other third
parties.
In performing our review, we have assumed and relied upon, without
independent verification, the accuracy and completeness of all the financial
information, analyses and other information that was publicly available or
otherwise furnished to, reviewed by or discussed with us, and we do not assume
any responsibility or liability for the accuracy or completeness thereof. We
did not make an independent evaluation or appraisal of the specific assets, the
collateral securing assets or the liabilities (contingent or otherwise) of Pulse
or First Source or any of their subsidiaries, or the collectibility of any such
assets, nor have we been furnished with any such evaluations or appraisals.
With respect to the financial projections reviewed with management, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the respective managements of the
respective future financial performances of Pulse and First Source and that such
performances will be achieved, and we express no opinion as to such financial
projections or the assumptions on which they are based. We have also assumed
that there has been no material change in Pulse's or First Source's assets,
financial condition, results of operations, business or prospects since the date
of the most recent financial statements made available to us. We have assumed
in all respects material to our analysis that Pulse and First Source will remain
as going concerns for all periods relevant to our analyses, that all of the
representations and warranties contained in the Agreement and all related
agreements are true and correct, that each party to such agreements will perform
all of the covenants required to be performed by such party under such
agreements, that the conditions precedent in the Agreement are not waived and
that the Merger will be accounted for as a pooling of interests.
Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Events occurring after the date hereof could materially affect
this opinion. We have not undertaken to update, revise or reaffirm this opinion
or otherwise comment upon events occurring after the date hereof. We are
expressing no opinion herein as to what the value of First Source common stock
will be when issued to Pulse's shareholders pursuant to the Agreement or the
prices at which Pulse's or First Source's common stock will trade at any time.
We have been retained by you to render this opinion and will receive a fee
for our services. In the past, we have also provided certain other investment
banking services for Pulse and have received compensation for such services. As
we have previously advised you, in the past we have also provided certain
investment banking services for First Source and currently provide general
<PAGE>
Board of Directors
Pulse Bancorp, Inc.
___________, 1998
Page 3
advisory services for First Source and have received compensation for such
services. In addition, we have advised you that we may in the future provide
certain other investment banking services for First Source, and will receive
compensation for such services.
In the ordinary course of our business, we may actively trade the equity
securities of Pulse and First Source for our own account and for the accounts of
our customers and, accordingly, may at any time hold a long or short position in
such securities.
Our opinion is directed to the Board of Directors of Pulse in connection
with its consideration of the Merger and does not constitute a recommendation to
any stockholder of Pulse as to how such stockholder should vote at any meeting
of stockholders called to consider and vote upon the Merger. Our opinion is not
to be quoted or referred to, in whole or in part, in a registration statement,
prospectus, proxy statement or in any other document, nor shall this opinion be
used for any other purposes, without Sandler O'Neill's prior written consent;
provided, however, that we hereby consent to the inclusion of this opinion as an
appendix to Pulse's and First Source's Joint Proxy Statement/Prospectus dated
the date hereof and to the references to this opinion therein.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the Exchange Ratio is fair, from a financial point of view, to the
holders of Pulse Shares.
Very truly yours,
<PAGE>
Annex D
October __, 1998
The Board of Directors
First Source Bancorp, Inc.
1000 Woodbridge Center Drive
Woodbridge, New Jersey 07095
Members of the Board:
You have requested our opinion as investment bankers that the Exchange Ratio in
the Merger (the "Merger") between First Source Bancorp, Inc., Woodbridge, New
Jersey ("First Source") and Pulse Bancorp, Inc., South River, New Jersey
("Pulse") the holding company for Pulse Savings Bank ("Pulse Savings Bank") as
provided and described in the Merger Agreement is fair to the holders of First
Source from a financial point of view.
Pursuant to the Agreement and Plan of Merger dated July 9, 1998 (the
"Agreement"), Pulse shall merge with and into First Source, and each share of
Pulse's issued and outstanding common stock will be converted into and become
the right to receive a minimum of 3.2 shares and a maximum of 3.764 shares
subject to certain adjustments as set forth in the Agreement (the "Exchange
Ratio"). The exact Exchange Ratio shall be determined as follows: (i) if First
Source's Average Closing Price (as defined) is equal to or greater than $10.00,
the Exchange Ratio shall equal 3.2 shares; (ii) if First Source's Average
Closing Price is greater than $8.50 but less than $10.00, the Exchange Ratio
shall equal the number of shares determined by dividing $32.00 by the Average
Closing Price; or (iii) if First Source's Average Closing Price is equal to or
less than $8.50, the Exchange Ratio shall be 3.764 shares. We have assumed that
the Merger will qualify as a tax free transaction for the stockholders of Pulse
and be accounted for by First Source as a pooling-of-interests transaction.
Ryan, Beck & Co., as a customary part of its investment banking business, is
engaged in the valuation of banking and savings institutions and their
securities in connection with mergers and acquisitions. In conducting our
investigation and analysis of the Merger, we have met separately with members of
senior management of First Source and Pulse to discuss their respective
operations, historical financial statements, strategic plans and future
prospects. We have reviewed and analyzed material prepared in connection with
the Merger, including but not limited to the following: (i) the Agreement and
related documents; (ii) the Joint Proxy Statement / Prospectus; (iii) First
Source's Annual Reports to Shareholders and Annual Reports on Form 10-K for the
years ended December 31, 1997, 1996, and 1995, and First Source's Quarterly
Reports on Form 10-Q for the periods ended June 30, 1998, March 31, 1998,
September 30, 1997, June 30, 1997 and March 31, 1997; (iv) First Source's
Registration Statement filed on Form S-1/A dated February 9, 1998 in connection
with its conversion from a mutual holding company structure to a stock holding
company structure; (v) Pulse's Annual Reports to Shareholders and Annual Reports
on Form 10-K for the years ended
<PAGE>
First Source Bancorp, Inc.
July 9, 1998
Page
2
September 30, 1997, 1996, and 1995, and Pulse's Quarterly Reports on Form 10-Q
for the periods ended June 30, 1998, March 31, 1998, December 31, 1997, June 30,
1997 and March 31, 1997; (vi) the historical stock prices and trading volume of
First Source's common stock; (vii) the historical stock prices and trading
volume of Pulse's common stock; (viii) the publicly available financial data of
thrift organizations which Ryan, Beck deemed generally comparable to First
Source; (ix) the publicly available financial data of thrift organizations which
Ryan, Beck deemed generally comparable to Pulse; (x) the terms of recent
acquisitions of thrift organizations which Ryan, Beck deemed generally
comparable in whole or in part to Pulse; and (xi) the potential pro-forma impact
of the Merger on First Source's financial condition, operating results and per
share figures. We also conducted or reviewed such other studies, analyses,
inquiries and examinations as we deemed appropriate. Ryan, Beck as part of its
review of the Merger, also analyzed First Source's ability to consummate the
Merger.
While we have taken care in our investigation and analyses, we have relied upon
and assumed the accuracy, completeness and fairness of the financial and other
information provided to us by the respective institutions or which was publicly
available and have not assumed any responsibility for independently verifying
such information. We have also relied upon the managements of First Source and
Pulse as to the reasonableness and achievability of the financial and operating
forecasts and projections (and the assumptions and bases therefor) provided to
us and in certain instances we have made certain adjustments to such financial
and operating forecasts which in our judgment were appropriate under the
circumstances. In addition, we have assumed with your consent that such
forecasts and projections reflect the best currently available estimates and
judgments of the respective managements. We are not experts in the evaluation
of allowances for loan losses. Therefore, we have not assumed any
responsibility for making an independent valuation of the adequacy of the
allowances for loan losses set forth in the balance sheets of First Source and
Pulse at June 30, 1998, and we assumed such allowances were adequate and comply
fully with applicable law, regulatory policy and sound banking practice as of
the date of such financial statements. We also assumed that the Merger in all
respects is, and will be consummated in compliance with all laws and regulations
applicable to First Source and Pulse. We have not made or obtained any
independent evaluations or appraisals of the assets and liabilities of either
First Source or Pulse or their respective subsidiaries, nor have we reviewed any
individual loan files of First Source or Pulse or their respective subsidiaries.
In conducting our analysis and arriving at our opinion as expressed herein, we
have considered such financial and other factors as we have deemed appropriate
in the circumstances. In rendering our opinion, we have assumed that in the
course of obtaining the necessary regulatory approvals for the Merger, no
conditions will be imposed that will have a material adverse effect on the
contemplated benefits of the Merger to First Source. We have not opined on the
fairness of the transaction should (First Source) elect to increase the Exchange
Ratio above the maximum in order to avoid a termination of the Agreement by
Pulse because the Average Closing Price of First Source Common Stock is less
than $8.50.
Our opinion is necessarily based on economic, market and
<PAGE>
First Source Bancorp, Inc.
July 9, 1998
Page
3
other conditions and projections as they exist and can be evaluated on the date
hereof. Ryan, Beck did not express any opinion as to the price or range of
prices at which First Source Common Stock might trade subsequent to the Merger.
We have been retained by the Board of Directors of First Source as an
independent contractor to act as financial advisor to First Source with respect
to the Merger and will receive a fee for our services. Ryan, Beck has had a
prior investment banking relationship with First Source. Ryan, Beck was the
sole underwriter for First Source, which was then known as First Savings Bank,
in both its May, 1992 reorganization from a mutual to a federal mutual holding
company and its May, 1995 secondary stock offering. Ryan, Beck was also a
financial advisor, but not an underwriter for First Source in its "second step"
conversion dated April 9, 1998 from a mutual holding company structure to a
stock holding company structure. Ryan, Beck also acted as financial advisor with
respect to the sale of a branch office. Additionally, Ryan, Beck's research
department has issued research reports on First Source and comments on First
Source in its periodic commentaries. Ryan, Beck is also a market maker in First
Source's stock. Ryan, Beck has not had an investment banking relationship with
Pulse since 1986. Ryan, Beck was the sole underwriter of Pulse's conversion,
which was then known as Pulawski Savings and Loan Association, from a mutual to
a stock savings and loan association in September, 1986. Ryan, Beck is a market
maker in Pulse's stock. Ryan, Beck's research department does not cover Pulse.
Our opinion is directed to the Board of Directors of First Source and does not
constitute a recommendation to any shareholder of First Source as to how such
shareholder should vote at any shareholder meeting held in connection with the
Merger.
Based upon and subject to the foregoing it is our opinion as investment bankers
that the Exchange Ratio in the Merger as provided and described in the Merger
Agreement is fair to the holders of First Source common stock from a financial
point of view.
Very truly yours,
RYAN, BECK & CO., INC.
<PAGE>
Annex E
FIRST SOURCE BANCORP, INC.
1998 STOCK-BASED INCENTIVE PLAN
1. DEFINITIONS.
-----------
(a) "Affiliate" means (i) a member of a controlled group of corporations
of which the Holding Company is a member or (ii) an unincorporated trade or
business which is under common control with the Holding Company as determined in
accordance with Section 414(c) of 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 11 hereof. 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
Holding Company or the Bank and Directors Emeritus of the Holding Company or 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 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 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 of Directors of the 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
<PAGE>
by a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Holding Company's stockholders
was approved by a Nominating Committee serving under 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) after a solicitation of shareholders of the Holding
Company, by someone other than current management of the Holding Company,
stockholders approve 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 would be 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) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Committee" means a committee consisting of the entire Board of
Directors or consisting solely of two or more members of the Board of Directors
who are defined as Non-Employee Directors as such term is defined under Rule
16b-3(b)(3)(i) under the Exchange Act as promulgated by the Securities and
Exchange Commission.
(i) "Common Stock" means the Common Stock of the Holding Company, par
value, $.01 per share or any stock exchanged for shares of Common Stock pursuant
to Section 15 hereof.
(j) "Date of Grant" means the effective date of an Award.
(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 or, in the case of a Director, to serve on the
Board. 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) "Effective Date" means ____________, 1998, the effective date of the
Plan.
(m) "Employee" means any person who is currently employed by the Holding
Company or an Affiliate, including officers, but such term shall not include
Outside Directors.
(n) "Employee Participant" means an Employee who holds an outstanding
Award under the terms of the Plan.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
-2-
<PAGE>
(p) "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.
(q) "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 on the Nasdaq Stock Market (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 not traded on the Nasdaq Stock Market, the Fair Market Value of the
Common Stock is the value so determined by the Board in good faith.
(r) "Holding Company" means First Source Bancorp, Inc.
(s) "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 hereof and is intended to be such under Section 422
of the Code.
(t) "Limited Right" means the right to receive an amount of cash based
upon the terms set forth in Section 8 hereof.
(u) "Non-statutory Stock Option" means an Option to a Participant pursuant
to Section 6 hereof, which is not designated by the Committee as an Incentive
Stock Option or which is redesignated by the Committee as a Non-statutory Stock
Option or which is designated an Incentive Stock Option under Section 7 hereof,
but does not meet the requirements of such under Section 422 of the Code.
(v) "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 or 7 hereof.
(w) "Outside Director" means a member of the Board of Directors or a
Director Emeritus of the Holding Company or its Affiliates, who is not also an
Employee.
(x) "Outside Director Participant" means an Outside Director who holds an
outstanding Award under the terms of the Plan.
(y) "Participant(s)" means collectively an Employee Participant and/or an
Outside Director Participant who hold(s) outstanding Awards under the terms of
the Plan.
(z) "Performance Goal" is a specific condition or goal which may be set by
the Committee as a prerequisite to the vesting of a Stock Award in accordance
with Section 9(b) hereof.
(aa) "Retirement" with respect to an Employee Participant means termination
of
-3-
<PAGE>
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 as a consultant to or
on the Board of Directors of the Holding Company or its Affiliates even if such
Participant is receiving retirement benefits under any retirement plan of the
Holding Company or its Affiliates. With respect to an Outside Director
Participant, "Retirement" means the termination of service from the Board of
Directors of the Holding Company or its Affiliates following written notice to
the Board as a whole of such Outside Director's intention to retire, except that
an Outside Director Participant 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 or director emeritus, including pursuant to any
retirement plan of the Holding Company or the Bank.
(bb) "Stock Awards" are Awards of Common Stock which may vest immediately
or over a period of time. Vesting of Stock Awards under Section 9 hereof may be
contingent upon the occurrence of specified events or the attainment of
specified performance goals as determined by the Committee.
(cc) "Termination for Cause" shall mean, in the case of a Director, removal
from the Board of Directors, or, in the case of an Employee, termination of
employment, in both such cases as determined by the Board of Directors, because
of Participant's personal dishonesty, incompetence, willful misconduct, any
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule or regulation (other
than traffic violations or similar offenses) or in the case of an employee
without a written employment agreement with the Bank or Holding Company, any
other grounds provided for under employment policies of the Bank or Holding
Company in effect at the Effective Date or as amended from time to time.
(dd) "Trust" means a trust established by the Board in connection with this
Plan to hold Plan assets for the purposes set forth herein.
(ee) "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 shall be administered by the Committee. The Committee is
authorized, subject to the provisions of the Plan, to grant awards to Employees
and 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 Employee Participants and Outside Director Participants in
the Plan and on their legal representatives and beneficiaries.
(b) Awards to Outside Directors of the Holding Company or its Affiliates
shall be granted by the Board of Directors or the Committee, pursuant to the
terms of this Plan.
-4-
<PAGE>
(c) Actual transference of the Award requires no, nor allows any,
discretion by the Trustee.
3. TYPES OF AWARDS AND RELATED RIGHTS.
-----------------------------------
The following Awards and related rights as described below in Paragraphs 6
through 12 hereof may be granted under the Plan:
(a) Non-statutory Stock Options
(b) Incentive Stock Options
(c) Limited Rights
(d) Stock Awards
4. STOCK SUBJECT TO THE PLAN.
-------------------------
Subject to adjustment as provided in Section 15 hereof, the maximum number
of shares of Common Stock reserved for Awards under the Plan is 2,317,051
shares, which number may not be in excess of 14% of the number of shares of the
Common Stock sold in the Company's Subscription and Community Offering completed
on April 8, 1998 (not including those shares of Common Stock issued in exchange
for shares of First Savings Bank, SLA Common Stock). Subject to adjustment as
provided in Section 15 hereof, the maximum number of shares of Common Stock
reserved hereby for purchase pursuant to the exercise of Options and Option-
related Awards granted under the Plan is 1,655,037 shares, which number may not
be in excess of 10% of the number of shares of Common Stock sold in the
Company's Subscription and Community Offering completed on April 8, 1998 (not
including those shares of Common Stock issued in exchange for shares of First
Savings Bank, SLA Common Stock). The maximum number of the shares of Common
Stock reserved for award as Stock Awards is 662,014 shares, which number is not
in excess of 4% of the number of shares of Common Stock sold in the Company's
Subscription and Community Offering completed on April 8, 1998 (not including
those shares of Common Stock issued in exchange for shares of First Savings
Bank, SLA Common Stock). These shares of Common Stock may be either authorized
but unissued shares or authorized shares previously issued and reacquired by the
Holding Company. To the extent that Options and Stock Awards are granted under
the Plan, the shares underlying such Awards will be unavailable for any other
use including future grants under the Plan except that, to the extent that Stock
Awards or Options terminate, expire, or are forfeited without having been
exercised (or in cases where a Limited Right has been granted in connection with
an option, the amount of such Limited Right received in lieu of the exercise of
such option), new Awards may be made with respect to those shares underlying
such terminated, expired or forfeited Options or Stock Awards.
5. ELIGIBILITY.
-----------
Subject to the terms herein, all Employees and Outside Directors shall be
eligible to receive Awards under the Plan.
-5-
<PAGE>
6. NON-STATUTORY STOCK OPTIONS.
---------------------------
The Committee may, subject to the limitations of the Plan and the
availability of shares reserved but unawarded under the Plan, from time to
time, grant Non-statutory Stock Options to Employees and Outside Directors, upon
such terms and conditions as the Committee may determine and grant Non-statutory
Stock Options in exchange for and upon surrender of previously granted Awards
under this Plan under such terms and conditions as the Committee may determine.
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. Such Exercise Price shall not be less
than 100% of the Fair Market Value of the Holding Company's Common Stock on the
Date of Grant. Shares of Common Stock underlying a Non-statutory Stock Option
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 hereof.
(b) Terms of Non-statutory Stock 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. The
shares of Common Stock underlying each Non-statutory Stock Option installment
may be purchased in whole or in part by the Participant at any time during the
term of such Non-statutory Stock 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 shall create no right, expectation or reliance on the part of any
other Participant or that certain Participant regarding any other unaccelerated
Non-statutory Stock Options. Unless determined otherwise by the Committee and
except in the event of the Participant's death or pursuant to a domestic
relations order, a Non-statutory Stock Option is not transferable and may be
exercisable in his lifetime only by the Participant to whom it is granted. Upon
the death of a Participant, a Non-statutory Stock Option is transferable by will
or the laws of descent and distribution.
(c) NSO Agreement. The terms and conditions of any Non-statutory Stock
--------------
Option granted shall be evidenced by an agreement (the "NSO Agreement") which
shall be subject to the terms and conditions of the Plan.
(d) Termination of Employment or Service. Unless otherwise determined by
------------------------------------
the Committee, upon the termination of a Participant's employment or service for
any reason other than Disability, death or Termination for Cause, the
Participant's Non-statutory 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 NSO
Agreement relating to
-6-
<PAGE>
an award of a Non-statutory Stock Option, in the event of termination of the
Participant's employment or service for Disability or death, all Non-statutory
Stock Options held by such Participant shall immediately vest and be exercisable
for one year after such termination of service, and, in the event of a
Termination for Cause, all rights under the Participant's Non-statutory Stock
Options shall expire immediately upon such Termination for Cause.
7. INCENTIVE STOCK OPTIONS.
-----------------------
The Committee may, subject to the limitations of the Plan and the
availability of shares reserved but unawarded under the Plan, from time to
time, grant Incentive Stock Options to Employees upon such terms and conditions
as the Committee may determine. 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 Common Stock on the
Date of Grant. However, if at the time an Incentive Stock Option is granted to
an Employee Participant, such Employee Participant owns Common Stock
representing more than 10% of the total combined voting securities of the
Holding Company (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 Holding Company, 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 Employee Participant, or by or for any
corporation, partnership, estate or trust of which such Employee 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 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 11 hereof.
(b) Amounts of Incentive Stock 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 Employee Participant during any calendar
year (under all plans of the Employee Participant's employer corporation and its
parent and subsidiary corporations) shall not exceed $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 of an Incentive Stock Option 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 hereof.
(c) Terms of Incentive Stock Options. The term during which each
--------------------------------
Incentive Stock Option may be exercised shall be determined by the Committee,
but in no event shall an
-7-
<PAGE>
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 Participant who is a 10% Owner, the Incentive Stock Option granted
to such Employee Participant shall not be exercisable after the expiration of
five years from the Date of Grant. No Incentive Stock Option is transferable
except by will or the laws of descent and distribution and is exercisable in his
or her lifetime only by the Employee Participant to whom it is granted. The
designation of a beneficiary does not constitute a transfer.
The Committee shall determine the date on which each Incentive Stock Option
shall become exercisable. The shares comprising each installment of the
Incentive Stock Option 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 shall not
create a right, expectation or reliance on the part of any other Participant or
that certain Participant regarding any other unaccelerated Incentive Stock
Options.
(d) ISO Agreement. The terms and conditions of any Incentive Stock Option
-------------
granted shall be evidenced by an agreement (the "ISO Agreement") which shall be
subject to the terms and conditions of the Plan.
(e) Termination of Employment. Unless otherwise determined by the
-------------------------
Committee, upon the termination of an Employee Participant's employment for any
reason other than Disability, death or Termination for Cause, the Employee
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 provision set forth herein or contained in any ISO Agreement
relating to an award of an Incentive Stock Option, in the event of termination
of the Employee Participant's employment for Disability or death, all Incentive
Stock Options held by such Employee Participant shall immediately vest and be
exercisable for one year after such termination, and, in the event of
Termination for Cause, all rights under the Employee Participant's Incentive
Stock Options shall expire immediately upon termination. No Incentive Stock
Option shall be eligible for treatment as an Incentive Stock Option in the event
such Incentive Stock Option is exercised more than three months following the
date of Participant's cessation of employment. In no event shall an Incentive
Stock Option be exercisable beyond the expiration of the Incentive Stock Option
term.
(f) Compliance with Code. The Incentive Stock Options granted under this
--------------------
Section 7 are intended to qualify as "incentive stock options" within the
meaning of Section 422 of the Code, but the Holding Company 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.
-8-
<PAGE>
8. LIMITED RIGHT.
-------------
Simultaneously with the grant of any Option to an Employee or Outside
Director, 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.
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 Holding Company an amount of cash equal to the
difference between the Exercise Price of the underlying option and the Fair
Market Value of the Common Stock subject to 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 exercised. Payments shall be less any applicable
tax withholding as set forth in Section 16 hereof.
9. STOCK AWARD.
-----------
The Committee may, subject to the limitations of the Plan, from time to
time, make an Award of shares of Common Stock to Employees and Outside Directors
("Stock Awards"). The Stock 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. Stock Awards may only be granted from shares reserved
under the Plan but unawarded at the time the new Stock Award is made.
(b) Terms of the Stock Awards. The Committee shall determine the dates on
-------------------------
which Stock Awards granted to a Participant shall vest and any specific
conditions or performance goals which must be satisfied prior to the vesting of
any installment or portion of the Stock Award. Notwithstanding other paragraphs
in this Section 9, the Committee may, in its sole discretion, accelerate the
vesting of any Stock Award. The acceleration of any Stock Award
-9-
<PAGE>
under the authority of this paragraph shall create no right, expectation or
reliance on the part of any other Participant or that certain Participant
regarding any other unaccelerated Stock Awards.
(c) Stock Award Agreement. The terms and conditions of any Stock Award
---------------------
shall be evidenced by an agreement (the "Stock Award Agreement") which such
Stock Award Agreement will be subject to the terms and conditions of the Plan.
Each Stock Award Agreement shall set forth:
(i) the period over which the Stock Award will vest;
(ii) the performance goals, if any, which must be satisfied prior to
the vesting of any installment or 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;
(d) Certification of Attainment of the Performance Goal. No Stock Award
---------------------------------------------------
or portion thereof that is subject to a performance goal is to be distributed to
an Employee Participant until the Committee certifies that the underlying
performance goal has been achieved, or in the case of an Outside Director
Participant, until an independent third party presents a certification to the
Board of Directors that the underlying performance goal associated with a Stock
Award has been achieved.
(e) Termination of Employment or Service. Unless otherwise determined by
------------------------------------
the Committee, upon the termination of a Participant's employment or service for
any reason other than Disability, death or Termination for Cause, the
Participant's unvested Stock Awards as of the date of termination shall be
forfeited and any rights the Participant had to such unvested Stock Awards shall
become null and void. Notwithstanding any provisions set forth herein or
contained in any NSO Agreement relating to an award of a Non-statutory Stock
Option, in the event of termination of the Participant's service due to
Disability or death, all unvested Stock Awards held by such Participant,
including any portion of a Stock Award subject to a performance goal, shall
immediately vest and, in the event of the Participant's Termination for Cause,
the Participant's unvested Stock Awards as of the date of such termination shall
be forfeited and any rights the Participant had to such unvested Stock Awards
shall become null and void.
(f) Non-Transferability. Except to the extent permitted by the Code, the
-------------------
rules promulgated under Section 16(b) of the Exchange Act or any successor
statutes or rules:
(i) The recipient of a Stock Award shall not sell, transfer, assign,
pledge, or otherwise encumber shares subject to the Stock Award
until full vesting of such shares has occurred. For purposes of
this section, the separation of beneficial ownership and legal
title through the use of any "swap" transaction is deemed to be
a prohibited encumbrance.
(ii) Unless determined otherwise by the Committee and except in the
event of
-10-
<PAGE>
the Participant's death or pursuant to a domestic relations
order, a Stock Award is not transferable and may be earned in
his lifetime only by the Participant to whom it is granted. Upon
the death of a Participant, a Stock Award is transferable by
will or the laws of descent and distribution. The designation of
a beneficiary 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 Stock Award may not, without the written consent of the
Committee (which consent may be given in the Stock Award
Agreement), be sold or otherwise disposed of within six months
following the date of grant of the Stock Award.
(g) Accrual of Dividends. Whenever shares of Common Stock underlying a
--------------------
Stock Award are distributed to a Participant or beneficiary thereof under the
Plan, such Participant or beneficiary shall also be entitled to receive, with
respect to each such share distributed, a payment equal to any cash dividends or
distributions (other than distributions in shares of Common Stock) and the
number of shares of Common Stock equal to any stock dividends, declared and paid
with respect to a share of the Common Stock if the record date for determining
shareholders entitled to receive such dividends falls between the date the
relevant Stock Award was granted and the date the relevant Stock Award or
installment thereof is distributed. There shall also be distributed an
appropriate amount of net earnings, if any, of the Trust with respect to any
dividends paid out.
(h) Voting of Stock Awards. After a Stock Award has been granted, but for
-----------------------
which the shares covered by such Stock Award have not yet been earned and
distributed to the Participant pursuant to the Plan, the Participant shall be
entitled to direct the Trustee as to the voting of such shares of Common Stock
which the Stock Award covers 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 Participants are not entitled to direct, or have not directed the voting,
shall be voted by the Trustee in the same proportion as the Common Stock covered
by Stock Awards which have been awarded is voted.
10. PAYOUT ALTERNATIVES
-------------------
Payments due to a Participant upon the exercise or redemption of an Award,
may be made subject 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 making distributions of
payments for all Awards. If the Committee requests any or all Participants to
make an election as to form of distribution or payment, it shall not be
considered bound by the election.
-11-
<PAGE>
(b) Payment in the form of Common Stock. Any shares of Common Stock
-----------------------------------
tendered in satisfaction of an obligation arising under this Plan shall be
valued at the Fair Market Value of the Common Stock on the day preceding the
date of the issuance of such stock to the Participant.
11. 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 ISO or NSO 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 certified
------------
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; then the shares gained through the exercise are
tendered back to the Holding Company as payment for a greater
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.
12. RIGHTS OF A SHAREHOLDER: NONTRANSFERABILITY.
-------------------------------------------
No Participant shall have any rights as a shareholder with respect to any
shares of Common Stock covered by an Option until the date of issuance of a
stock certificate for such 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
Holding Company or its Affiliates or interferes in any way with the right of the
Holding Company or its Affiliates to terminate a Participant's services as an
officer or other employee at any time.
Except as permitted under the Code (with respect to Incentive Stock
Options) 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 other than by will or the laws of intestate
succession or pursuant to a domestic relations order or unless determined
otherwise by the Committee.
-12-
<PAGE>
13. AGREEMENT WITH GRANTEES.
-----------------------
Each Award will be evidenced by a written agreement(s) (whether
constituting an NSO Agreement, ISO Agreement, Stock Award Agreement or any
combination thereof), executed by the Participant and the Holding Company 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
Committee, or the Board of Directors, and may describe or specify tax law
considerations or applicable securities law considerations.
14. DESIGNATION OF BENEFICIARY.
--------------------------
A Participant may, with the consent of the Committee, designate a person or
persons to receive, in the event of death, any Award to which the Participant
would then be entitled. Such designation will be made upon forms supplied by
and delivered to the Holding Company and may be revoked in writing. If a
Participant fails effectively to designate a beneficiary, then the Participant's
estate will be deemed to be the beneficiary.
15. DILUTION AND OTHER ADJUSTMENTS.
------------------------------
In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend or split, recapitalization, merger, consolidation,
spin-off, reorganization, combination or exchange of shares, or other similar
corporate change, or other increase or decrease in such shares without receipt
or payment of consideration by the Holding Company, or in the event a capital
distribution is made, the Committee will make such adjustments to Awards to
prevent dilution, diminution or enlargement of the rights of the Participant, as
the Committee deems appropriate, including any or all of the following:
(a) adjustments in the aggregate number or kind of shares of Common Stock
or other securities that may underlie future Awards under the Plan;
(b) adjustments in the aggregate number or kind of shares of Common Stock
or other securities underlying Awards already made under the Plan;
(c) adjustments in the exercise price of outstanding Incentive and/or Non-
statutory Stock Options, or any Limited Rights attached to such
Options.
Alternatively, the Committee could provide the participant with a cash
benefit for shares underlying vested, but unexercised options, in order to
achieve the aforementioned effect. All awards under this Plan shall be binding
upon any successors or assigns of the Holding Company.
-13-
<PAGE>
16. TAX WITHHOLDING.
---------------
Awards under this Plan shall be subject to tax withholding to the extent
required by any governmental authority. Any withholding shall comply with Rule
16b-3 or any amendment or successive rule. Shares of Common Stock withheld to
pay for tax withholding amounts shall be valued at their Fair Market Value on
the date the Award is deemed taxable to the Participant.
17. AMENDMENT OF THE PLAN.
---------------------
The Board of Directors may at any time, and from time to time, subject to
applicable rules and regulations, modify or amend the Plan, or any Award granted
under the Plan, in any respect, prospectively or retroactively; provided
however, that provisions governing grants of Incentive Stock Options, unless
permitted by the rules and regulations or staff pronouncements promulgated under
the Code shall be submitted for shareholder approval to the extent required by
such law, regulation or interpretation.
Failure to ratify or approve amendments or modifications by shareholders
shall be effective only as to the specific amendment or modification requiring
such ratification. Other provisions, sections, and subsections of this Plan
will remain in full force and effect.
No such termination, modification or amendment may adversely affect the
rights of a Participant under an outstanding Award without the written
permission of such Participant.
18. EFFECTIVE DATE OF PLAN.
----------------------
The Plan shall become effective upon being presented to shareholders for
ratification for purposes of: (i) obtaining preferential tax treatment for
Incentive Stock Options; and (ii) maintaining the listing of the Common Stock on
the Nasdaq National Market. The failure to obtain shareholder ratification for
such purposes 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: (i) ten (10) years after the Effective Date; (ii) the issuance of a number
of shares of Common Stock pursuant to the exercise of Options or the
distribution of Stock Awards which together with the exercise of Limited Rights
is equivalent to the maximum number of shares reserved under the Plan as set
forth in Section 4. The Board of Directors has the right to suspend or
terminate the Plan at any time, provided that no such action will, without the
consent of a Participant, adversely affect a Participant's vested rights under a
previously granted Award.
-14-
<PAGE>
20. APPLICABLE LAW
--------------
The Plan will be administered in accordance with the laws of the State of
Delaware and applicable federal law.
21. COMPLIANCE WITH OTS CONVERSION REGULATIONS
------------------------------------------
Notwithstanding any other provision contained in this Plan:
(a) unless the Plan is approved by a majority vote of the outstanding
shares of the total votes eligible to be cast at a duly called meeting
of stockholders to consider the Plan, as required by 12 C.F.R. (S)
563b.3(g)(4)(vii), the Plan shall not become effective or implemented
prior to one year from the date of the Bank's reorganization into the
stock holding company structure;
(b) no Award granted prior to one year from the date of the Bank's
reorganization into the stock holding company structure shall become
vested or exercisable at a rate in excess of 20% per year of the total
number of Stock Awards or Options (whichever may be the case) granted
to such Participant, provided, that Awards shall become fully vested
or immediately exercisable in the event of a Participant's termination
of service due to death or Disability;
(c) no Award granted to any individual employee prior to one year from the
date of the Bank's reorganization into the stock holding company
structure may exceed 25% of the total amount of Awards which may be
granted under the Plan;
(d) no Award granted to any individual Outside Director prior to one year
from the date of the Bank's reorganization into the stock holding
company structure may exceed 5% of the total amount of Awards which
may be granted under the Plan; and
(e) the aggregate amount of Awards granted to all Outside Directors prior
to one year from the date of the Bank's reorganization into the stock
holding company structure may not exceed 30% of the total amount of
Awards which may be granted under the Plan.
22. 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
Holding Company or the Bank. The Committee may rely on the descriptions,
representations, reports and estimates provided to it by the management of the
Holding Company or 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.
-15-
<PAGE>
IN WITNESS WHEREOF, the Holding Company has established this Plan 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
_________________________, 1998.
[CORPORATE SEAL] FIRST SOURCE BANCORP, INC.
________________________ By: ___________________________ Date
Chairman of the Board
ADOPTED BY THE BOARD OF DIRECTORS:
________________________ By: ___________________________
Date Secretary
APPROVED BY STOCKHOLDERS:
________________________ By: ___________________________
Date Secretary
-16-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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 First Source
Bancorp, Inc.'s Certificate of Incorporation provide as follows:
TENTH:
A. Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent, or in any other capacity while serving as a Director,
Officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment), against all expense, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered by
such indemnitee in connection therewith; provided, however, that, except as
provided in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify 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
<PAGE>
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.
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.
<PAGE>
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 21. 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)
2.1 Agreement and Plan of Merger, dated July 9, 1998, by and between First
Source Bancorp, Inc. and Pulse Bancorp, Inc., is included as Annex A to the
Joint Proxy Statement/Prospectus
2.2 Stock Option Agreement, dated as of July 9, 1998, by and between First
Source Bancorp, Inc. and Pulse Bancorp, Inc., is included as Annex B to the
Joint Proxy Statement/Prospectus
3.1 Certificate of Incorporation of First Source Bancorp, Inc., previously
filed and incorporated by reference to First Source Bancorp, Inc.'s
Registration Statement on Form S-1 (File No. 333-42757) dated December 19,
1997
3.2 Amendment to the Certificate of Incorporation of First Source Bancorp,
Inc., included as Annex F to the Joint Proxy Statement/Prospectus*
3.3 Bylaws of First Source Bancorp, Inc. previously filed and incorporated by
reference to First Source Bancorp, Inc. Registration Statement on Form S-1
(File No. 333-42757), dated December 19, 1997
5.1 Opinion and Consent of Patton Boggs LLP*
5.2 Opinion of Malizia, Spidi, Sloane & Fisch, P.C.*
8.0 Opinion and Consent of Patton Boggs LLP as to certain Federal Income Tax
matters*
10.0 1998 First Source Bancorp, Inc. Stock-Based Incentive Plan, is included as
Annex E to the Joint Proxy Statement/Prospectus
12.0 Statement regarding Computations of Ratios, is included in the Joint Proxy
Statement/Prospectus
23.0 Consent of Patton Boggs (included in Exhibits 5.1 and 8.0)*
23.1 Consent of Malizoa, Spidi, Sloane & Fisch, P.C.*
23.2 Consent of Ryan Beck & Co.
23.3 Form of Consent of Sandler O'Neill & Partners, L.P.
23.4 Consent of KPMG Peat Marwick LLP for First Source Bancorp, Inc.
23.5 Consent of KPMG Peat Marwick LLP for Pulse Bancorp, Inc.
24.0 Power of Attorney of Certain Officer and Directors of the Company
(Located on the signature page hereto)
27.0 Financial Data Schedule
99.1 Pulse Bancorp, Inc.'s Proxy Card
99.2 First Source Bancorp, Inc.'s Proxy Card
99.3 Opinion of Sandler O'Neill and Partners, L.P., is included as Annex C to
the Joint Proxy Statement/Prospectus
99.4 Opinion of Ryan, Beck & Co., is included as Annex D to the Joint Proxy
Statement/Prospectus
___________
* To be filed by amendment.
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
<PAGE>
ITEM 22. UNDERTAKINGS.
The undersigned Registrants hereby undertake:
(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 directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, the registrants
have 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 registrants of expenses incurred
or paid by a director, officer or controlling person of the Registrants 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 Registrants will, unless in the opinion of their 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>
The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrants hereby undertake to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
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 September 17, 1998.
FIRST SOURCE BANCORP, INC.
By: /s/ John P. Mulkerin
---------------------------
John P. Mulkerin
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John P. Mulkerin and Christopher P. Martin,
jointly and severally, each in his own capacity, as his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for such person and in such person's name, place and stead, in
any and all capacities, to sign any or all amendments to this Registration
Statement, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing 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 their
substitute or substitutes, may lawfully or do cause to be done by virtue hereof.
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> <C>
/s/ John P. Mulkerin President, Chief Executive Officer and September 17, 1998
- ----------------------------
John P. Mulkerin Director (principal executive officer)
/s/ Christopher P. Martin Senior Vice President, Chief September 17, 1998
- ----------------------------
Christopher P. Martin Financial Officer, and Treasurer and
Director (principal accounting and
financial officer)
/s/ Donald T. Akey MD Director September 17, 1998
- ----------------------------
Donald T. Akey MD
/s/ Harry F. Burke Director September 17, 1998
- ----------------------------
Harry F. Burke
Director September 17, 1998
- ----------------------------
Keith H. McLaughlin
Director September 17, 1998
- ----------------------------
Philip T. Ruegger, Jr.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Director September 17, 1998
- ----------------------------
Jeffries Shein
/s/ Walter K. Thompson Director September 17, 1998
- ----------------------------
Walter K. Thompson
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
List of Exhibits (Filed herewith unless otherwise noted)
<S> <C>
2.1 Agreement and Plan of Merger, dated July 9, 1998, by and between First
Source Bancorp, Inc. and Pulse Bancorp, Inc., is included as Annex A to
the Joint Proxy Statement/Prospectus
2.2 Stock Option Agreement, dated as of July 9, 1998, by and between First
Source Bancorp, Inc. and Pulse Bancorp, Inc., is included as Annex B to
the Joint Proxy Statement/Prospectus
3.1 Certificate of Incorporation of First Source Bancorp, Inc., previously
filed and incorporated by reference to First Source Bancorp, Inc.'s
Registration Statement on Form S-1 (File No. 333-42757) dated December
19, 1997
3.2 Amendment to the Certificate of Incorporation of First Source Bancorp,
Inc., included as Annex F to the Joint Proxy Statement/Prospectus*
3.3 Bylaws of First Source Bancorp, Inc. previously filed and incorporated by
reference to First Source Bancorp, Inc. Registration Statement on Form S-
1 (File No. 333-42757), dated December 19, 1997
5.1 Opinion and Consent of Patton Boggs LLP*
5.2 Opinion of Malizia, Spidi, Sloane & Fisch, P.C.*
8.0 Opinion and Consent of Patton Boggs LLP as to certain Federal Income Tax
matters*
10.0 1998 First Source Bancorp, Inc. Stock-Based Incentive Plan, is included
as Annex E to the Joint Proxy Statement/Prospectus
12.0 Statement regarding Computations of Ratios, is included in the Joint
Proxy Statement/Prospectus
23.0 Consent of Patton Boggs (included in Exhibits 5.1 and 8.0)*
23.1 Consent of Malizoa, Spidi, Sloane & Fisch, P.C.*
23.2 Consent of Ryan Beck & Co.
23.3 Form of Consent of Sandler O'Neill & Partners, L.P.
23.4 Consent of KPMG Peat Marwick LLP for First Source Bancorp, Inc.
23.5 Consent of KPMG Peat Marwick LLP for Pulse Bancorp, Inc.
24.0 Power of Attorney of Certain Officer and Directors of the Company
(Located on the signature page hereto)
27.0 Financial Data Schedule
99.1 Pulse Bancorp, Inc.'s Proxy Card
99.2 First Source Bancorp, Inc.'s Proxy Card
99.3 Opinion of Sandler O'Neill and Partners, L.P., is included as Annex C to
the Joint Proxy Statement/Prospectus
99.4 Opinion of Ryan, Beck & Co., is included as Annex D to the Joint Proxy
Statement/Prospectus
</TABLE>
__________
* To be filed by amendment.
<PAGE>
EXHIBIT 23.2 CONSENT OF RYAN BECK & CO.
<PAGE>
CONSENT OF RYAN, BECK & CO.
We hereby consent to the references in the Proxy Statement to our opinion, dated
October __, 1998, with respect to the merger of First Source Bancorp, Inc. and
Pulse Bancorp, Inc., and to our firm, respectively, and to the inclusion of such
opinion as an annex to such Proxy Statement. By giving such consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission thereunder.
RYAN, BECK & CO., INC.
By: ___________________________
David P. Downs
Senior Vice President
Livingston, NJ
September 17, 1998
<PAGE>
EXHIBIT 23.3 FORM OF CONSENT OF SANDLER O'NEILL & PARTNERS, L.P.
<PAGE>
EXHIBIT 23.3 FORM OF CONSENT OF SANDLER O'NEILL& PARTNERS, L.P.
FORM OF CONSENT OF SANDLER O'NEILL & PARTNERS, L.P.
We hereby consent to the inclusion of our opinion letter to the Board of
Directors of Pulse Bancorp, Inc. (the "Company") as an Appendix to the Joint
Proxy Statement/Prospectus relating to the proposed merger of the Company with
and into First Source Bancorp, Inc. contained in the Registration Statement on
Form S-4 as filed with the Securities and Exchange Commission on the date
hereof, and to the references to our firm and such opinion in such Joint Proxy
Statement/Prospectus. In giving such consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended (the "Act"), or the rules and regulations of
the Securities and Exchange Commission thereunder (the "Regulations"), nor do we
admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Act or the
Regulations.
<PAGE>
EXHIBIT 23.4 CONSENT OF KPMG PEAT MARWICK LLP FOR FIRST SOURCE BANCORP, INC.
<PAGE>
EXHIBIT 23.4 CONSENT OF KPMG PEAT MARWICK LLP FOR FIRST SOURCE BANCORP, INC.
INDEPENDENT ACCOUNTANTS' CONSENT
--------------------------------
The Board of Directors
First Source Bancorp, Inc.:
We consent to incorporation by reference in the registration
statement filed on Form S-4, dated September 17, 1998, of our
report dated February 6, 1998, relating to the consolidated
statements of financial condition of First Savings Bank, SLA and
subsidiaries as of December 31, 1997 and 1996 and the related
consolidated statements of income, changes in stockholders'
equity, and cash flows for each of the years in the three-year
period ended December 31, 1997, which report is included in the
December 31, 1997 Annual Report on form 10-K of First Source
Bancorp, Inc., incorporated by reference in the registration
statement and to the reference to our firm under the heading
"Experts" in the registration statement.
/S/ KPMG PEAT MARWICK LLP
Short Hills, New Jersey
September 16, 1998
<PAGE>
EXHIBIT 23.5 CONSENT OF KPMG PEAT MARWICK LLP FOR PULSE BANCORP, INC.
<PAGE>
EXHIBIT 23.5 CONSENT OF KPMG PEAT MARWICK LLP FOR PULSE BANCORP, INC.
INDEPENDENT ACCOUNTANTS' CONSENT
--------------------------------
The Board of Directors
Pulse Bancorp, Inc.:
We consent to incorporation by reference in the registration
statement filed on Form S-4, dated September 17, 1998, of our
report dated October 24, 1997, relating to the consolidated
statements of financial condition of Pulse Bancorp, Inc. and
subsidiaries as of September 30, 1996 and 1997 and the related
consolidated statements of income, changes in stockholders'
equity, and cash flows for each of the years in the three-year
period ended December 31, 1997, which report is included in the
September 30, 1997 Annual Report on form 10-K of Pulse Bancorp,
Inc., incorporated by reference in the registration statement and
to the reference to our firm under the heading "Experts" in the
registration statement.
/S/ KPMG PEAT MARWICK LLP
Short Hills, New Jersey
September 16, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 11,680
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 14,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 489,838
<INVESTMENTS-CARRYING> 24,346
<INVESTMENTS-MARKET> 24,411
<LOANS> 644,385
<ALLOWANCE> 6,758
<TOTAL-ASSETS> 1,221,038
<DEPOSITS> 807,591
<SHORT-TERM> 11,544
<LIABILITIES-OTHER> 14,583
<LONG-TERM> 128,000
0
0
<COMMON> 317
<OTHER-SE> 259,003
<TOTAL-LIABILITIES-AND-EQUITY> 1,221,038
<INTEREST-LOAN> 23,772
<INTEREST-INVEST> 15,300
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 39,072
<INTEREST-DEPOSIT> 16,723
<INTEREST-EXPENSE> 20,527
<INTEREST-INCOME-NET> 18,545
<LOAN-LOSSES> 740
<SECURITIES-GAINS> 149
<EXPENSE-OTHER> 8,811
<INCOME-PRETAX> 11,461
<INCOME-PRE-EXTRAORDINARY> 11,461
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,218
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.23
<YIELD-ACTUAL> 3.39
<LOANS-NON> 2,377
<LOANS-PAST> 134
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<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,097
<CHARGE-OFFS> 82
<RECOVERIES> 3
<ALLOWANCE-CLOSE> 6,758
<ALLOWANCE-DOMESTIC> 100
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
EXHIBIT 99.1 PULSE BANCORP, INC.'S PROXY CARD
<PAGE>
PULSE BANCORP, INC.
SPECIAL MEETING OF STOCKHOLDERS
[______________________]
The undersigned hereby appoints the Board of Directors of Pulse Bancorp,
Inc. ("Pulse"), with full powers of substitution, to act as attorneys and
proxies for the undersigned, to vote all shares of Common Stock of Pulse that
the undersigned is entitled to vote at the Special Meeting of Stockholders, to
be held at the Forsgate Country Club, Forsgate Drive, Jamesburg, New Jersey, on
[ ], at 10:00 a.m. ("Meeting"), and at any and all adjournments
thereof, as follows:
FOR AGAINST ABSTAIN
--- ------- -------
1. The approval of the Agreement [_] [_] [_]
and Plan of Merger, dated as
of July 9, 1998, by and between
First Source Bancorp, Inc. ("First
Source") and Pulse, pursuant to
which Pulse will merge with and
into First Source.
In their discretion, such attorneys and proxies are authorized to vote on any
other business that may properly come before the Meeting or any adjournments
thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSITION 1.
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------THIS
PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR PROPOSITION 1. IF ANY OTHER BUSINESS IS PRESENTED AT THE
MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR BEST
JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS
TO BE PRESENTED AT THE MEETING.
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting or
at any adjournments thereof and after notification to the Secretary of Pulse at
the Meeting of the stockholder's decision to terminate this proxy, then the
power of said attorneys and proxies shall be deemed terminated and of no further
force and effect.
The undersigned acknowledges receipt from Pulse prior to the execution
of this proxy of the notice of special meeting of stockholders and a joint proxy
statement/prospectus dated [ ].
Dated: Check box if planning to attend Meeting [ ]
----------------
- ------------------------------------- -----------------------------------
PRINT NAME OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
- ------------------------------------- -----------------------------------
PRINT NAME OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on the envelope in which this
proxy was mailed. When signing as attorney, executor, administrator, trustee or
guardian, please give your full title. If shares are held jointly, each holder
should sign.
- --------------------------------------------------------------------------------
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN
THE ENCLOSED POSTAGE-PAID ENVELOPE.
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 99.2 FIRST SOURCE BANCORP, INC.'S PROXY CARD
<PAGE>
[FRONT SIDE]
REVOCABLE PROXY
FIRST SOURCE BANCORP, INC.
SPECIAL MEETING OF STOCKHOLDERS
__________, 1998
_________ Eastern Time
The undersigned hereby appoints the official proxy committee of the
Board of Directors of First Source Bancorp, Inc. (the "Company"), each with full
power of substitution, to act as attorneys and proxies for the undersigned, and
to vote all shares of Common Stock of the Company which the undersigned is
entitled to vote only at the Special Meeting of Stockholders, to be held on
_________, 1998 at _________ Eastern Time, at ___________________________, and
at any and all adjournments thereof, as follows:
1. Approval and adoption of the Agreement and Plan of Merger, dated as
of July 9, 1998 (the "Merger Agreement"), between First Source and
Pulse Bancorp, Inc. ("Pulse"), and the consummation of the
transactions contemplated thereby, including the merger of Pulse
with and into First Source and the issuance of First Source Common
Stock to the holders of Pulse Common Stock.
FOR AGAINST ABSTAIN
--- ------- -------
[_] [_] [_]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
PROPOSAL I.
2. Approval and adoption of First Source's 1998 Stock-Based Incentive
Plan (the "Incentive Plan").
FOR AGAINST ABSTAIN
--- ------- -------
[_] [_] [_]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
PROPOSAL II.
<PAGE>
3. Approval and adoption of an amendment to the First Source
Certificate of Incorporation to change the name of the company to
______________ (the "Corporate Name Amendment").
FOR AGAINST ABSTAIN
--- ------- -------
[_] [_] [_]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
PROPOSAL III.
4. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
<PAGE>
[BACK SIDE]
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
THIS PROXY IS REVOCABLE AND WILL BE VOTED AS DIRECTED, BUT IF NO
INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE PROPOSAL LISTED. IF
ANY OTHER BUSINESS IS PRESENTED AT THE SPECIAL MEETING, INCLUDING WHETHER OR NOT
TO ADJOURN THE MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN
THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE SPECIAL MEETING.
The undersigned acknowledges receipt from the Company prior to the
execution of this proxy of a Notice of Special Meeting of Stockholders and of a
Proxy Statement dated relating to this meeting.
Please sign exactly as your name appears on this card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder may sign but only one signature
is required.
Dated:
-------------------------------
-------------------------------
SIGNATURE OF STOCKHOLDER
-------------------------------
SIGNATURE OF STOCKHOLDER
-------------------------------
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE
