<PAGE>
As filed with the Securities and Exchange Commission on June 12, 1998
Registration No. 333-__________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
WEST ESSEX BANCORP, INC.
WEST ESSEX BANK, F.S.B.
401(K) EMPLOYEE BENEFIT PLAN
(exact name of registrant as specified in its charter)
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<S> <C> <C>
UNITED STATES 6035 BEING APPLIED FOR
(State or Other Jurisdiction of (Primary Standard Industrial (IRS Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
417 BLOOMFIELD AVENUE
CALDWELL, NEW JERSEY 07006
(973) 226-7911
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
LEOPOLD W. MONTANARO
PRESIDENT AND CHIEF EXECUTIVE OFFICER
WEST ESSEX BANK
417 BLOOMFIELD AVENUE
CALDWELL, NEW JERSEY 07006
(973) 226-7911
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copies to:
DOUGLAS P. FAUCETTE, ESQUIRE
LORI M. BERESFORD, ESQUIRE
MULDOON, MURPHY & FAUCETTE
5101 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20016
(202) 362-0840
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / X /
----
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
----
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
----
If 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. / /
----
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CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum Amount of
Title of each Class of Amount to Offering Price Aggregate Offering Registration
Securities to be Registered be Registered Per Unit Price (2) Fee
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<S> <C> <C> <C> <C>
Common Stock 2,482,585
$.01 par value(1) Shares $10.00 $24,825,850 $7,324
- -----------------------------------------------------------------------------------------------------------------------
Participation 59,795 _______ (3)
Interests
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(1) Includes shares of Common Stock to be issued to the West Essex Bancorp
Charitable Foundation, a private foundation.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) The securities of West Essex Bancorp, Inc. to be purchased by the West Essex
Bank 401(k) Savings Plan are included in the amount shown for Common Stock.
Accordingly, no separate fee is required for the participation interests. In
accordance with Rule 457(h) of the Securities Act, as amended, the
registration fee has been calculated on the basis of the number of shares of
Common Stock that may be purchased with the current assets of such Plan.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
<PAGE>
[To be used in connection with sales to Participants in the WEST ESSEX BANK,
F.S.B. 401(k) SAVINGS PLAN IN RSI TRUST]
PROSPECTUS SUPPLEMENT
- ---------------------
WEST ESSEX BANCORP, INC.
WEST ESSEX BANK
PARTICIPATION INTERESTS
WEST ESSEX BANK, F.S.B.
401(K) SAVINGS PLAN
This Prospectus Supplement relates to the offer and sale to participants
(the "participants") in the West Essex Bank, F.S.B. 401(k) Savings Plan in RSI
Retirement Trust (the "Plan") of participation interests and shares of common
stock, par value $.01 per share of West Essex Bancorp, Inc. common stock (the
"Common Stock"), as set forth herein.
The Plan will be amended in connection with the proposed reorganization of
West Essex Bank, F.S.B. from a federally chartered mutual savings bank to a
federally chartered stock savings bank (the "Bank") in the mutual holding
company form of organization (the "Reorganization"), and concurrent offering of
West Essex Bancorp, Inc. (the "Bancorp") Common Stock ("Stock Offering") to
permit the investment of Plan assets in the Common Stock. The amended Plan will
permit participants to direct the trustee of the Plan (the "Trustee") to invest
in the Common Stock with amounts in the Plan attributable to such participants.
Such investments in the Common Stock will be made by means of the West Essex
Bancorp, Inc. Stock Fund (the "Employer Stock Fund"). Based upon the value of
the Plan assets at March 31, 1998, 59,794 shares of the Common Stock could be
purchased with Plan assets (assuming a purchase price of $10.00 per share).
This Prospectus Supplement relates to the initial election of participants to
direct that all or a portion of their accounts be invested in the Employer Stock
Fund in connection with the Reorganization and Stock Offering and also to
elections by participants to direct that all or a portion of their accounts be
invested in the Employer Stock Fund after the Reorganization and Stock Offering
on a quarterly basis.
The prospectus dated _____________________, 1998, of the Bancorp (the
"Prospectus"), which is attached to this Prospectus Supplement, includes
detailed information with respect to the Reorganization and Stock Offering, the
Common Stock and the financial condition, results of operations and business of
the Bank. This Prospectus Supplement, which provides detailed information with
respect to the Plan, should be read only in conjunction with the Prospectus and
should be retained for future reference.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PARTICIPANT, SEE "RISK FACTORS."
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS ___________, 1998.
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION OR ANY OTHER STATE OR
FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS SUCH COMMISSION OR
OTHER AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT FEDERALLY INSURED OR GUARANTEED, NOR ARE THE SHARES OF
COMMON STOCK GUARANTEED BY THE COMPANY OR THE BANK. THE ENTIRE AMOUNT OF A
PURCHASER'S PRINCIPAL IS SUBJECT TO LOSS.
No person has been authorized to give any information or to make any
representations other than those contained in the Prospectus or this Prospectus
Supplement, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Bank or the Plan. This
Prospectus Supplement does not constitute an offer to sell or solicitation of an
offer to buy any securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Bank or the Plan since the date hereof, or
that the information herein contained or incorporated by reference is correct as
of any time subsequent to the date hereof.
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TABLE OF CONTENTS
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THE OFFERING ...................................................................
Securities Offered ........................................................
Election to Purchase the Common Stock in the Reorganization and
Stock Offering .......................................................
Value of Participation Interests ..........................................
Method of Directing Transfer ..............................................
Time for Directing Transfer ...............................................
Irrevocability of Transfer Direction ......................................
Direction to Purchase the Common Stock After the Reorganization and
Stock Offering ............................
Purchase Price of the Common Stock.........................................
Nature of a participant's Interest in the Common Stock.....................
Voting and Tender Rights of the Common Stock...............................
DESCRIPTION OF THE PLAN ........................................................
Introduction ..............................................................
Eligibility and Participation .............................................
Contributions Under the Plan ..............................................
Limitations on Contributions ..............................................
Investment of Contributions ...............................................
Benefits Under the Plan ...................................................
Withdrawals and Distributions From the Plan ...............................
Administration of the Plan ................................................
Reports to Plan participants ..............................................
Plan Administrator ........................................................
Amendment and Termination .................................................
Merger, Consolidation or Transfer .........................................
Federal Income Tax Consequences ...........................................
ERISA and Other Qualification .............................................
Restrictions on Resale ....................................................
SEC Reporting and Short-Swing Profit Liability ............................
LEGAL OPINION ..................................................................
TRANSFER FORM ..................................................................
</TABLE>
<PAGE>
THE OFFERING
SECURITIES OFFERED
The securities offered hereby are participation interests in the Plan. Up
to 59,794 shares (assuming the actual purchase price is $10.00 per share) of the
Common Stock may be acquired by the Plan to be held in the Employer Stock Fund.
The Bancorp is the issuer of the Common Stock. All eligible employees of the
Bank (hereinafter referred to as the "Employer") may participate in the Plan.
The Common Stock to be issued hereby is conditioned on the consummation of the
Reorganization and Stock Offering. A participant's investment in units in the
Employer Stock Fund in connection with the Reorganization and Stock Offering is
subject to priorities set forth in the Plan of Reorganization and Stock
Issuance.
Information with regard to the Plan is contained in this Prospectus
Supplement and information with regard to the Reorganization and Stock Offering
and the financial condition, results of operations and business of the Bank is
contained in the attached Prospectus. The address of the principal executive
office of the Bank is 417 Bloomfield Avenue, Caldwell, New Jersey 07006. The
Bank's telephone number is (973) 226-7911.
ELECTION TO PURCHASE THE COMMON STOCK IN THE REORGANIZATION AND STOCK OFFERING
In connection with the Reorganization and Stock Offering, the Plan has been
amended to permit each participant to direct that all or part of the funds which
represent his or her beneficial interest in the assets of the Plan may be
transferred to the Employer Stock Fund. To the extent shares are available,
these transferred funds will be used to purchase the Common Stock sold in the
Stock Offering , and to purchase the Common Stock in the open market. [IF THERE
IS NOT ENOUGH COMMON STOCK IN THE STOCK OFFERING TO FILL ALL SUBSCRIPTIONS, THE
COMMON STOCK WOULD BE APPORTIONED AND THE PLAN MAY NOT BE ABLE TO PURCHASE ALL
OF THE COMMON STOCK REQUESTED BY THE PARTICIPANTS. IN SUCH CASE, THE TRUSTEE
WILL PURCHASE SHARES IN THE OPEN MARKET AFTER THE STOCK OFFERING TO FULFILL
PARTICIPANTS' REQUESTS. SUCH PURCHASES MAY BE AT PRICES HIGHER THAN THE PURCHASE
PRICE IN THE STOCK OFFERING.] The ability of each participant to invest in the
Employer Stock Fund in the Reorganization and Stock Offering pursuant to
directions to transfer all or a portion of their beneficial assets in the Plan,
will be based on such participant's status as an Eligible Account Holder
(depositors whose accounts with the Bank totalled $50.00 or more on February 28,
1997), Supplemental Eligible Account Holder (depositors whose account totalled
$50.00 or more on _________, 1998) or Other Member (depositors of the Bank as of
the voting record date) pursuant to the Plan of Reorganization. No Eligible
Account Holders, Supplemental Eligible Account Holders or Other Member may
purchase in the Stock Offering more than $350,000 of the Common Stock. The
Trustee of the Plan will follow the participants' directions in transferring
funds to the Employer Stock Fund. Funds not transferred to the Employer Stock
Fund will remain in the other investment funds of the Plan as directed by the
participant on the attached Transfer Form.
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VALUE OF PARTICIPATION INTERESTS
The market value of the assets of the Plan, as of March 31, 1998, was
$597,949 and each participant was informed of the value of his or her beneficial
interest in the Plan. This value represented the past contributions to the Plan
by the participants and any earnings or losses thereon, less previous
withdrawals.
METHOD OF DIRECTING TRANSFER
The last page of this Prospectus Supplement is a form to direct a transfer
to the Employer Stock Fund (the "Transfer Form"). If a participant wishes to
transfer all or part (in multiples of not less than 1%) of his or her beneficial
interest in the assets of the Plan to the Employer Stock Fund being established
in connection with the Reorganization and Stock Offering, he or she should
indicate that decision in Part 2 of the Transfer Form. If a participant does not
wish to make such an election, he or she does not need to take any action.
TIME FOR DIRECTING TRANSFER
The deadline for submitting a direction to transfer amounts to the Employer
Stock Fund which will purchase the Common Stock issued in connection with the
Reorganization and Stock Offering is ten days prior to ____________________(the
"Expiration Date") of the Stock Offering. The Investment Form should be
returned to the Bank's Human Resources Department by _:__ p.m. on such date.
IRREVOCABILITY OF TRANSFER DIRECTION
A participant's direction to transfer amounts credited to such
participant's account in the Plan to the Employer Stock Fund in connection with
the Reorganization and Stock Offering shall be irrevocable. Participants,
however, will be able to direct the investment of their accounts ("Accounts")
after the Reorganization and Stock Offering under the Plan as explained below.
DIRECTION TO PURCHASE THE COMMON STOCK AFTER THE REORGANIZATION AND STOCK
OFFERING
After the Reorganization and Stock Offering, a participant shall be able to
direct that a certain percentage (in multiples of not less than 1%) of the net
value of such participant's interests in the trust fund established for the Plan
(the "Trust Fund") be transferred to the Employer Stock Fund and invested in the
Common Stock, or to the other investment funds available under the Plan.
Alternatively, a participant may direct that a certain percentage of such
participant's interest in the Employer Stock Fund be transferred to the Trust
Fund to be invested in accordance with the terms of the Plan. Participants will
be permitted to direct that future contributions made to the Plan by or on their
behalf will be invested in the Common Stock. Following the initial election, the
allocation of a participant's interest in the Employer Stock Fund may be changed
once each calendar quarter in any Plan Year by filing a written notice with the
plan administrator at least ten days before the effective date of the change.
Special
2
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restrictions apply to transfers directed by those participants who are officers,
directors and principal shareholders of the Bank who are subject to the
provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "1934 Act").
PURCHASE PRICE OF THE COMMON STOCK
The funds transferred to the Employer Stock Fund for the purchase of the
Common Stock in connection with the Reorganization and Stock Offering will be
used by the Trustee to purchase shares of the Common Stock. The price to be
paid by the Trust Fund for such shares of the Common Stock will be the same
price as is paid by all persons who purchase shares of the Common Stock in the
Reorganization and Stock Offering.
The Common Stock purchased by the Trustee after the Reorganization and
Stock Offering will be acquired in open market transactions. The prices paid by
the Trustee for shares of the Common Stock will not exceed "adequate
consideration" as defined in Section 3(18) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). Transaction fees associated with
purchase, sale or transfer of the Common Stock after the Reorganization and
Stock Offering will be paid by the Employer Stock Fund.
NATURE OF A PARTICIPANT'S INTEREST IN THE COMMON STOCK
A Participant's interest in the Employer Stock Fund does not consist of a
specific number of shares; rather, his interest consists of units whose value is
related to a pro rata portion of the net asset value ("NAV") of the Employer
Stock Fund. The NAV is determined daily and all realized and unrealized gains,
dividends, and expenses are used to calculate the NAV. For purposes of such
valuation, all assets of the Trust are valued at their fair market value. The
Common Stock in the Employer Stock Fund will be held in the name of the Trustee
for the Plan, as trustee.
VOTING AND TENDER RIGHTS OF THE COMMON STOCK
The Trustee generally will exercise voting and tender rights attributable
to all the Common Stock held by the Trust Fund as directed by participants with
interests in the Employer Stock Fund. With respect to each matter as to which
holders of the Common Stock have a right to vote, each participant will be
allocated a number of voting instruction rights reflecting such participant's
proportionate interest in the Employer Stock Fund. The number of shares of the
Common Stock held in the Employer Stock Fund that are voted in the affirmative
and negative on each matter shall be proportionate to the number of voting
instruction rights exercised in the affirmative and negative, respectively. In
the event of a tender offer for the Common Stock, the Plan provides that each
participant will be allotted a number of tender instruction rights reflecting
such participant's proportionate interest in the Employer Stock Fund. The
percentage of shares of the Common Stock held in the Employer Stock Fund that
will be tendered will be the same as the percentage of the total number of
tender instruction rights that are exercised in favor of tendering. The
remaining shares of the Common Stock held in the Employer Stock Fund will
3
<PAGE>
not be tendered. The Plan makes provision for participants to exercise their
voting instruction rights and tender instruction rights on a confidential basis.
DESCRIPTION OF THE PLAN
I. INTRODUCTION
Effective January 1, 1993, the Employer adopted the West Essex Savings Bank
401(k) Plan. Effective as of January 1, 1996, the West Essex Savings Bank 401(k)
Plan was amended and restated in its entirety and the Employer adopted
resolutions wherein RSI Retirement Trust was named successor trustee and the RSI
Retirement Trust Agreement was adopted. On ______, 1998, the Plan was amended to
provide for the Employer Stock Fund.
The Plan is a cash or deferred arrangement established in accordance with
the requirements under Section 401(a) and Section 401(k) of the Internal Revenue
Code of 1986 (the "Code"). The Plan, as amended, will be submitted to the
Internal Revenue Service (the "IRS") in a timely manner for a determination that
the amended Plan is qualified under Section 401(a) of the Code, and that its
related trust(s) are qualified under Section 501(a) of the Code. The Employer
intends that the Plan, in operation, will comply with the requirements under
Section 401(a) and Section 401(k) of the Code. The Employer will adopt any
amendments to the Plan that may be necessary to ensure the qualified status of
the Plan under the Code and applicable Treasury Regulations.
Employee Retirement Income Security Act. The Plan is an "individual
---------------------------------------
account plan" other than a "money purchase pension plan" within the meaning of
ERISA. As such, the Plan is subject to all of the provisions of Title I
(Protection of Employee Benefit Rights) and Title II (Amendments to the Internal
Revenue Code Relating to Retirement Plans) of ERISA, except the funding
requirements contained in Part 3 of Title I of ERISA which by their terms do not
apply to an individual account plan (other than a money purchase pension plan).
The Plan is not subject to Title IV (Plan Termination Insurance) of ERISA.
Neither the funding requirements contained in Part 3 of Title I of ERISA nor the
plan termination insurance provisions contained in Title IV of ERISA will be
extended to participants (as defined below) or beneficiaries under the Plan.
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS BENEFIT
UNDER THE PLAN PRIOR TO THE PARTICIPANT'S TERMINATION OF EMPLOYMENT WITH THE
BANK. A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE IMPOSED ON WITHDRAWALS MADE
PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59-1/2, REGARDLESS OF WHETHER SUCH
A WITHDRAWAL OCCURS DURING HIS EMPLOYMENT WITH THE BANK OR AFTER TERMINATION OF
EMPLOYMENT.
4
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Reference to Full Text of Plan. The following statements are summaries of
------------------------------
certain provisions of the Plan. They are not complete and are qualified in their
entirety by the full text of the Plan. Copies of the Plan are available to all
employees by filing a request with the Plan Administrator, Dennis A. Petrello,
West Essex Bank, FSB, 417 Bloomfield Avenue, Caldwell, New Jersey 07006 . The
Plan Administrator's telephone number is (973) 226-7911. Each employee is urged
to read carefully the full text of the Plan.
II. ELIGIBILITY AND PARTICIPATION
Any employee of the Employer may participate in the Plan upon satisfaction
of certain eligibility requirements, unless the employee belongs to one of the
groups of ineligible employees listed below. Employees satisfy the eligibility
requirements upon attainment of age 21 and completion of at least 182 days of
eligibility service with the Employer. Eligibility service is measured from an
employee's date of hire with the Employer. In order to commence participation,
an employee must submit an enrollment form at least 10 days in advance of the
date he desires to enter the Plan. Employees compensated on daily, fee or
retainer basis, leased employees (within the meaning of Section 414(n) of the
Code) and employees covered by a collective bargaining agreement which does not
expressly provide for their coverage under the Plan, are not eligible to
participate in the Plan ("ineligible employees").
As of March 31, 1998, there were approximately 46 employees eligible to
participate in the Plan, and 29 employees had elected to participate in the
Plan.
III. CONTRIBUTIONS UNDER THE PLAN
401(k) Plan Contributions. Subject to certain limitations on
-------------------------
contributions, each participant in the Plan is permitted to elect to reduce such
participant's Compensation (as defined below) pursuant to a "Compensation
Reduction Agreement" by an amount not less than 1% nor greater than 15% and have
that amount contributed to the Plan on such participant's behalf ("Before-Tax
Contributions"). Such amounts are credited to the participant's "Before-Tax
Contribution Account." See "Section IV Limitations on Contributions" below. For
purposes of the Plan, "Compensation" means an employee's wages, salary, fees and
other amounts defined as Compensation in Section 415(c)(3) of the Code and
related Income Tax Regulations received for personal services actually rendered
in the course of employment with the Employer for the calendar year prior to any
reduction pursuant to the Compensation Reduction Agreement. Compensation
includes commissions, overtime, bonuses, wage continuation payments to an
employee absent due to illness or disability of a short-term nature, amounts
paid or reimbursed by the Employer for employee moving expenses (to the extent
not deductible by the employee), and the value of any non-qualified stock
options granted to an employee by the Employer (to the extent includable in
gross income for the year granted). "Compensation" does not include
contributions made by the Employer to any other pension, deferred compensation,
welfare or other employee benefit plan, amounts realized from the exercise of a
non-qualified stock option or the sale of a qualified stock option, and other
amounts which receive special tax benefits. As of January 1, 1998, the annual
compensation of each participant taken into account under the
5
<PAGE>
Plan is limited to $160,000 (adjusted for increases in the cost of living as
permitted by the Code). Generally, a participant may elect to modify the amount
contributed to the Plan under such participant's Compensation Reduction
Agreement not more often than once in any calendar quarter by providing notice
to the Plan Administrator at least 10 days before commencement of the first day
of the payroll period for which the modification is to become effective.
However, special restrictions apply to persons subject to Section 16 of the 1934
Act. Before-Tax Contributions are transferred by the Employer to the Trustee of
the Plan.
Employer Contributions. The Employer may, in its sole and absolute
----------------------
discretion, make discretionary employer contributions to the Plan for a Plan
Year ("Discretionary Employer Contributions"). As of this date, no Discretionary
Employer Contributions have been made. After the Reorganization, at the
discretion of the Bank, the Discretionary Employer Contributions, if any, may be
credited to the participants' Accounts in the West Essex Bank, FSB Employee
Stock Ownership Plan. At its discretion, the Employer may also make special
contributions to the Plan as of the end of the Plan Year in an amount determined
by the Employer for the purpose of ensuring that the Plan complies with Section
401(k) of the Code ("Special Contributions"). Such amounts are credited to
participants' "Special Contribution Accounts" based on each participant's
compensation. Special Contributions may be made only to the accounts of non-
highly compensated eligible employees.
IV. LIMITATIONS ON CONTRIBUTIONS
Limitations on Annual Additions and Benefits. Pursuant to the requirements
--------------------------------------------
of the Code, the Plan provides that the amount of contributions allocated to
each Before-Tax Contribution Account and Discretionary Employer Contribution
Account during any Plan Year may not exceed the lesser of 25% of the
participant's Section 415 Compensation for the Plan Year or $30,000 (adjusted
for increases in the cost of living as permitted by the Code). A participant's
Section 415 Compensation is a participant's Compensation, excluding any Employer
contribution to the Plan or to any other plan of deferred compensation or any
distributions from a plan of deferred compensation. In addition, annual
additions shall be limited to the extent necessary to prevent the limitations
set forth in the Code for all of the qualified defined benefit plans and defined
contribution plans maintained by the Bank from being exceeded. To the extent
that these limitations would be exceeded by reason of excess annual additions
with respect to a participant, such excess will be disposed of as follows:
(i) Any excess amount in the participant's Accounts will be used to
reduce the Before-Tax Contributions, Discretionary Employer Contributions and/or
Special Contributions to be made on behalf of such participant in the next
Limitation Year, and each succeeding Limitation Year, if necessary, provided
that such participant is an eligible employee during such succeeding Limitation
Year; and
(ii) If, an excess amount still exists, and the participant is not covered
---
by the Plan at the end of the Limitation Year, any remaining excess amounts will
be allocated during the succeeding Limitation Year to each participant then
actively participating in the Plan. Such
6
<PAGE>
allocation shall be in proportion to the Before-Tax Contributions made to date
on his behalf for such Limitation Year; or the prior Limitation Year with
respect to an allocation as of the beginning of a Limitation Year, before any
other contributions are made in such succeeding Limitation Year.
Limitation on 401(k) Plan Contributions. The annual amount of deferred
---------------------------------------
Compensation under a Compensation Reduction Agreement of a Participant (when
aggregated with any elective deferrals of the Participant under a simplified
employee pension plan or a tax-deferred annuity) may not exceed $7,000 adjusted
for increases in the cost of living as permitted by the Code (the limitation for
1998 is $10,000). Contributions in excess of this limitation ("excess
deferrals") will be included in the Participant's gross income for federal
income tax purposes in the year they are made. In addition, any such excess
deferral will again be subject to federal income tax when distributed by the
Plan to the Participant, unless the excess deferral (together with any income
allocable thereto) is distributed to the Participant not later than the first
April 15 following the close of the taxable year in which the excess deferral is
made. Any income on the excess deferral that is distributed not later than such
date shall be treated, for federal income tax purposes, as earned and received
by the Participant in the taxable year in which the excess deferral is made.
Limitation on Plan Contributions for Highly Compensated Employees.
-----------------------------------------------------------------
Sections 401(k) and 401(m) of the Code limit the amount of deferred compensation
that may be made to the Plan in any Plan Year on behalf of Highly Compensated
Employees (defined below) in relation to the amount of deferred compensation
made by or on behalf of all other employees eligible to participate in the Plan.
Specifically, the percentage of Before-Tax Contributions made on behalf of a
Participant who is a Highly Compensated Employee shall be limited so that the
Average Actual Deferral Percentage for the group of such Highly Compensated
Employees for the Plan Year does not exceed the greater of (i) the Average
Actual Deferral Percentage for the group of eligible Employees who are Non-
Highly Compensated Employees for the Plan Year multiplied by 1.25; or (ii) the
Average Actual Deferral Percentage for the group of eligible Employees who are
Non-Highly Compensated Employees for the Plan Year, multiplied by two (2);
provided that the difference in the Average Actual Deferral Percentage for
eligible Non-Highly Compensated Employees does not exceed two percent (2%). Use
of this alternative limitation shall be subject to the provisions of Income Tax
Regulations Section 1.401(m)-2 regarding the multiple use of the alternative
deferral test set forth in Sections 401(k) and 401(m) of the Code.
In general, a Highly Compensated Employee includes any employee who, (1)
was a five percent owner of the Employer at any time during the year or
preceding year; or (2) had compensation for the preceding year in excess of
$80,000 and, if the Employer so elects, was in the top 20% of employees by
compensation for such year. The dollar amounts in the foregoing sentence are
for 1998. Such amounts are adjusted annually to reflect increases in the cost
of living.
In addition, the compensation of an employee who is a family member of a
5% owner, or one of the ten most highly compensated employees during the
relevant period is aggregated with
7
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that of the Highly Compensated Employee. All such family members are treated as
a single employee with respect to the application of the limitations on Highly
Compensated Employees.
In order to prevent the disqualification of the Plan, any amount
contributed by Highly Compensated Employees that exceed the average deferral
limitation in any Plan Year ("excess contributions"), together with any income
allocable thereto, must be distributed to such Highly Compensated Employees
before the close of the following Plan Year. However, the Employer will be
subject to a 10% excise tax on any excess contributions unless such excess
contributions, together with any income allocable thereto, either are
recharacterized or are distributed before the close of the first 2 1/2 months
following the Plan Year to which such excess contributions relate.
Top-Heavy Plan Requirements. If for any Plan Year the Plan is a Top-Heavy
---------------------------
Plan (as defined below), then (i) the Bank may be required to make certain
minimum contributions to the Plan on behalf of non-key employees (as defined
below), and (ii) certain additional restrictions would apply with respect to the
combination of annual additions to the Plan and projected annual benefits under
any defined benefit plan maintained by the Bank.
In general, the Plan will be regarded as a "Top-Heavy Plan" for any Plan
Year if, as of the last day of the preceding Plan Year, the aggregate balance of
the Accounts of participants who are Key Employees (as defined below) exceeds
60% of the aggregate balance of the Accounts of all participants. Key Employees
generally include any employee who, at any time during the Plan Year or any of
the four preceding Plan Years, is (1) an officer of the Bank having annual
compensation in excess of $60,000 who is in an administrative or policy-making
capacity, (2) one of the ten employees having annual compensation in excess of
$30,000 and owning, directly or indirectly, the largest interests in the Bank,
(3) a 5% owner of the Bank, (i.e., owns directly or indirectly more than 5% of
the stock of the Bank, or stock possessing more than 5% of the total combined
voting power of all stock of the Bank) or (4) a 1% owner of the Bank having
annual compensation in excess of $150,000. The dollar amounts in the foregoing
sentence are for 1998.
V. INVESTMENT OF CONTRIBUTIONS
All amounts credited to participants' Accounts under the Plan are held in
the Plan Trust (the "Trust") which is administered by the Trustee appointed by
the Bank's Board of Trustees.
Prior to [insert date of Prospectus here], the Accounts of a participant
held in the Trust have been invested by the Trustee at the direction of the
participant in the following funds:
a. Core Equity Fund: a diversified fund which seeks to achieve a total
return in excess of the total return of the Lipper Growth and Income
Mutual Funds Average measured over a period of three to five years.
b. Emerging Growth Equity Fund: a diversified fund which seeks to
maximize total return, primarily through capital appreciation, through
investments in securities of rapidly growing, emerging companies.
8
<PAGE>
c. Value Equity Fund: a diversified fund which seeks to achieve a total
return which exceeds the Lipper Growth and Mutual Funds Average
measured over a period of three to five years, primarily through
capital appreciation.
d. Actively Managed Bond Fund: a diversified fund which seeks through
selective investment in bonds and other debt securities, to achieve a
total return in excess of the Lipper U.S. Government Bond Funds
Average measured over a period of three to five years.
e. Intermediate-Term Bond Fund: a diversified fund which seeks to
achieve a total return in excess of the Lipper Short-Intermediate
(five to ten year maturity) U.S. Government Mutual Funds Average
measured over a period of three to five years.
f. Short-Term Investment Fund: a diversified fund which seeks current
income and stability of principal through investment in short term,
fixed-income securities, and seeks to achieve a 12 month total return
in excess of the average return of a broad-based universe of
institutional money market funds.
g. International Equity Fund: a diversified fund which seeks to achieve
a total return (currency adjusted) in excess of the total return of
the Lipper International Mutual Funds Average measured over a period
of three to five years.
The Plan, as amended effective _______, 1998, will provide that in addition
to the Funds specified above, a participant who is employed by the Bank may
direct the Trustee to invest all or a portion of his Accounts in the Employer
Stock Fund.
Once in any calendar quarter a participant may elect (in increments of 1%),
to have both past and future contributions and additions to his Accounts
invested in the Employer Stock Fund. These elections will be effective on the
effective date of the participant's written notice to the plan administrator,
provided such notice is filed with the administrator at least 10 days before it
is to become effective. Any amounts credited to a participant's Account for
which investment directions are not given will be invested in the Short-Term
Investment Fund in accordance with the terms of the Plan.
9
<PAGE>
A. Previous Funds.
--------------
Prior to the Reorganization and Stock Offering, contributions under the
Plan were invested in the Funds specified below. The annual percentage return
on these funds for the prior three years was:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------
<S> <C> <C> <C>
a. Core Equity Fund 25.32 21.53 40.17
b. Emerging Growth Equity Fund 8.25 27.09 42.83
c. Value Equity Fund 31.70 25.90 33.96
d. Actively Managed Bond Fund 9.70 3.15 17.70
e. Intermediate-Term Bond Fund 7.07 4.02 13.99
f. Short-Term Investment Fund 4.93 4.70 5.39
g. International Equity Fund 0.92 10.86 12.46
</TABLE>
B. The Employer Stock Fund.
------------------------
The Employer Stock Fund will consist of investments in the Common Stock
made on and after the effective date of the Reorganization and Stock Offering.
Each participant's proportionate undivided beneficial interest in the Employer
Stock Fund is measured by units. Each day a unit value will be calculated by
determining the market value of the Common Stock actually held and adding to
that any cash held by the Trustee. This total will be divided by the number of
units outstanding to determine the unit value of the Employer Stock Fund.
On the occasion of the payment of a cash dividend, the unit value will be
determined before the dividend is distributed. The Trustee may use the dividend
to purchase additional shares of the Common Stock, thereby increasing the total
value of the Employer Stock Fund, and the value of each unit. The Board of
Directors of the Bancorp may consider a policy of paying cash dividends on the
Common Stock in the future; however, no decision as to the amount or timing of
cash dividends, if any, has been made. The Trustee will, to the extent
practicable, use all amounts held by it in the Employer Stock Fund to purchase
shares of the Common Stock of the Bank. It is expected that all purchases will
be made at prevailing market prices. Under certain circumstances, the Trustee
may be required to limit the daily volume of shares purchased. Pending
investment in the Common Stock, assets held in the Employer Stock Fund will be
placed in bank deposits and other short-term investments.
Any brokerage commissions, transfer fees and other expenses incurred in the
sale and purchase of the Common Stock for the Employer Stock Fund will be paid
out of a cash account
10
<PAGE>
managed by the Trustee. Therefore, although participants' accounts will not be
directly adjusted for such fees, the market value of their accounts will be
reduced.
As of the date of this Prospectus Supplement, none of the shares of the
Common Stock have been issued or are outstanding and there is no established
market for the Common Stock. Accordingly, there is no record of the historical
performance of the Employer Stock Fund. Performance will be dependent upon a
number of factors, including the financial condition and profitability of the
Bancorp and the Bank and market conditions for the Common Stock generally. See
"Market for the Common Stock" in the Prospectus.
INVESTMENTS IN THE EMPLOYER STOCK FUND MAY INVOLVE CERTAIN SPECIAL RISKS IN
INVESTMENTS IN THE COMMON STOCK OF THE BANCORP. FOR A DISCUSSION OF THESE RISK
FACTORS, SEE "RISK FACTORS" IN THE PROSPECTUS.
VI. BENEFITS UNDER THE PLAN
Vesting. A participant, at all times, has a fully vested, nonforfeitable
-------
interest in his Before-Tax Contribution Account and the earnings thereon under
the Plan. A participant vests in his Discretionary Employer Contribution
Account under the Plan according to the following schedule:
<TABLE>
<CAPTION>
PERIOD OF SERVICE VESTED PERCENTAGE
-------------------------- -------------------
<S> <C>
1 year 0%
2 years but less than 3 20
3 years but less than 4 40
4 years but less than 5 60
5 years but less than 6 80
6 years or more 100
</TABLE>
VII. WITHDRAWALS AND DISTRIBUTIONS FROM THE PLAN
Withdrawals Prior to Termination of Employment. Plan participants may take
----------------------------------------------
in-service distributions under limited circumstances in the form of non-hardship
distributions, hardship distributions and Plan loans. In the case of non-
hardship withdrawals, a participant may make a withdrawal from his Before-Tax
Contribution Account, Rollover Contribution Account, and Discretionary Employer
Contribution Account after he turns 59 1/2. Such withdrawals may not be made
more often than once during any Plan Year. Participants may also be eligible
for hardship withdrawals. In order to qualify for a hardship withdrawal, a
participant must have an immediate and substantial need to meet certain expenses
and have no other reasonably available resources to meet the financial need. If
a participant qualifies for a hardship distribution, the distribution will be
made, pro rata, from the Investment Funds in which a participant has invested
his account balances. Participants may not make more than one hardship
withdrawal in any calendar year.
11
<PAGE>
In addition to hardship and non-hardship distributions, Plan participants
may borrow against Plan accounts at any time for any reason. The minimum amount
a participant may borrow is $500 and the maximum amount is the lesser of 50% of
a participant's vested portion of his accounts or $50,000 (reduced by
outstanding loans). Such withdrawals may not be made more often than two (2)
times during any Plan Year.
Distribution Upon Retirement, Disability or Termination of Employment.
---------------------------------------------------------------------
Payment of benefits to a participant who retires, incurs a disability, or
otherwise terminates employment generally shall be made in a lump sum cash
payment as soon as administratively feasible after such termination of
employment if the vested value of the participant's Account is $5,000 or less.
If the vested portion of the participant's Account balance is greater than
$5,000, the participant may request a distribution (subject to the minimum
distribution rules) in a lump sum payment: (a) as soon as administratively
possible after termination, (b) as of any valuation date up to 13 months after
termination or (c) as of the date the participant attains normal retirement age.
At the request of the participant, the distribution may include an in kind
distribution of the Common Stock of the Holding Company equal to the number of
shares that can be purchased with the participant's balance in the Employer
Stock Fund. Benefit payments ordinarily shall be made not later than 60 days
following the end of the Plan Year in which occurs the latest of the
participant's: (i) termination of employment; (ii) the attainment of age 65 or
(iii) 10th anniversary of commencement of participation in the Plan; but in no
event paid later than the April 1st of the later of (a) the calendar year
following the calendar year in which the participant attains age 70 1/2 or (b)
the calendar year in which a participant retires. However, if the vested
portion of the participant's Account balances exceeds or has ever exceeded
$5,000, no distribution shall be made from the Plan prior to the participant's
attaining age 65 unless the participant elects to receive an earlier
distribution.
Distribution upon Death. A participant who dies prior to the benefit
-----------------------
commencement date for retirement, disability or termination of employment, and
who has a surviving spouse shall have his benefits paid to the surviving spouse
in a lump sum as soon as administratively possible following the date of his
death, unless the participant elected prior to his death or the beneficiary so
elects within 90 days of the participant's death, to receive such distribution
in a lump sum payment as of any Valuation Date which occurs within one year of
the participant's death. With respect to an unmarried participant, and in the
case of a married participant with spousal consent to the designation of another
beneficiary, payment of benefits to the beneficiary of a deceased participant
shall be made in the form of a lump-sum payment in cash or in the Common Stock
in the same manner described above as to a participant with a surviving spouse.
Nonalienation of Benefits. Except with respect to federal income tax
-------------------------
withholding and as provided with respect to a qualified domestic relations order
(as defined in the Code), benefits payable under the Plan shall not be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to
benefits payable under the Plan shall be void.
12
<PAGE>
ADMINISTRATION OF THE PLAN
The Trustee with respect to the Plan is the named fiduciary of the Plan for
purposes of Section 402 of ERISA.
Trustees. The Trustee is appointed by the Board of Trustees of the Bank to
--------
serve at its pleasure. The current Trustee of the Plan is the RSI Retirement
Trust. However, an additional Trustee may be appointed to hold funds invested
in the Employer Stock Fund.
The Trustee receives, holds and invests the contributions to the Plan in
trust and distributes them to participants and beneficiaries in accordance with
the terms of the Plan and the directions of the Plan Administrator. The Trustee
is responsible for investment of the assets of the Trust.
REPORTS TO PLAN PARTICIPANTS
The Plan Administrator will furnish to each participant a statement at
least quarterly showing (i) the balance in the participant's Account as of the
end of that period, (ii) the amount of contributions allocated to such
participant's Account for that period, and (iii) the adjustments to such
participant's Account to reflect earnings or losses (if any).
PLAN ADMINISTRATOR
Pursuant to the terms of the Plan, the Plan is administered by one or more
persons who are appointed by and who serve at the pleasure of the Bank.
Currently, the Plan Administrator is Dennis A. Petrello of the Bank. The
address and telephone number of the Plan Administrator is West Essex Bank, 417
Bloomfield Avenue, Caldwell, New Jersey 07006, (973) 226-7911. The Plan
Administrator is responsible for the administration of the Plan, interpretation
of the provisions of the Plan, prescribing procedures for filing applications
for benefits, preparation and distribution of information explaining the Plan,
maintenance of Plan records, books of account and all other data necessary for
the proper administration of the Plan, and preparation and filing of all returns
and reports relating to the Plan which are required to be filed with the U.S.
Department of Labor and the IRS, and for all disclosures required to be made to
participants, Beneficiaries and others under Sections 104 and 105 of ERISA.
AMENDMENT AND TERMINATION
It is the intention of the Bank to continue the Plan indefinitely.
Nevertheless, the Bank may terminate the Plan at any time. If the Plan is
terminated in whole or in part, then regardless of other provisions in the Plan,
each employee affected by such termination shall have a fully vested interest in
his Accounts. The Bank reserves the right to make, from time to time, any
amendment or amendments to the Plan which do not cause any part of the Trust to
be used for, or diverted to, any purpose other than the exclusive benefit of
participants or their beneficiaries;
13
<PAGE>
provided, however, that the Bank may make any amendment it determines necessary
or desirable, with or without retroactive effect, to comply with ERISA.
MERGER, CONSOLIDATION OR TRANSFER
In the event of the merger or consolidation of the Plan with another plan,
or the transfer of the Trust assets to another plan, the Plan requires that each
participant would (if either the Plan or the other plan then terminated) receive
a benefit immediately after the merger, consolidation or transfer which is equal
to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan had then
terminated).
FEDERAL INCOME TAX CONSEQUENCES
The following is only a brief summary of certain federal income tax aspects
of the Plan which are of general application under the Code and is not intended
to be a complete or definitive description of the federal income tax
consequences of participating in or receiving distributions from the Plan. The
summary is necessarily general in nature and does not purport to be complete.
Moreover, statutory provisions are subject to change, as are their
interpretations, and their application may vary in individual circumstances.
Finally, the consequences under applicable state and local income tax laws may
not be the same as under the federal income tax laws. PARTICIPANTS ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO ANY DISTRIBUTION FROM THE PLAN AND
TRANSACTIONS INVOLVING THE PLAN.
The Plan will be submitted to the IRS in a timely manner for a
determination that it is qualified under Section 401(a) and 401(k) of the Code,
and that the related Trust is exempt from tax under Section 501(a) of the Code.
A plan that is "qualified" under these sections of the Code is afforded special
tax treatment which include the following: (1) The sponsoring employer is
allowed an immediate tax deduction for the amount contributed to the Plan each
year; (2) participants pay no current income tax on amounts contributed by the
employer on their behalf; and (3) earnings of the plan are tax-deferred thereby
permitting the tax-free accumulation of income and gains on investments. The
Plan will be administered to comply in operation with the requirements of the
Code as of the applicable effective date of any change in the law. The Bank
expects to timely adopt any amendments to the Plan that may be necessary to
maintain the qualified status of the Plan under the Code. Following such an
amendment, the Bank will submit the Plan to the IRS for a determination that the
Plan, as amended, continues to qualify under Sections 401(a) and 501(a) of the
Code and that it continues to satisfy the requirements for a qualified cash or
deferred arrangement under Section 401(k) of the Code. Should the Plan receive
from the IRS an adverse determination letter regarding its tax exempt status,
all participants would generally recognize income equal to their vested interest
in the Plan, the participants would not be permitted to transfer amounts
distributed from the Plan to an IRA or to another qualified retirement plan, and
the Bank may be denied certain deductions taken with respect to the Plan.
14
<PAGE>
Lump Sum Distribution. A distribution from the Plan to a participant or
---------------------
the beneficiary of a participant will qualify as a Lump Sum Distribution if it
is made: (i) within one taxable year of the participant or beneficiary; (ii) on
account of the participant's death, disability or separation from service, or
after the participant attains age 59 1/2; and (iii) consists of the balance to
the credit of the participant under this Plan and all other profit sharing
plans, if any, maintained by the Bank. The portion of any Lump Sum Distribution
that is required to be included in the participant's or beneficiary's taxable
income for federal income tax purposes (the "total taxable amount") consists of
the entire amount of such Lump Sum Distribution less the amount of after-tax
contributions, if any, made by the participant to any other profit sharing plans
maintained by the Bank which is included in such distribution.
Averaging Rules. The portion of the total taxable amount of a Lump Sum
---------------
Distribution that is attributable to participation after 1973 in this Plan or in
any other profit-sharing plan maintained by the Bank (the "ordinary income
portion") will be taxable generally as ordinary income for federal income tax
purposes. However, a participant who has completed at least five (5) years of
participation in this Plan before the taxable year in which the distribution is
made, or a beneficiary who receives a Lump Sum Distribution on account of the
participant's death (regardless of the period of the participant's participation
in this Plan or any other profit-sharing plan maintained by the Employers), may
elect to have the ordinary income portion of such Lump Sum Distribution taxed
according to a special averaging rule ("five-year averaging"). The election of
the special averaging rules may apply only to one Lump Sum Distribution received
by the participant or beneficiary, provided such amount is received on or after
the participant turns 59-1/2 and the recipient elects to have any other Lump Sum
Distribution from a qualified plan received in the same taxable year taxed under
the special averaging rule. Under a special grandfather rule, individuals who
turned 50 by 1986 may elect to have their Lump Sum Distribution taxed under
either the five-year averaging rule or under the prior law ten-year averaging
rule. Such individuals also may elect to have that portion of the Lump Sum
Distribution attributable to the participant's pre-1974 participation in the
Plan taxed at a flat 20% rate as gain from the sale of a capital asset.
The Common Stock Included in Lump Sum Distribution. If a Lump Sum
--------------------------------------------------
Distribution includes the Common Stock, the distribution generally will be taxed
in the manner described above, except that the total taxable amount will be
reduced by the amount of any net unrealized appreciation with respect to such,
i.e., the excess of the value of such Common Stock at the time of the
distribution over its cost or other basis of the securities to the Trust. The
tax basis of such Common Stock to the participant or beneficiary for purposes of
computing gain or loss on its subsequent sale will be the value of the Common
Stock at the time of distribution less the amount of net unrealized
appreciation. Any gain on a subsequent sale or other taxable disposition of
such Common Stock, to the extent of the amount of net unrealized appreciation at
the time of distribution, will be considered long-term capital gain regardless
of the holding period of such Common Stock. Any gain on a subsequent sale or
other taxable disposition of the Common Stock in excess of the amount of net
unrealized appreciation at the time of distribution will be considered long-term
capital gain regardless of the holding period of the Common Stock. Any gain on a
subsequent sale or other taxable disposition of the Common Stock in excess of
the
15
<PAGE>
amount of net unrealized appreciation at the time of distribution will be
considered either short-term, mid-term or long-term capital gain depending upon
the length of the holding period of the Common Stock. The recipient of a
distribution may elect to include the amount of any net unrealized appreciation
in the total taxable amount of such distribution to the extent allowed by the
regulations to be issued by the IRS.
Distributions: Rollovers and Direct Transfers to Another Qualified Plan or
---------------------------------------------------------------------------
to an IRA. Pursuant to a change in the law, effective January 1, 1993, virtually
- ----------
all distributions from the Plan may be rolled over to another qualified Plan or
to an individual retirement account ("IRA") without regard to whether the
distribution is a Lump Sum Distribution or a Partial Distribution. Effective
January 1, 1993, participants have the right to elect to have the Trustee
transfer all or any portion of an "eligible rollover distribution" directly to
another plan qualified under Section 401(a) of the Code or to an IRA. If the
participant does not elect to have an "eligible rollover distribution"
transferred directly to another qualified plan or to an IRA, the distribution
will be subject to an mandatory federal withholding tax equal to 20% of the
taxable distribution. An "eligible rollover distribution" means any amount
distributed from the Plan except: (1) a distribution that is (a) one of a
series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the participant or the joint
lines of the participant and his or her designated beneficiary, or (b) for a
specified period of ten years or more; (2) any amount that is required to be
distributed under the minimum distribution rules; and (3) any other
distributions excepted under applicable federal law. The tax law change
described above did not modify the special tax treatment of Lump Sum
Distributions, that are not rolled over or transferred i.e., forward averaging,
capital gains tax treatment and the nonrecognition of net unrealized
appreciation, discussed earlier.
ERISA AND OTHER QUALIFICATION
As noted above, the Plan is subject to certain provisions of ERISA and will
be submitted to the IRS for a determination that it is qualified under Section
401(a) of the Code.
THE FOREGOING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX ASPECTS
OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED
TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN.
ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT A TAX ADVISOR CONCERNING THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.
RESTRICTIONS ON RESALE
Any person receiving a distribution of shares of Common Stock under the
Plan who is an "affiliate" of the Bank as the term "affiliate" is used in Rules
144 and 405 under the Securities Act of 1933, as amended (the "Securities Act")
(e.g., directors, officers and substantial shareholders of the Bank) may reoffer
or resell such shares only pursuant to a registration statement filed under the
Securities Act assuming the availability thereof, pursuant to Rule 144
16
<PAGE>
or some other exemption of the registration requirements of the Securities Act
Any person who may be an "affiliate" of the Bank may wish to consult with
counsel before transferring any Common Stock owned by him. In addition,
participants are advised to consult with counsel as to the applicability of
Section 16 of the 1934 Act which may restrict the sale of Common Stock where
acquired under the Plan, or other sales of Common Stock.
Persons who are not deemed to be "affiliates" of the Bank at the time of
---
resale will be free to resell any shares of Common Stock to them under the Plan,
either publicly or privately, without regard to the Registration and Prospectus
delivery requirements of the Securities Act or compliance with the restrictions
and conditions contained in the exemptive rules thereunder. An "affiliate" of
the Bank is someone who directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control, with the
Bank. Normally, a director, principal officer or major shareholder of a
corporation may be deemed to be an "affiliate" of that corporation. A person
who may be deemed an "affiliate" of the Bank at the time of a proposed resale
will be permitted to make public resales of the Bank's Common Stock only
pursuant to a "reoffer" Prospectus or in accordance with the restrictions and
conditions contained in Rule 144 under the Securities Act or some other
exemption from registration, and will not be permitted to use this Prospectus in
connection with any such resale. In general, the amount of the Bank's Common
Stock which any such affiliate may publicly resell pursuant to Rule 144 in any
three-month period may not exceed the greater of one percent of the Bank's
Common Stock then outstanding or the average weekly trading volume reported on
the National Association of Securities Dealers Automated Quotation System during
the four calendar weeks prior to the sale. Such sales may be made only through
brokers without solicitation and only at a time when the Bank is current in
filing the reports required of it under the 1934 Act.
SEC REPORTING AND SHORT-SWING PROFIT LIABILITY
Section 16 of the 1934 Act imposes reporting and liability requirements on
officers, directors and persons beneficially owning more than ten percent of
public companies such as the Holding Company. Section 16(a) of the 1934 Act
requires the filing of reports of beneficial ownership. Within ten days of
becoming a person subject to the reporting requirements of Section 16(a), a Form
3 reporting initial beneficial ownership must be filed with the Securities and
Exchange Commission. Certain changes in beneficial ownership, such as
purchases, sales, gifts and participation in savings and retirement plans must
be reported periodically, either on a Form 4 within ten days after the end of
the month in which a change occurs, or annually on a Form 5 within 45 days after
the close of the Bank's fiscal year. Participation in the Employer Stock Fund
of the Plan by officers, directors and persons beneficially owning more than ten
percent of Common Stock of the Holding Company must be reported to the SEC
annually on a Form 5 by such individuals.
In addition to the reporting requirements described above, Section 16(b) of
the 1934 Act provides for the recovery by the Holding Company of profits
realized by any officer, director or any person beneficially owning more than
ten percent of the Bancorp's Common Stock ("Section
17
<PAGE>
16(b) Persons") resulting from the purchase and sale or sale and purchase of the
Common Stock within any six-month period.
The SEC has adopted rules that provide exemption from the profit recovery
provisions of Section 16(b) for participant-directed employer security
transactions within an employee benefit plan, such as the Plan, provided certain
requirements are met. These requirements generally involve restrictions upon
the timing of elections to acquire or dispose of employer securities for the
accounts of Section 16(b) Persons.
Except for distributions of the Common Stock due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order, Section 16(b) Persons are required to hold shares of the Common Stock
distributed from the Plan for six months following such distribution.
LEGAL OPINIONS
The validity of the issuance of the Common Stock will be passed upon by
Muldoon, Murphy & Faucette, Washington, D.C., which firm acted as special
counsel for the Bank in connection with the Reorganization.
18
<PAGE>
WEST ESSEX BANK, FSB
401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST
Transfer Form
-------------
Name of Plan participant: ________________________________
Social Security Number: ________________________________
1. INSTRUCTIONS. In connection with the proposed Reorganization, the
------------
West Essex Bank, FSB 401(k) Savings Plan in RSI Retirement Trust ("Plan") has
been amended to permit participants to direct their current account balances for
their Before-Tax Contribution Account, Discretionary Employer Contribution
Account and Rollover Account into a new fund: the Employer Stock Fund. The
percentage of a participant's account transferred at the direction of the
participant into the Employer Stock Fund will be used to purchase shares of
common stock of West Essex Bancorp, Inc. (the "Common Stock").
To direct a transfer of all or a part of the funds credited to your
accounts to the Employer Stock Fund, you should complete and file this form with
the Human Resources Department, no later than 10 days prior to the expiration
date of the Offering (_____________, 1998.) A representative for the Plan
Administrator will retain a copy of this form and return a copy to you. If you
need any assistance in completing this form, please contact _____________ at
______________. If you do not complete and return this form to the Plan
Administrator by ____________, the funds credited to your accounts under the
Plan will continue to be invested in accordance with your prior investment
direction, or in accordance with the terms of the Plan if no investment
direction has been provided.
2. INVESTMENT DIRECTIONS. I hereby authorize the Plan Administrator to direct
the Trustee to invest the following percentage (in multiples of not less than
1%) of my Basic Contribution Account, Company Contribution Account and Rollover
Account in the Employer Stock Fund:
a. Core Equity Fund ____%
b. Emerging Growth Fund ____%
c. Value Equity Fund ____%
d. Actively Managed Bond Fund ____%
e. Intermediate - Term Investment Fund ____%
f. Short-Term Investment Fund ____%
g. International Equity Fund ____%
NOTE: The total percentage of directed investments, above, may not exceed 100%.
3. PURCHASER INFORMATION. The ability of participants in the Plan to
purchase Common Stock in the Reorganization and to direct their current account
balances into the Employer Stock Fund is based upon the participant's status as
an Eligible Account Holder, Supplemental Eligible Account Holder or Other
Member. Please indicate your status.
a. [_] Eligible Account Holder - Check here if you were a
depositor with $50.00 or more on deposit with West
Essex Bank, FSB as of February 28, 1997.
b. [_] Supplemental Eligible Account Holder - Check here if
you were a depositor with $50.00 or more on deposit
with West Essex Bank, FSB as of ____________, but are
not an Eligible Account Holder.
c. [_] Other Member - Check here if you were a depositor on
___________ ("Voting Record Date").
4. ACKNOWLEDGMENT OF PARTICIPANT. I understand that this Transfer Form shall
be subject to all of the terms and conditions of the Plan. I acknowledge that I
have received a copy of the Prospectus and the Prospectus Supplement.
- ------------------- -----------
Signature of Participant Date
19
<PAGE>
______________________________________
ACKNOWLEDGMENT OF RECEIPT BY ADMINISTRATOR. This Investment Form was received
by the Plan Administrator and will become effective on the date noted below.
______________ __________
By:______________ Date
THE PARTICIPATION INTERESTS REPRESENTED BY COMMON STOCK OFFERED HEREBY ARE
NOT DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE BANK INSURANCE FUND OR THE
SAVINGS ASSOCIATION INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY THE COMPANY OR BANK.
THE COMMON STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF
THE PRINCIPAL INVESTED.
20
<PAGE>
[To be used in connection with the Syndicated Community Offering only]
SYNDICATED PROSPECTUS SUPPLEMENT
WEST ESSEX BANCORP, INC.
(PROPOSED STOCK HOLDING COMPANY FOR WEST ESSEX BANK, F.S.B.)
__________ SHARES OF COMMON STOCK
West Essex Bancorp, Inc. ("Bancorp"), a federally chartered corporation, is
offering for sale in a syndicated community offering (the "Syndicated Community
Offering") __________ shares, at a per share price of $10.00, of its common
stock, par value $.01 per share (the "Common Stock"), in a minority stock
offering in connection with the reorganization of West Essex Bank, F.S.B. (the
"Bank" or "West Essex") from a federally chartered mutual savings bank to a
federally chartered stock savings bank in the federal mutual holding company
form of organization (the "Reorganization"). As part of the Reorganization, the
Bank will become a wholly owned subsidiary of Bancorp and Bancorp will issue a
majority of its Common Stock to West Essex Bancorp, M.H.C., a mutual holding
company (the "Mutual Company"), and, pursuant to the Bank's Plan of
Reorganization and Stock Issuance (the "Plan"), Bancorp will sell a minority of
its Common Stock to the public (the "Offering"). The remaining __________ shares
of the Common Stock will be offered on a priority basis in a subscription and
community offering to the public (the "Subscription and Community Offerings")
to holders of deposit accounts with the Bank with a balance of $50 or more as of
February 28, 1997, by the West Essex Bank Employee Stock Ownership Plan, a tax-
qualified employee benefit plan, and related trust (the "ESOP"), by holders of
deposit accounts with the Bank with a balance of $50 or more as of
______________, 1998, by certain other account holders of the Bank and, then, by
certain members of the general public. See "The Reorganization and Stock
Offering." Contained herein is the Prospectus in the form used in the
Subscription and Community Offerings. The purchase price for all shares sold in
the Syndicated Community Offering will be the same as the price paid by
subscribers in the Subscription and Community Offerings (the "Purchase Price").
The Purchase Price of $10.00 per share is the amount to be paid for each share
at the time a purchase order is submitted. See the cover page of the Prospectus
and the table below for information as to the method by which the range within
which the number of shares offered may vary and the method of subscribing for
shares of the Common Stock.
Funds submitted to the Bank with purchase orders will earn interest at the
Bank's passbook rate of interest from the date of receipt until completion or
termination of the Reorganization and Offering. The Syndicated Community
Offering will expire no later than _______________, 199_, unless extended by the
Bank and Bancorp with the approval of the Office of Thrift Supervision (the
"OTS"). Such extensions may not go beyond _______________, 199_. If an
extension of time has been granted, all subscribers will be notified of such
extension, and of their rights to confirm their subscriptions, or to modify or
rescind their subscriptions and have their funds returned promptly with
interest, and of the time period within which the subscriber must notify the
Bank of his intention to confirm, modify or rescind his subscription. If an
affirmative response to any resolicitation is not
<PAGE>
received by the Bank and Bancorp from subscribers, such orders will be rescinded
and all funds will be returned promptly with interest. The minimum number of
shares which may be purchased is 25 shares. Except for the ESOP, which may
purchase up to 10% of the total number of shares of Common Stock issued in the
Offering, no person, together with associates of and persons acting in concert
with such person, may purchase more than the total number of shares offered in
the Community Offering and the Syndicated Community Offering that could be
purchased for $350,000 at the Purchase Price and the maximum number of shares of
Common Stock which may be subscribed for or purchased by any person together
with any associate or group or persons acting in concert shall not exceed
$700,000 of the Common Stock offered. See "Plan of Reorganization and Stock
Offering - Limitations on Common Stock Purchases." The Company reserves the
right, in its absolute discretion, to accept or reject, in whole or in part, any
or all subscriptions in the Syndicated Community Offering.
Bancorp and the Bank have engaged Sandler, O'Neill & Partners, L.P.
("Sandler O'Neill") as financial advisors to assist them in the sale of the
Common Stock in the Syndicated Community Offering. It is anticipated that
Sandler O'Neill will use the services of other registered broker-dealers
("Selected Dealers") and that fees to Sandler O'Neill and such Selected Dealers
will not exceed 7% of the aggregate Purchase Price of the shares sold in the
Syndicated Community Offering. Neither Sandler O'Neill nor any Selected Dealer
shall have any obligation to take or purchase any shares of Common Stock in the
Syndicated Community Offering.
Bancorp has applied to have its Common Stock quoted on the Nasdaq National
Market ("Nasdaq") under the symbol "WEBK." Prior to this offering, there has
not been a public market for the Common Stock, and there can be no assurance
that an active and liquid trading market for the Common Stock will develop. The
absence or discontinuance of a market may have an adverse impact on both the
price and liquidity of the stock.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, DEPARTMENT OF THE
TREASURY, OR ANY OTHER FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION, NOR
HAS SUCH COMMISSION, OFFICE, OTHER AGENCY OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED.
2
<PAGE>
<TABLE>
<CAPTION>
Estimated Net
Estimated Proceeds
Underwriting Estimated Net of Subscription,
Commissions Proceeds of Community
Syndicated and Other Syndicated and Syndicated
Community Fees and Community Community
Offering Price Expenses(1) Offering Offerings(2)(3)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Minimum Per Share $10.00 $ $ $
- -------------------------------------------------------------------------------------------------
Midpoint Per Share $10.00 $ $ $
- -------------------------------------------------------------------------------------------------
Maximum Per Share $10.00 $ $ $
- -------------------------------------------------------------------------------------------------
Total Minimum(4) $ $ $ $
- -------------------------------------------------------------------------------------------------
Total Midpoint $ $ $ $
- -------------------------------------------------------------------------------------------------
Total Maximum(4) $ $ $ $
- -------------------------------------------------------------------------------------------------
Total Maximum, As Adjusted(5) $ $ $ $
- -------------------------------------------------------------------------------------------------
</TABLE>
______________________________
(1) Consists of a pro rata allocation of estimated expenses of the Bank and
Bancorp in connection with the Reorganization and Offering (other than
estimated fees to be paid to Sandler O'Neill for services in connection with
the Subscription and Community Offerings) and estimated compensation of
Sandler O'Neill and Selected Dealers in connection with the sale of the
remaining shares in the Syndicated Community Offering which fees are
estimated to be $__________ and $__________ at the minimum and the maximum
of the estimated price range and may be deemed to be underwriting fees. The
information under "Pro Forma Data" in the Prospectus was based on the
assumptions stated therein, which may differ from the estimates used for
this table. See "The Conversion - Marketing and Underwriting Arrangements"
for a more detailed discussion of fee arrangements.
(2) Bancorp applied to retain up to 40% of the net proceeds. The balance of the
net proceeds will be transferred to the Bank in exchange for all of the
capital stock of the Bank to be issued in connection with the Reorganization
and Offering.
(3) The net proceeds of the Subscription and Community Offerings (based upon the
sale of the __________ shares subscribed for at a price of $_____ per share
and after allocation of a pro rata portion of the estimated expenses
relating to the Reorganization and Offering) are estimated to be
$__________.
(4) Based on an offering range of $__________ to $__________ at $10.00 per share
(the "Offering Range"). The Total Minimum reflects the sale of __________
shares at a per share price of $10.00, leaving a total of __________ shares
to be sold in the Syndicated Community Offering.
(5) Gives effect to an increase in the number of shares which could occur due to
an increase in the Offering Range of up to 15% to reflect changes in market
and financial conditions following commencement of the offerings. See "The
Reorganization and Offering - Stock Pricing." For a discussion of the
distribution and allocation of the additional shares, see "The
Reorganization and Offering - Subscription Rights and Limitations on Common
Stock Purchases."
SANDLER O'NEILL & PARTNERS, L.P.
_________________________________
The date of this Prospectus Supplement is _______________, 1998.
3
<PAGE>
PROSPECTUS
WEST ESSEX BANCORP, INC.
2,071,955 (Anticipated Maximum) Shares of Common Stock
West Essex Bancorp, Inc. ("Bancorp") a federally chartered corporation, is
offering up to 2,071,955 shares of its common stock, par value $.01 per share
(the "Common Stock"), for a purchase price of $10.00 per share (the "Purchase
Price") in a minority stock offering in connection with the reorganization of
West Essex Bank, F.S.B. (the "Bank" or "West Essex") from a federally chartered
mutual savings bank to a federally chartered stock savings bank in the federal
mutual holding company form of organization (the "Reorganization"). As part of
the Reorganization, the Bank will become a wholly owned subsidiary of Bancorp
and Bancorp will issue a majority of its Common Stock to West Essex Bancorp,
M.H.C., a mutual holding company (the "Mutual Company"), and, pursuant to
Bancorp's Plan of Mutual Holding Company Reorganization and Stock Issuance (the
"Plan"), sell a minority of its Common Stock to the public as described herein.
Depending on changes in market and financial conditions, the number of shares
offered may be increased to 2,382,748 shares following commencement of the
offering.
(continued on following page)
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" BEGINNING ON PAGE 15.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION OR ANY OTHER FEDERAL
AGENCY, OR BY ANY STATE SECURITIES COMMISSION, NOR HAS SUCH COMMISSION,
OFFICE, OTHER AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND
OR ANY OTHER GOVERNMENT AGENCY NOR ARE THEY INSURED OR
GUARANTEED BY THE BANK.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
ESTIMATED
ESTIMATED UNDERWRITING
MINORITY COMMISSIONS
PURCHASE OWNERSHIP AND OTHER FEES ESTIMATED
PRICE(1) REST(1)(2) AND EXPENSES(3) NET PROCEEDS
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Minimum Per Share............. $ 10.00 N/A $ .06 $ 9.94
-----------------------------------------------------------------------------------------------------
Midpoint Per Share............ $ 10.00 N/A $ .05 $ 9.95
-----------------------------------------------------------------------------------------------------
Maximum Per Share............. $ 10.00 N/A $ .04 $ 9.96
-----------------------------------------------------------------------------------------------------
Total Minimum................. $15,314,450 43% $851,000 $14,463,450
-----------------------------------------------------------------------------------------------------
Total Midpoint................ $18,017,000 43% $889,000 $17,128,000
-----------------------------------------------------------------------------------------------------
Total Maximum................. $20,719,550 43% $926,000 $19,793,550
-----------------------------------------------------------------------------------------------------
Total Maximum, as adjusted(4) $23,827,480 43% $969,000 $22,858,480
-----------------------------------------------------------------------------------------------------
</TABLE>
(1) The shares of Common Stock (including shares to be held by the Mutual
Company) will be issued at an aggregate purchase price equal to the
estimated pro forma market value of such stock based on an independent
appraisal (the "Independent Valuation") of Bancorp prepared by FinPro, Inc.
("FinPro"), an independent appraisal firm. FinPro determined that the
estimated pro forma market value of Bancorp, including the impact of the
Mutual Company, was $41.9 million as of June 12, 1998. The shares of Common
Stock being offered represent a minority interest in Bancorp equal to 43% of
the Independent Valuation. The aggregate purchase price of the Common Stock
to be offered in the Offering (as defined herein) will range from
$15,314,450 to $20,719,550 , subject to adjustment up to $23,827,480
million if there is an increase of up to 15% in the Independent Valuation
(the "Offering Range"). The Independent Valuation will be updated at the
time of completion of the Offering (as defined herein), and the percentage
of the outstanding shares to be offered in the Offering (as defined herein)
(the "Minority Ownership Interest") may increase or decrease to reflect
changes in market and financial conditions, the estimated pro forma market
value of Bancorp, or both. The Purchase Price will remain fixed. In the
event the Independent Valuation at the completion of the Offering (as
defined herein) increases, Bancorp may increase the Offering (as defined
herein) by up to 15% without giving prospective purchasers the opportunity
to change or withdraw their purchase orders. See "The Reorganization and
Stock Offering--Stock Pricing and Number of Shares Issued." In the event the
Independent Valuation decreases, the aggregate purchase price necessary to
purchase the Minority Ownership Interest will also decrease. Any adjustment
of shares within the Offering Range will have a corresponding effect on the
estimated net proceeds of the Offering and the pro forma capitalization and
per share data of Bancorp. See "Use of Proceeds," "Capitalization" and "Pro
Forma Data."
(2) The shares of Common Stock issued in the Offering (as defined herein) will
represent a minority ownership interest in Bancorp. The remaining shares
will be owned by the Mutual Company. The Minority Ownership Interest is
calculated as a percentage of the total shares of Bancorp's Common Stock
that will be outstanding upon completion of the Offering (as defined
herein), and assumes there has been no change in the estimated pro forma
market value of Bancorp as determined by the Independent Valuation.
(3) Consists of estimated costs to Bancorp arising from the Offering (as
defined herein), including estimated fixed expenses of $600,000, and
marketing fees to be paid to Sandler O'Neill & Partners, L.P. ("Sandler
O'Neill"), which marketing fees are estimated to be $205,000. The actual
fees and expenses may vary from the estimated amounts. See "Pro Forma Data"
and "The Reorganization and Stock Offering" for the assumptions used to
determine these estimates.
(4) As adjusted to reflect the sale of up to an additional 15% of the Common
Stock which may be offered at the Purchase Price, without resolicitation of
subscribers or any right of cancellation, due to regulatory considerations,
changes in market conditions or general financial and economic conditions.
See "Pro Forma Data" and "The Reorganization and Stock Offering -- Stock
Pricing and Number of Shares Issued." For a discussion of the distribution
and allocation of the additional shares, if any, see "The Reorganization and
Stock Offering -- Subscription Offering and Subscription Rights," " --
Community Offering" and "--Limitations on Common Stock Purchases."
SANDLER O'NEILL & PARTNERS, L.P.
THE DATE OF THIS PROSPECTUS IS ______________, 1998.
<PAGE>
PURSUANT TO THE BANK'S PLAN, THE SHARES OF COMMON STOCK ARE BEING OFFERED
IN A SUBSCRIPTION OFFERING (THE "SUBSCRIPTION OFFERING") ON A PRIORITY BASIS TO:
(1) HOLDERS OF DEPOSIT ACCOUNTS (AS DEFINED BY THE PLAN AND AS DESCRIBED HEREIN)
AT THE BANK WHICH TOTALLED $50 OR MORE ON FEBRUARY 28, 1997 ("ELIGIBLE ACCOUNT
HOLDERS"); (2) THE BANK'S EMPLOYEE STOCK OWNERSHIP PLAN (THE "ESOP"), A TAX-
QUALIFIED EMPLOYEE STOCK OWNERSHIP PLAN; (3) HOLDERS OF DEPOSIT ACCOUNTS AT THE
BANK WHICH TOTALLED $50 OR MORE ON ___________, 1998 ("SUPPLEMENTAL ACCOUNT
HOLDERS"); AND (4) MEMBERS OF THE BANK CONSISTING OF HOLDERS OF DEPOSIT ACCOUNTS
AT THE BANK AS OF ___________, 1998, THE VOTING RECORD DATE ("VOTING RECORD
DATE") FOR THE SPECIAL MEETING (AS DEFINED HEREIN), OTHER THAN THOSE MEMBERS WHO
OTHERWISE QUALIFY AS ELIGIBLE ACCOUNT HOLDERS OR SUPPLEMENTAL ACCOUNT HOLDERS
("OTHER MEMBERS"). SUBSCRIPTION RIGHTS ARE NONTRANSFERABLE. PERSONS FOUND TO BE
TRANSFERRING SUCH RIGHTS WILL BE SUBJECT TO THE FORFEITURE OF SUCH RIGHTS AND
POSSIBLE FURTHER SANCTIONS AND PENALTIES IMPOSED BY THE OFFICE OF THRIFT
SUPERVISION ("OTS").
Subject to the prior rights of holders of subscription rights, Bancorp may
offer shares of Common Stock not subscribed for in the Subscription Offering for
sale in a community offering to certain members of the general public, with
preference given to natural persons residing in Essex, Morris and Bergen
Counties in the State of New Jersey (the "Community Offering") (the Subscription
Offering and Community Offering are referred to collectively as the
"Subscription and Community Offerings"). Shares not subscribed for in the
Subscription and Community Offerings will be offered to members of the general
public in a syndicated community offering (the "Syndicated Community Offering")
(the Subscription and Community Offerings and the Syndicated Community Offering
are referred to collectively as the "Offering").
Pursuant to the Plan: (i) the Bank will establish Bancorp and the Mutual
Company; (ii) the Bank will exchange its mutual savings bank charter for a stock
savings bank charter; (iii) the Bank will issue 100% of its capital stock to
Bancorp and (iv) Bancorp will issue between 3,561,500 and 4,818,500 shares of
Common Stock in the Reorganization: 55.2% of these (or between 1,965,887 and
2,659,730 shares) will be issued to the Mutual Company, 43% (or between
1,531,445 and 2,071,955 shares) will be sold through the Offering to the
minority stockholders (the "Minority Stockholders") and 1.8% (or between 64,168
and 86,815 shares) will be issued to a newly formed charitable foundation
(described herein). Interests depositors had in the Bank prior to the
Reorganization will become interests in the Mutual Company, which will own 55.2%
of the shares of Common Stock of Bancorp, while minority ownership in the stock
of Bancorp will be held by the owners of the Common Stock. References herein to
the Bank shall include West Essex in its current form or post-reorganization
stock form, as indicated by the context.
THE SHARES OF COMMON STOCK ISSUED IN THE OFFERING WILL REPRESENT A MINORITY
INTEREST IN BANCORP. THE REMAINING SHARES WILL BE OWNED BY THE MUTUAL COMPANY.
ASSUMING NO CHANGE IN THE ESTIMATED PRO FORMA MARKET VALUE OF BANCORP AS OF THE
DATE OF COMPLETION OF THE OFFERING, 1,801,700 SHARES OF COMMON STOCK WILL
REPRESENT APPROXIMATELY 43% OF THE ISSUED AND OUTSTANDING SHARES OF BANCORP.
Except for the ESOP, which intends to subscribe for up to 8% of the Common Stock
issued in the Offering, including shares contributed to the Foundation, no
Eligible Account Holder, Supplemental Eligible Account Holder or Other Member
may, in their respective capacities as such, purchase in the Subscription
Offering more than $350,000 of the Common Stock offered in the Offering; no
person, together with associates of and persons acting in concert with such
person, may purchase in the Community Offering and the Syndicated Community
Offering more than $350,000 of the shares offered in the Offering; and no
person, together with associates of and persons acting in concert with such
person, may purchase in the aggregate more than the overall maximum purchase
limitation of $700,000 of the shares of Common Stock offered in the Offering;
provided, however, that such purchase limitations may be increased or decreased
in the sole discretion of Bancorp without further approval of subscribers or the
Bank's members to the extent permitted by applicable regulations. See "The
Reorganization and Stock Offering --The Offering," "-- Community Offering" and
"--Limitations on Common Stock Purchases." The minimum purchase is 25 shares.
Pursuant to the Plan, Bancorp intends to establish a charitable foundation,
in connection with the Reorganization and Offering. The Bank and Bancorp will
form the West Essex Bancorp Charitable Foundation (the "Foundation") which will
be incorporated under Delaware law as a non-stock corporation. The Plan provides
that Bancorp will fund the Foundation with cash and shares of Common stock
contributed by Bancorp from authorized but
2
<PAGE>
unissued shares in an amount equal to approximately 4.2% of the shares sold in
the Offering. The Foundation will be dedicated to charitable purposes within the
Bank's community. The establishment of the Foundation is subject to the approval
of the Bank's members at the Special Meeting being held to consider the Plan.
For a discussion of the Foundation and its effects on the Reorganization, see
"Risk Factors--Establishment of the Charitable Foundation," "Pro Forma Data" and
"The Reorganization and Stock Offering--Establishment of the Charitable
Foundation."
THE SUBSCRIPTION OFFERING WILL TERMINATE AT __:__, EASTERN TIME, ON
________, 1998 (THE "EXPIRATION DATE") UNLESS EXTENDED BY BANCORP, WITH THE
APPROVAL OF THE OTS, IF NECESSARY. The Community Offering and Syndicated
Community Offering, if any, must be completed within 45 days of the Subscription
Offering, or __________, 1998, unless extended by Bancorp with the approval of
the OTS. Orders submitted are irrevocable until the completion of the
Reorganization and Offering; provided that, if the Reorganization and Offering
is not completed within the 45 day period referenced to above, unless such
period has been extended with the consent of the OTS, if necessary, all
subscribers will have their funds returned promptly with interest, and all
withdrawal authorizations will be cancelled. Such extensions may not go beyond
________, 2000. See "The Reorganization and Stock Offering --The Offering," " --
Community Offering" and "-- Procedure for Purchasing Shares in the Offering."
Bancorp has received conditional approval to have its Common Stock quoted
on the Nasdaq National Market ("Nasdaq") under the symbol "WEBK" upon completion
of the Reorganization and Offering. Prior to this offering there has not been a
public market for the Common Stock, and there can be no assurance that an active
and liquid trading market for the Common Stock will develop or that the Common
Stock will trade at or above the Purchase Price. The absence or discontinuance
of a market may have an adverse impact on both the price and liquidity of the
Common Stock. See "Risk Factors--Absence of a Market for the Common Stock," and
"Market for the Common Stock."
EXPLANATORY NOTE: This Prospectus contains certain forward looking
statements consisting of estimates with respect to the financial condition,
results of operations and business of Bancorp and the Bank. Prospective
investors are cautioned that such forward looking statements are not guarantees
of future performance and are subject to various factors which could cause
actual results to differ materially from these estimates. These factors include
changes in general, economic and market conditions, and the development of an
interest rate environment that adversely affects the interest rate spread or
other income anticipated from Bancorp's and the Bank's operations and
investments. See "Risk Factors" for a discussion of other factors that might
cause actual results to differ from such estimates.
3
<PAGE>
[MAP GOES HERE]
4
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF THE REORGANIZATION AND THE OFFERING
The following summary of the Reorganization and the Offering is qualified
in its entirety by the terms of the Plan and more detailed information appearing
elsewhere in this Prospectus.
RISK FACTORS................... A purchase of the Common Stock involves a
substantial degree of risk. Eligible Account
Holders, Supplemental Eligible Account Holders,
Other Members and other prospective investors
should carefully consider the matters set forth
under "Risk Factors." THE SHARES OF COMMON
STOCK OFFERED HEREBY ARE NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION ("FDIC"), THE BANK INSURANCE FUND
("BIF") OR THE SAVINGS ASSOCIATION INSURANCE
FUND ("SAIF") OR ANY OTHER GOVERNMENT AGENCY
AND ARE NOT GUARANTEED BY BANCORP OR THE BANK.
WEST ESSEX BANCORP, INC........ Bancorp has not yet been incorporated. It will
be incorporated at the direction of the Bank
under Federal law in connection with the
consummation of the Reorganization and Offering
to become a savings and loan holding company
and own all of the Bank's capital stock to be
issued upon the Reorganization. In connection
with the Reorganization and Offering, Bancorp
will offer shares of Common Stock through the
Offering and issue at least 51% of its shares
to the Mutual Company. Its executive office is
located at 417 Bloomfield Avenue, Caldwell, New
Jersey 07006 and its telephone number is (973)
226-7911.
WEST ESSEX BANCORP, M.H.C...... The Mutual Company is being organized by the
Bank to be a federally chartered mutual holding
company that will own a majority of the Common
Stock of Bancorp following the Reorganization
and Offering. The Mutual Company's principal
assets will be shares of common stock received
in the Reorganization and Offering and up to
$100,000 received as its initial
capitalization.
WEST ESSEX BANK, F.S.B......... The Bank is a federally chartered mutual
savings bank. At March 31, 1998, the Bank had
total assets of $312.5 million, total deposits
of $239.1 million and total equity of $29.8
million. The Bank currently operates eight full
service banking offices including its main
office, all of which are located in Essex,
Morris and Bergen Counties, New Jersey. The
Bank has historically operated as a community-
oriented savings institution whose business
currently primarily consists of accepting
deposits from customers in its primary market
area and investing those deposits in mortgage-
backed securities and one- to four-family
residential mortgage loans secured by
properties located primarily in the Bank's
primary market area. To a significantly lesser
extent, the Bank originates commercial real
estate loans and home equity loans,
construction and development loans, multi-
family loans and consumer loans and invests in
debt obligations of the federal government and
federal agencies, as well as states and
municipalities. The Bank considers that its
market area consists of Essex, Morris and
Bergen Counties, all of which are located in
Northern New Jersey. Its executive offices are
located at 417 Bloomfield Avenue, Caldwell, New
Jersey 07006 and its telephone number is (973)
226-7911.
THE REORGANIZATION............. On March 18, 1998, the Board of Directors of
the Bank adopted the Plan pursuant to which the
Bank will reorganize from a federal mutual
savings bank into a federal mutual holding
company structure. The structure following the
Reorganization will be as follows: the Mutual
Company
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
(which will be formed by the Bank) will own up
to at least 51% of Bancorp's Common Stock and
Bancorp will own 100% of the issued and
outstanding capital stock of the Bank. It is
intended that, following approval by the Bank's
members of the Plan and the satisfaction of all
other conditions precedent to the
Reorganization, the Bank will effect the
Reorganization in the following way: (i) the
Bank will form an interim federal stock savings
bank ("Interim I"), which will then form two
subsidiaries, another interim federal stock
savings bank ("Interim II") and Bancorp; (ii)
the Bank will exchange its mutual charter for a
stock charter and Interim I will exchange its
charter for a federal mutual holding company
charter to become the Mutual Company; (iii)
Interim II will then merge with and into the
Bank, with the Bank as the resulting entity and
100% of the outstanding capital stock of the
Bank will be transferred to the Mutual Company
in exchange for membership interests in the
Bank that existed when the Bank was in mutual
form; and, finally, (iv) the Mutual Company
will transfer 100% of the issued and
outstanding capital stock of the Bank to
Bancorp. In connection with the Reorganization,
the Mutual Company will be capitalized by the
Bank with $100,000.
THE MUTUAL COMPANY
STRUCTURE AND REASONS FOR
THE REORGANIZATION............ In adopting the Plan, the Board of Directors of
the Bank has determined that for the reasons
set forth below, the Reorganization is
advisable and in the best interests of the Bank
and its depositors, and is consistent with the
Bank's business plan to operate as an
independent, community-oriented savings
institution. The Reorganization will structure
the Bank in the stock form of organization,
which is used by commercial banks, most major
business corporations and an increasing number
of savings institutions. The Reorganization
will enable the Bank to access capital markets,
expand its current operations, acquire other
financial institutions or establish new branch
offices, diversify into other financial
services to the extent allowable by applicable
law and regulation and to otherwise improve the
Bank's ability to provide services to its
community. Such access to the capital markets
will also make it possible for the Bank to be
more responsive to possible future changes in
the regulations of the bank regulatory agencies
mandating higher capital reserves and/or
capital ratios. AT THE SAME TIME, THE MUTUAL
HOLDING COMPANY STRUCTURE WILL PRESERVE THE
MUTUAL FORM OF OWNERSHIP WITHIN THE MUTUAL
HOLDING COMPANY STRUCTURE, CONSISTENT WITH THE
BANK'S COMMITMENT TO BE AN INDEPENDENT,
COMMUNITY ORIENTED SAVINGS INSTITUTION. IN THIS
REGARD, SO LONG AS THE MUTUAL COMPANY IS IN
EXISTENCE, IT WILL AT ALL TIMES OWN AT LEAST A
MAJORITY INTEREST OF BANCORP, AND THEREFORE,
INDIRECTLY, THE BANK AS WELL.
The Board of Directors believes that these
advantages outweigh the potential disadvantages
of the mutual holding company structure, which
include: (i) the inability to sell Common Stock
in excess of 49.9% of Bancorp's total issued
and outstanding voting stock so long as the
Mutual Company remains in existence; (ii) the
more limited liquidity of the Common Stock, as
compared to a standard conversion; (iii) the
inability of stockholders other than the Mutual
Company to obtain majority ownership of the
Bank and Bancorp, which may result in the
perpetuation of the existing management and
Board of Directors of Bancorp and the Bank; and
(iv) the added expense of conducting more than
one stock offering should the Mutual Company
convert to the stock form at some future date.
Because the Mutual Company will hold
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6
<PAGE>
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a majority of the Common Stock of Bancorp
following consummation of the Reorganization
and Offering, the Mutual Company could take
certain actions that the Minority Stockholders
may not believe is in their best interest,
including but not limited to, preventing the
sale of Bancorp, defeating Board candidates
nominated or supported by Minority
Stockholders, or defeating other proposals that
may be supported by the Minority Stockholders.
The Reorganization does not preclude the
conversion of the Mutual Company from the
mutual to stock form of organization following
the Reorganization. NO ASSURANCE CAN BE GIVEN
THAT THE MUTUAL COMPANY WILL EVER CONVERT TO
STOCK FORM OR WHAT CONDITIONS THE OTS MAY
IMPOSE ON ANY SUCH A TRANSACTION. SEE
"CONVERSION OF MUTUAL COMPANY TO STOCK FORM."
WEST ESSEX BANCORP CHARITABLE
FOUNDATION.................... The Plan provides for the establishment of a
charitable foundation in connection with the
Reorganization. The Foundation, which will be
incorporated under Delaware law as a non-stock
corporation, will be funded with a contribution
by Bancorp equal to approximately 4.2% of the
Common Stock sold in the Offering, in addition
to a cash contribution of $100,000. The
authority for the affairs of the Foundation
will be vested in the Board of Directors of the
Foundation, all of whom will be Directors of
Bancorp or the Bank or officers of Bancorp or
the Bank. See "The Reorganization and Stock
Offering--Establishment of the Charitable
Foundation."
TERMS OF THE
SUBSCRIPTION OFFERING......... The Plan of Stock Issuance authorizes Bancorp
to offer Common Stock to persons other than the
MHC in the Offering in an amount less than
50.0% of the issued and outstanding shares of
Bancorp Common stock. Bancorp is offering
between 1,531,445 and 2,071,955 shares in the
Offering, which represents a Minority Ownership
Interest of 43%, based upon the Independent
Valuation. The shares of Common Stock to be
sold in connection with the Reorganization and
Offering are being offered at a fixed price of
$10.00 per share in the Subscription Offering
pursuant to subscription rights in the
following order of priority to: (i) Eligible
Account Holders; (ii) the ESOP; (iii)
Supplemental Eligible Account Holders; and (iv)
Other Members. Subject to the prior rights of
holders of subscription rights, any shares of
Common Stock not subscribed for in the
Subscription Offering will be offered in the
Community Offering at $10.00 per share to
certain members of the general public.
Subscription rights will expire if not
exercised by 12:00 noon, Eastern time, on
________, 1998, unless extended by the Bank and
Bancorp, with the approval of the OTS, if
necessary. Deposit accounts that will provide a
subscription right to holders thereof consist
of any "savings account" as defined by the Plan
consistent with OTS Regulations. Pursuant to
the Plan and OTS regulations, certain accounts
do not qualify as "savings accounts,"
including, but not limited to, non-interest-
bearing demand accounts (primarily non-interest
checking accounts) or mortgage loan escrow
accounts maintained at the Bank. See "The
Reorganization and Stock Offering--Subscription
and Subscription Rights" and "--Community
Offering."
PROCEDURE FOR ORDERING SHARES
AND PROSPECTUS DELIVERY....... Forms to order Common Stock offered in the
Subscription Offering and the Community
Offering will be preceded or accompanied by a
Prospectus. Any person receiving a stock order
and certification form who desires to subscribe
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7
<PAGE>
- --------------------------------------------------------------------------------
for shares must do so prior to the Expiration
Date by delivering to the Bank a properly
executed stock order and certification form
together with full payment. ONCE TENDERED,
SUBSCRIPTION ORDERS CANNOT BE REVOKED OR
MODIFIED WITHOUT THE CONSENT OF THE BANK. To
ensure that each purchaser receives a
prospectus at least 48 hours prior to the
Expiration Date in accordance with Rule 15c2-8
of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), no prospectus
will be mailed any later than five days prior
to the Expiration Date or hand delivered any
later than two days prior to such date. The
Bank is not obligated to accept subscriptions
not submitted on an original stock order form.
See "The Reorganization and Stock Offering--
Procedure for Purchasing Shares in the
Subscription Offering."
FORM OF PAYMENT FOR SHARES..... Payment for subscriptions may be made: (i) in
cash (if delivered in person); (ii) by check,
bank draft or money order; or (iii) by
authorization of withdrawal from deposit
accounts maintained at the Bank. See "The
Reorganization and Stock Offering--Procedure
for Purchasing Shares in the Offering."
NONTRANSFERABILITY OF
SUBSCRIPTION RIGHTS........... The subscription rights of Eligible Account
Holders, Supplemental Eligible Account Holders,
Other Members and the Employee Plans, including
the ESOP, are nontransferable. See "The
Reorganization and Stock Offering-- Certain
Restrictions on Purchase or Transfer of the
Common Stock."
PURCHASE LIMITATIONS........... Except for the ESOP, no Eligible Account
Holder, Supplemental Eligible Account Holder or
Other Member may purchase in the Subscription
Offering more than $350,000 of Common Stock. No
person, together with associates or persons
acting in concert with such person, may
purchase in the Community Offering and the
Syndicated Community Offering more than
$350,000 of Common Stock. No person, together
with associates or persons acting in concert
with such person, may purchase in the aggregate
more than $700,000 of Common Stock. However,
the ESOP, may purchase up to 10% of the Common
Stock issued in the Offering, including shares
issued to the Foundation. Pursuant to the Plan,
it is intended that the ESOP will purchase 8%
of the Common Stock issued in the Offering,
including shares issued to the Foundation. The
minimum purchase is 25 shares of Common Stock.
At any time during the Reorganization and
Offering and without approval of the Bank's
depositors or a resolicitation of subscribers,
the Bank and Bancorp may, in their sole
discretion, decrease the maximum purchase
limitation below $350,000 of Common Stock;
however, such amount may not be reduced to less
than 0.10% of the Common Stock offered.
Additionally, at any time during the
Reorganization and Offering, the Bank and
Bancorp may, in their sole discretion, increase
the maximum purchase limitation in the
Subscription and Community Offerings to an
amount in excess of $350,000, up to a maximum
of 5% of the shares to be issued in the
Reorganization and Offering. Similarly, the
$700,000 overall maximum purchase limitation
may be decreased to an amount not below 1% of
the Common Stock offered or increased up to 5%
of the total shares of Common Stock offered in
the Offering.
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8
<PAGE>
- --------------------------------------------------------------------------------
SECURITIES OFFERED AND
PURCHASE PRICE................ Bancorp is offering between 1,531,445 and
2,071,955 shares of Common Stock at a purchase
price of $10.00 per share. The maximum of the
Offering Range may be increased by up to 15%
and the maximum number of shares of Common
Stock to be issued may be increased up to
2,382,748 shares due to regulatory
considerations and changes in market or general
financial or economic conditions. See "The
Reorganization and Stock Offering--Stock
Pricing and Number of Shares Issued."
INDEPENDENT VALUATION.......... The purchase price per share has been fixed at
$10.00. The total number of shares to be issued
in the Conversion is based upon an independent
appraisal prepared by FinPro, dated as of June
12, 1998, which states that the estimated pro
forma market value of the Common Stock ranged
from $35.6 million to $48.2 million, taking
into account shares issued to the Foundation.
Establishing the Foundation in connection with
the Reorganization and Offering will result in
a lower aggregate market valuation than if the
Reorganization and Offering were completed
without the Foundation. See "Comparison of
Valuation and Pro Forma Information With No
Foundation." The final aggregate value will be
determined at the time of closing of the
Offering and is subject to change due to
changing market conditions and other factors.
See "The Reorganization and Stock Offering--
Stock Pricing and Number of Shares Issued."
USE OF PROCEEDS................ Bancorp will use up to 75% of the net proceeds
of the Offering to acquire 100% of the capital
stock of the Bank. The remaining net proceeds
will be used for general business activities,
including the loan of funds to the ESOP (to the
extent such loan is not funded by a third
party) to enable the ESOP to purchase up to 8%
of the stock issued in the Offering, including
shares issued to the Foundation. Bancorp
intends initially to invest the remaining net
proceeds in federal funds and securities,
primarily mortgage-related securities and
federal agency obligations. In connection with
the Reorganization, the Mutual Company will be
capitalized by the Bank with $100,000. The Bank
intends to utilize the net proceeds received by
it for general business purposes, including
investment in loans, and mortgage-related
securities. On an interim basis, it is
anticipated that most of the net proceeds will
be invested in investments that qualify as
short-term liquidity for regulatory purposes
until such proceeds can be deployed in longer-
term investments. See "Use of Proceeds."
DIVIDEND POLICY................ Upon consummation of the Reorganization and
Offering, the Board of Directors of Bancorp
will have the authority to declare dividends on
the Common Stock, subject to statutory and
regulatory requirements. In the future, the
Board of Directors of Bancorp may consider a
policy of paying cash dividends on the Common
Stock. However, no decision has been made with
respect to such dividends, if any. See
"Dividend Policy."
BENEFITS OF THE REORGANIZATION
TO MANAGEMENT................. Among the benefits to the Bank and Bancorp
anticipated from the Reorganization and
Offering is the ability to attract and retain
personnel through the use of stock options and
other stock related benefit programs.
Subsequent to the Reorganization, Bancorp
intends to adopt a Stock-Based Incentive Plan
(as defined herein) for the benefit of
directors, officers and employees of Bancorp
and Bank. If the Stock-Based Incentive Plan is
adopted within one year after the
Reorganization, the plan will be subject to
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9
<PAGE>
- --------------------------------------------------------------------------------
stockholders' approval at a meeting of
stockholders which may not be held earlier than
six months after the Reorganization. The Stock-
Based Incentive Plan would provide for the
granting of stock-based benefits, including
Common Stock in an amount equal to 4% of the
Common Stock issued in the Offering, including
shares issued to the Foundation, and options to
purchase Common Stock in an amount equal to 10%
of the Common Stock issued in the Offering,
including shares issued to the Foundation. Any
Common Stock awarded under the Stock-Based
Incentive Plan will be awarded at no cost to
the recipients.
Additionally, certain officers of Bancorp and
the Bank will be provided with employment
agreements or change in control agreements
which provide such officers with employment
rights and/or payments upon their termination
of service following a change in control. The
Stock-Based Incentive Plan may also provide
participants with benefits upon a change in
control of Bancorp or the Bank. For a further
description of the Stock-Based Incentive Plan
and employment and change in control
agreements, see "Risk Factors--Stock Based
Benefits to Management and Directors,
Employment Contracts and Change in Control
Payments" and "Management of the Bank--Other
Benefit Plans." See "Management of the Bank--
Subscriptions by Executive Officers and
Directors," "Certain Restrictions on
Acquisition of Bancorp" and "The Reorganization
and Stock Offering--Establishment of the
Charitable Foundation."
VOTING CONTROL OF OFFICERS
AND DIRECTORS................ Directors and executive officers of the Bank
and Bancorp expect to purchase approximately
18.8% or 13.9% of shares of Common Stock sold
in the Offering, based upon the minimum and the
maximum of the Offering Range, including shares
issued to the Foundation, respectively.
Additionally, assuming the implementation of
the ESOP and Stock-Based Incentive Plan,
directors, executive officers and employees
have the potential to control the voting of
approximately 36.4% or 32.1% of the Common
Stock at the minimum and the maximum of the
Offering Range, including shares issued to the
Foundation, respectively. See "Management of
the Bank--Subscriptions by Executive Officers
and Directors," and "Certain Restrictions on
Acquisition of Bancorp." In addition, the
Mutual Company will control the voting of at
least 51% of the total outstanding Common Stock
of Bancorp, and the Bank's current Board of
Directors will control the Mutual Company.
WAIVER OF DIVIDENDS BY THE
MUTUAL COMPANY................ It has been the recent practice of the OTS to
permit mutual holding companies to waive the
receipt of cash dividends declared by savings
association subsidiaries or subsidiary holding
companies on a case-by-case basis and pursuant
to OTS regulations, subject to the satisfaction
of certain conditions, although there can be no
assurance that the OTS will permit future
dividend waivers, or of the terms of such
permitted waivers. The Board of Directors of
the Mutual Company, which initially will
consist of the same individuals as the Board of
Directors of the Bank, will determine whether
the Mutual Company will waive receipt of such
dividends as such dividends are declared by
Bancorp. The Mutual Company may elect to
receive dividends and to utilize the dividends
received, if any, for general corporate
purposes and to fund the purchase of Common
Stock in the open market, as well as the
payment of miscellaneous expenses. Any waiver
of
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10
<PAGE>
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dividends by the Mutual Company may result in an
adjustment to the ratio pursuant to which shares
of Common Stock are exchanged for shares of a
stock holding company should the Mutual Company
convert from the mutual to stock form of
organization. Such an adjustment would have the
effect of diluting the Minority Ownership
Interest. See "Risk Factors--Waiver of Dividends
by the Mutual Company," "Waiver of Dividends by
the Mutual Company" and "Conversion of the Mutual
Company to Stock Form."
CONVERSION OF THE MUTUAL
COMPANY TO STOCK FORM...... Although the Mutual Company may convert to the
stock form of organization in the future (a
"Conversion Transaction") and OTS regulations
provide for a Conversion Transaction, there can
be no assurance when, if ever, a Conversion
Transaction will occur, or what conditions may be
imposed by the OTS on any Conversion Transaction.
Any Conversion Transaction would be subject to
federal securities laws and the regulations of
the OTS in effect at the time of the Conversion
Transaction. In the event of a Conversion
Transaction, subject to OTS approval, (1) the
stockholders of Bancorp other than the Mutual
Company will be entitled to exchange their shares
of Common Stock for shares of the stock holding
company in a manner that is fair and reasonable
to the stockholders and subject to the stock
purchase limitations of the OTS conversion
regulations (which may require, as a condition to
the approval of the Conversion Transaction by the
OTS, that certain insiders of Bancorp who have
accumulated shares in excess of the stock
purchase limitations of the Conversion
Transaction to divest such shares, and may also
potentially restrict or prohibit additional
purchases of common stock of the stock holding
company in the Conversion Transaction by other
stockholders that could be in excess of such
stock purchase limitation), or (2) the Mutual
Company may conduct a Conversion Transaction that
does not exchange shares of Common Stock for
stock of the stock holding company; provided,
however, the Mutual Company must purchase all
shares not owned by it simultaneously with the
closing of such Conversion Transaction at the
fair market value of such shares, determined as
if such shares had such exchange rights, as
determined by an independent appraisal. The
precise treatment of a Conversion Transaction by
the OTS cannot be determined at this time and the
OTS may impose, or the regulations of the OTS may
require, restrictions or conditions that may
adversely affect minority stockholders. See
"Conversion of the Mutual Company to Stock Form."
EXPIRATION DATE FOR THE
SUBSCRIPTION OFFERING...... The Expiration Date for the Subscription Offering
is 12:00 noon Eastern Time on ________, 1998
unless extended by the Bank and Bancorp and
subject to any applicable regulatory approvals.
MARKET FOR STOCK............ As a mutual institution, the Bank has never
issued capital stock and, consequently, there is
no existing market for the Common Stock. Bancorp
has received conditional approval to have its
Common Stock listed on the Nasdaq under the
symbol "WEBK" subject to the completion of the
Offering and compliance with certain conditions.
See "Market for the Common Stock."
CONVERSION CENTER........... If you have any questions regarding the
Reorganization and Offering, call the Stock
Offering Center at (___) ___-____.
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11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE BANK
The selected consolidated financial and other data of the Bank set forth
below is derived in part from, and should be read in conjunction with, the
Consolidated Financial Statements of the Bank and Notes thereto presented
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT
MARCH 31, AT DECEMBER 31,
--------- -------------------------------------------------
1998(1) 1997 1996 1995 1994 1993
--------- --------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED FINANCIAL DATA:
Total assets(2)......................... $312,522 $299,025 $235,969 $223,165 $199,580 $195,714
Loans receivable, net(3)................ 114,302 112,735 82,134 85,031 84,611 89,419
SECURITIES AVAILABLE-FOR-SALE(4):
Investment securities, net........... 7,105 7,081 1,647 1,932 1,857 20,315
SECURITIES HELD-TO-MATURITY(4):
Investment securities, net........... 28,768 22,929 22,476 18,482 7,498 7,502
Mortgage-backed securities, net...... 122,633 130,174 113,254 100,032 89,300 49,695
Deposits................................ 239,120 238,192 179,946 178,392 164,181 168,004
Borrowed money.......................... 42,300 30,300 23,650 17,000 10,000 5,000
Retained earnings....................... 29,801 29,275 28,452 26,856 24,477 21,838
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE THREE
MONTHS ENDED
MARCH 31, AT OR FOR THE YEARS ENDED DECEMBER 31,
-------------------- ----------------------------------------------
1998(1) 1997(1) 1997 1996 1995 1994 1993
-------- ---------- -------- -------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income............................ $5,115 $4,252 $18,116 $16,467 $15,735 $13,235 $13,819
Interest expense........................... 2,870 2,152 9,656 8,300 7,618 5,121 5,882
------ ------ ------- ------- ------- ------- -------
Net interest income.................... 2,245 2,100 8,460 8,167 8,117 8,114 7,937
Provision for loan losses.................. (22) 55 487 232 510 (247) (200)
------ ------ ------- ------- ------- ------- -------
Net interest income after
provision for loan losses............ 2,267 2,045 7,973 7,935 7,607 8,361 8,137
Noninterest income......................... 140 113 373 476 332 32 399
Noninterest expense(5)..................... 1,636 1,351 7,173 4,821 4,446 4,648 4,492
------ ------ ------- ------- ------- ------- -------
Income before income taxes(5).......... 771 807 1,173 3,590 3,493 3,745 4,044
Income taxes(5)............................ 260 284 436 1,231 1,221 977 1,744
------ ------ ------- ------- ------- ------- -------
Income before SAIF Special
Assessment and cumulative
effect of change in accounting for
income taxes............................ 511 523 737 2,359 2,272 2,768 2,300
Cumulative effect of change in
accounting for income taxes.............. -- -- -- -- -- -- 1,096
SAIF Special Assessment, net of
income taxes(5)........................ -- -- -- (703) -- -- --
------ ------ ------- ------- ------- ------- -------
Net income................................. $ 511 $ 523 $ 737 $ 1,656 $ 2,272 $ 2,768 $ 3,396
====== ====== ======= ======= ======= ======= =======
</TABLE>
(continued on next page)
12
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE THREE
MONTHS ENDED
MARCH 31, AT OR FOR THE YEARS ENDED DECEMBER 31,
---------------------- -------------------------------------------
1998(1) 1997(1) 1997 1996 1995 1994 1993
----------- --------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:
PERFORMANCE RATIOS(6):
Return on average assets(5)................... 0.68% 0.89% 0.29% 1.05% 1.07% 1.44% 1.74%
Return on average retained earnings(5)........ 6.92 7.29 2.51 8.47 8.84 11.98 16.07
Average retained earnings
/average assets.............................. 9.88 12.15 11.55 12.37 12.09 11.98 10.82
Interest rate spread(7)....................... 2.77 3.03 2.87 3.15 3.34 3.92 3.78
Net interest margin(8)........................ 3.17 3.66 3.44 3.74 3.93 4.33 4.19
Non-interest expenses to average assets(5).... 2.19 2.29 2.82 2.14 2.09 2.41 2.30
Retained earnings to assets................... 9.54 12.27 9.79 12.06 12.03 12.26 11.16
Efficiency ratio(9)........................... 61.41 53.92 57.04 56.58 52.86 50.37 50.93
REGULATORY CAPITAL RATIOS(6)(10):
Tangible capital.............................. 7.84 12.27 7.98 12.06 12.02 12.26 11.16
Core capital.................................. 7.84 12.27 7.98 12.06 12.02 12.26 11.16
Risk-based capital............................ 19.95 40.13 26.10 39.15 37.50 35.89 25.18
ASSET QUALITY RATIOS(6):
Non-performing loans to total assets.......... 0.74 1.20 0.84 1.26 0.96 1.55 2.72
Non-performing loans to total loans
receivable.................................. 1.95 3.36 2.16 3.51 2.46 3.52 5.76
Non-performing assets to total assets......... 1.10 1.66 1.24 1.85 1.57 2.48 4.38
Allowance for loan losses to
non-performing loans......................... 80.79 57.15 75.19 52.70 55.84 40.00 29.12
Average interest-earning assets to average
interest-bearing liabilities................ 109.52 116.73 114.39 115.46 115.94 114.86 112.96
Net interest income after provision for
loan losses to non-interest expenses(5)..... 138.57 151.37 111.15 164.59 171.10 179.88 181.14
NUMBER OF FULL-SERVICE CUSTOMER
FACILITIES.................................... 8 5 8 5 5 5 5
</TABLE>
______________________________
(1) The data presented at March 31, 1998 and for the three months ended March
31, 1998 and 1997 were derived from unaudited consolidated financial
statements and reflect, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) which are necessary to
present fairly the results for such interim periods. Interim results at and
for the three months ended March 31, 1998 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1998. All
operating results presented for selected financial ratios and other data
for the three month periods ended March 31, 1998 and 1997 are presented on
an annualized basis.
(2) The increase in assets in fiscal 1997 was due primarily to the purchase of
three branch offices from Summit Bank. See "Management's Discussion and
Analysis."
(3) The allowance for loan losses at March 31, 1998 and December 31, 1997,
1996, 1995, 1994 and 1993 was $1.9 million, $1.9 million, $1.6 million,
$1.2 million, $1.2 million and $1.5 million, respectively.
(4) The Bank adopted Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities"
("SFAS No. 115"), as of December 31, 1993.
(5) Excludes, for the year ended December 31, 1996, the SAIF Special Assessment
of $1.1 million and the related income tax benefit of $395,000. If
included, return on average assets, return on average retained earnings,
non-interest expenses to average assets and net interest income after
provision for loan losses to non-interest expenses would be 0.74%, 5.95%,
2.63% and 134.06%, respectively for the year ended December 31, 1996.
(6) With the exception of end of period ratios, all ratios are based on average
monthly balances during the indicated periods and are annualized where
appropriate.
(7) The interest rate spread represents the difference between the weighted
average yield on average interest-earning assets and the weighted average
cost of average interest-bearing liabilities.
(8) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(9) The efficiency ratio represents non-interest expenses, excluding the SAIF
Special Assessment, impairment loss and amortization relating to tangible
assets and loss on REO, divided by the sum of net interest and non-interest
income excluding income on REO and security gain/loss.
(10) For definitions and further information relating to the Bank's regulatory
capital requirements, see "Regulation and Supervision - Federal Savings
Institution Regulation -- Capital Requirements." See "Regulatory Capital
Compliance" for the Bank's pro forma capital levels as a result of the
Offerings.
13
<PAGE>
RISK FACTORS
The following risk factors, in addition to those discussed elsewhere in
this Prospectus, should be considered by investors in deciding whether to
purchase the Common Stock offered hereby.
COMPETITION FOR MORTGAGE LOANS IN MARKET AREA
The Bank faces significant competition both in making loans and in
attracting deposits. While its lending area extends throughout New Jersey, most
of the Bank's mortgage loans are secured by properties located in Essex, Morris
and Bergen Counties, New Jersey (the Bank's "primary market area"). The State of
New Jersey has a high density of financial institutions, many of which have a
state-wide or regional presence, and, in some cases, a national presence, all of
which are competitors of the Bank to varying degrees. The Bank's competition for
loans comes principally from commercial banks, savings banks, savings and loan
associations, credit unions, mortgage banking companies and insurance companies.
Its most direct competition for deposits has historically come from commercial
banks, savings banks, savings and loan associations and credit unions, many of
which are significantly larger than the Bank and, therefore, have greater
financial and marketing resources than those of the Bank. Limited mortgage
lending opportunities in the Bank's primary market area may exist for the
foreseeable future. In an effort to address the intense competition for mortgage
loans, the Bank is aggressively seeking lending opportunities, including through
using loan brokers, expanding available lending products and aggressively
pricing its loan products. Although the Bank has been successful in
substantially increasing loan originations in the past year, there can be no
assurance the Bank will be able to continue to do so in the future. The Bank
faces additional competition for deposits from short-term money market funds,
common stock funds, other corporate and government securities funds and from
other financial institutions such as brokerage firms and insurance companies.
See "Business of the Bank -- Market Area and Competition."
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES
The Bank's profitability, like that of most financial institutions, is
dependent to a large extent upon its net interest income, which is the
difference between its interest income on interest-earning assets, such as loans
and investments, and its interest expense on interest-bearing liabilities, such
as deposits and borrowings. One method of analyzing an institution's exposure to
interest rate risk is by measuring the change in the institution's Net Portfolio
Value ("NPV") under various interest rate scenarios. NPV is the present value of
expected cash flows from assets, liabilities and off-balance sheet contracts. An
NPV Ratio, in any interest rate scenario, is defined as the NPV in that scenario
divided by the market value of assets in the same scenario. The sensitivity
measure is the decline in the NPV Ratio, in basis points, caused by a 2%
increase or decrease in rates, whichever produces a larger decline. The higher
an institution's sensitivity measure is, the greater its exposure to interest
rate risk is considered to be. As of March 31, 1998, the most recent date for
which information is available, the Bank's sensitivity measure, as measured by
the OTS, indicated that a 2% increase in interest rates would cause a 206 basis
point decline in the Bank's NPV Ratio. This NPV Ratio sensitivity measure does
not exceed the thresholds at which the Bank could be required to hold additional
risk-based capital under OTS regulation, if so determined by the OTS. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Management of Interest Rate Risk -- Net Portfolio Value" and
"Regulation and Supervision --Federal Savings Institution Regulation -- Capital
Requirements."
A significant portion of the Bank's assets consist of fixed-rate
residential mortgage loans. At March 31, 1998, the Bank had $89.5 million of
one- to four-family mortgage loans, or 75.7% of the Bank's total loans
receivable of which $44.6 million, or 49.8%, have fixed-rates of interest. The
Bank emphasizes fixed-rate mortgage loans due to customer preference for fixed-
rate mortgage loans in the Bank's market area. The
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Bank also retains in its portfolio all of the loans that it originates,
including fixed-rate mortgage loans. Investment in fixed-rate mortgage loans
generally results in increased interest rate risk as such loans do not reprice
as adjustable-rate mortgage loans do during periods of rising interest rates.
The Bank attempts to offset the risks associated with its predominantly fixed-
rate loan portfolio by investing in adjustable-rate mortgage-backed securities
and by maintaining a strong level of capital, although the Bank, to a lesser
extent, also invests in fixed-rate mortgage-backed and other securities. At
March 31, 1998, the Bank had $78.3 million of adjustable-rate mortgage-backed
securities and $44.3 million of fixed-rate mortgage-backed securities.
Increases in the level of interest rates also may adversely affect the
amount of loans originated by the Bank. Increases in interest rates can
adversely affect the type (fixed-rate or adjustable-rate) of loans originated by
the Bank and the average life of loans and securities owned by the Bank, which
can adversely impact the yields earned on the Bank's loan portfolio. In periods
of decreasing interest rates, the average life of loans held by the Bank may be
shortened to the extent increased prepayment activity occurs during such
periods, which may result in the Bank investing funds from such prepayments in
lower yielding assets. Accordingly, the Bank's results of operations and
financial condition are largely dependent on movements in market interest rates
and its ability to manage its assets and liabilities in response to such
movements. However, management believes its substantial investment in
adjustable-rate mortgage-backed securities will help offset that risk. In
addition, fluctuations in interest rates may also result in disintermediation,
which is the flow of funds away from depository institutions into direct
investments which pay a higher rate of return, and may adversely affect the
value of the Bank's investment securities and other interest-earning assets. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Management of Interest Rate Risk" and "Regulation and
Supervision -- Federal Savings Institution Regulation --Capital Requirements."
CONSIDERATIONS RESULTING FROM MUTUAL HOLDING COMPANY STRUCTURE
GENERAL. The mutual holding company structure is a relatively new form of
corporate organization, originally authorized for OTS regulated savings
institutions by the Competitive Equality Banking Act of 1987 ("CEBA"), and
confirmed and clarified under the Financial Institutions Reform, Recovery and
Enforcement Act of 1989. Final mutual holding company regulations were adopted
by the OTS, effective March 1993 and those final regulations were revised on
April 1, 1998 to allow for the two-tier mutual holding company structure that
the Bank is utilizing. Accordingly, prospective investors should be aware that
there is limited historical experience for the market of the common stock of a
subsidiary of a mutual holding company, and there can be no assurance as to the
regulatory requirements regarding the treatment of the stockholders of the Bank
in the event of a subsequent mutual-to-stock conversion of the Holding Company.
See "Market for the Common Stock" and "Conversion of Mutual Company to Stock
Form."
ANTITAKEOVER CONDITIONS. Pursuant to OTS regulations, the Mutual Company
must own more than 50% of the outstanding voting stock of Bancorp as long as the
Mutual Company remains in existence. This effectively precludes the possibility
of a sale of Bancorp separate and apart from the Mutual Company. At the
conclusion of the Reorganization and Offering, and assuming the contributions to
the Foundation, the Mutual Company will own 55.2% of Bancorp's Common Stock
(based on the maximum of the Offering Range). As the majority owner of Bancorp,
the Mutual Company will elect Bancorp's directors and direct the affairs and
business operations of Bancorp. The directors of the Mutual Company are the
current directors of Bancorp. The Mutual Company's members consist of depositors
of the Bank. Accordingly, the purchasers of the Common Stock in the Offering
will be Minority Stockholders of Bancorp who will have limited influence in
electing directors or otherwise directing the affairs of Bancorp. Moreover, such
Minority Stockholders have no influence over the affairs of the Mutual Company,
except to the extent that they are also members of the Mutual Company. No
assurance can be given that the Mutual Company and
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Minority Stockholders will have the same interest in matters affecting Bancorp,
and, therefore, no assurance can be given that the Mutual Company will not take
actions which the Minority Stockholders believe to be adverse to their
interests. For example, the Mutual Company could prevent the sale of control of
Bancorp, or defeat a candidate for election to the Board of Directors of
Bancorp, prevent a conversion transaction or other proposals put forth by
Minority Stockholders. As long as the Mutual Company remains in the mutual form
of organization, the Mutual Company will always own at least a majority of
Bancorp's common stock and purchasers of the Common Stock will always be
Minority Stockholders.
WAIVER OF DIVIDENDS BY THE MUTUAL COMPANY. The Board of Directors of the
Mutual Company will determine whether the Mutual Company will waive the receipt
of dividends declared by Bancorp each time Bancorp declares a dividend. The
Board of Directors of the Mutual Company presently intends to waive the receipt
of dividends declared by Bancorp. OTS regulations with respect to a mutual
holding company's waiver of dividends state that the Mutual Company may not
waive its right to receive any dividend declared by Bancorp unless either: (1)
no insider of the Mutual Company, associate of an insider, or tax-qualified or
non-tax-qualified employee stock benefit plan of the Mutual Company holds any
share of stock in the class of stock to which the waiver would apply; or (2) the
Mutual Company provides the OTS with written notice of its intent to waive its
right to receive dividends 30 days prior to the proposed date of payment of the
dividend, and the OTS does not object. The regulations further state that the
OTS shall not object to a notice of intent to waive dividends if: (1) the waiver
would not be detrimental to the safe and sound operation of the Bank; and (2)
the Board of Directors of the Mutual Company expressly determines that waiver of
the dividend by the Mutual Company is consistent with the Directors' fiduciary
duties to the mutual members of the Mutual Company. In addition, a dividend
waiver notice shall include a copy of the resolution of the Board of Directors
of the Mutual Company, in form and substance satisfactory to the OTS, together
with any supporting material relied upon by the Board, concluding that the
proposed dividend waiver is consistent with the Board's fiduciary duties to the
mutual members of the Mutual Company. Finally, the OTS has announced that the
value of any waived dividends be retained for the benefit of the members of a
mutual holding company to prevent potential windfalls to the minority
shareholders in a subsequent conversion of the mutual holding company.
The Mutual Company's Board of Directors may conclude that a dividend waiver
by the Mutual Company, which permits retention of capital by Bancorp, is in the
best interest of the Mutual Company's members because, among other reasons: (i)
the Mutual Company has no need for the dividend for its business operations,
(ii) the cash that would be received could be invested by Bancorp more
effectively; and (iii) such waiver preserves the retained earnings of the Mutual
Company through its principal asset (Bancorp), which would be available for
distribution in the unlikely event of a voluntary liquidation of Bancorp after
satisfaction of claims of depositors and other creditors. The Board of Directors
may consider other factors in determining whether such waiver is consistent with
its fiduciary duties to members of the Mutual Company. There is no assurance
that the Mutual Company will waive the receipt of the dividends.
Immediately after consummation of the Reorganization and the Offering, it
is expected that the Mutual Company's operations will consist of activities
relating to its investment in, and control of, a majority of the Common Stock of
Bancorp and maintenance of books and records relating to members of the Mutual
Company. In the future, the Mutual Company may accept dividends paid by Bancorp
to be used for the payment of operating expenses and other purposes, including
purchasing Common Stock from time to time in the open market or from Bancorp.
There can be no assurance that the Mutual Company will accept dividends paid by
Bancorp, or if such dividends are accepted, that the Mutual Company will
purchase shares of Common Stock in the open market. Any purchase of Common Stock
other than from the Mutual Company will increase the percentage of Bancorp's
outstanding shares of Common Stock held by the Mutual Company and increase the
number of shares eligible to be sold in any subsequent secondary offering or
mutual to stock conversion of the Mutual Company. Any waiver of dividends by the
Mutual Company is
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likely to result in an adjustment to the ratio pursuant to which shares of
Common Stock are exchanged for shares of the converted Mutual Company in a
Conversion Transaction, which adjustment will have the effect of diluting
Minority Stockholders' percentage ownership interest in the converted Mutual
Company's shares.
POTENTIAL DILUTION TO MINORITY STOCKHOLDERS RESULTING FROM ANY MUTUAL TO STOCK
CONVERSION OF THE MUTUAL COMPANY
In the event of a Conversion Transaction, the Plan provides that, subject
to written OTS approval, (i) the stockholders of Bancorp will be entitled to
exchange their shares of stock for shares of the newly converted holding company
in a manner that is fair and reasonable to such stockholders and maintains
approximately the same percentage ownership interest in the newly converted
holding company after the Conversion Transaction as such stockholders held in
the Bank immediately prior to the Conversion Transaction or, (ii) the holding
company may purchase all shares not owned by it simultaneously with the
consummation of the Conversion Transaction at the fair market value of such
shares. The OTS's policy with respect to dividends waived by mutual holding
companies requires that in the case of mutual to stock conversion of recently
formed mutual holding companies, the aggregate amount of cash dividends waived
by a mutual holding company must be considered when establishing a fair and
reasonable basis for exchanging subsidiary savings institution common stock for
converted holding company common stock, and that the OTS will not permit a pro
rata exchange if the mutual holding company has waived the receipt of cash
dividends paid by the subsidiary savings institution. ACCORDINGLY, ANY WAIVER OF
DIVIDENDS BY THE MUTUAL COMPANY IS LIKELY TO RESULT IN AN ADJUSTMENT TO THE
RATIO PURSUANT TO WHICH SHARES OF COMMON STOCK ARE EXCHANGED FOR SHARES OF THE
NEWLY CONVERTED HOLDING COMPANY IN A CONVERSION TRANSACTION, WHICH ADJUSTMENT
WILL HAVE THE EFFECT OF DILUTING MINORITY STOCKHOLDERS' PERCENTAGE OWNERSHIP
INTEREST IN NEWLY CONVERTED HOLDING COMPANY SHARES. See "Conversion of the
Mutual Company to Stock Form."
ABSENCE OF A MARKET FOR THE COMMON STOCK
The Bank is a mutual savings association and, therefore, has never issued
capital stock. Bancorp has received approval conditioned upon consummation of
the Reorganization and the Offering, to have its Common Stock traded on the
Nasdaq under the symbol "WEBK." However, there can be no assurance that an
established and liquid trading market for the Common Stock will develop or, once
developed, will continue, nor can there by any assurances that purchasers of
Common Stock will be able to resell their shares at or above the Purchase Price.
The absence or discontinuance of a market for the Common Stock would have an
adverse impact on both the price and liquidity of the Common Stock. See "Market
for the Common Stock."
FINANCIAL INSTITUTION REGULATION AND POSSIBLE LEGISLATION
The Bank is subject to extensive regulation and supervision as a federal
savings institution. Bancorp will be regulated as a federally chartered
corporation and, in addition, the Mutual Company, as a savings institution
mutual holding company, will be subject to extensive regulation and supervision.
Such regulations that affect the Mutual Company, Bancorp and the Bank on a daily
basis, may be changed at any time, and the interpretation of the relevant law
and regulations is also subject to change by the authorities who examine the
Bank and interpret those laws and regulations. Any change in the regulatory
structure or the applicable statutes or regulations, whether by the OTS, the
FDIC or the Congress, could have a material impact on the Mutual Company,
Bancorp, the Bank, its operations or the Bank's Reorganization. See "Regulation
and Supervision."
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THRIFT RECHARTERING
The Deposit Insurance Funds Act of 1996 (the "Funds Act"), which was
enacted in September 1996, 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 originally reported by the House Banking
Committee would have required federal thrifts to become national banks or state
banks within two years of enactment or they would have become national banks by
operation of law. OTS would have been abolished and its functions transferred to
the bank regulatory agencies. The bill as passed by the House of
Representatives, however, did not provide for the elimination of the federal
thrift charter or OTS, but did provide that unitary savings and loan holding
companies existing or applied for after March 31, 1998 would not have the
ability to engage in unlimited activities but would be subject to the activities
restrictions applicable to multiple savings and loan holding companies. Unitary
holding companies existing or applied for before 1998 would be grandfathered and
could continue to engage in unlimited activities and could transfer the
grandfather rights to acquirors of the holding company. The Senate has not acted
on the legislation but if such legislation was enacted, the Company would not
qualify for unlimited activities but would be subject to the activities
restrictions applicable to multiple savings and loan holding companies. The Bank
is unable to predict whether the legislation will be enacted or, given such
uncertainty, determine the extent to which the legislation, if enacted, would
affect its business. The Bank is also unable to predict whether the SAIF and BIF
will eventually be merged or the federal thrift charter eliminated, and what
effect, if any, such legislation would have on the Bank.
POTENTIAL LOW RETURN ON EQUITY FOLLOWING THE REORGANIZATION AND OFFERING
At March 31, 1998, the Bank's ratio of retained earnings to assets was
9.5%. Bancorp's equity position will be significantly increased as a result of
the Offering. On a pro forma basis as of March 31, 1998, assuming the sale of
Common Stock at the midpoint of the Estimated Price Range, Bancorp's ratio of
equity to assets would exceed 14.0%. Bancorp's ability to deploy this new
capital through investments in interest-earning assets, such as loans and
securities which bear rates of return comparable to its current loans and
securities investments, will be significantly affected by industry competition.
Bancorp currently anticipates that it will take time to prudently deploy such
capital. As a result, Bancorp's return on equity initially is expected to be
below its historical return on equity and may be below peer group institutions
after the Conversion. No assurances can be made as to when or if Bancorp will
achieve returns on its equity that are comparable to industry peers or industry
averages. Additionally, due to implementation of stock-based benefit plans such
as the ESOP and Stock-Based Incentive Plan, Bancorp's future compensation
expense will be increased, thereby, adversely affecting its net income and
return on equity.
ESTABLISHMENT OF THE CHARITABLE FOUNDATION
Pursuant to the Plan, the Company intends to establish a charitable
foundation in connection with the Reorganization and Offering. The Plan provides
that the Bank, Bancorp and the Mutual Company will establish the Foundation,
which will be incorporated under Delaware law as a non-stock corporation and
will be funded with $100,000 in cash and with shares of Common Stock contributed
by Bancorp. Establishment of the Foundation is subject to the approval of the
Bank's members at the Special Meeting. If approved by members, the establishment
of the Foundation will have an adverse impact on the operating results of
Bancorp in fiscal 1998, resulting in a reduction of earnings for the year in
which the Foundation is established.
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NEGATIVE IMPACT ON EARNINGS. Assuming receipt of approval of the Bank's
members, establishment of the Foundation will have an adverse impact on
Bancorp's earnings in the year in which the contribution is made. Bancorp will
recognize an expense in the amount of the contribution to the Foundation in the
quarter in which it occurs, which is expected to be the fourth quarter of fiscal
1998. Such expense will reduce earnings and have a material adverse impact on
Bancorp's earnings for the year. The amount of the contribution will range from
$641,675 to $868,149, depending on the amount of Common Stock sold in the
Offering. The contribution expense will be partially offset by the tax
deductibility of the expense. Bancorp has been advised by its independent
accountants that the contribution to the Foundation will be deductible for
federal income tax purposes, subject to a limitation based on 10% of Bancorp's
annual taxable income. Assuming a contribution of $868,149 in Common Stock plus
the $100,000 cash, based on the maximum of the Offering Range, Bancorp estimates
a net tax effected expense of $619,000. If the Foundation had been established
at December 31, 1997, the Bank would have reported net income of $118,000 for
fiscal 1997 rather than reporting net income of $737,000.
POSSIBLE NONDEDUCTIBILITY OF THE CONTRIBUTION. Bancorp, the Bank and the
Mutual Company have been advised by their tax accountants that an organization
created for charitable purposes will qualify as a Section 501(c)(3) exempt
organization under the Code, and will be classified as a private foundation. In
this regard, the Foundation will submit a request to the Internal Revenue
Service ("IRS") to be recognized as a tax-exempt organization. Bancorp, the Bank
and the Mutual Company have received an opinion of their tax accountants that
the Foundation will qualify as a Section 501(c)(3) exempt organization under the
Code, except that such opinion does not consider the impact of the regulatory
condition on the gift imposed by the OTS which requires the shares of Common
Stock of Bancorp held by the Foundation to be voted in the same ratio as all
other shares of Bancorp's Common Stock on all proposals considered by
stockholders of Bancorp. See "The Reorganization and Stock Offering--
Establishment of the Charitable Foundation--Regulatory Conditions Imposed on the
Foundation." In the event that Bancorp or the Foundation receives an opinion of
their tax counsel satisfactory to OTS that compliance with the voting
restriction would have the effect of causing the Foundation to lose its tax
exempt status, otherwise have material adverse tax consequences on the
Foundation or subject the Foundation to an excise tax under Section 4941 of the
Code, the OTS will waive such voting restriction upon submission of such
opinion(s) by the Company or the Foundation. The tax accountants' opinion
further provides that Bancorp's contribution of its own stock to the Foundation
will not constitute an act of self-dealing, and that Bancorp will be entitled to
a deduction in the amount of the fair market value of the stock at the time of
the contribution less the nominal par value that the Foundation is required to
pay to Bancorp for such stock, subject to an annual limitation based on 10% of
Bancorp's annual taxable income. Bancorp, however, would be able to carry
forward any unused portion of the deduction for five years following the year in
which the contribution is initially made for federal tax purposes, subject to
the 10% annual limitation. Thus, while Bancorp expects, based on the maximum of
the Offering Range, to be able to utilize for federal income tax purposes a
charitable contribution deduction of approximately $_______ in fiscal year 1998,
Bancorp is permitted under the Code to carryover the excess of the total
contribution over such 1998 deduction over a five-year period for federal tax
purposes. For New Jersey state income tax purposes, Bancorp also will be able to
deduct its contributions and to carry forward the unused portion of the
deduction for a five-year period following the year in which the contribution is
initially made, subject to limitations based on 10% of Bancorp's unconsolidated
annual taxable income, and provided Bancorp generates sufficient state taxable
income on an unconsolidated basis. Assuming the sale of Common Stock at the
maximum of the Offering Range, Bancorp estimates that substantially all of the
contribution should be deductible for federal tax purposes over the combined
six-year period. However, no assurances can be made that Bancorp will have
sufficient pre-tax income over the five-year period following the year in which
the contribution is initially made to fully utilize the carryover related to the
excess contribution. Although Bancorp, the Bank and the Mutual Company have
received an opinion of their independent accountants that Bancorp will be
entitled to the deduction for the charitable contribution, there can be no
assurances that the IRS will recognize the Foundation as a Section 501(c)(3)
exempt organization
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or that the deduction will be permitted. In such event, there would be no tax
benefit related to the Foundation.
COMPARISON OF VALUATION AND OTHER FACTORS ASSUMING THE FOUNDATION IS NOT
ESTABLISHED AS PART OF THE REORGANIZATION. The establishment of the Foundation
was taken into account by FinPro in determining the estimated pro forma market
value of Bancorp. The aggregate price of the shares of Common Stock being
offered in the Subscription is based upon the independent appraisal conducted by
FinPro of the estimated pro forma market value of Bancorp. The pro forma
aggregate price of the shares being offered for sale in the Offering is
currently estimated to be between $15.3 million and $20.7 million, with a
midpoint of $18.0 million. Based on the appraisal, the pro forma market
capitalization of the Bank at the midpoint, including shares contributed to the
Foundation, is $18.8 million. The pro forma price to book ratio and the pro
forma price to earnings ratio are 93.46% and 17.86x, respectively, at the
midpoint of the Offering Range. In the event that the Reorganization did not
include the Foundation, FinPro has estimated that the estimated pro forma market
capitalization of the Bank would be approximately $19.5 million at the midpoint
based on the pro forma price to book ratio and the pro forma price to earnings
ratio of 98.52% and 19.2x, respectively. If the Foundation was not part of the
Reorganization and Offering, the pro forma market value of the shares being
offered is estimated to be between $16.6 million and $22.5 million. See
"Comparison of Valuation and Pro Forma Information with No Foundation." This
estimate by FinPro was prepared at the request of the OTS and is solely for
purposes of providing depositors with sufficient information with which to make
an informed decision on the Foundation. There is no assurance that if the
Foundation is not approved the appraisal prepared at that time would conclude
that the pro forma market value of Bancorp would be the same as the amount
estimated herein. Any appraisal prepared at that time would be based on the
facts and circumstances existing at that time, including, among other things,
market and economic conditions.
The Bank believes that the establishment of the Foundation is in the best
interests of the Bank, its depositors, its prospective stockholders and the
communities in which it operates. The Foundation is integrally tied to the
Bank's business of operating a community banking institution and the Bank
believes that, based upon the additional goodwill and visibility expected to be
generated by the Foundation and the expected benefits it will provide the
communities in which the Bank's customers reside, the Foundation will have a
positive impact on the Bank's long-term franchise value. The amount of Common
Stock being offered in the Offering at the midpoint of the Offering Range is
approximately $1.5 million less than the estimated amount of Common Stock that
would be offered in the Offering without the Foundation based on the estimate
provided by FinPro. Accordingly, certain depositors of the Bank who subscribe to
purchase Common Stock in the Subscription Offering may receive fewer shares
depending on the appraisal valuation at that time, the number of shares sold
based on that appraisal, the size of a depositor's stock order, the amount of
his or her qualifying deposits in the Bank and the overall level of
subscriptions. The decrease in the amount of Common Stock being offered will not
have a significant effect on Bancorp or the Bank's capital position. The Bank's
regulatory capital is significantly in excess of its regulatory capital
requirements and will further exceed such requirements following the Offering.
The Bank's tangible, leverage and risk-based capital ratios at March 31, 1998
were 7.84%, 7.84% and 19.95%, respectively. Assuming the sale of shares at the
midpoint of the Offering Range, the Bank's pro forma tangible, leverage and
risk-based capital ratios at March 31, 1998 would be 10.9%, 10.9% and 27.11%,
respectively. On a consolidated basis, Bancorp's pro forma stockholders' equity
would be $44.9 million or approximately 13.7% of pro forma consolidated assets,
assuming the sale of shares at the midpoint of the Offering Range. Pro forma
stockholders' equity per share and pro forma net earnings per share would be
$10.70 and $0.14, respectively. If the Foundation was not being established in
the Reorganization, based on the FinPro estimate, Bancorp's pro forma
stockholders' equity would be approximately $46.1 million or approximately 14.0%
of pro forma consolidated assets at the midpoint of the estimate and pro forma
stockholders' equity per share and pro
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forma net earnings per share would be $10.15 and $0.13, respectively. See
"Comparison of Valuation and Pro Forma Information with No Foundation."
POTENTIAL CHALLENGES. The establishment and funding of a charitable
foundation as part of a conversion is innovative and has been done in a limited
number of instances in connection with a mutual holding company reorganization.
As such, the Foundation may be subject to potential challenges notwithstanding
that the Boards of Directors of the Mutual Company, Bancorp and the Bank have
carefully considered the various factors involved in the establishment of the
Foundation in reaching its determination to establish the Foundation as part of
the Reorganization. See "The Reorganization and Stock Offering--Establishment of
the Charitable Foundation--Purpose of the Foundation." In conjunction with its
approval of the Reorganization, the Bank determined to submit the Foundation for
a vote of members so that members have a right to vote on whether the Foundation
should be established as part of the Reorganization. If certain parties were to
institute an action seeking to require the Bank to eliminate establishment of
the Foundation in connection with the Reorganization, no assurances can be made
that the resolution of such action would not result in a delay in the
consummation of the Reorganization or that any objecting persons would not be
ultimately successful in obtaining such removal or other equitable relief or
monetary damages against the Mutual Company, Bancorp or the Bank. Additionally,
if the Mutual Company, Bancorp and the Bank are forced to eliminate the
Foundation, Bancorp may be required to resolicit subscribers in the Offerings.
APPROVAL OF MEMBERS. Establishment of the Foundation is subject to the
approval of a majority of the total outstanding votes of the Bank's members
eligible to be cast at the Special Meeting. The Foundation will be considered as
a separate matter from approval of the Plan. If the Bank's members approve the
Plan, but not the establishment of the Foundation, the Bank intends to complete
the Reorganization and Stock Offering without the establishment of the
Foundation. Failure to approve the Foundation may materially increase the pro
forma market value of the Common Stock being offered for sale in the Offerings
since the Valuation Range, as set forth herein, takes into account the dilutive
impact of the issuance of shares to the Foundation. If the pro forma market
value of the Common Stock without the Foundation is either greater than $23.8
million or less than $15.3 million, the Bank will establish a new Offering Range
and commence a resolicitation of subscribers (i.e., subscribers will be
permitted to continue their orders, in which case they will need to
affirmatively reconfirm their subscriptions prior to the expiration of the
resolicitation offering or their subscriptions funds will be promptly refunded
with interest at the Bank's passbook rate of interest, or be permitted to
increase, decrease, or cancel their subscriptions). Any change in the Estimated
Price Range must be approved by the OTS. See "The Reorganization and Stock
Offering--Stock Pricing and Number of Shares Issued." A resolicitation, if any,
following the conclusion of the Subscription and Community Offerings would not
exceed 45 days unless further extended by the OTS for periods of up to 90 days
not to extend beyond ___________, 2000.
STOCK-BASED BENEFITS TO MANAGEMENT AND DIRECTORS, EMPLOYMENT CONTRACTS AND
CHANGE IN CONTROL PAYMENTS
STOCK-BASED INCENTIVE PLAN. Bancorp intends to adopt a Stock-Based
Incentive Plan which would provide for the granting of options to purchase
common stock ("Stock Options"), awards of common stock ("Stock Awards"), and
certain related rights to eligible officers, employees and directors of the
Company and Bank. While Bancorp currently anticipates granting Stock Options and
Stock Awards under a single plan, it may establish separate plans to provide for
such awards. In the event such plan is adopted within one year after the
Reorganization and Offering, OTS regulations require the plan to be approved by
stockholders at a meeting of stockholders which may be held no earlier than six
months after completion of the Offering. It is anticipated the Stock-Based
Incentive Plan will provide for the granting of options to purchase shares of
Common Stock equal to 10% of the shares of Common Stock issued in the Offering,
including shares
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issued to the Foundation (159,561 shares and 215,877 shares at the minimum and
maximum of the Offering Range, respectively) and the granting of Stock Awards in
an amount equal to 4% of the shares of Common Stock issued in the Offering,
including shares issued to the Foundation (63,825 shares and 86,350 shares at
the minimum and maximum of the Offering Range, respectively). Shares of common
stock used to satisfy such awards will be acquired by the Plan or a trust
established for the Plan either through open market purchases or from authorized
but unissued Common Stock. See "--Possible Dilutive Effect of Stock-Based
Incentive Plan."
Under the Stock-Based Incentive Plan, Stock Awards would be granted in the
form of non-transferable, non-assignable shares of Common Stock. The Board of
Directors intends to appoint an independent trustee who will vote unallocated
stock awards in the same proportion as it receives instructions from recipients
with respect to allocated shares which have not been earned and distributed. The
trustee will not vote allocated shares which have not been distributed if it
does not receive instructions from the recipient.
It is anticipated that the exercise price of Stock Options granted under
the Stock-Based Incentive Plan will be equal to the fair market value of the
underlying Common Stock on the date of grant. Such options will permit such
officers and directors to benefit from any increase in the market value of the
shares in excess of the exercise price at the time of exercise. Officers and
directors receiving Stock Options will not be required to pay for the shares
until the date of exercise. The granting of Stock Awards and the exercise of
non-statutory stock options (and disqualifying dispositions of stock acquired
through the exercise of incentive stock options) will result in additional
compensation expense to Bancorp and, accordingly, may result in an increase in
the overall compensation expense in future periods. See "Management of the
Bank -- Other Benefit Plans."
Although no specific award determinations have been made, Bancorp
anticipates that it will provide Stock Awards and/or Stock Options to directors,
officers and employees to the extent permitted by applicable regulations.
Current OTS regulations provide that, with respect to any non-tax qualified
stock benefit plan, such as the Stock-Based Incentive Plan, which is implemented
within one year after consummation of the Reorganization and Offering, no
individual may receive more than 25% of the shares or options of any such plan
and non-employee directors may not receive more than 5% individually, or 30% in
the aggregate, of the shares or options awarded under any such plan. Such
regulations also provide that any awards granted under such a Plan may not vest
at a rate greater than 20% per year except in limited circumstances. It is also
anticipated that the Stock-Based Incentive Plan will provide for cash payments
to participants in the event of a change in control of Bancorp or the Bank.
The Board of Directors, in determining specific allocations and grants of
Stock Awards and Stock Options, will consider various factors, including but not
limited to, the financial condition of Bancorp, current and past performance of
plan participants and tax and securities law and regulation requirements.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL PROVISIONS. Employment and
change in control agreements with certain officers and the employee severance
compensation plan provide for benefits and cash payments in the event of a
change in control of Bancorp or the Bank. The provisions in such agreements and
plan would provide the recipient with a change in control payment in the event
of the recipient's involuntary or, in certain circumstances, voluntary
termination of employment subsequent to a change in control of Bancorp or the
Bank. In addition to any payments which may be made under the Stock-Based
Incentive Plan upon a change in control, these provisions may have the effect of
increasing the cost of acquiring Bancorp, thereby discouraging future attempts
to take over Bancorp or the Bank. Based on current salaries, cash payments to be
paid in the event of a change in control pursuant to the terms of the employment
agreements, change in control agreements and an employee severance compensation
plan would
22
<PAGE>
be approximately $____ million. However, the actual amount to be paid in the
event of a change in control of Bancorp or the Bank cannot be estimated at this
time because the actual amount is based on the average salary of the employee
and other factors existing at the time of the change in control. See "Certain
Restrictions on Acquisition of Bancorp," "Management of the Bank--Employment
Agreements," "-- Change in Control Agreements," and "-- Benefits."
POSSIBLE DILUTIVE EFFECT OF STOCK-BASED INCENTIVE PLAN
Following the Reorganization, the Stock-Based Incentive Plan will acquire
an amount of shares equal to 4% of the shares of Common Stock issued in the
Offering, including shares issued to the Foundation, either through open market
purchases or the issuance of authorized but unissued shares of Common Stock from
Bancorp. If the Stock-Based Incentive Plan is funded by the issuance of
authorized but unissued shares, the voting interests of existing stockholders at
that time will be diluted by 1.86%. Also following the Offering, directors,
officers and employees will be granted stock options under the Stock-Based
Incentive Plan in an amount equal to 10% of the Common Stock issued in the
Offering, including shares issued to the Foundation. The exercise of such stock
options may be satisfied by the issuance of authorized but unissued shares.
Under certain circumstances, such options may be exercised and sold on the same
day, thereby eliminating any risk to officers and directors in exercising
options in the event that the market price exceeds the exercise price. If all of
the stock options were to be exercised using authorized but unissued Common
Stock and the stock awards granted under the Stock-Based Incentive Plan were
funded with authorized but unissued shares, the voting interests of existing
stockholders at that time would be diluted at that time by 4.66%.
POSSIBLE INCREASE IN OFFERING RANGE AND NUMBER OF SHARES ISSUED
The number of shares to be issued in the Offering, including shares issued
to the Foundation may be increased as a result of an increase in the Offering
Range of up to 15% to reflect changes in market and financial conditions
following the commencement of the Subscription Offering. In the event that the
Offering Range is so increased, it is expected that Bancorp will offer up to
2,382,748 shares of Common Stock at the Purchase Price for an aggregate purchase
price of up to $23.8 million. An increase in the number of shares issued will
decrease a subscriber's pro forma net earnings per share and stockholders'
equity per share and will increase Bancorp's pro forma consolidated
stockholders' equity and net earnings. Such an increase will also increase the
Purchase Price as a percentage of pro forma stockholders' equity per share and
net earnings per share.
POSSIBLE ADVERSE INCOME TAX CONSEQUENCES OF THE DISTRIBUTION OF SUBSCRIPTION
RIGHTS
The Bank has received an opinion of FinPro that, pursuant to FinPro's
Valuation, subscription rights granted to Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members have no value. However, such
valuation is not binding on the IRS. If the subscription rights granted to
Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members are deemed to have an ascertainable value, receipt of such rights could
result in taxable gain to those Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members who receive and/or exercise the subscription
rights in an amount equal to such value. Additionally, the Bank could recognize
a gain for tax purposes on such distribution. Whether subscription rights are
considered to have ascertainable value is an inherently factual determination.
See "The Reorganization and Stock Offering-- Tax Aspects of Reorganization."
23
<PAGE>
YEAR 2000 COMPLIANCE
As the year 2000 approaches, an important business issue has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. Many existing application software products were
designed to accommodate only two-digits. For example, "98" is stored on the
system and represents 1998. Bancorp has been identifying potential problems
associated with the "Year 2000" issue and has implemented a plan designated to
ensure that all software used in connection with Bancorp's business will manage
and manipulate data involving the transition with data from 1999 to 2000 without
functional or data abnormality and without inaccurate results related to such
data. The Bank has prepared a critical issues schedule with a timeline and
assigned responsibilities. In addition, the Bank recognizes that its ability to
be Year 2000 compliant is dependent upon the cooperation of its vendors. The
Bank is requiring its computer systems and software vendors to represent that
the products provided are or will be Year 2000 compliant and has planned a
program of testing for compliance. The Bank has received representations from
its primary third party vendors that they will have resolved any Year 2000
problems in their software by December 31, 1998 and anticipates that all of its
vendors also will have resolved any Year 2000 problems in their software by that
same date. All Year 2000 issues for the Bank, including testing, are expected to
be addressed by December 31, 1998 and any problems would be remedied by March
31, 1999. The Bank will also prepare contingency plans in the event there are
any system interruptions. The Bank believes that its costs related to Year 2000
will be approximately $135,000. There can be no assurances, however, that such
plan or the performance by the Bank's vendors will be effective to remedy all
potential problems. To the extent Bancorp's systems are not fully Year 2000
compliant, there can be no assurance that potential systems interruptions or the
cost necessary to update software would not have a materially adverse effect on
Bancorp's business, financial condition, results of operations and business
prospects. Further, any Year 2000 failure on the part of the Bank's customers
could result in additional expense or loss to the Bank. The Bank plans also to
work with its customers to address any potential Year 2000 problems.
WEST ESSEX BANCORP, M.H.C.
The Bank has submitted a Notice of Reorganization ("Notice") to the OTS
pursuant to which the Bank has requested approval to reorganize into a mutual
holding company structure. It is anticipated that the Bank will receive approval
of the Notice, however it is unknown prior to actual receipt of the OTS's final
approval of the Notice as to what conditions, if any, the OTS may impose on the
Reorganization. In the event the OTS approval contains conditions which, in the
opinion of the Board of Directors of the Bank, are unacceptable, the Bank may
determine to terminate the Reorganization and the Stock Issuance and return all
funds collected in connection with the minority stock offering. As part of the
Reorganization, the Bank will establish a federal mutual holding company under
the laws of the United States with the powers set forth in its proposed charter
and bylaws. As long as they remain depositors of the Bank, Members of the Bank
as of February 28, 1997 shall continue to have ownership and liquidation rights
solely with respect to the Mutual Company after the Reorganization. Such persons
shall elect the directors of the Mutual Company until the Mutual Company
converts to stock form. There can be no assurances, however, that the Mutual
Company will convert to stock form in the future. In connection with the
Reorganization, the Bank will capitalize the Mutual Company with $100,000. The
Mutual Company will be a mutual corporation chartered and regulated by the OTS.
The Mutual Company shall be subject to the limitations and restrictions imposed
on savings and loan holding companies by Section 10(o)(5) of Home Owners' Loan
Act, as amended ("HOLA"). Following the Reorganization, the Mutual Company will
hold a majority of the outstanding Common Stock of Bancorp, the subsidiary
holding company. See "Regulation and Supervision -- Holding Company Regulation."
24
<PAGE>
Immediately after consummation of the Reorganization, it is expected that
the Mutual Company will not engage in any business activity other than to hold a
majority of the Common Stock of Bancorp and to invest the funds retained at the
Mutual Company level.
The Mutual Company's principal executive office will be located at 417
Bloomfield Avenue, Caldwell, New Jersey 07006, and its telephone number at that
address will be (973) 226-7911.
WEST ESSEX BANCORP, INC.
Bancorp has not yet been incorporated. As part of the Bank's
Reorganization, Bancorp will be organized as a federally chartered corporation.
Following the Reorganization and Offering, Bancorp will own 100% of the Bank's
outstanding capital stock. The Mutual Company will own 55.2% of Bancorp's Common
Stock. Bancorp expects to retain at least 25% of the net proceeds obtained in
the Offering and will contribute the remaining net proceeds to the Bank in
return for its capital stock. Immediately after consummation of the
Reorganization and Offering, Bancorp will have no significant liabilities. The
management of Bancorp is set forth under "Management of Bancorp." Initially,
Bancorp will neither lease nor own any property, but will instead use the
premises, equipment and furniture of the Bank. At the present time, Bancorp does
not expect to employ any persons other than officers of Bancorp who are also
officers of the Bank, but will use the support staff of the Bank from time to
time.
As a holding company, Bancorp will have greater flexibility than the Bank
to diversify its business through existing or newly formed subsidiaries or
through an acquisition or merger with other financial institutions, although
Bancorp does not currently have any plans, agreements, arrangements or
understandings with respect to such diversification, acquisitions or mergers.
After the Reorganization and Offering, Bancorp will be a savings and loan
holding company subsidiary of a mutual holding company and will be subject to
regulation by the OTS.
Bancorp's executive offices are located at 417 Bloomfield Avenue, Caldwell,
New Jersey 07006.
WEST ESSEX BANK
The Bank was originally organized in 1915 as a New Jersey chartered
building and loan association and, in 1995, became a federally chartered savings
bank. The Bank conducts business from its administrative/branch office located
in Caldwell, New Jersey and its seven other full service banking branch offices
located in West Orange, Franklin Lakes, River Vale, Pine Brook, Old Tappan and
Northvale, New Jersey. See "Business of the Bank -- Market Area and
Competition." At March 31, 1998, the Bank had total assets of $312.5 million,
total deposits of $239.1 million and retained earnings of $29.8 million. The
Bank's deposits are insured up to the maximum allowable amount by FDIC.
The Bank is a community-oriented savings institution whose business
primarily consists of accepting deposits from customers and investing those
funds primarily in mortgage-backed securities and mortgage loans secured by one-
to four-family residences located in the Bank's primary market area. To a
significantly lesser extent, the Bank originates commercial real estate, home
equity, construction and development, multi-family and consumer and commercial
loans and invests in debt obligations of the federal government and federal
agencies as well as obligations of states and municipalities. The Bank generally
retains for its portfolio all one- to four-family mortgage loans which it
originates. At March 31, 1998 the Bank's securities portfolio totalled $158.5
million, or 50.7% of total assets, and its gross loan portfolio totalled $118.2
million, or 37.8% of total assets, of which $89.5 million were one- to four
family mortgage loans, $10.3 million were commercial real estate loans, $8.4
million were home equity loans, $7.1 million were construction and development
loans, $2.1 million were multi-family loans, and $801,000 were consumer loans.
Of the Bank's
25
<PAGE>
total mortgage-backed securities portfolio, 36.1% are secured by fixed-rate
loans and 63.9% are secured by adjustable-rate loans. The Bank generally retains
for its portfolio all mortgage loans which it originates. Subsequent to the
Reorganization and the Offering, the Bank intends to continue to seek means to
increase its loan portfolio. At March 31, 1998, the Bank's deposit accounts
totalled $239.1 million, or 84.6% of total liabilities, of which $95.9 million,
or 40.3%, were core deposits, which included all of the Bank's savings and club
accounts and demand accounts. From time to time, the Bank has utilized
borrowings from the Federal Home Loan Bank ("FHLB") of New York ("FHLB-NY") as a
source of funds, and may utilize such borrowings to a greater extent in the
future. At March 31, 1998, such borrowings totalled $42.3 million, or 15.0% of
total liabilities. See "Business of the Bank."
The Bank's executive offices are located at 417 Bloomfield Avenue,
Caldwell, New Jersey 07006.
26
<PAGE>
REGULATORY CAPITAL COMPLIANCE
At March 31, 1998, the Bank exceeded all regulatory capital requirements.
See "Regulation and Supervision -- Federal Savings Institution Regulation --
Capital Requirements." Set forth below is a summary of the Bank's compliance
with regulatory capital standards as of March 31, 1998, on a historical and pro
forma basis assuming that the indicated number of shares of Common Stock were
sold at $10.00 per share as of such date and receipt by the Bank of up to 75% of
the net proceeds. For purposes of the table below, the amount expected to be
borrowed by the ESOP and the cost of the shares expected to be acquired by the
Stock Programs are deducted from pro forma regulatory capital. In addition, the
table assumes that the Mutual Company will be capitalized with $100,000 of
proceeds of the Offering.
<TABLE>
<CAPTION>
WEST ESSEX BANK
PRO FORMA AT MARCH 31, 1998 BASED UPON SALE AT $10.00 PER SHARE
---------------------------------------------------------------
1,531,445 SHARES 1,801,700 SHARES 2,071,955 SHARES
(MINIMUM OF (MIDPOINT OF (MAXIMUM OF
HISTORICAL AT ESTIMATED ESTIMATED ESTIMATED
MARCH 31, 1998 PRICE RANGE) PRICE RANGE) PRICE RANGE)
-------------------- -------------------- ------------------ -------------------
PERCENT PERCENT PERCENT PERCENT
OF OF OF OF
AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2)
--------- ---------- -------- ---------- -------- ---------- -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital(3) ........................... $29,801 9.54% $38,647 12.03% $40,307 12.48% $41,969 12.93%
======= ======= ======= =======
Tangible Capital:
Capital Level........................... $24,040 7.84% $32,886 10.42% $34,546 10.89% $36,208 11.36%
Requirement............................. 4,600 1.50 4,733 1.50 4,758 1.50 4,783 1.50
------- ----- ------- ----- ------- ----- ------- -----
Excess.................................. $19,440 6.34% $28,153 8.92% $29,788 9.39% $31,425 9.86%
======= ======= ======= =======
Core Capital:
Capital Level........................... $24,040 7.84% $32,886 10.42% $34,546 10.89% $36,208 11.36%
Requirement(4).......................... 12,268 4.00 $12,622 4.00 12,688 4.00 12,755 4.00
------- ----- ------- ----- ------- ----- ------- -----
Excess.................................. $11,772 3.84% $20,264 6.42% $21,858 6.89% $23,453 7.36%
======= ======= ======= =======
Risk-Based Capital:
Capital Level(5)(6)..................... $25,292 19.95% $34,138 26.01% $35,798 27.11% $37,460 28.19%
Requirement............................. 10,144 8.00 10,498 8.00 10,564 8.00 10,631 8.00
------- ----- ------- ----- ------- ----- ------- -----
Excess.................................. $15,148 11.95% $23,640 18.01% $25,234 19.11% $26,829 20.19%
======= ======= ======= =======
<CAPTION>
2,382,748 SHARES
(15% ABOVE
MAXIMUM
OF ESTIMATED
PRICE RANGE)(1)
---------------------
PERCENT
OF
AMOUNT ASSETS(2)
------- ---------
<S> <C> <C>
GAAP Capital(3) ........................... $43,879 13.44%
=======
Tangible Capital:
Capital Level........................... $38,118 11.88%
Requirement............................. 4,812 1.50
------- -----
Excess.................................. $33,307 10.38%
=======
Core Capital:
Capital Level........................... $38,118 11.88%
Requirement(4).......................... 12,831 4.00
------- -----
Excess.................................. $25,287 7.88%
=======
Risk-Based Capital:
Capital Level(5)(6)..................... $39,370 29.42%
Requirement............................. 10,707 8.00
------- -----
Excess.................................. $28,663 21.42%
=======
</TABLE>
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Offering Range of up to 15% as a
result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement
of the Subscription and Community Offerings.
(2) Tangible capital levels are shown as a percentage of tangible assets. Core
capital levels are shown as a percentage of total adjusted assets. Risk-
based capital levels are shown as a percentage of risk-weighted assets.
(3) Generally accepted accounting principles ("GAAP") Capital includes
unrealized gain on available-for-sale securities, net, which is not
included as regulatory capital.
(4) The current OTS core capital requirement for savings associations is 3% of
total adjusted assets. The OTS has proposed core capital requirements which
would require a core capital ratio of 3% of total adjusted assets for
thrifts that receive the highest supervisory rating for safety and
soundness and a 4% to 5% core capital ratio requirement for all other
thrifts. See "Regulation and Supervision--Federal Savings Institution
Regulation-- Capital Requirements."
(5) Assumes net proceeds are invested in assets that carry a 50% risk-
weighting.
(6) The difference between equity under GAAP and regulatory risk-based capital
is attributable to the addition of the general valuation allowance of
$1,252,000 at March 31 1998, the subtraction of intangibles of $5,681,000
and the subtraction of the unrealized gain on available-for-sale
securities, net of $80,000.
27
<PAGE>
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock
cannot be determined until the Offering is completed, it is presently
anticipated that the net proceeds from the sale of the Common Stock will
be between $15.3 million and $20.7 million (or $23.8 million if the
Offering Range is increased by 15%). See "Pro Forma Data" and "The
Reorganization and Stock Offering--Stock Pricing and Number of Shares
Issued" as to the assumptions used to arrive at such amounts. Bancorp
will be unable to utilize any of the net proceeds of the Offerings until
the consummation of the Conversion.
Bancorp will purchase all of the outstanding capital stock of the
Bank to be issued upon Reorganization in exchange for up to 75% of the net
proceeds, with the remaining net proceeds to be retained by Bancorp.
Based on the midpoint of the Offering Range, Bancorp expects to utilize
$12.8 million of net proceeds to purchase the common stock of the Bank.
Such portion of net proceeds will be added to the Bank's general funds
which the Bank currently intends to utilize for general corporate
purposes, including investments in loans, mortgage-backed and investment
securities, the possible repayment of FHLB borrowings under appropriate
market conditions, and the funding of stock-based benefit plans. The Bank
may also use such funds for the expansion of its facilities, and to expand
operations through acquisitions of other financial institutions, branch
offices or other financial services companies. The Bank has not yet
determined the approximate amount of net proceeds to be used for any of
the purposes mentioned above.
Bancorp intends to use a portion of the net proceeds to make a loan
directly to the ESOP to enable the ESOP to purchase 8% of the Common Stock
issued in the Offering, including shares issued to the Foundation.
Bancorp and the Bank may alternatively choose to fund the ESOP's stock
purchases through a loan by a third-party financial institution. The
remaining net proceeds retained by Bancorp will initially be invested in
mortgage-related securities and federal agency obligations. Based upon
the sale of 1,531,445 shares or 2,071,955 shares at the minimum and
maximum of the Offering Range, and the issuance of shares to the
Foundation, the amount of the loan to the ESOP (assuming a per share price
of $10.00) would be $1.3 million or $1.7 million, respectively (or $2.0
million if the Offering Range is increased by 15%) to be repaid over a 10-
year period at the prevailing prime rate of interest, which currently is
___%. See "Management of the Bank -- Other Benefit Plans--Employee Stock
Ownership Plan."
The net proceeds retained by Bancorp may also be used to support the
future expansion of operations through branch acquisitions, the
establishment of branch offices and the acquisition of other financial
institutions or their assets, including those located within the Bank's
market area or diversification into other banking related businesses.
Bancorp has no current arrangements, understandings or agreements
regarding any such opportunities or transactions.
Upon completion of the Reorganization and Offering, the Board of
Directors of Bancorp will have the authority to adopt stock repurchase
plans, subject to statutory and regulatory requirements. Unless approved
by the OTS, Bancorp, pursuant to OTS regulations, will be prohibited from
repurchasing any shares of the Common Stock for three years except: (i)
for an offer to all stockholders on a pro rata basis (except that the
Mutual Company may be excluded from the repurchase without the OTS'
approval); or (ii) for the repurchase of qualifying shares of a director.
Based upon facts and circumstances following Reorganization and
subject to applicable regulatory requirements, the Board of Directors may
determine to repurchase stock in the future. Such facts and circumstances
may include but are not limited to: (i) market and economic factors such
as the price at which the stock is trading in the market, the volume of
trading, the attractiveness of other investment alternatives
28
<PAGE>
in terms of the rate of return and risk involved in the investment, the
ability to increase the book value and/or earnings per share of the
remaining outstanding shares, and the opportunity to improve Bancorp's
return on equity; (ii) the avoidance of dilution to stockholders by not
having to issue additional shares to cover the exercise of stock options
or to fund employee stock benefit plans; and (iii) any other circumstances
in which repurchases would be in the best interests of Bancorp and its
shareholders. Although Bancorp has no current plans to repurchase its
stock, in the event Bancorp does determine to repurchase stock, such
repurchases may be made at market prices which may be in excess of the
Purchase Price in the Offering.
Any stock repurchases will be subject to the determination of the
Board of Directors that both Bancorp and the Bank will be capitalized in
excess of all applicable regulatory requirements after any such
repurchases and that such capital will be adequate, taking into account,
among other things, the level of non-performing and other risk assets,
Bancorp's and the Bank's current and projected results of operations and
asset/liability structure, the economic environment, tax and other
considerations. See "The Reorganization and Stock Offering--Certain
Restrictions on Purchase or Transfer of Common Stock."
DIVIDEND POLICY
Upon completion of the Offering, the Board of Directors of Bancorp
will have the authority to declare dividends on the Common Stock, subject
to statutory and regulatory requirements. In the future, the Board of
Directors intends to consider a policy of paying cash or stock dividends
on the Common Stock. However, no decision has been made with respect to
the payment of dividends. Declarations of dividends by the Board of
Directors, if any, will depend upon a number of factors, including the
amount of net proceeds retained by Bancorp in the Offering, investment
opportunities available to Bancorp or the Bank, capital requirements,
regulatory limitations, Bancorp's and the Bank's financial condition and
results of operations, tax considerations and general economic conditions.
No assurances can be given, however, that any dividends will be paid or,
if commenced, will continue to be paid.
The Bank's ability to pay dividends to Bancorp on its capital stock
is subject to certain regulatory regulations. For information concerning
federal regulations which apply to the Bank in determining the amount of
proceeds which may be retained by Bancorp and regarding a savings
institution's ability to make capital distributions, including payment of
dividends to its holding company, see "Federal and State Taxation--Federal
Taxation--Distributions" and "Regulation and Supervision--Federal Savings
Institution Regulation--Limitation on Capital Distributions."
WAIVER OF DIVIDENDS BY THE MUTUAL COMPANY
The Board of Directors of the Mutual Company will determine whether
the Mutual Company will waive the receipt of dividends declared by Bancorp
each time Bancorp declares a dividend. The Board of Directors of the
Mutual Company presently intends to waive the receipt of dividends
declared by Bancorp. OTS regulations with respect to a mutual holding
company's waiver of dividends state that the Mutual Company may not waive
its right to receive any dividend declared by Bancorp unless either: (1)
no insider of the Mutual Company, associate of an insider, or tax-
qualified or non-tax-qualified employee stock benefit plan of the Mutual
Company holds any share of stock in the class of stock to which the waiver
would apply; or (2) the Mutual Company provides the OTS with written
notice of its intent to waive its right to receive dividends 30 days prior
to the proposed date of payment of the dividend, and the OTS does not
object. The regulations further state that the OTS shall not object to a
notice of intent to waive dividends if: (1) the waiver would not be
detrimental to the safe and sound operation of the Bank; and (2) the Board
of Directors of the Mutual Company expressly determines that waiver of the
dividend by the Mutual Company is consistent with the Directors' fiduciary
duties to the mutual members of the Mutual Company. It is the OTS'
29
<PAGE>
recent practice to review dividend waiver notices on a case-by-case basis,
and, in general, not to object to any such waiver if: (1) the mutual
holding company's board of directors determines that such waiver is
consistent with such directors' fiduciary duties to the mutual holding
company's members; (2) for as long as the subsidiary holding company is
controlled by the mutual holding company, the dollar amount of dividends
waived by the mutual holding company is considered to be a restriction on
the stockholders' equity of the subsidiary holding company, which
restriction, if material, is disclosed in the public financial statements
of the subsidiary holding company as a note to the financial statement;
(3) the amount of any dividend waived by the mutual holding company is
available for declaration as a dividend solely to the mutual holding
company, and, in accordance with SFAS No. 5, where the subsidiary holding
company determines that the payment of such dividend to the mutual holding
company is probable, an appropriate dollar amount is recorded as a
liability; (4) the amount of any waived dividend is considered as having
been paid by the subsidiary holding company in evaluating any proposed
dividend under OTS capital distribution regulations; and (5) in the event
the mutual holding company converts to stock form, the appraisal submitted
to the OTS in connection with the Conversion Transaction takes into
account the amount of the dividends waived by the mutual holding company.
In addition, the OTS has announced that the dividends waived by mutual
holding companies will affect the ratio pursuant to which shares of Common
Stock of a subsidiary holding company held by Minority Stockholders would
be exchanged for shares of common stock of the converted holding company
in a Conversion Transaction.
The Mutual Company's Board of Directors may conclude that a dividend
waiver by the Mutual Company, which permits retention of capital by
Bancorp, is in the best interest of the Mutual Company's members because,
among other reasons: (i) the Mutual Company has no need for the dividend
for its business operations, (ii) the cash that would be received could be
invested by Bancorp more effectively; and (iii) such waiver preserves the
retained earnings of the Mutual Company through its principal asset
(Bancorp), which would be available for distribution in the unlikely event
of a voluntary liquidation of Bancorp after satisfaction of claims of
depositors and other creditors. The Board of Directors may consider other
factors in determining whether such waiver is consistent with its
fiduciary duties to members of the Mutual Company. There is no assurance
that the Mutual Company will waive the receipt of the dividends.
Immediately after consummation of the Reorganization and the
Offering, it is expected that the Mutual Company's operations will consist
of activities relating to its investment in, and control of, a majority of
the Common Stock of Bancorp and maintenance of books and records relating
to members of the Mutual Company. In the future, the Mutual Company may
accept dividends paid by Bancorp to be used for the payment of operating
expenses and other purposes, including purchasing Common Stock from time
to time in the open market or from Bancorp. There can be no assurance
that the Mutual Company will accept dividends paid by Bancorp, or if such
dividends are accepted, that the Mutual Company will purchase shares of
Common Stock in the open market. Any purchase of Common Stock other than
from the Mutual Company will increase the percentage of Bancorp's
outstanding shares of Common Stock held by the Mutual Company and increase
the number of shares eligible to be sold in any subsequent secondary
offering or mutual to stock conversion of the Mutual Company. Any waiver
of dividends by the Mutual Company is likely to result in an adjustment to
the ratio pursuant to which shares of Common Stock are exchanged for
shares of the converted Mutual Company in a Conversion Transaction, which
adjustment will have the effect of diluting Minority Stockholders'
percentage ownership interest in the converted Mutual Company's shares.
CONVERSION OF THE MUTUAL COMPANY TO STOCK FORM
As long as the Mutual Company remains a mutual holding company, it
must own at least a majority of the outstanding voting stock of Bancorp.
OTS regulations specifically authorize mutual holding companies to (i)
convert to stock form pursuant to the conversion regulations of the OTS
(the "Conversion Transaction"), and (ii) exchange stock issued by the
converted holding company for stock issued by a
30
<PAGE>
subsidiary holding company or subsidiary stock savings bank. The Bank's Plan
provides that any such exchange will maintain approximately the same percentage
ownership interest in the newly converted holding company after the Conversion
Transaction as such stockholders held in Bancorp immediately prior to the
Conversion Transaction. OTS regulations require that such exchange be "fair and
reasonable" but do not specify the basis for such exchange. Although the Mutual
Company may conduct a Conversion Transaction in the future, the Bank has no
current plans to do so and there can be no assurance as to when, if ever, such a
Conversion Transaction will occur. Any Conversion Transaction would be subject
to federal securities laws and regulations of the OTS in effect at the time of
the Conversion Transaction. A decision by the Mutual Company to convert to stock
form would require the approval of its members prior to the Conversion
Transaction. It is expected that these members will have subscription rights to
purchase stock of the converted Mutual Company. Under OTS regulations, the
Mutual Company, Bancorp or the Bank will have to demonstrate to the OTS that the
terms of such exchange are fair and reasonable. The fairness of the exchange may
be supported by an opinion from an independent third party.
The OTS policy with respect to dividends waived by mutual holding companies
requires that, in the case of mutual-to-stock conversions of recently formed
mutual holding companies, such as the Mutual Company, the aggregate amount of
cash dividends waived by a mutual holding company must be considered when
establishing a fair and reasonable basis for exchanging subsidiary holding
company common stock for converted mutual holding company common stock. The OTS
will not permit a pro rata exchange if the mutual holding company has waived the
receipt of cash dividends paid by the subsidiary holding company. Accordingly,
the precise treatment of any Conversion Transaction cannot be assured. ANY
WAIVER OF DIVIDENDS BY THE MUTUAL COMPANY IS LIKELY TO RESULT IN AN ADJUSTMENT
TO THE RATIO PURSUANT TO WHICH SHARES OF COMMON STOCK ARE EXCHANGED FOR SHARES
OF THE CONVERTED MUTUAL COMPANY IN A CONVERSION TRANSACTION, WHICH ADJUSTMENT
WOULD HAVE THE EFFECT OF DILUTING THE OWNERSHIP INTERESTS OF MINORITY
STOCKHOLDERS.
In addition to the possible adjustment to the exchange ratio due to waived
dividends, the percentage of the converted Mutual Company's common stock
received by Minority Stockholders in any Conversion Transaction may be affected
by a number of other factors including any purchases of Common Stock by the
Mutual Company, any other stock issuances by Bancorp, any acquisitions by the
Mutual Company of other savings associations or Bancorp's dividend policy and
the amount of regular or special dividends paid by Bancorp.
As an alternative to the exchange of shares discussed above, the Plan of
Reorganization provides that if the stockholders of Bancorp do not receive, for
any reason, shares of the Converted Mutual Company or the stock institution
resulting from the Conversion Transaction based upon a fair and reasonable
exchange ratio, or cash from the resulting institution in an amount equal to the
fair market value of their stock given the circumstances of the Conversion
Transaction, Bancorp or the Mutual Company (and its successors) may purchase all
shares not owned by it simultaneously with the consummation of the Conversion
Transaction at the fair market value of the stock on the date of the Conversion
Transaction, subject to OTS approval and compliance with the limitations of the
OTS regulations governing capital distributions and other conditions that the
OTS may impose. The fair market value of the common stock of the Converted
Mutual Company shall be established by the independent appraisal utilized in the
Conversion Transaction pursuant to OTS regulations governing conversions.
Moreover, if the Common Stock is traded and has an established and liquid
trading market, of which there is no assurance, the fair market value of the
Common Stock, as established by the independent appraisal, may be greater than
or less than the trading price of such stock.
In addition, the Plan of Reorganization provides, in the event that the
Mutual Company converts to stock form in a Conversion Transaction, that any
options or other convertible securities held by any officer, director or
employee of Bancorp, convertible into shares of Common Stock shall be
convertible into shares
31
<PAGE>
of the converted Mutual Company; provided, however, that if such shares cannot
be so converted, the holders of such options or other convertible securities
shall be entitled to receive a cash payment for such shares in an amount equal
to the offering price of the number of shares of the converted Holding Company
into which such securities would otherwise be converted, less the exercise price
of such options or other convertible securities. Any such exchange or redemption
of these securities will be subject to the written approval of the OTS, and
there can be no assurance that such approval would be obtained.
Management of the Mutual Company may consider a Conversion Transaction in
the future. However, there is no plan, agreement or understanding with respect
to a Conversion Transaction and there can be no assurance that such a conversion
will occur.
MARKET FOR THE COMMON STOCK
Bancorp and the Bank have not previously issued capital stock and,
consequently, there is no established market for the Common Stock. Bancorp has
received conditional approval to have its Common Stock listed on the Nasdaq
under the symbol "WEBK" upon completion of the Reorganization and Offering. Such
approval is subject to various conditions, including completion of the
Reorganization and Offering and the satisfaction of applicable listing criteria.
There can be no assurance that the Common Stock will be able to meet the
applicable listing criteria in order to maintain its listing on the Nasdaq or
that an active and liquid trading market will develop or, if developed, will be
maintained. A public market having the desirable characteristics of depth,
liquidity and orderliness, however, depends upon the presence in the marketplace
of both willing buyers and sellers of Common Stock at any given time, which is
not within the control of Bancorp. No assurance can be given that an investor
will be able to resell the Common Stock at or above the purchase price of the
Common Stock after the Offering.
32
<PAGE>
CAPITALIZATION
The following table presents the unaudited historical capitalization of the
Bank at March 31, 1998, and the pro forma capitalization of Bancorp after giving
effect to the Offering, including the issuance of shares to the Foundation,
based upon the sale of the number of shares indicated in the table and the other
assumptions set forth under "Pro Forma Data."
<TABLE>
<CAPTION>
BANK PRO FORMA BASED UPON SALE AT $10.00 PER SHARE
------------------------------------------------------
2,382,748
1,531,445 1,801,700 2,071,955 SHARES
SHARES SHARES SHARES (15% ABOVE
(MINIMUM OF (MIDPOINT OF (MAXIMUM OF MAXIMUM OF
BANK OFFERING OFFERING OFFERING OFFERING
HISTORICAL RANGE) RANGE) RANGE) RANGE)(1)
---------- ----------- ------------ ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deposit accounts(2)................... $239,120 $ 239,120 $ 239,120 $ 239,120 $ 239,120
Total deposits and escrow funds....... 239,915 239,915 239,915 239,915 239,915
Stockholders' equity:
Preferred Stock, $.01 par value,
1,000,000 shares authorized;
none to be issued................. -- -- -- -- --
Common Stock, $.01 par value,
9,000,000 shares authorized;
shares to be issued as
reflected......................... -- 36 42 48 55
Additional paid-in capital(3)........ -- 15,053 17,825 20,598 23,786
Retained earnings(4)................. 29,721 29,721 29,721 29,721 29,721
Less:Expense of contribution
to Foundation................... -- 742 855 968 1,098
Plus:Tax effect of
Foundation(5).................. -- 267 308 349 395
Net unrealized gain/(loss)
on AFS, net.................... 80 80 80 80 80
Less:Common Stock acquired
by the ESOP(6)................. -- 1,276 1,502 1,727 1,986
Common Stock acquired
by the Stock-Based -- 638 751 864 993
Incentive Plan(7).............. -------- ---------- ---------- ---------- ----------
Total stockholders' equity........... $29,801 $ 42,501 $ 44,868 $ 47,237 $ 49,960
======== ========== ========== ========== ==========
</TABLE>
- -------------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Offering Range of up to 15% as a
result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Common Stock in the Offering. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) No effect has been given to the issuance of additional shares of Common
Stock to the Foundation at a value of $10.00 per share or to the issuance
of additional shares for option grants under Bancorp's Stock-Based
Incentive Plans intended to be adopted by Bancorp and presented for
approval of Minority Stockholders at a meeting of stockholders following
the Reorganization. If approved by the Minority Stockholders of Bancorp, an
amount equal to __% of the shares of Common Stock issued in the Offering,
including shares issued to the Foundation, will be reserved for issuance
upon the exercise of options to be granted under the Stock-Based Incentive
Plans. See "Risk Factors -- Possible Dilutive Effect of the ESOP and Stock-
Based Incentive Plans," Footnotes 5 and 4 to the tables under "Pro Forma
Data" at or for the three months ended March 31, 1998 and at or for the
year ended March 31, 1997, respectively, and "Management of the Bank --
Benefits -- Stock-Based Incentive Plans."
(4) The retained earnings of the Bank will be substantially restricted after
the Offering. See "The Reorganization and Stock Offering". Assumes that the
Mutual Company will be capitalized by the Bank with $100,000.
(5) Represents the value of the contribution of Common Stock to the Foundation
at $10.00 per share reduced by the associated tax benefit of $267,000,
$308,000, $349,000 and $395,000 at the minimum, midpoint, maximum and 15%
above the maximum of the range, respectively. The realization of the
federal tax benefit is limited annually to 10% of Bancorp's annual taxable
income, subject to the ability of Bancorp to carry forward any unused
portion of the deduction for five years following the year in which the
contribution is made. For state income tax purposes, Bancorp will be able
to deduct the contribution and to carry forward any unused portion of the
deduction for a five-year period following the year in which the
contribution is initially made. Such deductions by Bancorp for New Jersey
income tax purposes can be utilized only if Bancorp generates sufficient
state taxable income on an unconsolidated basis, and also are subject to
the limitation of 10% of unconsolidated income of Bancorp.
(6) Assumes that 8% of the shares issued in the Offering, including shares
issued to the Foundation, will be purchased by the ESOP and that the funds
used to acquire such shares will be borrowed from Bancorp. The Common Stock
acquired by the ESOP is reflected as a reduction of stockholders' equity.
See "Management of the Bank--Benefits--Employee Stock Ownership Plan."
(7) Assumes that no sooner than six months following the Reorganization and
Offering, an amount equal to 4% of the shares of Common Stock sold in the
Offering and issued to the Foundation, is purchased by the Stock-Based
Incentive Plan through open market purchases at the offering price of
$10.00 per share. The Common Stock purchased by the Stock-Based Incentive
Plan is reflected as a reduction of stockholders' equity. See "Risk
Factors--Possible Dilutive Effect of Stock-Based Incentive Plan," Footnote
3 to the tables under "Pro Forma Data" and "Management of the Bank--Other
Benefit Plans."
33
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be
determined until the Offering is completed. However, net proceeds are currently
estimated to be between $14.3 million and $19.7 million (or $22.7 million in the
event the Offering Range is increased by 15%) based upon the following
assumptions: (i) 100% of the shares of Common Stock offered will be sold in the
Subscription Offering to Eligible Account Holders, the ESOP and Supplemental
Eligible Account Holders; (ii) directors, officers and employees of the Bank and
members of their immediate families (collectively, "Insiders") will purchase an
aggregate of $2,880,000 of Common Stock and the ESOP will purchase 8% of the
Common Stock issued in connection with the Offering including shares issued to
the Foundation; (iii) Sandler O'Neill will receive an advisory, management and a
marketing fee equal to 1.5% of the aggregate Purchase Price of shares sold in
the Subscription and Community Offerings, excluding shares purchased by
directors, officers, employees and any immediate family member thereof and the
ESOP and shares contributed to the Foundation, for which Sandler O'Neill will
not receive a fee; and (iv) Offering expenses, excluding the marketing fees paid
to Sandler O'Neill, will be approximately $600,000. Actual Offering expenses may
vary from those estimated. As part of the Reorganization and Offering, the
Mutual Company will be capitalized at $100,000 and the Foundation will receive
$100,000 in cash, which will result in a reduction of the Bank's assets and
retained earnings by the same amount.
Pro forma net income of Bancorp for the three months ended March 31, 1998,
and for the year ended December 31, 1997, have been calculated as if the Common
Stock had been sold at the beginning of the respective periods and the net
proceeds had been invested at an average yield of 5.41% which is equivalent to
the one year Treasury rate at March 31, 1998. The table also reflects $100,000
being utilized to capitalize the Mutual Company in connection with the
Reorganization. The tables below do not reflect the effect of withdrawals from
deposit accounts for the purchase of Common Stock or the effect of any possible
use of the net proceeds. The pro forma after-tax yield for Bancorp and the Bank
is assumed to be 3.46% for the three months ended March 31, 1998 and 3.46% for
the year ended December 31, 1997, based on an effective tax rate of 36%.
Historical and pro forma net earnings per share amounts have been calculated by
dividing historical and pro forma amounts by the indicated number of shares of
Common Stock issued as adjusted to give effect to the purchase of shares by the
ESOP and the issuance of shares to the Foundation. Historical and pro forma
stockholders' equity per share amounts have been calculated by dividing
historical and pro forma amounts by the indicated number of shares of Common
Stock issued.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma consolidated stockholders' equity represents
the difference between the stated amount of assets and liabilities of Bancorp.
The pro forma stockholders' equity is not intended to represent the fair market
value of the Common Stock and may be stated in an amount greater than amounts
that would be available for distribution to stockholders in the event of
liquidation.
The following tables summarize historical data of the Bank and pro forma
data of Bancorp at or for the three months ended March 31, 1998, based on the
assumptions set forth above and in the table and should not be used as a basis
for projections of market value of the Common Stock following the Offering. The
tables below give effect to Stock Awards reserved for grant under the Stock-
Based Incentive Plan, which is expected to be adopted by Bancorp following the
Reorganization and Offering. See Footnote 3 to the tables and "Management of
the Bank-- Benefits." No effect has been given in the tables to the possible
issuance of additional shares of Common Stock upon the exercise of stock options
to be granted under the Stock-Based Incentive Plan, nor does book value give any
effect to the liquidation account to be established for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders or, in the event of
liquidation of the Bank, to the tax effect of the bad debt reserve and other
factors. See Footnote 5 to the
34
<PAGE>
tables below, "The Reorganization and Stock Offering" and "Management of the
Bank-- Benefits." THE FOLLOWING TABLE ASSUMES THAT THE FOUNDATION IS APPROVED AS
PART OF THE REORGANIZATION AND THEREFORE GIVES EFFECT TO THE ISSUANCE OF
AUTHORIZED BUT UNISSUED SHARES OF BANCORP'S COMMON STOCK TO THE FOUNDATION
CONCURRENTLY WITH THE COMPLETION OF THE OFFERING. THE VALUATION RANGE, AS SET
FORTH HEREIN AND IN THE TABLE BELOW, TAKES INTO ACCOUNT THE DILUTIVE IMPACT OF
THE ISSUANCE OF SHARES TO THE FOUNDATION.
35
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE THREE MONTHS ENDED MARCH 31, 1998
----------------------------------------------------------
1,531,445 1,801,700 2,071,955 2,382,748
SHARES SOLD SHARES SOLD SHARES SOLD SHARES SOLD
AT $10.00 AT $10.00 AT $10.00 AT $10.00 PER
PER SHARE PER SHARE PER SHARE SHARE (15%
(MINIMUM (MIDPOINT (MAXIMUM ABOVE MAXIMUM
OF OFFERING OF OFFERING OF OFFERING OF OFFERING
RANGE)(8) RANGE) RANGE) RANGE)(8)
----------- ----------- ---------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross proceeds............................................... $ 15,314 $ 18,017 $ 20,720 $ 23,827
Plus: Shares issued to Foundation (equal to 4.19% of the
stock sold in the Offering)........................... 642 755 868 998
---------- ---------- ---------- ----------
Pro forma market capitalization.............................. 15,956 18,772 21,588 24,825
---------- ---------- ---------- ----------
Gross proceeds............................................... 15,314 18,017 20,720 23,827
Less: Offering expenses and commission...................... 767 805 842 884
---------- ---------- ---------- ----------
Estimated net proceeds....................................... 14,547 17,212 19,878 22,943
Less: Cash to Foundation.................................... 100 100 100 100
Less: Cash to Mutual Company................................ 100 100 100 100
Less: Common Stock purchased by ESOP........................ 1,276 1,502 1,727 1,986
Common Stock purchased by Stock-Based Incentive
Plan.................................................. 638 751 864 993
---------- ---------- ---------- ----------
Estimated net proceeds, as adjusted....................... 12,433 14,759 17,087 19,764
Consolidated net earnings:(1)
Historical................................................ 511 511 511 511
Pro forma earnings on net proceeds........................ 108 128 148 171
Less: Pro forma ESOP adjustment(2)....................... 20 24 28 32
Pro forma Stock-Based Incentive Plan
adjustment(3)...................................... 20 24 28 32
---------- ---------- ---------- ----------
Pro forma net earnings................................ 579 591 603 618
Per share net earnings:(1)
Historical................................................ 0.15 0.13 0.11 0.10
Pro forma earnings on net proceeds........................ 0.03 0.03 0.03 0.03
Less: Pro forma ESOP adjustment(2)....................... 0.01 0.01 0.01 0.01
Pro forma Stock-Based Incentive Plan
adjustment(3)...................................... 0.01 0.01 0.01 0.01
---------- ---------- ---------- ----------
Pro forma net earnings per share...................... 0.16 0.14 0.12 0.11
Stockholders' equity:
Historical (4)............................................ 29,801 29,801 29,801 29,801
Estimated net proceeds.................................... 14,347 17,012 19,678 22,743
Plus: Shares issued to the Foundation.................... 267 308 349 395
Less: After tax cost to Foundation (5)
Common Stock acquired by ESOP(2)................... 1,276 1,502 1,727 1,986
Common Stock acquired by Stock-Based
Incentive Plan(3)................................. 638 751 864 993
---------- ---------- ---------- ----------
Pro forma stockholders' equity(3)(4)(5)(6)(7)......... 42,501 44,868 47,237 49,960
Stockholders' equity per share:
Historical(4)............................................. 8.37 7.11 6.18 5.38
Estimated net proceeds.................................... 4.03 4.06 4.08 4.10
Plus: Shares issued to the Foundation.................... 0.07 0.07 0.07 0.07
Less: After tax cost to Foundation (5)
Common Stock acquired by ESOP(2)................... 0.36 0.36 0.36 0.36
Common Stock acquired by Stock-Based
Incentive Plan(3)................................. 0.18 0.18 0.18 0.18
---------- ---------- ---------- ----------
Pro forma stockholders' equity........................ 11.93 10.70 9.79 9.01
per share(3)(4)(5)(6)(7)
Offering price as a percentage of pro forma
stockholders' equity per share............................ 83.82% 93.46% 102.15% 110.99%
Offering price to pro forma annualized net
earnings per share......................................... 15.63x 17.86x 20.83x 22.73x
</TABLE>
36
<PAGE>
_____________________
(1) Does not give effect to the non-recurring expense that is expected to be
recognized in the fourth quarter of fiscal 1998 if the establishment of the
Foundation is approved. In that event, Bancorp will recognize an after-tax
expense for the amount of the contribution to the Foundation which is
expected to be $475,000, $547,000, $619,000 and $703,000 at the minimum,
midpoint, maximum, and maximum as adjusted, of the Estimated Price Range,
respectively.
(2) It is assumed that 8% of the shares of Common Stock issued in the Offering,
including shares issued to the Foundation, will be purchased by the ESOP.
For purposes of this table, the funds used to acquire such shares are
assumed to have been borrowed by the ESOP from Bancorp. The amount to be
borrowed is reflected as a reduction of stockholders' equity. The Bank
intends to make annual contributions to the ESOP in an amount at least equal
to the principal and interest requirement of the debt. The Bank's total
annual payment of the ESOP debt is based upon ten equal annual installments
of principal, with an assumed interest rate at ___%. The pro forma net
earnings assume: (i) that the Bank's contribution to the ESOP is equivalent
to the debt service requirement for the three months ended March 31, 1998,
and was made at the end of the period; (ii) that 3,063, 3,603, 4,144 and
4,765 shares at the minimum, midpoint, maximum and 15% above the maximum of
the range, respectively, were committed to be released during the three
months ended March 31, 1998 at an average fair value of $10.00 per share in
accordance with Statement of Position ("SOP") 93-6; and (iii) only the ESOP
shares committed to be released were considered outstanding for purposes of
the net earnings per share calculations. See "Management of the Bank--
Benefits--Employee Stock Ownership Plan."
(3) Gives effect to the Stock Awards available for grant under the Stock-Based
Incentive Plan expected to be adopted by Bancorp following the Offering and
presented for approval at a meeting of stockholders. The Stock-Based
Incentive Plan intends to acquire an amount of Common Stock equal to 4% of
the shares of Common Stock sold in the Offering and issued to the
Foundation, or 63,825, 75,088, 86,351 and 99,303 shares of Common Stock at
the minimum, midpoint, maximum and 15% above the maximum of the Offering
Range, respectively, either through open market purchases, if permissible,
or from authorized but unissued shares of Common Stock or treasury stock of
the Company, if any. Funds used by the Stock-Based Incentive Plan to
purchase the shares will be contributed to the Stock-Based Incentive Plan by
the Bank. In calculating the pro forma effect of the Stock-Based Incentive
Plan, it is assumed that the shares were acquired by the Stock-Based
Incentive Plan at the beginning of the period presented in open market
purchases at the Purchase Price and that 20% of the amount contributed was
an amortized expense during such period. The issuance of authorized but
unissued shares of Bancorp's Common Stock to the Stock-Based Incentive Plan
instead of open market purchases would dilute the voting interests of
existing stockholders by approximately 1.86% and pro forma net earnings per
share would be $0.17, $0.15, $0.13, and $0.12 at the minimum, midpoint,
maximum, and 15% above the maximum of the range, respectively, and pro forma
stockholders' equity per share would be $11.72, $10.52, $9.63 and $8.86 at
the minimum, midpoint, maximum, and 15% above the maximum of the range,
respectively. There can be no assurance that stockholder approval of the
Stock-Based Incentive Plan will be obtained, or that the actual purchase
price of the shares will be equal to the Purchase Price. See "Management of
the Bank--Benefits."
(4) Historical Stockholders' Equity has been decreased by $100,000 to reflect
the capitalization of the Mutual Company.
(5) Assumes a combined federal and state effective income tax rate of 36%.
(6) No effect has been given to the issuance of additional shares of Common
Stock upon the exercise of options to be granted under the Stock-Based
Incentive Plan. An amount equal to 10% of the Common Stock issued in the
Offering, including shares issued to the Foundation, or 159,561, 187,719,
215,877 and 248,259 shares at the minimum, midpoint, maximum and 15% above
the maximum of the Offering Range, respectively, will be reserved for future
issuance upon the exercise of options to be granted under the Stock-Based
Incentive Plan. The issuance of Common Stock pursuant to the exercise of
options under the Stock-Based Incentive Plan will result in the dilution of
existing stockholders' interests. Assuming all options were exercised at the
end of the period at an exercise price of $10.00 per share, the pro forma
net earnings per share would be $0.18, $0.16, $0.14, and $0.13,
respectively, and the pro forma stockholders' equity per share would be
$11.85, $10.68, $9.81 and $9.06, respectively. See "Management of the Bank--
Benefits."
(7) The retained earnings of the Bank will continue to be substantially
restricted after the Reorganization. See "Dividend Policy," "The
Reorganization and Stock Offering" and "Regulation and Supervision--Federal
Savings Institution Regulation--Limitation on Capital Distributions."
(8) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Offering Range of up to 15% as a
result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
37
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------
1,531,445 1,801,700 2,071,955 2,382,748
SHARES SOLD SHARES SOLD SHARES SOLD SHARES SOLD
AT $10.00 AT $10.00 AT $10.00 AT $10.00 PER
PER SHARE PER SHARE PER SHARE SHARE (15%
(MINIMUM (MIDPOINT (MAXIMUM ABOVE MAXIMUM
OF OFFERING OF OFFERING OF OFFERING OF OFFERING
RANGE)(8) RANGE) RANGE) RANGE)(8)
------------ --------- --------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross proceeds........................................ $ 15,314 $ 18,017 $ 20,720 $ 23,827
Plus: Shares issued to Foundation (equal to 4.19%
of the stock sold in the Offering)........... 642 755 868 998
---------- ---------- ---------- ----------
Pro forma market capitalization....................... 15,956 18,772 21,588 24,825
Gross proceeds........................................ 15,314 18,017 20,720 23,827
Less: Offering expenses and commission............... 767 805 848 884
---------- ---------- ---------- ----------
Estimated net proceeds................................ 14,547 17,212 19,872 22,943
Less: Cash to Foundation............................. 100 100 100 100
Less: Cash to Mutual Company......................... 100 100 100 100
Less: Common Stock purchased by ESOP................. 1,276 1,502 1,727 1,986
Common Stock purchased by Stock-Based
Incentive Plan............................... 638 751 864 993
---------- ---------- ---------- ----------
Estimated net proceeds, as adjusted................ 12,433 14,759 17,087 19,764
Consolidated net earnings:(1)
Historical......................................... 737 737 737 737
Pro forma earnings on net proceeds................. 430 511 592 684
Less: Pro forma ESOP adjustment(2)................ 82 96 111 127
Pro forma Stock-Based Incentive Plan
adjustment(3)............................. 82 96 111 127
---------- ---------- ---------- ----------
Pro forma net earnings...................... 1,003 1,056 1,107 1,167
Per share net earnings:(1)
Historical......................................... 0.21 0.18 0.16 0.14
Pro forma earnings on net proceeds................. 0.12 0.13 0.13 0.13
Less: Pro forma ESOP adjustment(2)................ 0.02 0.02 0.02 0.02
Pro forma Stock-Based Incentive Plan
adjustment(3)............................. 0.02 0.02 0.02 0.02
---------- ---------- ---------- ----------
Pro forma net earnings per share............. 0.29 0.27 0.25 0.23
Stockholders' equity:
Historical (4)..................................... 29,275 29,275 29,275 29,275
Estimated net proceeds............................. 14,347 17,012 19,678 22,743
Plus: Shares issued to the Foundation............. 267 308 349 395
Less: After tax cost to Foundation (5)............
Common Stock acquired by ESOP(2)............ 1,276 1,502 1,727 1,986
Common Stock acquired by Stock-Based
Incentive Plan(3)......................... 638 751 864 993
---------- ---------- ---------- ----------
Pro forma stockholders' equity(3)(4)(5)(6)(7).. 41,975 44,342 46,711 49,434
Stockholders' equity per share:
Historical(4)...................................... 8.22 6.99 6.07 5.28
Estimated net proceeds............................. 4.03 4.06 4.08 4.10
Plus: Shares issued to the Foundation............. 0.07 0.07 0.07 0.07
Less: After tax cost to Foundation (5)............
Common Stock acquired by ESOP(2)............ 0.36 0.36 0.36 0.36
Common Stock acquired by Stock-Based
Incentive Plan(3)......................... 0.18 0.18 0.18 0.18
---------- ---------- ---------- ----------
Pro forma stockholders' equity
per share(3)(4)(5)(6)(7)..................... 11.78 10.58 9.68 8.91
Offering price as a percentage of pro forma
stockholders' equity per share..................... 84.89% 94.52% 103.31% 112.23%
Offering price to pro forma annualized net
earnings per share.................................. 34.48x 37.04x 40.00x 43.48x
</TABLE>
38
<PAGE>
_____________________
(1) Does not give effect to the non-recurring expense that is expected to be
recognized in the fourth quarter of fiscal 1998 if the establishment of the
Foundation is approved. In that event, Bancorp will recognize an after-tax
expense for the amount of the contribution to the Foundation which is
expected to be $475,000, $547,000, $619,000 and $703,000 at the minimum,
midpoint, maximum, and maximum as adjusted, of the Estimated Price Range,
respectively.
(2) It is assumed that 8% of the shares of Common Stock issued in the Offering,
including shares issued to the Foundation, will be purchased by the ESOP.
For purposes of this table, the funds used to acquire such shares are
assumed to have been borrowed by the ESOP from Bancorp. The amount to be
borrowed is reflected as a reduction of stockholders' equity. The Bank
intends to make annual contributions to the ESOP in an amount at least equal
to the principal and interest requirement of the debt. The Bank's total
annual payment of the ESOP debt is based upon ten equal annual installments
of principal, with an assumed interest rate at ___%. The pro forma net
earnings assume: (i) that the Bank's contribution to the ESOP is equivalent
to the debt service requirement for the year ended December 31, 1997, and
was made at the end of the period; (ii) that 12,252, 14,414, 16,576 and
19,861 shares at the minimum, midpoint, maximum and 15% above the maximum of
the range, respectively, were committed to be released during the year ended
December 31, 1997 at an average fair value of $10.00 per share in accordance
with Statement of Position ("SOP") 93-6; and (iii) only the ESOP shares
committed to be released were considered outstanding for purposes of the net
earnings per share calculations. See "Management of the Bank-- Benefits--
Employee Stock Ownership Plan."
(3) Gives effect to the Stock Awards available for grant under the Stock-Based
Incentive Plan expected to be adopted by Bancorp following the Offering and
presented for approval at a meeting of stockholders. The Stock-Based
Incentive Plan intends to acquire an amount of Common Stock equal to 4% of
the shares of Common Stock sold in the Offering and issued to the
Foundation, or 63,825, 75,088, 86,351 and 99,303 shares of Common Stock at
the minimum, midpoint, maximum and 15% above the maximum of the Offering
Range, respectively, either through open market purchases, if permissible,
or from authorized but unissued shares of Common Stock or treasury stock of
the Company, if any. Funds used by the Stock-Based Incentive Plan to
purchase the shares will be contributed to the Stock-Based Incentive Plan by
the Bank. In calculating the pro forma effect of the Stock-Based Incentive
Plan, it is assumed that the shares were acquired by the Stock-Based
Incentive Plan at the beginning of the period presented in open market
purchases at the Purchase Price and that 20% of the amount contributed was
an amortized expense during such period. The issuance of authorized but
unissued shares of Bancorp's Common Stock to the Stock-Based Incentive Plan
instead of open market purchases would dilute the voting interests of
existing stockholders by approximately 1.86% and pro forma net earnings per
share would be $0.29, $0.26, $0.24, and $0.22 at the minimum, midpoint,
maximum, and 15% above the maximum of the range, respectively, and pro forma
stockholders' equity per share would be $11.58, $10.40, $9.52 and $8.76 at
the minimum, midpoint, maximum, and 15% above the maximum of the range,
respectively. There can be no assurance that stockholder approval of the
Stock-Based Incentive Plan will be obtained, or that the actual purchase
price of the shares will be equal to the Purchase Price. See "Management of
the Bank--Benefits."
(4) Historical Stockholders' Equity has been decreased by $100,000 to reflect
the capitalization of the Mutual Company.
(5) Assumes a combined federal and state effective income tax rate of 36%.
(6) No effect has been given to the issuance of additional shares of Common
Stock upon the exercise of options to be granted under the Stock-Based
Incentive Plan. An amount equal to 10% of the Common Stock issued in the
Offering, including shares issued to the Foundation, or 159,561, 187,719,
215,877 and 248,259 shares at the minimum, midpoint, maximum and 15% above
the maximum of the Offering Range, respectively, will be reserved for future
issuance upon the exercise of options to be granted under the Stock-Based
Incentive Plan. The issuance of Common Stock pursuant to the exercise of
options under the Stock-Based Incentive Plan will result in the dilution of
existing stockholders' interests. Assuming all options were exercised at the
end of the period at an exercise price of $10.00 per share, the pro forma
net earnings per share would be $0.29, $0.26, $0.24, and $0.22,
respectively, and the pro forma stockholders' equity per share would be
$11.71, $10.56, $9.71 and $8.97, respectively. See "Management of the Bank--
Benefits."
(7) The retained earnings of the Bank will continue to be substantially
restricted after the Reorganization. See "Dividend Policy," "The
Reorganization and Stock Offering" and "Regulation and Supervision--Federal
Savings Institution Regulation--Limitation on Capital Distributions."
(8) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Offering Range of up to 15% as a
result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
39
<PAGE>
COMPARISON OF VALUATION AND
PRO FORMA INFORMATION WITH NO FOUNDATION
In the event that the Foundation was not established as part of the
Reorganization, FinPro has estimated that the pro forma market capitalization of
Bancorp would be approximately $45.4 million, at the midpoint, which is
approximately $3.5 million greater than the pro forma market capitalization of
Bancorp if the Foundation is approved by members of Bancorp and would result in
approximately a $1.5 million increase, or 8.4%, in the amount of Common Stock
offered for sale in the Offering. Assuming the midpoint of the Offering Range,
pro forma stockholders' equity per share and pro forma earnings per share would
be substantially the same with the Foundation as without the Foundation. In this
regard, pro forma stockholders' equity and pro forma net income per share would
be $10.15 and $0.13 respectively, at the midpoint of the estimate, assuming no
Foundation, and $10.70 and $0.14, respectively, with the Foundation. The pro
forma price to book ratio and the pro forma price to earnings ratio are 98.52%
and 19.23x, respectively, at the midpoint of the estimate, assuming no
Foundation and are 93.46% and 17.86x, respectively, with the Foundation. This
estimate by FinPro was prepared at the request of the OTS and is solely for
purposes of providing members with sufficient information with which to make an
informed decision on the Foundation. There is no assurance that in the event the
Foundation is not approved at the Special Meeting of Members that the appraisal
prepared at that time would conclude that the pro forma market value of Bancorp
would be the same as that estimated herein. Any appraisal prepared at that time
would be based on the facts and circumstances existing at that time, including,
among other things, market and economic conditions.
For comparative purposes only, set forth below are certain pricing ratios
and financial data and ratios, at the minimum, midpoint, maximum and maximum, as
adjusted, of the Offering Range, assuming the Offering was completed at March
31, 1998.
<TABLE>
<CAPTION>
AT THE MAXIMUM,
AT THE MINIMUM AT THE MIDPOINT AT THE MAXIMUM AS ADJUSTED
------------------------- ------------------------- ------------------------- -------------------------
WITH NO WITH NO WITH NO WITH NO
FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Estimated offering
amount.................. $ 15,314 $ 16,594 $ 18,017 $ 19,522 $ 20,720 $ 22,450 $ 23,827 $ 25,818
Pro forma market
capitalization.......... 15,956 16,594 18,772 19,522 21,588 22,450 24,825 25,818
Total assets............. 324,955 326,238 327,281 328,775 329,609 331,311 332,256 334,229
Total liabilities........ 282,721 282,721 282,721 282,721 282,721 282,721 282,721 282,721
Pro forma stockholders'
equity.................. 42,493 43,517 44,868 46,054 47,237 48,590 49,960 51,508
Pro forma consolidated
net earnings............ 579 588 591 602 603 616 618 633
Pro forma stockholders'
equity per share........ 11.93 11.28 10.70 10.15 9.79 9.31 9.01 8.58
Pro forma consolidated
net earnings per share.. 0.16 0.15 0.14 0.13 0.12 0.11 0.11 0.10
Pro Forma Pricing Ratios:
Offering Price as a
percentage of pro
forma stockholders'
equity per share....... 83.82% 88.65% 93.46% 98.52% 102.15% 107.41% 110.99% 116.55%
Offering price to pro
forma net earnings per
share.................. 15.63x 16.67x 17.86x 19.23x 20.83x 22.73x 22.73x 25.00x
Offering price to
assets................. 10.96% 11.83% 12.80% 13.81% 14.62% 15.76% 16.68% 17.96%
Pro Forma Financial Ratios:
Return on Assets........ 0.71% 0.72% 0.72% 0.73% 0.73% 0.74% 0.74% 0.76%
Return on stockholders'
equity................. 5.45% 5.40% 5.27% 5.23% 5.11% 5.07% 4.95% 4.92%
Stockholders' equity
to assets.............. 13.08% 13.34% 13.71% 14.01% 14.33% 14.66% 15.04% 15.41%
</TABLE>
40
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME FOR
WEST ESSEX BANK AND SUBSIDIARIES
The following Consolidated Statements of Income of the Bank and
subsidiaries for each of the years in the three year period ended December 31,
1997 have been audited by Radics & Co., LLC, independent certified public
accountants, whose report thereon is included elsewhere in this Prospectus. With
respect to the information for the three months ended March 31, 1998 and 1997,
which is unaudited, in the opinion of management, all adjustments necessary for
a fair presentation of such interim periods have been included and are of a
normal recurring nature. Results for the three months ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. These Statements of Income should be read in
conjunction with the Financial Statements and notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this Offering Circular.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE YEARS
ENDED MARCH 31, ENDED DECEMBER 31,
----------------------------- -----------------------------------------
1998 1997 1997 1996 1995
----------- ------------ --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans..................................... $ 2,298,412 $ 1,744,900 $ 7,908,541 $ 7,268,237 $ 7,603,186
Mortgage-backed securities................ 2,117,926 1,930,007 7,908,940 6,982,443 6,559,192
Investment securities..................... 602,150 465,039 1,897,153 1,700,819 1,188,096
Other interest-earning assets............. 96,925 112,324 400,842 515,475 384,395
----------- ----------- ----------- ----------- -----------
Total interest income................ 5,115,413 4,252,270 18,115,476 16,466,974 15,734,869
----------- ----------- ----------- ----------- -----------
Interest expense:
Deposits.................................. 2,433,347 1,809,177 8,089,473 7,148,794 6,551,335
Borrowed money............................ 436,628 343,500 1,566,165 1,151,419 1,066,987
----------- ----------- ----------- ----------- -----------
Total interest expense............... 2,859,975 2,152,677 9,655,638 8,300,213 7,618,322
----------- ----------- ----------- ----------- -----------
Net interest income.......................... 2,245,438 2,099,593 8,459,838 8,166,761 8,116,547
Provision for loan losses.................... (22,050) 55,000 487,015 232,103 509,729
----------- ----------- ----------- ----------- -----------
Net interest income after............... 2,267,488 2,044,593 7,972,823 7,934,658 7,606,818
provision for loan losses............... ----------- ----------- ----------- ----------- -----------
Non-interest income:
Fees and service charges.................. 94,162 64,042 273,443 210,286 157,183
(Loss) gain on sale of securities......... -- -- (20,245) 102,752 (22,014)
available for sale
Income on real estate owned............... -- -- -- 20,563 58,933
Other..................................... 45,749 49,714 120,039 141,996 138,328
----------- ------------ ---------- ----------- -----------
Total noninterest income............. 139,911 113,756 373,237 475,597 332,430
----------- ----------- ---------- ----------- -----------
Non-interest expense:
Salaries and employee benefits............ 767,131 705,818 2,847,886 2,621,753 2,439,036
Occupancy expense of premises............. 85,578 66,563 245,879 228,411 219,771
Equipment................................. 162,626 113,711 495,742 426,179 385,802
Loss on real estate owned................. 23,748 157,321 379,870 -- --
Advertising............................... 49,956 17,202 127,732 78,395 87,621
Federal insurance premiums................ 29,079 28,219 114,755 1,478,029 381,317
Amortization of intangible................ 148,192 -- 1,743,062 -- --
Other..................................... 370,389 261,974 1,218,015 1,085,529 932,929
----------- ----------- ---------- ----------- -----------
Total noninterest expenses........... 1,636,699 1,350,808 7,172,941 5,918,296 4,446,476
----------- ----------- ---------- ----------- -----------
Income before income taxes................... 770,700 807,541 1,173,119 2,491,959 3,492,772
Income taxes................................. 259,559 284,485 436,279 835,951 1,220,817
----------- ----------- ---------- ----------- -----------
Net income................................... $ 511,141 $ 523,056 $ 736,840 $ 1,656,008 $ 2,271,955
=========== =========== ========== =========== ===========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Bancorp has not yet been formed and, accordingly, has no results of
operations. The Bank's results of operations are dependent primarily on net
interest income, which is the difference between the income earned on interest-
earning assets, primarily its loan and investment portfolios, and its cost of
funds, consisting of interest paid on deposits and borrowings. Results of
operations are also affected by the Bank's provision for loan losses and non-
interest expense. The Bank's non-interest expense principally consists of
salaries and employee benefits, office occupancy and equipment expense,
amortization of intangibles, advertising, federal deposit insurance premiums,
expenses of real estate owned and other expenses. Results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in interest rates, government policies and actions of
regulatory authorities.
MANAGEMENT STRATEGY
The Bank's current strategic plan is to maintain profitability and its
well-capitalized position to take advantage of future expansion or growth
opportunities, while managing growth, maintaining asset quality, controlling
expenses and reducing exposure to credit and interest rate risk. Management
seeks to accomplish these goals by: (1) emphasizing its retail banking services
through its network of branch offices, which includes the origination of one- to
four-family mortgage loans, as well as commercial real estate, home equity,
multi-family, construction and development and consumer loans, in the
communities it serves as market conditions permit; (2) enhancing earnings and
offsetting the effects of the extreme competition for real estate loans in the
Bank's market area through the purchase of primarily adjustable rate mortgage-
backed securities, which provide a source of liquidity, low credit risk and low
administrative cost as well as helping to manage interest rate risk; and (3)
continuing to monitor interest rate risk. Management has aggressively sought to
increase loan originations in recent years and was successful in increasing
total loans receivable, net, from $82.1 million at December 31, 1996 to $112.7
million and $114.3 million at December 31, 1997 and March 31, 1998,
respectively. Competition, however, has remained intense in the Bank's market
area, which has resulted in the Bank's total securities portfolio representing a
greater percentage of total assets than its loan portfolio in each of the last
five years. Management believes that continuing to seek lending opportunities,
as well as investing in mortgage-backed securities, the majority of which are
adjustable rate, enables the Bank to effectively control its interest rate risk
while at the same time enabling it to maintain a balance of high quality,
diversified investments, provide for collateral for short and long-term
borrowings and lessen exposure to credit risk.
MANAGEMENT OF INTEREST RATE RISK
The Bank continues to seek opportunities to originate for its portfolio
one- to four-family residential mortgage loans, as well as other loans, in its
primary market area of Essex, Morris and Bergen Counties, New Jersey. The Bank's
total loan portfolio had decreased as a percent of the Bank's total assets from
1993 through 1996 when loan origination began to increase. The decrease in loan
originations occurred primarily due to intense competition in the Bank's market
area for loan originations. Further, due to the relatively low interest rate
environment that has existed in recent years, the Bank has originated primarily
fixed-rate one- to four-family mortgage loans. The Bank's purchase of primarily
adjustable rate mortgage-backed securities, as well as various debt obligations
of federal, state and local governments, has enabled the Bank to effectively
manage its interest rate risk. At March 31, 1998, the Bank had $122.6 million or
39.2% of total assets in mortgage-backed securities classified as held-to-
maturity, and $35.9 million or 11.5% of total assets
42
<PAGE>
in investment securities, of which $7.1 million or 2.3% of total assets were
classified as available for sale. At the same date, the Bank's total loans
receivable, net, totalled $114.3 million or 36.6% of total assets.
NET PORTFOLIO VALUE. The Bank's interest rate sensitivity is monitored by
management through the use of the OTS model which estimates the change in the
Bank's NPV over a range of interest rate scenarios. NPV is the present value of
expected cash flows from assets, liabilities, and off-balance sheet contracts.
The NPV ratio, under any interest rate scenario, is defined as the NPV in that
scenario divided by the market value of assets in the same scenario. The OTS
produces its analysis based upon data submitted on the Bank's quarterly Thrift
Financial Reports. See "Regulation and Supervision -- Federal Savings
Institution Regulation." The following table sets forth the Bank's NPV as of
March 31, 1998, as calculated by the OTS.
<TABLE>
<CAPTION>
NPV AS % OF PORTFOLIO
CHANGE IN NET PORTFOLIO VALUE VALUE OF ASSETS
INTEREST RATES --------------------------- -------------------------
IN BASIS POINTS $ % NPV
(RATE SHOCK) AMOUNT CHANGE CHANGE RATIO CHANGE (1)
---------------- -------- -------- -------- -------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
400 $17,365 $(17,782) (51) 5.98 (512)
300 22,615 (12,533) (36) 7.60 (350)
200 27,535 (7,613) (22) 9.04 (206)
100 31,846 (3,301) (9) 10.24 (86)
Static 35,147 -- -- 11.10 --
(100) 37,179 2,032 6 11.57 47
(200) 38,104 2,956 8 11.71 61
(300) 38,911 3,764 11 11.81 71
(400) 40,920 5,773 16 12.21 111
</TABLE>
________________
(1) Expressed in basis points.
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurements. Modeling changes in NPV require the making of
certain assumptions which may or may not reflect the manner in which actual
yields and costs respond to changes in market interest rates. In this regard,
the NPV model presented assumes that the composition of the Bank's interest
sensitive assets and liabilities existing at the beginning of a period remains
constant over the period being measured and also assumes that a particular
change in interest rates is reflected uniformly across the yield curve
regardless of the duration to maturity or repricing of specific assets and
liabilities. Accordingly, although the NPV measurements and net interest income
models provide an indication of the Bank's interest rate risk exposure at a
particular point in time, such measurements are not intended to and do not
provide a precise forecast of the effect of changes in market interest rates on
the Bank's net interest income and will differ from actual results.
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on interest-
earning assets and expense on interest-bearing liabilities. Net interest income
also depends upon the relative amounts of interest-earning assets and interest-
bearing liabilities and the interest rates earned or paid on them.
43
<PAGE>
AVERAGE BALANCE SHEET. The following table sets forth certain information
relating to the Bank at March 31, 1998, for the three months ended March 31,
1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995. The
average yields and costs are derived by dividing income or expense by the
average balance of interest-earning assets or interest-bearing liabilities,
respectively, for the periods shown except where noted otherwise and reflect
annualized yields and costs. Average balances are derived from average month-end
balances except for the average balances of Other interest-earning assets and
Borrowed money, which are derived from average daily balances. Management does
not believe that the use of average monthly balances instead of average daily
balances has caused any material differences in the information presented. The
yields and costs include fees which are considered adjustments to yields.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------------
AT MARCH 31, 1998 1998 1997
----------------------- --------------------------------- ----------------------------------
AVERAGE AVERAGE
YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE COST BALANCE INTEREST COST BALANCE INTEREST COST
---------- ------- ---------- ----------- -------- ---------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans receivable......... $116,165 7.96% $115,308 $ 2,298 7.97% $ 84,353 $ 1,745 8.27%
Mortgage-backed
securities.............. 122,633 6.75 126,510 2,118 6.70 111,406 1,930 6.93
Investment securities.... 35,874 6.98 32,889 602 7.32 25,851 465 7.20
Other interest-earning
assets.................. 22,771 5.69 8,156 97 4.76 8,093 112 5.54
-------- -------- -------- -------- --------
Total interest-
earning assets........ 297,443 7.17 282,863 5,115 7.23 229,703 4,252 7.40
-------- --------
Allowance for loan
losses.................. (1,863) (1,880) (1,518)
Non-interest-earning
assets.................. 16,942 18,240 8,089
-------- -------- --------
Total assets........... $312,522 $299,223 $236,274
======== ======== ========
LIABILITIES AND RETAINED
EARNINGS:
Interest-bearing
liabilities:
Interest-bearing
deposits:
Demand deposits........ $ 22,256 1.69 $ 21,560 94 1.74 $ 15,171 67 1.77
Savings and club
accounts.............. 61,840 2.58 62,849 407 2.59 50,260 314 2.50
Certificates of
deposit............... 143,591 5.49 142,728 1,932 5.41 108,699 1,428 5.25
-------- -------- -------- -------- --------
Total interest-
bearing deposits..... 227,687 4.33 227,137 2,433 4.28 174,130 1,809 4.16
Borrowed money........... 42,300 5.86 30,144 437 5.80 22,650 343 6.06
-------- -------- -------- -------- --------
Total interest-
bearing liabilities... 269,987 4.57 257,281 2,870 4.46 196,780 2,152 4.37
-------- --------
Non-interest bearing
deposits.................. 11,433 11,471 7,106
Other non-interest-
bearing liabilities....... 1,301 921 3,674
-------- -------- --------
Total liabilities...... 282,721 269,673 207,560
Retained earnings.......... 29,801 29,550 28,714
-------- -------- --------
Total liabilities and $312,522 $299,223 $236,274
retained earnings....... ======== ======== ========
Net interest income/
interest rate spread ..... 2.60% $ 2,245 2.77% $ 2,100 3.03%
======= ======== ======= ======== =======
Net interest-earning
assets/net yield on
interest-earning
assets.................... $ 27,456 $ 25,582 3.17% $ 32,923 3.66%
======== ======== ======= ======== =======
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities 1.10x 1.10x 1.17x
======== ======== ========
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
1997 1996
------------------------------------ -------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
------------ ---------- ------------ --------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans receivable..................................... $ 97,277 $ 7,908 8.13% $ 85,973 $ 7,268 8.45%
Investment securities................................ 114,996 7,909 6.88 101,196 6,983 6.90
Mortgage-backed securities........................... 26,774 1,897 7.09 23,035 1,701 7.38
Other interest-earning assets........................ 7,019 401 5.71 8,130 515 6.33
-------- ------- -------- -------
Total interest-earning assets..................... 246,016 18,115 7.36 218,334 16,467 7.54
------- -------
Allowance for loan losses............................ (1,739) (1,354)
Other non-interest earning assets.................... 10,422 8,126
-------- --------
Total assets...................................... $254,699 $225,106
======== ========
LIABILITIES AND RETAINED EARNINGS:
Interest-bearing liabilities:
Interest-bearing deposits:
Demand............................................ $ 16,360 293 1.79% $ 14,736 269 1.83%
Savings and club.................................. 53,221 1,357 2.55 51,138 1,278 2.50
Certificates of deposit........................... 119,272 6,439 5.40 105,141 5,602 5.33
-------- ------- -------- -------
Total interest-bearing deposits................ 188,853 8,089 4.28 171,015 7,149 4.18
Borrowed money....................................... 26,223 1,566 5.97 18,092 1,151 6.36
-------- -------- -------- -------
Total interest-bearing liabilities................ 215,076 9,655 4.49 189,107 8,300 4.39
-------- ------- -------
Non-interest-bearing deposits............................ 8,503 6,943
Other non-interest bearing liabilities................... 1,711 1,203
-------- --------
Total liabilities................................. 225,290 197,253
Retained earnings........................................ 29,409 27,853
-------- --------
Total liabilities and retained earnings........... $254,699 $225,106
======== ========
Net interest income/interest rate spread................. $ 8,460 2.87% $ 8,167 3.15%
======== ==== ======= =====
Net interest-earning assets/net yield on interest-earning
assets................................................. $ 30,940 3.44% $ 29,227 3.74%
======== ==== ======== =====
Ratio of interest-earning assets to interest-bearing
liabilities............................................ 1.14x 1.15x
==== ====
<CAPTION>
-----------------------------------
1995
-----------------------------------
AVERAGE
AVERAGE YIELD/
BALANCE INTEREST COST
-----------------------------------
<S> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans receivable..................................... $ 86,379 $ 7,603 8.80%
Investment securities................................ 96,865 6,559 6.77
Mortgage-backed securities........................... 15,926 1,188 7.46
Other interest-earning assets........................ 7,251 385 5.31
-------- -------
Total interest-earning assets..................... 206,421 15,735 7.62
-------
Allowance for loan losses............................ (1,161)
Other non-interest earning assets.................... 7,342
---------
Total assets...................................... $ 212,602
=========
LIABILITIES AND RETAINED EARNINGS:
Interest-bearing liabilities:
Interest-bearing deposits:
Demand............................................ $ 13,601 311 2.29%
Savings and club.................................. 55,888 1,397 2.50
Certificates of deposit........................... 92,938 4,843 5.21
--------- -------
Total interest-bearing deposits................ 162,427 6,551 4.03
Borrowed money....................................... 15,615 1,067 6.83
--------- -------
Total interest-bearing liabilities................ 178,042 7,618 4.28
-------
Non-interest-bearing deposits............................ 7,937
Other non-interest bearing liabilities................... 916
---------
Total liabilities................................. 186,895
Retained earnings........................................ 25,707
---------
Total liabilities and retained earnings........... $ 212,602
=========
Net interest income/interest rate spread................. $ 8,117 3.34%
======= ====
Net interest-earning assets/net yield on interest-earning
assets................................................. $ 28,379 3.93%
======== ====
Ratio of interest-earning assets to interest-bearing
liabilities............................................ 1.16x
</TABLE>
45
<PAGE>
RATE/VOLUME ANALYSIS. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected the Bank's interest income and
interest expense during the periods indicated. Information is provided in each
category with respect to: (i) changes attributable to changes in volume (changes
in volume multiplied by prior rate); (ii) changes attributable to changes in
rate (changes in rate multiplied by prior volume); and (iii) the net change. The
changes attributable to the combined impact of volume and rate have been
allocated on a proportional basis between changes in rate and volume.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
COMPARED TO COMPARED TO COMPARED TO
THREE MONTHS ENDED YEAR ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------- ------------------------- -------------------------
INCREASE (DECREASE) INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO DUE TO
------------------ ------------------ --------------------
VOLUME RATE NET VOLUME RATE NET VOLUME RATE NET
------- ------- ---- -------- -------- ---- ------ ------- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable.......... $ 618 $ (65) $553 $ 923 $(283) $ 640 $ (35) $(300) $(335)
Mortgage-backed........... 254 (66) 188 946 (20) 926 296 128 424
securities
Investment securities..... 129 8 137 265 (69) 196 526 (13) 513
Other interest-earning.... 1 (16) (15) (66) (48) (114) 50 80 130
assets................... ------ ----- ---- ------ ----- ------ ----- ----- -----
Total........................ 1,002 (139) 863 2,068 (420) 1,648 837 (105) 732
------ ----- ---- ------ ----- ------ ----- ----- -----
Interest expense:
Demand deposits(1)........ 28 (1) 27 30 (6) 24 24 (66) (42)
Savings and club.......... 81 12 93 53 26 79 (119) -- (119)
accounts
Certificates of deposit... 459 45 504 762 75 837 646 113 759
Borrowed money............ 109 (15) 94 489 (74) 415 161 (77) 84
------ ----- ---- ------ ----- ------ ----- ----- -----
Total........................ 678 40 718 1,334 21 1,355 712 (30) 682
------ ----- ---- ------ ----- ------ ----- ----- -----
Net change in net interest
income...................... $ 324 $(179) $145 $ 734 $(441) $ 293 $ 125 $ (75) $ 50
====== ===== ==== ====== ===== ====== ===== ===== =====
</TABLE>
______________________
(1) Includes NOW and Money Market accounts.
46
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1998 AND DECEMBER 31, 1997
Total assets were $312.5 million at March 31, 1998, compared to $299.0
million at December 31, 1997, an increase of $13.5 million, or 4.5%. The
increase in assets was funded primarily by an increase in FHLB borrowings of
$12.0 million.
Cash and cash equivalents, primarily interest-bearing deposits with the
FHLB, increased $8.6 million to $17.3 million at March 31, 1998 from $8.7
million at December 31, 1997. Additionally, the Bank invested in term deposits
with the FHLB totalling $5.0 million during the first quarter of 1998. These
term deposits have initial periods to maturity of between three and seven
months. The overall increase of $13.6 million in cash and cash equivalents and
term deposits was funded primarily by the $12.0 million increase in borrowed
money and serves to increase the Bank's liquidity position.
In the aggregate, mortgage-backed securities and investment securities,
including available for sale and held to maturity issues, totalled $158.5
million at March 31, 1998, a decrease of $1.7 million from $160.2 million at
December 31, 1997. Such decrease was used to fund an increase of $1.6 million in
the loan portfolio. Mortgage-backed securities, all of which are held to
maturity, decreased $7.5 million due to repayments. Investment securities held
to maturity increased $5.8 million, primarily due to security purchases and
investment securities available for sale remained unchanged at $7.1 million. At
March 31, 1998, 99.6% of the Bank's investment securities, including available
for sale and held to maturity, consisted of U.S. Government and Agency
obligations, while virtually all of the mortgage-backed securities portfolio
consisted of GNMA, FNMA and FHLMC issues.
Loans receivable increased $1.6 million to $114.3 million at March 31, 1998
from $112.7 million at December 31, 1997. The increase was primarily in the one-
to four-family mortgage loan category, which increased $2.0 million. At March
31, 1998, 88.0% of the outstanding balance of loans in the Bank's portfolio
consisted of one- to four-family loans, compared to 87.3% at December 31, 1997.
Deposits totaled $239.1 million at March 31, 1998, an increase of $928,000,
or 0.4%, over the $238.2 million balance at December 31, 1997.
Borrowed money increased $12.0 million to $42.3 million at March 31, 1998,
as compared to $30.3 million at December 31, 1997. Based on the lower cost of
wholesale funds as compared to comparable maturity retail deposits, management
chose to fund the asset growth discussed above with additional FHLB borrowings.
During the quarter ended March 31, 1998, short-term borrowings totalling $18.0
million were repaid, while $30.0 million in borrowings with five to ten year
maturities and an average interest rate of 5.62% were incurred.
Retained earnings increased $526,000, or 1.8%, to $29.8 million, primarily
due to the retention of net income.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1997 AND DECEMBER 31, 1996
Total assets were $299.0 million at December 31, 1997, as compared to
$236.0 million at December 31, 1996, an increase of $63.0 million, or 26.7%. The
increase in assets was funded primarily by deposit growth of $58.2 million and
an increase in FHLB borrowings of $6.6 million. The $58.2 million increase in
deposits was primarily due to the Bank's purchase of three branch offices from
Summit Bank ("Summit") in October 1997, with total deposits of $51.0 million.
47
<PAGE>
Securities available for sale increased to $7.1 million at December 31,
1997 from $1.6 million at December 31, 1996. The securities owned at December
31, 1996 consisted of a municipal bond which was called and mutual fund shares
which were sold during the year ended December 31, 1997. The complete
liquidation of the December 31, 1996 portfolio resulted in a loss of $20,000.
The Bank purchased $7.0 million in U.S. government obligations for the available
for sale portfolio during 1997, all of which remain at December 31, 1997.
Investment securities held to maturity increased to $22.9 million at
December 31, 1997 from $22.5 million at December 31, 1996 as $10.0 million of
securities that matured during the period were replaced with $10.4 million in
new securities. The investment securities held to maturity portfolio consists
solely of U.S. Government and Agency securities.
Mortgage-backed securities held to maturity increased to $130.2 million at
December 31, 1997 from $113.3 million at December 31, 1996. The Bank purchased
$37.0 million in mortgage-backed securities during 1997, which more than offset
$20.1 million in repayments received. The bulk of the issues purchased during
1997 were adjustable rate issues, increasing the level of adjustable-rate
mortgage-backed securities to 63.7% of the portfolio at December 31, 1997 from
55.5% at December 31, 1996. Virtually the entire mortgage-backed securities
portfolio consists of securities issued by GNMA, FNMA and FHLMC.
Loans receivable increased $30.6 million, or 14.9%, to $112.7 million at
December 31, 1997 from $82.1 million at the prior year end. This increase was
consistent with the Bank's strategy of increasing assets in anticipation of the
deposit purchase consummated in late 1997. To this end, the Bank utilized
mortgage brokers during 1997 to significantly increase the volume of
originations, while continuing to adhere to prudent underwriting standards. The
following significant increases by loan category were experienced: one- to four-
family mortgage loans -- $26.7 million; home equity lines of credit and loans --
$1.9 million; and construction and land loans (net of loans in process) -- $3.4
million. Commercial real estate loans decreased $1.6 million. The Bank remains
predominantly a one- to four-family residential lender. At December 31, 1997,
87.3% of the balance of outstanding loans relates to one- to four-family
lending, up from 81.1% at December 31, 1996.
Premises and equipment increased to $3.1 million at December 31, 1997 from
$1.6 million at December 31, 1996. Of this increase, $1.4 million is due to the
acquisition of the three branch offices from Summit Bank.
In conjunction with the branch offices and deposits acquired from Summit, a
premium of $7.6 million was recorded as the excess of cost over assets acquired.
Such amount was based upon the amount of deposits the Bank had agreed to
acquire. However, during the period between the purchase agreement date and the
October 17, 1997 consummation date, the deposits subject to purchase declined
over 18%. By December 31, 1997, the balance of deposits at the three branch
offices had stabilized. Management performed a reassessment of the
recoverability of this asset and, as a result, an impairment loss of $1.6
million was recorded, leaving a balance of $5.8 million at December 31, 1997.
Deposits totaled $238.2 million at December 31, 1997, an increase of $58.3
million, or 32.4%, over the balance of $179.9 million at December 31, 1996. The
increase resulted primarily from the purchase of the three Summit branches and
the crediting of $8.1 million in interest on deposits.
48
<PAGE>
Borrowings increased $6.6 million to $30.3 million at December 31, 1997, as
compared to $23.7 million at December 31, 1996. The increase was due to the
Bank's increased usage of short-term sales of mortgage-backed securities under
repurchase agreements. All outstanding borrowings are with the FHLB.
Retained earnings increased $822,000, or 2.9%, to $29.3 million, due
largely to the retention of net income.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1997
NET INCOME. Net income decreased $12,000 or 2.3% to $511,000 for the three
months ended March 31, 1998 compared with $523,000 for the same 1997 period. The
decrease in net income during the 1998 period resulted from an increase in non-
interest expenses, which was partially offset by increases in net interest
income and non-interest income and decreases in provision for loan losses and
income taxes.
INTEREST INCOME. Total interest income increased $863,000 or 20.3% to $5.1
million for the three months ended March 31, 1998 from $4.3 million for the same
1997 period. The increase was the result of a 23.1 % increase in average
interest-earning assets between the periods, which more than offset a 17 basis
point decline in yield. The increase in the average balance was the result of
increased loan originations and securities purchased during the last three
quarters of 1997 funded by cash received in connection with the deposits
purchased from Summit. The decrease in yield was the result of lower rates
obtained on loans originated and mortgage-backed securities purchased since
March 31, 1997.
Interest income on loans increased by $553,000 or 31.7% to $2.3 million
during the three months ended March 31, 1998 when compared with $1.7 million for
the same 1997 period. The increase during the 1998 period resulted from an
increase of $31.0 million in the average balance of loans outstanding, which was
sufficient to offset a 30 basis point decrease in the yield earned on the loan
portfolio. The increased average balance was the result of increased lending
volume during the last nine months of 1997. The decreased yield is the result of
lower rates obtained on originations as well as downward interest rate
adjustments on the Bank's adjustable-rate mortgage loans.
Interest on mortgage-backed securities, all of which are held to maturity,
increased $188,000 or 9.7% to $2.1 million during the three months ended March
31, 1998 when compared with $1.9 million for the same 1997 period. The increase
during the 1998 period resulted from a $15.1 million or 13.6% increase in the
average balance of mortgage-backed securities, which was more than sufficient to
offset a 23 basis point decline in yield. The increased average balance is the
result of purchases of mortgage-backed securities exceeding repayments. The
decrease in yield is the result of lower interest rates obtained on securities
purchased since March 31, 1997, many of which were adjustable rate issues with
customarily low initial interest rates.
Interest earned on investment securities, including both available for sale
and held to maturity issues, increased by $137,000 or 29.5% to $602,000 during
the three months ended March 31, 1998, when compared to $465,000 during the same
1997 period, primarily due to an increase of $7.0 million in the average balance
of such assets along with a twelve basis point increase in the yield earned. The
increase in average balance was the result of purchases of U.S. Government and
Agency securities exceeding maturities thereof.
Interest on other interest-earning assets decreased $15,000 or 13.4% to
$97,000 during the three months ended March 31, 1998 as compared to $112,000 for
the same 1997 period. The decrease was
49
<PAGE>
primarily due to a 78 basis point decline in yield as the average balance of
such assets increased by $63,000 or 0.8%.
INTEREST EXPENSE. Interest expense on deposits increased $624,000 or 34.5%
to $2.4 million during the three months ended March 31, 1998 when compared to
$1.8 million during the same 1997 period. Such increase was primarily
attributable to increases of $53.0 million in the average balance of interest-
bearing deposits and twelve basis points in the cost of interest-bearing
deposits. The increased average balance is the result of the purchase of $51.0
million in deposits from Summit in October 1997. The increase in cost is due to
higher interest rates paid on certificates of deposit, which averaged 5.41 % for
the three months ended March 31, 1998 as compared to 5.25% for the same 1997
period. The cost of non-certificate deposits increased to a lesser degree, to
2.37% for the three months ended March 31, 1998 as compared to 2.33% for the
same prior year period.
Interest expense on borrowed money increased by $94,000 or 27.4% to
$437,000 during the three months ended March 31, 1998 when compared with
$343,000 during the same 1997 period, primarily due to an increase of $7.5
million in the average balance of borrowings outstanding from the FHLB, which
was sufficient to offset a twenty-six basis point decrease in the cost of
borrowed money. During the three months ended March 31, 1998, the Bank repaid
$18.0 million in short-term borrowings under repurchase agreements having an
average interest rate of 5.82% and obtained $30.0 million in borrowings with
five to ten year maturities with an average interest rate of 5.62%.
NET INTEREST INCOME. Net interest income increased $145,000 or 6.9% during
the three months ended March 31, 1998 when compared with the same 1997 period.
Such increase was due to an increase in total interest income of $863,000, which
was sufficient to offset an increase in total interest expense of $718,000. The
Bank's net interest rate spread decreased to 2.77% in 1998 from 3.03% in 1997.
The decrease in the interest rate spread resulted from a decrease of 17 basis
points in the yield earned on interest-earning assets along with a 9 basis point
increase in the cost of interest-bearing liabilities. Despite the decline in
interest rate spread, the Bank improved net interest income due to the
additional income generated by the $53.2 million increase in average interest-
earning assets, which more than offset the additional cost incurred by the $60.5
million increase in average interest-bearing liabilities.
PROVISION FOR LOAN LOSSES. During the three months ended March 31, 1998,
the Bank recorded a recapture of the provision for loan losses of $22,000.
During the three months ended March 31, 1997, the Bank provided $55,000 as a
provision for loan losses. The allowance for loan losses is based on
management's evaluation of the risk inherent in its loan portfolio and gives due
consideration to the changes in general market conditions and in the nature and
volume of the Bank's loan activity. The Bank intends to continue to provide for
loan losses based on its periodic review of the loan portfolio and general
market conditions. At March 31, 1998 and 1997, loans delinquent ninety days or
more totalled $2.3 million and $2.7 million, respectively, representing 1.93%
and 3.22%, respectively, of total loans. At March 31, 1998, the allowance for
loan losses stood at $1.9 million, representing 1.58% of total loans and 82.4%
of loans delinquent ninety days or more. At March 31, 1997, the allowance for
loan losses stood at $1.6 million, representing 1.90% of total loans and 59.2%
of loans delinquent ninety days or more. No loans were charged off during the
three month periods ended March 31, 1998 and 1997. The Bank monitors its loan
portfolio on a continuing basis and intends to continue to provide for loan
losses based on its ongoing review of the loan portfolio and general market
conditions.
50
<PAGE>
NON-INTEREST INCOME. Non-interest income increased $26,000 or 22.8% to
$140,000 during the three months ended March 31, 1998 from $114,000 during the
same 1997 period. The increase resulted from increased fees and service charges.
NON-INTEREST EXPENSES. Non-interest expenses increased by $286,000 or
21.2% to $1.64 million during the three months ended March 31, 1998 when
compared with $1.35 million during the same 1997 period. Salaries and employee
benefits, net occupancy expense, equipment, advertising, and miscellaneous
expense increased in the aggregate by $270,000, or 23.2%, to $1.44 million
during the three months ended March 31, 1998 from $1.17 million during the same
prior year period due primarily to the purchase of three branches from Summit.
Such purchase in October 1997 increased the Bank's number of office locations
from 5 to 8 and resulted in increases in the aforementioned expenses. Loss on
REO decreased $133,000 to $24,000 during the three months ended March 31, 1998
from $157,000 during the same prior year period due primarily to a $148,000
reduction in loss provisions recorded during the two periods. During the three
month period ended March 31, 1998, amortization expense of $148,000 was recorded
in connection with the acquisition of deposits from Summit in October 1997. No
comparable expense was recorded during the same 1997 period.
INCOME TAXES. Income tax expense totalled $260,000, or 33.7% of income
before income taxes, during the three months ended March 31, 1998 as compared to
$284,000, or 35.2% of income before income taxes, during the comparable 1997
period.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NET INCOME. Net income for 1997 was $737,000, a decrease of $919,000 from
$1.7 million in 1996. The primary factors in the decrease of net income were a
$1.74 million amortization expense, which primarily related to a $1.6 million
impairment loss, on the excess of the cost over assets acquired in connection
with the purchase of deposits from Summit in 1997, the $1.1 million one-time
special assessment in 1996 to recapitalize the SAIF, and a $380,000 loss on REO
in 1997 versus income of $21,000 on REO in 1996. The combined effect of these
three factors was to decrease income before income taxes and net income by $1.05
million and $670,000, respectively. The remaining $249,000 decrease in net
income was the result of increases in provisions for loan losses and non-
interest expense, along with a decrease in non-interest income, which more than
offset an increase in net interest income and a decrease in income taxes.
INTEREST INCOME. Total interest income increased 10.0% to $18.1 million for
1997 as compared to $16.5 million for 1996. The increase was due to a $27.7
million or 12.7% increase in average interest-earning assets during 1997, which
more than offset a drop of 18 basis points in the yield earned thereon to 7.36%
in 1997 from 7.54% in 1996. Increased average balances and decreased yield were
experienced in all categories of interest-earning assets. The increased average
balances of earning assets were the result of increased loan originations and
securities purchases funded by the Summit deposit purchase and increased FHLB
borrowings.
Interest income on loans during 1997 increased by $640,000, or 8.8%, to
$7.9 million when compared to $7.3 million during 1996. During the years ended
December 31, 1997 and 1996, the yield earned on the loan portfolio was 8.13% and
8.45%, respectively. The average balance of loans outstanding during the years
ended December 31, 1997 and 1996, totalled $97.2 million and $86.0 million,
respectively. The decreased yield is the result of the lower market interest
rates prevailing during 1997. The increased average balance during 1997 is the
result of increased loan origination efforts, including the use of outside
mortgage brokers. Originations rose to $47.1 million in 1997 from $15.1 million
in 1996.
51
<PAGE>
Interest on mortgage-backed securities, all of which are held to maturity,
increased $926,000 or 13.3%, during 1997 to $7.9 million compared to $7.0
million for 1996. During the year ended December 31, 1997, the average balance
of mortgage-backed securities outstanding increased $13.8 million, or 13.6%, to
$115.0 million when compared to $101.2 million for 1996. The yield earned on the
mortgage-backed securities portfolio decreased marginally to 6.88% in 1997 from
6.90% in 1996. The increase in the average balance of mortgage-backed securities
during 1997 resulted primarily from purchases of mortgage-backed securities
which more than offset principal repayments.
Interest earned on investment securities, including both available for sale
and held to maturity issues, increased by $196,000, or 11.5%, to $1.9 million
for 1997, when compared to $1.7 million for 1996. The increase resulted from an
increase of $3.7 million, or 16.2%, in the average balance of the investment
securities portfolio, which more than offset a decrease of 29 basis points in
the yield earned on the investment securities portfolio to 7.09% in 1997 from
7.38% in 1996. The increased average balance and decreased yield were both the
result of the purchase during 1997 of $7.0 million in U.S. Government securities
available for sale yielding 6.08%.
Interest on other interest-earning assets totalled $401,000 and $515,000
during 1997 and 1996, respectively. The yield earned on other interest-earning
assets decreased to 5.71% in 1997 from 6.33% in 1996, which augmented a decrease
of $1.1 million, or 13.7%, in the average balance of other interest-earning
assets outstanding.
INTEREST EXPENSE. Interest expense on deposits increased $940,000, or 13.1
% to $8.1 million during 1997 compared to $7.1 million for 1996. The increase
during 1997 was attributable to an increase of ten basis points in the Bank's
average cost of interest-bearing deposits to 4.28% for 1997 from 4.18% for 1996,
along with an increase of $17.8 million, or 10.4 %, in the average balance of
interest-bearing deposits outstanding. The increased cost reflects a seven basis
point increase in the cost of certificates of deposit as well as the increase of
such certificates to 63.2% of average interest-bearing deposits in 1997 from
61.5% during 1996. The increased average balance of interest-bearing deposits
primarily reflects the purchase of deposits from Summit during 1997.
Interest expense on borrowed money increased $415,000, or 36.1%, to $1.6
million during 1997 compared to $1.2 million for 1996. The increase during 1997
was attributable to an increase of $8.1 million in the average balance of
borrowings outstanding, partially offset by a decrease of 39 basis points in the
Bank's cost of borrowings to 5.97% for 1997 from 6.36% for 1996. The increased
average balance reflects management's increased use of borrowed funds to
leverage the balance sheet. The decreased interest rate on borrowings resulted
from the paydown of older debt having higher interest rates as well as the lower
interest rates available on new borrowings obtained in 1997.
NET INTEREST INCOME. Net interest income for 1997 increased $293,000, or
3.6%, to $8.5 million in 1997 from $8.2 million in 1996. The Bank's net interest
rate spread decreased to 2.87% in 1997 from 3.15% in 1996 and its interest rate
margin decreased to 3.44% in 1997 from 3.74% in 1996. These decreases primarily
resulted from an 18 basis point decrease in the yield earned on interest earning
assets to 7.36% in 1997 from 7.54% in 1996 coupled with a ten basis point
increase in the cost of average interest-bearing liabilities to 4.49% in 1997
from 4.39% in 1996. Despite the decreases in interest rate spread and margin,
the Bank was able to improve net income by increasing net interest-earning
assets by $1.7 million and by leveraging the balance sheet through a deposit
purchase and increased borrowings.
52
<PAGE>
PROVISION FOR LOAN LOSSES. During 1997 and 1996, the Bank provided
$487,000 and $232,000, respectively, for loan losses. At December 31, 1997 and
1996, the Bank's loan portfolio included loans totalling $2.5 million and $2.9
million, respectively, which were delinquent ninety days or more. The Bank
maintains an allowance for loan losses based on management's evaluation of the
risks inherent in its loan portfolio which gives due consideration to changes in
general market conditions and in the nature and volume of the Bank's loan
activity. The allowance for loan losses amounted to $1.9 million at December 31,
1997, representing 1.62% of total loans and 75.7% of loans delinquent ninety
days or more compared to an allowance of $1.6 million at December 31, 1996,
representing 1.85% of total loans and 54.5% of loans delinquent ninety days or
more. During 1997, the Bank charged off loans aggregating $166,000. During 1996,
no loans were charged off. The Bank monitors its loan portfolio and intends to
continue to provide for loan losses based on its ongoing periodic review of the
loan portfolio and general market conditions.
NON-INTEREST INCOME. Non-interest income decreased by $103,000, or 21.6%,
to $373,000 during 1997 as compared to $476,000 for 1996. The decrease in non-
interest income during 1997 resulted primarily from a $20,000 loss on sales of
securities available for sale during 1997 as compared to a $103,000 gain in
1996, $21,000 in income on REO recorded in 1996 compared to none in 1997, and a
decrease in miscellaneous income of $22,000, which was partially offset by
increases in fees and service charges of $63,000. The increase during the 1997
period in the fees and service charges resulted from a revised service fee
schedule on various depository services.
NON-INTEREST EXPENSES. Non-interest expenses increased $1.3 million, or
21.2%, to $7.2 million during 1997 compared to $5.9 million for 1996. During
1997, in conjunction with the purchase of three branches and related deposit
liabilities from Summit, the Bank recorded $7.6 million in excess of cost over
assets acquired. Amortization expense of $1.7 million, including an impairment
loss of $1.6 million, as previously noted, was recorded during 1997 on this
asset. Additionally, on September 30, 1996, legislation was enacted which, among
other things, imposed a one-time special assessment on SAIF member institutions,
including the Bank. The special assessment levied amounted to 65.7 basis points
on SAIF assessable deposits held as of March 31, 1995. The Bank, during the 1996
period, took a charge of $1.1 million as a result of such assessment. Non-
interest expenses, excluding the above-mentioned amortization expense on excess
of cost over assets acquired and the one-time SAIF assessment, increased
$610,000, or 12.7%, to $5.4 million during 1997 compared to $4.8 million for
1996.
Salaries and employee benefits increased $226,000 or 8.6%, occupancy and
equipment expenses increased $87,000 or 13.2% and miscellaneous expenses
increased $132,000 or 12.2%. The combined $445,000 increase in these areas is
largely attributable to the three branches acquired from Summit during 1997 and
the related increase in operating costs.
Loss on REO totalled $380,000 in 1997 compared to income of $21,000
recorded in 1996, which resulted primarily from an increase of $328,000 in loss
provisions recorded on properties in the REO portfolio, to $373,000 in 1997 from
$45,000 in 1996, and an $87,000 decrease in gain on sales of properties to
$30,000 in 1997 from $117,000 in 1996. $264,000 of the $373,000 in loss
provisions recorded in 1997 relates to one commercial property and was based
upon a market price opinion given in October 1997 by a major realtor.
Partially offsetting the increases in salaries and employee benefits,
occupancy and equipment expenses, miscellaneous expenses and loss on real estate
owned was a $265,000 decrease in federal deposit insurance premium related to
the reduction of the deposit insurance assessment rate.
53
<PAGE>
INCOME TAXES. Income tax expense totalled $436,000 and $836,000 during 1997
and 1996, respectively. The increase in 1997 resulted primarily from an increase
in pre-tax income of $1.3 million and from the utilization, in 1996, of a
$103,000 capital loss carryforward. The Bank's effective income tax rate was
37.2% in 1997 and 33.5% in 1996.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NET INCOME. Net income decreased by $616,000, or 27.1% to $1.7 million
during 1996 compared to $2.3 million for 1995. The decrease in net income during
the 1996 period resulted primarily from a charge of $1.1 million to recapitalize
the SAIF. During the year ended December 31 1996, a one-time special assessment
was levied amounting to 65.7 basis points on SAIF assessable deposits held as of
March 31, 1995. The after-tax effect of this charge was to reduce net income for
1996 by $703,000. Exclusive of the effect of the one-time special assessment,
net income increased $87,000 or 3.8% as increases of $50,000 in net interest
income and $143,000 in non-interest income, along a $278,000 decrease in
provision for loan losses more than offset increases of $374,000 in noninterest
expenses and $10,000 in income taxes.
INTEREST INCOME. Total interest income increased 4.7% to $16.5 million for
1996 as compared to $15.7 million in 1995. The increase was due to an $11.9
million or 5.8% increase in average interest-earning assets, which more than
offset an 8 basis point decline in the yield earned on such assets to 7.54% in
1996 from 7.62% in 1995.
Interest income on loans during 1996 decreased $335,000, or 4.4%, to $7.3
million when compared to $7.6 million during 1995, primarily due to a decrease
in yield. During the years ended December 31, 1996 and 1995, the yield earned on
the loan portfolio was 8.45% and 8.80%, respectively. The 35 basis point yield
decline reflects lower interest rates on originated loans as well as downward
rate adjustments on adjustable rate loans. The average balance of loans
outstanding, during the years ended December 31, 1996 and 1995, totalled $86.0
million and $86.4 million, respectively.
Interest on mortgage-backed securities, all of which were held to maturity,
increased $424,000, or 6.5%, during 1996 to $7.0 million compared to $6.6
million for 1995. During the year ended December 31, 1996, the average balance
of mortgage-backed securities outstanding increased $4.3 million, or 4.5%. The
yield earned on the mortgage-backed securities portfolio increased 13 basis
points to 6.90% in 1996 from 6.77% in 1995. The increase in the average balance
of mortgage-backed securities during 1996 resulted primarily from purchases of
mortgage-backed securities exceeding repayments thereon.
Interest earned on investment securities, both available for sale and held
to maturity, increased by $513,000, or 43.2%, to $1.7 million for 1996, when
compared to $1.2 million for 1995. The increase resulted primarily from an
increase of $7.1 million or 44.6%, in the average balance of the investment
securities portfolio, which primarily included U.S. Government and agencies
obligations, which more than offset an 8 basis point decrease in the yield
earned on the investment securities portfolio to 7.38% in 1996 from 7.46% in
1995. The increase in average balance reflects purchases of investment
securities exceeding maturities.
Interest on other interest-earning assets increased $130,000, or 33.8%, to
$515,000 during 1996, compared to $385,000 for 1995. Such increase was
attributable to increases of 102 basis points in the yield earned on other
interest-earning assets to 6.33% in 1996 from 5.31% in 1995, along with an
increase of $829,000 or 12.1%, in the average balance of other interest-earning
assets outstanding. Such increase in the
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<PAGE>
average balance of other interest-earning assets outstanding was primarily a
result of increased levels of interest-earning deposits in other banks.
INTEREST EXPENSE. Interest on deposits increased $598,000, or 9.1% to $7.15
million during 1996 compared to $6.55 million for 1995. The increase during 1996
was attributable to an increase of 15 basis points in the Bank's average cost of
interest-bearing deposits to 4.18% for 1996 from 4.03% for 1995, along with an
increase of $8.6 million, or 5.3%, in the average balance of interest-bearing
deposits outstanding. The increase in the Bank's cost of interest-bearing
deposits reflected both higher interest rates paid on certificates of deposit,
which averaged 5.33% in 1996, up from 5.1% in 1995, and a trend toward higher-
cost certificates of deposit, which represented 61.5% of average interest-
bearing deposits in 1996, up from 57.2% in 1995.
Interest on borrowed money increased $84,000, or 7.9%, to $1.2 million
during 1996 compared to $1.1 million for 1995. The increase during 1996 was
attributable to an increase of $2.5 million or 15.9% in the average balance of
borrowings outstanding, partially offset by a decrease of 47 basis points in the
Bank's cost of borrowings to 6.36% for 1996 from 6.83% for 1995. The increased
average balance and decreased cost in 1996 were both due to an increased use of
short-term, lower cost FHLB advances.
NET INTEREST INCOME. Net interest income for 1996 increased $50,000 or 0.6%
to $8.2 million for 1996 from $8.1 million for 1995. The Bank's net interest
rate spread decreased to 3.15% in 1996 from 3.34% in 1995 and its interest rate
margin decreased to 3.74% in 1996 from 3.93% in 1995. These decreases primarily
resulted from an eleven basis point increase in the cost of average interest-
bearing liabilities to 4.39% in 1996 from 4.28% in 1995, along with an eight
basis point decrease in the yield on interest-earning assets to 7.54% in 1996
from 7.62% in 1995. Despite the decreases in interest rate spread and margin,
the Bank was able to increase net interest income by increasing net interest-
earning assets by $848,000 and by leveraging the balance sheet through increased
deposits and borrowings.
PROVISION FOR LOAN LOSSES. During 1996 and 1995, the Bank provided
$232,000 and $510,000, respectively, for loan losses. At December 31, 1996 and
1995, the Bank's loan portfolio included loans totalling $2.9 million and $2.2
million, respectively, which were delinquent ninety days or more. The Bank
maintains an allowance for loan losses based on management's evaluation of the
risks inherent in its loan portfolio which gives due consideration to changes in
general market conditions and in the nature and volume of the Bank's loan
activity. The allowance for loan losses amounted to $1.6 million at December 31,
1996, representing 1.85% of total loans and 54.5% of loans delinquent ninety
days or more compared to an allowance of $1.2 million at December 31, 1995,
representing 1.37% of total loans and 55.0% of loans delinquent ninety days or
more. During the years ended December 31, 1996 and 1995, the Bank charged off
loans aggregating $ - 0 - and $546,000, respectively.
NON-INTEREST INCOME. Non-interest income increased by $144,000, or 43.4%,
to $476,000 during 1996 as compared to $332,000 for 1995. The increase in non-
interest income during 1996 resulted primarily from a $103,000 gain on sale of
securities available for sale in 1996 as compared to a $22,000 loss in 1995.
NON-INTEREST EXPENSES. Non-interest expenses increased $1.5 million, or
33.1%, to $5.9 million during 1996 compared to $4.4 million for 1995. The
increase during 1996 was primarily attributable to the one-time SAIF assessment
of $1.1 million. Non-interest expenses other than the one-time SAIF assessment
increased $374,000, or 8.4%, in 1996 over 1995 levels. Salaries and employee
benefits, the major component of non-interest expenses, increased $183,000, or
7.5%, during 1996. The remaining elements of non-interest expenses, exclusive of
the one-time SAIF assessment, increased $192,000 or 9.6% to $2.2
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million in 1996 from $2.0 million in 1995. The increases, exclusive of the one-
time SAIF assessment, are indicative of the growth of the Bank as well as
general price increases.
INCOME TAXES. Income tax expense totalled $836,000 and $1.2 million during
1996 and 1995, respectively. The decrease in 1996 resulted primarily from a
decrease in pre-tax income of $1.0 million. The Bank's effective income tax rate
was 33.5% in 1996 and 35.0% in 1995. The 1996 effective tax rate reflects a 1.5%
reduction related to the utilization of a capital loss carryforward.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds on a long-term and short-term basis are
deposits, principal and interest payments on loans, mortgage-backed and
investment securities and FHLB borrowings. The Bank uses the funds generated to
support its lending and investment activities as well as any other demands for
liquidity such as deposit outflows. While maturities and scheduled amortization
of loans are predictable sources of funds, deposit flows, mortgage prepayments
and the exercise of call features are greatly influenced by general interest
rates, economic conditions and competition. The Bank has continued to maintain
the required levels of liquid assets as defined by OTS regulations. This
requirement of the OTS, which may be varied at the direction of the OTS
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short-term borrowings. The Bank's currently required liquidity
ratio is 4.0%. At March 31, 1998 and December 31, 1997, 1996, 1995, 1994, and
1993, the Bank's regulatory liquidity ratios were 9.44%, 9.44%, 10.96%, 13.04%,
11.89% and 24.81%, respectively.
At March 31, 1998, the Bank exceeded all of its regulatory capital
requirements with a tangible capital level of $24.0 million, or 7.84%, of total
adjusted assets, which is above the required level of $4.6 million, or 1.5%;
core capital of $24.0 million, or 7.84%, of total adjusted assets, which is
above the required level of $12.3 million, or 4%; and risk-based capital of
$25.3 million, or 19.95%, of risk-weighted assets, which is above the required
level of $10.1 million, or 8%. See "Regulatory Capital Compliance."
The Bank's most liquid assets are cash and cash equivalents and its
investment securities available for sale. The levels of these assets are
dependent on the Bank's operating, financing, lending and investing activities
during any given period. At March 31, 1998, cash and cash equivalents and
investment securities available for sale totalled $24.4 million, or 7.8% of
total assets.
The Bank has other sources of liquidity if a need for additional funds
arises, including FHLB borrowings. At March 31, 1998, the Bank had $42.3 million
in borrowings outstanding from the FHLB. Depending on market conditions, the
pricing of deposit products and FHLB borrowings, the Bank may continue to rely
on FHLB borrowing to fund asset growth.
At March 31, 1998, the Bank had commitments to originate and purchase loans
and fund unused outstanding lines of credit and undisbursed proceeds of
construction mortgages totaling $19.3 million. The Bank anticipates that it will
have sufficient funds available to meet its current loan origination
commitments. Certificate accounts, including Individual Retirement Account
("IRA") accounts, which are scheduled to mature in less than one year from March
31, 1998, totalled $115.2 million. The Bank expects that substantially all of
the maturing certificate accounts will be retained by the Bank at maturity.
The initial impact of the Reorganization and the Offering on the liquidity
and capital resources of Bancorp will be significant as it will substantially
increase the liquid assets of Bancorp and the capital base on which Bancorp
operates. Additionally, Bancorp expects the substantial majority of the Offering
proceeds
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<PAGE>
will initially be invested in readily marketable investment grade securities
which, if liquidity needs developed, could be sold by Bancorp to provide
additional liquidity. Further, the additional capital resulting from the
offerings is expected to increase the capital base of Bancorp. At March 31,
1998, the Bank had total equity, determined in accordance with GAAP, of $29.8
million, or 9.5% of total assets. The Bank's regulatory tangible capital at that
date, which excludes intangible assets of $5.7 million and unrealized securities
gains of $80,000, was 7.8%. An institution with a ratio of tangible capital to
total assets of greater than or equal to 5.0% is considered to be "well-
capitalized" pursuant to OTS regulations. Assuming that Bancorp uses 50% of the
net proceeds at the maximum of the Offering Range to purchase the stock of the
Bank, the Bank's GAAP capital will increase to $____ million or a ratio of GAAP
capital to adjusted assets, on a pro forma basis, of ____% after the Offering.
The investment of the net proceeds from the sale of the Common Stock is expected
to provide the Bank with additional income to increase further its capital
position. The additional capital may also assist the Bank in offering new
programs and expanded services to its customers. See "Use of Proceeds."
YEAR 2000 COMPLIANCE
As the year 2000 approaches, an important business issue has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. Many existing application software products were
designed to accommodate only two-digits. For example, "98" is stored on the
system and represents 1998. Bancorp has been identifying potential problems
associated with the "Year 2000" issue and has implemented a plan designated to
ensure that all software used in connection with Bancorp's business will manage
and manipulate data involving the transition with data from 1999 to 2000 without
functional or data abnormality and without inaccurate results related to such
data. The Bank has prepared a critical issues schedule with a timeline and
assigned responsibilities. In addition, the Bank recognizes that its ability to
be Year 2000 compliant is dependent upon the cooperation of its vendors. The
Bank is requiring its computer systems and software vendors to represent that
the products provided are or will be Year 2000 compliant and has planned a
program of testing for compliance. The Bank has received representations from
its primary third party vendors that they will have resolved any Year 2000
problems in their software by December 31, 1998 and anticipates that all of its
vendors also will have resolved any Year 2000 problems in their software by that
same date. All Year 2000 issues for the Bank, including testing, are expected to
be addressed by December 31, 1998 and any problems would be remedied by March
31, 1999. The Bank will also prepare contingency plans in the event there are
any system interruptions. The Bank believes that its costs related to Year 2000
will be approximately $135,000. There can be no assurances, however, that such
plan or the performance by the Bank's vendors will be effective to remedy all
potential problems. To the extent Bancorp's systems are not fully Year 2000
compliant, there can be no assurance that potential systems interruptions or the
cost necessary to update software would not have a materially adverse effect on
Bancorp's business, financial condition, results of operations and business
prospects. Further, any Year 2000 failure on the part of the Bank's customers
could result in additional expense or loss to the Bank. The Bank plans also to
work with its customers to address any potential Year 2000 problems.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with GAAP, which require the measurement of
financial position and operating results generally in terms of historical dollar
amounts without considering the changes in the relative purchasing power of
money over time due to inflation. The impact of inflation is reflected in the
increased cost of the Bank's operations. Unlike industrial companies, nearly all
of the assets and liabilities of the Bank are monetary in
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<PAGE>
nature. As a result, interest rates have a greater impact on the Bank's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the
prices of goods and services.
IMPACT OF NEW ACCOUNTING STANDARDS
ACCOUNTING FOR EARNINGS PER SHARE. In February 1997, the FASB issued SFAS
No. 128, "Earnings Per Share." This statement establishes standards for
computing and presenting earnings per share ("EPS") and applies to entities with
publicly-held common stock or potential common stock. This statement simplifies
the standards for computing earnings per share previously found in APB Opinion
15, "Earnings per Share," and makes them comparable to international EPS
standards. It replaces the presentation of primary EPS with a presentation of
basic EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures
and requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
This statement is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods; earlier application is not
permitted.
REPORTING COMPREHENSIVE INCOME. In September 1997, the FASB issued SFAS
No. 130, "Reporting Comprehensive Income." This statement establishes standards
for the reporting and display of comprehensive income and its components in a
full set of general purpose financial statements. SFAS No. 130 requires that all
items that are required to be recognized as components of comprehensive income
be reported in a financial statement that is displayed with the same prominence
as other financial statements. The statement does not require a specific format
for that financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. The Bank implemented SFAS No. 130 in conjunction with the presentation
of its consolidated financial statements at and as of the three months ended
March 31, 1998 and has made the appropriate disclosures in the applicable
consolidated financial statements, as required. The implementation of SFAS No.
130 had no impact on consolidated financial conditions or operations.
DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. In
September 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. SFAS No. 131
is effective for financial statements for periods beginning after December 15,
1997. Management has determined that this statement does not currently have any
impact on the Bank's information reporting.
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS. In
February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement supersedes the
disclosure requirements in FASB statements No. 87, "Employers' Accounting for
Pensions," No. 88, "Employers' accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits," and No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." This
statement addresses disclosures only. It does not address measurement or
recognition and, as such, will not have any impact on consolidated financial
condition or operations. The disclosure requirements of SFAS No. 132 are
effective for fiscal years beginning after December 15, 1997.
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BUSINESS OF BANCORP
Bancorp will be reorganized, at the direction of the Board of Directors of
the Bank and subject to the approval of the OTS, for the purpose of becoming a
stock holding company to own all of the outstanding capital stock of the Bank.
Upon consummation of the Reorganization, the Bank will be a wholly owned
subsidiary of Bancorp, the majority of whose shares will be held by the Mutual
Company.
Bancorp is currently not an operating company. Following the
Reorganization, in addition to directing, planning and coordinating the business
activities of the Bank, Bancorp will initially invest net proceeds it retains
from the Offering primarily in mortgage-backed and mortgage-related securities
and other investment-grade marketable securities. In addition, Bancorp intends
to fund the loan to the ESOP to enable the ESOP to subscribe for 8% of the
Common Stock issued in the Offering, including shares issued to the Foundation;
however, a third-party lender may be utilized to lend funds to the ESOP. See
"Use of Proceeds." In the future, Bancorp may acquire or organize other
operating subsidiaries, including other financial institutions and financial
services companies. The Mutual Company will not be an operating company. In
connection with the Reorganization, the Mutual Company will have initial
capitalization of $100,000 Immediately after consummation of the Reorganization,
it is expected that the Mutual Company will not engage in any business activity
other than to hold a majority of the Common Stock of Bancorp and to invest the
funds retained at the Mutual Company level. There can be no assurance that the
Mutual Company will not convert to stock form in the future.
Presently, there are no agreements or understandings for an expansion of
Bancorp's operations. The Company is not expected to own or lease real or
personal property initially, but will instead use the premises, equipment and
furniture of the Bank. At the present time, the Company does not intend to
employ any persons other than certain officers of the Bank, but will utilize the
support staff of the Bank from time to time. Additional employees may be hired
as appropriate to the extent the Company expands its business in the future.
BUSINESS OF THE BANK
GENERAL
The Bank was originally organized in 1915 as a New Jersey chartered
building and loan association and, in 1995, became a federally chartered savings
bank. The Bank conducts business from its administrative/branch office located
in Caldwell, New Jersey and its seven other full service banking branch offices
located in the municipalities of West Orange, Franklin Lakes, River Vale, Pine
Brook, Old Tappan and Northvale, New Jersey, all of which are located in the
Northern New Jersey Counties of Bergen, Essex and Morris. See " -- Market Area
and Competition." At March 31, 1998, the Bank had total assets of $312.5
million, total deposit accounts of $239.1 million and retained earnings of $29.8
million. The Bank's deposits are insured up to the maximum allowable amount by
FDIC.
The Bank is a community-oriented savings institution whose business
primarily consists of accepting deposits from customers and investing those
funds primarily in mortgage-backed securities and mortgage loans secured by one-
to four-family residences located in the Bank's primary market area. To a
significantly lesser extent, the Bank's invests in commercial real estate loans,
construction and land development loans and home equity loans as well as
consumer loans and obligations of the federal government and federal agencies as
well as states and municipalities. The Bank generally retains for its portfolio
all one- to four-family mortgage loans which it originates. At March 31, 1998
the Bank's securities portfolio totalled $158.5
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million, or 50.7% of total assets, and its gross loan portfolio totalled $118.2
million, or 37.8% of total assets, of which $89.5 million were one-to four
family mortgage loans, $10.3 million were commercial real estate loans, $8.4
million were home equity loans and lines of credit, $7.1 million were
construction and development loans, $2.1 million were multi-family mortgage
loans, and $801,000 were consumer loans. Of the Bank's total mortgage-backed
securities portfolio, 36.1% are secured by fixed-rate loans and 63.9% are
secured by adjustable-rate loans. Of the Bank's total loan portfolio, 47.6%
carry adjustable rates of interest and 52.4% carry fixed-rates of interest. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Management Strategy."
The Bank's investment activities primarily consist of investments in
mortgage-backed securities and various federal government and agency obligations
as well as obligations of certain states and municipal subdivisions. At March
31, 1998, the Bank had $122.6 million in mortgage-backed and mortgage-related
securities, or 39.2% of total assets substantially all of which were issued and
guaranteed by the following governmental-sponsored agencies: Fannie Mae
("FNMA"), Freddie Mac ("FHLMC") and Ginnie Mae ("GNMA"). All of the Bank's
mortgage-backed securities are classified as held-to-maturity. The debt
obligations owned by the Bank generally consist of U.S. Government and agency
obligations and obligations of states and municipalities consisting of $7.1
million classified as available-for-sale and $28.8 million classified as
held-to-maturity. At March 31, 1998, the Bank's deposit accounts totalled $239.1
million, or 84.6% of total liabilities, of which $95.9 million, or 40.3%, were
core deposits. From time to time, the Bank has utilized borrowings from the
FHLB-NY as a source of funds, and may utilize such borrowings to a greater
extent in the future. At March 31, 1998, such borrowings totalled $42.3 million,
or 15.0% of total liabilities. See "Business of the Bank."
The Bank's executive offices are located at 417 Bloomfield Avenue,
Caldwell, New Jersey 07006 and its telephone number is (973) 226-7911.
MARKET AREA AND COMPETITION
The Bank has been, and intends to continue to be, a community-oriented
financial institution, offering a wide variety of financial services to meet the
needs of the communities it serves. The Bank conducts its business through its
administrative and branch office located in Caldwell, New Jersey, and seven
other full service branch offices located in West Orange, Franklin Lakes, River
Vale, Pine Brook, Old Tappan and Northvale, all of which are located in the
Northern New Jersey counties of Essex, Morris and Bergen. The Bank's deposit
gathering base is concentrated in the communities surrounding its offices. While
its lending area extends throughout New Jersey, most of the Bank's mortgage
loans are secured by properties located in Essex, Morris and Bergen Counties in
Northern New Jersey.
The economy in the Bank's primary market area is based upon a mixture of
service and retail trade. Other employment is provided by a variety of wholesale
trade, manufacturing, federal, state and local government, hospitals and
utilities. The area is also home to commuters working in the greater New York
City metropolitan area. Certain communities in Bergen, Essex and Morris Counties
are among the highest per capita income in the country. Essex County contains
many older residential commuter towns which function partially as business and
service centers. Morris County was once predominantly a rural farming area. It
has experienced rapid growth in the residential, commercial and industrial
sectors. Bergen County has benefitted from its geographical proximity to New
York City. Originally an agricultural region, the county shifted toward
manufacturing and service industries and many foreign firms have set up their
American headquarters in this County.
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The Bank faces significant competition both in making loans and in
attracting deposits. The State of New Jersey has a high density of financial
institutions, many of which are branches of significantly larger institutions
which have greater financial resources than the Bank, all of which are
competitors of the Bank to varying degrees. The Bank's competition for loans
comes principally from commercial banks, savings banks, savings and loan
associations, credit unions, mortgage banking companies and insurance companies.
Its most direct competition for deposits has historically come from commercial
banks, savings banks, savings and loan associations and credit unions. The Bank
faces additional competition for deposits from short-term money market funds,
common stock, other corporate and government securities funds and from other
financial service institutions such as brokerage firms and insurance companies.
LENDING ACTIVITIES
LOAN PORTFOLIO COMPOSITION. The Bank's loan portfolio consists primarily of
first mortgage loans secured by one- to four-family residences. At March 31,
1998, the Bank had total loans receivable of $118.2 million, of which $89.5
million were one- to four-family, residential mortgage loans, equalling 75.7% of
the Bank's total loans receivable. At such date, the remainder of the Bank's
loan portfolio consisted primarily of: $10.3 million of commercial real estate
loans or 8.7% of total loans receivable; $8.4 million of home equity loans and
lines of credit, or 7.1% of total loans receivable; $2.1 million of multi-family
residential loans, or 1.7% of total loans receivable; $7.1 million of
construction and development loans, or 6.0% of total loans receivable; and
$801,000 of consumer loans, or 0.7% of total loans receivable, consisting
primarily of loans on passbook deposit accounts and automobile loans.
The types of loans that the Bank may originate are subject to federal and
state laws and regulations. Interest rates charged by the Bank on loans are
affected by the demand for such loans and the supply of money available for
lending purposes and the rates offered by competitors. These factors are, in
turn, affected by, among other things, economic conditions, monetary policies of
the federal government, including the Federal Reserve Board, and legislative tax
policies. In recent years, the Bank has aggressively sought to increase its
originations of mortgage loans and has sought to purchase loans and loan
participations. This has resulted in total loans increasing from $84.5 million
at December 31, 1996 to $116.1 million at December 31, 1997 and $118.2 million
at March 31, 1998.
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The following table sets forth the composition of the Bank's loan
portfolio in dollar amounts and as a percentage of the portfolio at the dates
indicated.
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
------------------- -------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------- ------------------- ------------------ ------------------ ------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage Loans:
Residential:
One- to four-family...... $ 89,451 75.70% $ 87,489 75.34% $60,741 71.88% $65,002 74.50% $61,747 70.33%
Multi-family............. 2,050 1.73 2,004 1.73 2,068 2.45 1,115 1.28 1,400 1.59
Home equity lines(1)...... 8,355 7.07 8,554 7.37 6,653 7.87 4,388 5.03 5,014 5.71
Commercial real estate...... 10,321 8.73 10,695 9.21 12,275 14.53 12,707 14.56 13,815 15.74
Construction and
development........... 7,141 6.04 6,485 5.58 2,080 2.46 3,032 3.47 5,079 5.78
-------- ------ -------- ------ ------- ------ ------- ------ ------- ------
Total mortgage loans....... 117,318 99.27 115,227 99.23 83,817 99.19 86,244 98.84 87,055 99.15
-------- ------ -------- ------ ------- ------ ------- ------ ------- ------
Commercial loans............ 57 0.05 59 0.05 87 0.10 234 0.27 259 0.29
-------- ------ -------- ------ ------- ------ ------- ------ ------- ------
Consumer Loans:
Passbook or certificate.... 497 0.42 550 0.47 427 0.51 543 0.62 398 0.46
Other.................... 304 0.26 291 0.25 168 0.20 234 0.27 90 0.10
-------- ------ -------- ------ ------- ------ ------- ------ ------- ------
Total consumer loans..... 801 0.68 841 0.72 595 0.71 777 0.89 488 0.56
-------- ------ -------- ------ ------- ------ ------- ------ ------- ------
Total loans receivable...... 118,176 100.00% 116,127 100.00% 84,499 100.00% 87,255 100.00% 87,802 100.00%
====== ====== ====== ====== ======
Less:
Construction loans in
process................. (2,009) (1,437) (440) (592) (1,474)
Allowance for loan
losses.................. (1,863) (1,885) (1,564) (1,200) (1,236)
Deferred loan fees, net.. (2) (70) (361) (432) (481)
-------- -------- ------- ------- -------
Loans receivable, net....... $114,302 $112,735 $82,134 $85,031 $84,611
======== ======== ======= ======= =======
<CAPTION>
-----------------------
1993
-----------------------
PERCENT
AMOUNT OF TOTAL
-------- ----------
<S> <C> <C>
Mortgage Loans:
Residential:
One- to four-family...... $63,352 68.61%
Multi-family............. 1,865 2.02
Home equity lines(1)...... 5,467 5.92
Commercial real estate...... 14,462 15.66
Construction and
development........... 6,503 7.04
------- ------
Total mortgage loans....... 91,649 99.25
------- ------
Commercial loans............ 335 0.36
------- ------
Consumer Loans:
Passbook or certificate.... 309 0.34
Other.................... 46 0.05
------- ------
Total consumer loans..... 355 0.39
------- ------
Total loans receivable... 92,339 100.00%
======
Less:
Construction loans in
process................. (836)
Allowance for loan
losses................ (1,550)
Deferred loan fees, net.. (534)
-------
Loans receivable, net....... $89,419
=======
</TABLE>
_________________________
(1) Includes second mortgage loans other than home equity loans of $60,000,
$63,000, $74,000, $91,000, $191,000 and $213,000 at March 31, 1998 and
December 31, 1997, 1996, 1995, 1994 and 1993, respectively.
62
<PAGE>
LOAN MATURITY. The following table shows the remaining contractual
maturity of the Bank's loans at March 31, 1998. The table does not include the
effect of future principal repayments or prepayments.
<TABLE>
<CAPTION>
AT MARCH 31, 1998
-------------------------------------------------------------------------------
ONE- TO CONSTRUCTION
FOUR- MULTI- SECOND EQUITY COMMERCIAL AND
FAMILY FAMILY MORTGAGES LINES REAL ESTATE DEVELOPMENT
-------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Amounts due:
One year or less.............................. $ 178 $ -- $ -- $ -- $ -- $ 3,943
------- ------- ------- ------- ------- -------
After one year:
More than one year to three years......... 1,748 98 -- 284 287 2,755
More than three years to five years....... 1,903 -- 60 152 1,442 12
More than five years to ten years......... 7,551 -- -- 2,168 366 36
More than 10 years to 20 years............ 22,274 1,895 -- 4,516 7,911 395
More than 20 years........................ 55,797 57 -- 1,175 315 --
------- ------- ------- ------- ------- -------
Total due after one year...................... 89,273 2,050 60 8,295 10,321 3,198
------- ------- ------- ------- ------- -------
Total due..................................... 89,451 2,050 60 8,295 10,321 7,141
------- ------- ------- ------- ------- -------
Less:
Loans in process................... -- -- -- -- -- 2,009
Deferred loan fees................. (25) -- -- -- -- 27
Allowance for loan losses.......... 1,085 21 -- 66 107 578
------- ------- ------- ------- ------- -------
1,060 21 -- 66 107 2,614
------- ------- ------- ------- ------- -------
Loans receivable, net....................... $88,391 $ 2,029 $ 60 $ 8,229 $10,214 $ 4,527
======= ======= ======= ======= ======= =======
<CAPTION>
----------------------------------
TOTAL
COMMERCIAL CONSUMER LOANS
----------------------------------
<C> <C> <C>
Amounts due:
One year or less................................. $ -- $ 513 $ 4,634
------- ------- --------
After one year:
More than one year to three years............ 9 205 5,386
More than three years to five years.......... 48 83 3,700
More than five years to ten years............ -- -- 10,121
More than 10 years to 20 years............... -- -- 36,991
More than 20 years........................... -- -- 57,344
------- ------- --------
Total due after one year......................... 57 288 113,542
------- ------- --------
Total due........................................ 57 801 118,176
------- ------- --------
Less:
Loans in process...................... -- -- 2,009
Deferred loan fees.................... -- -- 2
Allowance for loan losses............. -- 6 1,863
------- ------- --------
-- 6 3,874
------- ------- --------
Loans receivable, net........................ $ 57 $ 795 $114,302
======= ======= ========
</TABLE>
63
<PAGE>
The following table sets forth, at March 31, 1998, the dollar amount of
loans contractually due after March 31, 1999, and whether such loans have fixed
interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
DUE AFTER MARCH 31, 1999
----------------------------
FIXED ADJUSTABLE TOTAL
------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Mortgage loans:
One- to four-family..................... $44,487 $44,786 $ 89,273
Multi-family............................ 2,050 -- 2,050
Second mortgages........................ 60 -- 60
Equity lines............................ 3,976 4,319 8,295
Commercial real estate.................. 9,359 962 10,321
Construction and development............ 48 3,150 3,198
------- ------- --------
Total mortgage loans................. 59,980 53,217 113,197
Commercial loans.......................... 57 -- 57
Consumer loans............................ 288 -- 288
------- ------- --------
Total loans........................ $60,325 $53,217 $113,542
======= ======= ========
</TABLE>
ORIGINATION, PURCHASE AND SERVICING OF LOANS. The Bank's mortgage lending
activities are conducted primarily by its loan personnel operating in all of the
Bank's branch offices. All loans originated by the Bank, either through internal
sources or through loan brokers, are underwritten by the Bank pursuant to the
Bank's policies and procedures. The Bank's underwriting policies, guidelines and
procedures are modeled after those of FNMA and FHLMC. The Bank originates both
adjustable-rate and fixed-rate loans. The Bank's ability to originate fixed- or
adjustable-rate loans is dependent upon the relative customer demand for such
loans, which It is the general policy of the Bank to retain all loans originated
in its portfolio. The Bank currently retains the servicing for all loans
originated in its portfolio.
During the years ended December 31, 1997 and December 31, 1996, the Bank
originated $39.3 million and $11.3 million of one- to four-family loans,
respectively, including home equity loans and lines of credit. Based upon the
Bank's investment needs and market opportunities, the Bank has, on occasion,
purchased loans, primarily one- to four-family loans, or participated in loans,
primarily multi-family loans through the Thrift Institutions Community
Investment Corporation of New Jersey ("TICIC"). At March 31, 1998, the Bank had
four loan participations through TICIC totalling $1.7 million. The Bank has in
its loan portfolio loans generated by third-party mortgage companies which were
underwritten pursuant to the Bank's policies, and closed in the name of the
Bank.
64
<PAGE>
The following table sets forth the Bank's loan originations, purchases, and
principal repayments for the periods indicated. The Bank sold no loans during
the periods indicated.
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS FOR THE YEARS ENDED DECEMBER
ENDED MARCH 31, 31,
------------------- ------------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Beginning balance......................... $116,127 $84,499 $ 84,499 $ 87,255 $ 87,802
-------- ------- -------- -------- --------
Purchases - Multi-family mortgage loans. 61 -- -- 1,621 --
-------- ------- -------- -------- --------
Loans originated:
Mortgage loans:
One- to four-family................... 6,539 3,436 35,017 6,546 10,369
Multi-family.......................... -- -- -- -- --
Home equity lines..................... 920 503 4,330 4,726 1,715
Commercial real estate................ -- 85 1,436 2,090 425
Construction and land development..... 1,550 -- 5,610 1,015 2,570
-------- ------- -------- -------- --------
Total mortgage loans................ 9,009 4,024 46,393 14,377 15,079
-------- ------- -------- -------- --------
Consumer loans:
Passbook loans........................ 61 107 477 660 426
Automobile............................ 46 52 222 65 241
Credit lines(1)....................... 28 -- 28 -- --
Other................................. -- -- -- -- 5
-------- ------- -------- -------- --------
Total consumer loans................ 135 159 727 725 672
-------- ------- -------- -------- --------
Loans made to facilitate the sale of
real estate owned.................... -- -- -- -- 73
-------- ------- -------- -------- --------
Total originations..................... 9,144 4,183 47,120 15,102 15,824
-------- ------- -------- -------- --------
Loans transferred (to) from real
estate owned.......................... -- (157) (680) (377) 83
-------- ------- -------- -------- --------
Principal repayments and other, net...... (7,156) (3,520) (14,812) (19,102) (16,454)
-------- ------- -------- -------- --------
Ending balance............................ $118,176 $85,005 $116,127 $ 84,499 $ 87,255
======== ======= ======== ======== ========
</TABLE>
ONE- TO FOUR-FAMILY MORTGAGE LENDING. The Bank offers both fixed-rate and
adjustable-rate mortgage loans ("ARM") secured by one- to four-family residences
with maturities of up to 30 years. In excess of ____%, such loans are secured by
property located in the Bank's primary market area. Loan originations are
generally obtained from the Bank's in-house loan representatives located at all
of the Bank's branch offices, local real estate agents, from wholesale brokers
and their contacts in the Bank's local real estate industry, from existing or
past customers, through referrals from members of the local communities and
advertising. One- to four-family mortgage loans are generally underwritten in
accordance with FHLMC/FNMA standards. At March 31, 1998, one- to four-family
mortgage loans totalled $89.5 million,
65
<PAGE>
or 75.7% of the Bank's total loans receivable. Of the Bank's mortgage loans
secured by one- to four-family residences, $44.6 million, or 49.8%, were fixed-
rate loans and $44.9 million or 50.2% were ARM loans.
The Bank currently offers fixed-rate mortgage loans with terms from ten to
30 years. The Bank generally retains for its portfolio all loans it originates.
The Bank also offers ARM loan programs made for terms from one to 30 years and
with interest rates, which adjust every 12 months or any other term according to
the loan note. The Bank's ARM loans generally provide for periodic (not more
than 2.0% over the existing interest rate) and overall (not more than 6.0%) caps
on the increase or decrease in the interest rate at any adjustment date and over
the life of the loan. The interest rate adjustment on these loans is indexed to
the one-year U.S. Treasury CMT Index with a repricing margin of 2.75% above the
index.
The origination of adjustable-rate residential mortgage loans, as opposed
to fixed-rate residential mortgage loans, helps reduce the Bank's exposure to
increases in interest rates. However, adjustable-rate loans generally pose
credit risks not inherent in fixed-rate loans, primarily because as interest
rates rise, the underlying payments of the borrower rise, thereby increasing the
potential for default. Periodic and lifetime caps on interest rate increases
help to reduce the credit risk associated with the Bank's adjustable-rate loans
but also limit the interest rate sensitivity of its adjustable-rate mortgage
loans.
The Bank's policy generally is to originate one- to four-family residential
mortgage loans in amounts up to 90% of the lower of the appraised value or the
selling price of the property securing the loan, but generally requires private
mortgage insurance if the loan is in an amount in excess of 80% of the lower of
the appraised value or selling price, with the exception of certain loans
secured by condominium units, which require a 70% loan-to-value ("LTV") ratio.
Mortgage loans originated by the Bank include due-on-sale clauses which provide
the Bank with the contractual right to deem the loan immediately due and payable
in the event the borrower transfers ownership of the property without the Bank's
consent. Due-on-sale clauses are an important means of adjusting the rates on
the Bank's fixed-rate mortgage loan portfolio and the Bank has generally
exercised its rights under these clauses. The Bank requires fire, casualty,
title and, in certain cases, flood insurance on all properties securing real
estate loans made by the Bank.
In an effort to provide financing for first-time home buyers, the Bank
offers its first-time home buyers program. This program offers single-family
residential mortgage loans to qualified individuals. These loans are originated
using the Bank's standard underwriting guidelines with reduced interest rates.
With respect to loans originated under this program, the Bank typically charges
a lower rate of interest, as compared to other residential mortgage loans and
originates these loans in amounts up to 95% of the lower of the appraised value
or selling price of the property securing the loan. In addition, the Bank also
participates in the First Home Club Program through the FHLB-NY, which benefits
low income first time homebuyers.
HOME EQUITY LOANS. The Bank offers fixed rate home equity loans and
floating rate home equity lines of credit in amounts of up to $100,000. Home
equity loans have fixed rates of interest with terms of up to 20 years. Interest
rates on such loans will vary depending on the amortization period chosen by the
borrowers. Home equity lines of credit have adjustable-rates of interest, which
adjust on a monthly basis. The adjustable-rate of interest charged on such loans
is indexed to the prime rate as published in The Wall Street Journal. Currently,
home equity lines of credit originated at this time bear a maximum lifetime
interest rate cap of 14.0%. The maximum combined LTV ratio on home equity loans
and equity lines of credit is 70%. At March 31, 1998, the Bank had in its loan
portfolio an aggregate of $12.6 million of home equity loans and equity lines of
credit, of which $4.0 million were fixed-rate home equity loans and $8.6
66
<PAGE>
million were equity lines of credit. Of the $8.6 million equity lines of credit,
$4.3 million was drawn upon such loans at March 31, 1998. The underwriting
standards employed by the Bank for home equity loans and lines of credit include
a determination of the applicant's credit history and an assessment of the
applicant's ability to meet existing obligations and payments on the proposed
loan and the value of the collateral securing the loan. The stability of the
applicant's monthly income may be determined by verification of gross monthly
income from primary employment and, additionally, from any verifiable secondary
income. Creditworthiness of the applicant is of primary consideration. The
Bank's home equity loans and lines of credit are secured by first or second
liens on one- to four-family residences located in the Bank's primary market
area.
COMMERCIAL REAL ESTATE AND MULTI-FAMILY LENDING. The Bank also originates
multi-family and commercial real estate loans that are generally secured by five
or more unit apartment buildings and properties used for business purposes such
as small shopping centers located in Northern New Jersey. The Bank's multi-
family and commercial real estate underwriting policy provides that such real
estate loans may be made in amounts up to 65% of the appraised value of the
property; however, this policy provides that management has the discretion to
make such real estate loans in excess of 65% of the appraised value of the
property. The Bank's multi-family and commercial real estate lending is limited
by the regulatory loans-to-one borrower limit which at March 31, 1998 was $3.6
million. The Bank currently originates multi-family and commercial real estate
loans, generally with terms of up to 15 years and has developed a variety of
programs, primarily balloon type mortgages, indexed to the FHLB advance rate,
the Prime Rate and the U.S. Treasury Bill rate. The Bank's multi-family and
commercial real estate loans have fixed or adjustable rates of interest that
adjust periodically and are indexed to either the prime rate as published in The
Wall Street Journal or the U.S. Treasury Bill. In reaching its decision on
whether to make a multi-family or commercial real estate loan, the Bank
considers the net operating income of the property, the borrower's expertise,
credit history and profitability and the value of the underlying property. The
Bank has generally required that the properties securing these real estate loans
have debt service coverage ratios (the ratio of earnings before debt service to
debt service) of at least 1.15x. In addition, environmental impact surveys may
be required for multi-family and commercial real estate loans. Generally, multi-
family and commercial real estate loans made to corporations, partnerships and
other business entities require personal guarantees by the principals. On an
exception basis, the Bank may not require a personal guarantee on such loans
depending on the creditworthiness of the borrower and the amount of the
downpayment and other mitigating circumstances. The Bank's multi-family real
estate loan portfolio at March 31, 1998 was $2.1 million, or 1.7%, of total
loans receivable and the Bank's commercial real estate loan portfolio at such
date was $10.3 million, or 8.7%, of total loans receivable. The largest
commercial real estate loan in the Bank's portfolio at March 31, 1998 was a
$1.12 million loan secured by a commercial warehouse located in Fairfield, New
Jersey.
Loans secured by multi-family and commercial real estate properties are
generally larger and involve a greater degree of risk than one- to four-family
residential mortgage loans. Because payments on loans secured by multi-family
and commercial real estate properties are often dependent on successful
operation or management of the properties, repayment of such loans may be
subject to a greater extent to the then prevailing conditions in the real estate
market or the economy. The Bank seeks to minimize these risks through its
underwriting standards.
CONSTRUCTION AND DEVELOPMENT LENDING. The Bank originates construction and
development loans exclusively for the development of one-to four-family
residences. Such loans are made principally to licensed and experienced
developers known to the Bank in its primary market area for the construction of
single-family developments. The Bank generally does not originate loans secured
by undeveloped land. Construction loans are originated in amounts up to 70% of
the lesser of the appraised value of the property,
67
<PAGE>
as improved, or the sales price. Such loans are offered with one year terms and
adjustable interest rates which adjust monthly and float at margins which are
generally 1% to 2% above the Prime Rate of interest as reported in The Wall
Street Journal. Proceeds of construction loans are dispersed as phases of the
construction are completed. Generally, if the borrower is a corporation,
partnership or other business entity, personal guarantees by the principals are
required. The Bank's largest construction loan at March 31,1998 was a $1.6
million performing loan with a carrying balance, net of loans in process, of
$854,000 secured by a 4.54 acre, six lot residential development tract located
in Millburn, New Jersey. At March 31, 1998, the Bank had $7.1 million of
construction loans which amounted to 6.0% of the Bank's total loans receivable.
Construction and development financing is generally considered to involve a
higher degree of credit risk than long-term financing on improved, owner-
occupied real estate. Risk of loss on a construction loan is dependent largely
upon the accuracy of the initial estimate of the property's value at completion
of construction or development compared to the estimated cost (including
interest) of construction and other assumptions, including the estimated time to
sell residential properties. If the estimate of value proves to be inaccurate,
the Bank may be confronted with a project, when completed, having a value which
is insufficient to assure full repayment.
CONSUMER LENDING. Consumer loans at March 31, 1998 amounted to $801,000, or
0.7% of the Bank's total loans receivable, and consisted primarily of $497,000
in loans secured by deposit accounts and $274,000 in automobile loans. Such
loans are generally originated in the Bank's primary market area. These loans
are generally shorter term and have higher interest rates than one- to four-
family mortgage loans.
Loans secured by rapidly depreciable assets such as automobiles or that are
unsecured entail greater risks than one- to four-family mortgage loans. In such
cases, repossessed collateral for a defaulted loan may not provide an adequate
source of repayment of the outstanding loan balance, since there is a greater
likelihood of damage, loss or depreciation of the underlying collateral.
Further, consumer loan collections on these loans are dependent on the
borrower's continuing financial stability and, therefore, are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Finally, the application of various federal and state laws, including federal
and state bankruptcy and insolvency laws, may limit the amount which can be
recovered on such loans in the event of a default.
COMMERCIAL LENDING. At March 31, 1998, the Bank had $57,000 in commercial
loans, which the Bank originated through a FHLB program over ten years ago. The
Bank does not currently anticipate that commercial lending activity will
increase in the immediate future.
LOAN APPROVAL PROCEDURES AND AUTHORITY. The Board of Directors establishes
the lending policies and loan approval limits of the Bank. All loans originated
by the Bank with principal amounts in excess of $1.0 million require the
approval of the Board of Directors. All loans originated by the Bank with
principal amounts between $350,000 and $1.0 million require the approval of the
Lending Committee. All other loans may be approved by the Bank's Chief Lending
Officer. Pursuant to OTS regulations, loans to one borrower cannot exceed 15% of
the Bank's unimpaired capital and surplus. The Bank will not make loans to one
borrower that are in excess of the regulatory limits.
UNDERWRITING. With respect to all loans originated by the Bank, it is the
general policy of the Bank to retain all such loans in its portfolio. The Bank
has a policy of underwriting its loans in conformance with FNMA or FHLMC
guidelines. Upon receipt of a completed loan application from a prospective
borrower, a credit report is ordered and certain other information is verified
by an independent credit agency. If necessary, additional financial information
may be required. An appraisal of real estate intended to secure
68
<PAGE>
a proposed loan generally is required to be performed by outside appraisers
approved by the Bank. The Board annually approves independent appraisers used by
the Bank and approves the Bank's appraisal policy. The Bank's policy is to
obtain title and hazard insurance on all mortgage loans and flood insurance when
necessary and the Bank generally requires borrowers to make payments to a
mortgage escrow account for the payment of property taxes. No title or flood
insurance is required, however, for home equity loans.
DELINQUENT LOANS, CLASSIFIED ASSETS AND REAL ESTATE OWNED
DELINQUENCIES AND CLASSIFIED ASSETS. Reports listing all delinquent
accounts are generated and reviewed by management at least twice a month and the
Board of Directors performs a monthly review of all loans or lending
relationships delinquent 60 days or more and all real estate owned ("REO"). The
procedures taken by the Bank with respect to delinquencies vary depending on the
nature of the loan, period and cause of delinquency and whether the borrower is
habitually delinquent. When a borrower fails to make a required payment on a
loan, the Bank takes a number of steps to have the borrower cure the delinquency
and restore the loan to current status. The Bank generally sends the borrower a
written notice of non-payment after the loan is first past due. The Bank's
guidelines provide that telephone, written correspondence and/or face-to-face
contact will be attempted to ascertain the reasons for delinquency and the
prospects of repayment. When contact is made with the borrower at any time prior
to foreclosure, the Bank will attempt to obtain full payment, offer to work out
a repayment schedule with the borrower to avoid foreclosure or, in some
instances, accept a deed in lieu of foreclosure. In the event payment is not
then received or the loan not otherwise satisfied, additional letters and
telephone calls generally are made. If the loan is still not brought current or
satisfied and it becomes necessary for the Bank to take legal action, which
typically occurs after a loan is 90 days or more delinquent, the Bank will
commence foreclosure proceedings against any real property that secures the
loan. If a foreclosure action is instituted and the loan is not brought current,
paid in full, or refinanced before the foreclosure sale, the property securing
the loan generally is sold at foreclosure and, if purchased by the Bank, becomes
real estate owned.
Federal regulations and the Bank's Asset Classification Policy require that
the Bank utilize an internal asset classification system as a means of reporting
problem and potential problem assets. The Bank has incorporated the OTS internal
asset classifications as a part of its credit monitoring system. The Bank
currently classifies problem and potential problem assets as "Substandard,"
"Doubtful" or "Loss" assets. An asset is considered "Substandard" if it is
inadequately protected by the current net worth and paying capacity of the
obligor or of the collateral pledged, if any. "Substandard" assets include those
characterized by the "distinct possibility" that the insured institution will
sustain "some loss" if the deficiencies are not corrected. Assets classified as
"Doubtful" have all of the weaknesses inherent in those classified "Substandard"
with the added characteristic that the weaknesses present make "collection or
liquidation in full," on the basis of currently existing facts, conditions, and
values, "highly questionable and improbable." Assets classified as "Loss" are
those considered "uncollectible" and of such little value that their continuance
as assets without the establishment of a specific loss reserve is not warranted.
Management of the Bank, in determining the allowance for loan losses,
considers the risks inherent in its loan portfolio and changes in the nature and
volume of its loan activities, along with the general economic and real estate
market conditions. The Bank utilizes a two tier approach: (i) identification of
impaired loans and the establishment of specific loss allowances on such loans;
and (2) establishment of general valuation allowances on the remainder of its
loan portfolio. The Bank maintains a loan review system which allows for a
periodic review of its loan portfolio and the early identification of potential
impaired loans. Such system takes into consideration, among other things,
delinquency status, size of loans, type and estimated fair value of collateral
and financial condition of the borrowers. Specific loan loss
69
<PAGE>
allowances are established for identified loans based on a review of such
information. General loan loss allowances are based upon a combination of
factors including, but not limited to, actual loan loss experience, composition
of the loan portfolio, current economic conditions and management's judgment.
Although management believes that adequate loan loss allowances are established,
actual losses are dependent upon future events and, as such, further additions
to the level of the allowance for loan losses may be necessary.
A savings institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
OTS which can order the establishment of additional general or specific loss
allowances. The OTS, in conjunction with the other federal banking agencies, has
adopted an interagency policy statement on the allowance for loan and lease
losses. The policy statement provides guidance for financial institutions on
both the responsibilities of management for the assessment and establishment of
adequate allowances and guidance for banking agency examiners to use in
determining the adequacy of general valuation guidelines. Generally, the policy
statement recommends that institutions have effective systems and controls to
identify, monitor and address asset quality problems; that management has
analyzed all significant factors that affect the collectibility of the portfolio
in a reasonable manner; and that management has established acceptable allowance
evaluation processes that meet the objectives set forth in the policy statement.
Although management believes that, based on information currently available to
it at this time, its allowance for loan losses is adequate, actual losses are
dependent upon future events and, as such, further additions to the level of
allowances for loan losses may become necessary.
The Board reviews classified assets reports prepared by management and
classifies its assets on a quarterly basis. The Bank classifies assets in
accordance with the management guidelines described above. At March 31, 1998,
the Bank had $3.1 million, or 0.99% of total assets, of assets designated as
"Substandard," consisting of thirteen one- to four-family mortgage loans,
totalling $1.5 million, two construction loans totalling $718,000 and real
estate owned totalling $911,000. At March 31, 1998, the largest loan designated
as "Substandard" had a carrying balance of $684,000, and was a construction loan
secured by a partially completed condominium project. At March 31, 1998, no
assets were designated as "Doubtful" or "Loss."
70
<PAGE>
The following table sets forth delinquencies in the Bank's loan portfolio as of
the dates indicated.
<TABLE>
<CAPTION>
AT MARCH 31, 1998 AT DECEMBER 31, 1997
-------------------------------------------- ---------------------------------------------
60-89 DAYS 90 DAYS OR MORE 60-89 DAYS 90 DAYS OR MORE
--------------------- ---------------------- -------------------- -----------------------
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
-------- ---------- --------- ---------- -------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans: (DOLLARS IN THOUSANDS)
Residential Mortgage...... 13 $ 878 16 $1,544 10 $ 528 19 $1,652
Commercial Mortgage....... 1 116 -- -- -- -- 1 119
Construction and land -- -- 2 718 -- -- 2 718
development.............. ---- ----- ---- ------ ---- ------ ---- ------
Total loans.............. 14 $ 994 18 $2,262 10 $ 528 22 $2,489
==== ===== ==== ====== ==== ====== ==== ======
Delinquent loans to total 1.03% 0.84% 1.32% 1.93% 0.72% 0.45% 1.59% 2.14%
loans.................... ==== ===== ==== ====== ==== ====== ==== ======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996 AT DECEMBER 31, 1995
-------------------------------------------- ---------------------------------------------
60-89 DAYS 90 DAYS OR MORE 60-89 DAYS 90 DAYS OR MORE
--------------------- ---------------------- -------------------- -----------------------
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
-------- ---------- --------- ---------- -------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans: (DOLLARS IN THOUSANDS)
Residential Mortgage...... 14 $ 904 14 $1,733 13 $ 764 10 $1,069
Commercial Mortgage....... -- -- 2 431 4 575 2 380
Construction and land -- -- 2 705 -- -- 3 734
development.............. ---- ----- ---- ------ ---- ------ ---- ------
Total loans.............. 14 $ 904 18 $2,869 17 $1,339 15 $2,183
==== ===== ==== ====== ==== ====== ==== ======
Delinquent loans to total 1.15% 1.07% 1.48% 3.40% 1.34% 1.53% 1.18% 2.50%
loans...................... ==== ===== ==== ====== ==== ====== ==== ======
</TABLE>
71
<PAGE>
NON-PERFORMING ASSETS AND IMPAIRED LOANS. The following table sets forth
information regarding nonaccrual loans and REO. At March 31, 1998, REO totalled
$1.1 million and consisted of nine properties. It is the policy of the Bank to
cease accruing interest on loans 90 days or more past due and to fully reserve
for all previously accrued interest. For the three months ended March 31, 1998
and the year ended December 31, 1997, the amount of additional interest income
that would have been recognized on non-accrual loans if such loans had continued
to perform in accordance with their contractual terms was $40,000 and $177,000,
respectively. On January 1, 1995, the Bank adopted SFAS No. 114 "Accounting by
Creditors for Impairment of a Loan," as amended by SFAS No. 118. At both March
31, 1998 and December 31, 1997, total impaired loans were $1.6 million All
impaired loans are residential real estate mortgage loans which have been
measured for impairment using the fair value of the collateral method. During
the three months ended March 31, 1998, the average recorded value of impaired
loans was $1.6 million. For these loans, no interest income was recognized.
During the year ended December 31, 1997, the average recorded value of impaired
loans was $1.9 million. For these loans, no interest income was recognized.
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
---------------- ----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Nonaccrual loans:
Residential Mortgages............................. $1,496 $1,679 $1,576 $1,733 $ 931 $1,369 $1,287
Commercial Mortgages.............................. -- 352 119 431 380 263 327
Construction and land development................. 718 705 718 705 734 1,346 737
------ ------ ------ ------ ------ ------ ------
Total nonaccrual loans......................... 2,214 2,736 2,413 2,869 2,045 2,978 2,351
Restructured loans:
Residential Mortgages............................. 92 97 94 99 104 112 2,971
------ ------ ------ ------ ------ ------ ------
Total non-performing loans..................... 2,306 2,833 2,507 2,968 2,149 3,090 5,322
Real estate owned, net(1)........................... 1,120 1,095 1,215 1,394 1,352 1,864 3,251
------ ------ ------ ------ ------ ------ ------
Total non-performing assets.................... $3,426 $3,928 $3,722 $4,362 $3,501 $4,954 $8,573
====== ====== ====== ====== ====== ====== ======
Allowance for loan losses as a
percent of total loans............................ 1.58% 1.92% 1.62% 1.85% 1.38% 1.41% 1.68%
====== ====== ====== ====== ====== ====== ======
Allowance for loan losses as a
percent of non-performing loans(2)................ 80.79% 57.15% 75.19% 52.70% 55.84% 40.00% 29.12%
====== ====== ====== ====== ====== ====== ======
Non-performing loans as a
percent of total loans(2)......................... 1.95% 3.36% 2.16% 3.51% 2.46% 3.52% 5.76%
====== ====== ====== ====== ====== ====== ======
Non-performing assets as
a percent of total assets(3)...................... 1.10% 1.66% 1.24% 1.85% 1.57% 2.48% 4.38%
====== ====== ====== ====== ====== ====== ======
</TABLE>
___________________
(1) REO balances are shown net of related valuation allowances. REO includes
$209,000 of property that is not considered substandard.
(2) Non-performing loans consist of all 90 days or more past due and other
loans which have been identified by the Bank as presenting uncertainty with
respect to the collectibility of interest or principal.
(3) Non-performing assets consist of non-performing loans and REO.
72
<PAGE>
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risks inherent in its loan portfolio and the general economy. The allowance for
loan losses is maintained at an amount management considers adequate to cover
estimated losses in loans receivable which are deemed probable and estimable
based on information currently known to management. The allowance is based upon
a number of factors, including current economic conditions, actual loss
experience and industry trends. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Bank's
allowance for loan losses. Such agencies may require the Bank to make additional
provisions for estimated loan losses based upon judgments different from those
of management. As of March 31, 1998 and December 31, 1997, the Bank's allowance
for loan losses was 1.58% and 1.62%, respectively, of total loans receivable and
84.1% and 78.1%, respectively, of nonaccrual loans. The Bank had non-accrual
loans of $2.2 million and $2.4 million at March 31, 1998 and December 31, 1997,
respectively. The Bank will continue to monitor and modify its allowances for
loan losses as conditions dictate. While management believes the Bank's
allowance for loan losses is sufficient to cover losses inherent in its loan
portfolio at this time, no assurances can be given that the Bank's level of
allowance for loan losses will be sufficient to cover future loan losses
incurred by the Bank or that future adjustments to the allowance for loan losses
will not be necessary if economic and other conditions differ substantially from
the economic and other conditions used by management to determine the current
level of the allowance for loan losses.
73
<PAGE>
The following table sets forth activity in the Bank's allowance for loan
losses for the periods set forth in the following table.
<TABLE>
<CAPTION>
AT OR FOR THE
THREE
MONTHS ENDED
MARCH 31, AT OR FOR THE YEARS ENDED DECEMBER 31,
---------------- ------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period................................ $1,885 $1,564 $1,564 $1,200 $1,236 $1,550 $1,811
------ ------ ------ ------ ------ ------ ------
Provision for (recapture of) loan losses...................... (22) 55 487 232 510 (247) (200)
------ ------ ------ ------ ------ ------ ------
Charge-offs:
Mortgage loans:
One- to four-family.................................... -- -- 60 -- -- 57 36
Multi-family........................................... -- -- -- -- 56 -- --
Commercial real estate..................................... -- -- 106 -- -- -- 25
Construction and land development.......................... -- -- -- -- 490 10 --
------ ------ ------ ------ ------ ------ ------
Total mortgage loans................................... -- -- 166 -- 546 67 61
------ ------ ------ ------ ------ ------ ------
Recoveries:
Construction and land development.......................... -- -- -- 132 -- -- --
------ ------ ------ ------ ------ ------ ------
Balance at end of period...................................... $1,863 $1,619 $1,885 $1,564 $1,200 $1,236 $1,550
====== ====== ====== ====== ====== ====== ======
Ratio of net charge-offs during
the period to average gross loans
during the period(1)........................................ 0.00% 0.00% 0.17% (0.15)% 0.63% 0.08% 0.06%
====== ====== ====== ====== ====== ====== ======
</TABLE>
____________________
(1) Annualized for the three month periods ended March 31, 1998 and 1997.
74
<PAGE>
The following tables set forth the Bank's percent of allowance for loan
losses to total allowance for loan losses and the percent of loans to total
loans in each of the categories listed at the dates indicated.
<TABLE>
<CAPTION>
AT MARCH 31,
-------------------------------------------------------------------------
1998 1997
-------------------------------------------------------------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
ALLOWANCE LOANS IN ALLOWANCE LOANS IN
TO TOTAL EACH CATEGORY TO TOTAL EACH CATEGORY
AMOUNT ALLOWANCE TO TOTAL LOANS AMOUNT ALLOWANCE TO TOTAL LOANS
------ ----------- -------------- -------- --------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Residential.............. $ 638 34.25% 84.50% $ 496 30.64% 83.11%
Commercial real estate... 107 5.74 8.73 194 11.98 13.81
Construction and land.... 578 31.03 6.04 424 26.19 2.31
development............ ------ ------ ------ ------ ------ ------
Total mortgage loans... 1,323 71.02 99.27 1,114 68.81 99.23
Commercial loans........... -- -- 0.05 -- -- 0.08
Consumer loans............. 6 0.32 0.68 4 0.25 0.69
------ ------ ------ ------ ------ ------
1,329 71.34 100.00% 1,118 69.06 100.00%
====== ======
Unallocated................ 534 28.66 501 30.94
------ ------ ------ ------
Total allowance
for loan losses...... $1,863 100.00% $1,619 100.00%
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------ ------------------------------- -------------------------------
PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS
PERCENT OF IN EACH PERCENT OF IN EACH PERCENT OF IN EACH
ALLOWANCE CATEGORY ALLOWANCE CATEGORY ALLOWANCE CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS
------ ----------- ---------- -------- ----------- ---------- -------- ------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Residential.............. $ 621 32.94% 84.44% $ 511 32.67% 82.20% $ 413 34.42% 80.81%
Commercial real estate... 112 5.94 9.21 184 11.77 14.53 190 15.83 14.56
Construction and
land development...... 628 33.32 5.58 349 22.31 2.46 141 11.75 3.47
------ ------ ------ ------ ------ ------ ------ ------ ------
Total mortgage loans..... 1,361 72.20 99.23 1,044 66.75 99.19 744 62.00 98.84
Commercial loans............ -- -- 0.05 -- -- 0.10 1 0.08 0.27
Consumer loans.............. 6 0.32 0.72 4 0.26 0.71 6 0.50 0.89
------ ------ ------ ------ ------ ------ ------ ------ ------
1,367 72.52 100.00% 1,048 67.01 100.00% 751 62.58 100.00%
====== ====== ======
Unallocated................. 518 27.48 516 32.99 449 37.42
------ ------ ------ ------ ------ ------
Total.................... $1,885 100.00% $1,564 100.00% $1,200 100.00%
====== ====== ====== ====== ====== ======
<CAPTION>
-------------------------------------------------------------
1994 1993
------------------------------ ------------------------------
PERCENT PERCENT
OF LOANS OF LOANS
PERCENT OF IN EACH PERCENT OF IN EACH
ALLOWANCE CATEGORY ALLOWANCE CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS
------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Residential.............. $ 383 30.99% 77.63% $ 418 26.97% 76.55%
Commercial real estate... 171 13.84 15.74 218 14.06 15.66
Construction and
land development...... 223 18.04 5.78 452 29.16 7.04
------ ------ ------ ------ ------ ------
Total mortgage loans..... 777 62.87 99.15 1,088 70.19 99.25
Commercial loans............ 1 0.08 0.29 2 0.13 0.36
Consumer loans.............. 2 0.16 0.56 1 0.07 0.39
------ ------ ------ ------ ------ ------
780 63.11 100.00% 1,091 70.39 100.00%
====== ======
Unallocated................. 456 36.89 459 29.61
------ ------ ------ ------
Total.................... $1,236 100.00% $1,550 100.00%
====== ====== ====== ======
</TABLE>
75
<PAGE>
REAL ESTATE OWNED. At March 31, 1998, the Bank had $1.1 million of real
estate owned consisting of nine properties, eight of which were acquired through
foreclosure. When the Bank acquires property through foreclosure or deed in lieu
of foreclosure, it is initially recorded at the lower of the recorded investment
in the corresponding loan or the fair value of the related assets at the date of
foreclosure, less costs to sell. Thereafter, if there is a further deterioration
in value, the Bank provides for a specific valuation allowance and charges
operations for the diminution in value. It is the policy of the Bank to have
obtained an appraisal on all real estate subject to foreclosure proceedings
prior to the time of foreclosure. It is the Bank's policy to require appraisals
on a periodic basis on foreclosed properties and conduct inspections on
foreclosed properties.
INVESTMENT ACTIVITIES
Federally chartered savings institutions have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certificates of deposit of insured banks
and savings institutions, bankers' acceptances, repurchase agreements and
federal funds. Subject to various restrictions, federally chartered savings
institutions may also invest their assets in commercial paper, investment-grade
corporate debt securities and mutual funds whose assets conform to the
investments that a federally chartered savings institution is otherwise
authorized to make directly. Additionally, the Bank must maintain minimum levels
of investments that qualify as liquid assets under OTS regulations. See
"Regulation and Supervision--Federal Savings Institution Regulation--Liquidity."
Historically, the Bank has maintained liquid assets above the minimum OTS
requirements and at a level considered to be adequate to meet its normal daily
activities.
The Bank's current policies generally limit securities investments to U.S.
Government and agency securities, municipal bonds and corporate debt obligations
and corporate equities. In addition, the Bank's policies permit investments in
mortgage-backed securities, including securities issued and guaranteed by FNMA,
FHLMC and GNMA. The Bank's current securities investment strategy is to continue
to emphasize the purchase of mortgage-backed securities and U.S. Government and
agency obligations as well as state and municipal obligations for purposes of
interest rate risk management.
At March 31, 1998, the Bank had $158.5 million in securities, consisting
primarily of mortgage-backed securities, U.S. Government and agency obligations
and one municipal obligation. SFAS No. 115 requires the Bank to designate its
securities as held-to-maturity, available-for-sale or trading depending on the
Bank's intent regarding its investments. The Bank does not currently maintain a
trading portfolio of securities. At March 31, 1998, all of the Bank's mortgage-
backed securities were classified as held-to-maturity. Also at that date, 19.8%
of the Bank's investment securities were classified as available-for-sale and
80.2% were classified as held-to-maturity. Of the Bank's total investment
securities and mortgage-backed securities portfolio, the Bank's securities
classified as held to maturity had an aggregate market value of $153.5 million
and an amortized cost of $151.4 million. The Bank's securities classified as
available-for-sale had an aggregate market value of $7.1 million and an
amortized cost of $7.0 million at March 31, 1998.
MORTGAGE-BACKED SECURITIES. The Bank purchases mortgage-backed securities
in order to: (i) generate positive interest rate spreads with minimal
administrative expense; (ii) reduce its credit risk as a result of the guarantee
provided by FHLMC, FNMA and GNMA; (iii) utilize these securities as collateral
for borrowings; and (iv) increase the liquidity of the Bank. The Bank has
primarily invested in mortgage-backed securities issued or sponsored by FNMA,
FHLMC and GNMA and private issuers. At March 31, 1998, mortgage-backed
securities totalled $122.6 million, or 39.2% of total assets and 41.2% of total
interest earning assets, and all were classified as held-to-maturity. At March
31, 1998, 63.9% of the mortgage-
76
<PAGE>
backed securities were adjustable-rate and 36.1% were fixed-rate. The mortgage-
backed securities portfolio had coupon rates ranging from 5.41% to 15.00% and
had a weighted average yield of 6.75% at March 31, 1998. The estimated fair
value of the Bank's mortgage-backed securities held to maturity at March 31,
1998, was $124.4 million, which is $1.8 million more than the amortized cost of
$122.6 million.
Mortgage-backed securities are created by the pooling of mortgages and
issuance of a security with an interest rate which is less than the interest
rate on the underlying mortgage. Mortgage-backed securities typically represent
a participation interest in a pool of single-family or multi-family mortgages,
although the Bank focuses its investments on mortgage-backed securities backed
by single-family mortgages. The issuers of such securities (generally U.S.
Government agencies and government sponsored enterprises, including FNMA, FHLMC
and GNMA) pool and resell the participation interests in the form of securities
to investors such as the Bank and guarantee the payment of principal and
interest to investors. Mortgage-backed securities generally yield less than the
loans that underlie such securities because of the cost of payment guarantees
and credit enhancements. In addition, mortgage-backed securities are usually
more liquid than individual mortgage loans and may be used to collateralize
certain liabilities and obligations of the Bank. Investments in mortgage-backed
securities involve a risk that actual prepayments will differ from estimated
prepayments used in pricing the security at the time of purchase, which may
require adjustments to the amortization of any premium or accretion of any
discount relating to such instruments thereby changing the net yield on such
securities. There is also reinvestment risk associated with the cash flows from
such securities on in the event such securities are redeemed by the issuer. In
addition, the market value of such securities may be adversely affected by
changes in interest rates. The Bank estimates prepayments for its mortgage-
backed securities at purchase to ensure that prepayment assumptions are
reasonable considering the underlying collateral for the mortgage-backed
securities at issue and current mortgage interest rates and to determine the
yield and estimated maturity of its mortgage-backed security portfolio. Of the
Banks $122.6 million mortgage-backed securities portfolio at March 31, 1998,
$1.6 million with a weighted average yield of 7.82% had contractual maturities
within five years and $121.0 million with a weighted average yield of 6.74% had
contractual maturities over five years. However, the actual maturity of a
mortgage-backed security may be less than its stated maturity due to prepayments
of the underlying mortgages. Prepayments that are faster than anticipated may
shorten the life of the security and may result in a loss of any premiums paid
and thereby reduce the net yield on such securities. Although prepayments of
underlying mortgages depend on many factors, the difference between the interest
rates on the underlying mortgages and the prevailing mortgage interest rates
generally is the most significant determinant of the rate of prepayments. During
periods of declining mortgage interest rates, refinancing generally increases
and accelerates the prepayment of the underlying mortgages and the related
security. Under such circumstances, the Bank may be subject to reinvestment risk
because, to the extent that the Bank's mortgage-backed securities prepay faster
than anticipated, the Bank may not be able to reinvest the proceeds of such
repayments and prepayments at a comparable rate.
U.S. GOVERNMENT AND AGENCY OBLIGATIONS AND OBLIGATIONS OF STATES AND
MUNICIPALITIES. At March 31, 1998, the Bank's U.S. Government and Agency
securities portfolio totalled $35.7 million, $28.6 million of which were
classified as held-to-maturity. In addition, the Bank held one $150,000
obligation of a New Jersey municipal subdivision.
77
<PAGE>
The following table sets forth certain information regarding the amortized
cost and fair value of the Bank's securities at the dates indicated.
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
----------------------------------------------- ----------------------------------------------
1998 1997 1996 1995
------------------- --------------------------- ------------------------ --------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE COST VALUE
--------- -------- --------- --------------- ----------- ----------- ----------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities
available-for-sale(1):
U.S. Government
obligations................ $ 6,981 $ 7,105 $ 6,980 $ 7,081 $ -- $ -- $ -- $ --
Obligations of states and
municipal subdivisions..... -- -- -- -- 115 120 306 319
Mutual fund................. -- -- -- -- 1,554 1,527 1,465 1,441
Common Stock................ -- -- -- -- -- -- 100 172
------- ------- ------- ------- ------- ------- ------- ------
Total securities
available-for-sale....... 6,981 7,105 6,980 7,081 1,669 1,647 1,871 1,932
------- ------- ------- ------- ------- ------- ------- ------
Investment securities
held-to-maturity (1):
U.S. Government and
Agency obligations......... 28,618 28,932 22,929 23,339 22,476 22,766 18,482 19,022
Obligations of states and
municipal subdivisions..... 150 150 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------
28,768 29,082 22,929 23,339 22,476 22,766 18,482 19,022
------- ------- ------- ------- ------- ------- ------- ------
Federal Home Loan Bank of
New York stock (2)............ 2,282 2,282 2,184 2,184 1,670 1,670 1,509 1,509
------- ------- ------- ------- ------- ------- ------- ------
Total..................... $38,031 $38,469 $32,093 $32,604 $25,815 $26,083 $21,862 $22,463
======= ======= ======= ======= ======= ======= ======= ======
</TABLE>
________________________
(1) Available for sale securities are carried at fair value while held-to-
maturity securities are carried at amortized cost.
(2) Investment is required by regulation. As the security is not readily
marketable, its cost approximates fair value.
78
<PAGE>
The following table sets forth the Bank's investment securities activities for
the periods indicated.
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS
ENDED MARCH 31, FISCAL YEAR ENDED DECEMBER 31,
----------------- -------------------------------
1998 1997 1997 1996 1995
------- -------- --------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INVESTMENT SECURITIES:
Investment securities, beginning
of period(1)............................... $30,009 $24,124 $ 24,124 $20,414 $ 9,355
------- ------- -------- ------- -------
Purchases:
Investment securities - held-to-
maturity................................ 5,790 2,997 10,400 10,998 12,989
Investment securities - available-for-
sale..................................... -- 2,023 7,034 88 86
Calls:
Investment securities - held-to-
maturity................................ -- (2,000) (10,000) (5,000) (2,000)
Investment securities - available-for-
sale.................................... -- -- -- -- --
Maturities:
Investment securities - held-to-
maturity................................ -- -- -- (2,000) --
Investment securities - available-for-
sale.................................... -- (105) (105) (192) (94)
Sales of securities available for sale.......
Increase (decrease) in net premium........... 51 (10) 42 (2) 2
Increase (decrease) in unrealized gains...... 24 (5) 122 (82) 126
------- ------- -------- ------- -------
Net increase in investment securities..... 5,865 2,900 5,885 3,710 11,059
------- ------- -------- ------- -------
Investment securities, end of period......... $35,874 $27,024 $ 30,009 $24,124 $20,414
======= ======= ======== ======= =======
</TABLE>
________________________
(1) Includes investment securities available-for-sale.
79
<PAGE>
The following table sets forth certain information regarding the
amortized cost and fair values of the Bank's mortgage-backed securities,
all of which are held to maturity, at the dates indicated.
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
----------------------------- ------------------------------------------------------------------
1998 1997 1996
----------------------------- --------------------------------- -------------------------------
PERCENT PERCENT PERCENT
AMORTIZED OF FAIR AMORTIZED OF FAIR AMORTIZED OF FAIR
COST TOTAL(1) VALUE COST TOTAL(1) VALUE COST TOTAL(1) VALUE
--------- ---------- ------- ---------- -------- -------- ---------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
By Issuer:
GNMA....................... $ 73,748 60.14% $ 74,943 $ 78,657 60.42% $ 79,775 $ 65,996 58.27% $ 67,095
FHLMC...................... 25,389 20.70 25,721 26,551 20.40 26,749 32,041 28.29 32,023
FNMA....................... 23,489 19.15 23,728 24,959 19.17 25,150 15,204 13.43 15,227
Other...................... 7 0.01 7 7 0.01 7 13 0.01 13
-------- ------ -------- -------- ------ -------- -------- ------ --------
Total mortgage-backed
securities (1).......... $122,633 100.00% $124,399 $130,174 100.00% $131,681 $113,254 100.00% $114,358
======== ====== ======== ======== ====== ======== ======== ====== ========
By Coupon Type:
Adjustable-rate............ $ 78,330 63.87% $ 79,181 $ 82,938 63.71% $ 83,740 $ 62,849 55.49% $ 63,693
Fixed-rate................. 44,303 36.13 45,218 47,236 36.29 47,941 50,405 44.51 50,665
-------- ------ -------- -------- ------ -------- -------- ------ --------
Total mortgage-backed
securities (1)......... $122,633 100.00% $124,399 $130,174 100.00% $131,681 $113,254 100.00% $114,358
======== ====== ======== ======== ====== ======== ======== ====== ========
<CAPTION>
--------------------------------
1995
--------------------------------
PERCENT
AMORTIZED OF FAIR
COST TOTAL(1) VALUE
----------- ---------- ---------
<S> <C> <C> <C>
By Issuer:
GNMA....................... $ 67,243 67.22% $ 68,790
FHLMC...................... 23,662 23.66 23,937
FNMA....................... 9,112 9.11 9,188
Other...................... 15 0.01 15
-------- ------ --------
Total mortgage-backed
securities (1).......... $100,032 100.00% $101,930
======== ====== ========
By Coupon Type:
Adjustable-rate............ $ 58,615 58.60% $ 59,624
Fixed-rate................. 41,417 41.40 42,306
-------- ------ --------
Total mortgage-backed
securities (1)......... $100,032 100.00% $101,930
======== ====== ========
</TABLE>
_________________________
(1) Based on amortized cost.
(2) Includes net unamortized premiums (discounts) of $236 at March 31, 1998 and
$243, $193 and $(26) at December 31, 1997, 1996 and 1995, respectively.
80
<PAGE>
The following table sets forth the Bank's mortgage-backed securities
activities for the periods indicated.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE YEARS
ENDED MARCH 31, ENDED DECEMBER 31,
---------------------- ----------------------------------
1998 1997 1997 1996 1995
--------- ----------- --------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Beginning balance............................... $130,174 $113,254 $113,254 $100,031 $ 89,300
Purchases.................................... -- 5,244 37,026 30,570 22,443
Principal repayments......................... (7,534) (5,774) (20,084) (17,384) (11,751)
Net amortization and accretion of discounts
and premiums................................. (7) (1) (22) 37 40
-------- -------- -------- -------- --------
Ending balance.................................. $122,633 $112,723 $130,174 $113,254 $100,032
======== ======== ======== ======== ========
</TABLE>
The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the Bank's
investment securities available for sale and held to maturity and mortgage-
backed securities held to maturity as of March 31, 1998.
<TABLE>
<CAPTION>
AT MARCH 31, 1998
----------------------------------------------------------------------------
MORE THAN ONE MORE THAN FIVE
ONE YEAR OR LESS YEAR TO FIVE YEARS YEARS TO TEN YEARS
----------------------- ----------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD
--------- ---------- --------- ---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Investment securities available for sale:
U.S. Treasury obligations........................ $ -- --% $7,105 6.08% $ -- --%
========= ====== ========
Investment securities held to maturity:
U.S. Government agency obligations............... $2,000 7.13% $4,000 7.38% $ 17,000 7.05%
Municipal obligations............................ 150 3.55 -- -- -- --
--------- ------ --------
Total investment securities held
to maturity.................................. $ 2,150 6.88% $4,000 7.38% $ 17,000 7.05%
========= ====== ========
Mortgage-backed securities held to maturity:
Adjustable-rate:
GNMA.......................................... $ -- --% $ -- --% $ -- --%
FHLMC......................................... -- -- -- -- -- --
FNMA.......................................... -- -- -- -- -- --
--------- ------- --------
Total................................ -- -- -- -- -- --
--------- ------- -------- -----
Fixed-rate:
GNMA.......................................... 6 12.00 15 10.46 2,929 7.81
FHLMC......................................... -- -- 1,108 8.13 2,652 6.74
FNMA.......................................... -- -- 507 7.00 916 7.00
Other......................................... -- -- -- -- -- --
--------- ------ --------
Total................................ 6 12.00 1,630 7.80 6,497 7.26
--------- ------ --------
Total mortgage-backed securities
held to maturity.................................. $ 6 12.00% $1,630 7.80% $ 6,497 7.26%
========= ====== ========
<CAPTION>
AT MARCH 31, 1998
-------------------------------------------------
MORE THAN TEN YEARS TOTAL
----------------------- ----------------------
WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Investment securities available for sale:
U.S. Treasury obligations................................... $ -- --% $ 7,105 6.08%
======== ========
Investment securities held to maturity:
U.S. Government agency obligations.......................... $ 5,618 7.66% $ 28,618 7.22%
Municipal obligations....................................... -- -- 150 3.55
-------- --------
Total investment securities held
to maturity............................................. $ 5,618 7.66% $ 28,768 7.20%
======== ========
Mortgage-backed securities held to maturity:
Adjustable-rate:
GNMA..................................................... $ 61,245 6.50% $ 61,245 6.50%
FHLMC.................................................... 2,878 7.75 2,878 7.75
FNMA..................................................... 14,207 6.34 14,207 6.34
-------- --------
Total........................................... 78,330 6.52 78,330 6.52
-------- --------
Fixed-rate:
GNMA..................................................... 9,553 7.40 12,503 7.50
FHLMC.................................................... 18,751 7.02 22,511 7.04
FNMA..................................................... 7,859 7.01 9,282 7.01
Other.................................................... 7 11.00 7 11.00
-------- --------
Total........................................... 36,170 7.12 44,303 7.17
-------- --------
Total mortgage-backed securities
held to maturity............................................. $114,500 6.71% $122,633 6.75%
======== ========
</TABLE>
81
<PAGE>
SOURCES OF FUNDS
GENERAL. Deposits, loan repayments and prepayments, security maturities,
cash flows generated from operations and FHLB borrowings are the primary sources
of the Bank's funds for use in lending, investing and for other general
purposes.
DEPOSITS. The Bank offers a variety of deposit accounts with a range of
interest rates and terms. The Bank's deposits consist of savings, checking
accounts, NOW accounts, money market club accounts, certificate of deposit
accounts and Individual Retirement Accounts. For the three months ended March
31, 1998, average core deposits represented 40.2% of total average deposits. The
flow of deposits is influenced significantly by general economic conditions,
changes in money market rates, prevailing interest rates and competition. The
Bank's deposits are obtained predominantly from the areas in which its branch
offices are located. The Bank has historically relied primarily on customer
service and long-standing relationships with customers to attract and retain
these deposits; however, market interest rates and rates offered by competing
financial institutions significantly affect the Bank's ability to attract and
retain deposits. The Bank uses traditional means of advertising its deposit
products through print media and generally does not solicit deposits from
outside its market area. The Bank does not actively solicit certificate accounts
in excess of $100,000 or use brokers to obtain deposits. At March 31, 1998,
80.2% of the Bank's certificate of deposit accounts had terms of less than
twelve months.
82
<PAGE>
The following table presents the deposit activity of the Bank for the
periods indicated.
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS
ENDED MARCH 31, FOR THE YEARS ENDED DECEMBER 31,
-------------------- ----------------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Beginning balance.................................... $238,192 $179,946 $179,946 $178,392 $164,181
-------- -------- -------- -------- --------
Purchase of deposits from another.................. -- -- 51,007 -- --
institution
Net deposits (withdrawals)......................... (1,505) (337) (850) (5,595) 7,660
Interest credited.................................. 2,433 1,809 8,089 7,149 6,551
-------- -------- -------- -------- --------
Increase in deposit accounts......................... 928 1,472 58,246 1,554 14,211
-------- -------- -------- -------- --------
Ending balance....................................... $239,120 $181,418 $238,192 $179,946 $178,392
======== ======== ======== ======== ========
</TABLE>
At March 31, 1998, the Bank had $17.6 million in certificate accounts in
amounts of $100,000 or more maturing as follows.
<TABLE>
<CAPTION>
WEIGHTED
MATURITY PERIOD AMOUNT AVERAGE RATE
------------------------------------------------------- ------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Three months or less................................... $ 5,076 5.40%
Over 3 through 6 months................................ 3,878 5.80
Over 6 through 12 months............................... 5,877 5.66
Over 12 months......................................... 2,765 6.43
-------
Total.................................................. $17,596 5.74%
=======
</TABLE>
83
<PAGE>
The following table sets forth the distribution of the Bank's average
deposit accounts for the periods indicated and the weighted average interest
rates on each category of deposits presented. Averages for the periods presented
utilize month-end balances.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, FOR THE YEARS ENDED DECEMBER 31
---------------------------------- ------------------------------------------------------------
1998 1997 1996
---------------------------------- ------------------------------ -------------------
PERCENT PERCENT PERCENT
OF TOTAL WEIGHTED OF TOTAL WEIGHTED OF TOTAL
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE BALANCE DEPOSITS
----------- --------- --------- -------- --------- --------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Demand accounts................... $ 33,031 13.84% 1.14% $ 24,863 12.60% 1.18% $ 21,679 12.18%
Savings and Club accounts......... 62,849 26.34 2.59 53,221 26.97 2.50 51,138 28.74
Certificates of deposit........... 142,728 59.82 5.41 119,272 60.43 5.42 105,141 59.08
-------- ------ -------- ------ -------- ------
Total.................... $238,608 100.00% 4.08% $197,356 100.00% 4.10% $177,958 100.00%
======== ====== ======== ====== ======== ======
Certificate accounts(1):
Less than six months........... $ 66,315 46.19% 5.26% $ 70,186 49.32% 5.24% $ 51,854 48.17%
Over six through 12
months........................ 48,853 34.02 5.56 44,047 30.95 5.59 34,720 32.25
Over 12 months through
36 months..................... 25,387 17.68 5.92 25,309 17.78 5.96 16,417 15.25
Over 36 months................. 3,036 2.11 5.83 2,782 1.95 6.96 4,656 4.33
-------- ------ -------- ------ -------- ------
Total certificate........ $143,591 100.00% 5.49% $142,324 100.00% 5.51% $107,647 100.00%
accounts...................... ======== ====== ======== ====== ======== ======
<CAPTION>
-------------------------------------------------
1995
-------------------------------------------------
PERCENT
WEIGHTED OF TOTAL WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
RATE BALANCE DEPOSITS RATE
-------------------------------------------------
<S> <C> <C> <C> <C>
Demand accounts.............. 1.24% $ 21,538 12.64% 1.45%
Savings and Club accounts.... 2.50 55,888 32.81 2.50
Certificates of deposit...... 5.33 92,938 54.55 5.21
-------- ------
Total............... 4.02% $170,364 100.00% 3.85%
======== ======
Certificate accounts(1):
Less than six months...... 5.08% $ 44,548 43.27% 5.07%
Over six through 12
months................... 5.45 34,100 33.13 5.54
Over 12 months through
36 months................ 5.54 18,793 18.26 5.71
Over 36 months............ 6.48 5,497 5.34 6.33
-------- ------
Total certificate... 5.33% $102,938 100.00% 5.41%
accounts................. ======== ======
</TABLE>
________________________________________
(1) Based on remaining maturity of certificates calculated as of the end of the
period.
84
<PAGE>
The following table presents, by various rate categories, the amount of
certificate accounts outstanding at the dates indicated and the periods to
maturity of the certificate accounts outstanding at March 31, 1998.
<TABLE>
<CAPTION>
AT
PERIOD TO MATURITY FROM MARCH 31, 1998 MARCH 31,
----------------------------------------------------------------------- ---------
LESS THAN ONE TO TWO TO THREE TO FOUR TO AFTER
ONE YEAR TWO YEARS THREE YEARS FOUR YEARS FIVE YEARS FIVE YEARS 1998
--------- --------- ----------- ---------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts:
0 to 4.00% ............. $ 2,018 $ 4 $ -- $ -- $ -- $ -- $ 2,022
4.01 to 5.00% .......... 30,316 2,594 138 -- -- -- 33,048
5.01 to 6.00% .......... 77,081 11,679 1,504 621 1,271 497 92,653
6.01 to 7.00% .......... 5,473 4,016 3,367 418 229 -- 13,503
7.01 to 8.00% .......... 20 1,859 226 -- -- -- 2,105
Over 9.00% ............. -- -- -- -- -- -- --
-------- ------- ------- ------ ------ ------- --------
$114,908 $20,152 $ 5,235 $1,039 $1,500 $ 497 143,331
======== ======= ======= ====== ====== =======
Accrued interest payable ........................................................................... 260
--------
Total ........................................................................................... $143,591
========
<CAPTION>
AT DECEMBER 31,
----------------------------------
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Certificate accounts:
0 to 4.00% ............. $ 2,538 $ 11,101 $ 11,846
4.01 to 5.00% .......... 33,593 21,836 20,049
5.01 to 6.00% .......... 88,877 60,352 41,260
6.01 to 7.00% .......... 14,451 11,851 26,627
7.01 to 8.00% .......... 2,069 1,486 2,255
Over 9.00% ............. 536 847 749
-------- -------- --------
14,064 107,473 102,786
Accrued interest payable ................. 260 174 152
-------- -------- --------
Total ................................. $142,324 $107,647 $102,938
======== ======== ========
</TABLE>
85
<PAGE>
BORROWINGS. The Bank utilizes borrowings from the FHLB as an alternative to
retail deposits to fund its operations as part of its operating strategy. These
FHLB borrowings are collateralized primarily by certain of the Bank's mortgage-
related securities and secondarily by the Bank's investment in capital stock of
the FHLB. FHLB borrowings are made pursuant to several different credit
programs, each of which has its own interest rate and range of maturities. The
maximum amount that the FHLB will advance to member institutions, including the
Bank, fluctuates from time to time in accordance with the policies of the FHLB.
See "Regulation and Supervision -- Federal Home Loan Bank System." At March 31,
1998, the Bank had $42.3 million in outstanding FHLB borrowings, compared to
$21.7 million at March 31, 1997.
The following table sets forth certain information regarding the Bank's
borrowed funds at or for the periods ended on the dates indicated.
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED AT OR FOR THE YEARS
MARCH 31, ENDED DECEMBER 31,
------------------- ------------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average balance outstanding......................... $30,144 $22,650 $26,223 $18,092 $15,615
Maximum amount outstanding at any
month-end during the period........................ 42,300 23,650 43,675 23,650 19,000
Balance outstanding at end of period................ 42,300 21,650 30,300 23,650 17,000
Weighted average interest rate
during the period.................................. 5.80% 6.06% 5.97% 6.36% 6.83%
Weighted average interest rate at
end of period...................................... 5.86% 6.28% 6.08% 6.20% 6.58%
</TABLE>
SUBSIDIARY ACTIVITIES
The Bank is the parent corporation of three wholly-owned subsidiary
corporations, West Essex Insurance Agency ("WEIA"), Wessex Service Corporation
("WSC") and First Reserve Corporation ("FRC"). WEIA was formed in December 1982
to offer insurance products and tax-deferred annuities through an agent.
Originally, these products were sold at one of the Bank's branches. Commencing
in 1993, customers have been referred to Anthony R. Davis Agency at an off-site
location. WEIA receives a fee for each customer referral resulting in the
purchase of an insurance and/or annuity product. Sales of annuity products
totalled $74,000 and $226,000 for the three months ended March 31, 1998 and for
the year ended December 31, 1997, respectively. WEIA's earnings are at a nominal
level since management decided in early 1994 to de-emphasize this activity due
to the lack of demand and controversial publicity associated with uninsured
annuity products. Both WSC and FRC are building subsidiaries and have been
inactive since October 1989 and June 1987, respectively.
86
<PAGE>
PROPERTIES
The Bank currently conducts its business through an administrative and full
service branch office located in Caldwell, New Jersey and seven other full
service branch offices located in West Orange, Franklin Lakes, River Vale, Pine
Brook, Old Tappan and Northvale, New Jersey. Management believes that the Bank's
facilities are adequate to meet the present and immediately foreseeable needs of
the Bank and the Holding Company.
<TABLE>
<CAPTION>
ORIGINAL NET BOOK VALUE
YEAR OF PROPERTY OR
LEASED LEASED LEASEHOLD
OR OR IMPROVEMENTS AT
LOCATION OWNED ACQUIRED MARCH 31, 1998
----------------------------- ---------- -------------- ------------------
(In thousands)
<S> <C> <C> <C>
ADMINISTRATIVE/CORPORATE/
BRANCH OFFICE:
417 Bloomfield Avenue Owned 1962 $401
Caldwell, NJ 07006
BRANCH OFFICES:
216 Main Street Owned 1987 150
West Orange, NJ 07052
487 Pleasant Valley Way Owned 1987 241
West Orange, NJ 07052
574 Franklin Avenue Leased 1978 2
Franklin Lakes, NJ 07417
653 Westwood Avenue Owned 1997 484
River Vale, NJ 07675
267 Changebridge Road Owned 1974 252
Pine Brook, NJ 07058
207 Old Tappan Road Owned 1997 494
Old Tappan, NJ 07675
119 Paris Avenue Owned 1997 326
Northvale, NJ 07647
</TABLE>
LEGAL PROCEEDINGS
The Bank is a party to various litigation which arises primarily in the
ordinary course of business. In the opinion of management the ultimate
disposition of such litigation should not have a material effect on the
consolidated financial position or operations of the Bank.
PERSONNEL
As of March 31, 1998, the Bank had 53 full-time employees and 5 part-time
employees. The employees are not represented by a collective bargaining unit and
the Bank considers its relationship with its employees to be good. See
"Management of the Bank--Benefits" for a description of certain compensation and
benefit programs offered to the Bank's employees.
87
<PAGE>
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
GENERAL. The Bank, Bancorp and the Mutual Company will report their income
on a calendar year basis using the accrual method of accounting and will be
subject to federal income taxation in the same manner as other corporations with
some exceptions, including particularly the Bank's reserve for bad debts
discussed below. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to the Bank, Bancorp and the Mutual Company. The Bank was last
audited by the IRS in 1995 and has not been audited by the New Jersey Department
of Revenue ("DOR") in the past five years.
BAD DEBT RESERVE. Historically, savings institutions such as the Bank which
met certain definitional tests primarily related to their assets and the nature
of their business ("qualifying thrifts") were permitted to establish a reserve
for bad debts and to make annual additions thereto, which may have been deducted
in arriving at their taxable income. The Bank's deductions with respect to
"qualifying real property loans," which are generally loans secured by certain
interest in real property, were computed using an amount based on the Bank's
actual loss experience, or a percentage equal to 8% of the Bank's taxable
income, computed with certain modifications and reduced by the amount of any
permitted addition to the non-qualifying reserve. Due to the Bank's loss
experience, the Bank generally recognized a bad debt deduction equal to 8% of
taxable income.
In August 1996, the provisions repealing the above thrift bad debt rules
were passed by Congress as part of "The Small Business Job Protection Act of
1996." The new rules eliminate the 8% of taxable income method for deducting
additions to the tax bad debt reserves for all thrifts for tax years beginning
after December 31, 1995. These rules also require that all thrift institutions
recapture all or a portion of their bad debt reserves added since the base year
(last taxable year beginning before January 1, 1988). The Bank has previously
recorded a deferred tax liability equal to the bad debt recapture and as such,
the new rules will have no effect on net income or federal income tax expense.
For taxable years beginning after December 31, 1995, the Bank's bad debt
deduction will be equal to net charge-offs. The new rules allow an institution
to suspend the bad debt reserve recapture for the 1996 and 1997 tax years if the
institution's lending activity for those years is equal to or greater than the
institution's average mortgage lending activity for the six taxable years
preceding 1996. For this purpose, only home purchase and home improvement loans
are included and the institution can elect to have the tax years with the
highest and lowest lending activity removed from the average calculation. If an
institution is permitted to postpone the reserve recapture, it must begin its
six year recapture no later than the 1998 tax year. The unrecaptured base year
reserves will not be subject to recapture as long as the institution continues
to carry on the business of banking. In addition, the balance of the pre-1988
bad debt reserves continue to be subject to a provision of present law referred
to below that require recapture in the case of certain excess distributions to
shareholders.
DISTRIBUTIONS. To the extent that the Bank makes "non-dividend
distributions" to Bancorp that are considered as made (i) from the reserve for
losses on qualifying real property loans, to the extent the reserve for such
losses exceeds the amount that would have been allowed under the experience
method, or (ii) from the supplemental reserve for losses on loans ("Excess
Distributions"), then an amount based on the amount distributed will be included
in the Bank's taxable income. Non-dividend distributions include distributions
in excess of the Bank's current and accumulated earnings and profits,
distributions in redemption of stock, and distributions in partial or complete
liquidation. However, dividends paid out of the Bank's current or accumulated
earnings and profits, as calculated for federal income tax purposes, will not be
considered to result in a distribution from the Bank's bad debt reserve. Thus,
any dividends to Bancorp that would reduce amounts appropriated to the Bank's
bad debt reserve and deducted for federal income tax purposes would create a tax
liability for the Bank. The amount of additional taxable income
88
<PAGE>
created from an Excess Distribution is an amount that, when reduced by the tax
attributable to the income, is equal to the amount of the distribution.
CORPORATE ALTERNATIVE MINIMUM TAX. The Internal Revenue Code of 1986, as
amended (the "Code") imposes a tax on alternative minimum taxable income
("AMTI") at a rate of 20%. The excess of the bad debt reserve deduction using
the percentage of taxable income method over the deduction that would have been
allowable under the experience method is treated as a preference item for
purposes of computing the AMTI. Only 90% of AMTI can be offset by net operating
loss carryovers. AMTI is increased by an amount equal to 75% of the amount by
which the Bank's adjusted current earnings exceeds its AMTI (determined without
regard to this preference and prior to reduction for net operating losses).
DIVIDENDS RECEIVED DEDUCTION AND OTHER MATTERS. Bancorp may exclude from
its income 80% of dividends received from the Bank as long as it maintains
ownership in the Bank of at least 20%.
STATE AND LOCAL TAXATION
STATE OF NEW JERSEY. The Bank files New Jersey income tax returns. For New
Jersey income tax purposes, savings institutions are presently taxed at a rate
equal to 3% of taxable income. For this purpose, "taxable income" generally
means federal taxable income, subject to certain adjustments (including addition
of interest income on state and municipal obligations). Bancorp and the Mutual
Company will be required to file a New Jersey income tax return because they
will be doing business in New Jersey. For New Jersey tax purposes, regular
corporations are presently taxed at a rate equal to 9% of taxable income.
REGULATION AND SUPERVISION
GENERAL
The Bank is subject to extensive regulation, examination and supervision by
the OTS, as its chartering agency, and the FDIC, as the deposit insurer. The
Bank is a member of the FHLB System. The Bank's deposit accounts are insured up
to applicable limits by the SAIF managed by the FDIC. The Bank must file reports
with the 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 OTS and the FDIC to test
the Bank's compliance with various regulatory requirements. This regulation and
supervision establishes a comprehensive framework of activities in which an
institution can engage and is intended primarily for the protection of the
insurance fund and depositors. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan
loss reserves for regulatory purposes. Any change in such policies, whether by
the OTS, the FDIC or the Congress, could have a material adverse impact on
Bancorp, the Mutual Company and the Bank and their operations. The Mutual
Company, as a federal mutual holding company and Bancorp, as a federal
corporation, will also be required to file certain reports with, and otherwise
comply with the rules and regulations of the OTS.
The following summary of the regulation and supervision of savings
associations and their holding companies does not purport to be a complete
description of the applicable statutes and regulations and is qualified in its
entirety by reference to such statutes and regulations.
89
<PAGE>
FEDERAL SAVINGS INSTITUTION REGULATION
BUSINESS ACTIVITIES. The activities of federal savings institutions are
governed by 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 federal associations may engage. In particular, many types
of lending authority for federal associations, e.g., commercial, non-residential
real property loans and consumer loans, are limited to a specified percentage of
the institution's capital or assets.
LOANS-TO-ONE BORROWER. Under the HOLA, savings institutions are generally
subject to the national bank limit on loans-to-one borrower. Generally, this
limit is 15% of the Bank's unimpaired capital and surplus, plus an additional
10% of unimpaired capital and surplus, if such loan is secured by readily-
marketable collateral, which is defined to include certain financial instruments
and bullion. At March 31, 1998, the Bank's regulatory limit on loans-to-one
borrower was $3.6 million. At March 31, 1998, the Bank's largest aggregate
amount of loans-to-one borrower consisted of a $1.6 million construction loan
secured by six lots and with one house currently under construction.
QTL TEST. The HOLA requires savings institutions to meet a qualified thrift
lender ("QTL") test. Under the QTL test, a savings association is required to
qualify as a "domestic building and loan association" as that term is defined in
the Internal Revenue Code of 1986 or 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 March 31, 1998, the Bank
maintained 82.53% 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. An institution that exceeds
all fully phased-in regulatory capital requirements before and after a proposed
capital distribution ("Tier 1 Bank") and has not been advised by the OTS that it
is in need of more than normal supervision, could, after prior notice to, but
without the approval of the OTS, make capital distributions during a calendar
year equal to the greater of: (i) 100% of its net earnings to date during the
calendar year plus the amount that would reduce by one-half its "surplus capital
ratio" (the excess capital over its fully phased-in capital requirements) at the
beginning of the calendar year; or (ii) 75% of its net earnings for the previous
four quarters. Any additional capital distributions would require prior OTS
approval. In the event the Bank's capital fell below its capital requirements or
the OTS notified it that it was in need of more than normal supervision, the
Bank's ability to make capital distributions could be restricted. In addition,
the OTS could prohibit a proposed capital distribution by any institution, which
would otherwise be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice.
The OTS has proposed amendments to its capital distribution regulations
which could conform OTS regulations to the existing requirements of other
banking agencies, as well as simplify the existing OTS regulations. These
proposed rules would eliminate the requirement of notifying the OTS when cash
dividends of a certain amount will be paid for institutions that will remain at
least adequately capitalized. However, applications for capital distributions
will be required for all distributions over a specified amount. Notices will
still be required for
90
<PAGE>
distributions that would reduce the amount of or retire common or preferred
stock, or debt instruments included in the capital and for all capital
distributions by savings associations in a holding company structure.
LIQUIDITY. The Bank is required to maintain an average daily balance of
specified liquid assets equal to a monthly average of not less than a specified
percentage (currently 4%) of its net withdrawable deposit accounts plus short-
term borrowings. Monetary penalties may be imposed for failure to meet these
liquidity requirements. The Bank's average liquidity ratio for the month ended
March 31, 1998 was 9.44%, which exceeded the applicable requirements. The Bank
has never been subject to monetary penalties for failure to meet its liquidity
requirements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
ASSESSMENTS. Savings institutions are required by regulation to pay
assessments to the OTS to fund the agency's operations. The general assessment,
paid on a semi-annual basis, is based upon the savings institution's total
assets, including consolidated subsidiaries, as reported in the Bank's latest
quarterly Thrift Financial Report. The assessments paid by the Bank for the year
ended December 31, 1997 totalled $65,000.
BRANCHING. OTS regulations permit federally chartered savings associations
to branch nationwide under certain conditions. Generally, federal savings
associations may establish interstate networks and geographically diversify
their loan portfolios and lines of business. The OTS authority preempts any
state law purporting to regulate branching by federal savings associations. For
a discussion of the impact of possible legislation, see "Special
Considerations--Financial Institution Regulation and Possible Legislation."
TRANSACTIONS WITH RELATED PARTIES. The Bank's authority to engage in
transactions with related parties or "affiliates" (i.e., any company that
controls or is under common control with an institution, including the Holding
Company and any non-savings institution subsidiaries that the Holding Company
may establish) is limited by Sections 23A and 23B of the Federal Reserve Act
("FRA"). Section 23A restricts the aggregate amount of covered transactions with
any individual affiliate to 10% of the capital and surplus of the savings
institution and also limits the aggregate amount of transactions with all
affiliates to 20% of the savings institution's capital and surplus. Certain
transactions with affiliates are required to be secured by collateral in an
amount and of a type described in Section 23A and the purchase of low quality
assets from affiliates 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. A savings association also is prohibited from extending credit to any
affiliate engaged in activities not permitted for a bank holding company and may
not purchase the securities of an affiliate (other than a subsidiary).
Section 22(h) of the Federal Reserve Act restricts a savings association
with respect to loans to directors, executive officers, and principal
stockholders. Under Section 22(h), loans to directors, executive officers and
stockholders who control, directly or indirectly, 10% or more of voting
securities of a savings association, and certain related interests of any of the
foregoing, may not exceed, together with all other outstanding loans to such
persons and affiliated entities, the savings association's total capital and
surplus. Section 22(h) also prohibits loans above amounts prescribed by the
appropriate federal banking agency to directors, executive officers, and
shareholders who directly or indirectly control 10% or more of voting securities
of a stock savings association, and their respective related interests, unless
such loan is approved in advance by a majority of the board of directors of the
savings association. Any "interested" director may not participate in the
voting. The loan amount (which includes all other outstanding loans to such
person) as to which such prior board of director approval is required, is the
greater of $25,000 or 5% of capital and surplus or any loans over $500,000.
Further, pursuant to Section 22(h), loans to directors, executive officers and
principal shareholders must be made on terms substantially the same as offered
in
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<PAGE>
comparable transactions to other persons except for extensions of credit made
pursuant to a benefit or compensation program that is widely available to the
institution's employees and does not give preference to insiders over other
employees. Section 22(g) of the Federal Reserve Act places additional
limitations on loans to executive officers.
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 $1.0 million per
day in especially egregious cases. Under the FDI Act, the FDIC has the authority
to recommend to the Director of the OTS that enforcement action be taken with
respect to a particular savings institution. If action is not taken by the
Director, the FDIC has authority to take such action under certain
circumstances. Federal and state law also establishes criminal penalties for
certain violations.
STANDARDS FOR SAFETY AND SOUNDNESS. The FDI Act requires each federal
banking agency to prescribe for all insured depository institutions standards
relating to, among other things, internal controls, information systems and
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, and compensation, fees and benefits and such other
operational and managerial standards as the agency deems appropriate. The
federal banking agencies have adopted final regulations and Interagency
Guidelines Establishing Standards for Safety and Soundness ("Guidelines") to
implement these safety and soundness standards. The Guidelines set forth the
safety and soundness standards that the federal banking agencies use to identify
and address problems at insured depository institutions before capital becomes
impaired. The Guidelines address internal controls and information systems;
internal audit system; credit underwriting; loan documentation; interest rate
risk exposure; asset growth; asset quality; earnings; and compensation, fees and
benefits. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the Guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard, as required by the FDI Act. The final
regulations establish deadlines for the submission and review of such safety and
soundness compliance plans.
CAPITAL REQUIREMENTS. The OTS capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital standard,
a 3% leverage (core capital) ratio and an 8% risk based capital standard. Core
capital is defined as common stockholder's equity (including retained earnings),
certain non-cumulative perpetual preferred stock and related surplus, minority
interests in equity accounts of consolidated subsidiaries less intangibles other
than certain mortgage servicing rights ("MSRs") and credit card relationships.
The OTS regulations require that, in meeting the leverage ratio, tangible and
risk-based capital standards institutions generally must deduct investments in
and loans to subsidiaries engaged in activities not permissible for a national
bank. In addition, the OTS prompt corrective action regulation provides that a
savings institution that has a leverage capital ratio of less than 4% (3% for
institutions receiving the highest examination rating) will be deemed to be
"undercapitalized" and may be subject to certain restrictions. See "--Prompt
Corrective Regulatory Action." The OTS has proposed to amend its capital
regulation so that the leverage requirement is identical to the above prompt
corrective standard to avoid "undercapitalized" status.
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
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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.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. The final interest rate risk rule also adjusts the
risk-weighting for certain mortgage derivative securities. Under the rule,
savings associations with "above normal" interest rate risk exposure would be
subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements. A savings association's interest rate risk is
measured by the decline in the net portfolio value of its assets (i.e., the
difference between incoming and outgoing discounted cash flows from assets,
liabilities and off-balance sheet contracts) that would result from a
hypothetical 200-basis point increase or decrease in market interest rates
divided by the estimated economic value of the association's assets, as
calculated in accordance with guidelines set forth by the OTS. A savings
association whose measured interest rate risk exposure exceeds 2% must deduct an
interest rate component in calculating its total capital under the risk-based
capital rule. The interest rate risk component is an amount equal to one-half of
the difference between the institution's measured interest rate risk and 2%,
multiplied by the estimated economic value of the association's assets. That
dollar amount is deducted from an association's total capital in calculating
compliance with its risk-based capital requirement. Under the rule, there is a
two quarter lag between the reporting date of an institution's financial data
and the effective date for the new capital requirement based on that data. A
savings association with assets of less than $300 million and risk-based capital
ratios in excess of 12% is not subject to the interest rate risk component,
unless the OTS determines otherwise. The rule also provides that the Director of
the OTS may waive or defer an association's interest rate risk component on a
case-by-case basis. The OTS has postponed indefinitely the date that the
component will first be deducted from an institution's total capital.
At March 31, 1998, the Bank met each of its capital requirements, in each
case on a fully phased-in basis. See "Regulatory Capital Compliance" for a table
which sets forth in terms of dollars and percentages the OTS tangible, leverage
and risk-based capital requirements, the Bank's historical amounts and
percentages at March 31, 1998, and pro forma amounts and percentages based upon
the issuance of the shares within the Offering Range and assuming that a portion
of the net proceeds are retained by the Holding Company.
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% or a leverage ratio or a Tier 1 capital ratio that is less than 4% is
considered to be undercapitalized. A savings institution that has a total risk-
based capital less than 6%, a Tier 1 risk-based capital ratio of less than 3% or
a leverage ratio that is less than 3% is considered to be "significantly
undercapitalized" and a savings institution that has a tangible capital to
assets ratio equal to or less than 2% 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
Deposits of the Bank are presently insured by the Savings Association
Insurance Fund ("SAIF"). Both the SAIF and the Bank Insurance Fund ("BIF") (the
deposit insurance fund that covers most commercial bank deposits)
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are statutorily required to be recapitalized to a 1.25% of insured reserve
deposits ratio. Until recently, members of the SAIF and BIF were paying average
deposit insurance premiums of between 24 and 25 basis points. The BIF met the
required reserve in 1995, whereas the SAIF was not expected to meet or exceed
the required level until 2002 at the earliest. This situation was primarily due
to the statutory requirement that SAIF members make payments on bonds issued in
the late 1980s by the Financing Corporation ("FICO") to recapitalize the
predecessor to the SAIF.
In view of the BIF's achieving the 1.25% ratio, the FDIC ultimately adopted
a new assessment rate schedule of from 0 to 27 basis points under which 92% of
BIF members paid an annual premium of only $2,000. With respect to SAIF member
institutions, the FDIC adopted a final rule retaining the previously existing
assessment rate schedule applicable to SAIF member institutions of 23 to 31
basis points. As long as the premium differential continued, it could have had
adverse consequences for SAIF members, including reduced earnings and an
impaired ability to raise funds in the capital markets. In addition, SAIF
members such as the Bank could have been placed at a substantial competitive
disadvantage to BIF members with respect to pricing of loans and deposits and
the ability to achieve lower operating costs.
On September 30, 1996, the President signed into law the Deposit Insurance
Funds Act of 1996 (the "Funds Act") which, among other things, imposed a special
one-time assessment on SAIF member institutions, including the Bank, to
recapitalize the SAIF. As required by the Funds Act, the FDIC imposed a special
assessment of 65.7 basis points on SAIF assessable deposits held as of March 31,
1995, payable November 27, 1996 (the "SAIF Special Assessment"). The SAIF
Special Assessment was recognized by the Bank as an expense in the quarter ended
September 30, 1996 and is generally tax deductible. The SAIF Special Assessment
recorded by the Bank amounted to $1.1 million on a pre-tax basis and $703,000 on
an after-tax basis.
The Funds Act also spreads the obligations for payment of the FICO bonds
across all SAIF and BIF members. Beginning on January 1, 1997, BIF deposits were
assessed for FICO payment at a rate of 1.3 basis points, while SAIF deposits
paid 6.48 basis points. Full pro rata sharing of the FICO payments between BIF
and SAIF members will occur on the earlier of January 1, 2000 or the date the
BIF and SAIF are merged. The Funds Act specifies that the BIF and SAIF will be
merged on January 1, 1999, provided no savings associations remain as of that
time.
As a result of the Funds Act, the FDIC voted to lower SAIF assessments to 0
to 27 basis points as of January 1, 1997, a range comparable to that of BIF
members and recently voted to maintain the same rate range for the second half
of 1998. However, SAIF members will continue to make the FICO payments described
above. Management cannot predict the level of FDIC insurance assessments on an
on-going basis, whether the savings association charter will be eliminated or
whether the BIF and SAIF will eventually be merged.
The Bank's assessment of assessable deposits rate for the years ended
December 31, 1997, 1996 and 1995 was .06%, 0.19% and 0.23%, respectively, and
the premium paid for these periods was $_____, $_____ and $_____ (including the
SAIF Special Assessment), respectively. The FDIC has authority to have
assessment rates under certain circumstances and a material increase in SAIF
insurance premiums would likely have an adverse effect on the operating expenses
and results of operations of the Bank.
Under the FDI Act, insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
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COMMUNITY REINVESTMENT ACT
Federal Regulation. Under the Community Reinvestment Act, as
amended("CRA"), as implemented by OTS regulations, a savings association has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires the OTS, in connection with its examination of a savings
institution, to assess the institution's record of meeting the credit needs of
its community and to take such record into account in its evaluation of certain
applications by such institution. The FIRREA amended the CRA to require the OTS
to provide a written evaluation of an institution's CRA performance utilizing a
four-tiered descriptive rating system, which replaced the five-tiered numerical
rating system. The Bank's latest CRA rating received from the OTS was
"Outstanding."
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the FHLB System, which consists of 12 regional
FHLBs. The FHLB provides a central credit facility primarily for member
institutions. The Bank, as a member of the FHLB of New York, is required to
acquire and hold shares of capital stock in the FHLB in an amount at least equal
to 1% of the aggregate principal amount of its unpaid residential mortgage loans
and similar obligations at the beginning of each year, or 1/20 of its advances
(borrowings) from the FHLB, whichever is greater. The Bank was in compliance
with this requirement with an investment in FHLB stock at March 31, 1998 of $2.3
million. FHLB borrowings must be secured by specified types of collateral and
all long-term borrowings may only be obtained for the purpose of providing funds
for residential housing finance. At March 31, 1998, the Bank had $42.3 million
in FHLB borrowings.
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 years ended December 31, 1997, 1996 and 1995,
dividends from the FHLB to the Bank amounted to approximately $126,000, $107,000
and $113,000, respectively. If dividends were reduced, the Bank's net interest
income would likely also be reduced. Further, there can be no assurance that the
impact of recent or future legislation on the FHLBs will not also cause a
decrease in the value of FHLB stock held by the Bank, if any.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require savings institutions to
maintain non-interest-earning reserves against their transaction 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 $1.4 million plus 10% (subject to adjustment by the
Federal Reserve Board between 8% and 14%) against that portion of total
transaction accounts in excess of $47.8 million. The first $4.7 million of
otherwise reservable balances (subject to adjustment by the Federal Reserve
Board) are exempted from the reserve requirements. The Bank is in compliance
with the foregoing requirements. Because required reserves must be maintained in
the form of either vault cash, a non-interest-bearing account at a Federal
Reserve Bank or a pass-through account as defined by the Federal Reserve Board,
the effect of this reserve requirement is to reduce the Bank's interest-earning
assets. FHLB System members are also authorized to borrow from the Federal
Reserve "discount window," but Federal Reserve Board regulations require
institutions to exhaust all FHLB sources before borrowing from a Federal Reserve
Bank.
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HOLDING COMPANY REGULATION
GENERAL. Upon completion of the Reorganization, Bancorp will become a
federal savings and loan holding company within the meaning of the HOLA. As
such, Bancorp will be required to register with the OTS and will be subject to
OTS regulations, examinations, supervision and reporting requirements. In
addition, the OTS has enforcement authority over Bancorp and its non-savings
institution subsidiaries. Among other things, this authority permits the OTS to
restrict or prohibit activities that are determined to be a serious risk to the
subsidiary savings institution. The Bank must notify the OTS 30 days before
declaring any dividend to Bancorp.
RESTRICTIONS APPLICABLE TO MUTUAL HOLDING COMPANIES. Pursuant to Section
10(o) of the HOLA and the Regulations, a mutual holding company, such as the
Mutual Company, may engage in the following activities: (i) investing in the
stock of a savings association; (ii) acquiring a mutual association through the
merger of such association into a savings association subsidiary of such holding
company or an interim savings association subsidiary of such holding company;
(iii) merging with or acquiring another holding company, one of whose
subsidiaries is a savings association; (iv) investing in a corporation, the
capital stock of which is available for purchase by a savings association under
federal law or under the law of any state where the subsidiary savings
association or associations share their home offices; (v) furnishing or
performing management services for a savings association subsidiary of such
company; (vi) holding, managing or liquidating assets owned or acquired from a
savings subsidiary of such company; (vii) holding or managing properties used or
occupied by a savings association subsidiary of such company properties used or
occupied by a savings association subsidiary of such company; (viii) acting as
trustee under deeds of trust; (ix) any other activity (A) that the Federal
Reserve Board, by regulation, has determined to be permissible for bank holding
companies under Section 4(c) of the Bank Holding Company Act (the "BHC Act"),
unless the Director, by regulation, prohibits or limits any such activity for
savings and loan holding companies; or (B) in which multiple savings and loan
holding companies were authorized (by regulation) to directly engage on March 5,
1987; and (x) purchasing, holding, or disposing of stock acquired in connection
with a qualified stock issuance if the purchase of such stock by such savings
and loan holding company is approved by the Director. See "Risk Factors --
Considerations Resulting from Mutual Holding Company Structure."
If a mutual holding company acquires or merges with another holding
company, the holding company acquired or the holding company resulting from such
merger or acquisition may only invest in assets and engage in activities listed
in (i) through (x) above, and it has a period of two years to cease any non-
conforming activities and divest of any nonconforming investments.
The HOLA prohibits a savings and loan holding company, including a federal
mutual holding company, directly or indirectly, or through one or more
subsidiaries, from acquiring more than 5% of the voting stock of another savings
institution, or holding company thereof, without prior written approval of the
OTS; from acquiring or retaining, with certain exceptions, more than 5% of a
non-subsidiary holding company or savings association. The HOLA also prohibits a
savings and loan holding company from acquiring more than 5% of a company
engaged in activities other than those authorized for savings and loan holding
companies by the HOLA; or acquiring or retaining control of a depository
institution that is not insured by the FDIC. In evaluating applications by
holding companies to acquire savings institutions, the OTS must consider the
financial and managerial resources and future prospects of the company and
institution involved, the effect of the acquisition on the risk to the insurance
funds, the convenience and needs of the community and competitive factors.
The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, except: (i) the approval of interstate supervisory
acquisitions by savings and loan holding companies, and (ii) the acquisition of
a savings institution in another state if the laws of the state of the target
savings institution specifically permit such acquisitions. The states vary in
the extent to which they permit interstate savings and loan holding company
acquisitions.
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If the savings institution subsidiary of a savings and loan holding company
fails to meet the QTL test set forth in Section 10(m) of the HOLA and the
regulations of the OTS, the holding company must register with the Federal
Reserve Board as a Bank Holding Company within one year of the savings
institution's failure to so qualify. See " -- Federal Savings Institution
Regulation -- QTL Test."
For a description of certain restrictions on transactions between the Bank
and its affiliates, including, without limitation, Bancorp and the Mutual
Company, see " -- Federal Savings Institution Regulation -- Transactions with
Related Parties."
STOCK HOLDING COMPANY SUBSIDIARY REGULATION. The OTS recently adopted new
regulations governing the two-tier mutual holding company form of organization
and mid-tier stock holding companies that are controlled by mutual holding
companies. Under these new rules, the stock holding company subsidiary will hold
all the shares of the mutual holding company's savings association subsidiary
and will issue the majority of its own shares to the mutual holding company
parent. In addition, the stock holding company subsidiary is permitted to engage
in activities that are permitted for its mutual holding company parent and to
have the same indemnification and employment contract restrictions imposed that
are on the mutual holding company parent. See "--Restrictions Applicable to
Mutual Holding Companies." Finally, OTS regulations maintain that the stock
holding company subsidiary must be federally chartered for supervisory controls.
THRIFT RECHARTERING
The Funds Act provides that the BIF and the SAIF will merge on January 1,
1999, if there are no more savings associations as of that date. Several Banking
Committee would have regained federal thrifts to become national banks or state
banks within two years of enactment or they would have become national banks by
operation of law. OTS would have been abolished and its functions transferred to
the bank regulatory agencies. The bill as passed by the House of
Representatives, however, did not provide for the elimination of the federal
thrift charter or OTS, but did provide that unitary stock savings and loan
holding companies existing or applied for after March 31, 1998 would not have
the ability to engage in unlimited activities but would be subject to the
activities restrictions applicable to multiple savings and loan holding
companies. Unitary stock holding companies existing or applied for before 1998
would be grandfathered and could continue to engage in unlimited activities and
could transfer the grandfather rights to acquirors of the holding company. The
Bank is unable to predict whether the legislation will be enacted or, given such
uncertainty, determine the extent to which the legislation, if enacted, would
affect its business. The Bank is also unable to predict whether the SAIF and BIF
will eventually be merged or the federal thrift charter eliminated, and what
effect, if any, such legislation would have on the Bank
Certain of the regulatory requirements applicable to the Bank, Bancorp and
to the Mutual Company are referred to below or elsewhere herein. The description
of statutory provisions and regulations applicable to savings associations set
forth in this Offering Circular do not purport to be complete descriptions of
such statutes and regulations and their effects on the Bank, Bancorp and the
Mutual Company and is qualified in its entirety by reference to such statutes
and regulations.
MANAGEMENT OF BANCORP
The Board of Directors of Bancorp will consist of six members each of whom
is also a director of the Bank. The Board of Directors is divided into three
classes, each of which contains one-third of the Board. The directors shall be
elected by the stockholders of Bancorp for staggered three year terms, or until
their successors are elected and qualified. One class of directors, consisting
of Messrs. Brandley and Leonard, has a term of office expiring at the first
annual meeting of stockholders, a second class, consisting of Messrs. Foody and
Montanaro, has a term of
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office expiring at the second annual meeting of stockholders, and a third class,
consisting of Messrs. Vreeland and Burke, has a term of office expiring at the
third annual meeting of stockholders. Their names and biographical information
are set forth under "Management of the Bank --Directors."
The following individuals are the executive officers of Bancorp and hold
the offices set forth below opposite their names:
<TABLE>
<CAPTION>
Executive Position(s) Held with Bancorp
- --------------------------------------------------------------------------------
<S> <C>
Leopold W. Montanaro... President and Chief Executive Officer
Dennis A. Petrello .... Executive Vice President and Chief Financial Officer
Charles E. Filippo..... Executive Vice President
Craig L. Montanaro..... Senior Vice President, Corporate Secretary and Treasurer
</TABLE>
The executive officers of Bancorp are elected annually and hold office
until their respective successors have been elected or qualified or until death,
resignation or removal at the discretion of the Board of Directors.
None of the executive officers, directors or other personnel has received
remuneration from Bancorp. Information concerning the principal occupations,
employment and other information concerning the directors and officers of
Bancorp during the past five years is set forth under "Management of the
Bank--Biographical Information."
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MANAGEMENT OF THE BANK
The following tables set forth information with respect to the
directors and executive officers of the Bank, all of whom will continue to serve
as directors and/or executive officers of the Bank after the Reorganization.
DIRECTORS
The following table sets forth certain information regarding the Board of
Directors of the Bank.
<TABLE>
<CAPTION>
DIRECTOR TERM
NAME AGE(1) POSITION(S) HELD WITH THE BANK SINCE EXPIRES
- -------------------- -------- ------------------------------------ -------- --------
<S> <C> <C> <C> <C>
William J. Foody 70 Chairman of the Board 1983 1999
Leopold W. Montanaro 58 Director, President and Chief 1972 1999
Executive
Officer
David F. Brandley 71 Director 1959 1998
Everett N. Leonard 84 Director 1969 1998
James P. Vreeland 86 Director 1977 2000
John J. Burke 51 Director 1992 2000
</TABLE>
________________
(1) As of March 31, 1998.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The following table sets forth certain information regarding the executive
officers of the Bank who are not also directors.
<TABLE>
<CAPTION>
NAME AGE(1) POSITION(S) HELD WITH THE BANK
------ ----- --------------------------------------------
<S> <C> <C>
Dennis A. Petrello 47 Executive Vice President and Chief Financial Officer
Charles E. Filippo 57 Executive Vice President and Chief Lending Officer
Craig L. Montanaro 31 Senior Vice President, Secretary and Treasurer
</TABLE>
_________________
(1) As of March 31, 1998.
Each of the executive officers of the Bank will retain his office in the
reorganized Bank until their re-election at the annual meeting of the Board of
Directors of the Bank, and until their successors are elected and qualified or
until they are removed or replaced. Officers are subject to re-election by the
Board of Directors annually.
BIOGRAPHICAL INFORMATION
DIRECTORS
William J. Foody has served as Chairman of the Board of the Bank since
1993 and has been a director since 1983. He has over 42 years of experience as a
real estate developer and broker. Currently, he is the managing partner in the
real estate firm of Crow Family Holdings, New Jersey.
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Leopold W. Montanaro has served as President, Chief Executive Officer and
Director of West Essex Bank since 1972. He has over 38 years experience in the
banking field with various institutions. He is a former member of the Board of
Directors of the Federal Home Loan Bank of New York and is a former chairman of
the New Jersey Savings & Community Bankers. Mr. Montanaro is an active member of
the American Community Bankers, serving on the Mutual Institutions Committee,
the Community Bank Committee, and the State Regulations & Legislative Committee.
Leopold W. Montanaro is the father of Craig L. Montanaro.
David F. Brandley is a partner in the law firm of Brandley & Kleppe and
specializes in banking and real estate law, among other areas. Mr. Brandley was
elected to the Board of Directors in 1959.
Everett N. Leonard was elected to the Board of Directors in 1969 and serves
as Vice Chairman of the Board. He is a former manager of Beckers Dairy in
Roseland and is a retired Borough Administrator of Roseland and Verona, New
Jersey.
James P. Vreeland is a retired New Jersey State Senator. Mr. Vreeland spent
30 years in politics serving as committeeman in the Township of Montville,
Morris Co., serving on the Board of Freeholders and serving for one year in the
New Jersey State Assembly before being elected State Senator. Mr. Vreeland was
elected to the Board of Directors in 1977.
John J. Burke is the President of J.J. Burke & Associates, Inc., a
financial services, insurance consulting firm and has served in that capacity
since 1981. Mr. Burke was elected to the Board of Directors in 1992.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Dennis A. Petrello has served as Executive Vice President and Chief
Financial Officer of the Bank since 1984 and has been employed by the Bank since
1978, serving in various capacities from Controller to Operations Officer. He is
an active member of the Financial Manager Society, New York -New Jersey Chapter
and the West Essex Chamber of Commerce.
Charles E. Filippo has served as Executive Vice President and Chief Lending
Officer since 1994 and has been employed by the Bank since 1985. Prior to
joining the Bank, Mr. Filippo was President of Central Corporation, a service
corporation for financial institutions, for 17 years. Mr. Filippo serves on the
Residential Lending-Affordable Housing Committee of the New Jersey League and on
the Affordable Housing Committee of the Mortgage Bankers Association of New
Jersey.
Craig L. Montanaro has served as Senior Vice President and Corporate
Secretary since April 1997 and has been employed by the Bank since 1988. He is a
graduate of Syracuse University with a B.S. in Finance and Marketing and holds a
graduate degree from the National School of Banking at Fairfield University. Mr.
Montanaro is a member of the Financial Manager Society, New York - New Jersey
Chapter and serves on various committees on the New Jersey Savings and Community
Bankers. Craig L. Montanaro is the son of Leopold W. Montanaro.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS OF THE BANK
The Bank's Board of Directors meets on a monthly basis and may have
additional special meetings called in the manner specified in the Bylaws. During
1997, no current Director attended less than 75% of the aggregate of the total
number of Board meetings which were held. The Board of Directors has established
a number of committees. The Salary and Pension Committee consists of Messrs.
Foody, Montanaro, Brandley, Leonard, Vreeland and Burke. This committee meets on
an as needed basis. The Audit Committee consists of Messrs. Foody, Brandley
Vreeland and Burke. This committee generally meets on a quarterly basis. The
Strategic Planning Committee meets as needed and consists of Messrs. Foody,
Montanaro and Burke. The Nominating Committee meets at least once
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a year and consists of Messrs. Foody, Montanaro and Burke. The Interest Rate
Risk and Investment Committee meets as needed and consists of Messrs. Foody,
Montanaro and Burke.
BOARD OF DIRECTORS AND COMMITTEES OF BANCORP AFTER THE REORGANIZATION
Following the Reorganization, the Board of Directors of Bancorp is expected
to meet quarterly, or more often as may be necessary. The Board of Directors
initially is expected to have a standing Executive Committee, Audit Committee
and Compensation Committee. The Board, by resolution, may designate one or more
additional committees.
The Executive Committee initially will consist of the following directors:
__________________ _____________________. The Executive Committee is expected to
meet when necessary when the Board is not in session to exercise general control
and supervision in all matters pertaining to the interests of Bancorp.
The Audit Committee initially will consist of the following directors:
______________________ _______________________. The Audit Committee is expected
to meet at least quarterly to examine and approve the audit report prepared by
the independent auditors of the Bank, to review and recommend the internal
auditors to be engaged by Bancorp, to review the internal audit function and
internal accounting policies of Bancorp and review and approve such policies.
The Compensation Committee initially will consist of the following
directors: ________________________. The Compensation Committee is expected to
meet on an as needed basis to evaluate the compensation and benefits of the
directors, officers and employees, recovered charges and monitor and evaluate
employee performances.
DIRECTOR COMPENSATION
Non-employee directors of the Bank, other than the Chairman of the Board,
currently receive a quarterly retainer fee of $3,500, paid at the first regular
board meeting of each quarter, and $500 for each remaining regular board meeting
in each quarter. The Chairman receives a quarterly retainer fee of $4,375, paid
at the first regular board meeting of each quarter, and $625 for each remaining
regular board meeting in each quarter. Directors do not receive any fees for
special board meetings or committee meetings. In addition, all directors,
including retired directors, receive medical and dental benefits. At this time,
only one retired director is receiving such benefits in addition to the active
directors. Directors of Bancorp will not receive compensation for service as
directors of Bancorp.
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EXECUTIVE COMPENSATION
Cash Compensation. The following table sets forth the cash compensation
paid by the Bank for services rendered in all capacities during the year ended
December 31, 1997, to the chief executive officer and to executive officers of
the Bank who received cash compensation in excess of $100,000 ("Named Executive
Officers").
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
LONG-TERM COMPENSATION
---------------------------------------
ANNUAL COMPENSATION(1) AWARDS PAYOUTS
------------------------------------ ----------------------------- ---------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL FISCAL COMPENSATION AWARDS OPTIONS/SARS PAYOUTS COMPENSATION
POSITIONS YEAR SALARY($) BONUS($) ($)(2) ($)(3) (#)(4) ($)(5) ($)(6)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leopold W. Montanaro........ 1997 $275,000 $75,000 -- -- -- -- $68,993
President and Chief
Executive Officer
Dennis A. Petrello.......... 1997 140,000 35,000 -- -- -- -- --
Executive Vice President
and Chief Financial
Officer
Charles E. Filippo.......... 1997 140,000 35,000 -- -- -- -- 25,697
Executive Vice President
and Chief Lending Officer
</TABLE>
___________________
(1) Under Annual Compensation, the column titled "Salary" includes base salary
and amounts deferred by the Named Executive Officer under the Bank's 401(k)
plan. See "401(k) Plan."
(2) For 1997, there were no: (a) perquisites over the lesser of $50,000 or 10%
of the individual's total salary and bonus for the year; (b) payments of
above-market preferential earnings on deferred compensation; (c) payments
of earnings with respect to long-term incentive plans prior to settlement
or maturation; (d) tax payment reimbursements; or (e) preferential
discounts on stock.
(3) Does not include restricted stock awards pursuant to a stock-based
incentive plan, which may be granted in conjunction with a meeting of
stockholders of the Bank, subject to OTS and stockholder approval, as such
awards were not earned, vested or granted in 1997. For a discussion of the
terms of the Stock-Based Incentive Plan, see "--Benefits-- Stock-Based
Incentive Plans." For 1997, the Bank had no restricted stock plans in
existence.
(4) Does not include options, which may be granted in conjunction with a
meeting of stockholders of the Bank, subject to OTS and stockholder
approval. For a discussion of stock options, see "-- Benefits--Stock-Based
Incentive Plans." For 1997, the Bank had no stock option plans in
existence.
(5) For 1997 there were no payouts or awards under any long-term incentive
plan.
(6) Includes employer contributions pursuant to the Bank's supplemental income
agreements. These payments are made to pay premiums on split-dollar life
insurance policies the Bank has purchased on the lives of Messrs. Montanaro
and Filippo in connection with the supplemental income agreements. Upon the
death of Messrs. Montanaro and Filippo, the Bank expects to retain proceeds
from the insurance policies sufficient to cover all prior contributions
made to the supplemental income agreements. See "-- Benefits-- Supplemental
Income Agreements."
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EMPLOYMENT AGREEMENTS
The Bank currently has an employment agreement (the "Employment
Agreement")with Mr. Montanaro. The Employment Agreement provides for a three-
year term. The Employment Agreement also provides that, commencing on the first
anniversary date and continuing each anniversary date thereafter, the Board of
Directors may extend the Employment Agreement for an additional year so that the
remaining term shall be three years, unless written notice of non-renewal is
given by the Board of Directors after conducting a performance evaluation of the
Executive. In addition to the base salary, the Employment Agreement provides
for, among other things, participation in benefit plans and other fringe
benefits applicable to similarly situated executive personnel, including any
such arrangement made available to senior executive officers in the future. The
Employment Agreement provides for termination by the Bank for "cause," as
described in the Employment Agreement, at any time. In the event the Bank
chooses to terminate the Executive's employment for reasons other than for
cause, or in the event of the Executive's resignation from the Bank upon: (i)
failure to re-elect or appoint the Executive to his current offices including
his board seat; (ii) a material change in the Executive's functions, duties or
responsibilities that would make them of lesser responsibility, importance or
scope (unless consented to by the Executive); (iii) a relocation of the
Executive's principal place of employment by more than 50 miles (unless
consented to by the Executive); (iv) material reduction in benefits or
perquisites (unless consented to by the Executive); (v) liquidation or
dissolution of the Bank; or (vi) a breach of the Employment Agreement by the
Bank, the Executive or, in the event of his death, the Executive's beneficiary
would be entitled to receive an amount equal to the remaining base salary
payments due to the Executive and the contributions that would have been made on
the Executive's behalf to any employee benefit plans of the Bank during the
remaining term of the employment agreement, the average of the amount of any
bonus and other compensation paid to the Executive during the term of the
Employment Agreement times the remaining number of years of the unexpired term
of the Employment Agreement, and an amount equal to the average of the annual
contributions that were made on Executive's behalf to any employee benefit plans
during the term of the agreement times the remaining term of the agreement. The
Bank would also continue and pay for the Executive's life, health and disability
coverage for the remaining term of the Employment Agreement. Upon any
termination of the Executive, the Executive is subject to a covenant not to
compete with the Bank for one year.
Under the Employment Agreement, if the Executive's voluntary or involuntary
termination follows a change in control of the Bank, the Executive or, in the
event of his death, the Executive's beneficiary would be entitled to a severance
payment equal to the greater of: (i) the payments due for the remaining term of
the agreement; or (ii) three times the average of the five preceding taxable
years' annual compensation. The Bank would also continue the Executive's life,
health, and disability coverage for thirty-six months.
All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to the Employment
Agreement shall be paid by the Bank if the Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement. The Employment
Agreement also provides that the Bank shall indemnify the Executive to the
fullest extent allowable under federal law. In the event the Bank terminates Mr.
Montanaro, the total payments due under the Employment Agreement based solely on
three times 1997 annual salary and bonus paid to Mr. Montanaro as set forth in
the Cash Compensation Table included herein, and excluding any other amounts
that would be included in "annual compensation" as defined in the Employment
Agreement, would be approximately $1.0 million, in addition to other cash and
noncash compensation.
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Upon consummation of the Reorganization, Bancorp and the Bank intend to
enter into employment agreements (collectively, the "Employment Agreements")
with Messrs. _______________________, (individually, the "Executive"). The
Employment Agreements are subject to the review and approval of the OTS and may
be amended as a result of such OTS review. The Employment Agreements are
intended to ensure that Bancorp and the Bank will be able to maintain a stable
and competent management base after the Reorganization. The continued success of
Bancorp and the Bank depends to a significant degree on the skills and
competence of Messrs. _______________________. Upon execution of the new
Employment Agreements between Mr. Montanaro and each of Bancorp and the Bank,
the current agreement between the Bank and Mr. Montanaro will be null and void.
The Employment Agreements will provide for a three-year term for each of
Messrs. _____________. The Employment Agreements also provide that, commencing
on the first anniversary date and continuing each anniversary date thereafter,
the Board of Directors may extend the Employment Agreements for an additional
year so that the remaining term shall be three years, unless written notice of
non-renewal is given by the Board of Directors after conducting a performance
evaluation of the Executive. In addition to the base salary, the Employment
Agreements will provide for, among other things, participation in stock benefit
plans and other fringe benefits applicable to similarly situated executive
personnel. The Employment Agreements will provide for termination by the Bank
for "cause," as described in the Employment Agreements, at any time. In the
event Bancorp or the Bank chooses to terminate the Executive's employment for
reasons other than for cause, or in the event of the Executive's resignation
from Bancorp or the Bank upon: (i) failure to re-elect or appoint 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 50 miles; (iv) liquidation or dissolution of
the Bank; or (v) a breach of the Employment Agreements by Bancorp or the Bank,
the Executive or, in the event of his death, the Executive's beneficiary would
be entitled to receive an amount equal to the remaining base salary payments due
to the Executive and the contributions that would have been made on the
Executive's behalf to any employee benefit plans of the Bank during the
remaining term of the Employment Agreements. The Bank would also continue and
pay for the Executive's life, health and disability coverage for the remaining
term of the Employment Agreements. Upon any termination of the Executive, the
Executive is subject to a covenant not to compete with the Bank for one year.
Under the agreements, if voluntary or involuntary termination follows a
change in control of the Bank, the Executive or, in the event of his death, the
Executive's beneficiary would be entitled to a severance payment equal to the
greater of: (i) the payments due for the remaining term of the agreement; or
(ii) three times the average of the five preceding taxable years' "annual
compensation" (as defined in the agreements). The Bank would also continue the
Executive's life, health, and disability coverage for thirty-six months.
All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to the Agreements
shall be paid by Bancorp or the Bank if the Executive is successful on the
merits pursuant to a legal judgment, arbitration or settlement. The Employment
Agreements also provide that the Bancorp or Bank shall indemnify the Executive
to the fullest extent allowable under federal law. In the event of a change in
control of Bancorp or the Bank, the total amount of payments due under the
Employment Agreements, based solely on the 1997 annual salary and bonus paid to
Messrs. _______________________ as set forth in the Cash Compensation Table
included herein, and excluding any other amounts that would be included in
"annual compensation" as defined in the agreements, would be approximately
$_______, in addition to other cash and non-cash compensation.
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CHANGE IN CONTROL AGREEMENTS
Upon Reorganization, the Bank intends to enter into _______-year Change in
Control Agreements (the "CIC Agreements") with ____________________________.
Commencing on the first anniversary date of a CIC Agreement and continuing on
each anniversary thereafter, the Board of Directors may renew the agreement for
an additional year. Each CIC Agreement will provide that in the event voluntary
or involuntary termination follows a change in control of the Bank or Bancorp,
as the case may be, the officer covered by the agreement would receive a
severance payment equal to _____ times the officer's compensation for the twelve
months preceding his termination. The Bank would also continue and pay for the
officer's life, health and disability coverage for ____ months following
termination. In the event of a change in control of the Bank or Bancorp the Bank
estimates the total payments due under the CIC Agreements, based solely on the
1997 annual salary and bonus paid to Messrs. ________________ as set forth in
the Cash Compensation Table included herein, and excluding the amount of
benefits under any other amounts that would be included in "compensation" as
defined in the Agreement, would equal approximately $_______, in addition to
other cash and non-cash compensation.
EMPLOYEE SEVERANCE COMPENSATION PLAN
In connection with the Reorganization, the Bank intends to establish a
severance compensation plan (the "Severance Plan") which will provide eligible
employees with severance benefits in the event of a change in control of the
Bank or Bancorp. Management personnel with Employment Agreements or CIC
Agreements are not eligible to participate in the Severance Plan. Generally,
employees are eligible to participate in the Severance Plan if they have
completed at least one year of service with the Bank. Under the Severance Plan,
in the event of a change in control of the Bank or Bancorp, eligible employees
who are terminated from or terminate their employment with the Bank (for reasons
specified under the Severance Plan) within one year of the change in control,
will be entitled to receive a severance payment. Upon such an event, the
participant will be entitled to a cash severance payment equal to one-twelfth of
his or her annual compensation for each year of service up to a maximum of 199%
of such annual compensation. Such payments may tend to discourage takeover
attempts by increasing costs to be incurred by the Bank in the event of a
takeover. In the event the provisions of the Severance Plan are triggered, the
total amount of payments that would be due thereunder, based solely upon current
salary levels, would be approximately $635,000. However, it is management's
belief that substantially all of the Bank's employees may be retained in their
current position in the event of a change in control, and that any amount
payable under the Severance Plan would be considerably less than the total
amount that could possibly be paid under the Severance Plan.
INSURANCE PLANS
All full-time employees of the Bank are covered as a group for life,
comprehensive hospitalization, including major medical, long-term disability and
dental insurance.
BENEFITS
401(K) PLAN. The Bank maintains the West Essex Bank, F.S.B. 401(k) Savings
Plan in RSI Retirement Trust (the "401(k) Plan"), a tax-qualified profit sharing
plan with a qualified cash or deferred arrangement under Section 401(k) of the
Code. The 401(k) Plan provides participants with savings and retirement benefits
based on employee elective, pre-tax deferrals of compensation. Although the plan
also provides for discretionary contributions by the Bank, the Bank has never
made such contributions and, currently, has no expectations of making such
contributions to the plan in the future. Eligible employees
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(generally, those other than employees compensated solely on a daily, fee or
retainer basis) may begin participating in the 401(k) Plan upon the completion
of a "Period of Service" (as defined in the 401(k) Plan) of 182 days and
attainment of age 21. Participants may make salary reduction contributions to
the 401(k) Plan up to the lesser of 15% of their compensation or the legally
permissible limit ($10,000 for 1998). A participant is always 100% vested in his
or her salary reduction contributions to the 401(k) Plan.
Currently, participants may invest their accounts under the 401(k) Plan in
and among seven funds. In connection with the Reorganization, the Bank intends
to amend the 401(k) Plan to add an "Employer Stock Fund," in which participants
may invest all or a portion of their accounts in Common Stock. The Bank may add
or eliminate investment options available under the 401(k) Plan in the future.
Generally, distributions from the 401(k) Plan may commence upon a
participant's separation from service, death, or disability. However,
participants may request hardship withdrawals and loans from the 401(k) Plan
under certain circumstances. Withdrawals and distributions from the 401(k) Plan
are generally subject to federal and state income taxes and distributions made
prior to a participant attaining age 59 1/2 are also generally subject to a
federal excise tax
PENSION PLAN. The Bank also maintains a tax-qualified defined benefit
pension plan for its employees (the "Pension Plan"). Eligible employees begin
participating in the Pension Plan following the completion of a six month
"Period of Service" (as defined in the Pension Plan) and attainment of the age
21. A participant in the Pension Plan generally becomes vested in his accrued
benefit under the plan upon completing five years of "Credited Service" (as
defined in the Pension Plan). The Pension Plan is funded solely through
contributions made by the Bank.
The table below reflects the annual pension benefit payable to a
participant in the Pension Plan, assuming various levels of "Average Annual
Earnings" (as defined in the Pension Plan) and years of Credited Service. As of
January 1, 1998, Messrs. Montanaro, Petrello and Filippo had 25, 24 and 12
years, respectively, of Credited Service.
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
-------------------------------------------------------
AVERAGE
ANNUAL
EARNINGS(1) 15 20 25 30 35 40
- --------------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000 $11,250 $15,000 $18,750 $22,500 $ 26,250 $ 31,250
75,000 18,750 25,000 31,250 37,500 43,750 51,250
100,000 26,250 35,000 43,750 52,500 61,250 71,250
125,000 33,750 45,000 56,250 67,500 78,750 91,250
160,000 44,250 59,000 73,750 88,500 103,250 119,250
</TABLE>
___________________
(1) Code Section 401(a)(17) limits the amount of compensation the Bank may
consider in computing benefits under the Pension Plan to $150,000,
effective with respect to the Pension Plan for plan years beginning on or
after May 23, 1994, as periodically adjusted by statute ($160,000 for
1998).
EMPLOYEE STOCK OWNERSHIP PLAN. The Bank intends to establish a tax-
qualified employee stock ownership plan (the "ESOP") in connection with the
Reorganization. Eligible employees (generally, those
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other than employees compensated solely on a daily, fee, or retainer basis),
will become participants in the ESOP upon the attainment of age 21 and the
completion of a "Period of Service" (as defined in the plan document) of 182
days (with credit for prior service). Participants will begin to vest in their
benefits under the ESOP upon the completion of two Periods of Service and will
become fully vested after completing six Periods of Service (with credit for
prior service). Participants will also become 100% vested in their benefits upon
the attainment of normal retirement age (age 65), death, disability, or upon a
change in control of the Bank or Bancorp. Benefits generally become
distributable under the ESOP upon death, retirement, disability or other
separation from service.
The Bank expects the ESOP to purchase 8% of the Common Stock issued in the
Offering, including shares issued to the Foundation. As part of the
Reorganization and in order to fund the ESOP's purchase of the Common Stock
issued in the Offering, the ESOP will borrow 100% of the aggregate purchase
price of the Common Stock from either Bancorp or a third-party lender. The
trustee of the ESOP will repay the loan principally from the Bank's
contributions to the ESOP over an expected period of 10 years. Subject to
receipt of any necessary regulatory approvals or opinions, the Bank may make
contributions to the ESOP for repayment of the loan since participants are
employees of the Bank or the Bank may reimburse Bancorp for contributions made
by Bancorp with respect to Bank employees. The Bank expects the initial interest
rate (which may be fixed or variable) for the loan to be at or near the prime
rate on or about the date of Reorganization.
The trustee will pledge shares of Common Stock purchased by the ESOP as
collateral for the loan and will hold the shares in a suspense account until
they are released for allocation among participants as the trustee repays the
loan. The trustee will release the pledged shares annually from the suspense
account in an amount proportional to the repayment of the ESOP loan. The trustee
will then allocate the released shares (as well as any other non-matching
contributions to the ESOP) among the accounts of eligible participants on the
basis of each participant's compensation for the year of allocation relative to
all participants' compensation for the year of allocation.
The Bank expects a committee of the Board of Directors to administer the
ESOP (the "ESOP Committee"). The Committee will appoint an unrelated corporate
trustee for the ESOP prior to the Reorganization. The ESOP Committee may
instruct the trustee regarding investment of funds contributed to the ESOP. The
ESOP trustee will vote all allocated shares held in the ESOP in accordance with
the instructions of the plan participants. The ESOP trustee, subject to its
fiduciary duties under ERISA, will vote the unallocated shares (i.e., those held
in the suspense account) and allocated shares for which it receives no proper
voting instructions in a manner calculated to most accurately reflect the
instructions it receives from participants regarding the allocated stock. In the
event no shares have been allocated under the ESOP at the time such shares are
to be voted, each participant shall be deemed to have one share allocated to his
account for voting purposes.
MANAGEMENT SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. In connection with the
Reorganization and implementation of the ESOP, the Bank intends to implement a
non-qualified deferred compensation arrangement known as a "Management
Supplemental Executive Retirement Plan" (the "MSERP"). The Bank intends the
MSERP to make up lost ESOP benefits to designated participants who retire or
terminate employment in connection with a change in control prior to the
complete repayment of the ESOP loan. Generally, upon the retirement of an
eligible individual (designated by the Board of Directors of the Bank or Bancorp
or upon a change in control of the Bank or Bancorp prior to complete repayment
of the ESOP Loan), the MSERP will provide the individual with a benefit
determined by first (i) projecting the number of shares that would have been
allocated to the individual under the ESOP if the individual had remained
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employed throughout the term of the ESOP loan (measured from the individual's
first date of ESOP participation) and (ii) reducing that number by the number of
shares actually allocated to the individual's account under the ESOP; and
second, by multiplying the number of shares that represent the difference
between such figures by the average fair market value of the Common Stock over
the preceding five years. The individual's benefits become payable upon the
participant's retirement or upon the change in control of the Bank or Bancorp.
The Bank may establish a grantor trust in connection with the MSERP to satisfy
the obligations of the Bank with respect to the MSERP. The assets of the grantor
trust would remain subject to the claims of the Bank's general creditors in the
event of the Bank's insolvency until paid to the individual pursuant to the
terms of the MSERP.
SUPPLEMENTAL INCOME AGREEMENTS. The Bank currently sponsors a non-qualified
supplemental executive retirement plans for Messrs. Montanaro and Filippo. The
plans generally provides benefits to the two executives otherwise lost under the
Pension Plan as a result of limitations imposed by the Code on the amount of
compensation the Bank can consider under the Pension Plan in determining
benefits. The non-qualified arrangements for Messrs. Montanaro and Filippo are
"funded" through the use of secular trusts and life insurance policies, under
which the Bank will recover the entire cost of its contribution to the plans
upon the deaths of Messrs. Montanaro and Filippo.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Code limits the amount of
compensation the Bank may consider in providing benefits under its tax-qualified
retirement plans, such as the 401(k) Plan, the Pension Plan and the ESOP. The
Code further limits the amount of contributions on benefit accruals under such
plans on behalf of any employee in any year. To provide benefits to make up for
the reduction in benefits flowing from these limits in connection with the ESOP,
the Bank intends to implement a non-qualified deferred compensation arrangement
known as a "Supplemental Executive Retirement Plan" ("SERP"). The SERP will
generally provide benefits to eligible individuals (designated by the Board of
Directors of the Bank or Bancorp) that cannot be provided under the ESOP as a
result of the limitations imposed by the Code, but that would have been provided
under the ESOP but for such limitations. The Bank may establish a grantor trust
in connection with the SERP to satisfy the obligations of the Bank with respect
to the SERP. The assets of the grantor trust would remain subject to the claims
of the Bank's general creditors in the event of the Bank's insolvency until paid
to the individual pursuant to the terms of the SERP.
STOCK-BASED INCENTIVE PLAN. Following the Reorganization and Offering, the
Board of Directors of Bancorp intends to adopt the Stock-Based Incentive Plan
which will provide for the granting of options to purchase Common Stock ("Stock
Options"), Common Stock ("Stock Awards"), Limited Option Rights and Limited
Stock Rights to eligible officers, employees, and directors of Bancorp and the
Bank (see descriptions of the awards below). Bancorp may provide such stock
based benefits under the Stock-Based Incentive Plan or may establish one or more
separate plans which would provide for the benefits described herein.
In the event the Stock-Based Incentive Plan (or any separate plan(s)) is
adopted within one year after the Reorganization and Offering, OTS regulations
require such plan to be approved by a majority of Bancorp's stockholders at a
meeting of stockholders to be held no earlier than six months after the
completion of the Offering. Under the Stock-Based Incentive Plan, Bancorp
intends to grant Stock Options in an amount up to 10% of the shares of Common
Stock issued in the Offering, including shares issued to the Foundation (215,877
shares based upon the maximum of the Offering Range), and intends to grant Stock
Awards in an amount up to 4% of the shares of Common Stock issued in the
Offering, including shares issued to the Foundation (86,351 shares based upon
the maximum of the Offering Range). Any Common Stock awarded under the Stock-
Based Incentive Plan (Stock Awards) will be awarded at no cost to the
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recipients. The plan may be funded through the purchase of Common Stock by a
trust established in connection with the Stock-Based Incentive Plan (or any
separate plan(s)) or from authorized but unissued shares. The Board intends to
appoint an independent fiduciary to serve as trustee of a trust to be
established in connection with the Stock-Based Incentive Plan. In the event that
additional authorized but unissued shares are acquired by the Stock-Based
Incentive Plan after the Reorganization, the interests of existing shareholders
would be diluted. See "Pro Forma Data."
The grants of Stock Options and Stock Awards will be designed to attract
and retain qualified personnel in key positions, provide officers and key
employees with a propriety interest in Bancorp as an incentive to contribute to
the success of Bancorp and reward key employees for outstanding performance. All
employees of Bancorp and its subsidiaries, including the Bank, will be eligible
to participate in the Stock-Based Incentive Plan. It is expected that the
committee administering the plan will determine the terms of awards granted to
officers and employees. The committee will also determine whether Stock Options
will be Incentive or Non-Statutory Stock Options, as defined below, the number
of shares subject to each Stock Option and Stock Award, the exercise price of
each Non-Statutory Stock Option, whether Stock Options may be exercised by
delivering other shares of Common Stock, and when Stock Options become
exercisable or Stock Awards vest. Only employees may receive grants of Incentive
Stock Options. Therefore, under the Stock-Based Incentive Plan, directors may
receive only grants of Non-Statutory Stock Options. If such plan is adopted
within one year after the Reorganization and Offering, OTS regulations provide
that no individual officer or employee of the Bank may receive more than 25% of
the stock options available under the Stock-Based Incentive Plan (or any
separate plan for officers and employees) and non-employee directors may not
receive more than 5% individually, or 30% in the aggregate, of the stock options
available under the Stock-Based Incentive Plan (or any separate plan for
directors). OTS regulations also provide that no individual officer or employee
of the Bank may receive more than 25% of the restricted stock awards available
under the Stock-Based Incentive Plan (or any separate plan for officers and
employees) and non-employee directors may not receive more than 5% individually,
or 30% in the aggregate, of the restricted stock awards available under the
Stock-Based Incentive Plan (or any separate plan for directors).
The Stock-Based Incentive Plan will provide for the grant of: (i) Stock
Options intended to qualify as Incentive Stock Options under Section 422 of the
Code ("Incentive Stock Options"); (ii) Stock Options that do not so qualify
("Non-Statutory Stock Options"); and (iii) limited option rights ("Limited
Option Rights"). Limited Option Rights are exercisable only upon a change in
control of the Bank or Bancorp. Subject to OTS regulations, upon exercise of
Limited Option Rights, the recipient will be entitled to receive a lump sum cash
payment equal to the difference between the exercise price of any unexercised
Stock Option, whether exercisable or unexercisable at such time, and the fair
market value of the shares of Common Stock subject to the Stock Option on the
date of exercise of the right in lieu of purchasing the Common Stock underlying
the Stock Option. It is anticipated that all Stock Options granted
contemporaneously with stockholder approval of the Stock-Based Incentive Plan
will qualify as Incentive Stock Options to the extent permitted under Section
422 of the Code. Unless sooner terminated, the Stock-Based Incentive Plan will
be in effect for a period of ten years from the earlier of adoption by the Board
of Directors or approval by Bancorp's Stockholders. Subject to stockholder
approval, Bancorp intends to grant Stock Options with Limited Option Rights
under the plan at an exercise price equal to at least the fair market value of
the underlying Common Stock on the date of grant.
An individual will not be deemed to have received taxable income upon the
grant or exercise of any Incentive Stock Option, provided that such shares
received through the exercise of such option are not disposed of by the employee
for at least one year after the date the stock is received in connection with
the stock option exercise and two years after the date of grant of the stock
option (a "disqualifying disposition").
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No compensation deduction will be available to Bancorp as a result of the grant
or exercise of Incentive Stock Options unless there has been a disqualifying
disposition. In the case of a Non-Statutory Stock Option and in the case of a
disqualifying disposition of an Incentive Stock Option, an individual will
realize ordinary income upon exercise of the stock option (or upon the
disqualifying disposition) in an amount equal to the amount by which the
exercise price exceeds the fair market value of the Common Stock purchased by
exercising the stock option on the date of exercise. The amount of any ordinary
income realized by an optionee upon the exercise of a Non-Statutory Stock Option
or due to a disqualifying disposition of an Incentive Stock Option will be a
deductible expense to Bancorp for tax purposes. In the case of Limited Rights,
the option holder will have to include the amount paid to him or her upon
exercise in his gross income for federal income tax purposes in the year in
which the payment is made and Bancorp will be entitled to a deduction for
federal income tax purposes of the amount paid.
The Stock-Based Incentive Plan will provide for the granting of Stock
Awards and Limited Stock Rights. Limited Stock Rights would be exercisable by
participants upon a change in control of Bancorp or the Bank as described in the
plan. Subject to OTS regulations, upon the exercise of a Limited Stock Right,
the recipient will be entitled to receive a cash payment equal to the fair
market value of all unvested Stock Awards in exchange for any rights to such
unvested Stock Awards. Grants of Stock Awards and Limited Stock Rights to
officers and employees may be made in the form of base grants and/or performance
grants (the vesting of which would be contingent upon performance goals
established by the committee administering the plan). In establishing any
performance goals, the committee may utilize the annual financial results of the
Bank, actual performance of the Bank as compared to targeted goals such as the
ratio of the Bank's net worth to total assets, the Bank's return on average
assets, or such other performance standards as determined by the committee with
the approval of the Board of Directors.
When a participant becomes vested with respect to Stock Awards, the
participant will realize ordinary income equal to the fair market value of the
Common Stock at the time of vesting (unless the participant made an election
pursuant to Section 83(b) of the Code). The amount of income recognized by the
participants will be a deductible expense for tax purposes for the Bank. When
restricted Stock Awards become vested and shares of Common Stock are actually
distributed to participants, the participants would receive amounts equal to any
accrued dividends with respect thereto. Prior to vesting, recipients of Stock
Awards may direct the voting of the shares awarded to them. Shares not subject
to grants and shares allocated subject to the achievement of performance goals
will be voted by the trustee in proportion to the directions provided with
respect to shares subject to grants. Vested shares will be distributed to
recipients as soon as practicable following the day on which they vest.
The vesting periods for awards under the Stock-Based Incentive Plan will be
determined by the Committee administering the Plan. If the Stock-Based Incentive
Plan (or any separate plans for employees and directors) is adopted within one
year after the Reorganization and Offering, awards would become vested and
exercisable subject to applicable OTS regulations, which such regulations
require that any awards begin vesting no earlier than one year from the date of
shareholder approval of the plan and, thereafter, vest at a rate of no more than
20% per year and may not be accelerated except in the case of death or
disability. Stock Options could be exercisable for three months following the
date on which the employee or director ceases to perform services for the Bank
or Bancorp, except that in the event of death or disability, options accelerate
and become fully vested and could be exercisable for up to one year thereafter
or such longer period as determined by Bancorp. In the case of death or
disability, Stock Options may be exercised for a period of 12 months. However,
any Incentive Stock Options exercised more than three months following the date
the employee ceases to perform services as an employee would be treated as a
Non-Statutory Stock Option. In the event of retirement, if the optionee
continues to perform services as a director or consultant on behalf
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of the Bank, Bancorp or an affiliate, unvested options would continue to vest in
accordance with their original vesting schedule until the optionee ceases to
serve as a consultant or director. In the event of death, disability or normal
retirement, Bancorp, if requested by the optionee, or the optionee's
beneficiary, could elect, in exchange for vested options, to pay the optionee,
or the optionee's beneficiary in the event of death, the amount by which the
fair market value of the Common Stock exceeds the exercise price of the options
on the date of the employee's termination of employment.
Subject to any applicable regulatory requirements, the Stock-Based
Incentive Plan (or any separate plans for employees and directors) may be
amended subsequent to the expiration of the one-year period to provide for
accelerated vesting of previously granted Stock Options or Stock Awards in the
event of a change in control of Bancorp or the Bank. A change in control would
generally be considered to occur when a person or group of persons acting in
concert acquires beneficial ownership of 20% or more of any class of equity
security of Bancorp or the Bank or in the event of a tender or exchange offer,
merger or other form of business combination, sale of all or substantially all
of the assets of Bancorp or the Bank or contested election of directors which
resulted in the replacement of a majority of the Board of Directors by persons
not nominated by the directors in office prior to the contested election.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
Federal regulations require that all loans or extensions of credit to
executive officers and directors must 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 must not involve more than
the normal risk of repayment or present other unfavorable features. In addition,
loans made to a director or executive officer in excess of the greater of
$25,000 or 5% of the Bank's capital and surplus (up to a maximum of $500,000)
must be approved in advance by a majority of the disinterested members of the
Board of Directors.
The Bank offers directors, officers and full-time employees of the Bank who
satisfy certain criteria and the general underwriting standards of the Bank,
loans with interest rates which are 2% over the Bank's cost of deposits, as
reported to the Board of Directors from the previous month, rounded either up or
down to the nearest 1/8th percent, the Employee Mortgage Rate ("EMR"). The EMR
is limited to owner-occupied residential mortgage loans, owner-occupied home
improvement loans, owner-occupied home equity loans and owner-occupied
construction loans. Loan application fees, including points, are waived for all
EMR loans. The EMR remains in effect as long as the officer or employee remains
at the Bank. In the event the officer or employee leaves the Bank for any reason
other than a change in control, the interest rate reverts to the contract rate
in effect at the time that the loan was originated. All other terms and
conditions contained in the original mortgage and note continue to remain in
effect. With the exception of EMR loans, the Bank currently makes loans to its
executive officers, directors and employees on the same terms and conditions
offered to the general public. Loans made by the Bank to its directors and
executive officers are made in the ordinary course of business, on substantially
the same terms (except for EMR loans), including 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. As of March 31, 1998, three of the Bank's executive officers or
directors had loans with outstanding balances totalling approximately $982,000
in the aggregate. All such loans were made by the Bank in the ordinary course of
business, with no favorable terms (except for EMR loans) and such loans do not
involve more than the normal risk of collectibility or present unfavorable
features.
Bancorp intends that all transactions in the future between Bancorp and its
executive officers, directors, holders of 10% or more of the shares of any class
of its common stock and affiliates thereof, will contain terms no less favorable
to Bancorp than could have been obtained by it in arm's length negotiations
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with unaffiliated persons and will be approved by a majority of independent
outside directors of Bancorp not having any interest in the transaction.
OTHER TRANSACTIONS WITH AFFILIATES
The Bank utilizes the services of the law firm of Brandley & Kleppe, of
which Mr. Brandley, a director of the Bank, is a member, for a variety of legal
work relating to the ordinary course of the Bank's business. For each of fiscal
years 1996 and 1997, the Bank paid less than $60,000 per year to such law firm.
SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the number of shares of Common Stock the
Bank's executive officers and directors propose to purchase, assuming shares of
Common Stock are issued at the minimum and maximum of the Offering Range, and
that sufficient shares will be available to satisfy their subscriptions. The
table also sets forth the total expected beneficial ownership of Common Stock as
to all directors and executive officers as a group.
<TABLE>
<CAPTION>
AT THE MINIMUM AT THE MAXIMUM
OF THE OFFERING RANGE(1) OF THE OFFERING RANGE(1)
------------------------- ------------------------------------
AS A AS A
PERCENT OF PERCENT OF
NUMBER TOTAL SHARES NUMBER TOTAL SHARES
NAME AMOUNT OF SHARES ISSUED(2) OF SHARES ISSUED(2)
- ------------------------------ ---------- ----------- ------------- ------------- --------------------
<S> <C> <C> <C> <C> <C>
William J. Foody.............. $ 700,000 70,000 1.97% 70,000 1.45%
Leopold W. Montanaro.......... 700,000 70,000 1.97 70,000 1.45
David F. Brandley............. 100,000 10,000 .28 10,000 .21
Everett N. Leonard............ 75,000 7,500 .21 7,500 .16
James P. Vreeland............. 70,000 7,000 .20 7,000 .15
John J. Burke................. 700,000 70,000 1.97 70,000 1.45
Dennis A. Petrello............ 200,000 20,000 .56 20,000 .42
Charles E. Filippo............ 300,000 30,000 .84 30,000 .62
Craig L. Montanaro............ 35,000 3,500 .10 3,500 .07
All Directors and
Executive Officers as a
group (9 persons)............ $2,880,000 288,000 8.09% 288,000 5.98%
========== ======= ==== ======= ====
</TABLE>
____________________
(1) Includes proposed subscriptions, if any, by associates. Also includes funds
from the Bank's 401(k) Plan which may be used to purchase shares of Common
Stock under such plan's new employer stock fund investment option. See "--
Benefits-- 401(k) Plan." Does not include subscription orders by the ESOP.
Intended purchases by the ESOP are expected to be 8% of the shares issued in
the Offering.
(2) Includes shares issued to the Mutual Company.
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THE REORGANIZATION AND STOCK OFFERING
THE BOARD OF DIRECTORS OF THE BANK HAS APPROVED THE PLAN OF REORGANIZATION
AND STOCK ISSUANCE, SUBJECT TO APPROVAL BY THE OTS AND THE MEMBERS OF THE BANK
ENTITLED TO VOTE ON THE MATTER AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS.
APPROVAL BY THE OTS DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE
PLAN BY SUCH AGENCY.
THE REORGANIZATION
On March 18, 1998 the Bank's Board of Directors unanimously adopted the
Plan, pursuant to which, subject to approval by the OTS, the Bank will, in a
series of steps, reorganize from a federal mutual savings bank into a two-tier
mutual holding company structure in which all the Mutual Company, Bancorp and
the Stock Bank will be chartered and regulated by the OTS. It is currently
intended that up to 49.9% of the outstanding capital stock of Bancorp will be
sold to the public in a minority stock offering, and the remaining shares will
be held by the Mutual Company. The Plan must be approved by the OTS, and the
Reorganization must be approved by the Bank's depositors as of the Voting Record
Date of ___________, ____. A Special Meeting of Members has been called for this
purpose to be held on ___________, 1998.
As long as the Mutual Company remains in the mutual form of organization,
the Mutual Company will be required to own at least a majority of the issued and
outstanding voting stock of Bancorp. Bancorp may issue any amount of non-voting
stock or debt to persons other than the Mutual Company.
REASONS FOR THE MUTUAL COMPANY REORGANIZATION
The Board of Directors and management of the Bank are obligated to operate
the Bank in a safe and sound manner and to maximize the financial and managerial
resources of the Bank for the benefit of its Members and the communities that it
serves. In adopting the Plan, the Board of Directors of the Bank has determined
that for the reasons set forth below, the Reorganization is advisable and in the
best interests of the Bank and its depositors, and is consistent with the Bank's
business plan to operate as an independent, community-oriented savings
institution.
The Bank, as a federally chartered mutual savings bank, does not have
stockholders and has no authority to issue capital stock. The Reorganization
will structure the Bank in the stock form of organization, which is used by
commercial banks, most major business corporations and a large number of savings
institutions. The Reorganization will permit Bancorp to issue capital stock
which will provide the Bank with greater flexibility to structure and finance
the expansion of its operations, both directly and through Bancorp, by acquiring
other financial institutions or new branch offices, diversifying into other
financial services to the extent allowable by applicable law and regulation and
otherwise improving the Bank's ability to provide services to its community.
Although there are no current arrangements, understandings or agreements
regarding any such opportunities, Bancorp will be in a position after the
Reorganization, subject to regulatory limitations and Bancorp's financial
position, to take advantage of any such opportunities that may arise. Access to
the capital markets will also make it possible for the Bank to be more
responsive to possible future changes in the regulations of the bank regulatory
agencies mandating higher capital reserves and/or capital ratios. AT THE SAME
TIME, THE MUTUAL HOLDING COMPANY STRUCTURE WILL PRESERVE THE MUTUAL FORM OF
OWNERSHIP WITHIN THE MUTUAL HOLDING COMPANY, CONSISTENT WITH THE BANK'S
COMMITMENT TO BE AN INDEPENDENT, COMMUNITY ORIENTED SAVINGS INSTITUTION. IN THIS
REGARD, SO LONG AS THE MUTUAL COMPANY
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IS IN EXISTENCE, IT WILL AT ALL TIMES OWN AT LEAST A MAJORITY INTEREST OF
BANCORP, AND THEREFORE, INDIRECTLY, THE BANK AS WELL. The Reorganization also
will enable employees, management and directors to have an equity ownership
interest in Bancorp, which management believes will enhance long-term growth and
performance of the Bank and Bancorp by enabling the Bank to attract and retain
qualified employees who have a more direct interest in the financial success of
the Bank.
In addition, the Reorganization will provide the Bank with a more flexible
operating structure which will enhance its ability to compete with other
financial institutions in New Jersey, with other financial institutions based in
other Northeast and Mid-Atlantic states to the extent such institutions or their
affiliates conduct operations in New Jersey, and with nondepository financial
institutions operating within the Bank's market area. Finally, the
Reorganization may ease any transition to a uniform financial institution
charter should such a charter be required in the future.
The Board of Directors believes that these advantages outweigh the
potential disadvantages of the mutual holding company structure, which include:
(i) the inability to sell Common Stock in excess of 49.9% of Bancorp's total
issued and outstanding voting stock so long as the Mutual Company remains in
existence; (ii) the more limited liquidity of the Common Stock, as compared to a
standard conversion; (iii) the inability of stockholders other than the Mutual
Company to obtain majority ownership of Bancorp and the Bank which may result in
the perpetuation of the existing management and Board of Directors of Bancorp
and the Bank; (iv) the higher cost of dividends associated with a minority
ownership interest; and (v) the added expense of conducting more than one stock
offering should the Mutual Company convert to the stock form at some future
date. A majority of the voting stock of Bancorp will be owned by the Mutual
Company, which is a mutual institution that will be controlled by the existing
Board of Directors of the Bank. While this structure will permit management to
focus on Bancorp's and the Bank's long-term business strategy` for growth and
capital redeployment without undue pressure from stockholders, it will also
serve to perpetuate the existing management and directors of the Bank. The
Mutual Holding Company will be able to elect all members of the Board of
Directors of Bancorp, and, except for certain matters, will be able to control
the outcome of all matters presented to the stockholders of Bancorp for
resolution by vote. No assurance can be given that the Mutual Company will not
take action adverse to the interests of the Minority Stockholders. For example,
the Mutual Company could revise its dividend waiver policy, prevent the sale of
control of Bancorp, or defeat a candidate for the Board of Directors of Bancorp
or other proposals put forth by the Minority Stockholders.
The Reorganization does not preclude the conversion of the Mutual Company
from the mutual to stock form of organization following the Reorganization. NO
ASSURANCE CAN BE GIVEN THAT THE MUTUAL COMPANY WILL EVER CONVERT TO STOCK FORM
OR WHAT CONDITIONS THE OTS MAY IMPOSE ON SUCH A TRANSACTION. See "Conversion of
Mutual Holding Company to Stock Form."
DESCRIPTION OF THE REORGANIZATION
Following receipt of all required regulatory approvals and approval of the
Plan by the Members, the Bank will reorganize into a two-tier mutual holding
company structure. The two-tier mutual holding company structure will consist
of: (1) a federally chartered mutual holding company (the Mutual Company); (2) a
federally chartered stock holding company (Bancorp) that will offer up to 49.9%
of its Common Stock in the Offering with the remaining shares of its Common
Stock owned by the Mutual Company; and (3) a federally chartered stock savings
bank (the Stock Bank) which will be the successor to the Bank in its current
mutual form and which will be wholly-owned by Bancorp.
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The Reorganization will be effected as follows, or in any manner approved
by the OTS that is consistent with the purposes of the Plan and applicable laws
and regulations. Under the two-tier mutual holding company structure: (i) the
Bank will organize an interim federal stock savings bank as a wholly-owned
subsidiary ("Interim One"); (ii) Interim One will organize a stock corporation
as a wholly-owned subsidiary (the Company); (iii) Interim One will organize an
interim federal stock savings bank as a wholly-owned subsidiary ("Interim Two");
(iv) the Bank will convert its charter to a federal stock savings bank charter
to become the Stock Bank and Interim One will exchange its charter for a federal
mutual holding company charter to become the Mutual Company; (v) sequentially
with step (iv), Interim Two will merge with and into Stock Bank with the Stock
Bank as the resulting institution; (vi) 100% of the issued Common Stock of the
Stock Bank will be transferred to the Mutual Company in exchange for membership
interests in the Savings Bank, in its mutual form, which are conveyed to the
Mutual Company; and (vii) the Mutual Company will transfer 100% of the issued
Common Stock of the Stock Bank to Bancorp in a capital distribution. The Plan
provides that, concurrently with the Reorganization, Bancorp will sell up to
49.9% of its outstanding capital stock in a minority stock offering and that the
remaining shares will be held by the Mutual Company.
Upon consummation of the Reorganization, the legal existence of the Bank
will not terminate, but the converted Stock Bank will be a continuation of the
Bank, and all property of the Bank, including its right, title and interest in
and to all property of whatsoever kind and nature, interest and asset of every
conceivable value or benefit then existing or pertaining to the Bank, or which
would inure to the Bank immediately by operation of law and without the
necessity of any conveyance or transfer and without any further act or deed,
will vest in the Stock Bank. The Stock Bank will have, hold, and enjoy the same
in its right and fully to the same extent as the same was possessed, held, and
enjoyed by the Bank. The Stock Bank will continue to have, succeed to, and be
responsible for all the rights, liabilities and obligations of the Bank and will
maintain its headquarters operations at the Bank's present location.
In connection with Reorganization, Bancorp will apply to the OTS to retain
up to 50% of the net proceeds of the Offering, and the Mutual Company would be
capitalized with $100,000. The Bank believes that capitalization of the Mutual
Company and Bancorp, at this level will provide the Mutual Company and Bancorp
with economic strength separate and apart from the Bank and could facilitate
future activities by the Mutual Company and Bancorp.
The description of the two-tier mutual holding company structure is
qualified in its entirety by reference to the Plan and the charter and bylaws of
the Stock Bank, Bancorp and the Mutual Company to be effective upon consummation
of the Reorganization.
ESTABLISHMENT OF THE CHARITABLE FOUNDATION
GENERAL. In furtherance of the Bank's long-standing commitment to its local
community, the Bank's Plan provides for the establishment of a charitable
foundation in connection with the Bank's Reorganization. The Plan provides that
the Bank, Bancorp and the Mutual Company will establish the Foundation, which
will be incorporated under Delaware law as a non-stock corporation, and will
fund the Foundation with Common Stock of Bancorp and cash, as further described
below. The Bank believes that the funding of the Foundation with Common Stock of
Bancorp is a means of establishing a common bond between the Bank and the
communities in which the Bank operates and thereby enables such communities to
share in the potential growth and success of the Mutual Company, Bancorp and the
Bank over the long term. By further enhancing the Bank's visibility and
reputation in the communities in which it operates, the Bank believes that the
Foundation will enhance the long-term value of the Bank's community banking
franchise.
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The Foundation would be dedicated to the promotion of charitable purposes
within the communities in which the Bank operates, including, but not limited
to, providing grants or donations to support housing assistance, not-for-profit
medical facilities, community groups and other types of organizations or
projects. Establishment of the Foundation is subject to the approval of a
majority of the total outstanding votes of the Bank's members eligible to be
cast at the Special Meeting. The Foundation will be considered as a separate
matter from approval of the Plan. If the Bank's members approve the Plan, but
not the Foundation, the Bank intends to complete the Reorganization and Offering
without the establishment of the Foundation. Failure to approve the
establishment of the Foundation may materially affect the pro forma market value
of the Common Stock. In such an event, the Bank may establish a new Estimated
Price Range and commence a resolicitation of subscribers. In the event of a
resolicitation, unless an affirmative response is received within a specified
period of time, all funds will be promptly returned to investors, as described
elsewhere herein. See "--Stock Pricing and Number of Shares Issued."
PURPOSE OF THE FOUNDATION. The purpose of the Foundation is to provide
funding to support charitable purposes within the communities in which the Bank
operates. The Bank has long emphasized community lending and community
development activities and currently has an "outstanding" Community Reinvestment
Act ("CRA") rating. The Foundation is being formed as a complement to the Bank's
existing community activities, not as a replacement for such activities. Indeed,
the Bank intends to continue to emphasize community lending and community
development activities following the Reorganization. However, such activities
are not the Bank's sole corporate purpose. The Foundation, conversely, will be
completely dedicated to community activities and the promotion of charitable
causes, and may be able to support such activities in ways that are not
presently available to the Bank. Since the Bank already engages in community
development activities, the Bank believes that the Foundation will enable the
Mutual Company, Bancorp and the Bank to assist their local community in areas
beyond community development and lending. In this regard, the Board of Directors
believes the establishment of a charitable foundation is consistent with the
Bank's commitment to community service. The Board of Directors of the Bank also
believe that the funding of the Foundation with both Common Stock of Bancorp and
cash is a means of enabling the communities in which the Bank operates to share
in the potential growth and success of Bancorp long after completion of the
Reorganization. The Foundation accomplishes that goal by providing for continued
ties between the Foundation and Bank, thereby forming a partnership with the
Bank's community. The establishment of the Foundation would also enable the
Mutual Company, Bancorp and the Bank to develop a unified charitable donation
strategy and would centralize the responsibility for administration and
allocation of corporate charitable funds. The Bank, however, does not expect the
contribution to the Foundation to take the place of the Bank's traditional
community lending and charitable activities. The Bank expects in future periods
to continue making charitable contributions within its communities.
STRUCTURE OF THE FOUNDATION. The Foundation will be incorporated under
Delaware law as a non-stock corporation. It is currently anticipated that the
Foundation's board of directors will be comprised of [FIVE] members, all of whom
will be individuals elected from existing directors and officers of the Bank. On
an on-going basis, a Nominating Committee of the board of directors of the
Foundation, will nominate individuals eligible for election to the board of
directors of the Foundation. The members of the Foundation, who are comprised of
its board members, will elect the directors at the annual meeting of the
Foundation from those nominated by the Nominating Committee. Only persons
serving as directors of the Foundation qualify as members of the Foundation with
voting authority. Directors will be divided into three classes with each class
appointed for three-year terms. The certificate of incorporation of the
Foundation will provide that the Foundation is organized exclusively for
charitable purposes as set forth in Section 501(c)(3) of the Code. The
Foundation's certificate of incorporation further will provide that no part of
the net earnings of the Foundation will inure to the benefit of, or be
distributable to, its directors, officers or members. A person
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who is a director, officer or employee of the Bank, or has the power to direct
its management or policies, or otherwise owes a fiduciary duty to the Bank, and
who will also serve as a director or employee of the Foundation would be subject
to the requirements of OTS Conflicts of Interest Regulations.
The authority for the affairs of the Foundation will be vested in the board
of directors of the Foundation. The directors of the Foundation will be
responsible for establishing the policies of the Foundation with respect to
grants or donations by the Foundation, consistent with the stated purposes for
which the Foundation is established. Although no formal policy governing
Foundation grants exists at this time, the Foundation's board of directors will
adopt such a policy upon establishment of the Foundation. The directors will
also be responsible for directing the assets of the Foundation. Pursuant to the
terms of the contribution as mandated by the OTS, all shares of Common Stock
held by the Foundation must be voted in the same ratio as all other shares of
Bancorp's Common Stock on all proposals considered by stockholders of Bancorp;
provided, however, that the OTS will waive this voting restriction under certain
circumstances if compliance with the restriction would: (i) cause a violation of
the law of the State of Delaware and the OTS determines that federal law would
not preempt the application of the laws of the State of Delaware to the
Foundation; (ii) would cause the Foundation to lose its tax-exempt status or
otherwise have a material and adverse tax consequence on the Foundation; or
(iii) would cause the Foundation to be subject to an excise tax under Section
4941 of the Code. In order for the OTS to waive such voting restriction,
Bancorp's or the Foundation's legal counsel must render an opinion satisfactory
to OTS that compliance with the voting restriction would have the effect
described in clauses (i), (ii) or (iii) above. Under those circumstances, the
OTS will grant a waiver of the voting restriction upon submission of such legal
opinion(s) by Bancorp or the Foundation. In the event that the OTS waived the
voting restriction, the directors would direct the voting of the Common Stock
held by the Foundation. However, a condition to the OTS approval of the
Reorganization provides that in the event such voting restriction is waived or
becomes unenforceable, the Director of the OTS, or his designees, at that time
may impose conditions on the composition of the board of directors of the
Foundation or such other conditions or restrictions relating to the control of
the Common Stock held by the Foundation, any of which could limit the ability of
the board of directors of the Foundation to control the voting of the Common
Stock held by the Foundation. There will be no agreements or understandings with
directors of the Foundation regarding the exercise of control, directly or
indirectly, over the management or policies of the Mutual Company, Bancorp or
the Bank, including agreements related to voting, acquisition or disposition of
Bancorp's stock. As directors of a nonprofit corporation, directors of the
Foundation will at all times be bound by their fiduciary duty to advance the
Foundation's charitable goals, to protect the assets of the Foundation and to
act in a manner consistent with the charitable purpose for which the Foundation
is established.
The Mutual Company or Bancorp will provide office space and administrative
support services to the Foundation. Initially, the Foundation is expected to
have no employees. The board of directors of the Foundation will appoint such
officers as may be necessary to manage the operations of the Foundation. Any
transaction between the Bank and the Foundation will comply with the affiliate
transaction restrictions set forth in Sections 23A and 23B of the Federal
Reserve Act, as amended.
Bancorp proposes to capitalize the Foundation with Company Common Stock in
an amount equal to 4.19% of the total amount of Common Stock to be sold in
connection with the Offering and $100,000. At the minimum, midpoint and maximum
of the Offering Range, the stock contribution to the Foundation would equal
64,168, 75,491 and 86,815 shares, which would have a market value of $641,680,
$754,910 and $868,150, respectively, based on the Purchase Price. Such
contribution, once made, will not be recoverable by Bancorp or the Bank. The
Mutual Company, Bancorp and the Bank determined to fund the Foundation with
Common Stock and cash to provide the Foundation with a potentially larger
endowment than if Bancorp
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contributed only cash to the Foundation since, as a shareholder, the Foundation
will share in the potential growth and success of Bancorp. As such, the
contribution of stock and cash to the Foundation has the potential to provide a
self-sustaining funding mechanism which reduces the amount of cash that Bancorp,
if it were not making the stock contribution as well, would have to contribute
to the Foundation in future years in order to maintain a level amount of
charitable grants and donations.
The Foundation would receive working capital from earnings on the cash
contribution, any dividends that may be paid on the Common Stock in the future,
and subject to applicable federal and state laws, loans collateralized by the
Common Stock or from the proceeds of the sale of any of the Common Stock in the
open market from time to time as may be permitted to provide the Foundation with
additional liquidity. As a private foundation under Section 501(c)(3) of the
Code, the Foundation will be required to distribute annually in grants or
donations, a minimum of 5% of the average fair market value of its net
investment assets. One of the conditions imposed on the gift of Common Stock by
Bancorp is that the amount of Common Stock that may be sold by the Foundation in
any one year shall not exceed 5% of the average market value of the assets held
by the Foundation, except where the board of directors of the Foundation
determines that the failure to sell an amount of common stock greater than such
amount would result in a long-term reduction of the value of the Foundation's
assets or would otherwise jeopardize the Foundation's capacity to carry out its
charitable purposes. While there may be a greater risk associated with a one-
stock portfolio in comparison to a diversified portfolio, Bancorp believes any
such risk is mitigated by the ability of the Foundation's directors to sell more
than 5% of its stock in such circumstances. Upon completion of the Offering and
the contribution of cash and shares to the Foundation immediately following the
Offering, Bancorp would have 3,561,500, 4,190,000 and 4,818,500 shares issued
and outstanding at the minimum, midpoint and maximum of the Offering Range.
Because Bancorp will have an increased number of shares outstanding, the voting
and ownership interests of shareholders in Bancorp's common stock would be
diluted by ____%, as compared to their interests in Bancorp if the Foundation
was not established. For additional discussion of the dilutive effect, see
"Comparison of Valuation and Pro Forma Information With No Foundation" and "Pro
Forma Data."
COMPARISON OF VALUATION AND OTHER FACTORS ASSUMING THE FOUNDATION IS NOT
ESTABLISHED AS PART OF THE CONVERSION. Bancorp proposes to capitalize the
Foundation with Common Stock in an amount equal to 4.19% of the total amount of
Common Stock sold in connection with the Reorganization and Offering and
$100,000. At the minimum, midpoint, maximum and 15% above the maximum of the
Offering Range, the contribution to the Foundation would equal 64,168, 75,491,
86,815 and 99,837 shares, respectively, which would have a market value of
$641,680, $754,910, $868,150 and $998,370, respectively, based on the Purchase
Price. Such contribution, once made, will not be recoverable by Bancorp or the
Bank. As a result of the establishment of the Foundation, the Offering Range, as
estimated by FinPro, has decreased and the amount of stock available for sale in
the Offerings has also correspondingly decreased. The amount of the decrease is
1,170,000, 1,370,000, 1,580,000 and 1,820,000 shares, or $1.2 million, $1.4
million, $1.6 million and $1.8 million at the minimum, midpoint, maximum and 15%
above the maximum of the Offering Range, respectively. See "Pro Forma Data" and
"Comparison of Valuation and Pro Forma Data Information with No Foundation."
TAX CONSIDERATIONS. The Mutual Company, Bancorp and the Bank have been
advised by their independent accountants that an organization created for the
above purposes will qualify as a 501(c)(3) exempt organization under the Code,
and will be classified as a private foundation rather than a public charity. A
private foundation typically receives its support from one person or one
corporation whereas a public charity receives its support from the public. Under
the Code, the Foundation may not own more than 2% of the outstanding shares of
common stock of Bancorp due to the mutual holding company owning a
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majority of the outstanding shares of common stock of Bancorp. The Foundation
will submit a request to the IRS to be recognized as an exempt organization
after approval of the Foundation by the Bank's members at the Special Meeting
being held to consider the Reorganization. As long as the Foundation files its
application for tax-exempt status within 15 months from the date of its
organization, and provided the IRS approves the application, the effective date
of the Foundation's status as a Section 501(c)(3) organization will be the date
of its organization. Bancorp's independent accountants, however, have not
rendered any advice on the condition of the gift which requires that all shares
of Common Stock of Bancorp held by the Foundation must be voted in the same
ratio as all other shares of Bancorp's Common Stock, on all proposals considered
by stockholders of Bancorp. In the event that Bancorp or the Foundation receives
an opinion of their tax counsel satisfactory to the OTS that compliance with the
voting restriction would cause the Foundation to lose its tax-exempt status,
otherwise have a material adverse tax consequence on the Foundation or subject
the Foundation to an excise tax under Section 4941 of the Code, the OTS will
waive such condition upon submission of such opinion(s) by Bancorp or the
Foundation. See "--Regulatory Conditions Imposed on the Foundation."
A legal opinion of the OTS which addresses the establishment of charitable
foundations by savings associations opines that as a general rule funds
contributed to a charitable foundation should not exceed the deductible
limitations set forth in the Code, and if an association's contributions exceed
the deductible limit, such action must be justified by the board of directors.
Under the Code, Bancorp may deduct up to 10% of its taxable income in any one
year and any contributions made by Bancorp in excess of the deductible amount
will be deductible for federal tax purposes over each of the five succeeding
taxable years. The Mutual Holding Company, Bancorp and the Bank believe that the
Reorganization presents a unique opportunity to establish and fund a charitable
foundation given the substantial amount of additional capital being raised in
the Reorganization. In making such a determination, the Mutual Company, Bancorp
and the Bank considered the dilutive impact of the Foundation on the amount of
Common Stock available to be offered for sale in the Offering. See "Comparison
of Valuation and Pro Forma Information with No Foundation." Based on such
consideration, Bancorp and the Bank believe that the contribution to the
Foundation in excess of the 10% annual limitation is justified given the Bank's
capital position and its earnings, the substantial additional capital being
raised in the Offering and the potential benefits of the Foundation to the
Bank's community. In this regard, assuming the sale of the Common Stock at the
midpoint of the Offering Range, Bancorp would have pro forma consolidated
capital of $40.3 million, or 12.5% of consolidated assets and the Bank's pro
forma tangible, core and risk-based capital ratios would be 10.87%, 10.87% and
27.07%, respectively. See "Regulatory Capital Compliance," "Capitalization," and
"Comparison of Valuation and Pro Forma Information with No Foundation." Thus,
the amount of the cash and stock contribution will not adversely impact the
financial condition of Bancorp and the Bank and Bancorp and the Bank therefore
believe that the amount of the charitable contribution is reasonable given
Bancorp and the Bank's pro forma capital positions. As such, Bancorp and the
Bank believe that the contribution does not raise safety and soundness concerns.
Bancorp and the Bank have received an opinion of their independent
accountants that Bancorp's contribution of its own stock to the Foundation will
not constitute an act of self-dealing, and that Bancorp will be entitled to a
deduction in the amount of the fair market value of the stock at the time of the
contribution less the nominal par value that the Foundation is required to pay
to Bancorp for such stock plus the amount of cash contributed to the Foundation
at the time of the Reorganization, subject to a limitation based on 10% of
Bancorp's annual taxable income. Bancorp, however, would be able to carry
forward any unused portion of the deduction for five years following the year in
which the contribution is made for federal tax purposes. Thus, while Bancorp
expects, based on the maximum of the Offering Range, to be able to utilize for
federal income tax purposes a charitable contribution deduction of approximately
$________
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in fiscal year 1998, Bancorp is permitted under the Code to carryover the excess
of the total contribution over such 1998 deduction over a five-year period for
federal income tax purposes. For New Jersey state income tax purposes, Bancorp
also would be able to deduct its contribution to the Foundation and to carry
forward any unused portion over a five-year period, subject to the limitation
based on 10% of Bancorp's unconsolidated annual taxable income, and provided
Bancorp generates sufficient state taxable income on an unconsolidated basis.
Assuming the close of the Offerings at the midpoint of the Offering Range,
Bancorp estimates that all of the federal tax deduction should be deductible
over the six-year period. However, no assurances can be made that Bancorp will
have sufficient pre-tax income over the five year period following the year in
which the contribution was made to fully utilize the carryover related to the
excess contribution. Neither the Mutual Company, Bancorp nor the Bank expects to
make any further contributions to the Foundation within the first five years
following the initial contribution. After that time, the Mutual Company, Bancorp
and the Bank may consider future contributions to the Foundation. Any such
decisions would be based on an assessment of, among other factors, the financial
condition of the Mutual Company, Bancorp and the Bank at that time, the
interests of shareholders and depositors of the Mutual Company, Bancorp and the
Bank, and the financial condition and operations of the Foundation.
Although the Mutual Company, Bancorp and the Bank have received an opinion
of their independent accountants that Bancorp is entitled to a deduction for the
charitable contribution, there can be no assurances that the IRS will recognize
the Foundation as a Section 501(c)(3) exempt organization or that the deduction
will be permitted. In such event, Bancorp's contribution to the Foundation would
be expensed without tax benefit, resulting in a reduction in earnings in the
year in which the IRS makes such a determination. The Bank has agreed to a
limitation on the liability of its independent accountants to it solely as a
result of, and to indemnify its independent accountants solely in connection
with, certain claims or liabilities relating to the above-discussed federal
income tax opinion, except to the extent determined to have resulted from
professional negligence or intentional or deliberate misconduct. See "Risk
Factors--Establishment of the Charitable Foundation." In cases of willful,
flagrant or repeated acts or failures to act which result in violations of the
IRS rules governing private foundations, a private foundation's status as a
private foundation may be involuntarily terminated by the IRS. In such event,
the managers of a private foundation could be liable for excise taxes based on
such violations and the private foundation could be liable for a termination tax
under the Code. The Foundation's certificate of incorporation provides that it
shall have a perpetual existence. In the event, however, the Foundation were
subsequently dissolved as a result of a loss of its tax exempt status, the
Foundation would be required under the Code and its certificate of incorporation
to distribute any assets remaining in the Foundation at that time for one or
more exempt purposes within the meaning of Section 501(c)(3) of the Code, or to
distribute such assets to the federal government, or to a state or local
government, for a public purpose.
As a private foundation, earnings and gains, if any, from the sale of
Common Stock or other assets are exempt from federal and state corporate
taxation. However, investment income, such as interest, dividends and capital
gains, will be subject to a federal excise tax of 2.0%. The Foundation will be
required to make an annual filing with the IRS within four and one-half months
after the close of the Foundation's fiscal year to maintain its tax-exempt
status. The Foundation will be required to publish a notice that the annual
information return will be available for public inspection for a period of 180
days after the date of such public notice. The information return for a private
foundation must include, among other things, an itemized list of all grants made
or approved, showing the amount of each grant, the recipient, any relationship
between a grant recipient and the Foundation's managers and a concise statement
of the purpose of each grant.
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REGULATORY CONDITIONS IMPOSED ON THE FOUNDATION. Establishment of the
Foundation is subject to the following conditions imposed by the OTS: (i) the
Foundation will be subject to examination by the OTS, at the Foundation's own
expense; (ii) the Foundation must comply with supervisory directives imposed by
the OTS; (iii) the Foundation will provide annual reports to the OTS describing
grants made and grant recipients; (iv) the Foundation will operate in accordance
with written policies adopted by the board of directors, including a conflict of
interest policy; (v) the Foundation will not engage in self-dealing and will
comply with all laws necessary to maintain its tax-exempt status; (vi) any
purchases of Common Stock by the Foundation following that Reorganization will
be subject to OTS regulations on stock repurchases; and (vii) any shares of
Common Stock of Bancorp held by the Foundation must be voted in the same ratio
as all other shares of Bancorp's Common Stock on all proposals considered by
stockholders of Bancorp; provided, however, that the OTS will waive this voting
restriction under certain circumstances if compliance with the voting
restriction would: (a) cause a violation of the law of the State of Delaware and
the OTS determines the federal law does not preempt the application of the laws
of the State of Delaware to the Foundation; (b) cause the Foundation to lose its
tax-exempt status or otherwise have a material and adverse tax consequence on
the Foundation; or (c) cause the Foundation to be subject to an excise tax under
Section 4941 of the Code. In order for the OTS to waive such voting restriction,
Bancorp's or the Foundation's legal counsel must render an opinion satisfactory
to OTS that compliance with the voting restriction would have the effect
described in clauses (a), (b) or (c) above. Under those circumstances, the OTS
will grant a waiver of the voting restriction upon submission of such opinion(s)
by Bancorp or the Foundation. There can be no assurances that either a legal or
tax opinion addressing these issues will be rendered, or if rendered, that the
OTS will grant an unconditional waiver of the voting restriction. In this
regard, a condition to the OTS approval of the Conversion provides that in the
event such voting restriction is waived or becomes unenforceable, the Director
of the OTS, or his designees, at that time may impose conditions on the
composition of the board of directors of the Foundation or such other conditions
or restrictions relating to the control of the Common Stock held by the
Foundation, any of which could limit the ability of the board of directors of
the Foundation to control the voting of Common Stock held by the Foundation. In
no event will the voting restriction survive the sale of shares of the Common
Stock held by the Foundation.
In addition, establishment of the Foundation is subject to the approval of
a majority of the total outstanding votes of the Bank's members eligible to be
cast at the special meeting being held to consider the Reorganization. The
Foundation will be considered as a separate matter from approval of the Plan. If
the Bank's members approve the Plan, but not the Foundation, the Bank intends to
complete the Reorganization without the establishment of the Foundation. Failure
to approve the Foundation may materially increase the pro forma market value of
the Common Stock being offered for sale in the Offering. See "Comparison of
Valuation and Pro Forma Information With No Foundation."
EFFECTS OF THE REORGANIZATION
GENERAL. Each depositor in a mutual savings institution has both a deposit
account in the institution and a pro rata ownership interest in the net worth of
the institution based upon the balance in his or her account, which interest may
only be realized in the event of a liquidation of the institution or in the
event the institution declares a capital distribution to depositors, subject to
applicable OTS regulations. However, this ownership interest is tied to the
depositor's account and has no tangible market value separate from such deposit
account. Any depositor who opens a deposit account obtains a pro rata ownership
interest in the net worth of the institution without any additional payment
beyond the amount of the deposit. A depositor who reduces or closes his account
receives a portion or all of the balance in the account but nothing for his
ownership interest in the net worth of the institution, which is lost to the
extent that the balance in the account is reduced.
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Consequently, mutual savings institution depositors normally have no way to
realize the value of their ownership interest, which has realizable value only
in the unlikely event that the mutual savings institution is liquidated or in
the event the institution declares a capital distribution to depositors, subject
to applicable OTS regulations. In such event, the depositors of record at that
time, as owners, would share pro rata in any residual surplus and reserves after
other claims, including claims of depositors to the amounts of their deposits,
are paid.
Following the Reorganization, Bancorp and Minority Stockholders will
possess all voting rights in the Stock Bank and the affairs of the Stock Bank
will be directed by its board of directors.
CONTINUITY. While the Reorganization is being accomplished, the normal
business of the Bank of accepting deposits and making loans will continue
without interruption. The Bank will continue to be subject to regulation by the
OTS. After the Reorganization, the Bank will continue to provide services for
depositors and borrowers under current policies by its present management and
staff.
The Directors serving the Bank at the time of Reorganization will serve as
Directors of the Stock Bank after the Reorganization. The Directors of Bancorp
and the Mutual Company will consist of individuals currently serving on the
Board of Directors of the Bank. All officers of the Bank at the time of
Reorganization will retain their positions after Reorganization. Certain senior
management persons of the Bank will assume similar positions with Bancorp and
the Mutual Company.
EFFECT ON DEPOSIT ACCOUNTS. Under the Plan, each depositor in the Bank at
the time of Reorganization will automatically become a depositor in the Stock
Bank after the Reorganization, and each such deposit account will remain the
same with respect to deposit balance, interest rate and other terms. Each such
account with the Stock Bank will be insured by the FDIC to the same extent as
with the Bank before the Reorganization. Depositors will continue to hold their
existing certificates, passbooks and other evidences of their accounts.
EFFECT ON LOANS. All loans and other borrowings from the Bank shall retain
the same status with the Stock Bank after the Reorganization as they had with
the Bank immediately prior to the Reorganization. The amount, interest rate,
maturity and security for each loan will remain as they were contractually fixed
prior to the Reorganization.
EFFECT ON VOTING RIGHTS OF MEMBERS. At present, all depositors of the Bank
are members of, and have voting rights in, the Bank as to all matters requiring
membership action. Upon Reorganization, all depositors who currently have voting
rights in the Bank will cease to be members of the Bank and will no longer be
entitled to vote at meetings of the Bank. Upon Reorganization, all depositors
who had membership rights entitling them to voting rights or liquidation rights
with respect to the Bank as of the effective date of the Reorganization will
continue to have such rights solely with respect to the Mutual Company as long
as they continue to hold deposit accounts in the Bank. In addition, all persons
who become depositors of the Stock Bank subsequent to the Reorganization will
have such membership and liquidation rights with respect to the Mutual Company.
Borrower members of the Stock Bank who were borrower members of the Bank as of
November 16, 1995 and have borrowings outstanding at the time of the
Reorganization will have the same membership rights in the Mutual Company that
they had in the Bank immediately prior to the Reorganization as long as their
pre-Reorganization borrowings remain outstanding but will not receive membership
rights in connection with any borrowings made after the Reorganization.
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EFFECT ON LIQUIDATION RIGHTS. Following the Reorganization, all persons who
had membership or liquidation rights with respect to the Bank as of the date of
the Reorganization will continue to have such rights solely with respect to the
Mutual Company. In addition, all persons who become depositors in the Stock Bank
subsequent to the Reorganization will have membership and liquidation rights
with respect to the Mutual Company. In each case, no person who ceases to be a
depositor with the Stock Bank shall have any membership or liquidation rights
with respect to the Mutual Company.
AMENDMENT OR TERMINATION OF PLAN OF REORGANIZATION. If deemed necessary or
desirable, the Plan may be substantively amended at any time prior to
solicitation of proxies from Members to vote on the Plan by a two-thirds vote of
the Bank's Board of Directors, and at any time thereafter by such vote of such
Board of Directors with the concurrence of the OTS. Any amendment to the Plan
made after approval by the Members with the approval of the OTS shall not
necessitate further approval by the Members unless otherwise required by the
OTS. The Plan may be terminated by majority vote of the Bank's Board of
Directors at any time prior to the Special Meeting to vote on the Plan, and at
any time thereafter with the concurrence of the OTS.
By adoption of the Plan, the Members of the Bank authorize the Board of
Directors to amend or terminate the Plan under the circumstances set forth in
this Section.
TAX ASPECTS OF REORGANIZATION
Pursuant to the Plan, consummation of the Reorganization is conditioned
upon, among other things, the prior receipt by the Bank of either a private
letter ruling from the IRS and from the New Jersey Department of Revenue or an
opinion of the Bank's tax advisor as to the federal and New Jersey tax
consequences of the Reorganization to the effect that consummation of the
Reorganization will not be a taxable event to the Mutual Company, Bancorp, the
Stock Bank or the Bank's members. No private letter ruling will be received from
the IRS with respect to the proposed Reorganization. Instead, Muldoon, Murphy &
Faucette will issue an opinion to the effect that for federal income tax
purposes: (1) the Bank's exchange of its charter to stock form (the "Bank
Conversion") will qualify as a tax-free reorganization under Internal Revenue
Code of 1986, as amended (the "Code"), Section 368(a)(1)(F); (2) the conversion
of the Bank's wholly owned subsidiary ("Interim I") into the Mutual Company will
qualify as a tax-free reorganization under Code 368(a)(1)(F); (3) the merger of
the wholly owned subsidiary of Interim I ("Interim II") into the Stock Bank with
the Stock Bank as the survivor will qualify as a tax-free reorganization under
Code Section 368(a)(1)(A); (4) no gain or loss will be recognized by the Bank in
the Bank Conversion; (5) neither the Stock Bank nor the Mutual Company will
recognize gain or loss upon the receipt by the Stock Bank of substantially all
of the assets of the Bank in exchange for equity interests in the Mutual Company
and the Stock Bank's assumption of the Bank's liabilities; (6) the Mutual
Company's basis in the stock of the Stock Bank will increase by an amount equal
to the Bank's net basis in the property transferred to the Stock Bank; (7) the
Stock Bank's basis in the property received from the Bank will be the same as
the basis of such property in the hands of the Bank immediately prior to the
Reorganization and Offering; (8) the Stock Bank's holding period for the
property received from the Bank will include the period during which such
property received from the Bank was held by the Bank; (9) subject to the
conditions and limitations set forth in Code Sections 381, 382, 383 and 384 and
the Treasury Regulations promulgated thereunder, the Stock Bank will succeed to
and take into account the items of the Bank described in Code Section 381(c);
(10) no gain or loss will be recognized by the depositors of the Bank on the
receipt of equity interests with respect to the Mutual Company in exchange for
their equity interests surrendered therefor; (11) the exchange of stock by
depositors in exchange for equity interests in the Mutual Company will
constitute a tax-free exchange of property solely for voting "stock" pursuant to
Code Section 351; (12) each Bank
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depositor's aggregate basis, if any, in the Mutual Company equity interest
received in the exchange will equal the aggregate basis, if any, of each
depositor's equity interest in the Bank; (13) the holding period of the Mutual
Company equity interests received by the depositors of Bank will include the
period during which the Bank equity interest surrendered in exchange therefor
were held; (14) the Mutual Company will recognize no gain or loss upon the
transfer of the Stock Bank stock to Bancorp in exchange for Common Stock
pursuant to Code Section 351; (15) Bancorp will recognize no gain or loss upon
its receipt of Stock Bank stock from the Mutual Company in exchange for Common
Stock; (16) the Mutual Company will increase its basis in its shares of the
common Stock by the Mutual Company's basis in its Stock Bank stock; (17) Bancorp
will recognize no gain or loss upon the receipt of money in exchange for shares
of Common Stock; (18) no gain or loss will be recognized by the Bank's account
holders upon the issuance to them of accounts in the Stock Bank in stock form
immediately after the Reorganization and Offering, in the same dollar amounts
and on the same terms and conditions as their accounts at the Bank immediately
prior to the Reorganization and Offering; (19) the tax basis of the Common Stock
purchased in the Reorganization and Offering will be equal to the amount paid
therefor increased, in the case of the Common Stock acquired to the exercise of
Subscription Rights, by the fair market value, if any, of the Subscription
Rights exercised; (20) the holding period for the Common Stock purchased in the
Reorganization and Offering will commence upon the exercise of such holder's
Subscription Rights and otherwise on the day following the date of such
purchase; (21) gain or loss will be recognized to account holders upon the
receipt or exercise of Subscription Rights in the Reorganization and Offering,
but only to the extent such Subscription Rights are deemed to have value, as
discussed below. Radics & Co., LLC has opined that the Reorganization will not
be a taxable transaction to the Mutual Company, Bancorp, the Bank, Eligible
Account Holders or Supplemental Eligible Account Holders for New Jersey income
tax purposes. Certain portions of both the federal and the state income tax
opinions are based upon the assumption that the subscription rights issued in
connection with the Reorganization and Offering will have no value.
Unlike private rulings of the IRS, an opinion of a tax advisor is not
binding on the IRS and the IRS could disagree with conclusions reached therein.
In the event of such disagreement, there can be no assurance that the IRS would
not prevail in a judicial or administrative proceeding. The Bank has agreed to a
limitation on the liability of Fontanella and Babitts to it solely as a result
of, and to indemnify Fontanella and Babitts solely in connection with, certain
claims or liabilities relating to its New Jersey income tax opinion, except to
the extent determined to have resulted from professional negligence or
intentional or deliberate misconduct.
FinPro has issued an opinion stating that, pursuant to its Independent
Valuation, FinPro is of the opinion that the subscription rights do not have any
value, based on the fact that such rights are acquired by the recipients without
cost, are nontransferable and of short duration, and afford the recipients the
right only to purchase the Common Stock at a price equal to its estimated fair
market value, which will be the same price as the Purchase Price for the shares
of Common Stock sold in the Community Offering. Such Independent Valuation is
not binding on the IRS. If the subscription rights granted to Eligible Account
Holders or Supplemental Eligible Account Holders are deemed to have an
ascertainable value, receipt of such rights could be taxable to those Eligible
Account Holders or Supplemental Eligible Account Holders who receive and/or
exercise the subscription rights in an amount equal to such value and the Bank
could recognize gain on such distribution. Eligible Account Holders and
Supplemental Eligible Account Holders are encouraged to consult with their own
tax advisor as to the tax consequences in the event that such subscription
rights are deemed to have an ascertainable value.
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THE OFFERING
The Plan authorizes Bancorp to offer common stock in the Offering up to a
maximum of 49.9% of the issued and outstanding shares of Bancorp's Common Stock.
Bancorp is offering between $15.3 million and $20.7 million (or up to $23.8
million in the event the number of shares are increased) of Common Stock, which
represents a Minority Ownership Interest of 43%, based upon the Independent
Valuation. The Offering is being made concurrently with the Reorganization,
subject to the approval of the Members at the Special Meeting to be held on
___________, ____. The Common Stock will be offered on a priority basis to: (1)
Eligible Account Holders; (2) the ESOP; (3) Supplemental Eligible Account
Holders; and (4) Other Members. Subject to the prior rights of holders of
subscription rights, Common Stock not subscribed for in the Subscription
Offering is being concurrently offered in the Community Offering to certain
members of the general public, with preference given to natural persons residing
in Bergen, Essex and Morris Counties, New Jersey. Bancorp and Sandler O'Neill
may also agree to utilize a Syndicated Community Offering in connection with the
sale of shares of Common Stock not subscribed for in the Subscription and
Community Offering. The Bank reserves the right, in its absolute discretion, to
reject or accept, in whole or in part, any orders in the Community Offering,
either at the time of receipt of an order or as soon as practicable following
the Expiration Date. If an order is rejected, the funds submitted with such
order will be returned promptly. Subscription rights will expire if not
exercised by 12:00 noon, New Jersey time, on ___________, ____, unless extended
by Bancorp, with the approval of the OTS. Following the Offering, assuming that
2,071,955 shares are sold in the Offering, it is expected that the Mutual
Company will own 2,659,812, or 55.2%, of the total issued and outstanding shares
of voting Common Stock of Bancorp.
STOCK PRICING AND NUMBER OF SHARES ISSUED
The Plan requires that the aggregate purchase price of the Common Stock
must be based on the estimated pro forma market value of the Common Stock, as
determined by an independent valuation. The Bank has retained FinPro to make
such valuation. All shares of Common Stock sold in the Offering will be sold at
the Purchase Price. The Purchase Price was determined by the Board of Directors
of the Bank, based on the Independent Valuation. For its services, FinPro will
receive a fee of $14,000 plus reasonable expenses not to exceed $2,500. The Bank
has also agreed to pay FinPro an additional $17,000 for assisting the Bank in
the preparation of a business plan. The Bank has agreed to indemnify FinPro and
its employees and affiliates under certain circumstances against certain losses
(including any losses in connection with claims under federal securities laws)
arising out of its services as an appraiser, except where FinPro's liability
results from its negligence, willful misconduct or bad faith.
The Independent Valuation made by FinPro relied upon the information
contained in this Offering Circular, including the Financial Statements of the
Bank and Notes thereto. FinPro has advised the Bank that it also has considered
the effect of the Minority Ownership Interest represented by the Common Stock in
the Offering in terms of liquidity of the Common Stock in the after market,
marketability of the Common Stock, the possibility of conversion of the Mutual
Company to stock form, and other factors considered relevant. In addition,
FinPro has advised the Bank that it has considered and will consider the effect
of the additional capital raised by the sale of the Common Stock in the Offering
on the estimated aggregate pro forma market value of such shares. FinPro also
considered the following factors, among others: the present and projected
operating results and financial condition of the Bank and the economic and
demographic conditions in the Bank's existing market area; certain historical,
financial and other information relating to the Bank; a comparative evaluation
of the operating and financial statistics of the Bank with those of other
publically traded subsidiaries of mutual holding companies located in the Bank's
primary market area and the Mid-Atlantic area of the United States; the
aggregate size of the Offering of the Common Stock; the impact of
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the minority stock offering on the Bank's net worth and earnings potential; the
transfer of $100,000 from the Bank to the Mutual Company; the proposed dividend
policy of Bancorp; the majority ownership of the Common Stock by the Mutual
Company; and the trading market for securities of comparable institutions and
general conditions in the market for such securities.
On the basis of the foregoing, FinPro advised Bancorp and the Bank that, in
its Independent Valuation, dated June 12, 1998, the estimated pro forma market
value of the Common Stock ranged from a minimum of $35.6 million to a maximum of
$48.2 million, with a midpoint of $41.9 million (the "Estimated Price Range").
Based on the estimated Price Range and the Purchase Price, the number of
shares of Common Stock that Bancorp will issue will range from between 3,561,500
shares to 4,818,500 shares, with a midpoint of 4,190,000 shares. The Board
determined to offer 43% of such shares, or between 1,531,445 shares and
2,071,955 shares with a midpoint of 1,801,700 shares (the "Offering Range") to
depositors and the public pursuant to this Prospectus. In addition, up to 86,815
shares (up to 99,837 at the adjusted maximum of the Estimated Price Range) are
being issued to the Foundation as part of the Reorganization, which will result
in Minority Stockholders owning 43% of the shares of the Common Stock
outstanding at the conclusion of the Reorganization. The 55.2% of the shares of
Bancorp's Common Stock that are not sold in the Offering or contributed to the
Foundation will be issued to the Mutual Company.
The Board of Directors of the Bank have reviewed the Independent Valuation
of FinPro and in determining the reasonableness and adequacy of such Independent
Valuation consistent with OTS regulations and policies, have reviewed the
methodology and reasonableness of the assumptions utilized by FinPro in the
preparation of such Independent Valuation. The Offering Range may be amended
with the approval of the OTS (if required), if necessitated by subsequent
developments in the financial condition of Bancorp or the Bank or market
conditions generally.
In the event of a change in the Independent Valuation immediately prior to
consummation of the Offering, Bancorp may adjust the Minority Ownership Interest
by increasing or decreasing the total number of shares of Common Stock to be
issued to the Mutual Company in the Reorganization and/or the number of shares
Common Stock to be issued in the Offering. Increases or decreases in the number
of shares of Common Stock to be issued in the Reorganization and Offering as a
result of a change in the Independent Valuation would be subject to applicable
limitations on purchases of Common Stock and, unless otherwise permitted by the
Bank or required by the OTS, no resolicitation of persons who ordered Common
Stock in the Offering will be made and such persons will not be permitted to
modify or cancel their orders unless the Independent Valuation changes to less
than $35.6 million or greater than $55.4 million.
In the event of an increase in the Independent Valuation up to $55.4
million immediately prior to consummation of the Offering, Bancorp may, in its
discretion, choose to increase the number of shares of Common Stock issued in
the Offering up to 2,382,748 shares without offering persons who subscribed for
shares an opportunity to increase, decrease or rescind their orders. If the
Independent Valuation increases to $55.4 million, the total number of shares of
Common Stock issued and outstanding, including shares issued to the Mutual
Company, upon consummation of the Offering would be 5,541,275. Under such
circumstances, if Bancorp chose to increase the number of shares of Common Stock
offered in the Offering to 2,382,748 shares, the 2,382,748 shares would
represent a 43% Minority Ownership Interest. The final Minority Ownership
Interest will be determined as follows: (i) the numerator shall be the product
of (x) the number of shares of Common Stock sold in the Offering and (y) the
Purchase Price ($10 per share); and (ii)
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the denominator shall be the updated valuation of the pro forma value of the
Bank upon conclusion of the Offering as determined by FinPro.
THE INDEPENDENT VALUATION, HOWEVER, IS NOT INTENDED, AND MUST NOT BE
CONSTRUED, AS A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING
SUCH SHARES. FINPRO DID NOT INDEPENDENTLY VERIFY THE FINANCIAL STATEMENTS OF THE
BANK AND NOTES THERETO AND OTHER INFORMATION PROVIDED BY THE BANK, NOR DID
FINPRO INDEPENDENTLY VALUE THE ASSETS OR LIABILITIES OF THE BANK. THE VALUATION
CONSIDERS THE BANK AS A GOING CONCERN AND SHOULD NOT BE CONSIDERED AS A
LIQUIDATION VALUE OF THE BANK. MOREOVER, BECAUSE THE VALUATION IS BASED UPON
ESTIMATES AND PROJECTIONS ON A NUMBER OF MATTERS, ALL OF WHICH ARE SUBJECT TO
CHANGE FROM TIME TO TIME, NO ASSURANCE CAN BE GIVEN THAT PERSONS PURCHASING THE
COMMON STOCK IN THE OFFERING WILL BE ABLE TO SELL SUCH SHARES AT A PRICE EQUAL
TO OR GREATER THAN THE PURCHASE PRICE. SEE "ADDITIONAL INFORMATION" FOR ADVICE
ON HOW TO OBTAIN A COPY OF THE INDEPENDENT VALUATION.
No sale of shares of Common Stock may be consummated unless, prior to such
consummation, FinPro confirms to the Bank and the OTS that, to the best of its
knowledge, nothing of a material nature has occurred which, taking into account
all relevant factors, would cause FinPro to conclude that the value of the
Common Stock at the price so determined is incompatible with its estimate of the
pro forma market value of the Common Stock at the conclusion of the Conversion.
In the event the Offering is either more than 15% above the maximum of the
Offering Range or less than the minimum of the Offering Range, or if the
Independent Valuation changes by more than 15%, the Bank, after consulting with
the OTS, may terminate the Offering and return all funds promptly with interest
on payments made by check, bank draft or money order, extend or hold a new
Subscription Offering and/or Community Offering, establish a new Offering Range,
commence a resolicitation of subscribers or take such other actions as permitted
by the OTS in order to complete the Reorganization and the Offering. In the
event that a resolicitation is commenced, unless an affirmative response is
received within a reasonable period of time, all funds will be promptly returned
to investors as described above. A resolicitation, if any, following the
conclusion of the Subscription and Community Offerings would not exceed 45 days
unless further extended by the OTS for a period of up to 90 days not to extend
beyond ________________, ____.
If all shares of Common Stock are not sold through the Subscription and
Community Offerings, then Bancorp may offer the remaining shares in a Syndicated
Community Offering which may commence concurrently with the Subscription and
Community Offerings, subject to prior rights of subscribers, or as soon as
practicable following the close of the Subscription and Community Offerings. All
shares of Common Stock, whether sold in the Subscription and Community Offerings
or Syndicated Community Offering, will be sold at a fixed purchase price of $10
per share. See "--Syndicated Community Offering."
No sale of shares of Common Stock may be consummated unless, prior to such
consummation, FinPro confirms to the Bank, Bancorp and the OTS that, to the best
of its knowledge, nothing of a material nature has occurred which, taking into
account all relevant factors, including those which would be involved in a
cancellation of the Syndicated Community Offering, would cause FinPro to
conclude that the aggregate value of the Common Stock at the Purchase Price is
incompatible with its estimate of the pro forma market value of the Common Stock
of Bancorp at the conclusion of the Offering. Any change which would result in
an aggregate purchase price which is below the minimum or more than 15% above
the maximum of the Offering Range would be subject to OTS approval. If such
confirmation is not received, Bancorp may extend the Offering, extend, reopen or
commence a new Subscription Offering, Community Offering or Syndicated Community
Offering, establish a new Offering Range and commence a resolicitation of all
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subscribers with the approval of the OTS or take such other actions as permitted
by the OTS in order to complete the Offering or terminate the Plan and cancel
the Offering. In the event that a resolicitation is commenced, unless an
affirmative response is received within a reasonable period of time, all funds
will be promptly returned to investors as described above. A resolicitation, if
any, following the conclusion of the Subscription and Community Offerings would
not exceed 45 days unless further extended by OTS for periods up to 90 days not
to extend beyond _____________, ____.
The actual number of shares of Common Stock sold in the Offering may be
adjusted within the Offering Range at the discretion of the Board of Directors
prior to completion of the Offering, as long as the Holding Company at the close
of the Offering owns a majority of the issued and outstanding voting stock of
the Bank.
SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS
In accordance with the Plan, rights to subscribe for the purchase of Common
Stock have been granted under the Plan to the following persons in the following
order of descending priority: (1) Eligible Account Holders; (2) the ESOP; (3)
Supplemental Eligible Account Holders; and (4) Other Members. All subscriptions
received will be subject to the availability of Common Stock after satisfaction
of all subscriptions of all persons having prior rights in the Subscription
Offering and to the maximum and minimum purchase limitations set forth in the
Plan and as described below under "--Limitations on Common Stock Purchases."
PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder will
receive, without payment therefor, first priority, nontransferable subscription
rights to subscribe for in the Subscription Offering up to the greater of: (1)
the amount permitted to be purchased in the Community Offering, currently
$350,000 of Common Stock; (2) one-tenth of one percent (.10%) of the total
offering of shares of Common Stock; or (3) fifteen times the product (rounded
down to the next whole number) obtained by multiplying the total number of
shares of Common Stock to be issued by a fraction of which the numerator is the
amount of the Eligible Account Holder's Qualifying Deposit (defined by the Plan
as any deposit account in the Bank with a balance of $50 or more as of February
28, 1997) and the denominator is the total amount of Qualifying Deposits of all
Eligible Account Holders, in each case on the Eligibility Record Date, subject
to the overall purchase limitation and exclusive of an increase in the shares
issued pursuant to an increase in the Offering Range of up to 15%. See "--
Limitations on Common Stock Purchases."
In the event that Eligible Account Holders exercise subscription rights for
a number of shares of Common Stock in excess of the total number of such shares
eligible for subscription, the shares of Common Stock shall be allocated among
the subscribing Eligible Account Holders so as to permit each subscribing
Eligible Account Holder, to the extent possible, to purchase a number of shares
sufficient to make his or her total allocation of Common Stock equal to the
lesser of 100 shares or the number of shares subscribed for by the Eligible
Account Holder. Any shares remaining after that allocation will be allocated
among the subscribing Eligible Account Holders whose subscriptions remain
unsatisfied in the proportion that the amount of the Qualifying Deposit of each
Eligible Account Holder whose subscription remains unsatisfied bears to the
total amount of the Qualifying Deposits of all Eligible Account Holders whose
subscriptions remain unsatisfied. If the amount so allocated exceeds the amount
subscribed for by any one or more remaining Eligible Account Holders, the excess
shall be reallocated (one or more times as necessary) among those Eligible
Account Holders whose subscriptions are still not fully satisfied on the same
principle until all available shares have been allocated or all subscriptions
satisfied.
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To ensure proper allocation of stock, each Eligible Account Holder must
list on his subscription order form all accounts in which he has an ownership
interest. Failure to list an account could result in less shares being allocated
than if all accounts had been disclosed. The subscription rights of Eligible
Account Holders who are also Directors or Officers of the Bank or their
associates will be subordinated to the subscription rights of other Eligible
Account Holders to the extent attributable to increased deposits in the year
preceding February 28, 1997.
PRIORITY 2: EMPLOYEE STOCK OWNERSHIP PLAN. To the extent that there are
sufficient shares remaining after satisfaction of the subscriptions by Eligible
Account Holders, the ESOP will receive, without payment therefor, second
priority, nontransferable subscription rights to purchase, in the aggregate, up
to 10% of Common Stock issued in the Offering, including shares issued to the
Foundation, and any increase in the number of shares of Common Stock to be
issued in the Offering after the date hereof as a result of an increase of up to
15% in the maximum of the Offering Range. The ESOP intends to purchase 8% of the
shares to be issued in the Offering, including shares issued to the Foundation,
or ______ shares and ______ shares, based on the minimum and maximum of the
Offering Range, respectively. Subscriptions by the ESOP will not be aggregated
with shares of Common Stock purchased directly by or which are otherwise
attributable to any other participants in the Subscription and Community
Offering, including subscriptions of any of the Bank's directors, officers,
employees or associates thereof. See "Management of the Bank--Benefits--Employee
Stock Ownership Plan."
PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. Each Supplemental
Eligible Account Holder will receive, without payment therefor, third priority,
nontransferable subscription rights to subscribe for in the Subscription
Offering up to the greater of: (1) the amount permitted to be purchased in the
Community Offering, currently $350,000 of Common Stock; (2) one-tenth of one
percent (.10%) of the total offering of shares of Common Stock; or (3) fifteen
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Common Stock to be issued by a
fraction of which the numerator is the amount of the Supplemental Eligible
Account Holder's Qualifying Deposit and the denominator is the total amount of
Qualifying Deposits of all Supplemental Eligible Account Holders, in each case
on the Supplemental Eligibility Record Date, subject to the overall purchase
limitation and exclusive of an increase in the shares issued pursuant to an
increase in the Offering Range of up to 15%. See "-- Limitation on Common Stock
Purchase."
In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Common Stock in excess of the
total number of such shares eligible for subscription, the shares of Common
Stock shall be allocated among the subscribing Supplemental Eligible Account
Holders so as to permit each subscribing Supplemental Eligible Account Holder,
to the extent possible, to purchase a number of shares sufficient to make his or
her total allocation of Common Stock equal to the lesser of 100 shares or the
number of shares subscribed for by the Supplemental Eligible Account Holder. Any
shares remaining after that allocation will be allocated among the subscribing
Supplemental Eligible Account Holders whose subscriptions remain unsatisfied in
the proportion that the amount of the Qualifying Deposit of each Supplemental
Eligible Account Holder whose subscription remains unsatisfied bears to the
total amount of the Qualifying Deposits of all Supplemental Eligible Account
Holders whose subscriptions remain unsatisfied. If the amount so allocated
exceeds the amount subscribed for by any one or more remaining Supplemental
Eligible Account Holders, the excess shall be reallocated (one or more times as
necessary) among those Supplemental Eligible Account Holders whose subscriptions
are still not fully satisfied on the same principle until all available shares
have been allocated or all subscriptions satisfied.
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To ensure proper allocation of stock, each Supplemental Eligible Account
Holder must list on his subscription order form all accounts in which he has an
ownership interest. Failure to list an account could result in less shares being
allocated than if all accounts had been disclosed. The subscription rights
received by Eligible Account Holders will be applied in partial satisfaction to
the subscription rights to be received as a Supplemental Eligible Account
Holder.
PRIORITY 4: OTHER MEMBERS. To the extent that there are sufficient shares
remaining after satisfaction of subscriptions by the Eligible Account Holders,
the ESOP and the Supplemental Eligible Account Holders, each Other Member will
receive, without payment therefor, fourth priority nontransferable subscription
rights to subscribe for Common Stock in the Subscription Offering up to the
greater of the amount permitted to be purchased in the Community Offering,
currently $350,000 of Common Stock, or one-tenth of one percent (.10%) of the
total offering of shares of Common Stock, subject to the overall purchase
limitation and exclusive of an increase in shares issued pursuant to an increase
in the Estimated Price Range of up to 15%.
In the event that Other Members subscribe for a number of shares of Common
Stock which, when added to the shares of Common Stock subscribed for by the
Eligible Account Holders, the ESOP and the Supplemental Eligible Account Holders
is in excess of the total number of shares of Common Stock being issued, the
subscriptions of such Other Members will be allocated among the subscribing
Other Members so as to permit each subscribing Other Member, to the extent
possible, to purchase a number of shares sufficient to make his or her total
allocation of Common Stock equal to the lesser of 100 shares or the number of
shares subscribed for by the Other Member. Any shares remaining after that
allocation will be allocated among the subscribing Other Members whose
subscriptions remain unsatisfied pro rata in the same proportion that the number
of votes of a subscribing Other Member on the Voting Record Date bears to the
total votes on the Voting Record Date of all subscribing Other Members whose
subscriptions remain unsatisfied. If the amount so allocated exceeds the amount
subscribed for by any one or more remaining Other Members, the excess shall be
reallocated (one or more times as necessary) among those remaining Other Members
whose subscriptions are still not fully satisfied on the same principle until
all available shares have been allocated or all subscriptions satisfied.
To ensure proper allocation of stock, each Other Member must list on his
subscription order form all accounts in which he has an ownership interest.
Failure to list an account could result in less shares being allocated than if
all accounts had been disclosed. The subscription rights received by Eligible
Account Holders and Supplemental Eligible Account Holders will be applied in
partial satisfaction to the subscription rights to be received as an Other
Member.
EXPIRATION DATE FOR THE SUBSCRIPTION OFFERING. The Subscription Offering
will expire on _______________, 1998, unless extended for up to 45 days by the
Bank or such additional periods with the approval of the OTS. Subscription
rights which have not been exercised prior to the Expiration Date will become
void.
The Bank will not execute orders until all shares of Common Stock have been
subscribed for or otherwise sold. If all shares have not been subscribed for or
sold within 45 days after the Expiration Date, unless such period is extended
with the consent of the OTS, all funds delivered to the Bank pursuant to the
Subscription Offering will be returned promptly to the subscribers with interest
and all withdrawal authorizations will be cancelled. If an extension beyond the
45 day period following the Expiration Date is granted, the Bank will notify
subscribers of the extension of time and of any rights of subscribers to modify
or rescind their subscriptions and have their funds returned promptly with
interest, and of the time
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period within which subscribers must affirmatively notify the Bank of their
intention to confirm, modify, or rescind their subscription. If an affirmative
response to any resolicitation is not received by Bancorp from a subscriber,
such order will be rescinded and all subscription funds will be promptly
returned with interest. Such extensions may not go beyond ___________, ____.
COMMUNITY OFFERING
To the extent that shares remain available for purchase after satisfaction
of all subscriptions of the Eligible Account Holders, the ESOP, the Supplemental
Eligible Account Holders and Other Members, the Bank has determined to offer
shares pursuant to the Plan to certain members of the general public, with
preference given to natural persons residing in Bergen, Essex and Morris
Counties, New Jersey, subject to the right of the Bank to accept or reject any
such orders, in whole or in part, in their sole discretion. Persons purchasing
stock in the Community Offering, together with associates of and persons acting
in concert with such persons, may purchase up to $350,000 of Common Stock
subject to the maximum overall purchase limitation and exclusive of shares
issued pursuant to an increase in the Offering Range by up to 15%. See "--
Limitations on Common Stock Purchases." This amount may be increased to up to a
maximum of 5% or decreased to less than $350,000 at the sole discretion of the
Bank. THE OPPORTUNITY TO SUBSCRIBE FOR SHARES OF COMMON STOCK IN THE COMMUNITY
OFFERING CATEGORY IS SUBJECT TO THE RIGHT OF THE BANK AND BANCORP, IN ITS SOLE
DISCRETION, TO ACCEPT OR REJECT ANY SUCH ORDERS IN WHOLE OR IN PART EITHER AT
THE TIME OF RECEIPT OF AN ORDER OR AS SOON AS PRACTICABLE FOLLOWING THE
EXPIRATION DATE.
Subject to the foregoing, if the amount of stock remaining is insufficient
to fill the orders of subscribers after completion of the Subscription Offering,
such stock will be allocated first to each subscriber whose order is accepted by
the Bank, in an amount equal to the lesser of 100 shares or the number of shares
subscribed for by each such subscriber, if possible. Thereafter, unallocated
shares will be allocated among the subscribers whose order remains unsatisfied
on a 100 shares per order basis until all such orders have been filled or the
remaining shares have been allocated.
SYNDICATED COMMUNITY OFFERING
As a final step in the Offering, the Plan provides that, if feasible, all
shares of Common Stock not purchased in the Subscription and Community
Offerings, if any, will be offered for sale to the general public in a
Syndicated Community Offering through a syndicate of registered broker-dealers
to be formed and managed by Sandler O'Neill acting as agent of Bancorp to assist
Bancorp and the Bank in the sale of the Common Stock. Bancorp and the Bank have
the right to reject orders in whole or in part in its sole discretion in the
Syndicated Community Offering. Neither Sandler O'Neill nor any registered
broker-dealer shall have any obligation to take or purchase any shares of the
Common Stock in the Syndicated Community Offering, however, Sandler O'Neill has
agreed to use its best efforts in the sale of shares in the Syndicated Community
Offering.
The price at which Common Stock is sold in the Syndicated Community
Offering will be determined as described above under "-- Stock Pricing and
Number of Shares Issued." Subject to overall purchase limitations, no person,
together with any associate or group of persons acting in concert, will be
permitted to subscribe in the Syndicated Community Offering for more than
$350,000 of the Common Stock, exclusive of an increase in shares issued pursuant
to an increase in the Offering Range of up to 15%; provided, however, that
shares of Common Stock purchased in the Community Offering by any persons,
together with associates of or persons acting in concert with such persons, will
be aggregated with purchases in the Syndicated Community Offering and be subject
to an overall maximum purchase limitation of $700,000 of
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the shares offered, exclusive of an increase in shares issued pursuant to an
increase in the Offering Range by up to 15%.
Payments made in the form of a check, bank draft, money order or in cash
will earn interest at the Bank's passbook rate of interest from the date such
payment is actually received by the Bank until completion or termination of the
Offering.
In addition to the foregoing, if a syndicate of broker-dealers ("selected
dealers") is formed to assist in the Syndicated Community Offering, a purchaser
may pay for his shares with funds held by or deposited with a selected dealer.
If an order form is executed and forwarded to the selected dealer or if the
selected dealer is authorized to execute the order form on behalf of a
purchaser, the selected dealer is required to forward the order form and funds
to the Bank for deposit in a segregated account on or before noon of the
business day following receipt of the order form or execution of the order form
by the selected dealer. Alternatively, selected dealers may solicit indications
of interest from their customers to place orders for shares. Such selected
dealers shall subsequently contact their customers who indicated an interest and
seek their confirmation as to their intent to purchase. Those indicating an
intent to purchase shall execute order forms and forward them to their selected
dealer or authorize the selected dealer to execute such forms. The selected
dealer will acknowledge receipt of the order to its customer in writing on the
following business day and will debit such customer's account on the third
business day after the customer has confirmed his intent to purchase (the "debit
date") and on or before noon of the next business day following the debit date
will send order forms and funds to the Bank for deposit in a segregated account.
Although purchasers' funds are not required to be in their accounts with
selected dealers until the debit date in the event that such alternative
procedure is employed once a confirmation of an intent to purchase has been
received by the selected dealer, the purchaser has no right to rescind his
order.
Certificates representing shares of Common Stock purchased, together with
any refund due, will be mailed to purchasers at the address specified in the
order form, as soon as practicable following consummation of the sale of the
Common Stock. Any certificates returned as undeliverable will be disposed of in
accordance with applicable law.
The Syndicated Community Offering will terminate no more than 45 days
following the close of the Subscription Offering, unless extended by the Bank
with the approval of the OTS. Such extensions may not be beyond. See "--Stock
Pricing and Number of Shares Issued."
PERSONS IN NONQUALIFIED STATES OR FOREIGN COUNTRIES
The Company and the Bank will make reasonable efforts to comply with the
securities laws of all states in the United States in which persons entitled to
subscribe for stock pursuant to the Plan reside. However, the Plan provides that
the Bank is not required to offer stock in the Subscription Offering to any
person who resides in a foreign country or resides in a state of the United
States with respect to which both of the following apply: (i) a small number of
persons otherwise eligible to subscribe for shares of Common Stock reside in
such state; and (ii) Bancorp or the Bank determines that compliance with the
securities laws of such state would be impracticable for reasons of cost or
otherwise, including but not limited to a request that the Bank or its officers,
directors or trustees register as a broker, dealer, salesman or selling agent,
under the securities laws of such state, or a request to register or otherwise
qualify the subscription rights or Common Stock for sale or submit any filing
with respect thereto in such state. Where the number of persons eligible to
subscribe for shares in one state is small, the Bank will base its decision as
to whether or not to offer the Common Stock in such state on a number of
factors, including the size of accounts held by account
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holders in the state, the cost of registering or qualifying the shares or the
need to register the Bank, its officers, directors or employees as brokers,
dealers or salesmen.
MARKETING AND UNDERWRITING ARRANGEMENTS
The Bank has engaged Sandler O'Neill as a consultant and financial advisor
in connection with the offering of the Common Stock, and Sandler O'Neill has
agreed to use its best efforts to solicit subscriptions and purchase orders for
shares of Common Stock in the Offering. Based upon negotiations concerning fee
structure, Sandler O'Neill will receive a marketing fee equal to 1.5% of the
aggregate Purchase Price of the shares sold in the Subscription and Community
Offerings, excluding shares purchased by directors, officers, employees, and any
immediate family member thereof, and any employee benefit plan of Bancorp or the
Bank, including the ESOP, for which Sandler O'Neill will not receive a fee. In
the event that a selected dealers agreement is entered into in connection with a
Syndicated Community Offering, the Bank will pay a fee (to be negotiated at such
time under such agreement) to such selected dealers, any sponsoring dealers
fees, and a management fee to Sandler O'Neill of 1.50% for shares sold by
National Association of Securities Dealers, Inc. ("NASD") member firms pursuant
to a selected dealers agreement; provided, however, that any fees payable to
Sandler O'Neill for Common Stock sold by them pursuant to such a selected
dealers' agreement shall not exceed 1.50% of the Purchase Price and provided,
further, however, that the aggregate fees payable to Sandler O'Neill and the
selected dealers will not exceed 7.0% of the aggregate purchase price of the
Common Stock sold by selected dealers. Fees to Sandler O'Neill and to any other
broker-dealer may be deemed to be underwriting fees, and Sandler O'Neill and
such broker-dealers may be deemed to be underwriters. The Bank has agreed to
indemnify Sandler O'Neill for reasonable costs and expenses in connection with
certain claims or liabilities, including certain liabilities under the
Securities Act. Sandler O'Neill has received advances towards its fees totalling
$50,000. Total marketing fees to Sandler O'Neill are expected to be $251,000 and
$326,000 at both the minimum and the maximum of the Offering Range,
respectively. See "Pro Forma Data" for the assumptions used to arrive at these
estimates.
Sandler O'Neill will perform proxy solicitation services, offering agent
services and records management services for the Bank in the Offering and will
receive a fee for these services of $15,000. Reasonable out-of-pocket expenses
shall not exceed $60,000.
Directors and executive officers of the Bank may participate in the
solicitation of offers to purchase Common Stock. Questions of prospective
purchasers will be directed to executive officers or registered representatives.
Other employees of the Bank may participate in the Offering in ministerial
capacities or providing clerical work in effecting a sales transaction. Such
other employees have been instructed not to solicit offers to purchase Common
Stock or provide advice regarding the purchase of Common Stock. The Bank will
rely on Rule 3a4-1 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and sales of Common Stock will be conducted within the
requirements of Rule 3a4-1, so as to permit officers, directors and employees to
participate in the sale of Common Stock. No officer, director or employee of the
Bank will be compensated in connection with his participation by the payment of
commissions or other remuneration based either directly or indirectly on the
transactions in the Common Stock.
PROCEDURE FOR PURCHASING SHARES IN THE OFFERING
To ensure that each purchaser receives an offering circular at least 48
hours before the Expiration Date in accordance with Rule 15c2-8 of the Exchange
Act, no offering circular will be mailed any later than five days prior to such
date or hand delivered any later than two days prior to such date. Execution of
the
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stock order form and certification form will confirm receipt or delivery in
accordance with Rule 15c2-8. Stock order and certification forms will only be
distributed with an offering circular.
To purchase shares in the Subscription and Community Offerings, an executed
stock order form and certification form with the required payment for each share
subscribed for, or with appropriate authorization for withdrawal from the Bank's
deposit account (which may be given by completing the appropriate blanks in the
stock order form), must be received by the Bank at any of its offices by 12:00
noon, Eastern time, on the Expiration Date. Stock order forms which are not
received by such time or are executed defectively or are received without full
payment (or appropriate withdrawal instructions) are not required to be
accepted. In addition, the Bank is not obligated to accept orders submitted on
photocopied or facsimilied stock order forms and will not accept stock order
forms unaccompanied by an executed certification form. Notwithstanding the
foregoing, the Bank shall have the right, in its sole discretion, to permit
institutional investors to submit irrevocable orders together with a legally
binding commitment for payment and to thereafter pay for the shares of Common
Stock for which they subscribe in the Community Offering at any time prior to 48
hours before the completion of the Offering. The Bank has the right to waive or
permit the correction of incomplete or improperly executed forms, but does not
represent that it will do so. Once received, an executed stock order form may
not be modified, amended or rescinded without the consent of the Bank unless the
Reorganization has not been completed within 45 days after the end of the
Subscription and Community Offerings, unless such period has been extended.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (February 28,
1997) and/or the Supplemental Eligibility Record Date [(MARCH 31, 1998)] and/or
the Voting Record Date (_____________) must list all accounts on the stock order
form giving all names in each account and the account number.
Payment for subscriptions may be made (i) in cash if delivered in person at
any branch office of the Bank, (ii) by check, bank draft or money order, or
(iii) by authorization of withdrawal from deposit accounts maintained with the
Bank. No wire transfers will be accepted. Interest will be paid on payments made
by cash, check, bank draft or money order at the Bank's passbook rate of
interest from the date payment is received until the completion or termination
of the Offering. Orders for Common Stock submitted by subscribers in the
Subscription Offering which aggregate $50,000 or more must be paid by official
or certified check or by withdrawal authorization from a deposit account of the
Bank. If payment is made by authorization of withdrawal from deposit accounts,
the funds authorized to be withdrawn from a deposit account will continue to
accrue interest at the contractual rates until completion or termination of the
Offering, but a hold will be placed on such funds, thereby making them
unavailable to the depositor until completion or termination of the Offering.
If a subscriber authorizes the Bank to withdraw the amount of the purchase
price from his deposit account, the Bank will do so as of the effective date of
the Reorganization. The Bank will waive any applicable penalties for early
withdrawal from certificate accounts. If the remaining balance in a certificate
account is reduced below the applicable minimum balance requirement at the time
that the funds actually are transferred under the authorization, the certificate
will be cancelled at the time of the withdrawal, without penalty, and the
remaining balance will earn interest at the Bank's passbook rate.
If the ESOP subscribes for shares during the Subscription Offering, the
ESOP will not be required to pay for the shares subscribed for at the time it
subscribes, but rather, may pay for such shares of Common Stock subscribed for
at the Purchase Price upon consummation of the Subscription and Community
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Offerings, if all shares are sold, or upon consummation of the Syndicated
Community Offering if shares remain to be sold in such offering; provided, that
there is in force from the time of its subscription until such time, a loan
commitment from an unaffiliated third party to lend to the ESOP, at such time,
the aggregate Purchase Price of the shares for which it subscribed.
Owners of self-directed IRAs and similar tax-qualified plans ("Qualified
Plans") may use the assets of such IRAs and Qualified Plans to purchase shares
of Common Stock in the Subscription and Community Offerings, provided that such
IRAs and Qualified Plans are not maintained at the Bank. Persons with self-
directed IRAs and Qualified Plans maintained at the Bank must have their
accounts transferred to an unaffiliated institution or broker to purchase shares
of Common Stock in the Subscription and Community Offerings. In addition, the
provisions of ERISA and IRS regulations require that officers, directors and ten
percent shareholders who use self-directed IRA and Qualified Plans funds to
purchase shares of Common Stock in the Subscription and Community Offerings,
make such purchases for the exclusive benefit of the IRAs and Qualified Plans.
Certificates representing shares of Common Stock purchased will be mailed
to purchasers at the address specified in properly completed stock order forms,
as soon as practicable following consummation of the sale of all shares of
Common Stock. Any certificates returned as undeliverable will be disposed of in
accordance with applicable law.
LIMITATIONS ON COMMON STOCK PURCHASES
The Plan sets forth various limitations on purchases of Common Stock in the
Offering. The limitations which are applicable to tax-qualified employee stock
benefit plans relate solely to the ESOP and are referred to below in this
regard.
(1) A minimum of 25 shares of Common Stock must be purchased by each
Person purchasing shares in the Offering to the extent those shares are
available; provided, however, that in the event the minimum number of shares of
Common Stock purchased times the price per share exceeds $500, then such minimum
purchase requirement shall be reduced to such number of shares of Common Stock
which when multiplied by the price per share shall not exceed $500, as
determined by the Board.
(2) Each Eligible Account Holder may subscribe for and purchase in the
Subscription Offering up to the greater of: 1) the amount permitted to be
purchased in the Community Offering, currently $350,000 of Common Stock; 2) one-
tenth of one percent (.10%) of the total offering of shares of Common Stock; or
3) fifteen times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Common Stock to be issued by a
fraction of which the numerator is the amount of the Qualifying Deposit of the
Eligible Account Holder and the denominator is the total amount of Qualifying
Deposits of all Eligible Account Holders, in each case on the Eligibility Record
Date subject to the overall maximum purchase limitation in (2) above and
exclusive of an increase in the total number of shares issued due to an increase
in the Estimated Price Range of up to 15%.
(3) The ESOP is permitted to purchase in the aggregate up to 10% of the
shares of Common Stock issued in the Offering, including shares issued to the
Foundation and shares issued in the event of an increase in the Estimated Price
Range of 15%, and intends to purchase 8% of the shares of Common Stock issued in
the Offering, including shares issued to the Foundation.
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(4) Each Supplemental Eligible Account Holder may subscribe for and
purchase in the Subscription Offering up to the greater of: 1) the amount
permitted to be purchased in the Community Offering, currently $350,000 of
Common Stock; 2) one-tenth of one percent (.10%) of the total offering of shares
of Common Stock; or 3) fifteen times the product (rounded down to the next whole
number) obtained by multiplying the total number of shares of Common Stock to be
issued by a fraction of which the numerator is the amount of the Qualifying
Deposit of the Supplemental Eligible Account Holder and the denominator is the
total amount of Qualifying Deposits of all Supplemental Eligible Account
Holders, in such case on the Supplemental Eligibility Record date subject to the
overall maximum purchase limitation in (2) above and exclusive of an increase in
the total number of shares issued due to an increase in the estimated Price
Range of up to 15%;
(5) Each Other Member may subscribe for and purchase in the Subscription
Offering up to the greater of: 1) the amount permitted to be purchased in the
Community Offering, currently $350,000 of Common Stock; or 2) one-tenth of one
percent (.10%) of the total offering of shares of Common Stock, in each case
subject to the overall maximum purchase limitation in (2) above and exclusive of
an increase in the total number of shares issued due to an increase in the
Estimated Price Range of up to 15%.
(6) Persons purchasing shares of Common Stock in the Community Offering,
together with associates of and groups of persons acting in concert with such
persons, may purchase in the Community Offering to $350,000 of Common stock,
subject to the overall maximum purchase limitation in (2) above and exclusive of
an increase in the total number of shares issued due to an increase in the
Estimated price Range of up to 15% .
(7) Persons purchasing shares of Common Stock in the Syndicated Community
Offering, together with associates of and persons acting in concert with such
persons, may purchase in the Syndicated Offering up to $350,000 of Common Stock,
subject to the overall maximum purchase limitation in (2) above and exclusive of
an increase in the total number of shares issued due to an increase in the
Estimated Price Range of up to 15% and, provided further that shares of Common
Stock purchased in the Community Offering by any persons, together with
associates of or persons acting in concert with such persons, will be aggregated
with purchases in the Syndicated Community Offering in applying the $350,000
purchase limitation.
(8) Except for the ESOP, the overall maximum number of shares of Common
Stock subscribed for or purchased in all categories of the Offering by any
person, together with associates of or persons acting in concert with such
persons, shall not exceed $700,000 of the Common Stock offered, exclusive of an
increase in the total number of shares issued due to an increase in the
Estimated Price Range of up to 15%.
(9) In addition to the above purchase limitations, the Plan of Stock
Issuance sets forth certain additional limitations on purchases of shares of
Common Stock in the Offering, as follows: (i) the aggregate amount of Common
Stock acquired in the Offering by any non-tax-qualified employee stock benefit
plan or any insider of the Bank and his or her associates, exclusive of any
Common Stock acquired by said plan, or such insider and his or her associates,
in the secondary market, shall not exceed 10% of (a) the outstanding shares of
Common Stock, or (b) the stockholders' equity of the Company, held by persons
other than the MHC at the close of the Offering; and (ii) the aggregate amount
of Common Stock acquired in the Offering by all non-tax-qualified employee stock
benefit plans and insiders of the Bank and their associates shall not exceed
thirty percent (30%) of the (a) outstanding shares of Common Stock, or (b)
stockholders' equity of the Company, held by persons other than the Mutual
Company at the close of the Offering.
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For purposes of the foregoing limitations (i) directors, officers and
employees shall not be deemed to be associates or a group acting in concert
solely as a result of their capacities as such and (ii) shares purchased by the
ESOP shall not be attributable to the individual officers or beneficiaries of
such plan for purposes of determining compliance with the foregoing limitations.
For purposes of the foregoing limitations, the term "Person" means any
corporation, partnership, association, joint stock-company, trust (including
Individual Retirement Accounts and KEOGH Accounts), unincorporated organization,
government or political subdivision thereof, or any other entity. For purposes
of the foregoing limitations, the term "Associate" when used to indicate a
relationship with any person, means (i) any corporation or organization (other
than the Bank or a majority owned subsidiary of the Bank) of which such person
is an officer or partner or is, directly or indirectly, the beneficial owner of
10% or more of any class of equity securities, (ii) any trust or other estate in
which such person has a substantial beneficial interest or as to which such
person serves as trustee or in a similar fiduciary capacity except that the term
"Associate" does not include any Non-Tax-Qualified Employee Stock Benefit Plan
or any Tax-Qualified Employee Stock Benefit Plan in which a person has a
substantial beneficial interest or serves as a trustee or in a similar fiduciary
capacity, and except that, for purposes of aggregating total shares that may be
held by Officers and Directors the term "Associate" does not include any Tax-
Qualified Employee Stock Benefit Plan, and (iii) any relative or spouse of such
person, or any relative of such spouse, who has the same home as such person or
who is a Director or Officer of the Bank, Bancorp or the Mutual Company, or any
of its parents or subsidiaries. "Insider" means any officer or director of the
Bank, Bancorp, the Mutual Company or the Stock Bank or any affiliates of such
entities, and any person acting in concert with any such officer or director.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the members of
the Bank, both the individual amount permitted to be subscribed for and the
overall maximum purchase limitation may be increased to up to a maximum of 5% at
the sole discretion of Bancorp and the Bank. If such amount is increased,
subscribers for the maximum amount will be, and certain other large subscribers
in the sole discretion of the Bank may be, given the opportunity to increase
their subscriptions up to the then applicable limit. In addition, the Boards of
Directors of Bancorp and the Bank may, in their sole discretion, increase the
maximum purchase limitation referred to above up to 9.99%, provided that orders
for shares exceeding 5% of the shares being offered in the Subscription and
Community Offerings shall not exceed, in the aggregate, 10% of the shares being
offering the Subscription and Community Offerings. Requests to purchase
additional shares of Common Stock under this provision will be determined by the
Boards of Directors and, if approved, allocated on a pro rata basis giving
priority in accordance with the priority rights set forth herein.
The overall maximum purchase limitation may not be reduced to less than 1%
but the individual amount permitted to be subscribed for may be reduced by the
Bank to less than $350,000, subject to paragraphs (4), (12) and (13) above
without the further approval of members or resolicitation of subscribers. An
individual Eligible Account Holder, Supplemental Eligible Account Holder or
Other Member may not purchase individually in the Subscription Offering the
overall maximum purchase limit of 1% of the shares offering, but may make such
purchase, together with associates of and persons acting in concert with such
person, by also purchasing in other available categories of the Offering,
subject to availability of shares and the overall maximum purchase limit for
purchases in the Offering.
In the event of an increase in the total number of shares offered due to an
increase in the Offering Range of up to 15% (the "Adjusted Maximum"), the
additional shares will be allocated in the following order of priority in
accordance with the Plan: (i) to fill the ESOP's subscription of 8% of the
Adjusted Maximum
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number of shares including shares issued to the Foundation; (ii) in the event
that there is an oversubscription by Eligible Account Holders, to fill
unfulfilled subscriptions of Eligible Account Holders exclusive of the Adjusted
Maximum; (iii) in the event that there is an oversubscription by Supplemental
Eligible Account Holders, to fill unfulfilled subscriptions of Supplemental
Eligible Account Holders, exclusive of the Adjusted Maximum; (iv) in the event
that there is an oversubscription by Other Members, to fill unfulfilled
subscriptions of Other Members exclusive of the Adjusted Maximum; and (v) to
fill unfulfilled subscriptions in the Community Offering to the extent possible
exclusive of the Adjusted Maximum with preference given to natural persons
residing in Bergen, Essex and Morris Counties, New Jersey.
CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF THE COMMON STOCK
All shares of Common Stock purchased in the Offering by a director or an
executive officer of the Bank will be subject to a restriction that the shares
not be sold for a period of one year following the Reorganization, except in the
event of the death of such director or executive officer. Each certificate for
restricted shares will bear a legend giving notice of this restriction on
transfer, and instructions will be issued to the effect that any transfer within
such time period of any certificate or record ownership of such shares other
than as provided above is a violation of the restriction. Any shares of Common
Stock issued at a later date as a stock dividend, stock split, or otherwise,
with respect to such restricted stock will be subject to the same restrictions.
The directors and executive officers of the Bank will also be subject to the
insider trading rules promulgated pursuant to the Exchange Act and any other
applicable requirements of the federal securities laws.
Purchases of outstanding shares of Common Stock of the Bank by directors,
executive officers (or any person who was an executive officer or director of
the Bank after adoption of the Plan) and their associates during the three-year
period following Reorganization may be made only through a broker or dealer
registered with the United States Securities and Exchange Commission ("SEC"),
except with the prior written approval of the OTS. This restriction does not
apply, however, to negotiated transactions involving more than 1.0% of the
Bank's outstanding Common Stock or to the purchase of stock pursuant to any
stock option plan to be established after the Reorganization.
Unless approved by the OTS, Bancorp, pursuant to OTS regulations, will be
prohibited from repurchasing any shares of the Common Stock for three years
except: (i) for an offer to all stockholders of Bancorp on a pro rata basis
(except that the Mutual Company may be excluded from the repurchase with the
OTS' approval); (ii) for the repurchase of qualifying shares of a director; or
(iii) for the purchase in the open market by a tax-qualified or non-tax-
qualified employee stock benefit plan of the Bank (but not of Bancorp) in an
amount reasonable and appropriate to fund such plan.
INTERPRETATION AND AMENDMENT OF THE PLAN
To the extent permitted by law, all interpretations of the Plan by the Bank
will be final. The Plan provides that the Bank's Board of Directors shall have
the discretion to interpret and apply the provisions of the Plan to particular
circumstances and that such interpretation or application shall be final. This
includes any and all interpretations, applications and determinations made by
the Board of Directors on the basis of such information and assistance as was
then reasonably available for such purpose.
The Plan provides that, if deemed necessary or desirable by the Board of
Directors, the Plan may be substantively amended at any time prior to
solicitation of proxies from members to vote on the Plan by a two-thirds vote of
the Bank's Board of Directors. After submission of the proxy materials to the
members,
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the Plan may be amended by a two-thirds vote of the Board of Directors at any
time prior to the Special Meeting with the concurrence of the OTS. The Plan may
be amended at any time after the approval of members with the approval of the
OTS and no further approval of the members will be necessary unless otherwise
required by the OTS. By adoption of the Plan, the Bank's members will be deemed
to have authorized amendment of the Plan under the circumstances described
above.
The establishment of the Foundation will be considered as a separate matter
from approval of the Plan. If the Bank's members approve the Plan, but not the
creation of the Foundation, the Bank intends to complete the Reorganization
without the Foundation. Failure to approve the establishment of the Foundation
may materially increase the pro forma market value of the Common Stock since the
[VALUATION RANGE], as set forth herein, takes into account the dilutive impact
of the issuance of shares to the Foundation. In such an event, the Bank may
establish a new Offering Range and commence a resolicitation of subscribers. In
the event of a resolicitation, unless an affirmative response is received within
a specified period of time, all funds will be promptly returned to investors, as
described elsewhere herein. See "--Stock Pricing and Number of Shares Issued."
CERTAIN RESTRICTIONS ON ACQUISITION OF BANCORP
The following discussion is a general summary of OTS and other regulatory
restrictions on the acquisition of the Common Stock. In addition, the following
discussion generally summarizes certain provisions of Bancorp's Charter and
Bylaws.
MUTUAL HOLDING COMPANY STRUCTURE
The mutual holding company structure could restrict the ability of
stockholders of Bancorp to effect a change in management of Bancorp and the Bank
and a change in control of Bancorp and the Bank because the Mutual Company, as
long as it remains in the mutual form of organization, will control a majority
of the voting stock of Bancorp. In addition, the Mutual Company is controlled by
the members of the Mutual Company (i.e., depositors of the Bank), and such
members may grant proxies in favor of the Bank's management. Thus, management of
the Mutual Company will be able to exert voting control over Bancorp. See "Risk
Factors --Considerations Resulting from Mutual Holding Company Structure."
CHANGE IN BANK CONTROL ACT
The Change in Bank Control Act provides that no person, acting directly or
indirectly or through or in concert with one or more other persons, may acquire
control of a savings association unless the OTS has been given 60 days' prior
written notice. The HOLA provides that no company may acquire "control of a
savings association without the prior approval of the OTS." Any company that
acquires such control becomes a "savings and loan holding company" subject to
registration, examination, and regulation by the OTS. Pursuant to federal
regulations, control of savings associations is conclusively deemed to have been
acquired by, among other things, the acquisition of more than 25% of any class
of voting stock of an association or the ability to control the election of a
majority of the directors of more than 10% of any class of voting stock, or of
more than 25% of any class of stock, of a savings association, where certain
enumerated "control factors" are also present in the acquisition. The OTS may
prohibit an acquisition of control if (i) it would result in a monopoly or
substantially lessen competition, (ii) the financial condition of the acquiring
person might jeopardize the financial stability of the institution, or (iii) the
competence, experience, or integrity of the acquiring person indicates that it
would not be in the interest of the depositors or of the public to permit the
acquisition of control by such person. The foregoing restrictions do not apply
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to the acquisition of Bancorp's capital stock by one or more tax-qualified
employee stock benefit plans, provided that the plan or plans do not have
beneficial ownership in the aggregate of more than 25% of any class of equity
security of the Bank.
CHARTER AND BYLAWS AMENDMENT
The Charter of Bancorp provides that it may be amended only if such
amendment is first proposed by the Board of Directors of Bancorp, approved by
the stockholders by a majority of the votes eligible to be cast at a legal
meeting of stockholders and submitted to the OTS for action as specified by law
or regulation. The Bylaws of Bancorp may be amended in a manner consistent with
the regulations of the OTS, and at any time by a majority of the Board of
Directors or by a majority of the votes cast at any legal meeting.
BOARD OF DIRECTORS
Bancorp's Bylaws provide that the Board of Directors is to be divided into
three classes which shall be as nearly equal in number as possible. The
directors in each class serve for terms of three years. Each director serves
until his or her successor is elected and qualified. The Bylaws also provide
that a director may only be removed for cause by the affirmative vote of at
least a majority of the voting power of all the then outstanding shares of
capital stock of Bancorp entitled to vote in an election of directors.
LIMITATIONS ON VOTING RIGHTS
Bancorp's Charter provides that no person, other than the Mutual Company,
may directly or indirectly offer to acquire or acquire the beneficial ownership
of more than 10% of the Common Stock, unless such offer is approved by a
majority of the Board of Directors. In addition, for a period of five years,
each share beneficially owned in violation of the foregoing limitation shall not
be entitled to vote, shall not be voted by any person or counted as voting
shares in connection with any matter submitted to stockholders for a vote, and
shall not be counted as outstanding for purposes of determining a quorum or the
affirmative vote necessary to approve any matter submitted to the stockholders
for a vote.
SPECIAL MEETING OF STOCKHOLDERS
Bancorp's Bylaws provide that special meetings of stockholders may be
called only by the Board of Directors.
CUMULATIVE VOTING
Bancorp's Bylaws prohibit cumulative voting for any purpose. The absence of
cumulative voting rights effectively means that the holder of a majority of the
Common Stock to be voted at a meeting of stockholders (in this case, the Mutual
Company), may, if they so choose, elect all directors, thus precluding the
Minority Stockholders from obtaining representation on the Board of Directors
unless the Minority Stockholders are able to obtain the support of the Mutual
Company, the majority stockholder. In accordance with OTS regulations, the
Mutual Company must remain the majority stockholder of the voting stock of
Bancorp.
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PREFERRED STOCK
Although Bancorp has no arrangements, understandings or plans at the
present time for the issuance or use of the shares of undesignated preferred
stock proposed to be authorized, the Board of Directors believes that the
availability of such shares will provide Bancorp with increased flexibility in
structuring future financings and acquisitions and in meeting other corporate
needs which may arise. In the event of a proposed merger, tender offer or other
attempt to gain control of Bancorp of which management does not approve, it may
be possible for the Board of Directors of Bancorp to authorize the issuance of
one or more series of preferred stock with rights and preferences which could
impede the completion of such a transaction.
DESCRIPTION OF CAPITAL STOCK OF BANCORP
GENERAL
Bancorp is authorized to issue capital stock consisting of nine million
(9,000,000) shares of Common Stock, par value $.01 per share, and one million
(1,000,000) shares of Preferred Stock, which may be issued in series and classes
having such rights, preferences, privileges and restrictions as Bancorp's Board
of Directors may determine. Each share of Common Stock of Bancorp will have the
same relative rights as, and will be identical in all respects with, each other
share of Common Stock. Subject to the approval of the OTS, which has been
received, the Board of Directors of Bancorp is authorized to approve the
issuance of Common Stock up to the amount authorized by the Charter without the
approval of Bancorp's stockholders. Under OTS regulations, a majority of the
issued and outstanding voting stock of Bancorp must be held at all times by the
Mutual Company. THE COMMON STOCK OF BANCORP REPRESENTS NONWITHDRAWABLE CAPITAL,
IS NOT AN ACCOUNT OF AN INSURABLE TYPE, AND IS NOT INSURED BY THE FDIC OR ANY
OTHER GOVERNMENT AGENCY. Upon payment of the Purchase Price for the Common
Stock, all such shares will be fully-paid, duly issued and nonassessable.
COMMON STOCK
VOTING RIGHTS. The holders of the Common Stock possess exclusive voting
rights in Bancorp, except to the extent that shares of preferred stock issued in
the future may have voting rights. Each holder of the Common Stock is entitled
to one vote for each share held, except that the Charter eliminates voting
rights with respect to those shares that are beneficially owned by any person,
other than the Mutual Company, in excess of 10% of the Common Stock then
outstanding. Stockholders will not be permitted to cumulate their votes in the
election of directors.
DIVIDENDS. Upon consummation of the Reorganization, Bancorp's only will be
the portion of the net proceeds retained by it, the ESOP loan and the Bank's
capital stock. The payment of dividends by Bancorp is subject to limitations
that are imposed by applicable law and regulation. Bancorp's source for the
payment of cash dividends may in the future depend on receipt of dividends from
the Bank. See "Dividend Policy." The holders of the Common Stock are entitled to
receive and to share equally in such dividends as may be declared by the Board
of Directors out of funds legally available therefor. See "Risk Factors --
Considerations Resulting from Mutual Holding Company Structure," "Dividend
Policy" and "Federal and State Taxation -- Federal Taxation."
LIQUIDATION. In the unlikely event of any liquidation, dissolution, or
winding up of Bancorp, the holders of its Common Stock (and the holders of any
class or series of stock entitled to participate with the
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Common Stock in the distribution of assets) will be entitled to receive all
assets of Bancorp available for distribution in cash or in kind after payment of
all debts and liabilities of Bancorp (including all deposit accounts and accrued
interest thereon in the Bank and distribution of the Bank's liquidation account)
and any accrued dividend claims. If Bancorp issues preferred stock subsequent to
the Offering, the holders thereof may also have priority over the holders of
Bancorp's Common Stock in the event of liquidation or dissolution.
PREEMPTIVE RIGHTS; REDEMPTION. Holders of the Common Stock will not
be entitled to preemptive rights with respect to any shares which may be issued.
The Common Stock is not subject to call for redemption. If the Bank determined
to issue authorized but unissued shares in the future to persons other than, or
in addition to the existing shareholders, the interests of existing stockholders
would be diluted to the extent of the additional issuance.
PREFERRED STOCK
None of the one million (1,000,000) authorized shares of preferred stock of
Bancorp will be issued in the Offering. The Board of Directors is authorized,
without stockholder approval, to issue preferred stock and to fix and state
voting powers, designations, preferences or other special rights of such shares.
If and when issued, the preferred stock may rank senior to the Common Stock as
to dividend rights, liquidation preferences, or both, and may have full, limited
or no voting rights. Accordingly, the issuance of preferred stock could
adversely affect the voting and other rights of holders of Common Stock.
The authorized but unissued shares of Preferred Stock and the authorized
but unissued and unreserved shares of Common Stock will be available for
issuance in future mergers or acquisitions, in a future underwritten public
offering or private placement or for other general corporate purposes. Except as
otherwise required to approve the transaction in which the additional authorized
shares of Preferred Stock would be issued, no stockholder approval generally
would be required for the issuance of these shares. Depending on the
circumstances, however, stockholder approval may be required pursuant to
requirements for continued trading of the Common Stock on the Nasdaq or the
requirements of any exchange on which the Common Stock may then be listed.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is__________________,
________________, __________________.
EXPERTS
The consolidated financial statements of the Bank as of December 31, 1997
and 1996 and for each of the years in the three-year period ended December 31,
1997, have been included in this Prospectus, in reliance upon the report of
Radics & Co., LLC, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
FinPro has consented to the publication herein of the summary of its report
to the Bank setting forth its opinion as to the estimated pro forma market value
of the Common Stock upon Reorganization and its valuation with respect to
subscription rights.
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LEGAL AND TAX OPINIONS
The legality of the Common Stock and the federal income tax consequences of
the Reorganization will be passed upon for the Bank by Muldoon, Murphy &
Faucette, Washington, D.C., special counsel to the Bank. New Jersey state tax
consequences of the Reorganization and the Offering will be passed upon for the
Bank by Fontanella and Babitts. Certain legal matters will be passed upon for
Sandler O'Neill by Luse Lehman Gorman Pomerenk.
ADDITIONAL INFORMATION
Bancorp has filed with the SEC a registration statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information, including
the Independent Valuation, which is an exhibit to the Registration Statement,
can be examined without charge at the public reference facilities of the SEC
located at 450 Fifth Street, NW, Washington, DC 20549, and copies of such
material can be obtained from the SEC at prescribed rates. In addition, the SEC
maintains a web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC, including Bancorp. The Independent Valuation may
also be inspected by Eligible Account Holders and Supplemental Eligible Account
Holders at the offices of the Bank during normal business hours. The statements
contained in this Prospectus as to the contents of any contract or other
document filed as an exhibit to the registration statement are, of necessity,
brief descriptions thereof and are not necessarily complete; each such statement
is qualified by reference to such contract or document.
The Bank has filed with the OTS a Notice of Mutual Holding Company
Reorganization on Form MHC-1 (the "Notice") and an Application for Approval of a
Minority Stock Issuance on Form MHC-2 (the "Application"). Pursuant to the rules
and regulations of the OTS, this Prospectus omits certain information contained
in the Notice and Application. The Notice and Application, including the
Independent Valuation, which is an exhibit to the Application, may be examined
at the principal office of the OTS, 1700 G Street, NW, Washington, DC 20552 and
the office of the Northeast Regional Director of the OTS located at 10 Exchange
Place, Jersey City, New Jersey 07302.
In connection with the Offering, Bancorp will register its Common Stock
with the SEC under Section 12(g) of the Exchange Act, and upon such
registration, Bancorp and the holders of its stock will become subject to the
proxy solicitation rules, reporting requirements and restrictions on stock
purchases and sales by Directors, officers and greater than 10% stockholders,
the annual and periodic reporting and certain other requirements of the Exchange
Act. Under the Plan, Bancorp has undertaken that it will not terminate such
registration for a period of at least three years following the Reorganization.
A copy of the Certificate of Incorporation and the Bylaws of Bancorp and
the Charter and Bylaws of the Bank are available without charge from the Bank.
The Bank's principal office is located at 417 Bloomfield Avenue, Caldwell, New
Jersey and its telephone number is (973) 226-7911.
143
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
December 31, 1997
INDEX
-----
<TABLE>
<CAPTION>
Page
---------------
<S> <C>
Management Responsibility Statement F-2
Independent Auditors' Report F-3
Consolidated Statements of Financial Condition
as of March 31, 1998 (unaudited) and December 31, 1997 and 1996 F-4
Consolidated Statements of Income for the Three-Month Periods Ended
March 31, 1998 and 1997 (unaudited) and for Each of the Years
in the Three-Year Period Ended December 31, 1997 41
Consolidated Statements of Comprehensive Income for the Three-Month
Periods Ended March 31, 1998 and 1997 (unaudited) and for Each of
the Years in the Three-Year Period Ended December 31, 1997 F-5
Consolidated Statements of Retained Earnings for the Three-Month
Period Ended March 31, 1998 (unaudited) and for Each of the Years
in the Three-Year Period Ended December 31, 1997 F-6
Consolidated Statements of Cash Flows for the Three-Month Periods
Ended March 31, 1998 and 1997 (unaudited) and for Each of the
Years in the Three-Year Period Ended December 31, 1997 F-7 to F-8
Notes to Consolidated Financial Statements F-9 to F-34
</TABLE>
<PAGE>
[LETTERHEAD OF WEST ESSEX BANK APPEARS HERE]
MANAGEMENT RESPONSIBILITY STATEMENT
-----------------------------------
Management of West Essex Bank, F.S.B and Subsidiary is responsible for the
preparation of the consolidated financial statements and all other consolidated
financial information included in this report. The consolidated financial
statements were prepared in accordance with generally accepted accounting
principles applied on a consistent basis. All consolidated financial information
included in this report agrees with the consolidated financial statements. In
preparing the consolidated financial statements, management makes informed
estimates and judgments, with consideration given to materiality, about the
expected results of various events and transactions.
Management maintains a system of internal accounting control that includes
personnel selection, appropriate division of responsibilities and formal
procedures and policies consistent with high standards of accounting and
administrative practice. Consideration has been given to the necessary balance
between costs of systems of internal control and the benefits derived.
Management reviews and modifies its systems of accounting and internal control
in light of changes in conditions and operations as well as in response to
recommendations from the independent certified public accounts. Management
believes the accounting and internal control systems provide reasonable
assurance that assets are safeguarded and financial information is reliable.
The Board of Directors (the "Board") is responsible for determining that
management fulfills its responsibilities in the preparation of the consolidated
financial statements and in the control of operations. The Board appoints the
independent certified public accountants. The Board meets with management, the
independent certified public accountants and the internal auditor, approves the
overall scope of audit work and related fee arrangements and review audit
reports and findings.
/s/ Dennis A. Petrello /s/ Leopold W. Montanaro
- ------------------------------ ------------------------------
Dennis A. Petrello Leopold W. Montanaro
Executive Vice President President & CEO
/s/ Charles E. Filippo
-------------------------------
Charles E. Filippo
Executive Vice President
F-2
<PAGE>
[LETTERHEAD OF RADICS & CO., LLC APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
----------------------------
To The Board of Directors
West Essex Bank
We have audited the accompanying consolidated statements of financial condition
of West Essex Bank (the "Bank") and Subsidiary as of December 31, 1997 and 1996,
and the related consolidated statements of income, comprehensive income,
retained earnings and cash flows for each of the years in the three-year period
ended December 31, 1997. These consolidated financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to in the second
preceding paragraph present fairly, in all material respects, the consolidated
financial position of West Essex Bank and Subsidiary as of December 31, 1997 and
1996, and the results of their operations and cash flows for each of the years
in the three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Radics & Co., LLC
Pine Brook, New Jersey
March 6, 1998, except for the tenth paragraph
of Note 15, as to which the date is April 8, 1998
F-3
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
----------------------------
ASSETS Note(s) 1998 1997 1996
- ------ ----------------- -------------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
Cash and amounts due from depository institutions $ 1,839,621 $ 1,832,548 $ 925,769
Interest-bearing deposits in other banks 15,489,434 6,863,570 6,828,493
-------------- ------------- -------------
Total cash and cash equivalents 1 and 17 17,329,055 8,696,118 7,754,262
Term deposits 5,000,000 - -
Securities available for sale 1, 2 and 17 7,105,300 7,080,550 1,647,454
Investment securities held to maturity 1, 3 and 17 28,768,169 22,928,866 22,476,466
Mortgage-backed securities held to maturity 1, 4, 11 and 17 122,632,889 130,174,291 113,254,086
Loans receivable 1, 5 and 17 114,302,459 112,734,741 82,134,147
Real estate owned 1 and 6 1,120,197 1,214,840 1,394,068
Premises and equipment 1 and 7 3,112,703 3,122,584 1,640,355
Federal Home Loan Bank of New York stock 11 2,281,500 2,183,800 1,670,400
Accrued interest receivable 1, 8 and 17 2,071,895 2,012,197 1,651,427
Excess of cost over assets acquired 1 and 9 5,680,692 5,828,884 -
Other assets 14 3,116,933 3,047,961 2,346,712
-------------- ------------- -------------
Total assets $ 312,521,792 $299,024,832 $235,969,377
============== ============= =============
Liabilities and retained earnings
- ---------------------------------
Liabilities
- -----------
Deposits 10 and 17 $ 239,120,486 $238,192,141 $179,945,503
Borrowed money 11 and 17 42,300,000 30,300,000 23,650,000
Advance payments by borrowers for taxes and insurance 795,177 772,429 622,190
Other liabilities 13 and 14 505,033 485,553 3,299,447
-------------- ------------- -------------
282,720,696 269,750,123 207,517,140
============== ============= =============
Commitments and contingencies 15 and 17 - - -
Retained earnings 12 and 14
- -----------------
Retained earnings - substantially restricted 29,721,316 29,210,175 28,473,335
Accumulated other comprehensive income - Unrealized
gain (loss) on securities available for sale, net 79,780 64,534 (21,098)
-------------- ------------- -------------
Total retained earnings 28,801,096 29,274,709 28,452,237
-------------- ------------- -------------
Total liabilities and retained earnings $ 312,512,792 $299,024,832 $235,969,377
============== ============= =============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-----------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
---------------------------- -----------------------------------------
1998 1997 1997 1996 1995
---------- ---------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net Income $ 511,141 $ 523,056 $ 736,840 $ 1,656,008 $ 2,271,955
---------- ---------- ----------- ----------- -----------
Other comprehensive
income, net of income taxes:
Unrealized holding gains (losses)
on securities available for sale 15,246 (5,424) 65,387 20,679 84,946
Reclassification adjustment
for realized gains (losses) on
securities available for sale - - 20,245 (80,813) 22,014
---------- ---------- ----------- ----------- -----------
Other comprehensive income 15,246 (5,424) 85,632 (60,134) 106,960
---------- ---------- ----------- ----------- -----------
Comprehensive income $ 526,387 $ 517,632 $ 822,472 $ 1,595,874 $ 2,378,915
========== ========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
--------------------------------------------
<TABLE>
<CAPTION>
Retained Accumulated
Earnings - Other
Substantially Comprehensive
Restricted Income Total
------------- ------------- -------------
<S> <C> <C> <C>
Balance - December 31, 1994 $ 24,545,372 $ (67,924) $ 24,477,448
Unrealized gain on securities available
for sale, net of income tax effect - 106,960 106,960
Net income for the year ended December 31, 1995 2,271,955 - 2,271,955
------------ ----------- -------------
Balance - December 31, 1995 26,817,327 39,036 26,856,363
Unrealized loss on securities available
for sale, net of income tax effect (60,134) (60,134)
Net income for the year ended December 31, 1996 1,656,008 - 1,656,008
------------ ----------- -------------
Balance - December 31, 1996 28,473,335 (21,098) 28,452,237
Unrealized gain on securities available
for sale, net of income tax effect - 85,632 85,632
Net income for the year ended December 31, 1997 736,840 - 736,840
------------ ----------- -------------
Balance - December 31, 1997 29,210,175 64,534 29,274,709
Unrealized gain on securities available for
sale, net of income tax effect (unaudited) - 15,246 15,246
Net income for the three months ended
March 31, 1998 (unaudited) 511,141 - 511,141
------------ ----------- -------------
Balance - March 31, 1998 (unaudited) $ 29,721,316 $ 79,780 $ 29,801,096
============ =========== =============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1998 1997
------------ ------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 511,141 $ 523,056
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization of premises and equipment 74,659 51,918
Net accretion of premiums, discounts and deferred loan fees (79,971) (21,631)
Amortization of intangibles 148,192 -
Provision for loan losses (22,050) 55,000
Provision for losses on real estate owned 22,050 170,000
Loss (gain) on sale of securities available for sale - -
(Gain) on sale of real estate owned (5,386) (19,714)
Deferred income tax expense (benefit) 49,670 -
(Increase) decrease in accrued interest receivable (59,698) (264,235)
Decrease (increase) in refundable income taxes 34,070 146,502
(Increase) decrease in other assets (161,281) (99,299)
(Decrease) increase in interest payable on deposits (934) (16,625)
Increase (decrease) in other liabilities 19,480 172,429
------------ ------------
Net cash provided by (used in) operating activities 529,942 697,401
------------ ------------
Cash flows from investing activities:
Purchase of term deposits (5,000,000) -
Proceeds from maturities of securities available for sale - -
Proceeds from sale of securities available for sale - -
Proceeds from repayments on and calls of securities available for sale - 115,272
Purchases of securities available for sale - (2,023,131)
Proceeds from maturities and calls of investment securities held to maturity - 2,000,000
Purchases of investment securities held to maturity (5,789,660) (2,997,060)
Principal repayments on mortgage-backed securities held to maturity 7,534,184 5,774,110
Purchases of mortgage-backed securities held to maturity - (5,243,670)
Purchase of loans receivable (61,000) -
Net (increase) decrease in loans receivable (1,448,057) (863,486)
Proceeds from sales of real estate owned 73,979 293,800
Proceeds from other payments received on real estate owned 4,000 12,402
Capitalized cost of real estate owned - -
Additions to premises and equipment (64,778) (29,618)
Purchase of Federal Home Loan Bank of New York stock (97,700) (150,500)
------------ ------------
Net cash (used in) investing activities (4,849,032) (3,111,881)
------------ ------------
Cash flows from financing activities:
Net increase in deposits 929,279 1,489,462
Proceeds of borrowed money 30,000,000 4,000,000
Repayment of borrowed money (18,000,000) (6,000,000)
Net increase (decrease) in
advance payments by borrowers for taxes and insurance 22,748 (18,144)
Cash received in connection with branch purchases - -
------------ ------------
Net cash provided by (used in) financing activities 12,952,027 (528,682)
------------ ------------
Net increase (decrease) in cash and cash equivalents 8,632,937 (2,943,162)
Cash and cash equivalents - beginning 8,696,118 7,754,262
------------ ------------
Cash and cash equivalents - ending $ 17,329,055 $ 4,811,100
============ ============
<PAGE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C>
Cash flows from operating activities:
Net income $ 736,840 $ 1,656,008 $ 2,271,955
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization of premises and equipment 230,524 207,456 149,290
Net accretion of premiums, discounts and deferred loan fees (127,373) (137,517) (190,428)
Amortization of intangibles 1,743,062 - -
Provision for loan losses 487,015 232,103 509,729
Provision for losses on real estate owned 372,985 45,000 33,749
Loss (gain) on sale of securities available for sale 20,245 (102,752) 22,014
(Gain) on sale of real estate owned (30,080) (117,201) (69,580)
Deferred income tax expense (benefit) (725,335) (36,609) 254,297
(Increase) decrease in accrued interest receivable (360,770) 1,946 (350,224)
Decrease (increase) in refundable income taxes 90,624 (137,887) 60,824
(Increase) decrease in other assets (101,782) 134,560 (298,754)
(Decrease) increase in interest payable on deposits 90,056 24,530 16,320
Increase (decrease) in other liabilities (2,815,465) 3,009,284 (13,635)
------------ ------------ ------------
Net cash provided by (used in) operating activities (389,454) 4,778,921 2,395,557
------------ ------------ ------------
Cash flows from investing activities:
Purchase of term deposits - - -
Proceeds from maturities of securities available for sale - 100,000 -
Proceeds from sale of securities available for sale 1,588,229 202,752 27,980
Proceeds from repayments on and calls of securities available for sale 115,272 91,875 94,395
Purchases of securities available for sale (7,033,784) (88,202) (86,080)
Proceeds from maturities and calls of investment securities held to maturity 10,000,000 7,000,000 2,000,000
Purchases of investment securities held to maturity (10,399,678) (10,997,500) (12,988,750)
Principal repayments on mortgage-backed securities held to maturity 20,084,461 17,384,271 11,750,649
Purchases of mortgage-backed securities held to maturity (37,026,167) (30,569,541) (22,443,315)
Purchase of loans receivable - (1,621,000) -
Net (increase) decrease in loans receivable (31,617,835) 4,010,899 (621,282)
Proceeds from sales of real estate owned 483,300 392,228 357,058
Proceeds from other payments received on real estate owned 39,602 15,500 35,256
Capitalized cost of real estate owned (6,665) - -
Additions to premises and equipment (352,753) (332,949) (317,461)
Purchase of Federal Home Loan Bank of New York stock (513,400) (161,400) (331,100)
------------ ------------ ------------
Net cash (used in) investing activities (54,639,418) (14,573,067) (22,522,650)
------------ ------------ ------------
Cash flows from financing activities:
Net increase in deposits 7,148,632 1,528,768 14,194,772
Proceeds of borrowed money 44,975,000 15,000,000 19,000,000
Repayment of borrowed money (38,325,000) (8,350,000) (12,000,000)
Net increase (decrease) in
advance payments by borrowers for taxes and insurance 150,239 (4,102) 8,232
Cash received in connection with branch purchases 42,021,857 - -
------------ ------------ ------------
Net cash provided by (used in) financing activities 55,970,728 8,174,666 21,203,004
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 941,856 (1,619,480) 1,075,911
Cash and cash equivalents - beginning 7,754,262 9,373,742 8,297,831
------------ ------------ ------------
Cash and cash equivalents - ending $ 8,696,118 $ 7,754,262 $ 9,373,742
============ ============ ============
</TABLE>
See notes to consolidated financial statements
F-7
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
---------------------------- -----------------------------------------
1998 1997 1997 1996 1995
----------- ------------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $ 110,480 $ 62,078 $ 1,035,078 $ 1,023,150 $ 901,127
=========== =========== =========== =========== ===========
Interest $ 2,865,550 $ 2,141,515 $ 9,501,814 $ 8,171,056 $ 7,630,527
=========== =========== =========== =========== ===========
Supplemental schedule of noncash investing activities:
Unrealized gain (loss) on securities
available or sale, net of deferred income taxes $ 15,246 $ (5,424) $ 85,632 $ (60,134) $ 106,960
=========== =========== =========== =========== ===========
Loans receivable transferred to (from) real
estate owned $ - $ 157,253 $ 679,914 $ 377,285 $ (82,943)
=========== =========== =========== =========== ===========
Loans originated to facilitate the sale of real
estate owned $ - $ - $ - $ - $ 72,500
=========== =========== =========== =========== ===========
Deferred gain on sale of real estate owned $ - $ - $ - $ - $ (92,451)
=========== =========== =========== =========== ===========
Assets acquired in connection with branch purchases:
Loans receivable $ - $ - $ 54,693 $ - $ -
Premises and equipment - - 1,360,000 - -
Excess of cost over assets acquired - - 7,571,946 - -
Other assets - - 457 - -
----------- ----------- ----------- ----------- -----------
$ - $ - $ 8,987,096 $ - $ -
=========== =========== =========== =========== ===========
Liabilities acquired in connection with branch
purchases:
Deposits $ - $ - $51,007,382 $ - $ -
Other Liabilities - - 1,571 - -
----------- ----------- ----------- ----------- -----------
$ - $ - $51,008,953 $ - $ -
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------
Basis of consolidated financial statement presentation
------------------------------------------------------
The consolidated financial statements include the accounts of the Bank and
its wholly owned subsidiary, West Essex Insurance Agency, Inc.
("Subsidiary"), and have been prepared in conformity with generally
accepted accounting principles. All significant intercompany accounts and
transactions have been eliminated in consolidation.
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the dates of the consolidated statements of
financial condition and revenues and expenses for the periods then ended.
Actual results could differ significantly from those estimates. Material
estimates that are particularly susceptible to significant changes relate
to the determination of the allowance for loan losses, the valuation of
real estate owned and the recoverability of excess of cost over assets
acquired. Management believes that the allowance for loan losses is
adequate and that real estate owned and excess of cost over assets acquired
are appropriately valued. While management uses available information to
recognize losses on loans and real estate owned and to assess the
recoverability of excess of cost over assets acquired, future additions to
the allowance for loan losses or further writedowns of real estate owned
and excess of cost over assets acquired may be necessary based on changes
in economic and market conditions in the Bank's market area.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan
losses and real estate owned valuations. Such agencies may require the
Bank to recognize additions to the allowance or additional writedowns based
on their judgments about information available to them at the time of their
examination.
Cash and cash equivalents
-------------------------
Cash and cash equivalents include cash and amounts due from depository
institutions and interest-bearing deposits in other banks with original
maturities of three months or less.
Investments and mortgage-backed securities
------------------------------------------
Debt securities that the Bank has the positive intent and ability to hold
to maturity are classified as held-to-maturity securities and reported at
amortized cost. Debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are classified
as trading securities and reported at fair value, with unrealized holding
gains and losses included in earnings. Debt and equity securities not
classified as trading securities nor as held-to-maturity securities are
classified as available for sale securities and reported at fair value,
with unrealized holding gains or losses, net of deferred income taxes,
reported in a separate component of retained earnings.
Premiums and discounts on all securities are amortized/accreted using the
interest method. Interest and dividend income on securities, which
includes amortization of premiums and accretion of discounts, is recognized
in the consolidated financial statements when earned. The adjusted cost
basis of an identified security sold or called is used for determining
security gains and losses recognized in the consolidated statements of
income.
F-9
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)
- ---------------------------------------------
Loans receivable
----------------
Loans receivable are stated at unpaid principal balances less the allowance
for loan losses and deferred loan fees. Interest is calculated by the use
of the actuarial method.
The Bank defers loan origination fees and certain direct loan origination
costs and amortizes such amounts, using a method which approximates the
level-yield method, as an adjustment of yield over the contractual lives of
the related loans.
Uncollectible interest on loans that are contractually delinquent ninety
days or more is charged off and the related loans placed on nonaccrual
status, or, alternatively, an allowance for uncollectible interest is
established by a charge to interest income equal to all interest previously
accrued. Under either method, income is subsequently recognized only to
the extent that cash payments are received until, in management's judgment,
the borrower's ability to make periodic interest and principal payments is
probable, in which case the loan is returned to an accrual status.
Allowance for loan losses
-------------------------
An allowance for loan losses is maintained at a level considered adequate
to absorb loan losses. Management of the Bank, in determining the
allowance for loan losses, considers the risks inherent in its loan
portfolio and changes in the nature and volume of its loan activities,
along with the general economic and real estate market conditions.
The Bank utilizes a two tier approach: (1) identification of impaired loans
and the establishment of specific loss allowances on such loans; and (2)
establishment of general valuation allowances on the remainder of its loan
portfolio. The Bank maintains a loan review system which allows for a
periodic review of its loan portfolio and the early identification of
potential impaired loans. Such system takes into consideration, among
other things, delinquency status, size of loans, type and estimated fair
value of collateral and financial condition of the borrowers. Specific
loan loss allowances are established for identified loans based on a review
of such information. General loan loss allowances are based upon a
combination of factors including, but not limited to, actual loan loss
experience, composition of the loan portfolio, current economic conditions
and management's judgment. Although management believes that adequate loan
loss allowances are established, actual losses are dependent upon future
events and, as such, further additions to the level of the allowance for
loan losses may be necessary.
F-10
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
- ---------------------------------------------
Allowance for loan losses (Cont'd)
-------------------------
A loan evaluated for impairment is deemed to be impaired when based on
current information and events, it is probable that the Bank will be unable
to collect all amounts due according to the contractual terms of the loan
agreement. The amount of loan impairment is measured based on the present
value of expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral
dependent. All loans identified as impaired are evaluated independently.
The Bank does not aggregate such loans for evaluation purposes. Payments
received on impaired loans are applied first to interest receivable and
then to principal.
Real estate owned
-----------------
Real estate owned consists of real estate acquired by foreclosure or deed
in lieu of foreclosure. Real estate owned is recorded at the lower of cost
or fair value at date of acquisition and thereafter carried at the lower of
such initially recorded amount or fair value less estimated selling costs.
Costs incurred in developing or preparing properties for sale are
capitalized. Income and expense related to the holding and operating of
properties are recorded in operations. Gains and losses from sales of such
properties are recognized as incurred.
Concentration of risk
---------------------
The Bank's real estate and lending activity is concentrated in real estate
and loans secured by real estate located in the State of New Jersey.
Premises and equipment
----------------------
Premises and equipment are comprised of land, at cost, and buildings and
improvements, leasehold improvements and furnishings and equipment, at cost
less accumulated depreciation and amortization. Depreciation and
amortization charges are computed on the straight-line method over the
following estimated useful lives.
Buildings and improvements 10 to 50 years
Leasehold improvements Shorter of useful life
or term of lease
Furnishing and equipment 3 to 10 years
Significant renewals and betterments are charged to the property and
equipment account. Maintenance and repairs are charged to expense in the
year incurred. Rental income is netted against occupancy costs in the
consolidated statements of income.
F-11
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
- ---------------------------------------------
Excess of cost over assets acquired
-----------------------------------
The cost in excess of the fair value of net assets acquired was recorded on
October 17, 1997 in conjunction with the acquisition of certain assets and
assumption of certain liabilities of three branch offices of another
financial institution. This asset primarily consists of core deposit
intangibles, which represent the intangible value of depositor
relationships assumed in the transaction, and is being amortized to expense
over a ten-year period by use of the straight-line method.
On a periodic basis, management reviews the excess of cost over assets
acquired and evaluates events or changes in circumstances that may indicate
impairment in the carrying amount of such asset. In such instances,
impairment, if any, is measured on a discounted estimated cash flow basis.
Interest-rate risk
------------------
The Bank is principally engaged in the business of attracting deposits from
the general public and using these deposits, together with borrowings and
other funds, to purchase securities and to make loans secured by real
estate. The potential for interest-rate risk exists as a result of the
generally shorter duration of the Bank's interest-sensitive liabilities
compared to the generally longer duration of its interest-sensitive assets.
In a rising interest rate environment, liabilities will reprice faster than
assets, thereby reducing net interest income. For this reason, management
regularly monitors the maturity structure of the Bank's interest-earning
assets and interest-bearing liabilities in order to measure its level of
interest-rate risk and to plan for future volatility.
Income taxes
------------
The Bank and Subsidiary file a consolidated federal income tax return.
Income taxes are allocated based on the contribution of income to the
consolidated income tax return. Separate state income tax returns are
filed.
Federal and state income taxes have been provided on the basis of reported
income. The amounts reflected on the income tax returns differ from these
provisions due principally to temporary differences in the reporting of
certain items for financial reporting and tax reporting purposes. The
income tax effect of these temporary differences is accounted for as
deferred income taxes applicable to future periods.
Reclassification
----------------
Certain amounts as of and for the year ended December 31, 1996 and 1995
have been reclassified to conform with the current year's presentation.
F-12
<PAGE>
WEST ESSEX BANK SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
2. SECURITIES AVAILABLE FOR SALE
- --------------------------------
<TABLE>
<CAPTION>
March 31, 1998
-------------------------------------------------------------------------
Amortized Gross Unrealized Carrying
----------------------------------
Cost Gains Losses Value
----------------- ---------------- --------------- ----------------
(unaudited)
<S> <C> <C> <C> <C>
United States Government obligations:
Due after one year through five years $ 6,980,682 $ 124,628 $ - $ 7,105,310
================= ================ =============== ================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------------------------------
Amortized Gross Unrealized Carrying
----------------------------------
Cost Gains Losses Value
----------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
United States Government obligations:
Due after one year through five years $ 6,979,747 $ 100,803 $ - $ 7,080,550
================= ================ =============== ================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------------------------------
Amortized Gross Unrealized Carrying
----------------------------------
Cost Gains Losses Value
----------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions:
Due after ten years $ 114,951 $ 5,407 $ - $ 120,358
Equity securities:
Mutual fund 1,553,601 - 26,505 1,527,096
----------------- ---------------- --------------- ----------------
$ 1,668,552 $ 5,407 $ 26,505 $ 1,647,454
================= ================ =============== ================
</TABLE>
The following table presents details of sales of securities available for sale:
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
-------------------------------- -----------------------------------------
1998 1997 1997 1996 1995
--------------- --------------- ------------ ------------ -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Sales proceeds $ - $ - $ 1,588,229 $ 202,752 $ 27,980
Gross gains - - - 102,752 -
Gross losses - - 20,245 - 22,014
</TABLE>
F-13
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
3. INVESTMENT SECURITIES HELD TO MATURITY
- -------------------------------------------
<TABLE>
<CAPTION>
March 31, 1998
-----------------------------------------------------
Carrying Gross Unrealized Estimated
-----------------------
Value Gains Losses Fair Value
------------ ---------- ---------- ------------
(unaudited)
<S> <C> <C> <C> <C>
U.S. Government (including agencies):
Due in one year or less $ 2,000,131 $ 17,049 $ - $ 2,017,180
After one year through five years 3,999,678 14,698 - 4,014,376
After five years through ten years 17,000,000 115,779 34,375 17,081,404
After ten years 5,618,360 210,145 9,501 5,819,004
------------ ---------- ---------- ------------
28,618,169 357,671 43,876 28,931,964
Municipal obligation due within one year 150,000 - - 150,000
------------ ---------- ---------- ------------
$ 28,768,169 $ 357,671 $ 43,876 $ 29,081,964
============ ========== ========== ============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------
Carrying Gross Unrealized Estimated
-----------------------
Value Gains Losses Fair Value
------------ ---------- ---------- ------------
(unaudited)
<S> <C> <C> <C> <C>
U.S. Government (including agencies):
Due in one year or less $ 2,000,150 $ 59,850 $ - $ 2,060,000
After one year through five years 3,999,622 11,315 - 4,010,937
After five years through ten years 12,000,000 116,247 - 12,116,247
After ten years 4,929,094 222,270 - 5,151,364
------------ ---------- ---------- ------------
$ 22,928,866 $ 409,682 $ - $ 23,338,548
============ ========== ========== ============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------------
Carrying Gross Unrealized Estimated
-----------------------
Value Gains Losses Fair Value
------------ ---------- ---------- ------------
(unaudited)
<S> <C> <C> <C> <C>
U.S. Government (including agencies):
Due after one year through five years $ 3,999,631 $ 52,244 - $ 4,051,875
After five years through ten years 11,000,000 120,201 21,388 11,098,813
After ten years 7,476,835 194,044 55,875 7,615,004
------------ ---------- ---------- ------------
$ 22,476,466 $ 366,489 $ 77,263 $ 22,765,692
============ ========== ========== ============
</TABLE>
There were no sales of investment securities held to maturity during the three
months ended March 31, 1998 and 1997 (unaudited) or during the years ended
December 31, 1997, 1996 and 1995.
At March 31, 1998 and December 31, 1997 and 1996, investment securities held to
maturity with a carrying value of $491,000 (unaudited), $491,000 and $490,000,
respectively, were pledged to the United States Bankruptcy Trustee.
F-14
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
4. MORTGAGE-BACKED SECURITIES HELD TO MATURITY
- ------------------------------------------------
<TABLE>
<CAPTION>
March 31, 1998
---------------------------------------------------------
Carrying Gross Unrealized Estimated
-------------------------
Value Gains Losses Fair Value
------------- ----------- ----------- -------------
(unaudited)
<S> <C> <C> <C> <C>
Government National Mortgage Association $ 73,748,361 $ 1,195,007 $ - $ 74,943,368
Federal Home Loan Mortgage Corporation 25,388,707 368,255 36,099 25,720,863
Federal National Mortgage Association 23,488,732 242,828 4,103 23,727,457
Other 7,089 - - 7,089
------------- ----------- ----------- -------------
$ 122,632,889 $ 1,806,090 $ 40,202 $ 124,398,777
============= =========== =========== =============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------------------------
Carrying Gross Unrealized Estimated
-------------------------
Value Gains Losses Fair Value
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Government National Mortgage Association $ 78,657,282 $ 1,158,307 $ 40,774 $ 79,774,815
Federal Home Loan Mortgage Corporation 26,551,191 275,562 77,959 26,748,794
Federal National Mortgage Association 24,958,646 191,719 - 25,150,365
Other 7,172 - - 7,172
------------- ----------- ----------- -------------
$ 130,174,291 $ 1,625,588 $ 118,733 $ 131,681,146
============= =========== =========== =============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------------------
Carrying Gross Unrealized Estimated
-------------------------
Value Gains Losses Fair Value
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Government National Mortgage Association $ 65,995,553 $ 1,099,373 $ - $ 67,094,926
Federal Home Loan Mortgage Corporation 32,041,105 227,832 245,424 32,023,513
Federal National Mortgage Association 15,204,132 59,035 36,534 15,226,633
Other 13,296 - - 13,296
------------- ----------- ----------- -------------
$ 113,254,086 $ 1,386,240 $ 281,958 $ 114,358,368
============= =========== =========== =============
</TABLE>
There were no sales of mortgage-backed securities held to maturity during the
three months ended March 31, 1998 and 1997 (unaudited) or during the years ended
December 31, 1997, 1996 and 1995.
See Note 11 to consolidated financial statements regarding mortgage-backed
securities held to maturity pledged as collateral for borrowed money
F-15
<PAGE>
5. LOANS RECEIVABLE
- -------------------
<TABLE>
<CAPTION>
March 31, December 31,
---------------------------
1998 1997 1996
------------- ------------- -----------
(unaudited)
<S> <C> <C> <C>
Real estate mortgage:
Conventional $ 101,179,365 $ 99,474,155 $ 74,201,698
FHA insured 201,593 257,285 301,161
VA guaranteed 441,023 457,155 581,547
------------- ------------- ------------
101,821,981 100,188,595 75,084,406
------------- ------------- ------------
Agency for International Development 57,326 58,875 87,009
------------- ------------- ------------
Construction and land development 7,141,336 6,484,920 2,080,011
------------- ------------- ------------
Consumer:
Passbook or certificate 496,695 550,169 427,122
Equity 8,294,785 8,491,437 6,579,475
Second mortgage 59,670 62,595 73,591
Home improvement - - 4,621
Automobile 274,127 259,097 163,110
Credit reserve 29,795 31,480 -
------------- ------------- ------------
9,155,072 9,394,778 7,247,919
------------- ------------- ------------
Total loans 118,175,715 116,127,168 84,499,345
------------- ------------- ------------
Less: Loans in process 2,009,066 1,437,016 440,400
Allowance for loan losses 1,862,971 1,885,021 1,563,991
Deferred loan fees 1,219 70,390 360,807
------------- ------------- ------------
3,873,256 3,392,427 2,365,198
------------- ------------- ------------
$ 114,302,459 $ 112,734,741 $ 82,134,147
============= ============= ============
</TABLE>
The Bank has granted loans to officers and directors of the Bank and to their
associates. Related party loans are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons and do not involve more than
normal risk of collectibility. The aggregate dollar amount of these loans was
$1,193,000 (unaudited) at March 31, 1998 and $1,200,000 and $501,000 at December
31, 1997 and 1996, respectively. During the three months ended March 31, 1998,
repayments totalled $7,000 (unaudited). During the year ended December 31,
1997, new loans granted and repayments totalled $835,000 and $136,000,
respectively.
At March 31, 1998 and 1997 (unaudited) and December 31, 1997, 1996 and 1995,
loans serviced for the benefit of others totalled approximately $45,000
(unaudited), $68,000 (unaudited), $53,000, $72,000 and $92,000, respectively.
F-16
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
5. LOANS RECEIVABLE (Cont'd.)
- -------------------
Nonperforming loans consist of nonaccrual and renegotiated loans. Nonaccrual
loans are those on which income under the accrual method has been discontinued
with subsequent interest payments credited to interest income when received, or
if ultimate collectibility of principal is in doubt, applied as principal
reductions. Renegotiated loans are loans whose contractual interest rates have
been reduced or where other significant concessions have been made due to a
borrower's financial difficulties. Interest on these loans is either accrued or
credited directly to interest income.
Nonperforming loans were as follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
--------------------------
1998 1997 1996
------------- ---------- ----------
(unaudited)
<S> <C> <C> <C>
Nonaccrual $ 2,214 $ 2,413 $ 2,869
Renegotiated 92 94 99
------------- ---------- ----------
$ 2,306 $ 2,507 $ 2,968
============= ========== ==========
</TABLE>
The impact of nonperforming loans on interest income is as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31,
---------------------------- -----------------------------------------------
1998 1997 1997 1996 1995
------------ ------------ -------------- ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Interest income if performing in
accordance with original terms $ 52 $ 67 $ 234 $ 278 $ 229
Interest income actually recorded 12 5 57 74 48
------------ ------------ ------------- ------------ ------------
Interest income lost $ 40 $ 62 $ 177 $ 204 $ 181
============ ============ ============= ============ ============
</TABLE>
The following is an analysis of the allowance for loan losses:
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31,
---------------------------- -----------------------------------------------
1998 1997 1997 1996 1995
------------ ------------ -------------- ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Balance - beginning $ 1,885,021 $ 1,563,991 $ 1,563,991 $ 1,199,888 $ 1,236,032
Provision (credited) charged to operations (22,050) 55,000 487,015 232,103 509,729
Loans charged off to allowance - - (165,985) - (545,873)
Recovery of loan previously charged off - - - 132,000 -
------------ ------------ ------------ ------------ ------------
$ 1,862,971 $ 1,618,991 $ 1,885,021 $ 1,563,991 $ 1,199,888
============ ============ ============ ============ ============
</TABLE>
F-17
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
5. LOANS RECEIVABLE (Cont'd.)
- -------------------
Impaired loans and related amounts recorded in the allowance for loan losses are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
------------------------------------
1998 1997 1996
------------- --------------- ---------------
(unaudited)
<S> <C> <C> <C>
Recorded investment in impaired loans:
With recorded allowances $ 1,345 $ 1,344 $ 1,505
Without recorded allowances 304 304 304
------------- --------------- ---------------
Total impaired loans 1,649 1,648 1,809
Related allowance for loan losses 580 580 435
------------- --------------- ---------------
Net impaired loans $ 1,069 $ 1,068 $ 1,374
============= =============== ===============
</TABLE>
For the three months ended March 31, 1998 and 1997 and the years ended December
31, 1997, 1996 and 1995, the average recorded investment in impaired loans
totalled $1,648,000 (unaudited), $1,757,000 (unaudited), $1,916,000, $1,567,000
and $1,590,000, respectively. During the year ended December 31, 1996, interest
income of $11,000, all on the cash basis, was recognized on such loans during
the time each loan was impaired. During the three months ended March 31, 1998
and 1997 (unaudited) and the years ended December 31, 1997 and 1995, no interest
income was recognized on such loans during the time each loan was impaired.
6. REAL ESTATE OWNED
- --------------------
<TABLE>
<CAPTION>
March 31, December 31,
------------------------------------
1998 1997 1996
------------- --------------- ---------------
(unaudited)
<S> <C> <C> <C>
Acquired in settlement of loans $ 1,120,197 $ 1,388,840 $ 1,492,068
Allowance for losses - 174,000 98,000
------------- --------------- ---------------
$ 1,120,197 $ 1,214,840 $ 1,394,068
============= =============== ===============
</TABLE>
The following is an analysis of the allowance for losses:
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31,
---------------------------- -----------------------------------------------
1998 1997 1997 1996 1995
------------ ------------ -------------- ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Balance - beginning $ 174,000 $ 98,000 $ 98,000 $ 98,000 $ 500,000
Provisions charged to operations 22,050 170,000 372,985 45,000 33,749
Losses charged to allowance (196,050) (170,000) (296,985) (45,000) (435,749)
------------ ------------ ------------ ------------ ------------
Balance - ending $ - $ 98,000 $ 174,000 $ 98,000 $ 98,000
============ ============ ============ ============ ============
</TABLE>
F-18
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
6. REAL ESTATE OWNED (Cont'd.)
- --------------------
The following is an analysis of the (loss) income on real estate owned:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------------ ----------------------------------------------------
1998 1997 1997 1996 1995
--------- ---------- ------------ ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Gain on sale, net $ 5,386 $ 19,714 $ 30,080 $ 117,201 $ 162,031
Carrying cost, net (7,084) (7,035) (36,965) (51,638) (69,349)
Provision for losses (22,050) (170,000) (372,985) (45,000) (33,749)
----------- ------------- ------------- ------------- -------------
$ (23,748) $ (157,321) $ (379,870) $ 20,563 $ 58,933
----------- ------------- ------------- ------------- -------------
</TABLE>
7. PREMISES AND EQUIPMENT
- -------------------------
<TABLE>
<CAPTION>
March 31, December 31,
----------------------------------------
1998 1997 1996
------------- --------------- --------------
(unaudited)
<S> <C> <C> <C>
Land $ 979,315 $ 979,315 $ 358,253
------------- --------------- --------------
Building and improvements 2,168,439 2,159,938 1,419,641
Less accumulated depreciation 800,195 778,047 709,995
-------------- --------------- --------------
1,368,244 1,381,891 709,646
-------------- --------------- --------------
Leasehold improvements 112,754 112,754 112,754
Less accumulated amortization 110,282 110,017 108,957
-------------- --------------- --------------
2,472 2,737 3,797
-------------- --------------- --------------
Furnishings and equipment 2,631,742 2,575,464 2,224,070
Less accumulated depreciation 1,869,070 1,816,823 1,655,411
-------------- --------------- --------------
762,672 758,641 568,659
-------------- --------------- --------------
$ 3,112,703 $ 3,122,584 $ 1,640,355
============== =============== ==============
</TABLE>
F-19
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
8. ACCRUED INTEREST RECEIVABLE
- ------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
---------------------------
1998 1997 1996
------------- ------------ ------------
(unaudited)
<S> <C> <C> <C>
Loans $ 677,941 $ 690,706 $ 564,744
Mortgage-backed securities 715,833 852,519 691,298
Investments and other 686,971 479,574 407,028
------------- ------------ ------------
2,080,745 2,022,799 1,663,070
Less allowance for uncollected interest on loans 8,850 10,602 11,643
------------- ------------ ------------
$ 2,071,895 $ 2,012,197 $ 1,651,427
============= ============ ============
</TABLE>
9. EXCESS OF COST OVER ASSETS ACQUIRED
- --------------------------------------
On October 17, 1997, the Bank acquired three branch locations from another
financial institution. The amounts related to the transaction are reflected
separately in the consolidated statement of cash flows for the year ended
December 31, 1997. The $7,571,946 excess of cost over assets acquired initially
recorded was based upon the amount of deposits the Bank had agreed to acquire.
However, during the period between the purchase agreement date and October 17,
1997, the deposits subject to purchase declined over 18%. By December 31, 1997,
the balance of deposits at the three purchased locations had stabilized.
Management performed a reassessment of the recoverability of this asset and, as
a result, an impairment loss of $1,585,313 was recorded. Such impairment loss
is included in "Amortization of intangible" in the consolidated statement of
income for the year ended December 31, 1997.
10. DEPOSITS
- ------------
<TABLE>
<CAPTION>
March 31, 1998
------------------------------------------
Weighted
Average
Rate Amount Percent
----------- ------------- ------------
(unaudited)
<S> <C> <C> <C>
Demand accounts:
Non-interest-bearing 0.00% $ 11,433,090 4.78
Interest-bearing 1.69% 22,255,814 9.31
------------- ------------
1.12% 33,688,904 14.09
Savings and club accounts 2.58% 61,840,466 25.86
Certificates of deposit 5.49% 143,591,116 60.05
------------- ------------
4.13% $ 239,120,486 100.00
============= ============
</TABLE>
F-20
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
10. DEPOSITS (Cont'd.)
- ------------
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------
1997 1996
--------------------------------------- -------------------------------------
Weighted Weighted
Average Average
Rate Amount Percent Rate Amount Percent
---------- ------------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Demand accounts:
Non-interest-bearing 0.00% $ 11,371,513 4.78 0.00% $ 7,270,396 4.04
Interest-bearing 1.84% 21,662,441 9.09 1.81% 15,214,291 8.46
------------- ---------- ------------- ----------
1.18% 33,033,954 13.87 1.23% 22,484,687 12.50
Savings and club accounts 2.60% 62,834,205 26.38 2.49% 49,814,106 27.68
Certificates of deposit 5.51% 142,323,982 59.75 5.33% 107,646,710 59.82
------------- ---------- ------------- ----------
4.14% $238,192,141 100.00 4.03% $179,945,503 100.00
============= ========== ============= ==========
</TABLE>
The amount of certificates of deposit with balances of $100,000 or more at
March 31, 1998 and December 31, 1997 and 1996 were approximately $17,596,000
(unaudited), $19,327,000 and $15,064,000, respectively.
The scheduled maturities of certificates of deposit are as follows (in
thousands):
<TABLE>
<CAPTION>
March 31, December 31,
-------------------------
1998 1997 1996
------------ ----------- -----------
(unaudited)
<S> <C> <C> <C>
One year or less $ 115,168 $ 114,233 $ 86,574
After one to three years 25,387 25,309 16,417
After three years 3,036 2,782 4,656
------------ ----------- -----------
$ 143,591 $ 142,324 $ 107,647
============ =========== ===========
</TABLE>
F-21
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
11. BORROWED MONEY
- -------------------
The following table presents details of borrowed money, all of which has been
borrowed from the Federal Home Loan Bank of New York ("FHLB"):
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
March 31, 1998 1997 1996
----------------------------------- ------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Rate Amount Rate Amount Rate Amount
---------------- -------------- ------------ ------------ ------------ -----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Securities sold under
agreements to
repurchase maturing
within three months - % $ - 5.82% $ 18,000,000 5.60% $ 6,000,000
Convertible advances:
due March 24, 2008(a) 5.33% 10,000,000 - % - - % -
due March 25, 2008(b) 5.59% 10,000,000 - % - - % -
Monthly amortizing advances:
Payable in sixty monthly
principal and interest
installments of $96,286
through February 24, 2003 5.84% 5,000,000 - % - - % -
Payable in 120 monthly
principal and interest
installments of $55,591
through February 25, 2008 6.03% 5,000,000 - % - - % -
Term advances maturing:
within one year 6.38% 7,350,000 6.38% 7,350,000 6.25% 8,350,000
after one to two years 6.50% 4,350,000 6.50% 4,350,000 6.57% 4,350,000
after two to three years 6.95% 600,000 6.95% 600,000 6.48% 4,350,000
after three to four years - % - - % - 6.90% 600,000
------------ ------------ ------------
5.86% $ 42,300,000 6.08% $ 30,300,000 6.20% $ 23,650,000
============ ============ ============
</TABLE>
(a) Convertible at lender option to replacement funding at then current rates
on March 24, 2001 and quarterly thereafter.
(b) Convertible at lender option to replacement funding at then current rates
on March 25, 2003 and quarterly thereafter.
Certain information concerning borrowed money is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
---------------------------- -----------------------------------------------
1998 1997 1997 1996 1995
------------ ------------ -------------- ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Average balance outstanding $ 30,144,000 $ 22,650,000 $ 26,223,000 $ 18,096,000 $ 15,615,000
Maximum month-end balance outstanding 42,300,000 23,650,000 43,675,000 23,650,000 19,000,000
Average interest rate 5.80% 6.06% 5.97% 6.36% 6.83%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-22
<PAGE>
11. BORROWED MONEY (Cont'd.)
- ------------------
At March 31, 1998 (unaudited) and December 31, 1997 and 1996, the borrowings
were secured by pledges of the Bank's investment in the capital stock of the
FHLB totalling $2,281,500, $2,183,800 and $1,670,400, respectively, and
mortgage-backed securities held to maturity with an aggregate carrying value of
$48,478,000, $39,870,000 and $27,035,000, respectively.
12. REGULATORY CAPITAL
- ----------------------
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the Bank.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of Total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier 1 capital to assets (as defined).
<TABLE>
<CAPTION>
As of March 31, 1998 (unaudited)
-------------------------------------------------------------------
To Be Well Capitalized
Minimum Capital Under Prompt Corrective
Actual Requirements Actions Provisions
------------------ -------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
-------- -------- --------- -------- --------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to risk-weighted assets) $ 25,292 19.95% $ 10,144 8.00% $ 12,680 10.00%
Tier 1 Capital
(to risk-weighted assets) 24,040 18.96% - - 7,608 6.00%
Core (Tier 1) Capital
(to adjusted total assets) 24,040 7.84% 12,268 4.00% 15,335 5.00%
Tangible Capital
(to adjusted total assets) 24,040 7.84% 4,600 1.50% - -
</TABLE>
F-23
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
12. REGULATORY CAPITAL (Cont'd.)
- ------------------------
<TABLE>
<CAPTION>
As of December 31, 1997
----------------------------------------------------------------------------
To Be Well capitalized
Minimum Capital Under Prompt Corrective
Actual Requirements Actions Provisions
--------------------- ----------------------- --------------------------
Amount Ratio Amount Ratio Amount Ratio
--------- --------- ----------- ---------- ----------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to risk-weighted assets) $ 24,566 26.10% $ 7,530 8.00% $ 9,412 10.00%
Tier 1 capital
(to risk-weighted assets) 23,381 24.84% - - 5,647 6.00%
Core (Tier 1) Capital
(to adjusted total assets) 23,381 7.98% 8,794 3.00% 14,657 5.00%
Tangible Capital
(to adjusted total assets) 23,381 7.98% 4,397 1.50% - -
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1996
----------------------------------------------------------------------------
To Be Well capitalized
Minimum Capital Under Prompt Corrective
Actual Requirements Actions Provisions
--------------------- ----------------------- --------------------------
Amount Ratio Amount Ratio Amount Ratio
--------- --------- ----------- ---------- ----------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to risk-weighted assets) $ 29,393 39.15% $ 6,006 8.00% $ 7,507 10.00%
Tier 1 capital
(to risk-weighted assets) 28,447 37.90% - - 4,504 6.00%
Core (Tier 1) Capital
(to adjusted total assets) 28,447 12.06% 7,079 3.00% 11,798 5.00%
Tangible Capital
(to adjusted total assets) 28,447 12.06% 3,539 1.50% - -
</TABLE>
As of December 4, 1997, the most recent notification from the OTS, the Bank was
categorized as well capitalized under the regulatory framework for prompt
corrective action. There are no conditions existing or events which have
occurred since notification that management believes have changed the
institution's category.
13. RETIREMENT PLAN
- ---------------------
The Bank has a non-contributory pension plan covering all eligible employee.
The plan is a defined benefit plan which provides benefits based on a
participant's years of service and compensation. The Bank's funding policy is
to contribute annually the maximum amount that can be deducted for federal
income tax purposes.
F-24
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
13. RETIREMENT PLAN (Cont'd.)
- ---------------------
The following table sets forth the plan's annually determined funded status:
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligation, including
vested benefits of $2,658,587 and $2,238,389, respectively. $ 2,709,212 $ 2,271,153
============= =============
Projected benefit obligation $ (3,257,644) $ (2,789,153)
Plan assets at fair value; primarily mutual funds 2,984,086 2,534,416
------------- -------------
Projected benefit obligation in excess of plan assets (273,558) (254,737)
Unrecognized net transition obligation 189,872 221,517
Unreconized past service cost 80,492 90,045
Unreconized net (gain) (131,598) (188,143)
------------- -------------
Accured pension cost included in other liabilities $ (134,792) $ (131,318)
============= =============
</TABLE>
The following table sets forth the components of net periodic pension cost:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1997 1996 1995
------------ ------------ -------------
<S> <C> <C> <C>
Net periodic pension cost
included the following components
Service cost $ 109,752 $ 130,573 $ 90,794
Interest cost 206,416 187,634 173,961
Actual return on plan assets (361,720) (284,857) (427,904)
Net amortization and deferral 222,518 170,747 348,456
------------ ------------ -------------
Net periodic pension cost
included in salaries and employee benfits $ 176,966 $ 204,097 $ 185,307
============ =========== =============
</TABLE>
Retirement Plan expense recorded for the three months ended March 31, 1998 and
1997 totalled approximately $47,000 (unaudited) and $48,000 (unaudited),
respectively.
Assumptions used to develop the net periodic pension cost were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------
1997 1996 1995
------------- ------------ -------------
<S> <C> <C> <C>
Discount rates 7.50% 7.00% 8.25%
Expected long-term rate of return 7.00% 7.00% 7.00%
Rate of increase in compensation levels 5.50% 5.00% 6.00%
</TABLE>
F-25
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
14. INCOME TAXES
- -----------------
The Bank qualifies as a Savings Institution under the provisions of the Internal
Revenue Code and, therefore, was permitted, prior to January 1, 1996, to deduct
from taxable income an allowance for bad debts based upon the more favorable of:
(i) a method based on the Bank's actual loss experience (the "experience"
method); or (ii) a method based on eight percent of taxable income before such
deduction, less certain adjustments and subject to certain limitations (the
"percentage of taxable income" method). Effective January 1, 1996, the
percentage of taxable income method was repealed. The Bank may now use either
the experience method or the specific charge off method. See Note 16 to
consolidated financial statements. Retained earnings at December 31, 1997,
include approximately $6.8 million of such bad debt allowance for which federal
income taxes have not been provided.
The components of income taxes are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------------- -----------------------------------------
1998 1997 1997 1996 1995
---------- ---------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Current tax expense:
Federal income $ 193,763 $ 261,184 $ 1,066,590 $ 801,976 $ 925,368
State income 16,126 23,301 95,024 70,584 41,152
---------- ---------- ----------- ----------- -----------
209,889 284,485 1,161,614 872,560 966,520
---------- ---------- ----------- ----------- -----------
Deferred tax (benefit) expense:
Federal income 45,528 - (664,857) (33,554) 197,099
State income 4,142 - (60,478) (3,055) 57,198
---------- ---------- ----------- ----------- -----------
49,670 - (725,335) (36,609) 254,297
---------- ---------- ----------- ----------- -----------
$ 259,559 $ 284,485 $ 436,279 $ 835,951 $ 1,220,817
========== ========== =========== =========== ===========
</TABLE>
The components of the net deferred income tax asset are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
--------------------------
1998 1997 1996
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 716,829 $ 777,563 $ 519,185
Deferred loan origination fees, net - - 89,538
Goodwill 589,660 581,747 -
Other 65,093 41,073 33,450
----------- ----------- -----------
Total deferred tax assets 1,371,582 1,400,383 642,173
----------- ----------- -----------
Deferred tax liabilities:
Deferred loan origination fees, net 57,809 36,940 -
Unrealized gain on securities available for sale 44,838 36,269 -
Other - - 4,065
----------- ----------- -----------
Total deferred tax liabilities 102,647 73,209 4,065
----------- ----------- -----------
Net deferred tax asset included in other assets $ 1,268,935 $ 1,327,174 $ 638,108
=========== =========== ===========
</TABLE>
F-26
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------
14. INCOME TAXES (Cont'd.)
- -----------------
Refundable income taxes totalling $54,834 (unaudited), $88,904 and $178,960 are
included in other assets at March 31, 1998 and December 31, 1997 and 1996,
respectively. Income taxes payable totalling $135,606 (unaudited), $39,069 and
$6,319 are included in other liabilities at March 31, 1998 and December 31, 1997
and 1996, respectively.
The following table presents a reconciliation between the reported income taxes
and the income taxes which would be computed by applying the normal federal
income tax rate of 34% to income before income taxes:
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31
------------------------- ---------------------------------------
1998 1997 1997 1996 1995
------------ ----------- ---------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Federal income tax $ 262,038 $ 274,564 $ 398,860 $ 847,266 $ 1,187,542
Increases (reductions) in taxes resulting from:
Reinstatement of portion of base
year bad debt reserve for income tax purposes - - - - (57,328)
Non-deductible captial loss - - 6,883 7,485
Utilization of capital loss carryforward - - - (34,936) -
New Jersey savings institution tax,
net of federal income tax effect 13,377 15,379 22,800 44,569 64,911
Other items, net (15,856) (5,458) 7,736 (20,948) 18,207
------------ ----------- ----------- ----------- -----------
Effective income tax $ 259,559 $ 284,485 $ 436,279 $ 835,951 $ 1,220,817
============ =========== =========== =========== ===========
</TABLE>
15. COMMITMENTS AND CONTINGENCIES
- ----------------------------------
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers and to
reduce its own exposure to fluctuations in interest rates. These financial
instruments primarily include commitments to extend credit. Such instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the consolidated statements of financial condition.
The contractual amounts of these instruments reflect the extent of involvement
the Bank has in those particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instruments for commitments to extend credit is
represented by the contractual amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments.
At March 31, 1998 (unaudited), the Bank had $12,860,000 in commitments to
originate loans, consisting of $11,445,000 for fixed rate loans with interest
rates ranging from 6.625% to 7.625%, $760,000 for adjustable rate loans with
initial interest rates ranging from 6.625% to 6.875%, $50,000 for a floating
rate equity line of credit with an initial interest rate of 8.00% and $605,000
for the purchase of loan participation interests. The $605,000 in loan
participations include $275,000 for a twelve-month, 8.25% construction loan,
$80,000 for a fixed rate loan whose rate will be fixed at funding at 1.60% above
the Federal Home Loan Bank CIP advance rate and a $250,000 adjustable rate loan
whose initial rate will be fixed at funding for five or ten years at 1.60% above
the Federal Home Loan Bank CIP advance rate and will adjust every fifth or tenth
year thereafter.
F-27
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
15. COMMITMENTS AND CONTINGENCIES (Cont'd.)
- ----------------------------------
At December 31, 1997 and 1996, the Bank had $1,324,000 and $2,374,000,
respectively, in outstanding commitments to originate loans. The outstanding
commitments at December 31, 1997 include $724,000 for fixed rate loans with
interest rates ranging from 7.25% to 7.75%, $100,000 for a floating rate equity
line of credit with an initial rate of 8.00% and $500,000 for the purchase of
loan participations consisting of $200,000 for fixed rate loans whose rates will
be fixed at funding at 1.60% above the Federal Home Loan Bank CIP advance rate
and a $300,000 adjustable rate loan whose initial rate will be fixed at funding
for five years at 1.60% above the Federal Home Loan Bank CIP advance rate and
will adjust every fifth year thereafter.
At March 31, 1998 and December 31, 1997 and 1996, undisbursed funds from
approved lines of credit under a homeowners' equity lending program amounted to
approximately $4,339,000 (unaudited), $4,137,000 and $3,117,000, respectively.
Unless they are specifically cancelled by notice from the Bank, these funds
represent firm commitments available to the respective borrowers on demand. The
interest rate charged for any month on funds disbursed under the program is 1.0%
above the prime rate published in The Wall Street Journal on the last day of the
preceding month.
At March 31, 1998 and December 31, 1997, undisbursed funds from approved
unsecured lines of credit under the Credit Reserve program totalled $115,000
(unaudited) and $99,000, respectively. Funds drawn on these lines are assessed
interest at a rate of 18.00%.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the counterparty. Collateral held varies but primarily
includes commercial and residential real estate.
Rentals under a long-term operating lease for a branch office amounted to
approximately $12,000 (unaudited) for each of the three months ended March 31,
1998 and 1997 and approximately $50,000 for each of the years ended December 31,
1997, 1996 and 1995. At December 31, 1997, the minimum rental commitment under
this noncancellable lease expiring in 1998 is $41,000.
The Bank also has, in the normal course of business, commitments for services
and supplies. Management does not anticipate losses on any of these
transactions.
During the year ended December 31, 1997, the Bank became a defendant in a
litigation matter under which it is accused of breach of contract, fraud and
violation of the New Jersey Consumer Fraud Act. The lawsuit is related to a
condominium construction project which the Bank halted financing on due to
borrower default. The Bank denies the material allegations set forth in the
Complaint. The Bank filed a motion to dismiss the contract claims and to re-
plead the fraud claims. On February 20, 1998, the
F-28
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Superior Court of New Jersey denied the Bank's motion to dismiss the contract
claims, but granted the Bank's motion requiring plaintiffs to re-plead the fraud
counts with particularity. On March 13, 1998, the plaintiffs filed an amended
complaint and, on April 8, 1998, the Bank filed its answer to the amended
complaint. The plaintiffs are seeking, among other things, compensatory damages,
punitive damages in the amount of $5,000,000, and reimbursement of costs and
legal fees associated with this matter. The Bank's ultimate liability, if any,
which might arise from the disposition of these claims cannot presently be
determined. Accordingly, no provision for any liability that may result
upon adjudication has been recognized in the accompanying consolidated financial
statements.
The Bank is also a party to various litigation which arises primarily in the
ordinary course of business. In the opinion of management, the ultimate
disposition of such litigation should not have a material effect on the
consolidated financial position or operations of the Bank.
16. LEGISLATIVE MATTERS
- ------------------------
On September 30, 1996, legislation was enacted which, among other things,
imposed a special one-time assessment on Savings Association Insurance Fund
("SAIF") member institutions, including the Bank, to recapitalize the SAIF and
spread the obligation for payment of Financial Corporation ("FICO") bonds across
all SAIF and Bank Insurance Fund ("BIF") members. The special assessment levied
amounted to 65.7 basis points on SAIF assessable deposits held as of March 31,
1995. The special assessment was recognized in the third quarter of 1996 and
was tax deductible. The Bank took a charge of $1,098,000 as a result of the
special assessment. This legislation eliminated the substantial disparity
between the amount that BIF and SAIF members had been paying for deposit
insurance premiums.
Currently, the FDIC has estimated that, in addition to normal deposit insurance
premiums, BIF members will pay a portion of the FICO payment equal to 1.3 basis
points on BIF-insured deposits compared to 6.4 basis points by SAIF members on
SAIF-insured deposits. All institutions will pay a pro-rata share of the FICO
payment on the earlier of January 1, 2000 or the date upon which the last
savings association ceases to exist. The legislation also requires BIF and SAIF
to be merged by January 1, 1999 provided that legislation is adopted to
eliminate the savings association charter and no savings associations remain as
of that time.
The FDIC has lowered SAIF assessments to a range comparable to that of BIF
members, although SAIF members must also make the FICO payments described above.
Management cannot predict the precise level of FDIC insurance assessments on an
ongoing basis or whether the BIF and SAIF will eventually be merged.
On August 21, 1996, legislation was enacted to allow for the recapture of post-
1987 tax bad debt reserves ("excess reserves"). Prior to enactment certain
thrift institutions such as the Bank were allowed deductions for bad debts under
methods more favorable than those granted to other taxpayers. This legislation
repealed the Code Section 593 reserve method of accounting for bad debts by
thrift institutions effective for taxable years beginning after 1995. Thrift
institutions that are treated as small banks are allowed to utilize the
experience method applicable to such institutions or the specific charge-off
method, while thrift institutions that are treated as large banks are required
to use only the specific charge off method.
F-29
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
16. LEGISLATIVE MATTERS (Cont'd.)
- ------------------------
For small institutions such as the Bank, the amount of the institution's
applicable excess reserves generally is the excess of the balances of its
reserve for losses on qualifying real property loans and its reserve for losses
on nonqualifying loans as of the close of its last taxable year beginning before
January 1, 1996, over the greater of the balance of (a) its pre-1988 tax
reserves or (b) what the reserves would have been at the close of its last year
beginning before January 1, 1996, had the Savings Bank always used the
experience method. At January 1, 1996, the Bank had excess reserves of
approximately $18,000, which, in accordance with the legislation, are being
recaptured over a six-year period commencing January 1, 1996. As such amount has
been treated as a temporary difference in accordance with Financial Accounting
Standard Board ("FASB") Statement of Financial Accounting Standards
("Statement") No. 109, the recapture has no impact on consolidated earnings.
17. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------------
The fair value of a financial instrument is defined as the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than a forced or liquidation sale. Significant estimations were used by
the Bank for the purposes of this disclosure. Estimated fair values have been
determined by the Bank using the best available data and estimation methodology
suitable for each category of financial instruments. For those loans and
deposits with floating interest rates, it is presumed that estimated fair values
generally approximate their recorded book balances. The estimation
methodologies used and the estimated fair values and carrying values of the
Bank's financial instruments are set forth below:
Cash and cash equivalents and accrued interest receivable
---------------------------------------------------------
The carrying amounts for cash and cash equivalents and accrued interest
receivable approximate fair value.
Securities
----------
The fair values for securities available for sale, investment securities
held to maturity and mortgage-backed securities held to maturity are based
on quoted market prices or dealer prices, if available. If quoted market
prices or dealer prices are not available, fair value is estimated using
quoted market prices or dealer prices for similar securities.
Loans
-----
The fair value of loans is estimated by discounting future cash flows,
using the current rates at which similar loans with similar remaining
maturities would be made to borrowers with similar credit ratings.
F-30
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
17. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont'd.)
- --------------------------------------------------
Deposits
--------
For demand, savings and club accounts, fair value is the carrying amount
reported in the consolidated financial statements. For certificates of
deposit, fair value is estimated by discounting future cash flows, using
rates currently offered for deposits of similar remaining maturities.
Borrowed money
--------------
Fair value is estimated using rates currently offered for liabilities of
similar remaining maturities, or when available, quoted market prices.
Commitments to extend credit
----------------------------
The fair value of credit commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also considers
the difference between current levels of interest rates and the committed
rates.
The carrying values and estimated fair values of the Bank's financial
instruments are as follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
------------------------------------------------------------
1998 1997 1996
-------------------- ----------------------------- -------------------------
Carrying Estimated Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value Value Fair Value
-------- ----------- ---------- --------------- ---------- -----------
Financial assets (unaudited)
- ----------------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 17,329 $ 17,329 $ 8,696 $ 8,696 $ 7,754 $7,754
Term deposits 5,000 5,000 - - - -
Securities available for sale 7,105 7,105 7,081 7,081 1,647 1,647
Investment securities held to maturity 28,768 29,082 22,929 23,339 22,476 22,766
Mortgage-backed securities held to maturity 122,633 124,399 130,174 131,681 113,254 114,358
Loans receivable 114,302 115,352 112,735 114,021 82,134 84,615
Accrued interest receivable 2,072 2,072 2,012 2,012 1,651 1,651
Financial liabilities
- ---------------------
Deposits 239,120 240,064 238,192 239,241 179,946 181,155
Borrowed money 42,300 41,814 30,300 30,337 23,650 23,730
Commitments
- -----------
Loan origination and purchase 12,860 12,860 1,324 1,324 2,374 2,374
Unused lines of credit 4,454 4,454 4,236 4,236 3,117 3,117
</TABLE>
F-31
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
17. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont'd.)
- --------------------------------------------------
Fair value estimates are made at a specific point in time based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the entire holdings of a particular financial instrument.
Because no market value exists for a significant portion of the financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates are subjective
in nature, involve uncertainties and matters of judgment and, therefore, cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates.
In addition, fair value estimates are based on existing on-and-off balance sheet
financial instruments without attempting to estimate the value of anticipated
future business, and exclude the value of assets and liabilities that are not
considered financial instruments. Other significant assets and liabilities that
are not considered financial assets and liabilities include premises and
equipment, real estate owned and advance payments by borrowers for taxes and
insurance. In addition, the tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in any of the estimates.
Finally, reasonable comparability between financial institutions may not be
likely due to the wide range of permitted valuation techniques and numerous
estimates which must be made given the absence of active secondary markets for
many of the financial instruments. This lack of uniform valuation methodologies
introduces a greater degree of subjectivity to these estimated fair values.
18. IMPACT OF NEW ACCOUNTING STANDARDS
- ---------------------------------------
In June 1996, the FASB issued Statement No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." Statement
No. 125 provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities based on consistent
application of a financial components approach that focuses on control. Under
that approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes the financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. This Statement provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. A transfer of financial assets in which
the transferor surrenders control, as defined, over those assets is accounted
for as a sale to the extent that consideration other than beneficial interests
in the transferred assets is received in exchange. Statement No. 125 requires
that liabilities and derivatives incurred or obtained by transferors as part of
a transfer of financial assets be initially measured at fair value, if
practicable, and requires that servicing assets and other retained interests in
the transferred assets be measured by allocating the previous carrying amount
between the assets sold, if any, and retained interest, if any, based on the
relative fair values at the date of the transfer. Further, servicing assets and
liabilities must be subsequently measured by (a) amortization in proportion to
and over the period of estimated net servicing income or loss and (b) assessment
for asset impairment or increased obligation based on their values. Statement
No. 125 requires that debtors reclassify financial assets pledged as
F-32
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
18. IMPACT OF NEW ACCOUNTING STANDARDS (Cont'd.)
- ---------------------------------------
collateral and that secured parties recognize those assets and their obligation
to return them in certain circumstances in which the secured party has taken
control of those assets. Statement No. 125 is effective for transactions
occurring after December 31, 1996, with the exception of certain provision which
have had their effective date delayed an additional year via FASB Statement No.
127. The application of the provisions of Statement No. 125 has not had and, for
provisions not applicable until January 1, 1998, is not expected to have a
material adverse effect on the Bank's consolidated financial condition or
results of operations.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income". Statement No. 130 requires that all items that are components of
"comprehensive income" be reported in a financial statement that is displayed
with the same prominence as other financial statements. Comprehensive income is
defined as the "change in equity (net assets) of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners". Companies
will be required to (a) classify items of other comprehensive income by their
nature in the financial statements and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position.
Statement No. 130 is effective for fiscal years beginning after December 15,
1997 and requires reclassification of prior periods presented. As the
requirements of Statement No. 130 are disclosure-related, its implementation,
effective January 1, 1998, had no impact on the Bank's consolidated financial
condition or results of operations. Management has presented a consolidated
statement of comprehensive income corresponding to each period for which a
consolidated statement of income has been presented.
19. MUTUAL HOLDING COMPANY REORGANIZATION AND INITIAL STOCK OFFERING
- ---------------------------------------------------------------------
(UNAUDITED)
-----------
On March 18, 1998, the Board of Directors of the Bank unanimously adopted the
Plan of Reorganization and Stock Issuance (the "Plan") pursuant to which the
Bank will convert from a federal mutual savings bank to a federal stock savings
bank and reorganize into the federal mutual holding company structure (the
"Reorganization"). As part of the Reorganization, the Bank will concurrently
form a Federally-chartered stock holding company ("Bancorp"), which will own
100% of the Bank's common stock following the conversion, as well as a federal
mutual holding company ("MHC"), which will own at least 51% of Bancorp's
outstanding common stock following the Reorganization and stock issuance, and
Bancorp will issue up to 49% of its outstanding common stock in a subscription
and community offering, as contemplated under the Plan. The Plan must be
approved by both the OTS and by the Bank's members as of the voting record date
to be established by the Bank.
Following the completion of the Reorganization, all depositors who had
membership or liquidation rights with respect to the Bank as of the effective
date of the Reorganization will continue to have such rights solely with respect
to the MHC so long as they continue to hold deposit accounts with the Bank. In
addition, all persons who become depositors of the Bank subsequent to the
Reorganization will have such membership and liquidation rights with respect to
the MHC.
F-33
<PAGE>
WEST ESSEX BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
19. MUTUAL HOLDING COMPANY REORGANIZATION AND INITIAL STOCK OFFERING
- ---------------------------------------------------------------------
(UNAUDITED) (Cont'd.)
-----------
In addition to the shares offered through the subscription and community
offering, Bancorp plans to fund a charitable foundation with a contribution
equal to 4.0% of the common stock sold in the subscription and community
offering as well as a $100,000 cash contribution. An Employee Stock Ownership
Plan, which is expected to be established by the Bank for the benefit of its
employees, is expected to purchase 8.0% of the combined number of shares issued
to the public and the charitable foundation. The MHC will maintain the majority
ownership of at least 51% of Bancorp shares issued, in addition to $100,000
received from the Bank, which is the anticipated amount of the initial
capitalization of the MHC. Bancorp will use a portion of the proceeds received
from the stock offering to purchase 100% of the outstanding capital stock of the
Bank. Costs incurred in connection with the offering, which totalled $30,000 at
March 31, 1998 and are included in other assets, will be recorded as a reduction
of the proceeds from the offering.
F-34
<PAGE>
================================================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE BANK OR WEST ESSEX BANCORP, INC. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE BANK SINCE ANY
OF THE DATES AS OF WHICH INFORMATION IS FURNISHED HEREIN OR SINCE THE DATE
HEREOF.
________________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary of the Reorganization and the Offering..............................
Selected Consolidated Financial and Other Data of the Bank..................
[RECENT DEVELOPMENTS].......................................................
Risk Factors................................................................
West Essex Bancorp, M.H.C...................................................
West Essex Bancorp, Inc.....................................................
West Essex Bank.............................................................
Regulatory Capital Compliance...............................................
Use of Proceeds.............................................................
Dividend Policy.............................................................
Waiver of Dividends by the Mutual Company...................................
Conversion of the Mutual Company to Stock Form..............................
Market for the Common Stock.................................................
Capitalization..............................................................
Pro Forma Data..............................................................
Comparison of Valuation and Pro Forma Information With No Foundation........
Consolidated Statements of Income for West Essex Bank, F.S.B
and Subsidiaries........................................................
Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................
Business of Bancorp.........................................................
Business of the Bank........................................................
Federal and State Taxation..................................................
Regulation and Supervision..................................................
Management of Bancorp.......................................................
Management of the Bank......................................................
The Reorganization and Stock Offering.......................................
Certain Restrictions on Acquisition of Bancorp..............................
Description of Capital Stock of Bancorp.....................................
Transfer Agent and Registrar................................................
Experts.....................................................................
Legal and Tax Opinions......................................................
Additional Information......................................................
Index to Consolidated Financial Statements..................................
</TABLE>
________________________
UNTIL ___________, ____ OR 25 DAYS AFTER COMMENCEMENT OF THE SYNDICATED
COMMUNITY OFFERING, IF ANY, WHICHEVER IS LATER, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2,071,955 Shares
WEST ESSEX BANCORP, INC.
COMMON STOCK
__________
PROSPECTUS
__________
__________________, 1998
______________________
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
<S> <C>
SEC filing(1)............................................. $ 7,324
OTS filing fee............................................ 23,917
NASD filing fee(1)........................................ 2,300
Exchange listing fee(1)................................... 25,000
Printing, postage and mailing............................. 100,000
Legal fees and expenses................................... 225,000
Accounting fees and expenses.............................. 70,000
Appraisers' fees and expenses (including business plan)... 33,000
Marketing fees and selling commissions(1)................. 220,000
Underwriter's expenses (including underwriter's counsel).. 60,000
Conversion agent fees and expenses........................ 15,000
Transfer agent fees and expenses.......................... 3,000
Certificate printing...................................... 1,000
Blue Sky.................................................. 15,000
Miscellaneous............................................. 19,459
TOTAL..................................................... $820,000
========
- ----------------------
</TABLE>
(1) Unless otherwise noted, based upon the registration of 4,200,000 shares and
offering of 1,800,000 shares at $10.00 per share.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article XII of the registrant's Bylaws provides as follows:
ARTICLE XII: INDEMNIFICATION
The Holding Company shall indemnify all officers, directors and employees
of the Holding Company, and their heirs, executors and administrators, to the
fullest extent permitted under federal law against all expenses and liabilities
reasonably incurred by them in connection with or arising out of any action,
suit or proceeding in which they may be involved by reason of their having been
a director or officer of the Holding Company, whether or not they continue to be
a director or officer at the time of incurring such expenses or liabilities,
such expenses and liabilities to include, but not be limited to, judgments,
court costs and attorneys' fees and the cost of reasonable settlements.
This indemnification provision is consistent with the Office of Thrift
Supervision Regulation 12 C.F.R. Section 545.121.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The exhibits and financial statement schedules filed as a part of this
registration statement are as follows:
(a) List of Exhibits (filed herewith unless otherwise noted)
1.1 Engagement Letters between West Essex Bank, F.S.B. and Sandler O'Neill &
Partners, L.P.
1.2 Draft Form of Agency Agreement between West Essex Bank, F.S.B. and
Sandler O'Neill & Partners, L.P.*
2.1 Plan of Mutual Holding Company Reorganization and Stock Issuance
(including Federal Mutual Holding Company Charter and Bylaws of West
Essex Bancorp, M.H.C., Federal MHC Subsidiary Holding Company Charter and
Bylaws of West Essex Bancorp, Inc. and Federal Stock Charter and Bylaws
of West Essex Bank)
3.1 Federal MHC Subsidiary Holding Company Charter of West Essex Bancorp,
Inc. (See Attachment B-1 to Exhibit 2.1)
3.2 Bylaws of West Essex Bancorp, Inc. (See Attachment B-2 to Exhibit 2.1)
4.0 Draft Stock Certificate of West Essex Bancorp, Inc.
5.1 Draft Opinion of Muldoon, Murphy & Faucette re: legality
8.1 Draft Opinion of Muldoon, Murphy & Faucette re: Federal Tax Matters
8.2 Draft Opinion of Fontanella and Babitts re: State Tax Matters
10.1 Form of West Essex Bank Employee Stock Ownership Plan
10.2 Form of West Essex Bank Employee Stock Ownership Plan Trust
10.3 Form of ESOP Loan Commitment Letter
10.4 Form of West Essex Bank Employee Stock Ownership Trust Loan and Security
Agreement
10.5 Form of Proposed Employment Agreement between West Essex Bank and certain
executive officers
10.6 Form of Proposed Employment Agreement between West Essex Bancorp, Inc.
and certain executive officers
10.7 Form of Proposed Change in Control Agreement between West Essex Bank and
certain executive officers
10.8 Form of Proposed Change in Control Agreement between West Essex Bancorp,
Inc. and certain executive officers
10.9 Form of Proposed West Essex Bank Employee Severance Compensation Plan
10.10 Form of Proposed West Essex Bank Supplemental Executive Retirement Plan
10.11 Form of Proposed West Essex Bank Management Supplemental Executive
Retirement Plan
10.12 Employment Agreement between West Essex Bank and Leopold W. Montanaro
10.13 Restated Executive Supplemental Retirement Income Agreement for Leopold
W. Montanaro
10.14 Restated Executive Supplemental Retirement Income Agreement for Charles
E. Filippo
23.1 Consent of Radics & Co., LLC
23.2 Consent of Muldoon, Murphy & Faucette
23.3 Consent of Fontanella and Babitts
23.4 Consent and Subscription Rights Opinion of FinPro, Inc.
24.1 Powers of Attorney
27.0 Financial Data Schedule
99.1 Appraisal Report of FinPro, Inc. (P)
99.2 Draft of West Essex Bancorp Charitable Foundation Gift Instrument*
- --------------------------------------
*To be filed by amendment
(P) Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(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
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
CONFORMED
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Caldwell, State of New
Jersey, on June 12, 1998.
West Essex Bancorp, Inc.
(in organization)
By: /s/ Leopold W. Montanaro
-----------------------------
Leopold W. Montanaro
President, Chief Executive
Officer and Director
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 Title Date
---- ----- ----
<S> <C> <C>
/s/ Leopold W. Montanaro President, Chief Executive Officer June 12, 1998
- --------------------------------- and Director
Leopold W. Montanaro (principal executive officer)
/s/ Dennis A. Petrello Executive Vice President and June 12, 1998
- --------------------------------- Chief Financial Officer
Dennis A. Petrello (principal accounting
and financial officer)
/s/ William J. Foody Chairman of the Board June 12, 1998
- ---------------------------------
William J. Foody
/s/ David F. Brandley Director June 12, 1998
- ---------------------------------
David F. Brandley
/s/ Everett N. Leonard Director June 12, 1998
- ---------------------------------
Everett N. Leonard
/s/ James P. Vreeland Director June 12, 1998
- ---------------------------------
James P. Vreeland
/s/ John J. Burke Director June 12, 1998
- ---------------------------------
John J. Burke
</TABLE>
<PAGE>
As filed with the Securities and Exchange Commission on June 12, 1998
Registration No. 333-_____________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
EXHIBITS
TO THE
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
WEST ESSEX BANCORP, INC.
(Exact name of registrant as specified in its charter)
================================================================================
<PAGE>
TABLE OF CONTENTS
LIST OF EXHIBITS (FILED HEREWITH UNLESS OTHERWISE NOTED)
1.1 Engagement Letters between West Essex Bank, F.S.B. and Sandler O'Neill &
Partners, L.P.
1.2 Draft Form of Agency Agreement between West Essex Bank, F.S.B. and
Sandler O'Neill & Partners, L.P.*
2.1 Plan of Mutual Holding Company Reorganization and Stock Issuance
(including Federal Mutual Holding Company Charter and Bylaws of West
Essex Bancorp, M.H.C., Federal MHC Subsidiary Holding Company Charter and
Bylaws of West Essex Bancorp, Inc. and Federal Stock Charter and Bylaws
of West Essex Bank)
3.1 Federal MHC Subsidiary Holding Company Charter of West Essex Bancorp,
Inc. (See Attachment B-1 to Exhibit 2.1)
3.2 Bylaws of West Essex Bancorp, Inc. (See Attachment B-2 to Exhibit 2.1)
4.0 Draft Stock Certificate of West Essex Bancorp, Inc.
5.1 Draft Opinion of Muldoon, Murphy & Faucette re: legality
8.1 Draft Opinion of Muldoon, Murphy & Faucette re: Federal Tax Matters
8.2 Draft Opinion of Fontanella and Babitts re: State Tax Matters
10.1 Form of West Essex Bank Employee Stock Ownership Plan
10.2 Form of West Essex Bank Employee Stock Ownership Plan Trust
10.3 Form of ESOP Loan Commitment Letter
10.4 Form of West Essex Bank Employee Stock Ownership Trust Loan and Security
Agreement
10.5 Form of Proposed Employment Agreement between West Essex Bank and certain
executive officers
10.6 Form of Proposed Employment Agreement between West Essex Bancorp, Inc.
and certain executive officers
10.7 Form of Proposed Change in Control Agreement between West Essex Bank and
certain executive officers
10.8 Form of Proposed Change in Control Agreement between West Essex Bancorp,
Inc. and certain executive officers
10.9 Form of Proposed West Essex Bank Employee Severance Compensation Plan
10.10 Form of Proposed West Essex Bank Supplemental Executive Retirement Plan
10.11 Form of Proposed West Essex Bank Management Supplemental Executive
Retirement Plan
10.12 Employment Agreement between West Essex Bank and Leopold W. Montanaro
10.13 Restated Executive Supplemental Retirement Income Agreement for Leopold
W. Montanaro
10.14 Restated Executive Supplemental Retirement Income Agreement for Charles
E. Filippo
23.1 Consent of Radics & Co., LLC
23.2 Consent of Muldoon, Murphy & Faucette
23.3 Consent of Fontanella and Babitts
23.4 Consent and Subscription Rights Opinion of FinPro, Inc.
24.1 Powers of Attorney
27.0 Financial Data Schedule
99.1 Appraisal Report of FinPro, Inc. (P)
99.2 Draft of West Essex Bancorp Charitable Foundation Gift Instrument*
- --------------------------------------
*To be filed by amendment
(P) Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
EXHIBIT 1.1 ENGAGEMENT LETTERS BETWEEN WEST ESSEX BANK, F.S.B. AND
SANDLER O'NEILL & PARTNERS, L.P.
<PAGE>
[LETTERHEAD OF SANDLER O'NEILL & PARNTERS, L.P. APPEARS HERE]
Sandler O'Neill
April 2, 1998
Mr. Leopold W. Montanaro
President and Chief Executive Officer
West Essex Bank, F.S.B.
417 Bloomfield Avenue
Caldwell, New Jersey 07006
Dear Mr. Montanaro:
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") is pleased to act as
an independent financial advisor to West Essex Bank, F.S.B. (the "Bank") in
connection with the Bank's proposed reorganization into mutual holding company
form (the "Reorganization"), including the offer and sale of certain shares of
the common stock (the "Common Stock") of the Bank (or a middle-tier stock
holding company) to the Bank's depositors in a Subscription Offering, to members
of the Bank's community in a Direct Community Offering and, under certain
circumstances, to the general public in a Syndicated Community Offering
(collectively, the "Offerings"). For purposes of this letter, the term "Actual
Purchase Price" shall mean the price at which the shares of the common stock are
sold in the Offerings. This letter is to confirm the terms and conditions of
our engagement.
ADVISORY SERVICES
- -----------------
Sandler O'Neill will act as a consultant and advisor to the Bank and will
work with the Bank's management, counsel, accountants and other advisors in
connection with the Reorganization and the Offerings. We anticipate that our
services will include the following, each as may be necessary and as the Bank
may reasonably request:
1. Consulting as to the securities marketing implications of any aspect
of the Plan of Reorganization or related corporate documents;
2. Reviewing with the Board of Directors the independent appraiser's
appraisal of the Common Stock, particularly with regard to aspects of
the appraisal involving the methodology employed;
<PAGE>
West Essex Bank, F.S.B.
April 2, 1998
Page 2 Sandler O'Neill
3. Reviewing all offering documents, including the Prospectus, stock
order forms and related offering materials (it being understood that
preparation and filing of such documents will be the responsibility of
the Bank and its counsel);
4. Assisting in the design and implementation of a marketing strategy for
the Offerings;
5. Assisting in obtaining all requisite regulatory approvals;
6. Assisting Bank management in scheduling and preparing for meetings
with potential investors and broker-dealers; and
7. Providing such other general advice and assistance as may be requested
to promote the successful completion of the Offering.
SYNDICATED COMMUNITY OFFERING
- -----------------------------
If any shares of the Common Stock remain available after the expiration of
the Subscription Offering and the Direct Community Offering, at the request of
the Bank and subject to the continued satisfaction of the conditions set forth
in the second paragraph under the caption "Definitive Agreement" below, Sandler
O'Neill will seek to form a syndicate of registered dealers to assist in the
sale of such Common Stock in a Syndicated Community Offering on a best efforts
basis, subject to the terms and conditions set forth in a selected dealers
agreement. Sandler O'Neill will endeavor to limit the aggregate fees to be paid
by the Bank under any such selected dealers agreement to an amount competitive
with gross underwriting discounts charged at such time for underwritings of
comparable amounts of stock sold at a comparable price per share in a similar
market environment, which shall not exceed 7% of the Aggregate Actual Purchase
Price of the shares sold under such agreements. Sandler O'Neill will endeavor
to distribute the Common Stock among dealers in a fashion which best meets the
distribution objectives of the Bank and the requirements of the Plan of
Reorganization, which may result in limiting the allocation of stock to certain
selected dealers. It is understood that in no event shall Sandler O'Neill be
obligated to act as a selected dealer or to take or purchase any shares of the
Common Stock.
FEES
- ----
If the Reorganization is consummated, the Bank agrees to pay Sandler
O'Neill for its
<PAGE>
West Essex Bank, F.S.B.
April 2, 1998
Page 3 Sandler O'Neill
services hereunder the fees set forth below:
1. a fee of one and one half (1.5%) of the aggregate Actual Purchase
Price of the shares of common stock sold in the Subscription Offering
and in the Direct Community Offering, excluding in each case shares
purchased by (i) any employee benefit plan of the Bank (or any holding
company of the Bank) established for the benefit of the Bank's
directors, officers and employees, (ii) any foundation established for
the benefit or any affiliate thereof; and (iii) any director, officer
or employee of the Bank or members of their immediate families; and
2. with respect to any shares of the Common Stock sold by an NASD member
firm (other than Sandler O'Neill) under any selected dealers agreement
in the Syndicated Community Offering, (a) the sales commission payable
to the selected dealer under such agreement, (b) any sponsoring
dealer's fees, and (c) a management fee to Sandler O'Neill of one and
one half percent (1.5%). Any fees payable to Sandler O'Neill for
common stock sold by Sandler O'Neill under any such agreement shall be
limited to an aggregate of one and one half (1.5%) of the Actual
Purchase Price of such shares.
If (i) Sandler O'Neill's engagement hereunder is terminated for any of the
reasons provided for under the second paragraph of the section of this letter
captioned "Definitive Agreement," or (ii) the Reorganization is terminated by
the Bank, no fees shall be payable by the Bank to Sandler O'Neill hereunder;
however, the Bank shall reimburse Sandler O'Neill for its reasonable out-of-
pocket expenses incurred in connection with its engagement hereunder as set
forth under the caption "Costs and Expenses" set forth below; provided, however,
-------- -------
that if Sandler O'Neill terminates its engagement hereunder without cause,
Sandler O'Neill shall not be entitled to reimbursement of any such out-of-pocket
expenses.
All fees payable to Sandler O'Neill hereunder shall be payable in cash at
the time of the closing of the Reorganization, or upon the termination of
Sandler O'Neill's engagement hereunder or termination of the Reorganization, as
the case may be. In recognition of the long lead times involved in the
reorganization process, the Bank agrees to make advance payments to Sandler
O'Neill in the aggregate amount of $50,000, $25,000 of which shall be payable
upon execution of this letter and the remaining $25,000 of which shall be
payable upon commencement of the Subscription Offering, which shall be credited
against any fees or reimbursement of expenses payable hereunder, with any
remaining balance to be refunded to the Bank.
<PAGE>
West Essex Bank, F.S.B.
April 2, 1998
Page 4 Sandler O'Neill
COSTS AND EXPENSES
- ------------------
In addition to any fees that may be payable to Sandler O'Neill hereunder
and the expenses to be borne by the Bank pursuant to the following paragraph,
the Bank agrees to reimburse Sandler O'Neill, upon request made from time to
time, for its reasonable out-of-pocket expenses incurred in connection with its
engagement hereunder, regardless of whether the Reorganization is consummated,
including, without limitation, legal fees, advertising, promotional,
syndication, and travel expenses, up to a maximum aggregate amount of $60,000
(including expenses reimbursed pursuant to the terms of a separate engagement
letter between the Bank and Sandler O'Neill dated the date hereof relating to
the provision of conversion agent services in connection with the
Reorganization); provided, however, that Sandler O'Neill shall document such
-------- -------
expenses to the reasonable satisfaction of the Bank. The provisions of this
paragraph are not intended to apply to or in any way impair the indemnification
provisions of this letter.
As is customary, the Bank will bear all other expenses incurred in
connection with the Reorganization and the Offerings, including, without
limitation, (i) the cost of obtaining all securities and bank regulatory
approvals, including any required NASD filing fees; (ii) the cost of printing
and distributing the offering materials; (iii) the costs of blue sky
qualification (including fees and expenses of blue sky counsel) of the shares in
the various states; (iv) listing fees; and (v) all fees and disbursements of the
Bank's counsel, accountants, conversion agent and other advisors. In the event
Sandler O'Neill incurs any such fees and expenses on behalf of the Bank, the
Bank will reimburse Sandler O'Neill for such fees and expenses whether or not
the Reorganization is consummated; provided, however, that Sandler O'Neill shall
-------- -------
not incur any substantial expenses on behalf of the Bank pursuant to this
paragraph without the prior approval of the Bank.
DUE DILIGENCE REVIEW
- --------------------
Sandler O'Neill's obligation to perform the services contemplated by this
letter shall be subject to the satisfactory completion of such investigation and
inquiries relating to the Bank, its respective directors, officers, agents and
employees, as Sandler O'Neill and its counsel in their sole discretion may deem
appropriate under the circumstances. In this regard, the Bank agrees that, at
its expense, it will make available to Sandler O'Neill all information which
Sandler O'Neill requests, and will allow Sandler O'Neill the opportunity to
discuss with the Bank's management the financial condition, business and
operations of the Bank. The Bank acknowledges that Sandler O'Neill will rely
upon the accuracy and completeness of all information received from the Bank and
its directors, trustees, officers, employees, agents, independent accountants
and counsel.
<PAGE>
West Essex Bank, F.S.B.
April 2, 1998
Page 5 Sandler O'Neill
BLUE SKY MATTERS
- ----------------
The Bank agrees that if Sandler O'Neill's counsel does not serve as counsel
with respect to blue sky matters in connection with the Offerings, the Bank will
cause the counsel performing such services to prepare a Blue Sky Memorandum
related to the Offerings including Sandler O'Neill's participation therein and
shall furnish Sandler O'Neill a copy thereof addressed to Sandler O'Neill or
upon which such counsel shall state Sandler O'Neill may rely.
CONFIDENTIALITY
- ---------------
Other than disclosure to other firms made part of any syndicate of selected
dealers or as required by law or regulation or legal process, Sandler O'Neill
agrees that it will not disclose any Confidential Information relating to the
Bank obtained in connection with its engagement hereunder (whether or not the
Reorganization is consummated). As used in this paragraph, the term
"Confidential Information" shall not include information which (i) is or becomes
generally available to the public other than as a result of a disclosure by
Sandler O'Neill, (ii) was available to Sandler O'Neill on a non-confidential
basis prior to its disclosure to Sandler O'Neill by the Bank, or (iii) becomes
available to Sandler O'Neill on a non-confidential basis from a person other
than the Bank who is not otherwise known to Sandler O'Neill upon due inquiry to
be bound not to disclose such information pursuant to a contractual, legal or
fiduciary obligation.
INDEMNIFICATION
- ---------------
Since Sandler O'Neill will be acting on behalf of the Bank (and any holding
companies created as part of the Reorganization) in connection with the
Reorganization, and the offerings, the holding companies and the Bank agree to
indemnify and hold Sandler O'Neill and its affiliates and their respective
partners, directors, officers, employees, agents and controlling persons within
the meaning of Section 15 of the Securities Act of 1933 (the "Securities Act")
or Section 20 of the Securities Exchange Act of 1934 (the "Exchange Act")
(Sandler O'Neill and each such person being an "Indemnified Party") harmless
from and against any and all losses, claims, damages and liabilities, joint or
several, to which such Indemnified Party may become subject under applicable
federal or state law, or otherwise, related to or arising out of the
Reorganization or the engagement of Sandler O'Neill pursuant to, or the
performance by Sandler O'Neill of the services contemplated by, this letter, and
will reimburse any Indemnified Party for all expenses (including reasonable
legal fees and expenses) as they are incurred, including expenses incurred in
connection with the investigation of, preparation for or defense of any pending
or threatened claim or any action or proceeding arising therefrom ("Indemnified
Expenses"), whether or not such Indemnified
<PAGE>
West Essex Bank, F.S.B.
April 2, 1998
Page 6 Sandler O'Neill
Party is a party; provided, however, that the Bank and the holding companies
-------- -------
will not be liable in any such case (and shall be entitled to reimbursement of
all Indemnified Expenses previously advanced by the Bank or the holding
companies to an Indemnified Party) to the extent that any such loss, claim,
damage, liability or expense (i) arises out of or is based upon any untrue
statement of a material fact or the omission of a material fact required to be
stated therein or necessary to make not misleading any statements contained in
any proxy statement or prospectus (preliminary or final), or any amendment or
supplement thereto, or any of the applications, notices, filings or documents
related thereto made in reliance on and in conformity with written information
furnished to the Bank by Sandler O'Neill expressly for use therein, or (ii) is
primarily attributable to the gross negligence, willful misconduct or bad faith
of Sandler O'Neill. If the foregoing indemnification is unavailable for any
reason, the Bank and the holding companies agree to contribute to such losses,
claims, damages, liabilities and expenses in the proportion that its financial
interest in the Reorganization and offerings bears to that of Sandler O'Neill.
Sandler O'Neill agrees to indemnify and hold harmless the Bank, the holding
companies and their respective directors, each of their officers who signed the
Registration Statement, and each person, if any, who controls the Bank or the
holding companies within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act against any and all loss, liability, claim,
damage and expense, as incurred, but only to the extent that any such loss,
claim, damage, liability or expense arises out of or is based upon any untrue
statement of a material fact or the omission of a material fact required to be
stated therein or necessary to make not misleading any statements contained in
any proxy statement or prospectus (preliminary or final), or any amendment or
supplement thereto, or any of the applications, notices, filings or documents
related thereto made in reliance on and in conformity with written information
furnished to the Bank by Sandler O'Neill expressly for use therein.
DEFINITIVE AGREEMENT
- --------------------
Sandler O'Neill and the Bank agree that (a) except as set forth in clause
(b), the foregoing represents the general intention of the Bank and Sandler
O'Neill with respect to the services to be provided by Sandler O'Neill in
connection with the Offerings, which will serve as a basis for Sandler O'Neill
commencing activities, and (b) the only legal and binding obligations of the
Bank, the holding companies and Sandler O'Neill with respect to the subject
matter hereof shall be (1) the Bank's obligation to reimburse costs and
expenses pursuant to the section captioned "Costs and Expenses," (2) those set
forth under the captions "Confidentiality" and "Indemnification," and (3) as set
forth in a duly negotiated and executed definitive Agency Agreement to be
entered into prior to the commencement of the Subscription Offering relating to
the services of Sandler O'Neill in connection with the Offerings. Such Agency
Agreement shall be in form and content
<PAGE>
West Essex Bank, F.S.B.
April 2, 1998
Page 7 Sandler O'Neill
satisfactory to Sandler O'Neill, the Bank and the holding companies and their
respective counsel and shall contain standard indemnification provisions
consistent herewith.
Sandler O'Neill's execution of such Agency Agreement shall also be subject
to (i) Sandler O'Neill's satisfaction with its investigation of the Bank's
business, financial condition and results of operations, (ii) preparation of
offering materials that are satisfactory to Sandler O'Neill and its counsel in
their reasonable judgment, (iii) compliance with all relevant legal and
regulatory requirements to the reasonable satisfaction of Sandler O'Neill's
counsel, (iv) agreement that the price established by the independent appraiser
is reasonable and (v) market conditions at the time of the proposed offering.
Sandler O'Neill may terminate this agreement if such Agency Agreement is not
entered into prior to December 31, 1998.
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: /s/ Catherine A. Lawton
-----------------------------------
Catherine A. Lawton
Vice President
Accepted and agreed to as of
the date first above written:
West Essex Bank, F.S.B.
By: /s/ Leopold W. Montanaro
---------------------------------------
Mr. Leopold W. Montanaro
President and Chief Executive Officer
cc: Mr. Douglas P. Faucette, Esq.
Muldoon, Murphy & Faucette
<PAGE>
[LETTERHEAD OF SANDLER O'NEILL & PARTNERS, L.P. APPEARS HERE]
Sandler O'Neill
April 2, 1998
Mr. Leopold W. Montanaro
President and Chief Executive Officer
West Essex Bank, F.S.B.
417 Bloomfield Avenue
Caldwell, New Jersey 07006
Dear Mr. Montanaro:
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") is pleased to act as
conversion agent to West Essex Bank, F.S.B. (the "Bank") in connection with the
Bank's proposed Reorganization into mutual holding company form (the
"Conversion"). This letter is to confirm the terms and conditions of our
engagement.
SERVICES AND FEES
- -----------------
In our role as Conversion Agent, we anticipate that our services will
include the services outlined below, each as may be necessary and as the Bank
may reasonably request:
I. Consolidation of Accounts and Development of a Central File
II. Preparation of Proxy, Order and/or Request Forms
III. Organization and Supervision of the Conversion Center
IV. Proxy Solicitation and Special Meeting Services
V. Subscription Services
Each of these services is further described in Appendix A to this agreement.
For its services hereunder, the Bank agrees to pay Sandler O'Neill a fee of
$15,000. This fee is based upon a total number of unconsolidated accounts of
approximately 25,000. No change in fees will occur as long as the variance in
the number of accounts does not exceed 5%. In the event the actual number of
accounts exceeds the number specified above by more than 5%, the fee will be
proportionately increased.
<PAGE>
Mr. Leopold W. Montanaro
April 2, 1998
Page 2
Sandler O'Neill
The fee set forth above is based upon the requirements of current
regulations and the Plan of Reorganization as currently contemplated. Any
unusual or additional items or duplication of service required as a result of a
material change in the regulations or the Plan of Reorganization or a material
delay or other similar events may result in extra charges which will be covered
in a separate agreement if and when they occur.
All fees under this agreement shall be payable in cash, as follows: (a)
$5,000 payable upon execution of this agreement by the Bank, which shall be non-
refundable; and (b) the balance upon the completion of the Reorganization.
COSTS AND EXPENSES
- ------------------
In addition to any fees that may be payable to Sandler O'Neill hereunder,
the Bank agrees to reimburse Sandler O'Neill, upon completion of the
Reorganization or termination of Sandler O'Neill's engagement hereunder, for its
reasonable out-of-pocket expenses incurred in connection with its engagement
hereunder regardless of whether the Reorganization is consummated, including,
without limitation, travel, lodging, food, telephone, postage, listings, forms
and other similar expenses, up to a maximum aggregate amount of $60,000
(including expenses reimbursed pursuant to the terms of a separate engagement
letter between the Bank and Sandler O'Neill dated the date hereof relating to
the provision of financial advisory services in connection with the
Reorganization); provided, however, that Sandler O'Neill shall document such
-------- -------
expenses to the reasonable satisfaction of the Bank and provided further that if
--- -------- -------
Sandler O'Neill terminates its engagement hereunder without cause, Sandler
O'Neill shall not be entitled to reimbursement of any such out-of-pocket
expenses. The provisions of this paragraph are not intended to apply to or in
any way impair the indemnification provisions of this agreement.
RELIANCE ON INFORMATION PROVIDED
- --------------------------------
The Bank will provide Sandler O'Neill with such information as Sandler
O'Neill may reasonably require to carry out its duties. The Bank recognizes and
confirms that Sandler O'Neill (a) will use and rely on such information in
performing the services contemplated by this agreement without having
<PAGE>
Mr. Leopold W. Montanaro
April 2, 1998
Page 3
Sandler O'Neill
independently verified the same, and (b) does not assume responsibility for the
accuracy or completeness of the information. The Bank will also inform Sandler
O'Neill within a reasonable period of time of any changes in the Plan which
require changes in Sandler O'Neill's services. If a substantial expense results
from any such change, the parties shall negotiate an equitable adjustment in the
fee.
LIMITATIONS
- -----------
Sandler O'Neill, as Conversion Agent hereunder, (a) shall have no duties or
obligations other than those specifically set forth herein; (b) will be regarded
as making no representations and having no responsibilities as to the validity,
sufficiency, value or genuineness of any order form or any stock certificates or
the shares represented thereby, and will not be required to and will make no
representations as to the validity, value or genuineness of the offer; (c) shall
not be liable to any person, firm or corporation including the Bank by reason of
any error of judgment or for any act done by it in good faith, or for any
mistake of law or fact in connection with this agreement and the performance
hereof unless caused by or arising out of its own bad faith, willful misconduct
or negligence; (d) will not be obliged to take any legal action hereunder which
might in its judgment involve any expense or liability, unless it shall have
been furnished with reasonable indemnity satisfactory to it; and (e) may rely on
and shall be protected in acting in reliance upon any certificate, instrument,
opinion, notice, letter, telex, telegram, or other document or security
delivered to it and in good faith believed by it to be genuine and to have been
signed by the proper party or parties.
INDEMNIFICATION
- ---------------
The Bank agrees to indemnify and hold Sandler O'Neill and its affiliates
and their respective partners, directors, officers, employees, agents and
controlling persons (Sandler O'Neill and each such person being an "Indemnified
Party") harmless from and against any and all losses, claims, damages and
liabilities, joint or several, to which such Indemnified Party may become
subject under applicable federal or state law, or otherwise, related to or
arising out of the engagement of Sandler O'Neill pursuant to, and the
performance by Sandler O'Neill of the services contemplated by this letter, and
will reimburse any Indemnified Party for all expenses (including reasonable
<PAGE>
Mr. Leopold W. Montanaro
April 2, 1998
Page 4
Sandler O'Neill
counsel fees and expenses) as they are incurred, including expenses incurred in
connection with the investigation of, preparation for or defense of any pending
or threatened claim or any action or proceeding arising therefrom ("Indemnified
Expenses"), whether or not such Indemnified Party is a party. The Bank will not
be liable under the foregoing indemnification provision (and shall be entitled
to reimbursement of all Indemnified Expenses previously advanced by the Bank or
the holding companies to an Indemnified Party) to the extent that any loss,
claim, damage, liability or expense is found in a final judgment by a court of
competent jurisdiction to have resulted primarily from Sandler O'Neill's bad
faith, willful misconduct or negligence.
MISCELLANEOUS
- -------------
The following addresses shall be sufficient for written notices to each
other:
If to you: West Essex Bank, F.S.B.
417 Bloomfield Avenue
Caldwell, New Jersey 07006
Attention: Mr. Leopold W. Montanaro
If to us: Sandler O'Neill & Partners, L.P.
747 Middle Neck Road
Great Neck, New York 11024
Attention: Mr. Mark B. Cohen
The Agreement and appendix hereto constitute the entire Agreement between
the parties with respect to the subject matter hereof and can be altered only by
written consent signed by the parties. This Agreement is governed by the laws
of the State of New York.
<PAGE>
Mr. Leopold W. Montanaro
April 2, 1998
Page 5
Sandler O'Neill
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: /s/ Catherine A. Lawton
--------------------------------
Catherine A. Lawton
Vice President
Accepted and agreed to as of
the date first above written:
West Essex Bank, F.S.B.
By: /s/ Leopold W. Montanaro
-------------------------------------
Leopold W. Montanaro
President and Chief Executive Officer
cc: Mr. Douglas P. Faucette, Esq.
Muldoon, Murphy & Faucette
<PAGE>
Sandler O'Neill
APPENDIX A
----------
OUTLINE OF CONVERSION AGENT SERVICES
------------------------------------
I. Consolidation of Accounts
1. Consolidate files in accordance with regulatory guidelines.
2. Accounts from various files are all linked together. The resulting
central file can then be maintained on a regular basis.
3. Our EDP format will be provided to your data processing people.
II. Proxy/Order Form/Request Card Preparation
1. Vote calculation.
2. Any combination of proxies, request cards and stock order forms for
voting and ordering stock.
3. Target group identification for proxy solicitation.
III. Organization and Supervision of Conversion Center
1. Advising on and supervising the physical organization of the Conversion
Center, including materials requirements.
2. Assist in the training of all Bank personnel who will be staffing the
conversion center.
3. Establish reporting procedures.
4. On-site supervision of the Conversion Center during the
solicitation/offering period.
IV. Special Meeting Services *
1. Direct proxy solicitation if independent solicitor not used.
2. Proxy and ballot tabulation.
3. Act as or support inspector of election.
4. Delete voting record date accounts closed prior to special meeting.
5. Produce final report of vote.
* To the extent independent third parties are required by any regulatory
agency to perform such services, it is understood and agreed that
Sandler O'Neill will subcontract for such services and that the Bank
will reimburse Sandler O'Neill for such reasonable fees and expenses
incurred as a result of such regulatory requirement.
A-1
<PAGE>
Sandler O'Neill
V. Subscription Services
1. Produce list of depositors by state (Blue Sky report).
2. Production of subscription rights and research books.
3. Stock order form processing.
4. Acknowledgment letter to confirm receipt of stock order.
5. Daily reports and analysis.
6. Proration calculation and share allocation in the event of an
oversubscription.
7. Produce charter shareholder list.
8. Interface with Transfer Agent for Stock Certificate issuance.
9. Refund and interest calculations.
10. Confirmation letter to confirm purchase of stock.
11. Notification of full/partial rejection of orders.
12. Production of 1099/Debit tape.
A-2
<PAGE>
EXHIBIT 2.1 PLAN OF MUTUAL HOLDING COMPANY REORGANIZATION AND STOCK ISSUANCE
(INCLUDING FEDERAL MUTUAL HOLDING COMPANY CHARTER AND BYLAWS OF
WEST ESSEX BANCORP, M.H.C., FEDERAL MHC SUBSIDIARY HOLDING COMPANY
CHARTER AND BYLAWS OF WEST ESSEX BANCORP, INC. AND FEDERAL STOCK
CHARTER AND BYLAWS OF WEST ESSEX BANK)
<PAGE>
PLAN OF MUTUAL HOLDING COMPANY REORGANIZATION
AND STOCK ISSUANCE
OF WEST ESSEX BANK
CALDWELL, NEW JERSEY
AS ADOPTED ON:
MARCH 18, 1998
<PAGE>
PLAN OF REORGANIZATION AND STOCK ISSUANCE OF
WEST ESSEX BANK
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
I. Introduction....................................................... 1
II. Definitions........................................................ 3
III. Plan of Reorganization............................................. 8
A. Certain Effects of Reorganization.............................. 8
B. Special Meeting of Members..................................... 13
C. Conditions to Implementation of Reorganization................. 14
D. Charter and Bylaws of the Stock Savings Bank................... 14
E. Charter and Bylaws of the Stock Holding
Company........................................................ 15
F. Charter and Bylaws of the Mutual Holding Company............... 15
G. Subsequent Conversion of Mutual Holding Company to
Stock Form..................................................... 15
H. Continuity of the Savings Bank and Status of Deposit
Accounts and Loans Subsequent to the Reorganization............ 16
I. Rights of Members of the Mutual Holding Company................ 17
J. Establishment and Funding of Charitable Foundation............. 17
K. Payment of Dividends and Repurchase of Stock................... 18
L. Expenses of Reorganization..................................... 18
M. Interpretation................................................. 18
N. Amendment or Termination of the Plan........................... 19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
IV. Stock Issuance Plan................................................ 19
A. Introduction................................................... 19
B. Sale of Common Stock........................................... 19
C. Number of Shares and Purchase Price of Common Stock............ 20
D. Purchase by the Mutual Holding Company or the Stock
Holding Company of the Savings Bank............................ 22
E. Method of Offering Shares...................................... 22
F. Limitations Upon Purchases in the Offering..................... 27
G. Payment for Common Stock....................................... 30
H. Manner of Exercising Subscription Rights Through
Order Forms.................................................... 32
I. Undelivered, Defective or Late Order Forms:
Insufficient Payment........................................... 33
J. Restrictions on Resale or Subsequent Disposition............... 34
K. Voting Rights of Stockholders.................................. 34
L. Transfer of Savings Accounts and Continuity of the
Savings Bank................................................... 35
M. Restrictions on Acquisition of the Savings Bank................ 35
N. Payment of Dividends and Repurchase of Stock................... 36
O. Amendment of Plan.............................................. 36
P. Consummation of the Reorganization............................. 36
Q. Registration and Marketing..................................... 37
R. Residents of Foreign Countries and Certain States.............. 37
S. Expenses of Offering........................................... 37
T. Interpretation................................................. 37
</TABLE>
<PAGE>
I. INTRODUCTION
The Board of Directors of West Essex Bank, Caldwell, New Jersey (the
"Savings Bank") by a unanimous vote has adopted this Plan of Reorganization
("Reorganization Plan") and Stock Issuance Plan ("Stock Issuance Plan")
collectively referred to as (the "Plan") pursuant to which the Savings Bank
proposes to reorganize from a federally-chartered mutual savings bank into a
federally-chartered mutual holding company (the "Mutual Holding Company")
pursuant to the laws of the United States of America and the rules and
regulations of the Office of Thrift Supervision ("OTS"). A principal part of
the reorganization (the "Reorganization") is the formation of a federally-
chartered capital stock savings bank (the "Stock Savings Bank"), a majority of
the Voting Stock of which will be owned by the Mutual Holding Company at all
times so long as the Mutual Holding Company remains in the mutual form of
organization. In the alternative, the Reorganization may be effected utilizing
a Two-Tier Mutual Holding Company Structure, as described herein, in which case
all of the stock of the Stock Savings Bank would be owned by a stock holding
company ("Stock Holding Company"), a majority of the Voting Stock of which would
be owned by the Mutual Holding Company. The corporate name of the Stock Savings
Bank will be West Essex Bank and its principal office will be located in
Caldwell, New Jersey.
One or more stock offerings of up to 49.99% in the aggregate of the voting
Common Stock of the Stock Savings Bank ("Minority Stock Offering") may be made
simultaneously with, or following the Reorganization, subject to the approval of
the OTS. In addition, the Stock Savings Bank may offer and sell any amount of
preferred stock, subject to applicable laws and regulations. As part of the
Stock Issuance Plan, the Stock Savings Bank intends to offer for sale up to
49.9% of its outstanding Common Stock in a Minority Stock Offering. Any offer
and sale of any equity securities, regardless of when it occurs, will be
conducted in accordance with the applicable rules and regulations of the OTS.
In the event the Savings Bank utilizes the Two-Tier Mutual Holding Company
Structure in connection with the Reorganization, as described herein, certain of
the restrictions and limitations on the issuance of common and preferred stock
by the Stock Savings Bank may also be applicable to the Stock Holding Company
and any such stock issuance would also be subject to applicable rules and
regulations of the Securities and Exchange Commission ("SEC").
In adopting the Plan, the Board of Directors has determined that the
Reorganization is advisable and in the best interest of the Savings Bank and its
depositors and is consistent with the Savings Bank's business plan. The Savings
Bank is committed to being an independent community-based institution and the
Board of Directors believes that the mutual holding company structure is best
suited for this purpose. As a capital stock savings bank subsidiary of the
Mutual Holding Company, the Reorganization will afford the Stock Savings Bank
access to capital sources not legally available to mutual savings banks, while
at the same time preserving the mutual form of ownership within the holding
company structure. Thus, although the Stock Savings Bank or the Stock Holding
Company, if utilized as described below, will be authorized to issue capital
stock to persons other than the Mutual Holding Company, so long as the Mutual
Holding Company is in existence it will at all times own at least a Majority
Interest of the Stock Savings Bank or the Stock Holding Company, if utilized.
Also, the mutual holding company structure, by providing the
<PAGE>
flexibility to raise capital through the issuance of stock in a manner designed
to meet the Stock Savings Bank's growth needs rather than in a single offering,
will allow the Stock Savings Bank to avoid over-capitalization. Such access to
the capital markets will make it possible for the Stock Savings Bank to be more
responsive to possible future changes in the regulations of the bank regulatory
agencies mandating higher capital reserves and/or capital ratios.
The Reorganization will structure the Savings Bank in the stock form used
by commercial banks, most major business corporations and an increasing number
of savings banks and savings institutions. As such, the Reorganization will
enable the Savings Bank to enhance its franchise and to compete more effectively
with commercial banks and other financial institutions for new business
opportunities. In addition, the use of the holding company structure will
provide greater organization and operating flexibility to the Savings Bank.
Moreover, the formation of a mutual holding company will allow the Mutual
Holding Company to borrow funds, on a secured or unsecured basis, and to issue
debt to the public or in a private placement. The proceeds of such borrowings
or debt offering could be contributed to the Stock Savings Bank to increase its
capital or could be used by the Mutual Holding Company for other purposes.
However, there are currently no plans to issue debt or borrow funds by the
Mutual Holding Company. The Reorganization may also ease any transition to a
uniform charter should such a charter be required in the future.
In furtherance of the Savings Bank's long term commitment to its community,
the Plan provides for the establishment of a charitable foundation as part of
the Reorganization. The charitable foundation is intended to complement the
Savings Bank's existing community reinvestment activities in a manner that will
allow the Savings Bank's local community to share in the growth and
profitability of the Mutual Holding Company, the Stock Holding Company and the
Savings Bank over the long term. Consistent with the Savings Bank's goal, the
Bank, or if utilized, the Stock Holding Company intends to donate to the
charitable foundation an amount of common stock and/or cash of up to 8.0% of the
aggregate dollar amount of common stock sold in the Minority Stock Offering.
The establishment of the charitable foundation is subject to the approval of the
Voting Members of the Savings Bank. In the event the charitable foundation is
not approved, the Savings Bank may determine to complete the Reorganization
without the charitable foundation.
The Reorganization and Minority Stock Offering are subject to the approval
of the OTS. In addition, the Reorganization also must be approved by the
affirmative vote of a majority of the total votes eligible to be cast by members
of the Savings Bank.
2
<PAGE>
II. DEFINITIONS
As used in this Plan, the terms set forth below have the following
meanings:
ACCOUNT(S): Withdrawable deposit(s) in the Savings Bank, including
certificates of deposit.
ACCOUNT HOLDER: The term Account Holder means any Person holding an
Account in the Savings Bank.
ACTING IN CONCERT: The term "Acting in Concert" means (i) knowing
participation in a joint activity or interdependent conscious parallel
action towards a common goal whether or not pursuant to an express
agreement; (ii) a combination or pooling of voting or other interests in
the securities of an issuer for a common purpose pursuant to any contract,
understanding, relationship, agreement or other arrangement, whether
written or otherwise; or (iii) a person or company which acts in concert
with another person or company ("other party") shall also be deemed to be
acting in concert with any person or company who is also acting in concert
with that other party, except that any tax-qualified employee stock benefit
plan will not be deemed to be acting in concert with its trustee or a
person who serves in a similar capacity solely for the purpose of
determining whether stock held by the trustee and stock held by the plan
will be aggregated.
ACTUAL PURCHASE PRICE: The term Actual Purchase Price means the per share
price at which the Common Stock is ultimately sold in accordance with the
terms hereof.
AFFILIATE: Any person that controls, is controlled by, or is under common
control with another person.
ASSOCIATE: The term Associate when used to indicate a relationship with
any person, means (i) any corporation or organization (other than the
Savings Bank or a majority-owned subsidiary of the Savings Bank) of which
such person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10 percent or more of any class of equity securities,
(ii) any trust or other estate in which such person has a substantial
beneficial interest or as to which such person serves as trustee or in a
similar fiduciary capacity except that for the purposes of Sections IV.E.2
and IV.F. hereof, the term "Associate" does not include any Non-Tax-
Qualified Employee Stock Benefit Plan or any Tax-Qualified Employee Stock
Benefit Plan in which a person has a substantial beneficial interest or
serves as a trustee or in a similar fiduciary capacity, and except that,
for purposes of aggregating total shares that may be held by Officers and
Directors the term "Associate" does not include any Tax-Qualified Employee
Stock Benefit Plan, and (iii) any relative or spouse of such person, or any
relative of such spouse, who has the same home as such person or who is a
Director or Officer of the Savings Bank, the Stock Holding Company, if
utilized, or the Mutual Holding Company, or any of its parents or
subsidiaries.
3
<PAGE>
CAPITAL STOCK: Any and all authorized stock of the Stock Savings Bank or
the Stock Holding Company, if utilized, as indicated by the context.
COMMON STOCK: Common stock, par value $.01, issued by the Stock Savings
Bank simultaneously with or after the Reorganization, including securities
convertible into common stock, pursuant to its stock charter, or common
stock, par value $.01, issued by the Stock Holding Company simultaneously
with or after the Reorganization, including securities convertible into
common stock, pursuant to its certificate of incorporation, as indicated by
the context.
COMMUNITY OFFERING: The term Community Offering means the offering for
sale to certain members of the general public directly by the Stock Savings
Bank or the Stock Holding Company, if utilized, of any shares of Common
Stock not subscribed for in the Subscription Offering.
DEPOSITOR: Any person holding an Account in the Savings Bank.
DIRECTOR: A member of the Board of Directors of the Savings Bank and,
where applicable, a member of the Board of Directors of the Mutual Holding
Company, and if utilized and where applicable, a member of the Board of
Directors of the Stock Holding Company.
EFFECTIVE DATE: The effective date of the Reorganization which shall be
the date of consummation of the Reorganization in accordance with this
Plan.
ELIGIBLE ACCOUNT HOLDER: The term Eligible Account Holder means any person
holding a Qualifying Deposit in an Account at the Savings Bank on the
Eligibility Record Date, but shall include only those account holders with
Accounts in place for a minimum of one year prior to adoption of the Stock
Issuance Plan by the Savings Bank's Board of Directors and specifically
shall not include any person who held a deposit in another financial
institution that was transferred to the Savings Bank after the Eligibility
Record Date.
ELIGIBILITY RECORD DATE: The term Eligibility Record Date means the date
for determining Eligible Account Holders in the Savings Bank and is
February 28, 1997.
EMPLOYEE: A person who is an Employee of the Savings Bank at the date of
the Reorganization.
EMPLOYEE PLANS: The term Employee Plans means the Tax-Qualified Employee
Stock Benefit Plans approved by the Board of Directors of the Savings Bank.
ESTIMATED PRICE RANGE: The term Estimated Price Range means the range of
minimum and maximum aggregate values determined by the Board of Directors
of the Savings Bank, within which the aggregate amount of Common Stock sold
in the Offering will fall. The
4
<PAGE>
Estimated Price Range will be within the estimated pro forma market value
of the Common Stock as determined by the Independent Appraiser prior to the
Subscription Offering and as it may be amended from time to time
thereafter.
FDIC: Federal Deposit Insurance Corporation.
INDEPENDENT APPRAISER: The term Independent Appraiser means an appraiser
retained by the Savings Bank to prepare an appraisal of the pro forma
market value of the Common Stock.
INSIDER: Any officer or director of the Mutual Holding Company, Stock
Holding Company, Savings Bank or Stock Savings Bank or of any affiliate of
such entities, and any person acting in concert with any such officer or
director.
LOCAL COMMUNITY: The term Local Community means Essex, Bergen and Morris
Counties, in the State of New Jersey.
MAJORITY INTEREST: Fifty and one-hundredth of a percent (50.01%) or more
of the combined voting power of all classes of stock of the Stock Savings
Bank or the Stock Holding Company, if utilized.
MEMBERS: Any depositor or borrower that is entitled under the charter of
the mutual Savings Bank to vote on matters affecting the Bank, or any
depositor or borrower that is entitled under the charter of the Mutual
Holding Company to vote on matters affecting the Mutual Holding Company.
MINORITY STOCK OFFERING: The offering of up to 49.9% of the Common Stock
of the Stock Savings Bank, or the Stock Holding Company, if utilized,
simultaneously with or following the Reorganization.
MUTUAL HOLDING COMPANY: The mutual holding company established by the
Savings Bank incident to the Reorganization.
NOTICE OF REORGANIZATION: The Notice of Mutual Holding Company
Reorganization, to be submitted by the Savings Bank to the OTS to notify
the OTS of the Reorganization.
OFFICER: An executive officer of the Savings Bank, the Mutual Holding
Company and the Stock Holding Company, if utilized, as the case may be,
which includes the Chief Executive Officer, President, Executive Vice
Presidents and Senior Vice Presidents in charge of principal business
functions, and any other person participating in major policy making
functions of the Savings Bank, the Mutual Holding Company or the Stock
Holding Company.
5
<PAGE>
ORDER FORM: The term Order Form means any form together with an attached
cover letter, sent by the Savings Bank or the Stock Holding Company, if
utilized, to any Participant or Person containing among other things a
description of the alternatives available to such Person under the Plan and
by which any such Person may make elections regarding subscriptions for
Common Stock in the Subscription and Community Offerings.
OTHER MEMBER: The term Other Member means any person who is a Member of
the Savings Bank (other than an Eligible Account Holder or Supplemental
Eligible Account Holder) at the close of business on the Voting Record
Date.
OTS: The term OTS means Office of Thrift Supervision of the Department of
the Treasury.
PARTICIPANTS: The term Participants means the Eligible Account Holders,
Employee Plans, Supplemental Eligible Account Holders and Other Members.
PERSON: An individual, a corporation, a partnership, an association, a
joint-stock company, a trust (including Individual Retirement Accounts and
KEOGH Accounts), any unincorporated organization, a government or political
subdivision thereof or any other entity.
PLAN: This Plan of Reorganization and Stock Issuance Plan of the Savings
Bank as it exists on the date hereof and as it may hereafter be amended in
accordance with its terms.
PREFERRED STOCK: Preferred Stock issuable by the Stock Savings Bank
pursuant to its charter, or issuable by the Stock Holding Company pursuant
to its certificate of incorporation, as indicated by the context.
PREFERRED SUBSCRIBERS: The term Preferred Subscribers means those members
of the general public which are natural persons residing in the Savings
Bank's Local Community.
QUALIFYING DEPOSIT: The term Qualifying Deposit means the balance of each
Account of $50 or more in the Savings Bank at the close of business on the
Eligibility Record Date. Accounts with total deposit balances of less than
$50 shall not constitute a Qualifying Deposit.
REORGANIZATION: Collectively, all steps necessary for the Savings Bank to
reorganize into the mutual holding company form of organization in
accordance with the Plan and the provisions of the Home Owners' Loan Act,
as amended (the "HOLA") and Part 575 of the OTS Rules and Regulations
Applicable for Savings Associations.
SAIF: The Savings Association Insurance Fund, which is administered by the
FDIC.
6
<PAGE>
SAVINGS ACCOUNT: The term Savings Account has the same meaning as in
Section 561.42 of the Rules and Regulations of the OTS and includes
certificates of deposit.
SAVINGS BANK: West Essex Bank, in its current mutual form or in stock
form, following the Reorganization, as indicated by the context.
SEC: The U.S. Securities and Exchange Commission.
SPECIAL MEETING OF MEMBERS: The special meeting and any adjournments
thereof held to consider and vote upon this Plan.
STOCK HOLDING COMPANY: The stock corporation that may be formed by the
Bank in connection with the Reorganization, which would own 100% of the
Voting Stock of the Stock Savings Bank upon the close of the
Reorganization, if the Two-Tier Mutual Holding Company Structure is
utilized.
STOCK ISSUANCE PLAN: The part of the Plan of Reorganization which provides
for the issuance of Common Stock by the Stock Savings Bank through one or
more Minority Stock Offerings.
STOCK SAVINGS BANK: The federally-chartered stock savings bank subsidiary
of the Mutual Holding Company or, if utilized, the Stock Holding Company
resulting from the Reorganization.
SUBSCRIPTION OFFERING: The term Subscription Offering means the offering
of Common Stock for purchase through Order Forms to Participants.
SUBSCRIPTION PRICE: The term Subscription Price means the amount per share
of Common Stock to be paid initially by Participants in the Subscription
Offering and persons in the Community Offering.
SUBSIDIARY: Any company, a majority of whose voting stock is indirectly or
directly owned, controlled or held with power to vote by another company.
SUPPLEMENTAL ELIGIBILITY RECORD DATE: The term Supplemental Eligibility
Record Date means the supplemental record date for determining Supplemental
Eligible Account Holders of the Savings Bank. The Supplemental Eligibility
Record Date shall be the last day of the calendar quarter preceding the
OTS' approval of the notice.
SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER: The term Supplemental Eligible
Account Holder means any person (other than an Eligible Account Holder)
holding a Qualifying Deposit, except officers, directors and their
associates, as of the Supplemental Eligibility Record Date.
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SYNDICATED COMMUNITY OFFERING PRICE: The term Syndicated Community
Offering means the offering of Common Stock following the Subscription and
Community Offerings through a syndicate of broker-dealers.
TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLAN: The term Tax-Qualified Employee
Stock Benefit Plan means any defined benefit plan or defined contribution
plan, such as an employee stock ownership plan, stock bonus plan, profit-
sharing plan or other plan, which, with its related trust, meets the
requirements to be "qualified" under Section 401 of the Internal Revenue
Code. A "Non-Tax-Qualified Employee Stock Benefit Plan" is any defined
benefit plan or defined contribution plan which is not so qualified.
VOTING MEMBERS: Those persons qualifying as voting members of the Savings
Bank pursuant to its charter and bylaws.
VOTING RECORD DATE: The date established by the Directors of the Savings
Bank in accordance with OTS regulations for determining eligibility to vote
at the Special Meeting of Members.
VOTING STOCK: Common or preferred stock, or any other type of equity
security, including, without limitation, other securities that are
convertible into common or preferred stock, having voting power for the
election of directors or management of the Stock Savings Bank or the Stock
Holding Company, if utilized.
III. PLAN OF REORGANIZATION
Pursuant to Section 10(o) of the HOLA and 12 C.F.R. Part 575 of the OTS
Regulations, the Reorganization will be accomplished in accordance with the
procedures set forth in this Plan, applicable regulations of the OTS, and as
otherwise may be required by the OTS.
A. CERTAIN EFFECTS OF REORGANIZATION
1. ORGANIZATION OF THE MUTUAL HOLDING COMPANY AND STOCK SAVINGS BANK
A principal part of the Reorganization will be the organization of a
federally-chartered capital stock savings bank subsidiary, of which the
Mutual Holding Company will own a Majority Interest at all times so long as
the Mutual Holding Company remains in the mutual form of organization. The
Savings Bank may utilize a two-tier mutual holding company structure ("Two-
Tier Mutual Holding Company Structure" or "Two-Tier Alternative") whereby
the Savings Bank will incorporate and organize a stock corporation which
will own 100% of the Savings Bank's Voting Stock. If the Two-Tier Mutual
Holding Company Structure is utilized, the Mutual Holding Company would own
a Majority Interest in the stock corporation at all times as long as the
Mutual Holding Company remains in the mutual form of organization.
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The Reorganization will be effected in one of the following ways, or in
any manner approved by the OTS that is consistent with the purposes of this
Plan and applicable laws and regulations. The Savings Bank's intention is
to complete the Reorganization using the Two-Tier Alternative, although it
may elect to use any method at the discretion of the Board consistent with
applicable Regulations and subject to OTS approval.
"MERGER ALTERNATIVE." Under the Merger Alternative: (i) the Savings
Bank will organize an interim federal stock savings bank as a wholly-owned
subsidiary ("Interim One"); (ii) Interim One will organize an interim
federal stock savings bank as a wholly-owned subsidiary ("Interim Two");
(iii) the Savings Bank will convert its charter for a federal stock savings
bank charter to become the Stock Savings Bank and Interim One will exchange
its charter for a federal mutual holding company charter to become the
Mutual Holding Company; (iv) sequentially with step (iii), Interim Two will
merge with and into Stock Savings Bank with Stock Savings Bank as the
resulting institution; and (v) a minimum of 50.01% of the initially issued
stock of Stock Savings Bank will be transferred to Mutual Holding Company
in exchange for membership interests in the mutual Savings Bank which are
conveyed to the Mutual Holding Company. Upon consummation of the
Reorganization, the legal existence of the Savings Bank will not terminate,
but the converted Stock Savings Bank will be a continuation of the Savings
Bank, and all property of the Savings Bank, including its right, title and
interest in and to all property of whatsoever kind and nature, interest and
asset of every conceivable value or benefit then existing or pertaining to
the Savings Bank, or which would inure to the Savings Bank immediately by
operation of law and without the necessity of any conveyance or transfer
and without any further act or deed, will vest in the Stock Savings Bank.
The Stock Savings Bank will have, hold, and enjoy the same in its right and
fully to the same extent as the same was possessed, held, and enjoyed by
the Savings Bank. The Stock Savings Bank will continue to have, succeed to,
and be responsible for all the rights, liabilities and obligations of the
Savings Bank and will maintain its headquarters operations at the Savings
Bank's present location.
"TWO-TIER MUTUAL HOLDING COMPANY STRUCTURE." Under the Two-Tier Mutual
Holding Company Structure: (i) the Savings Bank will organize an interim
federal stock savings bank as a wholly-owned subsidiary ("Interim One");
(ii) Interim One will organize a stock corporation as a wholly-owned
subsidiary ("Stock Holding Company"); (iii) Interim One will organize an
interim federal stock savings bank as a wholly-owned subsidiary ("Interim
Two"); (iv) the Savings Bank will convert its charter to a federal stock
savings bank charter to become the Stock Savings Bank and Interim One will
exchange its charter for a federal mutual holding company charter to become
the Mutual Holding Company; (v) sequentially with step (iv), Interim Two
will merge with and into Stock Savings Bank with Stock Savings Bank as the
resulting institution; (vi) 100% of the issued Common Stock of the Stock
Savings Bank will be transferred to the Mutual Holding Company in exchange
for membership interests in the Savings Bank, in its mutual form, which are
conveyed to the Mutual Holding Company; and (vii) the Mutual Holding
Company will transfer 100% of the issued Common Stock of the Stock Savings
Bank to the Stock Holding Company in a capital
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distribution. Upon consummation of the Reorganization, the legal existence
of the Savings Bank will not terminate, but the converted Stock Savings
Bank will be a continuation of the Savings Bank, and all property of the
Savings Bank, including its right, title and interest in and to all
property of whatsoever kind and nature, interest and asset of every
conceivable value or benefit then existing or pertaining to the Savings
Bank, or which would inure to the Savings Bank immediately by operation of
law and without the necessity of any conveyance or transfer and without any
further act or deed, will vest in the Stock Savings Bank. The Stock Savings
Bank will have, hold, and enjoy the same in its right and fully to the same
extent as the same was possessed, held, and enjoyed by the Savings Bank.
The Stock Savings Bank will continue to have, succeed to, and be
responsible for all the rights, liabilities and obligations of the Savings
Bank and will maintain its headquarters operations at the Savings Bank's
present location.
In connection with Reorganization, the Mutual Holding Company will be
capitalized with One Hundred Thousand Dollars ($100,000), or such greater
amount as may be determined by the Board of Directors of the Savings Bank
subject to the approval of the OTS, to the extent such assets are not
required to be transferred to or retained by the Stock Savings Bank in
order to satisfy capital or reserve requirements of the any applicable
state or federal law or regulation. In the event the Two-Tier Mutual
Holding Company Structure is utilized, the Stock Holding Company will apply
to the OTS to retain up to 50% of the net proceeds of the Minority Stock
Offering, and the Mutual Holding Company would be capitalized with One
Hundred Thousand Dollars ($100,000). The Savings Bank believes that
capitalization of the Mutual Holding Company and, if utilized, the Stock
Holding Company, at this level will provide the Mutual Holding Company and,
if utilized, the Stock Holding Company with economic strength separate and
apart from the Savings Bank and could facilitate future activities by the
Mutual Holding Company and, if utilized, the Stock Holding Company.
2. OPERATION OF THE STOCK SAVINGS BANK
Upon the Effective Date of the Reorganization, the Stock Savings Bank
will be owned by either the Mutual Holding Company and any purchasers in a
Minority Stock Offering, or the Stock Holding Company, if utilized, which
would be its sole stockholder. Those persons who as of the Effective Date
held depository rights with respect to, or other rights as creditors of,
the Savings Bank, shall thereafter have such rights solely with respect to
the Stock Savings Bank. Each deposit account in the Savings Bank at the
Effective Date will become a deposit account in the Stock Savings Bank in
the same amount and upon the same terms and conditions, except that the
holder of each such deposit account will have membership rights with
respect to the Mutual Holding Company rather than the Stock Savings Bank.
Members will not have any voting rights in the Stock Savings Bank. All
insured deposit accounts of the Savings Bank which are transferred to the
Stock Savings Bank will continue to be federally insured up to the legal
maximum by the SAIF in the same
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manner as deposit accounts existing in the Savings Bank immediately prior
to the Reorganization.
All loans and other borrowings from the Savings Bank shall retain the
same status with the Stock Savings Bank after the Reorganization as they
had with the Savings Bank prior to the Reorganization. The Stock Savings
Bank may exercise any and all powers, rights, and privileges of, and shall
be subject to all limitations applicable to, capital stock savings banks
under federal law.
The Board of Directors of the Stock Savings Bank will be the existing
Board of Directors of the Savings Bank. The Board of Directors will be
divided into three classes as nearly equal in number as possible and the
members of each class shall be elected for a term of three years and until
their successors are elected and qualified. One class shall be elected by
ballot annually by the stockholders of the Stock Savings Bank's Common
Stock. Present management of the Savings Bank will continue as the
management of the Stock Savings Bank following the Reorganization.
Following the Reorganization, the Stock Savings Bank will have the
power to issue shares of Capital Stock to persons other than the Mutual
Holding Company. Pursuant to federal law and regulations, unless otherwise
revised or amended, so long as the Mutual Holding Company is in existence,
the Mutual Holding Company will be required to own a Majority Interest in
the Stock Savings Bank. One or more offerings of up to 49.99% in the
aggregate of the total Common Stock of the Stock Savings Bank may be made
in connection with or following the Reorganization, subject to the approval
of the OTS. Any offer and sale of Common Stock or Preferred Stock of the
Stock Savings Bank will be conducted in accordance with federal law,
including 12 C.F.R. Part 563g. In the event the Two-Tier Mutual Holding
Company Structure is utilized, the Stock Holding Company, rather than the
Stock Savings Bank, will have the power to issue shares of Capital Stock to
persons other than the Mutual Holding Company and, to the extent required
by applicable federal laws and regulations, these same restrictions would
be applicable to the Stock Holding Company. The Stock Savings Bank, or the
Stock Holding Company if utilized, currently intends to offer for sale up
to 49.9% of its Common Stock in a Minority Stock Offering.
3. OPERATION OF THE MUTUAL HOLDING COMPANY
Upon the Effective Date, the Stock Savings Bank will be a majority-
owned subsidiary of the Mutual Holding Company or the Stock Holding
Company, if utilized. As part of the Reorganization, the Mutual Holding
Company will not retain assets of the Savings Bank which are to be
transferred to the Stock Savings Bank in order to satisfy capital or
reserve requirements of federal law. All assets, rights, obligations and
liabilities of whatever nature that are not retained by the Mutual Holding
Company shall be deemed to be transferred to the Stock Savings Bank. The
Mutual Holding Company shall continue to possess and may exercise all of
the rights, powers and privileges, and shall be subject to all
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limitations applicable to a federally chartered mutual savings bank and any
applicable federal law limitations; provided, however, that the Mutual
Holding Company shall not possess or exercise any deposit taking powers.
The rights and powers of the Mutual Holding Company will be defined by
the Mutual Holding Company's charter and bylaws and by federal law
governing mutual holding companies. The Mutual Holding Company shall be
subject to the limitation and restrictions imposed on savings and loan
holding companies by Section 10(o)(5) of the HOLA, as amended.
All of the members of the Board of Directors of the Savings Bank will
become Directors of the Mutual Holding Company upon the Reorganization.
Thereafter, approximately one third of the directors of the Mutual Holding
Company will be elected annually by the members of the Mutual Holding
Company who will consist of the former Members of the Savings Bank and
certain persons who become depositors of the Stock Savings Bank after the
Reorganization. Certain senior management persons of the Savings Bank will
assume similar positions with the Mutual Holding Company.
Subsequent to the Reorganization, persons who had membership or
liquidation rights with respect to the Savings Bank under its existing
charter immediately prior to the Reorganization shall continue to have such
rights solely with respect to the Mutual Holding Company. In addition, all
persons who become depositors of the Savings Bank subsequent to the
Reorganization will also have such membership and liquidation rights with
respect to the Mutual Holding Company. In each case, no person who ceases
to be a holder of a deposit account with the Stock Savings Bank shall have
any membership and liquidation rights with respect to the Mutual Holding
Company. Borrowers of the Stock Savings Bank who were borrower members of
the Savings Bank at the time of Reorganization will have the same
membership rights in the Mutual Holding Company as they had in the Savings
Bank immediately prior to the Reorganization, but will not receive
membership rights in connection with any borrowings made after the
Reorganization.
Upon completion of the Reorganization, except for assets retained by
the Mutual Holding Company and any expenses incurred in connection with the
Reorganization, the Reorganization of the Savings Bank into a Mutual
Holding Company will not result in any reduction in the amount of the
reserves, capital and surplus that the Savings Bank had prior to the
Reorganization. Such reserves, capital and surplus will be accounted for
by the Mutual Holding Company, the Stock Holding Company, if utilized, and
the Stock Savings Bank on a consolidated basis in accordance with generally
accepted accounting principles.
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4. OPERATION OF THE STOCK HOLDING COMPANY
If the Two-Tier Alternative is utilized, upon the Effective Date, the
Stock Savings Bank will be a wholly-owned subsidiary of the Stock Holding
Company, and the Stock Holding Company will be a majority-owned subsidiary
of the Mutual Holding Company. As part of the Reorganization, the Stock
Holding Company will apply to the OTS to retain up to 50% of the net
proceeds of the Minority Stock Offering; provided, however, that the Stock
Holding Company will not retain any assets which are to be transferred to
the Stock Savings Bank in order to satisfy capital or reserve requirements
of federal law. The Stock Holding Company shall possess and may exercise
all of the rights, powers and privileges, and shall be subject to all
limitations applicable to a stock corporation under the laws pursuant to
which the corporation is organized and any applicable federal law
limitations.
The rights and powers of the Stock Holding Company will be defined by
the Stock Holding Company's charter and bylaws and by federal law governing
savings and loan holding companies. The Stock Holding Company shall be
subject to the limitations and restrictions imposed on savings and loan
holding companies by Section 10(o)(5) of the HOLA, as amended.
All of the members of the Board of Directors of the Savings Bank will
become Directors of the Stock Holding Company upon the Reorganization.
Thereafter, approximately one third of the directors of the Stock Holding
Company will be elected annually by the stockholders of the Stock Holding
Company. Certain senior management persons of the Savings Bank will assume
similar positions with the Stock Holding Company.
B. SPECIAL MEETING OF MEMBERS
Subsequent to the approval of the Plan by the OTS, the Special Meeting of
Members shall be scheduled in accordance with the Savings Bank's Bylaws.
Promptly after receipt of approval and at least 15 days but not more than 45
days prior to the Special Meeting, the Savings Bank shall distribute proxy
solicitation materials to all Members and beneficial owners of accounts held in
a fiduciary capacity where the beneficial owners possess voting rights as of the
Voting Record Date. The proxy solicitation materials shall include a proxy
statement (the "Proxy Statement"), other documents authorized for use by the
regulatory authorities, and may also include a copy of the Plan. The proxy
materials shall contain the information that is relevant to the action to be
taken by the Members.
Pursuant to the regulations of the OTS, an affirmative vote of not less
than a majority of the total outstanding votes of the Members is required for
approval of the Plan, including adoption of the Charter and Bylaws of the Stock
Savings Bank and the Charter and Bylaws of the Mutual Holding Company. Voting
may be in person or by proxy in accordance with the charter and bylaws of the
Savings Bank. The OTS shall be notified promptly of the actions of the Members.
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C. CONDITIONS TO IMPLEMENTATION OF REORGANIZATION
Consummation of the Reorganization is expressly conditioned upon the
following:
1. Approval of the Plan by a majority of the Board of Directors of the
Savings Bank;
2. Approval of the Notice of Reorganization in writing by the OTS and, if
applicable, approval of the insurance of accounts of the Stock Savings
Bank by the FDIC;
3. Approval of the Reorganization Plan by a majority of the total votes of
Members of the Mutual Savings Bank eligible to be cast at the Special
Meeting of Members, including approval of the Charter and Bylaws of the
Mutual Holding Company and the Charter and Bylaws of the Stock Savings
Bank;
4. If the Two-Tier Alternative is utilized, approval in writing by the OTS
of the Stock Holding Company's Application on Form H-(e)1 or H-(e)1-S,
if available to the Stock Holding Company, and the declaration of
effectiveness by the SEC of a Registration Statement on Form S-1.
5. Satisfaction of all conditions specified or otherwise imposed by the
OTS or, if applicable, the FDIC in connection with approval of the
Notice of Reorganization and Stock Issuance and all transactions
related thereto;
6. Receipt by the Savings Bank of a favorable ruling of the Internal
Revenue Service ("IRS") or an opinion of the Savings Bank's tax advisor
with respect to federal taxation to the effect that consummation of the
Reorganization will not be a taxable event to the Mutual Holding
Company, the Stock Holding Company, if utilized, the Stock Savings Bank
or the Savings Bank's Depositors; and
7. Receipt by the Savings Bank of either a private letter ruling of the
New Jersey Department of Revenue or an opinion of the Savings Bank's
tax advisor with respect to the State taxation to the effect that
consummation of the Reorganization will not be a taxable event to the
Mutual Holding Company, the Stock Holding Company, if utilized, the
Stock Savings Bank or to the Savings Bank's Depositors.
D. CHARTER AND BYLAWS OF THE STOCK SAVINGS BANK
As part of the Reorganization, a charter and bylaws of the Stock Savings
Bank shall be adopted in a form permitted by the OTS to authorize the Stock
Savings Bank to operate as a federally chartered stock savings bank. The name
of the Stock Savings Bank will be "West Essex Bank." The Stock Savings Bank's
Charter may authorize a number of shares of Common Stock greater than the number
of shares that shall be issued to the Mutual Holding Company or the Stock
Holding Company, if utilized, in the Reorganization. To the extent permitted by
the OTS, the
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Charter may also contain provisions that, (i) prohibit any person other than the
Mutual Holding Company or the Stock Holding Company, if utilized, from acquiring
beneficial ownership of greater than 10% of the Common Stock of the Stock
Savings Bank unless approved by a majority of the Directors of the Bank; (ii)
prohibit persons beneficially owning shares in excess of 10%, other than the
Mutual Holding Company or the Stock Holding Company, if utilized, from voting
such shares in connection with any matter submitted to stockholders for a vote;
and (iii) prohibit persons other than the Board of Directors of the Stock
Savings Bank from calling special meetings of the stockholders of the Stock
Savings Bank. The Charter for the Stock Savings Bank may also contain provisions
which allow for the issuance of Preferred Stock in accordance with federal law.
A copy of the proposed Charter and Bylaws of the Stock Savings Bank are attached
hereto and hereby incorporated into this Plan. By their approval of the Plan,
the Board of Directors of the Savings Bank approved the Charter and Bylaws of
the Stock Savings Bank.
E. CHARTER AND BYLAWS OF THE STOCK HOLDING COMPANY
The Charter of the Stock Holding Company, if utilized, will contain a
provision stipulating that in no event shall any record owner of any outstanding
shares of the Stock Holding Company's common stock, other than the Mutual
Holding Company, who beneficially owns in excess of 10% of such outstanding
shares be entitled or permitted to any vote in respect to any shares held in
excess of 10%. In addition, the Certificate of Incorporation and Bylaws of the
Stock Holding Company will provide for staggered terms of the directors,
noncumulative voting for directors, limitations on the calling of special
meetings, and certain notice requirements. By their approval of the Plan, the
Board of Directors of the Savings Bank has approved and adopted the Charter and
Bylaws of the Stock Holding Company.
F. CHARTER AND BYLAWS OF THE MUTUAL HOLDING COMPANY
As part of the Reorganization, the Mutual Holding Company will be chartered
as a federal mutual holding company under the name "West Essex Bancorp, M.H.C."
A copy of the proposed Charter and Bylaws are attached hereto and hereby
incorporated into this Plan. By their approval of the Plan, the Board of
Directors of the Savings Bank has approved and adopted the Charter and Bylaws of
the Mutual Holding Company.
G. SUBSEQUENT CONVERSION OF MUTUAL HOLDING COMPANY TO STOCK FORM
If approved by the OTS, following consummation of the Reorganization, the
Mutual Holding Company may elect pursuant to 12 C.F.R. Section 575.12(a), to
convert from the mutual form of ownership to the stock form of ownership. The
terms of such a conversion cannot be determined at this time and there is no
assurance when, if ever, such a conversion will occur. If the Mutual Holding
Company converts to stock form, either directly or in connection with a merger
(a "Conversion Transaction"), the stockholders of the Stock Savings Bank, or the
Stock Holding Company, as the case may be, will be entitled to exchange their
shares of stock in the Stock Savings Bank, or the Stock Holding Company, as the
case may be, for shares of the converted Mutual Holding Company
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or of a stock holding company formed in connection with such Conversion
Transaction (the converted Mutual Holding Company or newly formed holding
company is hereinafter referred to as the "Holding Company") provided, that the
basis for the exchange is fair and reasonable and maintains approximately the
same percentage ownership interest in the newly formed Holding Company after the
Conversion Transaction as such stockholders held in the Stock Savings Bank, or
the Stock Holding Company, as the case may be, immediately prior to the
Conversion Transaction. In the alternative, if in a Conversion Transaction the
stockholders of the Stock Savings Bank, or the Stock Holding Company, as the
case may be, other than the Mutual Holding Company do not receive (i) shares of
the Holding Company or the stock institution resulting from the Conversion
Transaction based upon a fair and reasonable exchange ratio, or (ii) cash from
the resulting institution in an amount equal to the fair market value of their
stock given the circumstances of the Conversion Transaction, the Stock Savings
Bank or the Holding Company may, but shall not be obligated to, purchase all
shares not owned by the Mutual Holding Company simultaneously with the closing
of such Conversion Transaction at the fair market value of such shares. The fair
market value shall be established by an independent appraisal utilized in the
Conversion Transaction. Moreover, in the event that the Mutual Holding Company
converts to stock form in a Conversion Transaction, any options or other
convertible securities held by any officer, director or employee of the Stock
Savings Bank, or the Stock Holding Company, as the case may be, shall be
convertible into shares of the Holding Company; provided, however, that if such
shares cannot be so converted, the holders of such options or other convertible
securities shall be entitled to receive cash payment for such shares in an
amount equal to the offering price of the shares of the Holding Company at the
closing of the Conversion Transaction less the exercise price of such options or
other convertible securities. Any such conversion to stock form will be subject
to the requirements of the HOLA, applicable regulations of the OTS and any other
applicable federal or state law or regulations, and may be subject to adjustment
if required by the OTS, to reflect the cumulative effect of the aggregate amount
of dividends waived by the Mutual Holding Company, if any.
H. CONTINUITY OF THE SAVINGS BANK AND STATUS OF DEPOSIT ACCOUNTS AND LOANS
SUBSEQUENT TO THE REORGANIZATION
Upon the Effective Date of the Reorganization, the Stock Savings Bank will
succeed to all of the assets, rights, powers, franchises, debts, liabilities,
interests, duties and obligations of the Savings Bank before the Reorganization,
including but not limited to, all rights and interests of the Savings Bank in
and to its assets and properties, whether real, personal or mixed.
All Accounts in the Savings Bank shall retain the same status after the
Reorganization as these accounts had prior to Reorganization, except that each
Account Holder shall retain, without payment therefore, a withdrawable deposit
Account or Accounts in the Stock Savings Bank after the Reorganization, equal in
amount to the withdrawable value of such holder's Account or Accounts prior to
the Reorganization. Holders of Accounts in the Stock Savings Bank will not have
any voting rights with respect to the Stock Savings Bank. All Accounts will
continue to be insured by the FDIC up to the applicable limits of insurance
coverage.
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All loans shall retain the same status after the Reorganization as they had
prior to the Reorganization. The amount, interest rate, maturity, and security
for each loan will remain contractually fixed as they existed prior to the
Reorganization. Following the Reorganization, all of such loans will be held by
the Stock Savings Bank.
I. RIGHTS OF MEMBERS OF THE MUTUAL HOLDING COMPANY
Following the Reorganization, all persons who had membership or liquidation
rights with respect to the Savings Bank as of the date of the Reorganization
will continue to have such rights solely with respect to the Mutual Holding
Company. All existing proxies granted by members of the Savings Bank to the
Board of Directors of the Savings Bank shall become the proxies of the Mutual
Holding Company. In addition, all persons who become depositors in the Stock
Savings Bank subsequent to the Reorganization will have membership and
liquidation rights with respect to the Mutual Holding Company. In each case, no
person who ceases to be the holder of a deposit account with the Stock Savings
Bank shall have any membership or liquidation rights with respect to the Mutual
Holding Company. Borrowers of the Stock Savings Bank who were borrower members
of the Savings Bank as of November 16, 1995 and have borrowings outstanding at
the time of Reorganization will have the same membership rights in the Mutual
Holding Company as they had in the Savings Bank immediately prior to the
Reorganization as long as their pre-Reorganization borrowings remain
outstanding, but will not receive membership rights in connection with any
borrowings made after the Reorganization.
J. ESTABLISHMENT AND FUNDING OF CHARITABLE FOUNDATION
As part of the Reorganization, the Mutual Holding Company, the Stock
Holding Company and the Savings Bank intend to establish a charitable foundation
that will qualify as an exempt organization under Section 501(c)(3) of the
Internal Revenue Code ( the "Foundation") and to donate to the Foundation common
stock and/or cash of up to 8.0% of the aggregate dollar amount of common stock
sold in the Minority Stock Offering; provided, however, that the actual amount
of common stock to be donated to the Foundation may not exceed the limitations
set forth in Section 4943 of the Internal Revenue Code. The Foundation is
being formed in connection with the Reorganization in order to complement the
Savings Bank's existing community reinvestment activities and to share with the
Savings Bank's local community a part of the Savings Bank's financial success as
a locally headquartered, community minded, financial services institution. The
funding of the Foundation with Common Stock of the Stock Bank, or the Stock
Holding Company, if utilized, accomplishes this goal as it enables the community
to share in the growth and profitability of the Mutual Holding Company, the
Stock Holding Company and the Savings Bank over the long-term.
The Foundation will be dedicated to the promotion of charitable purposes
within the Counties of Essex, Bergen and Morris, New Jersey and neighboring
communities, including, but not limited to, grants or donations to support
housing assistance, scholarships, local education, not-for-profit medical
facilities, not-for-profit community groups and other types of organizations or
civic minded
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projects. The board of directors of the Foundation will be responsible for
establishing the polices of the Foundation with respect to grants or donations,
consistent with the stated purposes of the Foundation. The Foundation will
annually distribute total grants to assist charitable organizations or to fund
projects within its local community of not less than 5% of the average fair
value of Foundation assets each year. In order to serve the purposes for which
it was formed and maintain its 501(c)(3) qualification, the Foundation may sell,
on an annual basis, a limited portion of the Common Stock contributed to it by
the Stock Bank or the Stock Holding Company, as the case may be.
The establishment and funding of the Foundation as part of the
Reorganization is subject to the approval of the Voting Members by an
affirmative vote of a majority of the votes eligible to be cast by Voting
Members in person or by proxy at the Special Meeting. In the event that the
Savings Bank's Members approve this Plan, but not the charitable foundation, the
Savings Bank may determine to complete the Reorganization and Minority Stock
Offering without the establishment of the Foundation and may do so without
amending this Plan or obtaining any further vote of the Savings Bank's Members.
Failure of the Voting Members to approve the Foundation may materially affect
the pro forma market value of the Common Stock sold in the Minority Stock
Offering. In such an event, the Mutual Holding Company, the Stock Holding
Company and the Savings Bank may establish a new Estimated Price Range and
commence a resolicitation of subscribers.
K. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK
The Stock Savings Bank shall not declare or pay a cash dividend on, or
repurchase any of, its capital stock if the effect thereof would cause its
regulatory capital to be reduced below (i) the amount required for the
Liquidation Account or (ii) the federal regulatory capital requirement set forth
in Section 567.2 of the Rules and Regulations of the OTS. Otherwise, the Stock
Savings Bank may declare dividends, make capital distributions or repurchase its
capital stock in accordance with applicable law and regulations. Subject to the
approval of the OTS, the Mutual Holding Company may waive its right to receive
dividends declared by the Stock Savings Bank or the Stock Holding Company, if
utilized.
L. EXPENSES OF REORGANIZATION
The Savings Bank shall use its best efforts to assure that expenses
incurred by it in connection with the Reorganization and any simultaneous or
subsequent Minority Stock Offering shall be reasonable.
M. INTERPRETATION
All interpretations of this Reorganization Plan and application of its
provisions to particular circumstances by a majority of the Board of Directors
of the Savings Bank shall be final, subject to the authority of the OTS.
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N. AMENDMENT OR TERMINATION OF THE PLAN
If deemed necessary or desirable, the Reorganization Plan may be
substantively amended at any time prior to solicitation of proxies from Members
to vote on the Reorganization Plan by a two-thirds vote of the Savings Bank's
Board of Directors, and at any time thereafter by such vote of such Board of
Directors with the concurrence of the OTS. Any amendment to the Reorganization
Plan made after approval by the Members with the approval of the OTS shall not
necessitate further approval by the Members unless otherwise required by the
OTS. The Reorganization Plan may be terminated by majority vote of the Savings
Bank's Board of Directors at any time prior to the Special Meeting of Members to
vote on the Reorganization Plan, and at any time thereafter with the concurrence
of the OTS.
By adoption of the Plan, the Members of the Savings Bank authorize the
Board of Directors to amend or terminate the Reorganization Plan under the
circumstances set forth in this Section.
IV. STOCK ISSUANCE PLAN
A. INTRODUCTION
The Board of Directors of West Essex Bank, by a unanimous vote, has adopted
this Stock Issuance Plan as part of the Savings Bank's Plan of Reorganization,
pursuant to which the Savings Bank, or the Stock Holding Company, if utilized,
proposes to offer shares of common stock to certain members of the Savings Bank,
the Employee Plans of the Savings Bank, and certain members of the public. For
purposes of this Stock Issuance Plan, capitalized words are as defined in
Section II above.
Concurrently with the Reorganization, the Savings Bank, or the Stock
Holding Company, as the case may be, is offering shares of its Common Stock to
the public in an amount up to 49.9% of its outstanding shares. Pursuant to the
terms set forth herein, the Savings Bank, or the Stock Holding Company, as the
case may be, will offer shares of Common Stock to Eligible Account Holders, the
Employee Plans, Supplemental Eligible Account Holders and Other Members in the
respective priorities set forth in this Stock Issuance Plan (the "Offering").
Any shares of Common Stock not subscribed for by the foregoing classes of
persons will be offered for sale to certain members of the general public, with
preference first given to natural persons residing in the Savings Bank's Local
Community, either directly by the Savings Bank, or the Stock Holding Company, as
the case may be, through a Community Offering, or a Syndicated Community
Offering or through an underwritten firm commitment public offering, or through
a combination thereof.
B. SALE OF COMMON STOCK
The Common Stock will be offered simultaneously in the Subscription
Offering to the Eligible Account Holders, Employee Plans, Supplemental Eligible
Account Holders and Other Members in the respective priorities set forth in this
Stock Issuance Plan. The Subscription Offering
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may be commenced as early as the mailing of the Proxy Statement for the Special
Meeting of Members and must be commenced in time to complete the Offering within
the time period specified in Section F. below. Any shares of Common Stock not
subscribed for in the Subscription Offering will be offered for sale in the
Community Offering as provided in Section D.5 below. The Subscription Offering
may be commenced prior to the Special Meeting of Members and, in that event, the
Community Offering may also be commenced prior to the Special Meeting of
Members. The offer and sale of Common Stock prior to the Special Meeting of
Members shall, however, be conditioned upon approval of the Reorganization Plan
by the Voting Members. If feasible, any shares of Common Stock remaining after
the Subscription and Community Offerings may be sold in a Syndicated Community
Offering, as provided in Section D.6 below in a manner that will achieve the
widest distribution of the Common Stock as determined by the Savings Bank. The
sale of all Common Stock subscribed for in the Subscription and Community
Offerings will be consummated simultaneously on the date the sale of Common
Stock in the Syndicated Community Offering is consummated and only if all
unsubscribed shares for Common Stock are sold. The Savings Bank, or the Stock
Holding Company, as the case may be, may elect to offer to pay fees on a per
share basis to brokers who assist Persons in determining to purchase shares in
the Subscription and Community Offerings.
C. NUMBER OF SHARES AND PURCHASE PRICE OF COMMON STOCK
The total number of shares (or range thereof) of Common Stock to be issued
and offered for sale pursuant to the Stock Issuance Plan shall be determined by
the Savings Bank's Board of Directors, or the Stock Holding Company's Board of
Directors, if applicable, immediately prior to the commencement of the
Subscription and Community Offerings, subject to adjustment thereafter if
necessitated by market or financial conditions, with the approval of the OTS, if
necessary. In particular, the total number of shares may be increased by up to
15% of the number of shares offered in the Subscription and Community Offering
if the independent valuation is increased subsequent to the commencement of the
Subscription and Community Offering to reflect changes in market and financial
conditions. The number of shares to be outstanding upon completion of the
Reorganization may be increased if the Bank, or Stock Holding Company, if
utilized, contributes authorized but unissued shares of Common Stock to the
charitable foundation which is proposed to be established by the Savings Bank,
the Mutual Holding Company and the Stock Holding Company in connection with the
Reorganization. The establishment of the charitable foundation is subject to
the approval of the Voting Members, as set forth in Section III.J. The total
number of shares of Common Stock that may be issued to persons other than the
Mutual Holding Company at the close of the Offering must be less than 50% of the
aggregate issued and outstanding shares of the Savings Bank or the Stock Holding
Company, if utilized. The Offering will be conducted in conformity with 12
C.F.R. Parts 563g and 575 of the OTS Regulations.
All shares sold in the Offerings will be sold at a uniform price per share
referred to in this Stock Issuance Plan as the Actual Purchase Price. The
aggregate purchase price for all shares of Common Stock will not be inconsistent
with the estimated consolidated pro forma market value of the Stock Savings Bank
or the Stock Holding Company, as the case may be. The estimated
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consolidated pro forma market value of the Stock Savings Bank or the Stock
Holding Company, as the case may be, will be determined for such purpose by the
Independent Appraiser in accordance with Section 563b.7 of the Conversion
Regulations. Prior to the commencement of the Subscription and Community
Offerings, an Estimated Price Range will be established, which range will vary
within 15% above to 15% below the midpoint of such range. The number of shares
of Common Stock to be issued and the purchase price per share may be increased
or decreased by the Savings Bank or the Stock Holding Company. In the event that
the aggregate purchase price of the Common Stock is below the minimum of the
Estimated Price Range, or materially above the maximum of the Estimated Price
Range, resolicitation of purchasers may be required, provided that up to a 15%
increase above the maximum of the Estimated Price Range will not be deemed
material so as to require a resolicitation. Any such resolicitation shall be
effected in such manner and within such time as the Savings Bank shall
establish, with the approval of the OTS, if required. Up to a 15% increase in
the number of shares to be issued which is supported by an appropriate change in
the estimated pro forma market value of the Stock Savings Bank or the Stock
Holding Company will not be deemed to be material so as to require a
resolicitation of subscriptions.
Based upon the independent valuation as updated prior to the commencement
of the Subscription and Community Offerings, the Board of Directors of the
Savings Bank or the Stock Holding Company, as the case may be, will establish
the minimum and maximum ownership percentage applicable to the Minority Stock
Offering ("Ownership Range"). The final minority ownership interest will be
determined by the Savings Bank or the Stock Holding Company as follows (without
consideration of the effect of any contribution to the charitable foundation):
(a) the product of (x) the total number of shares of Common Stock sold and (y)
the Purchase Price, shall be divided by (b) the estimated aggregate pro forma
market value of the Savings Bank or the Stock Holding Company immediately after
the Offering as determined by the Independent Appraiser, expressed in terms of a
specific aggregate dollar amount rather than as a range, upon the closing of the
Minority Stock Offering or sale of all of the Common Stock.
If there is a Syndicated Community Offering of shares of Common Stock not
subscribed for in the Subscription and Community Offerings, the price per share
at which the Common Stock is sold in such Syndicated Community Offering shall be
the Subscription Price.
Notwithstanding the foregoing, no sale of Common Stock may be consummated
unless, prior to the such consummation, the Independent Appraiser confirms to
the Savings Bank or the Stock Holding Company and to the OTS that, to the best
knowledge of the Independent Appraiser, nothing of a material nature has
occurred which, taking into account all relevant factors, would cause the
Independent Appraiser to conclude that the aggregate value of the Common Stock
at the Actual Purchase Price is incompatible with its estimate of the aggregate
consolidated pro forma market value of the Savings Bank or the Stock Holding
Company. If such confirmation is not received, the Savings Bank or the Stock
Holding Company may cancel the Minority Stock Offering, extend the Stock
Offering and establish a new price range and/or estimated price range, extend,
reopen or hold a new Minority Stock Offering and/or take such other action as
the OTS may permit.
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The Common Stock to be issued in the Offering shall be fully paid and
nonassessable. The aggregate amount of outstanding Common Stock that may be
owned or controlled by persons other than the Mutual Holding Company parent at
the close of the issuance shall be less than fifty percent (50%) of the Savings
Bank's or the Stock Holding Company's total outstanding Common Stock, as
appropriate.
D. PURCHASE BY THE MUTUAL HOLDING COMPANY OR THE STOCK HOLDING COMPANY OF THE
STOCK OF THE SAVINGS BANK
Upon consummation of the sale of all of the Common Stock, and in the event
that a holding company form of organization is utilized, the Mutual Holding
Company or the Stock Holding Company, if utilized, will purchase from the
Savings Bank all of the capital stock of the Savings Bank to be issued by the
Savings Bank in the Reorganization in exchange for the Offering proceeds that
are not permitted to be retained by the Mutual Holding Company or the Stock
Holding Company.
The Mutual Holding Company will apply to the OTS to retain up to $100,000
of the proceeds of the Offerings. The Stock Holding Company, if utilized, will
apply to the OTS to retain up to 50% of the proceeds of the Offerings. The
Savings Bank believes that the Offering proceeds will provide economic strength
to the Mutual Holding Company, the Stock Holding Company, if utilized, and the
Savings Bank for the future in a highly competitive and regulated environment
and would facilitate expansion through acquisitions, diversification into other
related businesses and for other business and investment purposes, including the
payment of dividends and future repurchases of the Common Stock as permitted by
the OTS.
E. METHOD OF OFFERING SHARES
1. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, as first priority and
without payment, nontransferable subscription rights to subscribe for shares of
Common Stock equal to an amount up to the greater of: the amount permitted to
be subscribed for in the Community Offering which amount, pursuant to Section
E.5, currently is $350,000 of the Common Stock offered, but which may be
increased to 5% or decreased to less than $350,000; one-tenth of one percent
(.10%) of the total offering of shares of Common Stock; or fifteen times the
product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Common Stock to be issued by a fraction of which the
numerator is the amount of the Qualifying Deposit of the Eligible Account Holder
and the denominator is the total amount of Qualifying Deposits of all Eligible
Account Holders, in each case on the Eligibility Record Date, subject to the
maximum purchase limitation specified in Section F.2 and the minimum purchase
limitation specified in Section F.3 or as such purchase limitations may be
increased or decreased by F.12 and exclusive of an increase in the total number
of shares issued due to an increase in the Estimated Price Range of up to 15%.
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B. In the event that Eligible Account Holders exercise subscription
rights for a number of shares of Common Stock in excess of the total number of
shares eligible for subscription, the shares of Common Stock shall be allocated
among the subscribing Eligible Account Holders so as to permit each subscribing
Eligible Account Holder, to the extent possible, to purchase a number of shares
sufficient to make his or her total allocation of Common Stock equal to the
lesser of 100 shares or the number of shares subscribed for by the Eligible
Account Holder. Any shares remaining after that allocation will be allocated
among the subscribing Eligible Account Holders whose subscriptions remain
unsatisfied in the proportion that the amount of the aggregate Qualifying
Deposits of each Eligible Account Holder whose subscription remains unsatisfied
bears to the total amount of the Qualifying Deposits of all Eligible Account
Holders whose subscriptions remain unsatisfied. If the amount so allocated
exceeds the amount subscribed for by any one or more Eligible Account Holders,
the excess shall be reallocated (one or more times as necessary) among those
Eligible Account Holders whose subscriptions are still not fully satisfied on
the same principle until all available shares have been allocated or all
subscriptions satisfied.
C. Subscription rights as Eligible Account Holders received by
Directors and Officers and their Associates which are based on deposits made by
such persons during the twelve (12) months preceding the Eligibility Record Date
shall be subordinated to the Subscription Rights of all other Eligible Account
Holders.
2. SUBSCRIPTION RIGHTS OF THE EMPLOYEE PLANS (SECOND PRIORITY)
The Employee Plans shall receive, without payment, as a second
priority after the filling of subscriptions of Eligible Account Holders,
nontransferable subscription rights to purchase in the Offering the number of
shares of Common Stock requested by such Plans, subject to the purchase
limitations set forth in Section F. If, after the filling of subscriptions of
Eligible Account Holders, a sufficient number of shares is not available to fill
the subscriptions by such plans, the subscriptions by such plans shall be filled
to the maximum extent possible, provided however that in the event of an
increase in the total number of shares issued due to an increase in the
Estimated Price Range of up to 15%, the additional shares shall be sold to the
Employee Plans, subject to the purchase limitations set forth in Section F.
The Employee Plans shall not be deemed to be an Associate or Affiliate
of or Person Acting in Concert with any Director or Officer of the Mutual
Holding Company, the Stock Holding Company, if utilized, or the Savings Bank.
3. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD
PRIORITY)
A. Each Supplemental Eligible Account Holder shall receive, as third
priority and without payment, nontransferable subscription rights to subscribe
for shares of Common Stock equal to an amount up to the greater of: the amount
permitted to be subscribed for in the Community Offering which amount, pursuant
to Section E.5, currently is $350,000 of the Common Stock offered, but which may
be increased to 5% or decreased to less than $350,000; one-tenth of one
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percent (.10%) of the total offering of Common Stock; or fifteen times the
product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Common Stock to be issued by a fraction of which the
numerator is the amount of the Qualifying Deposit of the Supplemental Eligible
Account Holder and the denominator is the total amount of the Qualifying
Deposits of all Supplemental Eligible Account Holders in the Savings Bank on the
Supplemental Eligibility Record Date, subject to the maximum purchase limitation
specified in Section F.2 and the minimum purchase limitation specified in
Section F.3 or as such purchase limitations may be increased or decreased by
F.12, and exclusive of an increase in the total number of shares issued due to
an increase in the Estimated Price Range of up to 15%.
B. In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Common Stock which, when added to
the shares subscribed for by the Eligible Account Holders and the Employee
Plans, is in excess of the total number of shares eligible for subscription, the
shares of Common Stock shall be allocated among the subscribing Supplemental
Eligible Account Holders so as to permit each subscribing Supplemental Eligible
Account Holder, to the extent possible, to purchase a number of shares
sufficient to make his or her total allocation of Common Stock equal to the
lesser of 100 shares or the number of shares subscribed for by the Supplemental
Eligible Account Holder. Any shares remaining after that allocation will be
allocated among the subscribing Supplemental Eligible Account Holders whose
subscriptions remain unsatisfied in the proportion that the amount of the
aggregate Qualifying Deposits of each Supplemental Eligible Account Holder whose
subscription remains unsatisfied bears to the total amount of the Qualifying
Deposits of all Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied. If the amount so allocated exceeds the amount subscribed for by
any one or more Supplemental Eligible Account Holders, the excess shall be
reallocated (one or more times as necessary) among those Supplemental Eligible
Account Holders whose subscriptions are still not fully satisfied on the same
principle until all available shares have been allocated or all subscriptions
satisfied.
C. Subscription rights received by an Eligible Account Holder
pursuant to Section 1 shall be applied in partial satisfaction of the
subscription rights to be received as a Supplemental Eligible Account Holder
pursuant to this Section 3.
4. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)
A. Each Other Member shall receive, as fourth priority and without
payment, nontransferable subscription rights to subscribe for shares of Common
Stock equal to an amount up to the greater of: the amount permitted to be
subscribed for in the Community Offering, which amount, pursuant to Section E.5,
currently is $350,000 of the Common Stock offered, but which may be increased to
5% or decreased to less than $350,000; or one-tenth of one percent (.10%) of the
total offering of shares of Common Stock, subject to the maximum purchase
limitation specified in Section F.2 and the minimum purchase limitation
specified in Section F.3 or as such purchase limitations may be increased or
decreased by F.12, and exclusive of an increase in the total number of shares
issued due to an increase in the Estimated Price Range of up to 15%.
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B. In the event that Other Members subscribe for a number of shares
of Common Stock which, when added to the shares subscribed for by the Eligible
Account Holders, the Employee Plans and Supplemental Eligible Account Holders,
is in excess of the total number of shares of Common Stock being issued, the
subscriptions of Other Members will be allocated among the Other Members so as
to permit each subscribing Other Member, to the extent possible, to purchase a
number of shares sufficient to make his or her total allocation of the Common
Stock equal to the lesser of 100 shares or the number of shares subscribed for
by the Other Member. Any shares remaining after that allocation will be
allocated among the subscribing Other Members whose subscriptions remain
unsatisfied on a pro rata basis determined by the amount of their respective
unfilled subscriptions. If the amount so allocated exceeds the amount
subscribed for by any one or more Other Members, the excess shall be reallocated
(one or more times as necessary) among those Other Members whose subscriptions
are still not fully satisfied in the same principle until all available shares
have been allocated or all subscriptions satisfied.
5. COMMUNITY OFFERING (FIFTH PRIORITY)
If less than the total number of shares of Common Stock to be
subscribed for in the Offering are sold in the Subscription Offering, shares
remaining unsubscribed for will be made available for purchase in the Community
Offering to certain members of the general public, which may subscribe together
with any Associate or group of persons Acting in Concert for up to $350,000 of
the shares of Common Stock offered subject to the maximum purchase limitation
specified in Section F.3 and the minimum purchase limitation specified in
Section F.2 or as such purchase limitations may be increased or decreased by
F.12, and exclusive of an increase in the total number of shares issued due to
an increase in the Estimated Price Range of up to 15%; provided, however, that
the amount permitted to be purchased in the Community Offering may be increased
to 5% or decreased to less than $350,000 without the resolicitation of
subscribers. The shares may be made available in the Community Offering through
a direct community marketing program which may provide for utilization of a
broker, dealer, consultant or investment banking firm, experienced and expert in
the sale of savings institution securities. Such entities may be compensated on
a fixed fee basis or on a commission basis, or a combination thereof. Any
excess of shares and those not subscribed for by institutional investors will be
available for purchase by the general public with preference given to natural
persons residing in the Savings Bank's Local Community (such natural persons are
hereinafter referred to as "Preferred Subscribers").
To the extent that there are shares remaining after all subscriptions
by institutional investors are filled, if the Preferred Subscribers in the
Community Offering, whose orders would otherwise be accepted, subscribe for more
shares than are available for purchase, the shares available to them will be
allocated among the Preferred Subscribers in the manner which permits each such
person to the extent possible, to purchase the number of shares necessary to
make his or her total allocation of Common Stock equal to the lesser of 100
shares or the number of shares subscribed for by such persons. Thereafter,
unallocated shares will be allocated among the Preferred Subscribers whose
subscriptions remain unsatisfied on a 100 shares per order basis until all such
orders have been filled or the remaining shares have been allocated. To the
extent that there are shares remaining
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after all subscriptions by Preferred Subscribers, any remaining shares will be
allocated among members of the general public using the foregoing allocation as
applied to Preferred Subscribers. The Savings Bank, or the Stock Holding
Company, as the case may be, shall make distribution of the Common Stock to be
sold in the Community Offering in such a manner as to promote a wide
distribution of Common Stock. The Savings Bank, or the Stock Holding Company, as
the case may be, reserves the right to reject any or all orders in whole or in
part, which are received in the Community Offering.
The Savings Bank, or the Stock Holding Company, as the case may be,
may establish all other terms and conditions of such offer. It is expected that
the Community Offering will commence concurrently with the Subscription
Offering. The Community Offering must be completed within 45 days after the
completion of the Subscription Offering unless otherwise extended by the OTS.
6. SYNDICATED COMMUNITY OFFERING
If feasible, all shares of Common Stock not subscribed for in the
Subscription and Community Offerings may be sold in a Syndicated Community
Offering, subject to such terms, conditions and procedures as may be determined
by the Savings Bank, or the Stock Holding Company, as the case may be, in a
manner that will achieve the widest distribution of the Common Stock subject to
the right of the Savings Bank, or the Stock Holding Company, as the case may be,
to accept or reject in whole or in part all subscriptions in the Syndicated
Community Offering. In the Syndicated Community Offering, any person together
with any Associate or group of persons Acting in Concert may purchase up to
$350,000 of the shares of Common Stock offered subject to the maximum purchase
limitation specified in Section F.2 and the minimum purchase limitation
specified in Section F.3 or as such purchase limitations may be increased or
decreased by F.12, and exclusive of an increase in the total number of shares
issued due to an increase in the Estimated Price Range of up to 15%; provided,
however, that this amount may be increased to 5% or decreased to less than
$350,000 without the resolicitation of subscribers. The shares purchased by any
Person together with any Associate or group of persons Acting in Concert
pursuant to Section F shall be counted toward meeting the maximum percentage of
shares permitted to be purchased pursuant to this Section. Provided that the
Subscription Offering has commenced, the Savings Bank, or the Stock Holding
Company, as the case may be, may commence the Syndicated Community Offering at
any time after the mailing to the Members of the Proxy Statement to be used in
connection with the Special Meeting of Members, provided that the completion of
the offer and sale of the Common Stock shall be conditioned upon the approval of
the Reorganization Plan by the Voting Members. If the Syndicated Community
Offering is not sooner commenced, the Syndicated Community Offering will be
commenced as soon as practicable following the date upon which the Subscription
and Community Offerings terminate.
Alternatively, if a Syndicated Community Offering is not held, the
Savings Bank, or the Stock Holding Company, as the case may be, shall have the
right to sell any shares of Common Stock remaining following the Subscription
and Community Offerings in an underwritten firm
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commitment public offering. The provisions of Section F hereof shall not be
applicable to sales to underwriters for purposes of such an offering but shall
be applicable to sales by the underwriters to the public. The price to be paid
by the underwriters in such an offering shall be equal to the Actual Purchase
Price less an underwriting discount to be negotiated among such underwriters and
the Savings Bank, or the Stock Holding Company, as the case may be, which will
in no event exceed an amount deemed to be acceptable by the OTS.
If, for any reason, a Syndicated Community Offering or an underwritten
firm commitment public offering of shares of Common Stock not sold in the
Subscription and Community Offerings cannot be effected, or in the event that
any insignificant residue of shares of Common Stock is not sold in the
Subscription and Community Offerings or in the Syndicated Community Offering or
an underwritten firm commitment public offering, other purchase arrangements
will be made for the sale of unsubscribed shares by the Savings Bank, or the
Stock Holding Company, as the case may be, if possible. Such other purchase
arrangements will be subject to the approval of the OTS.
F. LIMITATIONS UPON PURCHASES IN THE OFFERING
In addition to the maximum amount of Common Stock that may be subscribed
for as set forth in Sections E.1 through E.6, the following limitations shall
apply to all purchases of shares of the Common Stock:
1. The aggregate amount of outstanding Common Stock of the Savings Bank,
or the Stock Holding Company, as the case may be, owned or controlled by persons
other than the Mutual Holding Company at the close of the Offering shall be less
than fifty percent (50%) of the Savings Bank's or the Stock Holding Company's
total outstanding Common Stock, respectively.
2. The maximum number of shares of Common Stock which may be subscribed
for or purchased in all categories in the Offering by any Person or Participant
together with any Associate or group or persons Acting in Concert shall not
exceed $700,000 of the Common Stock offered, except for the Employee Plans which
may subscribe for up to 10% of the Common Stock issued and except for certain
Eligible Account Holders and Supplemental Eligible Account Holders which may
subscribe for or purchase shares in accordance with Sections E.1 and E.3 herein;
provided, however, in the event that the maximum purchase limitation is
increased to more than 2.0% of the shares of Common Stock offered, orders for
Common Stock in the Community Offering and in the Syndicated Community Offering
(or, alternatively an underwritten firm commitment public offering), if any,
shall, as determined by the Savings Bank, first be filled to a maximum of 2.0%
of the total number of shares of Common Stock offered and thereafter remaining
shares shall be allocated on an equal number of shares basis per order until all
orders have been filled.
3. A minimum of 25 shares of Common Stock must be purchased by each
Person purchasing shares in the Offering to the extent those shares are
available; provided, however, that in the event the minimum number of shares of
Common Stock purchased times the price per share
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exceeds $500, then such minimum purchase requirement shall be reduced to such
number of shares of Common Stock which when multiplied by the price per share
shall not exceed $500, as determined by the Board.
4. The aggregate amount of Common Stock acquired in the Offering, plus
all prior issuances of the Savings Bank, or the Stock Holding Company, as the
case may be, by any Non Tax-Qualified Employee Stock Benefit Plan of the Savings
Bank, or the Stock Holding Company, respectively, or any Insider and Associates
of Insiders, exclusive of any stock acquired by said plan, Insider or Associate
in the secondary market, shall not exceed ten percent (10%) of the outstanding
shares of Common Stock of the Savings Bank, or the Stock Holding Company,
respectively, held by persons other than the Mutual Holding Company at the close
of the Offering. In calculating the number of shares held by any Insider or
Associate under this provision, shares held by any Tax-Qualified or Non Tax-
Qualified Employee Stock Benefit Plan of the Savings Bank or Stock Holding
Company that are attributable to such person shall not be counted.
5. The aggregate amount of Stock, whether common or preferred, acquired
in the Offering, plus all prior issuances of the Savings Bank, or the Stock
Holding Company, as the case may be, by any Non Tax-Qualified Employee Stock
Benefit Plan of the Savings Bank, or the Stock Holding Company, respectively, or
any Insider or Associates of Insiders, exclusive of any stock acquired by said
plan or Insider or Associate in the secondary market, shall not exceed ten
percent (10%) of the stockholders' equity of the Savings Bank, or the Stock
Holding Company, respectively, held by any person other than the Mutual Holding
Company at the close of the Offering.
6. The aggregate amount of Common Stock acquired in the Offering, plus
all prior issuances of the Savings Bank, or the Stock Holding Company, as the
case may be, by all Tax-Qualified Employee Stock Benefit Plans of the Savings
Bank, or the Stock Holding Company, respectively, exclusive of any stock
acquired by such plans in the secondary market, shall not exceed ten percent
(10%) of the outstanding shares of Common Stock of the Savings Bank, or the
Stock Holding Company, respectively, held by persons other than Mutual Holding
Company at the close of the Offering.
7. The aggregate amount of Stock, whether common or preferred, acquired
in the Offering, by any one or more Tax-Qualified Employee Stock Benefit Plans
of the Savings Bank, or the Stock Holding Company, as the case may be, exclusive
of any stock acquired by such plans in the secondary market, shall not exceed
ten percent (10%) of the stockholders' equity of the Savings Bank, or the Stock
Holding Company, respectively, held by persons other than the Mutual Holding
Company at the close of the Offering.
8. The aggregate amount of Common Stock acquired in the Offering, plus
all prior issuances of the Savings Bank, or the Stock Holding Company, as the
case may be, by all Non Tax-Qualified Employee Stock Benefit Plans, Insiders and
Associates of Insiders, exclusive of any stock acquired by said plans, Insiders,
and Associates in the secondary market, shall not exceed thirty percent (30%) of
the outstanding shares of Common Stock of the Savings Bank, or the Stock
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Holding Company, respectively, held by persons other than the Mutual Holding
Company at the close of the Offering. In calculating the number of shares held
by Insiders and their Associates under this provision or the provision in
paragraph 9 of this section, shares held by any Tax-Qualified or Non Tax-
Qualified Employee Stock Benefit Plan of the Savings Bank, or the Stock Holding
Company, respectively, that are attributable to such persons shall not be
counted.
9. The aggregate amount of Stock, whether common or preferred, acquired
in the Offering, plus all prior issuances of the Savings Bank, or the Stock
Holding Company, as the case may be, by all Non Tax-Qualified Employee Stock
Benefit Plans of the Savings Bank, or the Stock Holding Company, respectively,
Insiders, and Associates of Insiders, exclusive of any stock acquired by said
plans, Insiders, and Associates in the secondary market, shall not exceed
thirty-two percent (32%) of the stockholders' equity of the Savings Bank, or the
Stock Holding Company, respectively, held by persons other than the Mutual
Holding Company at the close of the Offering.
If the number of shares of Common Stock otherwise allocable pursuant to
Sections E.1 through E.6, inclusive, to any Person or that Person's Associates
would be in excess of the maximum number of shares permitted as set forth above,
the number of shares of Common Stock allocated to each such person shall be
reduced to the lowest limitation applicable to that Person, and then the number
of shares allocated to each group consisting of a Person and that Person's
Associates shall be reduced so that the aggregate allocation to that Person and
his or her Associates complies with the above maximums, and such maximum number
of shares shall be reallocated among that Person and his or her Associates as
they may agree, or in the absence of an agreement, in proportion to the shares
subscribed by each (after first applying the maximums applicable to each Person,
separately).
Depending upon market or financial conditions, the Board of Directors of
the Savings Bank, or the Stock Holding Company, if utilized, without further
approval of the Members, may decrease or increase the maximum purchase
limitation in this Stock Issuance Plan, provided that the maximum purchase
limitation may not be decreased below 1% or increased to a percentage in excess
of 5%. Notwithstanding the foregoing, the maximum purchase limitation may be
increased up to 9.99% provided that orders for Common Stock exceeding 5% of the
shares being offered shall not exceed, in the aggregate, 10% of the total
offering. If the Savings Bank or the Stock Holding Company increases the
maximum purchase limitations, the Savings Bank or the Stock Holding Company is
only required to resolicit Persons who subscribed for the maximum purchase
amount and may, in the sole discretion of the Savings Bank resolicit certain
other large subscribers.
In the event of an increase in the total number of shares offered in the
Offering due to an increase in the Estimated Price Range of up to 15% (the
"Adjusted Maximum") the additional shares will be allocated in the following
order of priority: (i) to fill the Employee Plans' subscription to the Adjusted
Maximum; (ii) in the event that there is an oversubscription at the Eligible
Account Holder level, to fill unfulfilled subscriptions of Eligible Account
Holders exclusive of the Adjusted Maximum according to Section E.1.; (iii) in
the event there is an oversubscription at the Supplemental Eligible Account
Holder level, to fill unfulfilled subscriptions of Supplemental Eligible Account
Holders exclusive of the Adjusted Maximum according to Section E.3.; (iv) in the
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<PAGE>
event that there is an oversubscription at the Other Member level, to fill
unfulfilled subscriptions of Other Members exclusive of the Adjusted Maximum in
accordance with Section E.4.; and (v) to fill unfulfilled Subscriptions in the
Community Offering exclusive of the Adjusted Maximum in accordance with
Section E.5.
For purposes of this Section F, the Directors of the Savings Bank, the
Mutual Holding Company and the Stock Holding Company, if utilized, shall not be
deemed to be Associates or a group affiliated with each other or otherwise
Acting in Concert solely as a result of their being Directors of the Savings
Bank, the Mutual Holding Company or the Stock Holding Company.
Each Person purchasing Common Stock in the Offering shall be deemed to
confirm that such purchase does not conflict with the above purchase limitations
contained in this Plan.
For a period of three years following the Offering, no Officer, Director or
their Associates shall purchase, without the prior written approval of the OTS,
any outstanding shares of common stock of the Savings Bank, or the Stock Holding
Company, if utilized, except from a broker-dealer registered with the SEC. This
provision shall not apply to negotiated transactions involving more than one
percent of the outstanding shares of common stock of the Savings Bank, or the
Stock Holding Company, as the case may be, the exercise of any options pursuant
to stock option plan or purchases of common stock of the Savings Bank, or the
Stock Holding Company, as the case may be, made by or held by any Tax-Qualified
Employee Stock Benefit Plan or Non-Tax-Qualified Employee Stock Benefit Plan of
the Savings Bank, or the Stock Holding Company, as the case may be, (including
the Employee Plans) which may be attributable to any Officer or Director. As
used herein, the term "negotiated transaction" means a transaction in which the
securities are offered and the terms and arrangements relating to any sale are
arrived at through direct communications between the seller or any person acting
on its behalf and the purchaser or his investment representative. The term
"investment representative" shall mean a professional investment advisor acting
as agent for the purchaser and independent of the seller and not acting on
behalf of the seller in connection with the transaction.
G. PAYMENT FOR COMMON STOCK
All payments for Common Stock subscribed for in the Subscription, Community
and Syndicated Community Offerings must be delivered in full to the Savings Bank
or the Stock Holding Company, if utilized, together with a properly completed
and executed Order Form, or purchase order in the case of the Syndicated
Community Offering, on or prior to the expiration date specified on the Order
Form or purchase order, as the case may be, unless such date is extended by the
Savings Bank or Stock Holding Company; provided, however, that if the Employee
Plans subscribe for shares during the Subscription Offering, such plans will not
be required to pay for the shares at the time they subscribe but rather may pay
for such shares of Common Stock subscribed for by such plans at the Actual
Purchase Price upon consummation of the Offering, provided that, in the case of
the employee stock ownership plan ("ESOP") there is in force from the time of
its subscription until the consummation of the Offering, a loan commitment from
the Mutual Holding Company, the
30
<PAGE>
Stock Holding Company or an unrelated financial institution to lend to the ESOP,
at such time, the aggregated Subscription Price of the shares for which it
subscribed. The Savings Bank may make scheduled discretionary contributions to
an Employee Plan provided such contributions do not cause the Savings Bank to
fail to meet its regulatory capital requirement.
Notwithstanding the foregoing, the Savings Bank, or the Stock Holding
Company, as the case may be, shall have the right, in its sole discretion, to
permit institutional investors to submit contractually irrevocable orders in the
Community Offering and to thereafter submit payment for the Common Stock for
which they are subscribing in the Community Offering at any time prior to 48
hours before the completion of the Offering, unless such 48 hour period is
waived by the Savings Bank, or the Stock Holding Company, as the case may be, in
its sole discretion.
Payment for Common Stock subscribed for shall be made either in cash (if
delivered in person), check or money order. Alternatively, subscribers in the
Subscription and Community Offerings may pay for the shares subscribed for by
authorizing the Savings Bank on the Order Form to make a withdrawal from the
subscriber's Account at the Savings Bank in an amount equal to the purchase
price of such shares. Such authorized withdrawal, whether from a savings
passbook or certificate account, shall be without penalty as to premature
withdrawal. If the authorized withdrawal is from a certificate account, and the
remaining balance does not meet the applicable minimum balance requirement, the
certificate shall be canceled at the time of withdrawal, without penalty, and
the remaining balance will earn interest at the passbook rate. Funds for which
a withdrawal is authorized will remain in the subscriber's Account but may not
be used by the subscriber until the Common Stock has been sold or the 45-day
period (or such longer period as may be approved by the OTS) following the
Subscription and Community Offering has expired, whichever occurs first.
Thereafter, the withdrawal will be given effect only to the extent necessary to
satisfy the subscription (to the extent it can be filled) at the purchase price
per share. Interest will continue to be earned on any amounts authorized for
withdrawal until such withdrawal is given effect. Interest will be paid by the
Savings Bank at not less than the passbook annual rate on payments for Common
Stock received in cash or by check or money order. Such interest will be paid
from the date payment is received by the Savings Bank until consummation or
termination of the Offering. If for any reason the Offering is not consummated,
all payments made by subscribers in the Subscription, Community and Syndicated
Community Offerings will be refunded to them with interest. In case of amounts
authorized for withdrawal from Accounts, refunds will be made by canceling the
authorization for withdrawal. The Savings Bank is prohibited by regulation from
knowingly making any loans or granting any lines of credit for the purchase of
stock in the Offering, and therefore, will not do so.
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H. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
As soon as practicable after the Offering Circular or Prospectus prepared
by the Savings Bank, or the Stock Holding Company, as the case may be, has been
declared effective by the OTS or the SEC, Order Forms will be distributed to all
Eligible Account Holders, the Employee Plans, the Supplemental Eligible Account
Holders and Other Members at their last known addresses appearing on the records
of the Savings Bank for the purpose of subscribing to shares of Common Stock in
the Subscription Offering and will be made available for use by those Persons
entitled to purchase in the Community Offering. Notwithstanding the foregoing,
the Savings Bank or the Stock Holding Company may elect to send Order Forms only
to those Persons who request them after such notice as is approved by the OTS
and is adequate to apprise all Eligible Account Holders, the Employee Plans,
Supplemental Eligible Account Holders and Other Members of the pendency of the
Subscription Offering has been given. Such notice may be included with the
proxy statement for the Special Meeting of Members and may also be included in a
notice of the pendency of the Offering and the Special Meeting of Members sent
to all Eligible Account Holders and Supplemental Eligible Account Holders in
accordance with regulations of the OTS.
Each Order Form will be preceded or accompanied by the Offering Circular or
Prospectus describing the Savings Bank, the Stock Holding Company, if
applicable, the Common Stock and the Subscription and Community Offerings. Each
Order Form will contain, among other things, the following:
1. A specified date by which all Order Forms must be received by the
Savings Bank or Stock Holding Company, which date shall be not less than twenty
(20), nor more than forty-five (45) days, following the date on which the Order
Forms are mailed by the Savings Bank or Stock Holding Company, and which date
will constitute the termination of the Subscription Offering;
2. The Subscription Price per share for shares of Common Stock to be sold
in the Subscription and Community Offerings;
3. A description of the minimum and maximum number of shares of Common
Stock which may be subscribed for pursuant to the exercise of subscription
rights or otherwise purchased in the Community Offering;
4. Instructions as to how the recipient of the Order Form is to indicate
thereon the number of shares of Common Stock for which such person elects to
subscribe and the available alternative methods of payment therefor;
5. An acknowledgment that the recipient of the Order Form has received a
final copy of the Offering Circular, prior to execution of the Order Form;
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6. A statement to the effect that all subscription rights are
nontransferable, will be void at the end of the Subscription Offering, and can
only be exercised by delivering within the subscription period such properly
completed and executed Order Form, together with cash (if delivered in person),
check or money order in the full amount of the purchase price as specified in
the Order Form for the shares of Common Stock for which the recipient elects to
subscribe in the Subscription Offering (or by authorizing on the Order Form that
the Savings Bank withdraw said amount from the subscriber's Account at the
Savings Bank) to the Savings Bank;
7. A statement to the effect that the executed Order Form, once received
by the Savings Bank, may not be modified or amended by the subscriber without
the consent of the Savings Bank, and
8. A statement with respect to the residence of the subscriber.
Notwithstanding the above, the Savings Bank, or the Stock Holding Company,
as the case may be, will not accept orders received on photocopied or
facsimilied order forms.
I. UNDELIVERED, DEFECTIVE OR LATE ORDER FORMS: INSUFFICIENT PAYMENT
In the event Order Forms (a) are not delivered and are returned to the
Savings Bank, or the Stock Holding Company, if utilized, by the United States
Postal Service or the Savings Bank, or the Stock Holding Company, as the case
may be, is unable to locate the addressee, (b) are not received back by the
Savings Bank, or the Stock Holding Company, or are received by the Savings Bank
or Stock Holding Company after the expiration date specified thereon, (c) are
defectively filled out or executed, (d) are not accompanied by the full required
payment, or, in the case of institutional investors in the Community Offering,
by delivering irrevocable orders together with a legally binding commitment to
pay in cash, check, money order or wire transfer the full amount of the purchase
price prior to 48 hours before the completion of the Offering for the shares of
Common Stock subscribed for (including cases in which savings accounts from
which withdrawals are authorized are insufficient to cover the amount of the
required payment), or (e) are not mailed pursuant to a "no mail" order placed in
effect by the account holder, the subscription rights of the person to whom such
rights have been granted will lapse as though such person failed to return the
contemplated Order Form within the time period specified thereon; provided,
however, that the Savings Bank, or the Stock Holding Company, as the case may
be, may, but will not be required to, waive any immaterial irregularity on any
Order Form or require the submission of corrected Order Forms or the remittance
of full payment for subscribed shares by such date as the Savings Bank or Stock
Holding Company may specify. The interpretation of the Savings Bank, or the
Stock Holding Company, as the case may be, of terms and conditions of the Plan
and of the Order Forms will be final, subject to the authority of the OTS.
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<PAGE>
J. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION
1. All shares of Common Stock purchased by Directors or Officers of the
Savings Bank in the Offering shall be subject to the restriction that, except as
provided in Section J.2., below, or as may be approved by the OTS, no interest
in such shares may be sold or otherwise disposed of for value for a period of
one (l) year following the date of purchase.
2. The restriction on disposition of shares of Common Stock set forth in
Section J.1. above shall not apply to the following:
(i) Any exchange of such shares in connection with a merger or
acquisition involving the Savings Bank or the Stock Holding Company, as the case
may be, which has been approved by the OTS; and
(ii) Any disposition of such shares following the death of the
person to whom such shares were initially sold under the terms of the Plan.
3. With respect to all shares of Common Stock subject to restrictions on
resale or subsequent disposition, each of the following provisions shall apply:
(i) Each certificate representing shares restricted within the
meaning of Section J.1., above, shall bear a legend prominently stamped on its
face giving notice of the restriction;
(ii) Instructions shall be issued to the stock transfer agent for
the Savings Bank, or the Stock Holding Company, if utilized, not to recognize or
effect any transfer of any certificate or record of ownership of any such shares
in violation of the restriction on transfer; and
(iii) Any shares of capital stock of the Savings Bank, or the Stock
Holding Company, if utilized, issued with respect to a stock dividend, stock
split, or otherwise with respect to ownership of outstanding shares of Common
Stock subject to the restriction on transfer hereunder shall be subject to the
same restriction as is applicable to such Common Stock.
K. VOTING RIGHTS OF STOCKHOLDERS
Following consummation of the Reorganization, the holders of the capital
stock of the Savings Bank shall have the exclusive voting rights with respect to
the Savings Bank as specified in its charter. The holders of the common stock
of the Stock Holding Company, if utilized, shall have the exclusive voting
rights with respect to the Stock Holding Company.
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L. TRANSFER OF SAVINGS ACCOUNTS AND CONTINUITY OF THE SAVINGS BANK
Upon the Reorganization, each Savings Account Holder having a Savings
Account at the Savings Bank prior to the Reorganization will continue to have a
Savings Account, without payment therefor, in the same amount and subject to the
same terms and conditions (except for voting and liquidation rights) as in
effect prior to the Reorganization.
After the Reorganization, the Savings Bank will succeed to all the rights,
interests, duties and obligations of the Savings Bank before the Reorganization,
including but not limited to, all rights and interests of the Savings Bank in
and to its assets and properties, whether real, personal or mixed. The Savings
Bank will continue to be a member of the Federal Home Loan Bank System and all
its insured savings deposits will continue to be insured by the FDIC to the
extent provided by applicable law.
M. RESTRICTIONS ON ACQUISITION OF THE SAVINGS BANK AND STOCK HOLDING COMPANY
1. In accordance with OTS regulations, for a period of three years from
the date of consummation of the Reorganization, no Person, other than the Mutual
Holding Company, or the Stock Holding Company, if utilized shall directly or
indirectly offer to acquire or acquire the beneficial ownership of more than 10%
of any class of an equity security of the Savings Bank without the prior written
consent of the OTS.
2. The charter of the Savings Bank contains a provision stipulating that
no person, except the Mutual Holding Company, or the Stock Holding Company, if
utilized, for a period of five years following the date of the Reorganization,
shall directly or indirectly offer to acquire or acquire the beneficial
ownership of more than 10% of any class of an equity security of the Savings
Bank without the prior written approval of the OTS. In addition, such charter
may also provide that for a period of five years following the Reorganization,
shares beneficially owned in violation of the above-described charter provision
shall not be entitled to vote and shall not be voted by any person or counted as
voting stock in connection with any matter submitted to stockholders for a vote.
In addition, special meetings of the stockholders relating to changes in control
or amendment of the charter may only be called by the Board of Directors, and
shareholders shall not be permitted to cumulate their votes for the election of
directors.
3. The Charter of the Stock Holding Company, if utilized, will contain a
provision stipulating that in no event shall any record owner, except the Mutual
Holding Company, of any outstanding shares of the Stock Holding Company's Common
Stock who beneficially owns in excess of 10% of such outstanding shares be
entitled or permitted to any vote in respect to any shares held in excess of
10%. In addition, the Charter and Bylaws of the Stock Holding Company will
provide for staggered terms of the directors, noncumulative voting for
directors, limitations on the calling of special meetings and certain notice
requirements.
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4. For the purposes of this Section M:
(i) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock company, a
trust, an unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of
securities of an insured institution;
(ii) The term "offer" includes every offer to buy or acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value;
(iii) The term "acquire" includes every type of acquisition,
whether effected by purchase, exchange, operation of law or otherwise; and
(iv) The term "security" includes non-transferable subscription
rights issued pursuant to a plan of stock issuance as well as a "security" as
defined in 15 U.S.C. Section 78c(a)(10).
N. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK
The Savings Bank shall not declare or pay a cash dividend on, or repurchase
any of, its capital stock if the effect thereof would cause its regulatory
capital to be reduced below the federal regulatory capital requirement set forth
in Section 567.2 of the Rules and Regulations of the OTS. Otherwise, the Savings
Bank may declare dividends, make capital distributions or repurchase its capital
stock in accordance with applicable law and regulations.
O. AMENDMENT OF PLAN
If deemed necessary or desirable, this Stock Issuance Plan may be
substantively amended by the Savings Bank's and the Stock Holding Company's
Board of Directors at any time prior to approval of the Stock Issuance Plan by
the OTS, and at any time thereafter with the concurrence of the OTS. Any
amendment to the Plan made after approval by the Members with the approval of
the OTS shall not necessitate further approval by the Members unless otherwise
required by the OTS. This Stock Issuance Plan may be terminated by the Boards of
Directors at any time prior to approval of the Stock Issuance Plan by the OTS
and at any time thereafter with the concurrence of the OTS.
P. CONSUMMATION OF REORGANIZATION
The Reorganization of the Savings Bank shall be deemed to take place and be
effective upon the completion of all requisite organizational procedures for
obtaining a Federal Stock Savings Bank Charter for the Savings Bank and sale of
all Common Stock.
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Q. REGISTRATION AND MARKETING
Within the time period required by applicable laws and regulations, the
Savings Bank, or the Stock Holding Company, if utilized, will register the
securities issued in connection with the Offering pursuant to the Securities
Exchange Act of 1934 and will not deregister such securities for a period of at
least three years thereafter, except that the maintenance of registration for
three years requirement may be fulfilled by any successor to the Savings Bank,
or the Stock Holding Company, as the case may be. In addition, the Savings
Bank, or the Stock Holding Company, if utilized, will use its best efforts to
encourage and assist a market-maker to establish and maintain a market for the
Common Stock and to list those securities on a national or regional securities
exchange or the Nasdaq Stock Market.
R. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES
The Savings Bank, or the Stock Holding Company, if utilized, will make
reasonable efforts to comply with the securities laws of all States in the
United States in which Persons entitled to subscribe for shares of Common Stock
pursuant to the Stock Issuance Plan reside. However, no such Person will be
issued subscription rights or be permitted to purchase shares of Common Stock in
the Subscription Offering if such Person resides in a foreign country or in a
state of the United States with respect to which both of the following apply:
(1) a small number of Persons otherwise eligible to subscribe for shares under
the Plan reside in such state; and (2) the issuance of subscription rights or
the offer or sale of shares of Common Stock to such Persons would require the
Savings Bank, or the Stock Holding Company, as the case may be, under the
securities laws of such state, to register as a broker, dealer, salesman or
agent or to register or otherwise qualify its securities for sale in such state
and such registration or qualification would be impracticable for reasons of
cost or otherwise.
S. EXPENSES OF OFFERING
The Savings Bank shall use its best efforts to assure that expenses
incurred by it in connection with the Offering shall be reasonable.
T. INTERPRETATION
All interpretations of this Stock Issuance Plan and application of its
provisions to particular circumstances by a majority of the Board of Directors
of the Savings Bank shall be final, subject to the authority of the OTS.
Attachments
A-1 and A-2: Charter and Bylaws of Mutual Holding Company
B-1 and B-2: Charter and Bylaws of Stock Holding Company
C-1 and C-2: Charter and Bylaws of Stock Savings Bank
37
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ATTACHMENT A-1
FEDERAL MUTUAL HOLDING COMPANY CHARTER
Section 1. Corporate title. The name of the mutual holding company
---------------
hereby chartered is West Essex Bancorp, M.H.C. (the "Holding Company").
Section 2. Duration. The duration of the Holding Company is perpetual.
--------
Section 3. Purpose and powers. The purpose of the Holding Company is to
------------------
pursue any or all of the lawful objectives of a federal mutual savings and loan
holding company chartered under section 10(o) of the Home Owners' Loan Act, 12
U.S.C. 1467a(o), and to exercise all of the express, implied, and incidental
powers conferred thereby and all acts amendatory thereof and supplemental
thereto, subject to the Constitution and laws of the United States as they are
now in effect, or as they may hereafter be amended, and subject to all lawful
and applicable rules, regulations, and orders of the Office of Thrift
Supervision ("OTS").
Section 4. Capital. The Holding Company shall have no capital stock.
-------
Section 5. Members. All holders of the savings, demand, or other
-------
authorized accounts of West Essex Bank (the "Bank") are members of the Holding
Company. In the consideration of all questions requiring action by the members
of the Holding Company, each holder of an account shall be permitted to cast one
vote for each $100, or fraction thereof, of the withdrawal value of the member's
account. Borrowers as of November 16, 1995 shall continue to have one vote for
the period of time such borrowings are in existence. No member, however, shall
cast more than 1,000 votes. Voting may be by proxy, which is subject to the
rules and regulations of the OTS. Any number of members present and voting
represented in person or by proxy, at a regular or special meeting of the
members shall constitute a quorum. A majority of all votes cast at any meeting
of the members shall determine any question. All accounts shall be
nonassessable.
Section 6. Directors. The Holding Company shall be under the direction
---------
of a board of directors. The authorized number of directors shall not be fewer
than five nor more than fifteen, as fixed in the Holding Company's bylaws,
except that the number of directors may be decreased to a number less than
five or increased to a number greater than fifteen with the prior approval of
the OTS. Each director of the Holding Company shall be a member of the Holding
Company. Members of the Holding Company shall elect the directors, provided
that, in the event of a vacancy on the board, the board of directors may fill
such vacancy, if the members of the Holding Company fail to do so, by electing a
director to serve until the next annual meeting of members. Directors shall be
elected for periods of three years and until their successors are elected and
qualified, except that provision shall be made for the election of approximately
one-third of the board each year.
<PAGE>
Section 7. Capital, surplus, and distribution of earnings.
----------------------------------------------
a. The Holding Company shall maintain for the purpose of meeting losses
the amount of capital required by Section 5 of the Home Owners' Loan Act and by
regulations of the OTS. The Holding Company shall distribute net earnings to
account holders of the Bank on such basis and in accordance with such terms and
conditions as may from time to time be authorized by the Director of the OTS;
provided, that the Holding Company may establish minimum-balance requirements
- --------
for accounts to be eligible for distribution of earnings and provided, further,
that the Holding Company shall not distribute net earnings or any other item of
value to members in connection with any Business Combination as defined in this
Section 7, corporate reorganization or similar transactions except with the
approval of at least three-fourths of the Board.
Any voluntary liquidation, dissolution, or winding up of the Holding
Company must be approved by an affirmative vote of three-fourths of the Board.
All holders of accounts of the Bank shall be entitled to equal distribution of
assets of the Holding Company pro rata to the value of their accounts in the
--- ----
Bank, in the event of voluntary or involuntary liquidation, dissolution, or
winding up of the Holding Company.
b. For purposes of this Section 7, "Business Combination" shall mean:
1) any merger or consolidation of the Holding Company or any of its
subsidiaries with any entity which was not formed on behalf of the
Holding Company pursuant to two-thirds majority vote of
Disinterested Directors; or
2) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or series of transactions) of 25%
or more of the consolidated assets of the Holding Company and its
subsidiaries to or with any entity which was not formed on behalf
of the Holding Company pursuant to a two-thirds majority vote of
Disinterested Directors; or
3) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or series of transactions) of
assets of the Holding Company or its subsidiaries which would
result in a 10% or more reduction in the capital of the Holding
Company.
c. For purposes of this Section 7, "Business Combination" shall not
include:
1) any merger or consolidation of the Holding Company or any of its
subsidiaries or any sale, lease or exchange of the assets of the
Holding Company or any subsidiary which has been initiated,
ordered or directed by the Office or any other appropriate federal
banking agency pursuant to any applicable law or regulation.
2
<PAGE>
d. "Disinterested Director" shall mean any member of the board of
directors of the Holding Company or its subsidiaries who, during the period
commencing one year prior to the proposal of the Business Combination and
ending on the vote by the board of directors upon the proposed Business
Combination, was not an agent of or otherwise associated with any party to the
Business Combination other than: (i) the Holding Company, (ii) any subsidiary
of the Holding Company or (iii) any other entity formed on behalf of the
Holding Company, and any director who is thereafter chosen to fill any vacancy
of the board of directors or who is elected to the board of directors and who,
in either event, is not a agent of or associated with any party to the Business
Combination other than: (i) the Holding Company, (ii) any subsidiary of the
Holding Company or (iii) any other entity formed on behalf of the Holding
Company.
e. "Interested Member" shall mean any member of the Holding Company who
is an agent of or otherwise associated with any party to Business Combination
other than: (i) the Holding Company, (ii) any subsidiary of the Holding Company
or (iii) any other entity formed on behalf of the Holding Company.
f. For the purposes of this Charter, a person shall be considered to be
an "agent of" or "otherwise associated with" a party, if: (i) such person was
employed by, received financial support from or had any equity or other interest
in the party, (ii) such person had a contractual relationship with the party,
(iii) such person controls, is controlled by or is under common control with the
party, (iv) such person is an immediate family member of the party, as defined
by 12 C.F.R. 574.2(j), (v) such person is acting in concert with the party, as
defined by 12 C.F.R. 574.2(c), (vi) such person is an associate of the party, as
defined by 12 C.F.R.563b.2(a)(5), or (vii) such person is an officer, director
or employee of the party.
Section 8. Amendment of Charter. Adoption of any preapproved charter
--------------------
amendment shall be effective after such preapproved amendment has been
submitted to and approved by the members at a legal meeting. Any other
amendment, addition, change or repeal of this charter must be approved by the
OTS prior to approval by the members at a legal meeting and shall be effective
upon filing with the OTS in accordance with regulatory procedures.
3
<PAGE>
Attest:
- ------------------------------------- ---------------------------------------
Corporate Secretary President and Chief Executive
Officer
Attest: Office of Thrift Supervision
By:
- ------------------------------------- ------------------------------------
Secretary
Office of Thrift Supervision
EFFECTIVE DATE:
------------------------
4
<PAGE>
ATTACHMENT A-2
BYLAWS
OF
WEST ESSEX BANCORP, M.H.C.
1. Annual meeting of members. The annual meeting of the members of the
-------------------------
Holding Company for the election of directors and for the transaction of any
other business of the Holding Company shall be held, as designated by the board
of directors, at a location within the state that constitutes the principal
place of business of the Holding Company at 4:00 p.m. on a day that is within
150 days after the end of the Holding Company's fiscal year, which shall be,
unless otherwise specified by the Board, the third Wednesday in April each year,
if not a legal holiday, or if a legal holiday then on the next succeeding day
not a legal holiday. The annual meeting may be held at such other times on such
day or at such other place in the same state as the board of directors may
determine. At each annual meeting, the officers shall make a full report of the
financial condition of the Holding Company and of its progress for the preceding
year and shall outline a program for the succeeding year. Annual meetings shall
be conducted by the Chairman of the annual meeting in accordance with the
written procedures agreed to by the board of directors.
2. Special meetings of members. Special meetings of the members of the
----------------------------
Holding Company may be called at any time by the president or the majority of
the board of directors and shall be called by the president or the secretary
upon the written request of members of record, holding in the aggregate at least
10% or more of the voting capital of the Holding Company. Voting capital shall
mean the maximum number of votes eligible to be cast at a legal meeting of
members as determined at the most recent practicable date. Such written request
shall state the purpose of the meeting and shall be delivered at the principal
place of business of the Holding Company addressed to the president. The
business which may be brought before and acted upon at any special meeting shall
be limited to those matters specified by the Board of Directors or, in the case
of a special meeting called by the members pursuant to this Section 2, those
matters specified by such members in the written request delivered to the
president or the secretary. Special meetings shall be conducted by the
Chairman of the special meeting in accordance with written procedures agreed to
by the board of directors.
3. Notice of meeting of members. Notice of each meeting shall be either
----------------------------
published once a week for the two successive calendar weeks (in each instance on
any day of the week) immediately prior to the week in which such meeting shall
convene, in a newspaper printed in the English language and of general
circulation in the city or county in which the principal place of business of
the Holding Company is located, or mailed postage prepaid at least 15 days and
not more than 45 days prior to the date on which such meeting shall convene, to
each of its members of record at the last address appearing on the books of the
Holding Company. Such notice shall state the name of the Holding Company, the
place of the meeting, the date and time when it shall convene, and the matters
to be considered. A similar notice shall be posted in a conspicuous place in
each of the
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offices of West Essex Bank (the "Bank") during the 14 days immediately preceding
the date on which such meeting shall convene. If any member, in person or by
authorized attorney, shall waive in writing notice of any meeting of members,
notice thereof need not be given to such member. When any meeting is adjourned
for 30 days or more, notice of the adjournment and reconvening of the meeting
shall be given as in the case of the original meeting.
4. Fixing of record date. For the purpose of determining members
---------------------
entitled to notice of or to vote at any meeting of members or any adjournment
thereof, or in order to make a determination of members for any other proper
purpose, the board of directors shall fix in advance a record date for any
such determination of members. Such date shall be not more than 60 days nor
fewer than 10 days prior to the date on which the action, requiring such
determination of members, is to be taken. The member entitled to participate
in any such action shall be the member of record on the books of the Holding
Company on such record date. The number of votes which each member shall be
entitled to cast at any meeting of the members shall be determined from the
books of the Holding Company as of such record date. Any member of such
record date who ceases to be a member prior to such meeting shall not be
entitled to vote at that meeting.
5. Member quorum. Any number of members present and voting, represented
-------------
in person or by proxy, at a regular or special meeting of the members shall
constitute a quorum. A majority of all votes cast at any meeting of the members
shall determine any question, unless otherwise required by regulation.
Directors, however, are elected by a plurality of the votes cast at an election
of directors. At any adjourned meeting any business may be transacted which
might have been transacted at the meeting as originally called. Members present
at a duly constituted meeting may continue to transact business until
adjournment.
6. Voting by proxy. Voting at any annual or special meeting of the
---------------
members may be by proxy pursuant to the rules and regulations of the Office of
Thrift Supervision ("Office"), provided, that no proxies shall be voted at any
meeting unless such proxies shall have been placed on file with the secretary of
the Holding Company, for verification, prior to the convening of such meeting.
All proxies with a term greater than eleven months or solicited at the expense
of the Holding Company must run to the board of directors as a whole, or to a
committee appointed by a majority of such board.
7. Communication between members. Communication between members shall be
-----------------------------
subject to any applicable rules or regulations of the Office, including Section
545.131 of the Office's regulations. The Board of Directors shall have sole
discretion to determine the propriety of communications between members.
8. Number of directors. The number of directors of the Holding Company
-------------------
shall be six (6). Each director shall be a member of West Essex Bank.
Directors shall be elected for periods of one to three years and until their
successors are elected and qualified, but if a staggered board is chosen,
provision shall be made for the election of approximately one-third or one-half
of the board each year, as appropriate. No person 75 years of age shall be
eligible for election, reelection,
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appointment or reappointment to the board of the Holding Company. No director
shall serve as such beyond the annual meeting of the Holding Company immediately
following the director becoming 75. This age limitation does not apply to an
advisory director. It is specifically understood that the age limitation set
forth herein for any Director of the Board in office as of April 19, 1995 shall
not apply.
9. Meetings of the board. The board of directors shall meet regularly
---------------------
without notice at the principal place of business of the Holding Company at
least once each month at an hour and date fixed by resolution of the board,
provided that the place of meeting may be changed by the directors. Special
meetings of the board may be held at any place specified in a notice of such
meeting and shall be called by the secretary upon the written request of the
chairman of the board or of the majority of the board of directors. All special
meetings shall be held upon at least 24 hours written notice to each director
unless notice is waived in writing before or after such meeting. Such notice
shall state the place, date, time, and purposes of such meeting. A majority of
the authorized directors shall constitute a quorum for the transaction of
business. The act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the board. Action may be taken
without a meeting if unanimous written consent is obtained for such action.
Members of the board of directors may participate in meetings by means of
conference telephone or in similar communications equipment by which all persons
participating in the meeting can hear and speak to each other.
The meetings shall be under the direction of a Chairman, appointed annually
by the board, or in the absence of the Chairman, the Vice Chairman, or in the
absence of the Vice Chairman, the meetings shall be under the direction of the
president. Regular and special meetings of the Board shall be conducted in
accordance with the rules determined by the Chairman.
10. Officers, employees and agents. Annually at the meeting of the board
------------------------------
of directors of the Holding Company next following the annual meeting of the
members of the Holding Company, the board of directors may elect one of its
members to preside at its meetings as Chairman of the Board, and may elect one
of its members as Vice Chairman to preside in the absence of the Chairman. At
such meeting, the board shall elect a president, one or more vice presidents, a
secretary, and a treasurer: Provided, that the offices of president and
--------
secretary may not be held by the same person and a vice president may also be
the treasurer. The board may appoint such additional officers, employees, and
agents as it may from time to time determine. The term of office of all
officers shall be one year or until their respective successors are elected and
qualified; but any officer may be removed at any time by a three-fourths vote of
the board. In the absence of designation from time to time of powers and duties
by the board, the officers shall have such powers and duties as generally
pertain to their respective offices.
11A. Vacancies, resignation or removal of directors. Members of the Holding
----------------------------------------------
Company shall elect directors by ballot; provided, that in the event of a
vacancy on the board between meetings of members, the board of directors may, by
their affirmative vote, fill such vacancy, even if the
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remaining directors constitute less than a quorum. A director elected to fill a
vacancy shall be elected to serve only until the next election of directors by
the members. Any director may resign at any time by sending a written notice of
such resignation to the office of the Holding Company delivered to the
secretary. Unless otherwise specified therein such resignation shall take
effect upon receipt by the secretary. More than three consecutive absences
from regular meetings of the board, unless excused by resolution of the board,
shall automatically constitute a resignation, effective when such resignation is
accepted by the board.
At a meeting of members called expressly for that purpose, directors or the
entire board may be removed, only with cause, by a vote of the holders of a
majority of the shares then entitled to vote at an election of directors.
11B. Emergency appointment of directors. In the event the number of
----------------------------------
directors falls below five, the minimum number required by law, the number of
directors shall be restored to five, automatically and simultaneously, by the
appointment of new directors, from the ranks of the Holding Company's directors
emeritus, in the reverse order (last to retire, first to be appointed) of their
retirement, provided any such director emeritus so appointed is able to serve in
such capacity.
Directors so appointed shall remain as directors until their successor is
appointed or elected, but in no event shall the appointment of said director
continue for more than one year. Any provisions in these Bylaws pertaining to
the age of a director shall be waived for directors emeritus so appointed.
12. Powers of the board. The board of directors shall have the power:
-------------------
(a) By resolution, to appoint from among its members and remove an
executive committee, which committee shall be comprised of at
least the majority of the Board and shall have and may exercise
the powers of the board between the meetings of the board, but no
such committee shall have the authority of the board to amend the
charter or bylaws, adopt a plan of merger, consolidation,
dissolution, or provide for the disposition of all or
substantially all of the property and assets of the Holding
Company. Such committee shall not operate to relieve the board,
or any member thereof, of any responsibility imposed by law;
(b) To appoint and remove by resolution the members of such other
committees as may be deemed necessary and prescribe the
duties thereof;
(c) To fix the compensation of directors, officers, and employees;
and to remove any officer or employee at any time with or
without cause;
(d) To limit payments on capital which may be accepted; and
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<PAGE>
(e) To exercise any and all of the powers of the Holding Company not
expressly reserved by the charter to the members.
13. Execution of instruments, generally. All documents and instruments
-----------------------------------
or writings of any nature shall be signed, executed, verified, acknowledged, and
delivered by such officers, agents, or employees of the Holding Company or any
one of them and in such manner as from time to time may be determined by
resolution of the board. All notes, drafts, acceptances, checks, endorsements,
and all evidences of indebtedness of the Holding Company whatsoever shall be
signed by such officer or officers or such agent or agents of the Holding
Company and in such manner as the board may from time to time determine.
Endorsements for deposit to the credit of the Holding Company in any of its duly
authorized depositaries shall be made in such manner as the board may from time
to time determine. Proxies to vote with respect to shares or accounts of other
associations or stock of other corporations owned by, or standing in the name
of, the Holding Company may be executed and delivered from time to time on
behalf of the Holding Company by the president or a vice president and the
secretary or an assistant secretary of the Holding Company or by any other
persons so authorized by the board.
14. Nominating committee. The chairman, at least 30 days prior to the
---------------------
date of each annual meeting, shall appoint a nominating committee of three
persons who are members of the Holding Company. Such committee shall make
nominations for directors in writing and deliver to the secretary such written
nominations at least 15 days prior to the date of the annual meeting, which
nominations shall then be posted in a prominent place in the principal place of
business for the 15-day period prior to the date of the annual meeting, except
in the case of a nominee substituted as a result of death or other incapacity.
Provided such committee is appointed and makes such nominations, no nominations
for directors except those made by the nominating committee shall be voted upon
at the annual meeting unless other nominations by members are made in writing
and delivered to the secretary of the Holding Company at least 10 days prior to
the date of the annual meeting, which nominations shall then be posted in a
prominent place in the principal place of business for the 10-day period prior
to the date of the annual meeting, except in the case of a nominee substituted
as a result of death or other incapacity. Ballots bearing the names of all
persons nominated by the nominating committee and by other members prior to the
annual meeting shall be provided for use by the members at the annual meeting.
If at any time the chairman shall fail to appoint such nominating committee, or
the nominating committee shall fail or refuse to act at least 15 days prior to
the annual meeting, nominations for directors may be made at the annual meeting
by any member and shall be voted upon.
15. New business. Any new business to be taken up at the annual meeting,
------------
including any proposal to increase or decrease the number of directors of the
Holding Company, shall be stated in writing and filed with the secretary of the
Holding Company at least 30 days before the date of the annual meeting, and all
business so stated, proposed, and filed shall be considered at the annual
meeting; but no other proposal shall be acted upon at the annual meeting. This
provision shall not prevent the consideration and approval or disapproval at the
annual meeting of the reports of officers
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<PAGE>
and committees, but in connection with such reports no new business shall be
acted upon at such annual meeting unless stated and filed as herein provided.
16. Seal. The seal shall be two concentric circles between which shall be
----
the name of the Holding Company. The year of incorporation, the word
"incorporated," or an emblem, may appear in the center.
17. Indemnification. The Holding Company shall indemnify all officers,
---------------
directors and employees of the Holding Company, and their heirs, executors and
administrators, to the fullest extent permitted under federal law against all
expenses and liabilities reasonably incurred by them in connection with or
arising out of any action, suit or proceeding in which they may be involved by
reason of their having been a director or officer of the Holding Company,
whether or not they continue to be a director or officer at the time of
incurring such expenses or liabilities, such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements. Any payments made to any officer or
director pursuant to this Section are subject to and conditioned upon compliance
with the rules or regulations of the Office and 12 C.F.R. Section 359.5.
18. Amendment. Adoption of any bylaw amendment pursuant to Section 544.5
---------
of the Office's regulations, as long as consistent with applicable law, rules
and regulations, and which adequately addresses the subject and purpose of the
stated bylaw section, shall be effective after: (i) approval of the amendment by
a majority vote of the authorized board, or by a vote of the members of the
Holding Company at a legal meeting, and (ii) receipt of any applicable
regulatory approval. When the Holding Company fails to meet its quorum
requirements, solely due to vacancies on the board, the bylaws may be amended by
an affirmative vote of a majority of the sitting board.
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ATTACHMENT B-1
FEDERAL MHC SUBSIDIARY HOLDING COMPANY CHARTER
FOR
WEST ESSEX BANCORP, INC.
SECTION 1. CORPORATE TITLE.
The full corporate title of the MHC subsidiary holding company is West
Essex Bancorp, Inc. (the "Holding Company").
SECTION 2. DOMICILE
The domicile of the Holding Company is in the city of Caldwell, in the
State of New Jersey.
SECTION 3. DURATION.
The duration of the Holding Company is perpetual.
SECTION 4. PURPOSE AND POWERS.
The purpose of the Holding Company is to pursue any or all of the lawful
objectives of a federal mutual holding company chartered under Section 10(o) of
the Home Owners' Loan Act, 12 U.S.C. 1467a(o), and to exercise all the express,
implied, and incidental powers conferred thereby and by all acts amendatory
thereof and supplemental thereto, subject to the Constitution and laws of the
United States as they are now in effect, or as they may hereafter be amended,
and subject to all lawful and applicable rules, regulations, and orders of the
Office of Thrift Supervision ("Office").
SECTION 5. CAPITAL STOCK.
The total number of shares of all classes of the capital stock which the
Holding Company has authority to issue is ten million shares (10,000,000), of
which nine million shares (9,000,000) shall be common stock, par value $.01 per
share and of which one million shares (1,000,000) shall be preferred stock, par
value $.01 per share. The shares may be issued from time to time as authorized
by the Board of Directors without further approval of shareholders except as
otherwise provided in this Section 5 or to the extent that such approval is
required by governing law, rule, or regulation. The consideration for the
issuance of the shares shall be paid in full before their issuance and shall not
be less than the par value. Neither promissory notes nor future services shall
constitute payment or part payment for the issuance of shares of the Holding
Company. The consideration for the shares shall be cash, tangible or intangible
property (to the extent direct investment in such property would be permitted),
labor, or services actually performed for the Holding Company, or any
combination of the foregoing. In the absence of actual fraud in the
transaction, the value of such property, labor, or services, as determined by
the Board of Directors of the Holding Company, shall be conclusive.
<PAGE>
Upon payment of such consideration, such shares shall be deemed to be fully paid
and nonassessable. In the case of a stock dividend, that part of the surplus of
the Holding Company which is transferred to common stock or paid-in capital
accounts upon the issuance of shares as a stock dividend shall be deemed to be
the consideration for their issuance.
Except for shares issued in the initial organization of the Holding
Company, no shares of capital stock (including shares issuable upon conversion,
exchange, or exercise of other securities) shall be issued, directly or
indirectly, to officers, directors, or controlling persons of the Holding
Company other than as part of a general public offering or as qualifying shares
to a director, unless their issuance or the plan under which they would be
issued has been approved by a majority of the total votes eligible to be cast at
a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share:
provided, that this restriction on voting separately by class or series shall
- --------
not apply:
(i) To any provision which would authorize the holders of preferred stock,
voting as a class or series, to elect some members of the Board of
Directors, less than a majority thereof, in the event of default in
the payment of dividends on any class or series of preferred stock;
(ii) To any provision which would require the holders of preferred stock,
voting as a class or series, to approve the merger or consolidation of
the Holding Company with another corporation or the sale, lease, or
conveyance (other than by mortgage or pledge) of properties or
business in exchange for securities of a corporation other than the
Holding Company if the preferred stock is exchanged for securities of
such other corporation: Provided, that no provision may require such
approval for transactions undertaken with the assistance or pursuant
to the direction of the Office or the Federal Deposit Insurance
Corporation;
(iii)To any amendment which would adversely change the specific terms of
any class or series of capital stock as set forth in this Section 5
(or in any supplementary sections hereto), including any amendment
which would create or enlarge any class or series ranking prior
thereto in rights and preferences. An amendment which increases the
number of authorized shares of any class or series of capital stock,
or substitutes the surviving Holding Company in a merger or
consolidation for the Holding Company, shall not be considered to be
such an adverse change.
A description of the different classes and series (if any) of the Holding
Company's capital stock and a statement of the designations, and the relative
rights, preferences, and limitations of the shares of each class of and series
(if any) of capital stock are as follows:
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<PAGE>
A. Common Stock. Except as provided in this Section 5 (or in any
------------
supplementary sections thereto) the holders of the common stock shall
exclusively possess all voting power. Each holder of shares of common
stock shall be entitled to one vote for each share held by such holder
and there shall be no right to cumulate votes in an election of
directors.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of
stock having preference over the common stock as to the payment of
dividends, the full amount of dividends and of sinking fund, or
retirement fund, or other retirement payments, if any, to which such
holders are respectively entitled in preference to the common stock,
then dividends may be paid on the common stock and on any class or
series of stock entitled to participate therewith as to dividends out
of any assets legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
Holding Company, the holders of the common stock (and the holders of
any class or series of stock entitled to participate with the common
stock in the distribution of assets) shall be entitled to receive, in
cash or in kind, the assets of the Holding Company available for
distribution remaining after: (i) payment or provision for payment of
the Holding Company's debts and liabilities; (ii) distributions or
provision for distributions in settlement of a liquidation account;
and (iii) distributions or provision for distributions to holders of
any class or series of stock having preference over the common stock
in the liquidation, dissolution, or winding up of the Holding Company.
Each share of common stock shall have the same relative rights as and
be identical in all respects with all the other shares of common
stock.
B. Preferred Stock. The Holding Company may provide in supplementary
---------------
sections to its charter for one or more classes of preferred stock,
which shall be separately identified. The shares of any class may be
divided into and issued in series, with each series separately
designated so as to distinguish the shares thereof from the shares of
all other series and classes. The terms of each series shall be set
forth in a supplementary section to the charter. All shares of the
same class shall be identical except as to the following relative
rights and preferences, as to which there may be variations between
different series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and,
if so, from which date(s) the payment date(s) for dividends, and
the participating or other special rights, if any, with respect
to dividends;
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<PAGE>
(c) The voting powers, full or limited, if any, of the shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price(s) at which, and the terms and conditions on which,
such shares may be redeemed;
(e) The amount(s) payable upon the shares of such series in the event
of voluntary or involuntary liquidation, dissolution, or winding
up of the Holding Company;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the
purchase or redemption of such shares, and if so entitled, the
amount of such fund and the manner of its application, including
the price(s) at which such shares may be redeemed or purchased
through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock
of the Holding Company and, if so, the conversion price(s) or the
rate(s) of exchange, and the adjustments thereof, if any, at
which such conversion or exchange may be made, and any other
terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial
preferred stock and whether such shares may be reissued as shares
of the same or any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The Board of Directors shall have authority to divide, by the adoption of
supplementary charter sections, any authorized class of preferred stock into
series, and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established by a
supplementary charter section adopted by the Board of Directors, the Holding
Company shall file with the Secretary to the Office a dated copy of that
supplementary section of this charter establishing and designating the series
and fixing and determining the relative rights and preferences thereof.
4
<PAGE>
SECTION 6. LIMITATIONS ON VOTING.
Notwithstanding any other provision of this Charter, in no event may any
record owner of any outstanding Common Stock that is beneficially owned,
directly or indirectly, by a person (other than West Essex Bancorp, M.H.C., the
parent holding company of the Holding Company) who, as of any record date for
the determination of shareholders entitled to vote on any matter, beneficially
owns in excess of 10% of the then-outstanding shares of Common Stock (the
"Limit"), be entitled, or permitted to any vote in respect of the shares held in
excess of the Limit. The number of votes that may be cast by any record owner
by virtue of the provisions hereof in respect of Common Stock beneficially owned
by such person beneficially owning shares in excess of the Limit is a number
equal to the total number of votes that a single record owner of all Common
Stock beneficially owned by such person would be entitled to cast, (subject to
the provisions of this Section 6) multiplied by a fraction, the numerator of
which is the number of shares of such class or series that are both beneficially
owned by such person and owned of record by such record owner and the
denominator of which is the total number of shares of Common Stock beneficially
owned by such person owning shares in excess of the Limit.
The following definitions apply to this Section 6:
a. "Affiliate" has the meaning ascribed to it in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act of
1934, as amended, as in effect on the date of filing of this Charter.
b. "Beneficial ownership" is determined pursuant to Rule 13d-3 of the
General Rules and Regulations under the Securities Exchange Act of
1934, as amended, (or any successor rule or statutory provision), or,
if said Rule 13d-3 is rescinded and there is no successor rule or
provision thereto, pursuant to said Rule 13d-3 as in effect on the
date of filing of this Charter; provided, however, that a person is,
in any event, also deemed the "beneficial owner" of any Common Stock:
(1) that such person or any of its affiliates beneficially owns,
directly or indirectly; or
(2) that such person or any of its affiliates has: (i) the
right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to
any agreement, arrangement or understanding, or upon the
exercise of conversion rights, exchange rights, warrants, or
options or otherwise, or (ii) sole or shared voting or
investment power with respect thereto pursuant to any
agreement, arrangement, understanding, relationship or
otherwise (but is not deemed to be the beneficial owner of
any voting shares solely by reason of a revocable proxy
granted for a particular meeting of shareholders, pursuant
to a public solicitation of proxies for such meeting, with
respect to shares of which neither such person nor any such
Affiliate is otherwise deemed the beneficial owner); or
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<PAGE>
(3) that are beneficially owned, directly or indirectly, by any
other person with which such first mentioned person or any
of its Affiliates acts as a partnership, limited
partnership, syndicate or other group pursuant to any
agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of
capital stock of this Holding Company; and provided further,
however, that: (1) no Director or Officer of this Holding
Company (or any Affiliate of any such Director or Officer),
solely by reason of any or all of such Directors or Officers
acting in their capacities as such, will be deemed, for any
purposes hereof, to beneficially own any Common Stock
beneficially owned by any other such Director or Officer (or
any Affiliate thereof); and (2) neither any employee stock
ownership or similar plan of the Holding Company or any
subsidiary of this Holding Company, nor any trustee with
respect thereto or any Affiliate of such trustee (solely by
reason of such capacity of such trustee), will be deemed,
for any purposes hereof, to beneficially own any Common
Stock held under any such plan. For purposes only of
computing the percentage of beneficial ownership of Common
Stock of a person, the outstanding Common Stock includes
shares deemed owned by such person through application of
this Section, but does not include any other Common Stock
that may be issuable by the Holding Company pursuant to any
agreement, or upon exercise of conversion rights, warrants
or options, or otherwise. For all other purposes, the
outstanding Common Stock includes only Common Stock then
outstanding and does not include any Common Stock that may
be issuable by the Holding Company pursuant to any
agreement, or upon the exercise of conversion rights,
warrants or options, or otherwise.
c. The "Limit" means 10% of the then-outstanding shares of Common Stock.
d. A "person" includes an individual, a firm, a group acting in concert,
a corporation, a partnership, an association, a joint venture, a pool,
a joint stock company, a trust, an unincorporated organization or
similar company, a syndicate or any other group formed for the purpose
of acquiring, holding or disposing of securities or any other entity.
The Board of Directors has the power to construe and apply the provisions
of this section and to make all determinations necessary or desirable to
implement such provisions, including but not limited to matters with respect to:
(i) the number of shares of Common Stock beneficially owned by any person; (ii)
whether a person is an affiliate of another; (iii) whether a person has an
agreement, arrangement, or understanding with another as to the matters referred
to in the definition of beneficial ownership; (iv) the application of any other
definition or operative provision of the section to the given facts; or (v) any
other matter relating to the applicability or effect of this section.
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<PAGE>
The Board of Directors has the right to demand that any person who is
reasonably believed to beneficially own Common Stock in excess of the Limit (or
holds of record Common Stock beneficially owned by any person in excess of the
Limit) supply the Holding Company with complete information as to: (i) the
record owner(s) of all shares beneficially owned by such person who is
reasonably believed to own shares in excess of the Limit; and (ii) any other
factual matter relating to the applicability or effect of this section as may
reasonably be requested of such person.
Except as otherwise provided by law or expressly provided in this Section
6, the presence, in person or by proxy, of the holders of record of shares of
capital stock of the Holding Company entitling the holders thereof to cast a
majority of the votes (after giving effect, if required, to the provisions of
this Section 6) entitled to be cast by the holders of shares of capital stock of
the Holding Company entitled to vote constitutes a quorum at all meetings of the
shareholders, and every reference in this Charter to a majority or other
proportion of capital stock (or the holders thereof) for purposes of determining
any quorum requirement or any requirement for stockholder consent or approval is
deemed to refer to such majority or other proportion of the votes (or the
holders thereof) then entitled to be cast in respect of such capital stock.
Any constructions, applications, or determinations made by the Board of
Directors pursuant to this section in good faith and on the basis of such
information and assistance as was then reasonably available for such purpose is
conclusive and binding upon the Holding Company and its shareholders.
In the event any provision (or portion thereof) of this Section 6 is found
to be invalid, prohibited or unenforceable for any reason, the remaining
provisions (or portions thereof) of this Section will remain in full force and
effect, and be construed as if such invalid, prohibited or unenforceable
provision had been stricken from this Section 6 or otherwise rendered
inapplicable, it being the intent of the Holding Company and its shareholders
that each such remaining provision (or portion thereof) of this Section 6
remain, to the extent permitted by law, applicable and enforceable as to all
shareholders, including shareholders owning an amount of stock over the Limit,
notwithstanding any such finding.
SECTION 7. PREEMPTIVE RIGHTS.
Holders of the capital stock of the Holding Company are not entitled to
preemptive rights with respect to any shares of the Holding Company that may be
issued.
SECTION 8. DIRECTORS.
The Holding Company shall be under the direction of a Board of Directors.
The authorized number of directors, as stated in the Holding Company's bylaws,
shall be not be less than five nor more than 15 except when a greater or lesser
number is approved by the Director of the Office, or his or her delegate.
7
<PAGE>
SECTION 9. CONDUCT OF BUSINESS.
The following provisions are inserted for the management of the business
and the conduct of the affairs of the Holding Company, and for further
definition, limitation and regulation of the powers of the Holding Company and
of its directors and shareholders:
A. Any action required or permitted to be taken by the shareholders of
the Holding Company must be effected at a duly called annual or special
meeting of shareholders of the Holding Company and may not be effected by
any consent in writing by such shareholders.
B. Special meetings of shareholders of the Holding Company may be
called only by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board or as otherwise provided in the Bylaws. The
term "Whole Board" means the total number of authorized directorships
(whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board for
adoption).
SECTION 10. BYLAWS.
The Board of Directors is expressly empowered to adopt, amend or repeal
Bylaws of the Holding Company. Any adoption, amendment or repeal of the Bylaws
of the Holding Company by the Board of Directors requires the approval of a
majority of the Whole Board. The shareholders also have power to adopt, amend
or repeal the Bylaws of the Holding Company by at least a majority of the voting
power of all of the then-outstanding shares of the capital stock of the Holding
Company entitled to vote generally in the election of directors (after giving
effect to the provisions of Section 6), voting together as a single class.
SECTION 11. TENDER AND EXCHANGE OFFERS.
A. The Board of Directors of the Holding Company, when evaluating any
offer of another Person (as hereinafter defined in this Section 11) to: (1)
make a tender or exchange offer for any equity security of the Holding Company;
(2) merge or consolidate the Holding Company with another corporation or entity;
or (3) purchase or otherwise acquire all or substantially all of the properties
and assets of the Holding Company, may, in connection with the exercise of its
judgment in determining what is in the best interest of the Holding Company and
its shareholders, give due consideration to all relevant factors, including,
without limitation, those factors that directors of any subsidiary of the
Holding Company may consider in evaluating any action that may result in a
change or potential change in the control of the subsidiary, and the social and
economic effect of acceptance of such offer: on the Holding Company's present
and future customers and employees and those of its Subsidiaries (as hereinafter
defined ); on the communities in which the Holding Company and its Subsidiaries
operate or are located; on the ability of the Holding Company to fulfill its
corporate objective as a savings and loan holding company under applicable laws
and regulations; and on the ability of its subsidiary savings bank to fulfill
the objectives of a federally-chartered stock form savings bank under applicable
statutes and regulations.
8
<PAGE>
B. For the purposes of this Section 11:
1. A "Person" includes an individual, a firm, a group acting in
concert, a corporation, a partnership, an association, a
joint venture, a pool, a joint stock company, a trust, an
unincorporated organization or similar company, a syndicate
or any other group formed for the purpose of acquiring,
holding or disposing of securities or any other entity.
2. "Subsidiary" means any corporation of which a majority of
any class of equity security is owned, directly or
indirectly, by the Holding Company.
SECTION 12. AMENDMENT OF CHARTER.
Except as provided in Section 5, no amendment, addition, alteration,
change, or repeal of this charter shall be made, unless such is proposed by the
Board of Directors of the Holding Company, approved by the shareholders by a
majority of the votes eligible to be cast at a legal meeting, unless a higher
vote is otherwise required, and approved or preapproved by the Office.
WEST ESSEX BANCORP, INC.
Attest:________________________ By:_____________________________________
Leopold W. Montanaro
Corporate Secretary President and Chief Executive Officer
OFFICE OF THRIFT SUPERVISION
Attest:________________________ By:_____________________________________
Secretary to the OTS
Declared effective on
the _____ day of __________, 1998
9
<PAGE>
ATTACHMENT B-2
BYLAWS OF
WEST ESSEX BANCORP, INC.
ARTICLE I. DOMICILE
The domicile of West Essex Bancorp, Inc. (the "Holding Company") is 417
Bloomfield Avenue, Caldwell, in the County of Essex, in the State of New Jersey.
ARTICLE II. SHAREHOLDERS
Section l. Place of Meetings. All annual and special meetings of
-----------------------------
shareholders shall be held at the home office of the Holding Company or at such
other convenient place as the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the Holding
--------------------------
Company for the election of directors and for the transaction of any other
business of the Holding Company shall be held annually within 150 days after the
end of the Holding Company's fiscal year which shall be, unless otherwise
specified by the Board, the third Wednesday of April if not a legal holiday, and
if a legal holiday, then on the next day following which is not a legal holiday,
at 4:00 p.m., or at such other date and time within such 150-day period as the
board of directors may determine.
Section 3. Special Meetings. Special meetings of the shareholders for any
----------------------------
purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision ("OTS") or the Federal Stock Charter of the Holding
Company, may be called only by the board of directors pursuant to a resolution
adopted by a majority of the total number of directors that the Holding Company
would have if there were no vacancies on the Board of Directors (hereinafter the
"Whole Board").
Section 4. Conduct of Meetings. Annual and special meetings shall be
-------------------------------
conducted by the chairman of the annual or special meeting in accordance with
the written procedures agreed to by the board of directors . The board of
directors shall designate, when present, either the chairman of the board or
president to preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, day and
------------------------------
hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 20 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, the secretary, or the directors calling the meeting,
to each shareholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the mail, addressed to
the shareholder at the address as it appears on the stock transfer books or
records of the Holding Company as of the record date prescribed in Section 6 of
this Article II, with postage prepaid. When any shareholders' meeting, either
annual or special, is adjourned for 30 days or more, notice of the adjourned
meeting shall be given as in the case of an
<PAGE>
original meeting. It shall not be necessary to give any notice of the time and
place of any meeting adjourned for less than 30 days or of the business to be
transacted at the meeting, other than an announcement at the meeting at which
such adjournment is taken.
Section 6. Fixing of Record Date. For the purpose of determining
---------------------------------
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more
than 60 days and, in case of a meeting of shareholders, not fewer than 10 days
prior to the date on which the particular action, requiring such determination
of shareholders, is to be taken; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining shareholders
entitled to notice of or to vote at a meeting of shareholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the next day preceding the day
on which the meeting is held, and, for determining shareholders entitled to
receive payment of any dividend or other distribution or allotment or rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto. When a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this section, such determination shall apply to any
adjournment.
Section 7. Voting Lists. At least 20 days before each meeting of the
------------------------
shareholders, the officer or agent having charge of the stock transfer books for
shares of the Holding Company shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment, arranged in alphabetical
order, with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the home office of the Holding Company and
shall be subject to inspection by any shareholder at any time during usual
business hours, for a period of 20 days prior to such meeting. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to the inspection by any shareholder during the entire time of the
meeting. The original stock transfer book shall constitute prima facie evidence
of the shareholders entitled to examine such list or transfer books or to vote
at any meeting of shareholders.
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the board of directors may
elect to follow the procedures prescribed in the OTS's Regulations as now or
hereafter in effect.
Section 8. Quorum. A majority of the outstanding shares of the Holding
------------------
Company entitled to vote, represented in person or by proxy, shall constitute a
quorum at a meeting of shareholders. If less than a majority of the outstanding
shares is represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the
2
<PAGE>
withdrawal of enough shareholders to constitute less than a quorum. If a quorum
is present, the affirmative vote of the majority of the shares represented at
the meeting and entitled to vote on the subject matter shall be the act of the
shareholders, unless the vote of a greater number of shareholders voting
together or voting by classes is required by law or the Holding Company's
charter. Directors, however, are elected by a plurality of the votes cast at an
election of directors.
Section 9. Proxies. At all meetings of shareholders, a shareholder may
-------------------
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Proxies may be given telephonically or electronically as long
as the holder uses a procedure for verifying the identity of the shareholder.
Proxies solicited on behalf of the management shall be voted as directed by the
shareholder or, in the absence of such direction, as determined by a majority of
the board of directors. No proxy shall be valid more than eleven months from the
date of its execution except for a proxy coupled with an interest.
Section 10. Voting of Shares in the Name of Two or More Persons. When
----------------------------------------------------------------
ownership stands in the name of two or more persons, in the absence of written
directions to the Holding Company to the contrary, at any meeting of the
shareholders of the Holding Company any one or more of such shareholders may
cast, in person or by proxy, all votes to which such ownership is entitled. In
the event an attempt is made to cast conflicting votes, in person or by proxy,
by the several persons in whose names shares of stock stand, the vote or votes
to which those persons are entitled shall be cast as directed by a majority of
those holding such and present in person or by proxy at such meeting, but no
votes shall be cast for such stock if a majority cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing in the
------------------------------------------------
name of another corporation may be voted by any officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name. Shares held in trust in an IRA or Keogh
Account, however, may be voted by the holding company if no other instructions
are received. Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority to do so
is contained in an appropriate order of the court or other public authority by
which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee and
thereafter the pledgee, shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Holding Company, nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such
3
<PAGE>
other corporation are held by the Holding Company, shall be voted at any meeting
or counted in determining the total number of outstanding shares at any given
time for purposes of any meeting.
Section 12. No Cumulative Voting. Each holder of shares of common stock
---------------------------------
shall be entitled to one vote for each share held by such holder. No holder of
such shares shall be entitled to cumulative voting for any purpose.
Section 13. Inspectors of Election. In advance of any meeting of
-----------------------------------
shareholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails
or refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting, or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulations of the OTS, the duties of such
inspectors shall include: determining the number of shares of stock and the
voting power of each share, the shares represented at the meeting, the existence
of a quorum, and the authenticity, validity and effect of proxies; receiving
votes, ballots, or consents; hearing and determining all challenges and
questions in any way arising in connection with the rights to vote; counting and
tabulating all votes or consents; determining the result; and such acts as may
be proper to conduct the election or vote with fairness to all shareholders.
Section 14. Nominating Committee. The board of directors shall act as a
---------------------------------
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 30 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Holding Company. No nominations for
directors except those made by the nominating committee shall be voted upon at
the annual meeting unless other nominations by shareholders are made in writing
and delivered to the secretary of the Holding Company at least 30 days prior to
the date of the annual meeting. Upon delivery, such nominations shall be posted
in a conspicuous place in each office of the Holding Company. Ballots bearing
the names of all persons nominated by the nominating committee and by
shareholders shall be provided for use at the annual meeting. However, if the
nominating committee shall fail or refuse to act at least 30 days prior to the
annual meeting, nominations for directors may be made at the annual meeting by
any shareholder entitled to vote and shall be voted upon.
Section 15. New Business. At any annual meeting of the shareholders, only
-------------------------
such business shall be conducted as shall have been brought before the meeting
(i) by or at the direction of the
4
<PAGE>
Board of Directors or (ii) by any stockholder of the Holding Company who is
entitled to vote with respect thereto and who complies with the notice
procedures set forth in this Section 15. For business to be properly brought
before an annual meeting by a stockholder, the business must relate to a proper
subject matter for stockholder action and the stockholder must have given timely
notice thereof in writing to the Secretary of the Holding Company. To be timely,
a stockholder's notice must be delivered or mailed to and received at the
principal executive offices of the Holding Company not less than ninety (90)
days prior to the date of the annual meeting; provided, however, that in the
event that less than one hundred (100) days' notice or prior public disclosure
of the date of the meeting is given or made to shareholders, notice by the
stockholder to be timely must be received not later than the close of business
on the 10th day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure was made. A stockholder's notice to
the Secretary shall set forth as to each matter such stockholder proposes to
bring before the annual meeting: (i) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and address, as they appear on the
Holding Company's books, of the stockholder proposing such business, (iii) the
class and number of shares of the Holding Company's capital stock that are
beneficially owned by such stockholder and, (iv) any material interest of such
stockholder in such business. Notwithstanding anything in these Bylaws to the
contrary, no business shall be brought before or conducted at an annual meeting
except in accordance with the provisions of this Section 15. The Officer of the
Holding Company or other person presiding over the annual meeting shall, if the
facts so warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section 15 and, if he should so determine, he shall so declare to the meeting
and any such business so determined to be not properly brought before the
meeting shall not be transacted.
At any special meeting of the shareholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
Section 16. Informal Action by Shareholders. Subject to the rights of the
--------------------------------------------
holders of any class or series of preferred stock of the Holding Company, any
action required or permitted to be taken by the shareholders of the Holding
Company must be effected at an annual or special meeting of shareholders of the
Holding Company and may not be effected by any consent in writing by such
shareholders.
ARTICLE III. BOARD OF DIRECTORS
Section l. General Powers. The business and affairs of the Holding
--------------------------
Company shall be under the direction of its board of directors. The board of
directors shall annually elect a chairman of the board and a president from
among its members and shall designate, when present, either the chairman of the
board or the president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of six
---------------------------
(6) members and shall be divided into three classes as nearly equal in number as
possible. The members of each class
5
<PAGE>
shall be elected for a term of three years and until their successors are
elected and qualified. One class shall be elected by ballot annually.
Section 3. Regular Meetings. A regular meeting of the board of directors
----------------------------
shall be held without other notice than this bylaw immediately after, and at the
same place as, the annual meeting of shareholders. The board of directors may
provide, by resolution, the time and place, for the holding of additional
regular meetings without other notice than such resolution. Directors may
participate in a meeting by means of a conference telephone or similar
communications device through which all persons participating can hear each
other at the same time. Participation by such means shall constitute presence
in person for all purposes.
Section 4. Qualification. Each director shall at all times be the
-------------------------
beneficial owner of not less than 100 shares of capital stock of the Holding
Company unless the Holding Company is a wholly owned subsidiary of a holding
company.
Section 5. Special Meetings. Special meetings of the board of directors
----------------------------
may be called by or at the request of the chairman of the board, the president
or by three of the directors. The persons authorized to call special meetings
of the board of directors may fix any place, as the place for holding any
special meeting of the board of directors called by such persons.
Members of the board of directors may participate in regular and special
meetings by means of conference telephone, or by means of similar communications
equipment by which all persons participating in the meeting can hear and speak
to each other. Such participation shall constitute presence in person for all
purposes.
Section 6. Notice. Written notice of any special meeting shall be given
------------------
to each director at least 24 hours prior thereto when delivered personally or by
telegram, or at least 48 hours prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall
be deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed, or when delivered to the telegraph company if sent by
telegram. Any director may waive notice of any meeting by a writing filed with
the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by Section
------------------
2 of this Article III shall constitute a quorum for the transaction of business
at any meeting of the board of directors, but if less than such majority is
present at a meeting, a majority of the directors present may adjourn the
meeting from time to time. Notice of any adjourned meeting shall be given in
the same manner as prescribed by Section 6 of this Article III.
6
<PAGE>
Section 8. Manner of Acting. The act of the majority of the directors
----------------------------
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by regulation of the OTS or
by these bylaws.
Section 9. Action Without a Meeting. Any action required or permitted to
------------------------------------
be taken by the board of directors at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the directors.
Section 10. Resignation. Any director may resign at any time by sending a
------------------------
written notice of such resignation to the home office of the Holding Company
addressed to the chairman of the board or secretary. Unless otherwise specified
such resignation shall take effect upon receipt by the chairman of the board or
president. More than three consecutive absences from regular meetings of the
board of directors, unless excused by resolution of the board of directors,
shall automatically constitute a resignation, effective when such resignation is
accepted by the board of directors.
Section 11. Vacancies. Any vacancy occurring in the board of directors
----------------------
may be filled by the affirmative vote of a majority of the remaining directors,
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve until the next election of directors by
the shareholders. Any directorship to be filled by reason of an increase in the
number of directors may be filled by election by the board of directors for a
term of office continuing only until the next election of directors by the
shareholders.
Section 12. Compensation. Directors, as such, may receive a stated fee
-------------------------
for their services. By resolution of the board of directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for actual
attendance at each regular or special meeting of the board of directors.
Members of either standing or special committees may be allowed such
compensation for actual attendance at committee meetings as the board of
directors may determine.
Section 13. Presumption of Assent. A director of the Holding Company who
----------------------------------
is present at a meeting of the board of directors at which action on any Holding
Company matter is taken shall be presumed to have assented to the action taken
unless his dissent or abstention shall be entered in the minutes of the meeting
or unless he shall file a written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the secretary of the Holding Company within
five days after the date a copy of the minutes of the meeting is received. Such
right to dissent shall not apply to a director who voted in favor of such
action.
Section 14. Removal of Directors. At a meeting of shareholders called
---------------------------------
expressly for that purpose, any director may be removed only for cause by a vote
of the holders of a majority of the shares then entitled to vote at an election
of directors. Whenever the holders of the shares of any class are entitled to
elect one or more directors by the provisions of the Charter or supplemental
sections thereto, the provisions of this section shall apply, in respect to the
removal of a director or
7
<PAGE>
directors so elected, to the vote of the holders of the outstanding shares of
that class and not to the vote of the outstanding shares as a whole.
Section 15. Age Limitation for Directors. No person 75 years of age shall
-----------------------------------------
be eligible for election, reelection, appointment or reappointment to the Board
of the Holding Company nor shall any director serve as such beyond the annual
meeting of the Holding Company immediately following the director becoming 75.
This provision does not apply to any director who was serving as a director of
West Essex Bank as of April 19, 1995. This age limitation does not apply to an
advisory director.
ARTICLE IV. EXECUTIVE AND OTHER COMMITTEES
Section l. Appointment. The board of directors, by resolution adopted by
-----------------------
a majority of the full board, may designate the chief executive officer and two
or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
Section 2. Authority. The executive committee, when the board of
---------------------
directors is not in session, shall have and may exercise all of the authority of
the board of directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the board of
directors with reference to: the declaration of dividends; the amendment of the
Charter or bylaws of the Holding Company, or recommending to the shareholders a
plan of merger, consolidation, or conversion; the sale, lease or other
disposition of all or substantially all of the property and assets of the
Holding Company otherwise than in the usual and regular course of its business;
a voluntary dissolution of the Holding Company; a revocation of any of the
foregoing; or the approval of a transaction in which any member of the executive
committee, directly or indirectly, has any material beneficial interest.
Section 3. Tenure. Subject to the provisions of Section 8 of this Article
------------------
IV, the terms of the members of the executive committee shall be set by the
board of directors.
Section 4. Meetings. Regular meetings of the executive committee may be
--------------------
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one day's notice stating the
place, date and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
------------------
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive
8
<PAGE>
committee must be authorized by the affirmative vote of a majority of the
members present at a meeting at which a quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted to
------------------------------------
be taken by the executive committee at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be
---------------------
filled by a resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive
------------------------------------
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full board of directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the president or secretary of the Holding Company. Unless otherwise
specified, such resignation shall take effect upon its receipt; the acceptance
of such resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
---------------------
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
Section 10. Other Committees. The board of directors may by resolution
-----------------------------
establish an audit, loan, or other committees composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
Holding Company and may prescribe the duties, constitution and procedures
thereof.
ARTICLE V. OFFICERS
Section l. Positions. The officers of the Holding Company shall be a
---------------------
president, one or more vice presidents, a secretary and a treasurer or
comptroller, each of whom shall be elected by the board of directors. The board
of directors may also designate the chairman of the board as an officer. The
president shall be a director of the Holding Company. The offices of the
secretary and treasurer or comptroller may be held by the same person and a vice
president may also be either the secretary or the treasurer or comptroller. The
board of directors may designate one or more vice presidents as executive vice
president or senior vice president. The board of directors may also elect or
authorize the appointment of such other officers as the business of the Holding
Company may require. The officers shall have such authority and perform such
duties as the board of directors may from time to time authorize or determine.
In the absence of action by the board of directors, the officers shall have such
powers and duties as generally pertain to their respective offices.
Section 2. Election and Term of Office. The officers of the Holding
---------------------------------------
Company shall be elected annually at the first meeting of the board of directors
held after each annual meeting of the
9
<PAGE>
shareholders. If the election of officers is not held at such meeting, such
election shall be held as soon thereafter as possible. Each officer shall hold
office until a successor has been duly elected and qualified or until the
officer's death, resignation or removal in the manner hereinafter provided.
Election or appointment of an officer, employee or agent shall not of itself
create contractual rights. The board of directors may authorize the Holding
Company to enter into an employment contract with any officer in accordance with
regulations of the OTS; but no such contract shall impair the right of the board
of directors to remove any officer at any time in accordance with Section 3 of
this Article V.
Section 3. Removal. Any officer may be removed by the board of directors
-------------------
whenever in its judgment the best interests of the Holding Company will be
served thereby, but such removal, other than for cause, shall be without
prejudice to the contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
---------------------
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be fixed
------------------------
from time to time by the board of directors.
ARTICLE VI. CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section l. Contracts. To the extent permitted by regulations of the OTS,
---------------------
and except as otherwise prescribed by these bylaws with respect to certificates
for shares, the board of directors may authorize any officer, employee, or agent
of the Holding Company to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Holding Company. Such authority
may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the Holding
-----------------
Company and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or confined
to specific instances.
Section 3. Checks, Drafts, Etc. All checks, drafts or other orders for
--------------------------------
the payment of money, notes or other evidences of indebtedness issued in the
name of the Holding Company shall be signed by one or more officers, employees
or agents of the Holding Company in such manner as shall from time to time be
determined by the board of directors.
Section 4. Deposits. All funds of the Holding Company not otherwise
--------------------
employed shall be deposited from time to time to the credit of the Holding
Company in any duly authorized depositories as the board of directors may
select.
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ARTICLE VII. CERTIFICATES FOR SHARES
AND THEIR TRANSFER
Section l. Certificates for Shares. Certificates representing shares of
-----------------------------------
capital stock of the Holding Company shall be in such form as shall be
determined by the board of directors and approved by the OTS. Such certificates
shall be signed by the chief executive officer or by any other officer of the
Holding Company authorized by the board of directors, attested by the secretary
or an assistant secretary, and sealed with the corporate seal or a facsimile
thereof. The signatures of such officers upon a certificate may be facsimiles
if the certificate is manually signed on behalf of a transfer agent or a
registrar, other than the Holding Company itself or one of its employees. Each
certificate for shares of capital stock shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares are
issued, with the number of shares and date of issue, shall be entered on the
stock transfer books of the Holding Company. All certificates surrendered to
the Holding Company for transfer shall be cancelled and no new certificate shall
be issued until the former certificate for a like number of shares has been
surrendered and cancelled, except that in case of a lost or destroyed
certificate, a new certificate may be issued upon such terms and indemnity to
the Holding Company as the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of the
------------------------------
Holding Company shall be made only on its stock transfer books. Authority for
such transfer shall be given only by the holder of record or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney authorized by a duly executed power of attorney and filed with the
Holding Company. Such transfer shall be made only on surrender for cancellation
of the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the Holding Company shall be deemed by the Holding
Company to be the owner for all purposes.
ARTICLE VIII. RELIANCE UPON BOOKS, REPORTS AND RECORDS
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Holding Company shall, in the performance of
his or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Holding Company and upon such information,
opinions, reports or statements presented to the Holding Company by any of its
officers or employees, or committees of the Board of Directors so designated, or
by any other person as to matters which such director or committee member
reasonably believes are within such other person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Holding Company.
ARTICLE IX. FISCAL YEAR
The fiscal year of the Holding Company shall end on December 31 of each
year. The appointment of accountants shall be subject to annual ratification by
the shareholders.
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ARTICLE X. DIVIDENDS
Subject to the terms of the Holding Company's Charter and the regulations
and orders of the OTS, the board of directors may, from time to time, declare,
and the Holding Company may pay, dividends on its outstanding shares of capital
stock.
ARTICLE XI. CORPORATE SEAL
The board of directors shall provide a Holding Company seal, which shall be
two concentric circles between which shall be the name of the Holding Company.
The year of incorporation or an emblem may appear in the center.
ARTICLE XII. INDEMNIFICATION
The Holding Company shall indemnify all officers, directors and employees
of the Holding Company, and their heirs, executors and administrators, to the
fullest extent permitted under federal law against all expenses and liabilities
reasonably incurred by them in connection with or arising out of any action,
suit or proceeding in which they may be involved by reason of their having been
a director or officer of the Holding Company, whether or not they continue to be
a director or officer at the time of incurring such expenses or liabilities,
such expenses and liabilities to include, but not be limited to, judgments,
court costs and attorneys' fees and the cost of reasonable settlements.
ARTICLE XIII. AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of the
Office and shall be effective after: (i) approval of the amendment by a
majority vote of the authorized board of directors, or by the affirmative vote
of at least a majority of the voting power of all of the then-outstanding shares
of the capital stock of the Holding Company entitled to vote generally in the
election of directors (after giving effect to the provisions of Section 6 of the
Charter), voting together as a single class. When the Holding Company fails to
meet its quorum requirements, solely due to vacancies on the board, then the
affirmative vote of a majority of the sitting board will be required to amend
the bylaws.
12
<PAGE>
ATTACHMENT C-1
FEDERAL STOCK CHARTER
FOR
WEST ESSEX BANK
SECTION 1. CORPORATE TITLE.
The full corporate title of the institution is West Essex Bank.
SECTION 2. OFFICE.
The home office shall be located in Caldwell in the State of New Jersey.
SECTION 3. DURATION.
The duration of the BANK is perpetual.
SECTION 4. PURPOSE AND POWERS.
The purpose of the BANK is to pursue any or all of the lawful objectives of
a Federal savings association chartered under Section 5 of the Home Owners' Loan
Act and to exercise all the express, implied, and incidental powers conferred
thereby and by all acts amendatory thereof and supplemental thereto, subject to
the Constitution and laws of the United States as they are now in effect, or as
they may hereafter be amended, and subject to all lawful and applicable rules,
regulations, and orders of the Office of Thrift Supervision ("Office").
SECTION 5. CAPITAL STOCK.
The total number of shares of all classes of the capital stock which the
BANK has authority to issue is ten million shares (10,000,000), of which nine
million shares (9,000,000) shall be common stock, par value $1.00 per share and
of which one million shares (1,000,000) shall be preferred stock, par value
$1.00 per share. The shares may be issued from time to time as authorized by
the Board of Directors without further approval of shareholders except as
otherwise provided in this Section 5 or to the extent that such approval is
required by governing law, rule, or regulation. The consideration for the
issuance of the shares shall be paid in full before their issuance and shall not
be less than the par value. Neither promissory notes nor future services shall
constitute payment or part payment for the issuance of shares of the BANK. The
consideration for the shares shall be cash, tangible or intangible property (to
the extent direct investment in such property would be permitted), labor or
services actually performed for the BANK, or any combination of the foregoing.
<PAGE>
In the absence of actual fraud in the transaction, the value of such property,
labor, or services, as determined by the Board of Directors of the BANK, shall
be conclusive. Upon payment of such consideration, such shares shall be deemed
to be fully paid and nonassessable. In the case of a stock dividend, that part
of the surplus of the BANK which is transferred to stated capital upon the
issuance of shares as a share dividend shall be deemed to be the consideration
for their issuance.
Except for the initial offering of shares of the BANK, no shares of capital
stock (including shares issuable upon conversion, exchange, or exercise of other
securities) shall be issued, directly or indirectly, to officers, directors, or
controlling persons of the BANK other than as part of a general public offering
or as qualifying shares to a director, unless their issuance or the plan under
which they would be issued has been approved by a majority of the total votes
eligible to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share:
provided, that this restriction on voting separately by class or series shall
- --------
not apply:
(i) To any provision which would authorize the holders of preferred stock,
voting as a class or series, to elect some members of the Board of
Directors, less than a majority thereof, in the event of default in
the payment of dividends on any class or series of preferred stock;
(ii) To any provision which would require the holders of preferred stock,
voting as a class or series, to approve the merger or consolidation of
the BANK with another corporation or the sale, lease, or conveyance
(other than by mortgage or pledge) of properties or business in
exchange for securities of a corporation other than the BANK if the
preferred stock is exchanged for securities of such other corporation:
Provided, that no provision may require such approval for transactions
undertaken with the assistance or pursuant to the direction of the
Office, the Federal Deposit Insurance Corporation;
(iii)To any amendment which would adversely change the specific terms of
any class or series of capital stock as set forth in this Section 5
(or in any supplementary sections hereto), including any amendment
which would create or enlarge any class or series ranking prior
thereto in rights and preferences. An amendment which increases the
number of authorized shares of any class or series of capital stock,
or substitutes the surviving BANK in a merger or consolidation for the
BANK, shall not be considered to be such an adverse change.
A description of the different classes and series (if any) of the BANK's
capital stock and a statement of the designations, and the relative rights,
preferences, and limitations of the shares of each class of and series (if any)
of capital stock are as follows:
I-2
<PAGE>
A. Common Stock. Except as provided in this Section 5 (or in any
------------
supplementary sections hereto) the holders of the common stock shall
exclusively possess all voting power. Each holder of shares of common
stock shall be entitled to one vote for each share held by such
holder.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of
stock having preference over the common stock as to the payment of
dividends, the full amount of dividends and of sinking fund, or
retirement fund, or other retirement payments, if any, to which such
holders are respectively entitled in preference to the common stock,
then dividends may be paid on the common stock and on any class or
series of stock entitled to participate therewith as to dividends out
of any assets legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
BANK, the holders of the common stock (and the holders of any class or
series of stock entitled to participate with the common stock in the
distribution of assets) shall be entitled to receive, in cash or in
kind, the assets of the BANK available for distribution remaining
after: (i) payment or provision for payment of the BANK's debts and
liabilities; (ii) distributions or provision for distributions in
settlement of its liquidation account; and (iii) distributions or
provision for distributions to holders of any class or series of stock
having preference over the common stock in the liquidation,
dissolution, or winding up of the BANK. Each share of common stock
shall have the same relative rights as and be identical in all
respects with all the other shares of common stock.
B. Preferred Stock. The BANK may provide in supplementary sections to
---------------
its charter for one or more classes of preferred stock, which shall be
separately identified. The shares of any class may be divided into
and issued in series, with each series separately designated so as to
distinguish the shares thereof from the shares of all other series and
classes. The terms of each series shall be set forth in a
supplementary section to the charter. All shares of the same class
shall be identical except as to the following relative rights and
preferences, as to which there may be variations between different
series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and,
if so, from which date(s), the payment date(s) for dividends, and
the participating or other special rights, if any, with respect
to dividends;
I-3
<PAGE>
(c) The voting powers, full or limited, if any, of the shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price(s) at which, and the terms and conditions on which,
such shares may be redeemed;
(e) The amount(s) payable upon the shares of such series in the event
of voluntary or involuntary liquidation, dissolution, or winding
up of the BANK;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the
purchase or redemption of such shares, and if so entitled, the
amount of such fund and the manner of its application, including
the price(s) at which such shares may be redeemed or purchased
through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock
of the BANK and, if so, the conversion price(s) or the rate(s) of
exchange, and the adjustments thereof, if any, at which such
conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial
preferred stock and whether such shares may be reissued as shares
of the same or any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The Board of Directors shall have authority to divide, by the adoption of
supplementary charter sections, any authorized class of preferred stock into
series, and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established by a
supplementary charter section adopted by the Board of Directors, the BANK shall
file with the Secretary of the Office a dated copy of that supplementary section
of this charter establishing and designating the series and fixing and
determining the relative rights and preferences thereof.
I-4
<PAGE>
SECTION 6. PREEMPTIVE RIGHTS.
Holders of the capital stock of the BANK shall not be entitled to
preemptive rights with respect to any shares of the BANK which may be issued.
SECTION 7. BENEFICIAL OWNERSHIP PROVISION
Notwithstanding anything contained in the BANK's charter or bylaws to the
contrary, for a period of five years from the date of this charter, no person
other than West Essex Bancorp, M.H.C. or West Essex Bancorp, Inc., the parent
holding company of the BANK, shall directly or indirectly offer to acquire or
acquire the beneficial ownership of more than 10 percent of any class of any
equity security of the BANK. This limitation shall not apply to a transaction
in which the BANK forms a holding company without change in the respective
beneficial ownership interests of the BANK's shareholders other than pursuant to
the exercise of any dissenter and appraisal rights, the purchase of shares by
underwriters in connection with a public offering, or the purchase of shares by
a tax-qualified employee stock benefit plan which is exempt from the approval
requirements under Section 574.3(c)(1)(vi) of the Office's Regulations.
In the event shares are acquired in violation of this Section 7, all shares
beneficially owned by any person in excess of 10% shall be considered "excess
shares" and shall not be counted as shares entitled to vote and shall not be
voted by any person or counted as voting shares in connection with any matters
submitted to the shareholders for a vote.
For the purposes of this Section 7, the following definitions apply:
(i) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint
stock company, a trust, any unincorporated organization or
similar company, a syndicate or any other group formed for the
purpose of acquiring, holding or disposing of the equity
securities of the BANK.
(ii) The term "offer" includes every offer to buy or otherwise
acquire, solicitation of an offer to sell, tender offer for, or
request or invitation for tenders of, a security or interest in a
security for value.
(iii)The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(iv) The term "acting in concert" means (a) knowing participation in a
joint activity or conscious parallel action towards a common goal
whether or not pursuant to an express agreement, or (b) a
combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant
I-5
<PAGE>
to any contract, understanding, relationship, agreement or other
arrangement, whether written or otherwise.
SECTION 8. CUMULATIVE VOTING LIMITATION
Shareholders shall not be permitted to cumulate their votes for the
election of directors.
SECTION 9. CALL FOR SPECIAL MEETINGS
Special meetings of shareholders relating to changes in control of the BANK
or amendments to its charter shall be called only at the direction of the Board
of Directors.
SECTION 10. DIRECTORS.
The BANK shall be under the direction of a Board of Directors. The
authorized number of directors, as stated in the BANK's bylaws, shall be not be
less than five nor more than 15 except when a greater number is approved by the
Director of the Office.
SECTION 11. AMENDMENT OF CHARTER.
Except as provided in Section 5 hereof, no amendment, addition, alteration,
change, or repeal of this charter shall be made, unless such is first proposed
by the Board of Directors of the BANK, approved by the shareholders by a
majority of the total votes eligible to be cast at a legal meeting, unless a
higher vote us otherwise required, and approved or preapproved by the Office.
I-6
<PAGE>
As adopted by the BANK's members on _______________, 199_, to be effective
on the date of the reorganization of the BANK.
WEST ESSEX BANK
Attest:______________________ By:_____________________________________
Leopold W. Montanaro
Corporate Secretary President and Chief Executive Officer
OFFICE OF THRIFT SUPERVISION
Attest:______________________ By:_____________________________________
Secretary to the Office
Declared effective on
the _____ day of __________, 1998
I-7
<PAGE>
ATTACHMENT C-2
BYLAWS OF
WEST ESSEX BANK
ARTICLE I. HOME OFFICE
The home office of West Essex Bank ("BANK") is 417 Bloomfield Avenue,
Caldwell, in the County of Essex, in the State of New Jersey.
ARTICLE II. SHAREHOLDERS
Section l. Place of Meetings. All annual and special meetings of
-----------------------------
shareholders shall be held at the home office of the BANK or at such other place
in the State in which the principal place of business of the BANK is located as
the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the BANK for
--------------------------
the election of directors and for the transaction of any other business of the
BANK shall be held annually within 150 days after the end of the BANK's fiscal
year which shall be, unless otherwise specified by the Board, the third
Wednesday of April if not a legal holiday, and if a legal holiday, then on the
next day following which is not a legal holiday, at 4:00 p.m., or at such other
date and time within such 150-day period as the board of directors may
determine.
Section 3. Special Meetings. Special meetings of the shareholders for any
----------------------------
purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision ("OTS") or the Federal Stock Charter of the BANK,
may be called at any time by the chairman of the board, the president, or a
majority of the board of directors, and shall be called by the chairman of the
board, the president or the secretary upon the written request of the holders of
not less than one-tenth of all the outstanding capital stock of the BANK
entitled to vote at the meeting. Such written request shall state the purpose
or purposes of the meeting and shall be delivered at the home office of the BANK
addressed to the chairman of the board, the president or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
-------------------------------
conducted by the chairman of the annual or special meeting in accordance with
the written procedures agreed to by the board of directors. The board of
directors shall designate, when present, either the chairman of the board or
president to preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, day and
------------------------------
hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 20 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, the secretary, or the directors calling the meeting,
to each
<PAGE>
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the mail, addressed to the
shareholder at the address as it appears on the stock transfer books or records
of the BANK as of the record date prescribed in Section 6 of this Article II,
with postage prepaid. When any shareholders' meeting, either annual or special,
is adjourned for 30 days or more, notice of the adjourned meeting shall be given
as in the case of an original meeting. It shall not be necessary to give any
notice of the time and place of any meeting adjourned for less than 30 days or
of the business to be transacted at the meeting, other than an announcement at
the meeting at which such adjournment is taken.
Section 6. Fixing of Record Date. For the purpose of determining
---------------------------------
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more
than 60 days and, in case of a meeting of shareholders, not fewer than 10 days
prior to the date on which the particular action, requiring such determination
of shareholders, is to be taken. When a determination of shareholders entitled
to vote at any meeting of shareholders has been made as provided in this
section, such determination shall apply to any adjournment.
Section 7. Voting Lists. At least 20 days before each meeting of the
------------------------
shareholders, the officer or agent having charge of the stock transfer books for
shares of the BANK shall make a complete list of the shareholders entitled to
vote at such meeting, or any adjournment, arranged in alphabetical order, with
the address and the number of shares held by each. This list of shareholders
shall be kept on file at the home office of the BANK and shall be subject to
inspection by any shareholder at any time during usual business hours, for a
period of 20 days prior to such meeting. Such list shall also be produced and
kept open at the time and place of the meeting and shall be subject to the
inspection by any shareholder during the entire time of the meeting. The
original stock transfer book shall constitute prima facie evidence of the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders.
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the board of directors may
elect to follow the procedures prescribed in the OTS's Regulations as now or
hereafter in effect.
Section 8. Quorum. A majority of the outstanding shares of the BANK
------------------
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
is represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum. If a quorum is present, the
affirmative vote of the majority of the shares represented at the meeting and
entitled to vote on the
II-2
<PAGE>
subject matter shall be the act of the shareholders, unless the vote of a
greater number of shareholders voting together or voting by classes is required
by law or the charter. Directors, however, are elected by a plurality of the
votes cast at an election of directors.
Section 9. Proxies. At all meetings of shareholders, a shareholder may
-------------------
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Proxies may be given telephonically or electronically as long
as the holder uses a procedure for verifying the identity of the shareholder.
Proxies solicited on behalf of the management shall be voted as directed by the
shareholder or, in the absence of such direction, as determined by a majority of
the board of directors. No proxy shall be valid more than eleven months from the
date of its execution except for a proxy coupled with an interest.
Section 10. Voting of Shares in the Name of Two or More Persons. When
----------------------------------------------------------------
ownership stands in the name of two or more persons, in the absence of written
directions to the BANK to the contrary, at any meeting of the shareholders of
the BANK any one or more of such shareholders may cast, in person or by proxy,
all votes to which such ownership is entitled. In the event an attempt is made
to cast conflicting votes, in person or by proxy, by the several persons in
whose names shares of stock stand, the vote or votes to which those persons are
entitled shall be cast as directed by a majority of those holding such and
present in person or by proxy at such meeting, but no votes shall be cast for
such stock if a majority cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing in the
------------------------------------------------
name of another corporation may be voted by any officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
held in trust in an IRA or Keogh Account, however, may be voted by the
association if no other instructions are received. Shares standing in the name
of a trustee may be voted by him, either in person or by proxy, but no trustee
shall be entitled to vote shares held by him without a transfer of such shares
into his name. Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority to do so
is contained in an appropriate order of the court or other public authority by
which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee and
thereafter the pledgee, shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the BANK, nor shares held
by another corporation, if a majority of the shares entitled to vote for the
election of directors of such other corporation are held by the BANK, shall be
voted at any meeting or counted in determining the total number of outstanding
shares at any given time for purposes of any meeting.
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<PAGE>
Section 12. No Cumulative Voting. Each holder of shares of common stock
---------------------------------
shall be entitled to one vote for each share held by such holder. No holder of
such shares shall be entitled to cumulative voting for any purpose.
Section 13. Inspectors of Election. In advance of any meeting of
-----------------------------------
shareholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails
or refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting, or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulations of the OTS, the duties of such
inspectors shall include: determining the number of shares of stock and the
voting power of each share, the shares represented at the meeting, the existence
of a quorum, and the authenticity, validity and effect of proxies; receiving
votes, ballots, or consents; hearing and determining all challenges and
questions in any way arising in connection with the rights to vote; counting and
tabulating all votes or consents; determining the result; and such acts as may
be proper to conduct the election or vote with fairness to all shareholders.
Section 14. Nominating Committee. The board of directors shall act as a
---------------------------------
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 30 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the BANK. No nominations for directors
except those made by the nominating committee shall be voted upon at the annual
meeting unless other nominations by shareholders are made in writing and
delivered to the secretary of the BANK at least thirty days prior to the date of
the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the BANK. Ballots bearing the names of all
persons nominated by the nominating committee and by shareholders shall be
provided for use at the annual meeting. However, if the nominating committee
shall fail or refuse to act at least 30 days prior to the annual meeting,
nominations for directors may be made at the annual meeting by any shareholder
entitled to vote and shall be voted upon.
Section 15. New Business. At an annual meeting of shareholders, only such
-------------------------
business shall be conducted, and only such proposals shall be acted upon, as
shall have been properly brought before the meeting. For any business proposed
by management to be properly brought before the annual meeting, such business
shall be approved by the board of directors, either directly or through its
approval of proxy solicitation materials related thereto, and shall be stated in
writing and filed with the secretary at least 30 days before the date of the
annual meeting, and all business so stated, proposed and filed shall be
considered at the annual meeting. Any shareholder may make any other proposal
at the annual meeting and the same may be discussed and considered but unless
stated in writing and filed
II-4
<PAGE>
with the secretary at least ten days before the meeting, such proposal shall be
laid over for action at an adjourned, special or annual meeting of the
shareholders taking place 30 days or more thereafter. A shareholder's notice to
the secretary shall set forth as to each matter the shareholder proposed to
bring before the annual meeting (a) a brief description of the proposal desired
to be brought before the annual meeting, (b) the business, as well as the name
and address of such shareholder and the class and number of shares of the BANK
which are owned of record by such shareholder.
Section 16. Informal Action by Shareholders. Any action required to be
--------------------------------------------
taken at a meeting of shareholders, or any other action which may be taken at a
meeting of the shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter thereof.
ARTICLE III. BOARD OF DIRECTORS
Section l. General Powers. The business and affairs of the BANK shall be
--------------------------
under the direction of its board of directors. The board of directors shall
annually elect a chairman of the board and a president from among its members
and shall designate, when present, either the chairman of the board or the
president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of six
---------------------------
(6) members and shall be divided into three classes as nearly equal in number as
possible. The members of each class shall be elected for a term of three years
and until their successors are elected and qualified. One class shall be
elected by ballot annually.
Section 3. Regular Meetings. A regular meeting of the board of directors
----------------------------
shall be held without other notice than this bylaw immediately after, and at the
same place as, the annual meeting of shareholders. The board of directors may
provide, by resolution, the time and place, for the holding of additional
regular meetings without other notice than such resolution. Directors may
participate in a meeting by means of a conference telephone or similar
communications device through which all persons participating can hear each
other at the same time. Participation by such means shall constitute presence
in person for all purposes.
Section 4. Qualification. Each director shall at all times be the
-------------------------
beneficial owner of not less than 100 shares of capital stock of the BANK unless
the BANK is a wholly owned subsidiary of a holding company.
Section 5. Special Meetings. Special meetings of the board of directors
----------------------------
may be called by or at the request of the chairman of the board, the president
or a majority of the directors. The
II-5
<PAGE>
persons authorized to call special meetings of the board of directors may fix
any place, as the place for holding any special meeting of the board of
directors called by such persons.
Members of the board of directors may participate in special meetings by
means of conference telephone, or by means of similar communications equipment
by which all persons participating in the meeting can hear and speak to each
other. Such participation shall constitute presence in person for all purposes.
Section 6. Notice. Written notice of any special meeting shall be given
------------------
to each director at least two days prior thereto when delivered personally or by
telegram, or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall
be deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed, or when delivered to the telegraph company if sent by
telegram. Any director may waive notice of any meeting by a writing filed with
the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by Section
------------------
2 of this Article III shall constitute a quorum for the transaction of business
at any meeting of the board of directors, but if less than such majority is
present at a meeting, a majority of the directors present may adjourn the
meeting from time to time. Notice of any adjourned meeting shall be given in
the same manner as prescribed by Section 6 of this Article III.
Section 8. Manner of Acting. The act of the majority of the directors
----------------------------
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by regulation of the OTS or
by these bylaws.
Section 9. Action Without a Meeting. Any action required or permitted to
------------------------------------
be taken by the board of directors at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the directors.
Section 10. Resignation. Any director may resign at any time by sending a
------------------------
written notice of such resignation to the home office of the BANK addressed to
the chairman of the board or president. Unless otherwise specified such
resignation shall take effect upon receipt by the chairman of the board or
president. More than three consecutive absences from regular meetings of the
board of directors, unless excused by resolution of the board of directors,
shall automatically constitute a resignation, effective when such resignation is
accepted by the board of directors.
Section 11. Vacancies. Any vacancy occurring in the board of directors
----------------------
may be filled by the affirmative vote of a majority of the remaining directors,
although less than a quorum of the board
II-6
<PAGE>
of directors. A director elected to fill a vacancy shall be elected to serve
until the next election of directors by the shareholders. Any directorship to be
filled by reason of an increase in the number of directors may be filled by
election by the board of directors for a term of office continuing only until
the next election of directors by the shareholders.
Section 12. Compensation. Directors, as such, may receive a stated fee
-------------------------
for their services. By resolution of the board of directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for actual
attendance at each regular or special meeting of the board of directors.
Members of either standing or special committees may be allowed such
compensation for actual attendance at committee meetings as the board of
directors may determine.
Section 13. Presumption of Assent. A director of the BANK who is present
----------------------------------
at a meeting of the board of directors at which action on any BANK matter is
taken shall be presumed to have assented to the action taken unless his dissent
or abstention shall be entered in the minutes of the meeting or unless he shall
file a written dissent to such action with the person acting as the secretary of
the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the secretary of the BANK within five days after the date a
copy of the minutes of the meeting is received. Such right to dissent shall not
apply to a director who voted in favor of such action.
Section 14. Removal of Directors. At a meeting of shareholders called
---------------------------------
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. Whenever the holders of the shares of any class are entitled to
elect one or more directors by the provisions of the Charter or supplemental
sections thereto, the provisions of this section shall apply, in respect to the
removal of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class and not to the vote of the outstanding shares
as a whole.
Section 15. Age Limitation for Directors. No person 75 years of age shall
-----------------------------------------
be eligible for election, reelection, appointment or reappointment to the Board
of the BANK nor shall any director serve as such beyond the annual meeting of
the BANK immediately following the director becoming 75. This age limitation
does not apply to an advisory director. This age limitation does not apply to
an advisory director. It is specifically understood that the age limitation set
forth herein for any Director of the Board in office as of April 19, 1995 shall
not apply.
ARTICLE IV. EXECUTIVE AND OTHER COMMITTEES
Section l. Appointment. The board of directors, by resolution adopted by
-----------------------
a majority of the full board, may designate the chief executive officer and two
or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
II-7
<PAGE>
Section 2. Authority. The executive committee, when the board of
---------------------
directors is not in session, shall have and may exercise all of the authority of
the board of directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the board of
directors with reference to: the declaration of dividends; the amendment of the
Charter or bylaws of the BANK, or recommending to the shareholders a plan of
merger, consolidation, or conversion; the sale, lease or other disposition of
all or substantially all of the property and assets of the BANK otherwise than
in the usual and regular course of its business; a voluntary dissolution of the
BANK; a revocation of any of the foregoing; or the approval of a transaction in
which any member of the executive committee, directly or indirectly, has any
material beneficial interest.
Section 3. Tenure. Subject to the provisions of Section 8 of this Article
------------------
IV, the terms of the members of the executive committee shall be set by the
board of directors.
Section 4. Meetings. Regular meetings of the executive committee may be
--------------------
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one day's notice stating the
place, date and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
------------------
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted to
------------------------------------
be taken by the executive committee at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be
---------------------
filled by a resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive
------------------------------------
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full board of directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the president or secretary of the BANK. Unless otherwise specified,
such resignation shall take effect upon its receipt; the acceptance of such
resignation shall not be necessary to make it effective.
II-8
<PAGE>
Section 9. Procedure. The executive committee shall elect a presiding
---------------------
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
Section 10. Other Committees. The board of directors may by resolution
-----------------------------
establish an audit, loan, or other committees composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
BANK and may prescribe the duties, constitution and procedures thereof.
ARTICLE V. OFFICERS
Section l. Positions. The officers of the BANK shall be a president, one
---------------------
or more vice presidents, a secretary and a treasurer or chief financial officer,
each of whom shall be elected by the board of directors. The board of directors
may also designate the chairman of the board as an officer. The president shall
be the chief executive officer, unless the board of directors designates the
chairman of the board as chief executive officer. The president shall be a
director of the BANK. The offices of the secretary and treasurer or chief
financial officer may be held by the same person and a vice president may also
be either the secretary or the treasurer or chief financial officer. The board
of directors may designate one or more vice presidents as executive vice
president or senior vice president. The board of directors may also elect or
authorize the appointment of such other officers as the business of the BANK may
require. The officers shall have such authority and perform such duties as the
board of directors may from time to time authorize or determine. In the absence
of action by the board of directors, the officers shall have such powers and
duties as generally pertain to their respective offices.
Section 2. Election and Term of Office. The officers of the BANK shall be
---------------------------------------
elected annually at the first meeting of the board of directors held after each
annual meeting of the shareholders. If the election of officers is not held at
such meeting, such election shall be held as soon thereafter as possible. Each
officer shall hold office until a successor has been duly elected and qualified
or until the officer's death, resignation or removal in the manner hereinafter
provided. Election or appointment of an officer, employee or agent shall not of
itself create contractual rights. The board of directors may authorize the BANK
to enter into an employment contract with any officer in accordance with
regulations of the OTS; but no such contract shall impair the right of the board
of directors to remove any officer at any time in accordance with Section 3 of
this Article V.
Section 3. Removal. Any officer may be removed by the board of directors
-------------------
whenever in its judgment the best interests of the BANK will be served thereby,
but such removal, other than for cause, shall be without prejudice to the
contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
---------------------
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
II-9
<PAGE>
Section 5. Remuneration. The remuneration of the officers shall be fixed
------------------------
from time to time by the board of directors.
ARTICLE VI. CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section l. Contracts. To the extent permitted by regulations of the OTS,
---------------------
and except as otherwise prescribed by these bylaws with respect to certificates
for shares, the board of directors may authorize any officer, employee, or agent
of the BANK to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the BANK. Such authority may be general or
confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the BANK and
-----------------
no evidence of indebtedness shall be issued in its name unless authorized by the
board of directors. Such authority may be general or confined to specific
instances.
Section 3. Checks, Drafts, Etc. All checks, drafts or other orders for
--------------------------------
the payment of money, notes or other evidences of indebtedness issued in the
name of the BANK shall be signed by one or more officers, employees or agents of
the BANK in such manner as shall from time to time be determined by the board of
directors.
Section 4. Deposits. All funds of the BANK not otherwise employed shall
--------------------
be deposited from time to time to the credit of the BANK in any duly authorized
depositories as the board of directors may select.
ARTICLE VII. CERTIFICATES FOR SHARES
AND THEIR TRANSFER
Section l. Certificates for Shares. Certificates representing shares of
-----------------------------------
capital stock of the BANK shall be in such form as shall be determined by the
board of directors and approved by the OTS. Such certificates shall be signed
by the chief executive officer or by any other officer of the BANK authorized by
the board of directors, attested by the secretary or an assistant secretary, and
sealed with the corporate seal or a facsimile thereof. The signatures of such
officers upon a certificate may be facsimiles if the certificate is manually
signed on behalf of a transfer agent or a registrar, other than the BANK itself
or one of its employees. Each certificate for shares of capital stock shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the BANK. All
certificates surrendered to the BANK for transfer shall be cancelled and no new
certificate shall be issued until the former certificate for a like number of
shares has been surrendered and cancelled, except that in case of a lost or
destroyed certificate, a new certificate may be issued upon such terms and
indemnity to the BANK as the board of directors may prescribe.
II-10
<PAGE>
Section 2. Transfer of Shares. Transfer of shares of capital stock of the
------------------------------
BANK shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney authorized by a duly executed power of attorney and filed with the
BANK. Such transfer shall be made only on surrender for cancellation of the
certificate for such shares. The person in whose name shares of capital stock
stand on the books of the BANK shall be deemed by the BANK to be the owner for
all purposes.
ARTICLE VIII. FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the BANK shall end on December 31 of each year. The
appointment of accountants shall be subject to annual ratification by the
shareholders.
ARTICLE IX. DIVIDENDS
Subject to the terms of the BANK's Charter and the regulations and orders
of the OTS, the board of directors may, from time to time, declare, and the BANK
may pay, dividends on its outstanding shares of capital stock.
ARTICLE X. CORPORATE SEAL
The board of directors shall provide a BANK seal, which shall be two
concentric circles between which shall be the name of the BANK. The year of
incorporation or an emblem may appear in the center.
ARTICLE XI. INDEMNIFICATION
The BANK shall indemnify all officers, directors and employees of the BANK,
and their heirs, executors and administrators, to the fullest extent permitted
under federal law against all expenses and liabilities reasonably incurred by
them in connection with or arising out of any action, suit or proceeding in
which they may be involved by reason of their having been a director or officer
of the BANK, whether or not they continue to be a director or officer at the
time of incurring such expenses or liabilities, such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements. Any payments made to any officer or
director pursuant to this Section are subject to and conditioned upon compliance
with the rules or regulations of the OTS.
II-11
<PAGE>
ARTICLE XII. AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of the
OTS and shall be effective after: (i) approval of the amendment by a majority
vote of the full board of directors, or by a majority vote of the votes cast by
the shareholders of the BANK at any legal meeting, and (ii) receipt of any
applicable regulatory approval. When the BANK fails to meet its quorum
requirement, solely due to vacancies on the board, then the affirmative vote of
a majority of the sitting board will be required to amend the bylaws.
II-12
<PAGE>
EXHIBIT 4.0 DRAFT STOCK CERTIFICATE OF WEST ESSEX BANCORP, INC.
<PAGE>
COMMON STOCK COMMON STOCK
PAR VALUE $.01 SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP
WEST ESSEX BANCORP, INC.
ORGANIZED UNDER THE LAWS OF THE UNITED STATES
THIS CERTIFIES THAT S P E C I M E N
is the owner of:
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK $1.00 PAR VALUE
PER SHARE OF ________________
A STOCK COMPANY ORGANIZED UNDER THE LAWS OF THE UNITED STATES.
The shares represented by this certificate are transferable only on the
stock transfer books of the Company by the holder of record hereof, or by his
duly authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the Charter
of the Company and any amendments thereto (copies of which are on file with the
Secretary of the Company), to all of which provisions the holder by acceptance
hereof, assents. The shares evidenced by this certificate are not of an
insurable type and are not insured by the Federal Deposit Insurance Corporation.
IN WITNESS WHEREOF, _____________________ has caused this certificate to
be executed by the facsimile signatures of its duly authorized officers and has
caused a facsimile of its corporate seal to be hereunto affixed.
Dated: [SEAL]
President and Chief Secretary
Executive Officer
<PAGE>
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFTS MIN ACT - ______ custodian _______
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act
_____________________
(State)
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFICATION NUMBER OF ASSIGNEE
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of
assignee.
_____________________ shares of the common stock represented by this certificate
and do hereby irrevocably constitute and appoint ____________________________,
attorney, to transfer the said stock on the books of the within-named company
with full power of substitution in the premises.
DATED
______________________ ________________________________________
NOTICE: THE SIGNATURE TO THIS
ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
SIGNATURE GUARANTEED: ______________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION,
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15
<PAGE>
EXHIBIT 5.1 DRAFT OPINION OF MULDOON, MURPHY & FAUCETTE RE: LEGALITY
<PAGE>
June 12, 1998
Board of Directors
West Essex Savings Bank
417 Bloomfiled Avenue
Caldwell, New Jersey 07081
Re: The offering of up to ________ shares of
West Essex Bancorp, Inc. Common Stock
Gentlemen:
We have acted as special counsel to West Essex Bank (the "Bank") in
connection with its reorganization from a federal mutual savings bank to the
federal mutual holding company form (the "Reorganization") and the related
subscription offering, community offering and syndicated community offering (the
"Offerings") by West Essex Bancorp, Inc., a federally chartered stock holding
company (the "Company") of up to 2,071,955 shares of its common stock, par value
$.01 per share ("Common Stock"), (2,382,748 shares if the Offering Range is
increased up to 15% to reflect changes in market and financial conditions
following commencement of the Offerings).
In connection with your request for our opinions, you have provided to us
and we have reviewed the Company's Registration Statement on Form S-1, as filed
with the Securities and Exchange Commission initially on June __, 1998 and as
amended on _________, 1998; Notice of Mutual Holding Company Reorganization on
Form MHC-1 (the "Notice") and the Bank's Application for Approval of a Minority
Stock Issuance by a Savings Association Subsidiary of a Mutual Holding Company
on Form MHC-2 (the "Application"), both as filed with the Office of Thrift
Supervision ("OTS") initially on June __, 1998 and as amended on _________,
1998; the Bank's Plan of Mutual Holding Company Reorganization and Stock
Issuance (the "Plan of Reorganization"), including the proposed Federal Stock
Charter and Bylaws of West Essex Bank, the proposed Charter and Bylaws of West
Essex Bancorp, M.H.C. (the "Mutual Holding Company") and the proposed Charter
and Bylaws of West Essex Bancorp, Inc.; the Bank's proposed common stock
certificate; the Company's proposed common stock certificate; and the Company's
proposed stock order form. In addition, we have made such investigations of law
and have examined such other documents and records as we have considered
necessary for purposes of this opinion.
<PAGE>
Board of Directors
June 12, 1998
Page 2
We have assumed the genuineness of the signatures on and the authenticity
of all documents submitted to us as originals and the conformity to the
originals of documents submitted to us as certified or photostatic copies. We
have relied as to factual matters upon certificates from officers of the Bank
and we have assumed the accuracy and authenticity of the aforementioned
certificates of public officials and officers of the Bank. We have also relied
on Bank records.
We understand that the Company will loan to the trust for the Bank's
Employee Stock Ownership Plan (the "ESOP") the funds the ESOP Trust will use to
purchase shares of Common Stock for which the ESOP Trust subscribes pursuant to
the Offerings and for purposes of rendering the opinion set forth below, we
assume that: (a) the Board of Directors of the Company has duly authorized the
loan to the ESOP Trust (the "Loan"); (b) the ESOP serves a valid corporate
purpose for the Company; (c) the Loan will be made at an interest rate and on
other terms that are fair to the Company; (d) the terms of the Loan will be set
forth in customary and appropriate documents including, without limitation, a
promissory note representing the indebtedness of the ESOP Trust to the Company
as a result of the Loan; and (e) the closing for the Loan and for the sale of
Common Stock to the ESOP Trust will be held after the closing for the sale of
the other shares of Common Stock sold in the Offerings and the receipt by the
Company of the proceeds thereof.
Based upon and subject to the foregoing, and limited in all respects to
matters of Federal law of the United States, it is our opinion that:
Upon the due adoption by the Pricing Committee of a resolution fixing the
number of shares of Common Stock to be sold in the Offerings, the Common Stock
to be issued in the Offerings (including the shares to be issued to the ESOP
Trust and the shares to be granted to a charitable foundation to be established
by the Company in connection with the Conversion) will be duly authorized and,
when such shares are sold and paid for in accordance with the terms set forth in
the Prospectus and such resolution of the Pricing Committee, and certificates
representing such shares in the form provided to us are duly and properly
issued, will be validly issued, fully paid and nonassessable.
This opinion is given solely for the benefit of the Bank and the Company
and may not be relied upon by any other person or entity, nor quoted in whole or
in part, or otherwise referred to in any document without our express written
consent.
<PAGE>
Board of Directors
June 12, 1998
Page 3
We consent to the filing of this opinion as an exhibit to the Registration
Statement on Form S-1 and to the use of the name of our firm where it appears in
the Registration Statement and Prospectus.
Very truly yours,
/s/ Muldoon, Murphy & Faucette
MULDOON, MURPHY & FAUCETTE
<PAGE>
EXHIBIT 8.1 DRAFT OPINION OF MULDOON, MURPHY & FAUCETTE
RE: FEDERAL TAX MATTERS
<PAGE>
[DRAFT]
__________________, 1998
Board of Directors
West Essex Bank, F.S.B.
417 Bloomfield Avenue
Caldwell, New Jersey 07006
Re: Certain Federal Tax Consequences of the Reorganization of West Essex
Bank, F.S.B. from a federally-chartered Mutual Savings Bank to a
federally-chartered Stock Savings Bank in the Federal Mutual Holding
Company Form of Organization
To the Members of the Board of Directors:
You have requested an opinion regarding certain federal tax consequences of
the proposed reorganization of West Essex Bank, F.S.B. (the "Mutual Savings
Bank" or the "Bank") from a federally-chartered mutual savings bank to a
federally-chartered stock savings bank in the federal mutual holding company
form of organization (the "Reorganization"). West Essex Bank (the "Stock
Savings Bank" or "West Essex") will be the stock savings bank successor to the
Mutual Savings Bank. The Reorganization will include the proposed sale of a
minority interest in the common stock of West Essex Bancorp, Inc. ("Bancorp" or
the "Company") pursuant to the Plan of Mutual Holding Company Reorganization and
Stock Issuance of West Essex Bank, F.S.B. adopted by the Board of Directors of
the Mutual Savings Bank on March 18, 1998 (the "Plan of Reorganization"). The
Reorganization and its component and related transactions are described in the
Plan of Reorganization, and in the Offering Circular filed with the Office of
Thrift Supervision in connection with the Reorganization and proposed sale of
common stock (the "Offering Circular"). We are rendering this opinion pursuant
to Section III, C, Paragraph 6 of the Plan of Reorganization. As used in this
letter, "Mutual Savings Bank" refers to the Savings Bank before the
Reorganization and "Stock Savings Bank" refers to the Savings Bank after the
Reorganization. All other capitalized terms used but not defined in this letter
shall have the meaning assigned to them in the Plan of Reorganization or
Offering Circular.
<PAGE>
Board of Directors [DRAFT]
____________, 1998
Page 2
The Reorganization will be effected, pursuant to the Plan of
Reorganization, as follows: (i) Mutual Savings Bank will organize an interim
federal stock savings bank as its wholly-owned subsidiary ("Interim One"); (ii)
Interim One will organize a stock corporation as a wholly-owned subsidiary
("Stock Holding Company"); and (iii) Interim One will organize an interim
federal stock savings bank as a wholly-owned subsidiary ("Interim Two"). The
following transactions will then occur sequentially: (iv) Mutual Savings Bank
will convert its charter to a federal stock savings bank charter and thereby
become Stock Savings Bank (the "Conversion") and Interim One will exchange its
charter for a federal mutual holding company charter and thereby become the
"Mutual Holding Company"; (v) Interim Two will merge with and into Stock
Savings Bank with Stock Savings Bank being the surviving institution and (vi)
100% of the issued shares of common stock of Stock Savings Bank (which will be
constructively received by former Mutual Savings Bank depositors when Mutual
Savings Bank becomes Stock Savings Bank pursuant to step (iv)) will be
transferred to the Stock Holding Company in exchange for membership interests in
the Mutual Savings Bank which are conveyed constructively to the Mutual Holding
Company.
In the Conversion, depositor-members of the Mutual Savings Bank will
constructively receive common stock of the Stock Savings Bank in exchange for
their mutual interests in the Mutual Savings Bank. In connection with the
merger in step (v), the shares of Interim Two common stock owned by the Mutual
Holding Company prior to the merger shall be converted into and shall become
shares of Stock Savings Bank common stock, and the shares of the Stock Savings
Bank constructively received by the Stock Savings Bank stockholders (formerly
the depositor-members holding mutual interests in the Mutual Savings Bank) will
be transferred to the Mutual Holding Company by the depositor-members in
exchange for mutual interests in the Mutual Holding Company (the "Exchange").
As a result of these transactions, (a) Stock Savings Bank will be a
wholly-owned subsidiary of the Stock Holding Company, which will be a wholly-
owned subsidiary of the Mutual Holding Company until a minority interest in
shares of common stock of the Stock Holding Company are sold pursuant to the
Stock Issuance Plan, at which time the Stock Savings Bank will remain the
wholly-owned subsidiary of the Stock Holding Company, which will be a majority-
owned subsidiary of the Mutual Holding Company, and (b) the former depositors of
Mutual Savings Bank will own membership rights and interests in the Mutual
Holding Company.
Simultaneously with the Reorganization, as noted above, the Stock Holding
Company will offer to sell additional shares of its common stock pursuant to the
Stock Issuance Plan, with priority subscription rights granted (in descending
order) to certain depositors in Mutual Savings
<PAGE>
Board of Directors [DRAFT]
____________, 1998
Page 3
Bank, to certain employee stock benefit plans of Mutual Savings Bank, to
Supplemental Eligible Account Holders of Mutual Savings Bank, to Other Members
of Mutual Savings Bank, and to certain members of the community/general public.
In connection with the opinions expressed herein, we have examined and
relied upon originals, or copies certified or otherwise identified to our
satisfaction, of the Plan of Reorganization and the Offering Circular, and of
such corporate records of the parties to the Reorganization as we have deemed
appropriate. We have also received and relied upon, without independent
verification, the representations of Mutual Savings Bank concerning the Mutual
Savings Bank itself as well as the other parties to the transaction and the
Reorganization transaction itself ("Representations"); these Representations
are attached as an exhibit to this letter. We have assumed that such
Representations are true and that the parties to the Reorganization will act in
accordance with the Plan of Reorganization. In addition, we have made such
investigations of law as we have deemed appropriate to form a basis for the
opinions expressed below.
The opinions contained herein are not binding on the Internal Revenue
Service ("IRS") or any court. No assurance can be given that the IRS will not
take a different view of these transactions and that view may be ultimately
sustained by a court.
The opinions expressed herein are rendered only with respect to the issues
specified herein. We express no opinion with respect to any other Federal,
state or local tax or other legal aspect of the transaction. If any of the
above referenced facts or Representations are not entirely true, correct and
complete, that could cause us to change our opinion. In issuing our opinion, we
are relying on the provisions of the Internal Revenue Code of 1986, as amended
(the "Code") cited herein, all of which are subject to change, which change can
be retroactive in effect. Any such change could have an effect on the validity
of our opinions.
Based on and subject to the foregoing, the facts as referenced in this
opinion, the Representations attached as an exhibit to this opinion, and subject
to the limitations referenced herein, it is our opinion that for federal income
tax purposes, under the current law -
(1) the Bank's conversion of its charter to stock form (the "Bank
Conversion") will qualify as a tax-free reorganization under Section
368(a)(1)(F) of the Internal Revenue Code;
<PAGE>
Board of Directors [DRAFT]
____________, 1998
Page 4
(2) the conversion of the Bank's wholly-owned subsidiary ("Interim One")
into the Mutual Holding Company will qualify as a tax-free
reorganization under Section 368(a)(1)(F) of the Code;
(3) the merger of the wholly-owned subsidiary of Interim One ("Interim
Two") into the Stock Savings Bank with the Stock Savings Bank as the
survivor will qualify as a tax-free reorganization under Code Section
368(a)(1)(A);
(4) no gain or loss will be recognized by the Bank (in either its status
as Mutual Savings Bank or Stock Savings Bank) in the Conversion;
(5) neither the Stock Savings Bank nor the Mutual Holding Company will
recognize gain or loss upon the receipt by the Stock Savings Bank of
substantially all of the assets of the Mutual Savings Bank in exchange
for equity interests in the Mutual Holding Company and the Stock
Savings Bank's assumption of the Mutual Savings Bank's liabilities;
(6) the Mutual Holding Company's basis in the stock of the Stock Savings
Bank will increase by an amount equal to the Mutual Savings Bank's net
basis in the property transferred to the Stock Savings Bank;
(7) the Stock Savings Bank's basis in the property received from the
Mutual Savings Bank will be the same as the basis of such property in
the hands of the Mutual Savings Bank immediately prior to the
Reorganization and Offering;
(8) the Stock Savings Bank's holding period for the property received from
the Mutual Savings Bank will include the period during which such
property received from the Mutual Savings Bank was held by the Mutual
Savings Bank;
(9) subject to the conditions and limitations set forth in Code Sections
381, 382, 383 and 384 and the Treasury Regulations promulgated
thereunder, the Stock Bank will succeed to and take into account the
tax attributes of the Mutual Savings Bank described in Code Section
381(c);
(10) no gain or loss will be recognized by the depositors of the Mutual
Savings Bank on the receipt of equity interests with respect to the
Mutual Holding Company in
<PAGE>
Board of Directors [DRAFT]
____________, 1998
Page 5
exchange for their equity interests in the Mutual Savings Bank
constructively surrendered therefor in the Exchange;
(11) the exchange of stock by depositors in exchange for equity interests
in the Mutual Holding Company will constitute a tax-free exchange of
property solely for voting "stock" pursuant to Code Section 351;
(12) each Mutual Savings Bank depositor's aggregate basis, if any, in the
Mutual Holding Company equity interest received in the Exchange will
equal the aggregate basis, if any, of each depositor's equity interest
in the Mutual Savings Bank;
(13) the holding period of the Mutual Holding Company equity interests
received by the depositors of Mutual Savings Bank will include the
period during which the Mutual Savings Bank equity interest
surrendered in exchange therefor were held;
(14) the Mutual Holding Company will recognize no gain or loss upon the
transfer of the Stock Savings Bank stock to Bancorp in exchange for
Common Stock pursuant to Code Section 351;
(15) Bancorp will recognize no gain or loss upon its receipt of Stock
Savings Bank stock from the Mutual Holding Company in exchange for
Common Stock;
(16) the Mutual Holding Company will increase its basis in its shares of
the common Stock by the Mutual Holding Company's basis in its Stock
Savings Bank stock;
(17) Bancorp will recognize no gain or loss upon the receipt of money in
exchange for shares of Common Stock;
(18) no gain or loss will be recognized by the Mutual Savings Bank's
account holders upon the issuance to them of accounts in the Stock
Savings Bank immediately after the Reorganization and Offering, in the
same dollar amounts and on the same terms and conditions as their
accounts at the Mutual Savings Bank immediately prior to the
Reorganization and Offering;
(19) the tax basis of the Common Stock purchased in the Reorganization and
Offering will be equal to the amount paid therefor increased, in the
case of the Common
<PAGE>
Board of Directors [DRAFT]
____________, 1998
Page 6
Stock acquired to the exercise of Subscription Rights, by the fair
market value, if any, of the Subscription Rights exercised;
(20) the holding period for the Common Stock purchased in the
Reorganization and Offering will commence upon the exercise of such
holder's Subscription Rights and otherwise on the day following the
date of such purchase;
(21) gain or loss will be recognized to account holders upon the receipt
or exercise of Subscription Rights in the Reorganization and Offering,
but only to the extent such Subscription Rights are deemed to have
value.
In rendering our opinion in (19) above, regarding the tax basis of shares
of Stock Holding Company common stock, we have relied, without independent
verification, on the opinion of ___________ that the nontransferable
subscription rights have no value.
This opinion is given solely for the benefit of the parties to the Plan of
Reorganization, and the Eligible Account Holders, Supplemental Eligible Account
Holders and other investors who purchase shares pursuant to the Stock Issuance
Plan, and may not be relied upon by any other party or entity or referred to in
any document without our express written consent. We consent to the filing of
this opinion as an exhibit to the Form MHC-1 and MHC-2 to be filed with the
Office of Thrift Supervision and to the references to this opinion in the
Offering Circular.
Very truly yours,
MULDOON, MURPHY & FAUCETTE
<PAGE>
CERTIFICATE OF REPRESENTATIONS
------------------------------
I, Leopold W. Montanaro, Director, President, and Chief Executive Officer
of West Essex Bank, F.S.B., Caldwell, New Jersey, a federally-chartered mutual
savings bank (the "Mutual Savings Bank" or the "Bank"), for the purpose of
obtaining an opinion of counsel to be rendered by Muldoon, Murphy & Faucette in
connection with the Reorganization of West Essex from the mutual savings bank
form to a federally-chartered stock savings bank in the federal mutual holding
company form of organization (the "Reorganization"). As part of the
Reorganization, the Bank will convert its charter to a federal stock savings
bank charter to become "Stock Savings Bank" and will become a wholly-owned
subsidiary of West Essex Bancorp, Inc. ("Bancorp" or the "Company"), and Bancorp
will issue a majority of its Common Stock to West Essex Bancorp, M.H.C., a
mutual holding company (the "Mutual Holding Company") and will sell a minority
of its Common Stock to the public. The Reorganization will occur pursuant to
the Plan of Mutual Holding Company Reorganization and Stock Issuance adopted by
the Board of Directors of the Mutual Savings Bank on March 18, 1998 (the "Plan
of Reorganization").* I do hereby certify that all of the information set
forth in the following representations is true to the best of my knowledge and
belief:
(a) Taking into account any issuance of shares of Bancorp, the exercise of
any Bancorp stock rights, warrants or subscriptions, a public offering of
Bancorp stock, and the sale, exchange, transfer by gift or other
disposition of any stock of Bancorp to be received in the proposed
transaction, the persons who constructively transfer Stock Savings Bank
stock to Bancorp (the depositors), plus those who purchase Bancorp stock in
the Subscription and Community Offerings will be in "control" of Bancorp
within the meaning of section 368(c). ["Control" is defined as at least 80%
in vote and value of all classes of stock.].
(b) Following the Reorganization, the Stock Savings Bank will hold at least
90% of the fair market value of its net assets and at least 70% of the fair
market value of its gross assets and at least 90% of the fair market value
of InterimTwo's net assets and at least 70% of the fair market value of
InterimTwo's gross assets held immediately prior to the Reorganization. For
purposes of this representation, no amounts of cash will be paid by the
Stock Savings Bank or InterimTwo to depositors of Mutual Savings Bank.
Amounts used by the Stock Savings Bank or Interim Two to pay reorganization
expenses will be included as assets of the Mutual Savings Bank or Interim
One respectively, immediately prior to the Reorganization.
(c) Prior to the transaction, the Company will be in control of InterimTwo
within the meaning of Section 368(c) of the Internal Revenue Code (IRC).
["Control" is defined as at least 80% in vote and value of all classes of
stock.]
- ---------------------
* All capitalized terms used but not defined in this Certificate of
Representations shall have the meaning assigned to them in the Plan of
Reorganization or Prospectus.
<PAGE>
(d) As of the date of the execution of this Reorganization, the Stock
Savings Bank has no plan or intention to issue additional shares of its
stock that would result in the Company losing control of the Stock Savings
Bank within the meaning of Section 368(c) of the IRC.
(e) As of the date of this Reorganization, neither Company nor Stock
Savings Bank has any plan or intention to acquire any of its own stock
issued in the transaction.
(f) Stock Savings Bank has no plan or intention to issue additional shares
of its stock following the transaction.
(g) The Company has no plan or intention to liquidate the Stock Savings
Bank; to merge the Stock Savings Bank with or into another corporation, or
sell or otherwise dispose of the stock of the Stock Savings Bank except for
transfers of stock to corporations controlled by the Company; to cause the
Stock Savings Bank to sell or otherwise dispose of any of its assets or any
of the assets acquired from the InterimTwo, except for dispositions made in
the ordinary course of business or transfers of assets to a corporation
controlled by the Stock Savings Bank.
(h) At the time of the Reorganization, the fair market value of the assets
of the Mutual Savings Bank on a going concern basis will exceed the amount
of its liabilities, plus the amount of liabilities, if any, to which the
assets are subject.
(i) The liabilities of the Mutual Savings Bank assumed by the Stock Savings
Bank were incurred by the Mutual Savings Bank in the ordinary course of its
business.
(j) The liabilities of the InterimTwo, if any, assumed by the Stock Savings
Bank and the liabilities to which the transferred assets of InterimTwo are
subject to, were incurred by InterimTwo in the ordinary course of business.
(k) Mutual Holding Company will not assume any liabilities in the
Reorganization and none of the Stock Savings Bank stock constructively
transferred to Mutual Holding Company will be subject to any liability.
(l) Following the transaction, the Stock Savings Bank will continue the
historic business of Mutual Savings Bank or use a significant portion of
its business assets in a business. Stock Savings Bank has no plan or
intention to sell or otherwise dispose of any of its assets other than in
the ordinary course of business.
(m) Immediately following consummation of the Reorganization, Stock Savings
Bank will possess the same assets and liabilities as Mutual Savings Bank
held immediately prior to the Reorganization.
2
<PAGE>
(n) The Company, InterimTwo, the Stock Savings Bank and the depositors of
the Mutual Savings Bank will pay their respective expenses, if any,
incurred in the reorganization. The Stock Savings Bank will pay or assume
only those expenses of InterimTwo, if any, that are solely and directly
related to the transaction according to the guidelines established in
Revenue Ruling 73-54, 1973-1 C.B. 187. [Guidelines disqualify fees such
as those incurred for investment or estate planning advice.]
(o) There is no intercorporate indebtedness existing between the Company
and the Mutual Savings Bank or between the InterimTwo and the Mutual
Savings Bank that was issued, acquired, or will/could be settled at a
discount.
(p) Mutual Holding Company will not issue any ownership interest in
exchange for services rendered to or for the benefit of Mutual Holding
Company in connection with the proposed transaction; and no ownership
interests will be issued for indebtedness of Mutual Holding Company.
(q) There is a valid business purpose for the proposed transaction.
(r) At the time of the Reorganization, the Stock Savings Bank will not have
outstanding any warrants, options, convertible securities or any other type
of right pursuant to which any person could acquire stock in the Stock
Savings Bank that, if exercised or converted, would affect the Company's
acquisition or retention of control of the Stock Savings Bank, as defined
in Section 368(c) of the IRC.
(s) The Company does not own, nor has it owned during the past five years,
any shares of the stock of the Stock Savings Bank.
(t) No two parties to the transaction are investment companies as defined
in Sections 368(a)(2)(F)(iii) and (iv) of the IRC.
(u) The Mutual Savings Bank is not under the jurisdiction of a court in a
Title 11 bankruptcy or similar case within the meaning of Section
368(a)(3)(A) of the IRC.
(v) No creditors of Mutual Savings Bank, including the depositors in their
role as creditors, have taken any steps to enforce their claims against the
Mutual Savings Bank by instituting bankruptcy or other legal proceedings,
in either a court or appropriate regulatory agency, that would eliminate
the proprietary interest of the members prior to the Conversion to Stock
Savings Bank, including depositors, as the equity holders of Stock Savings
Bank.
(w) No amount of the savings accounts and deposits of Mutual Savings Bank
as of the eligibility record date or supplemental eligibility record date
will be excluded from membership rights and interest in the Mutual Holding
Company.
3
<PAGE>
(x) None of the shares of Company common stock received by any shareholder-
employees will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any shareholder-
employees will be for services actually rendered and will be commensurate
with amounts paid to third parties bargaining at arm's-length for similar
services.
(y) Mutual Savings Bank utilized a reserve for bad debts in accordance with
Section 593 of the IRC and, following the proposed transaction, Stock
Savings Bank will utilize a reserve for bad debts if, and to the extent
permitted by the IRC.
(z) The Mutual Savings Bank currently has no net operating loss for federal
income tax purposes, and has no such losses available for carryover to
future tax years. The Mutual Savings Bank has neither generated nor
carried forward a net operating loss for federal tax purposes at any time
in the past ten (10) tax years.
(aa) The aggregate purchase price to purchase all the shares of Common
Stock which will be offered in the Subscription Offering to the Eligible
Account Holders and others, as well as in the Community Offering as
provided in the Plan, will be equal to the same percentage of the fair
market value of the Stock Savings Bank (as determined by an independent
appraisal) which is sold under the Plan.
(bb) In the Reorganization, shares of Stock Savings Bank common stock
representing control of the Stock Savings Bank, as defined in Section 368(c),
will be constructively exchanged solely for the depositors' mutual ownership
interests in the Mutual Bank. Immediately thereafter, shares of Stock Bank
common stock will be constructively exchanged for mutual ownership interests
in the Mutual Holding Company.
(cc) During the Reorganization, a minimum of 50.01% of the stock of Stock
Holding Company will be transferred to the Mutual Holding Company in
exchange for membership interests in the Mutual Holding Company.
Concurrently, the Stock Holding Company will offer to the public an amount
up to 49.9% of its outstanding shares in the Subscription and Community
Offerings. Taken in the aggregate, this property (including money) will be
transferred to the Stock Savings Bank solely in exchange for the stock of
Stock Savings Bank. In the aggregate, the Mutual Holding Company and the
shareholders who purchase stock in the Subscription and the Community
Offerings will possess at least 80 percent of the total voting power of the
stock of Stock Savings Bank, and their stock interest in Stock Savings Bank
will have value equal to at least 80 percent of the total value of the
stock of Stock Savings Bank.
*
I understand that the underlying premise of a tax-free reorganization is
grounded in the continuity of both the organization itself and the shareholders'
interests in the organization. Therefore, I understand that to the extent that
any repurchase of the Common Stock is considered
4
<PAGE>
to be part of the reorganization, such repurchase could weaken continuity of
interest and thus, jeopardize the tax-free status of the reorganization. I also
understand that such repurchase could trigger recapture of the bad debt loss
reserve.
Additionally, I understand that any change in facts or in the execution of
this transaction could cause a modification of the opinion of Muldoon, Murphy &
Faucette. Since these representations are being offered in advance of the
closing of this transaction, I will undertake to promptly notify Muldoon, Murphy
& Faucette if we discover at any time following the date hereof that any of the
above representations is not true, correct and complete.
- ----------------------- ----------------------------------
Date Leopold W. Montanaro
Director, President, and Chief Executive Officer
West Essex Bank, F.S.B.
69951
5
<PAGE>
EXHIBIT 8.2 DRAFT OPINION OF FONTANELLA AND BABITTS RE: STATE TAX MATTERS
<PAGE>
[LETTERHEAD OF FONTANELLA AND BABITTS APPEARS HERE]
[DRAFT]
Board of Directors
West Essex Bank, FSB
417 Bloomfield Avenue
Caldwell, New Jersey 07006
Re: New Jersey Tax Opinion relating to Reorganization of the West Essex Bank,
FSB (the "Bank") from a federally-chartered mutual savings bank to a two
tier mutual holding company structure in which the Mutual Company, Bancorp,
and Stock Bank will be chartered and regulated by the OTS.
Gentlemen:
You have requested our opinion relating to the New Jersey tax consequences of
the proposed reorganization adopted by the Board of Directors of the Bank, on
March 18, 1998, of the Bank to a two tier mutual holding company structure in
which the Mutual Company, Bancorp, and Stock Bank will be chartered and
regulated by the OTS.
The proposed transaction and its federal income tax consequences are described
in an opinion letter from Muldoon, Murphy & Faucette dated __________________,
(the "Federal Opinion Letter"). The facts, assumptions, and representations set
forth in the Opinion Letter and the federal tax consequences set forth in the
Opinion Letter are incorporated in this opinion letter by reference as if fully
set forth herein. References and abbreviations used in the Federal Opinion
Letter are also used herein.
SUPPLEMENTAL REPRESENTATIONS
- ----------------------------
In addition to the facts, assumptions, and representations set forth in the
Federal Opinion letter, you have provided the following additional
representations concerning the Reorganization.
1. The Bank is subject to and has been filing returns and paying tax under
the New Jersey Savings Institution Tax Act, N.J.S.A.54:01D-1, et seq.
(the "SIT").
2. The transfer of tangible personal property by the Bank to the Stock Bank,
in connection with the Reorganization, will not be in the ordinary course
of the Bank's business and will be in exchange solely for the common stock
of the Stock Bank.
3. The real property transferred by the Bank to the Stock Bank in connection
with the Reorganization will not be subject to any mortgage, lien or
encumbrance.
-1-
<PAGE>
[DRAFT]
Board of Directors
West Essex Bank, FSB
OPINION
-------
Based solely on the facts, assumptions, and representations set forth in the
Federal Opinion Letter and the foregoing supplemental representations and
assuming the Reorganization occurs in accordance with the Plan of
Reorganization, it is our opinion that:
1. To the extent that consummation of the Reorganization will not result in
the recognition of gain or loss by the Bank and other transferors and will
otherwise qualify as "tax free" under the Internal Revenue Code of 1986, as
amended (the "Code"), all as more fully described in the Federal Opinion
Letter, consummation of the Reorganization will not result in any
additional tax liabilities under the SIT.
Except for certain state adjustments under the SIT which are not impacted
by consummation of the Reorganization, the SIT is imposed on a taxpayer's
net income, which is deemed to be federal taxable income before net
operating loss deduction and special deductions N.J.S.A.54:10D-2(d).
Accordingly, since the SIT is based on federal taxable income, the
nonrecognition events, carryovers, and tax-free exchanges under federal
income tax law resulting from the Reorganization, all as more fully
described in the Federal Opinion Letter, will be afforded the same
treatment for purposes of the SIT.
2. The transfer by the Bank of substantially all of its assets and liabilities
in exchange for common stock of the Stock Bank will not result in any
liability under the New Jersey Sales and Use Tax Act, N.J.S.A.54:32B-1 et
seq. (the "Sales and Use Tax").
The Sales and Use Tax specifically exempts, as a taxable transaction, the
transfer of tangible personal property to a corporation upon its
organization in consideration for the issuance of its stock.N.J.S.A.54:32B-
2(e)(4)(E).
3. For New Jersey income tax purposes, the Bank's depositors will recognize no
gain or loss by reason of the Reorganization.
4. It is uncertain whether the transfer of real property by the Bank to the
Stock Bank, in connection with the Reorganization, will subject the
transfer of such real property to the New Jersey Realty Transfer Fee law,
N.J.S.A.46:15-5 et seq. (the "Realty
-2-
<PAGE>
[DRAFT]
Board of Directors
West Essex Bank,FSB
Transfer Fee"). The Realty Transfer Fee is a fee on the transfer of real
property which must be paid as a prerequisite for the recording of all
deeds for non-exempt realty transfers. It is imposed on the grantor at the
rate of $1.75 for each $500 in consideration or fraction thereof. For each
$500 in consideration, in excess of $150,000, the Realty Transfer Fee rises
to $2.50 per $500 consideration. "Consideration" is equal to the actual
amount of money and the "monetary value of any other thing of value"
constituting the compensation paid or to be paid for the transfer of title.
Included in the definition of consideration is the amount of any mortgage,
lien, or other encumbrance to which the transfer is subject or which is to
be assumed or agreed to be paid by the grantee. N.J.S.A.46:15-5(C) and
N.J.S.A.46:15-7.
New Jersey may take the position that the common stock of the Stock Bank
received by the Bank in exchange for the real property transferred by the Bank
to the Stock Bank in connection with the Reorganization constitute consideration
under the Realty Transfer Fee. New Jersey would consider the value of the
consideration to be the assessed value of the transferred real property for
local property tax purposes.
* * * * *
Since this letter is provided in advance of the closing of the transactions
contemplated by the Reorganization, we have assumed that such transactions will
be consummated in accordance with the Plan of Reorganization, as well as the
information and representations referred to herein. Any change in the
Reorganization could cause us to modify the opinions expressed herein.
The opinions expressed herein are based solely on current New Jersey tax law,
including applicable regulations thereunder, and current judicial and
administrative authority. Any future amendments to the tax statutes cited
herein or applicable regulations, or new judicial decisions or administrative
interpretations, many of which could be retroactive in effect, could cause us to
modify the opinions expressed herein.
We express no opinion with respect to the tax treatment of the Reorganization
under the Code or any other law of the State of New Jersey not specifically
addressed herein or the law of any other state or locality, or to the tax
treatment of any conditions existing at the time of, or effects resulting from,
the Reorganization which are not specifically covered by the items set forth in
this opinion letter.
Very truly yours,
Fontanella and Babitts
-3-
<PAGE>
-4-
<PAGE>
EXHIBIT 10.1 FORM OF WEST ESSEX BANK EMPLOYEE STOCK OWNERSHIP PLAN
<PAGE>
FORM OF
WEST ESSEX BANK
EMPLOYEE STOCK OWNERSHIP PLAN
EFFECTIVE JANUARY 1, 1998
<PAGE>
FORM OF
WEST ESSEX BANK
EMPLOYEE STOCK OWNERSHIP PLAN
CERTIFICATION
I, Leopold W. Montanaro, President and Chief Executive Officer of, West
Essex Bank, a federally-chartered stock savings bank, hereby certify that the
attached West Essex Bank Employee Stock Ownership Plan, effective January 1,
1998, was adopted at a duly held meeting of the Board of Directors of the Bank.
ATTEST: West Essex Bank
________________________________ By: ___________________________________
Craig L. Montanaro Leopold W. Montanaro
Secretary President and Chief Executive
<PAGE>
WEST ESSEX BANK
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
<TABLE>
<S> <C>
Section 1 - Introduction................................................ 1
Section 2 - Definitions................................................. 2
Section 3 - Eligibility and Participation............................... 9
Section 4 - Contributions............................................... 11
Section 5 - Allocation and Valuation.................................... 14
Section 6 - Vesting and Forfeitures..................................... 21
Section 7 - Distributions............................................... 24
Section 8 - Voting of Company Stock and Tender Offers................... 29
Section 9 - The Committee and Plan Administration....................... 30
Section 10 - Rules Governing Benefit Claims.............................. 34
Section 11 - The Trust................................................... 36
Section 12 - Adoption, Amendment and Termination......................... 38
Section 13 - General Provisions.......................................... 40
Section 14 - Top-Heavy Provisions........................................ 42
</TABLE>
<PAGE>
WEST ESSEX BANK
EMPLOYEE STOCK OWNERSHIP PLAN
SECTION 1
INTRODUCTION
SECTION 1.01 NATURE OF THE PLAN.
------------------
Effective as of January 1, 1998, (the "Effective Date"),West Essex Bank, a
federally-chartered savings bank (the "Bank"), hereby establishes the West Essex
Bank Employee Stock Ownership Plan (the "Plan") to enable Eligible Employees (as
defined in Section 2.01(p) of the Plan) to acquire stock ownership interests in
West Essex Bancorp, Inc., the holding company of the Bank (the "Company"). The
Bank intends this Plan to be a tax-qualified stock bonus plan under Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and an
employee stock ownership plan within the meaning of Section 407(d)(6) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
Sections 409 and 4975(e)(7) of the Code. The Plan is designed to invest
primarily in the common stock of the Company, which stock constitutes
"qualifying employer securities" within the meaning of Section 407(d)(5) of
ERISA and Sections 409(l) and 4975(e)(8) of the Code. Accordingly, the Plan and
Trust Agreement (as defined in Section 2.01(oo) of the Plan) shall be
interpreted and applied in a manner consistent with the Bank's intent for it to
be a tax-qualified plan designed to invest primarily in qualifying employer
securities.
SECTION 1.02 EMPLOYERS AND AFFILIATES.
------------------------
The Bank and each of its Affiliates (as defined in Section 2.01(c) of the Plan)
which, with the consent of the Bank, adopt the Plan pursuant to the provisions
of Section 12.01 of the Plan are collectively referred to as the "Employers" and
individually as an "Employer." The Plan shall be treated as a single plan with
respect to all participating Employers.
<PAGE>
SECTION 2
DEFINITIONS
SECTION 2.01 DEFINITIONS.
-----------
In this Plan, whenever the context so indicates, the singular or the plural
number and the masculine or feminine gender shall be deemed to include the
other, the terms "he," "his," and "him," shall refer to a Participant or
Beneficiary, as the case may be, and, except as otherwise provided, or unless
the context otherwise requires, the capitalized terms shall have the following
meanings:
(a) "ACCOUNT" or "ACCOUNTS" mean a Participant's or Beneficiary's Company
Stock Account and/or his Other Investments Account, as the context so requires.
(b) "ACQUISITION LOAN" means a loan (or other extension of credit, including
an installment obligation to a "party in interest" (as defined in Section 3(14)
of ERISA)) incurred by the Trustee in connection with the purchase of Company
Stock.
(c) "AFFILIATE" means any corporation, trade or business, which, at the time
of reference, is together with the Bank, a member of a controlled group of
corporations, a group of trades or businesses (whether or not incorporated)
under common control, or an affiliated service group, as described in Sections
414(b), 414(c), and 414(m) of the Code, respectively, or any other organization
treated as a single employer with the Bank under Section 414(o) of the Code;
provided, however, that, where the context so requires, the term "Affiliate"
shall be construed to give full effect to the provisions of Sections 409(l)(4)
and 415(h) of the Code.
(d) "BANK" means West Essex Bank, and any entity which succeeds to the
business of West Essex Bank and which adopts this Plan in accordance with the
provisions of Section 12.02 of the Plan or by written agreement assuming the
obligations under the Plan.
(e) "BENEFICIARY" means the person(s) entitled to receive benefits under the
Plan following a Participant's death, pursuant to Section 7.03 of the Plan.
(f) "CODE" means the Internal Revenue Code of 1986, as amended.
(g) "COMMITTEE" means the individual(s) responsible for the administration of
the Plan in accordance with Section 9 of the Plan.
(h) "COMPANY" means West Essex Bancorp, Inc. and any entity which succeeds to
the business of West Essex Bancorp, Inc.
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<PAGE>
(i) "COMPANY STOCK" means shares of the voting common stock or preferred
stock, meeting the requirements of Section 409 of the Code and Section 407(d)(5)
of ERISA, issued by the Bank or its Affiliates.
(j) "COMPANY STOCK ACCOUNT" means the account established and maintained in
the name of each Participant or Beneficiary to reflect his share of the Trust
Fund invested in Company Stock.
(k) "COMPENSATION" means an Employee's wages, salary, fees and other amounts
defined as compensation in Section 415(c)(3) of the Code and Income Tax
Regulations Sections 1.415-2(d)(2) and (3), received for personal services
actually rendered in the course of employment with the employer for the calendar
year, prior to any reduction pursuant to a Compensation Reduction Agreement.
Compensation shall include commissions, overtime, bonuses, wage continuation
payments to an Employee absent due to illness or disability of a short-term
nature, amounts paid or reimbursed by the Employer for Employee moving expenses
(to the extent not deductible by the Employee), and the value of any
nonqualified stock option granted to an Employee by the Employer (to the extent
includable in gross income for the year granted).
Compensation does not include contributions made by the Employer to any other
pension, deferred compensation, welfare or other employee benefit plan, amounts
realized from the exercise of a nonqualified stock option or the sale of a
qualified stock option, and other amounts which receive special tax benefits.
A Participant's Compensation shall not exceed $150,000 (as periodically adjusted
pursuant to Section 401(a)(17) of the Code (the "Compensation Limit")). If a
Participant's Compensation is determined on a basis of a period of less than
twelve (12) calendar months, then the Compensation Limit for such Participant
shall be the Compensation Limit in effect for the Plan Year in which the period
begins multiplied by a ratio obtained by dividing the number of full months in
the period by twelve (12).
(l) "CONVERSION DATE" means the date the Company first issues common stock
pursuant to its initial public offering.
(m) "DISABILITY" means a physical or mental condition, which renders the
Participant eligible for benefits under the Employer's long-term disability
plan.
(n) "EFFECTIVE DATE" means January 1, 1998.
(o) "ELIGIBLE EMPLOYEE" means any Employee who is not precluded from
participating in the Plan by reason of the provisions of Section 3.02 of the
Plan.
(p) "EMPLOYEE" means any person who is actually performing services for the
Bank or an Affiliate in a common-law, employer-employee relationship as
determined under Sections 31.3121(d)-1,
3
<PAGE>
31.3306(i)-1, or 31.3401(c)-1 of the Treasury Regulations and any "leased
employee" (within the meaning of Section 414(n) of the Code).
(q) "EMPLOYER" or "EMPLOYERS" means the Bank and its Affiliates, which adopt
the Plan in accordance with the provisions of Section 12.01 of the Plan, and any
entity which succeeds to the business of the Bank or its Affiliates and which
adopts the Plan in accordance with the provisions of Section 12.02 of the Plan
or by written agreement assumes the obligations under the Plan.
(r) "ENTRY DATE" means the first day of each January and July coinciding with
or next following the date the Employee satisfies the eligibility requirements
under Section 3 of the Plan.
(s) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
(t) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(u) "FINANCED SHARES" means shares of Company Stock acquired by the Trustee
with the proceeds of an Acquisition Loan, which shall constitute "qualifying
employer securities" under Section 409(l) of the Code and any shares of Company
Stock received upon conversion or exchange of such shares.
(v) "HIGHLY COMPENSATED EMPLOYEE" means an Employee who, for a particular Plan
Year, satisfies one of the following conditions:
(i) was a "5-percent owner" (as defined in Section 414(q)(2) of the
Code) during the year or the preceding year, or
(ii) for the preceding year,
(A) had "compensation" (as defined in Section 414(q)(4) of the
Code) from the Bank and its Affiliates exceeding $80,000 (as
periodically adjusted pursuant to Section 414(q)(1) of the Code),
and
(B) if the Employer elects, was in the "top-paid group" (as defined
in Section 414(q)(3) of the Code) of Employees for such preceding
year.
(w) "HOURS OF SERVICE" means each hour for which an Employee is paid or
entitled to be paid for performing duties for the Employer.
For purposes of determining whether an Employee has incurred a One Year Break in
Service and for vesting and participation purposes, if an Employee begins a
maternity/paternity leave of absence described in Section 411(a)(6)(E)(i) of the
Code, his Hours of Service shall include the Hours of Service that would have
been credited to him if he had not been so absent (or eight (8) Hours of Service
for each day of such absence if the actual Hours of Service cannot be
determined). An
4
<PAGE>
Employee shall be credited for such Hours of Service (up to a maximum of 501
Hours of Service) in the Plan Year in which his absence begins (if such
crediting will prevent him from incurring a One Year Break in Service in such
Plan Year) or, in all other cases, in the following Plan Year. An absence from
employment for maternity or paternity reasons means an absence:
(i) by reason of pregnancy of the Employee,
(ii) by reason of a birth of a child of the Employee,
(iii) by reason of the placement of a child with the Employee in
connection with the adoption of such child by such Employee, or
(iv) for purposes of caring for such child for a period beginning
immediately following such birth or placement.
(x) "LOAN SUSPENSE ACCOUNT" means that portion Trust Fund consisting of
Company Stock acquired with an Acquisition Loan which has not yet been allocated
to the Participants' Accounts.
(y) "MATCHING CONTRIBUTION" means any contribution made to the Plan pursuant
to the provisions of Section 4.01(c) of the Plan.
(aa) "NORMAL RETIREMENT AGE" means the date the Employee attains age sixty-
five (65).
(bb) "NORMAL RETIREMENT DATE" means the first day of the month coincident with
or next following the Participant's attainment of Normal Retirement Age.
(cc) "ONE YEAR PERIOD OF SEVERANCE" means a twelve (12) consecutive month
period following an Employee's Termination of Service with the Employer during
which the Employee did not perform an Hour of Service. Notwithstanding the
foregoing, if an Employee is absent from employment for maternity or paternity
reasons, such absence during the twenty-four (24) month period commencing on the
first date of such absence shall not constitute a One Year Period of Severance.
An absence from employment for maternity or paternity reasons means an absence:
(i) by reason of pregnancy of the Employee,
(ii) by reason of a birth of a child of the Employee,
(iii) by reason of the placement of a child with the Employee in
connection with the adoption of such child by such Employee, or
(iv) for purposes of caring for such child for a period beginning
immediately following such birth or placement.
5
<PAGE>
(dd) "OTHER INVESTMENTS ACCOUNT" means the account established and maintained
in the name of each Participant or Beneficiary to reflect his share of the Trust
Fund, other than Company Stock.
(ee) "PARTICIPANT" means any Employee who has become a participant in
accordance with Section 3.01 of the Plan or any other person with an Account
balance under the Plan.
(ff) "PERIOD OF SERVICE" means a period commencing on the date an Employee
first performs an Hour of Service for the Employer upon initial employment or,
if applicable, upon reemployment, and ending on the date such Employee first
incurs a Termination of Service. Notwithstanding the foregoing, the period
between the first and second anniversary of the first date of a maternity or
paternity absence described under Section 2.01(cc) of the Plan shall not be
included in determining a Period of Service. A period during which an individual
was not employed by the Employer shall nevertheless be deemed to be a Period of
Service if such individual incurred a Termination of Service and:
(i) such Termination of Service was the result of resignation, discharge
or retirement and such individual is reemployed by the Employer within one
(1) year after such Termination of Service; or
(ii) such Termination of Service occurred when the individual was
otherwise absent for less than one (1) year and he was reemployed by the
Employer within one (1) year after the date such absence began.
All Periods of Service not disregarded under Sections 3.04 and 6.03 of the Plan
shall be aggregated. Wherever used in the Plan, a Period of Service means the
quotient obtained by dividing the days in all Periods of Service not disregarded
hereunder by 365 and disregarding any fractional remainder.
(gg) "PLAN" means this West Essex Bank Employee Stock Ownership Plan, as
amended from time to time.
(hh) "PLAN YEAR" means the calendar year.
(ii) "POSTPONED RETIREMENT DATE" means the first day of the month coincident
with or next following a Participant's date of actual retirement which occurs
after his Normal Retirement Date.
(jj) "RECOGNIZED ABSENCE" means a period for which:
(i) an Employer grants an Employee a leave of absence for a limited
period of time, but only if an Employer grants such leaves of absence on a
nondiscriminatory basis to all Eligible Employees; or
6
<PAGE>
(ii) an Employee is temporarily laid off by an Employer because of a
change in the business conditions of the Employer; or
(iii) an Employee is on active military duty, but only to the extent that
his employment rights are protected by the Military Selective Service Act
of 1967 (38 U.S.C. sec. 2021).
(kk) "RETIREMENT DATE" means a Participant's Normal Retirement Date or
Postponed Retirement Date, whichever is applicable.
(ll) "SAVINGS PLAN" means the West Essex Bank 401(k) Savings Plan in RSI
Retirement Trust, as amended from time to time.
(mm) "SERVICE" means employment with the Bank or an Affiliate.
(nn) "TERMINATION OF SERVICE" means the earlier of (a) the date on which an
Employee's service is terminated by reason of his resignation, retirement,
discharge, death or Disability or (b) the first anniversary of the date on which
such Employee's service is terminated for disability of a short-term nature or
any other reason. Service in the Armed Forces of the United States shall not
constitute a Termination of Service but shall be considered to be a period of
employment by the Employer provided (i) such military service is caused by war
or other emergency or the Employee is required to serve under the laws of
conscription in time of peace, (ii) the Employee returns to employment with the
Employer within six (6) months following discharge from such military service
and (iii) such Employee is reemployed by the Employer at a time when the
Employee had a right to reemployment at his former position or substantially
similar position upon separation from such military duty in accordance with
seniority rights as protected under the laws of the United States. A leave of
absence granted to an Employee by the Employer shall not constitute a
Termination of Service provided that the Participant returns to the active
service of the Employer at the expiration of any such period for which leave has
been granted. Notwithstanding the foregoing, an Employee who is absent from
service with the Employer beyond the first anniversary of the first date of his
absence for maternity or paternity reasons set forth in Section 2.01(cc) of the
Plan shall incur a Termination of Service for purposes of the Plan on the second
anniversary of the date of such absence.
(oo) "TREASURY REGULATIONS" means the regulations promulgated by the Department
of Treasury under the Code.
(pp) "TRUST" means the West Essex Bank Employee Stock Ownership Plan Trust
created in connection with the establishment of the Plan.
(qq) "TRUST AGREEMENT" means the trust agreement establishing the Trust.
7
<PAGE>
(rr) "TRUST FUND" means the assets held in the Trust for the benefit of
Participants and their Beneficiaries.
(ss) "TRUSTEE" means the trustee or trustees from time to time in office under
the Trust Agreement.
(tt) "VALUATION DATE" means the last day of the Plan Year and each other date
as of which the Committee shall determine the investment experience of the Trust
Fund and adjust the Participants' Accounts accordingly.
(uu) "VALUATION PERIOD" means the period following a Valuation Date and ending
with the next Valuation Date.
SECTION 3
ELIGIBILITY AND PARTICIPATION
SECTION 3.01 INITIAL PARTICIPATION.
---------------------
(a) Employees Employed as of the Conversion Date. Any Eligible Employee who is
--------------------------------------------
employed by an Employer at any time from the Effective Date to the Conversion
Date shall enter the Plan and become a Participant immediately as of the later
of the Effective Date or the date he first performs an Hour of Service for the
Employer.
(b) Employees Employed After the Conversion Date. An Eligible Employee who
--------------------------------------------
becomes employed by an Employer subsequent to the Conversion Date shall enter
the Plan and become a Participant as of the Entry Date coincident with or next
following the date he satisfies the following requirements:
(i) He has completed a Period of Service of one hundred eighty-two (182)
days; and
(ii) He has attained 21 years of age.
SECTION 3.02 CERTAIN EMPLOYEES INELIGIBLE.
----------------------------
The following Employees are ineligible to participate in the Plan:
(a) Employees covered by a collective bargaining agreement between the Employer
and the Employee's collective bargaining representative if:
(i) retirement benefits have been the subject of good faith bargaining
between the Employer and the representative, and
8
<PAGE>
(ii) the collective bargaining agreement does not expressly provide that
Employees of such unit be covered under the Plan;
(b) Employees paid solely on a daily fee, or retainer basis;
(c) Employees who are nonresident aliens and who receive no earned income from
an Employer which constitutes income from sources within the United States;
(d) Employees of an Affiliate that has not adopted the Plan pursuant to
Sections 12.01 or 12.02 of the Plan; and
(e) Any "leased employees" (within the meaning of Section 414(A) of the Code).
SECTION 3.03 TRANSFER TO ELIGIBLE EMPLOYMENT.
-------------------------------
If an Employee ineligible to participate in the Plan by reason of Section 3.02
of the Plan transfers to employment as an Eligible Employee, he shall enter the
Plan as of the later of:
(a) the first Entry Date after the date of transfer, or
(b) the first Entry Date on which he could have become a Participant pursuant
to Section 3.01 of the Plan if his prior employment with the Bank or Affiliate
had been as an Eligible Employee.
SECTION 3.04 PARTICIPATION AFTER REEMPLOYMENT AND RECOGNIZED ABSENCES.
--------------------------------------------------------
(a) If an Employee incurs a One Year Period of Severance prior to satisfying
the eligibility requirements of Section 3.01 of the Plan, such Employee's
service prior to the One Year Period of Severance shall be disregarded and such
Employee must again satisfy the eligibility requirements of Section 3.01(b) of
the Plan as a new Employee.
(b) If an Employee incurs a One Year Period of Severance after satisfying the
eligibility requirements of Section 3.01 of the Plan and such Employee is not
vested in any portion of his Accounts under the Plan and the Employee again
performs an Hour of Service with an Employer, he shall receive credit for
Periods of Service prior to a One Year Period of Severance only if the number of
consecutive One Year Periods of Severance is less than the greater of:
(i) five, or
(ii) the aggregate number of his Periods of Service credited before his
One Year Period of Severance.
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<PAGE>
If such former Employee's Periods of Service are again credited to the Employee
pursuant to this Section 3.04(b), such former Employee shall be eligible to
participate in the Plan immediately upon his reemployment, provided such
Employee is not excluded from participating in the Plan pursuant to Section 3.02
of the Plan. If such former Employee's Periods of Service prior to his One Year
Period of Severance are not recredited under this Section 3.04(b), such Employee
must satisfy the eligibility requirements of Section 3.01(b) of the Plan as a
new Employee.
(c) If an Employee incurs a One Year Period of Severance after satisfying the
eligibility requirements of Section 3.01 of the Plan and such Employee is vested
in any portion of his Accounts under the Plan and the Employee again performs an
Hour of Service with an Employer, he shall receive credit for Periods of Service
prior to a One Year Period of Severance and shall be eligible to participate in
the Plan immediately upon reemployment, provided such Employee is not excluded
from participating in the Plan pursuant to Section 3.02 of the Plan.
SECTION 3.05 PARTICIPATION NOT GUARANTEE OF EMPLOYMENT.
-----------------------------------------
Participation in the Plan does not constitute a guarantee or contract of
employment and will not give any Employee the right to be retained in the employ
of the Bank or any of its Affiliates nor any right or claim to any benefit under
the terms of the Plan unless such right or claim has specifically accrued under
the Plan.
10
<PAGE>
SECTION 4
CONTRIBUTIONS
SECTION 4.01 EMPLOYER CONTRIBUTIONS.
----------------------
(a) DISCRETIONARY CONTRIBUTIONS. Each Plan Year, each Employer, in its
discretion, may make a contribution to the Trust. Each Employer making a
contribution for any Plan Year under this Section 4.01(a) will contribute to the
Trustee cash equal to, or Company Stock or other property having an aggregate
fair market value equal to, such amount as the Board of Directors of the
Employer shall determine by resolution. Notwithstanding the Employer's
discretion with respect to the medium of contribution, an Employer shall not
make a contribution in any medium which would make such contribution a
prohibited transaction (for which no exemption is provided) under Section 406 of
ERISA or Section 4975 of the Code.
(b) EMPLOYER CONTRIBUTIONS FOR ACQUISITION LOANS. Each Plan Year, the Employers
shall, subject to the provisions of the Bank's "Plan of Conversion" (as filed
with the appropriate governmental agencies in connection with the Bank's
conversion from a mutual to stock form of organization) and any related
regulatory prohibitions, contribute an amount of cash sufficient to enable to
the Trustee to discharge any indebtedness incurred with respect to an
Acquisition Loan pursuant to the terms of the Acquisition Loan. The Employers'
obligation to make contributions under this Section 4.01(b) shall be reduced to
the extent of any investment earnings attributable to such contributions and any
cash dividends paid with respect to Company Stock held by the Trustee in the
Loan Suspense Account. The Employers' obligation to make contributions under
this Section 4.01(b) shall further be reduced to the extent of any cash
contribution made pursuant to the provisions of paragraph (c) of this Section
4.01. If there is more than one Acquisition Loan, the Employers shall designate
the one to which any contribution pursuant to this Section 4.01(b), and, if
applicable paragraph (c) of this Section 4.01, is to be applied.
(c) EMPLOYER MATCHING CONTRIBUTIONS UNDER THE SAVINGS PLAN. For each Plan Year,
each Employer, in its discretion, may make a contribution to the Trust equal to
a percentage of the Employee's voluntary contributions made for the Plan Year
under the Savings Plan. Each Employer making a contribution for any Plan Year
under this Section 4.01(c) shall contribute to the Trustee cash equal to, or
Company Stock or other property having an aggregate fair market value equal to,
such amount as the Board of Directors of the Employer shall determine by
resolution or as shall be set forth in the Savings Plan, as applicable.
Notwithstanding the Employer's discretion with respect to the medium of
contribution, an Employer shall not make a contribution in any medium which
would make such contribution a prohibited transaction (for which no exemption is
provided) under Section 406 of ERISA or Section 4975 of the Code.
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<PAGE>
SECTION 4.02 LIMITATIONS ON CONTRIBUTIONS.
----------------------------
In no event shall an Employer's contribution(s) made under Section 4.01 of the
Plan for any Plan Year exceed the lesser of:
(a) The maximum amount deductible under Section 404 of the Code by that
Employer as an expense for Federal income tax purposes; and
(b) The maximum amount which can be credited for that Plan Year in accordance
with the allocation limitation provisions of Section 5.05 of the Plan.
SECTION 4.03 ACQUISITION LOANS.
-----------------
The Trustee may incur Acquisition Loans from time to time to finance the
acquisition of Company Stock for the Trust or to repay a prior Acquisition Loan.
An Acquisition Loan shall be for a specific term, shall bear a reasonable rate
of interest, and shall not be payable on demand except in the event of default,
and shall be primarily for the benefit of Participants and Beneficiaries of the
Plan. An Acquisition Loan may be secured by a collateral pledge of the Financed
Shares so acquired and any other Plan assets which are permissible security
within the provisions of Section 54.4975-7(b) of the Treasury Regulations. No
other assets of the Plan or Trust may be pledged as collateral for an
Acquisition Loan, and no lender shall have recourse against any other Trust
assets. Any pledge of Financed Shares must provide for the release of shares so
pledged on a basis equal to the principal and interest (or if the requirements
of Section 54.4975-7(b)(8)(ii) of the Treasury Regulations are met and the
Employer so elects, principal payments only), paid by the Trustee on the
Acquisition Loan. The released Financed Shares shall be allocated by
Participants' Accounts in accordance with the provisions of Sections 5.04 or
5.09 of the Plan, whichever is applicable. Payment of principal and interest on
any Acquisition Loan shall be made by the Trustee only from the Employer
contributions paid in cash to enable the Trustee to repay such loan in
accordance with Sections 4.01(b) or 4.01(c) of the Plan, from earnings
attributable to such contributions, and any cash dividends received by the
Trustee on Financed Shares acquired with the proceeds of the Acquisition Loan
(including contributions, earnings and dividends received during or prior to the
year of repayment less such payments in prior years), whether or not allocated.
Financed Shares shall initially be credited to the Loan Suspense Account and
shall be transferred for allocation to the Company Stock Account of Participants
only as payments of principal and interest (or, if the requirements of Section
54.4975-7(b)(8)(ii) of the Treasury Regulations are met and the Employer so
elects, principal payments only), on the Acquisition Loan are made by the
Trustee. The number of Financed Shares to be released from the Loan Suspense
Account for allocation to Participants' Company Stock Account for each Plan Year
shall be based on the ratio that the payments of principal and interest (or, if
the requirements of Section 54.4975-7(b)(8)(ii) of the Treasury Regulations are
met and the Employer so elects, principal payments only), on the Acquisition
Loan for that Plan Year bears to the sum of the payments of principal and
interest on the Acquisition Loan for that Plan Year plus the total remaining
payment of principal and interest projected (or, if the
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<PAGE>
requirements of Section 54.4975-7(b)(8)(ii) of the Treasury Regulations are met
and the Employer so elects, principal payments only), on the Acquisition Loan
over the duration of the Acquisition Loan repayment period, subject to the
provisions of Section 5.05 of the Plan.
SECTION 4.04. CONDITIONS AS TO CONTRIBUTIONS.
------------------------------
In addition to the provisions of Section 12.03 of the Plan for the return of an
Employer's contributions in connection with a failure of the Plan to qualify
initially under the Code, any amount contributed by an Employer due to a good
faith mistake of fact, or based upon a good faith but erroneous determination of
its deductibility under Section 404 of the Code, shall be returned to the
Employer within one year after the date on which the Employer originally made
such contribution, or within one year after its nondeductibility has been
finally determined. However, the amount to be returned shall be reduced to take
account for any adverse investment experience within the Trust in order that the
balance credited to each Participant's Accounts is not less that it would have
been if the contribution had never been made by the Employer.
SECTION 4.05 EMPLOYEE CONTRIBUTIONS.
----------------------
Employee contributions are neither required nor permitted under the Plan.
SECTION 4.06 ROLLOVER CONTRIBUTIONS.
----------------------
Rollover contributions of assets from other tax-qualified retirement plans are
not permitted under the Plan.
SECTION 4.07 TRUSTEE-TO-TRUSTEE TRANSFERS.
----------------------------
Trustee-to-trustee transfer of assets from other tax-qualified retirement plans
are not permitted under the Plan.
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<PAGE>
SECTION 5
PLAN ACCOUNTING
SECTION 5.01 ACCOUNTING FOR ALLOCATIONS.
--------------------------
The Committee shall establish the Accounts (and sub-accounts, if deemed
necessary) for each Participant, and the accounting procedures for the purpose
of making the allocations to the Participants' Accounts provided for in this
Section 5. The Committee shall maintain adequate records of the cost basis of
shares of Company Stock allocated to each Participant's Company Stock Account.
The Committee also shall keep separate records of Financed Shares attributable
to each Acquisition Loan and of contributions made by the Employers (and any
earnings thereon) made for the purpose of enabling the Trustee to repay any
Acquisition Loan. From time to time, the Committee may modify its accounting
procedures for the purpose of achieving equitable and nondiscriminatory
allocations among the Accounts of Participants, in accordance with the
provisions of this Section 5 and the applicable requirements of the Code and
ERISA. In accordance with Section 9 of the Plan, the Committee may delegate the
responsibility for maintaining Accounts and records.
SECTION 5.02 MAINTENANCE OF PARTICIPANTS' COMPANY STOCK ACCOUNTS.
---------------------------------------------------
As of each Valuation Date, the Committee shall adjust the Company Stock Account
of each Participant to reflect activity during the Valuation Period as follows:
(a) First, charge to each Participant's Company Stock Account all distributions
and payments made to him that have not been previously charged;
(b) Next, credit to each Participant's Company Stock Account the shares of
Company Stock, if any, that have been purchased with amounts from his Other
Investments Account, and adjust such Other Investments Account in accordance
with the provisions of Section 5.03 of the Plan; and
(c) Finally, credit to each Participant's Company Stock Account the shares of
Company Stock representing contributions made by the Employers in the form of
Company Stock and the number of Financed Shares released from the Loan Suspense
Account under Section 4.03 of the Plan that are to be allocated and credited as
of that date in accordance with the provisions of Section 5.04 of the Plan.
SECTION 5.03 MAINTENANCE OF PARTICIPANTS' OTHER INVESTMENTS ACCOUNTS.
-------------------------------------------------------
As of each Valuation Date, the Committee shall adjust the Other Investments
Account of each Participant to reflect activity during the Valuation Period as
follows:
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<PAGE>
(a) First, charge to each Participant's Other Investments Account all
distributions and payments made to him that have not previously been charged;
(b) Next, if Company Stock is purchased with assets from a Participant's Other
Investments Account, the Participant's Other Investments Account shall be
charged accordingly;
(c) Next, subject to the dividend provisions of Section 5.09 of the Plan,
credit to the Other Investments Account of each Participant any cash dividends
paid to the Trustee on shares of Company Stock held in that Participant's
Company Stock Account (as of the record date for such cash dividends) and
dividends paid on shares of Company Stock held in the Loan Suspense Account that
have not been used to repay any Acquisition Loan. Cash dividends that have not
been used to repay an Acquisition Loan and have been credited to a Participant's
Other Investments Account shall be applied by the Trustee to purchase shares of
Company Stock, which shares shall then be credited to the Company Stock Account
of such Participant. The Participant's Other Investments Account shall then be
charged by the amount of cash used to purchase such Company Stock or used to
repay any Acquisition Loan. In addition, any earnings on:
(i) Other Investments Accounts will be allocated to Participants' Other
Investments Account, pro rata, based on such Other Investment Accounts
balances as of the first day of the Valuation Period, and
(ii) the Loan Suspense Account, other than dividends used to repay the
Acquisition Loan, will be allocated to Participants' Other Investments
Accounts, pro rata, based on their Other Investment Account Balances as of
the first day of the Valuation Period.
(d) Next, allocate and credit the Employer contributions made pursuant to
Section 4.01(b) of the Plan for the purpose of repaying any Acquisition Loan in
accordance with Section 5.04 of the Plan. Such amount shall then be used to
repay any Acquisition Loan and such Participant's Other Investments Account
shall be charged accordingly; and
(e) Finally, allocate and credit the Employer contributions (other than amounts
contributed to repay an Acquisition Loan) that are made in cash (or property
other than Company Stock) for the Plan Year to the Other Investments Account of
each Participant in accordance with Section 5.04 of the Plan.
SECTION 5.04 ALLOCATION AND CREDITING OF EMPLOYER CONTRIBUTIONS.
--------------------------------------------------
(a) Except as otherwise provided for in Section 5.09 of the Plan, as of the
Valuation Date for each Plan Year.
15
<PAGE>
(i) Company Stock released from the Loan Suspense Account for that year
and shares of Company Stock contributed directly to the Plan shall be
allocated and credited to each Active Participant's (as defined in
paragraph (c) of this Section 5.04) Account as follows:
(A) first the number of shares of Company Stock with a fair market
value (valued as of the time the Matching Contributions are accrued
under the Savings Plan) equal to the Matching Contributions made
under Section 4.01(c) of the Plan on behalf of an Active Participant
shall be credited to the Active Participant's Company Stock Account
(and a matching contribution sub-account); and then
(B) the number of shares of Company Stock that bears the same ratio
as the Active Participant's Compensation bears to the aggregate
Compensation of all Active Participants for the Plan Year shall be
credited to such Active Participant's Company Stock Account, and then
(ii) The cash contributions not used to repay an Acquisition Loan and any
other property (other than shares of Company Stock) contributed for that
year and forfeitures (as determined pursuant to Section 6 of the Plan)
shall be allocated and credited to each Active Participant's Account based
on the ratio determined by comparing each Active Participant's Compensation
to the aggregate Compensation of all Active Participants for the Plan Year.
.
(b) For purposes of this Section 5.04, the term "Active Participant" means:
(i) with respect to contributions made pursuant to Section 4.01(c) of the
Plan, those Participants who would have otherwise have been entitled to an
allocation of Matching Contributions under the terms of the Savings Plan
for such period; and
(ii) with respect to contributions made pursuant to Sections 4.01(a) and
4.01(b) of the Plan, those Employees who:
(A) were employed by that Employer, including Employees on a
Recognized Absence, on the last day of the Plan Year; or
(B) who terminated employment during the Plan Year by reason of
death, Disability, or attainment of their Retirement Date.
SECTION 5.05 LIMITATIONS ON ALLOCATIONS.
--------------------------
(a) IN GENERAL. Subject to the provisions of this Section 5.05, Section 415 of
the Code shall be incorporated by reference into the terms of the Plan. No
allocation shall be made under Section 5.04 of the Plan that would result in a
violation of Section 415 of the Code.
16
<PAGE>
(b) CODE SECTION 415 COMPENSATION. For purposes of this Section 5.05,
Compensation shall be adjusted to reflect the general rule of Section 1.415-2(d)
of the Treasury Regulations.
(c) LIMITATION YEAR. The "limitation year" (within the meaning of Section 415
of the Code) shall be the calendar year.
(d) MULTIPLE DEFINED CONTRIBUTION PLANS. In any case where a Participant also
participates in another defined contribution plan of the Bank or its Affiliates,
the appropriate committee of such other plan shall first reduce the after-tax
contributions under any such plan, shall then reduce any elective deferrals
under any such plan subject to Section 401(k) of the Code, shall then reduce all
other contributions under any other such plan and, if necessary, shall then
reduce contributions under this Plan, subject to the provisions of paragraph (f)
of this Section 5.05.
(e) COMBINED PLAN LIMITATIONS. To the extent necessary to comply with the
requirements of Section 415(e) of the Code, the plan administration or
appropriate committee shall first reduce the annual benefit payable under any
defined benefit plan in which the Participant participates and, if necessary,
the Committee shall thereafter reduce the contributions under the defined
contribution plans in which such Participant participates in accordance with
paragraph (d) of this Section 5.05.
(f) EXCESS ALLOCATIONS. If, after applying the allocation provisions under
Section 5.04 of the Plan, allocations under Section 5.04 of the Plan would
otherwise result in a violation of Section 415 of the Code, the Committee shall
allocate and reallocate employer contributions to other Participants in the Plan
for the limitation year or, if such allocation and reallocation causes the
limitations of Section 415 of the Code to be exceeded, shall hold excess
amounts in an unallocated suspense account for allocation in a subsequent Plan
Year in accordance with Section 1.415-6(b)(6)(i) of the Treasury Regulations.
Such suspense account, if permitted, will be credited before any allocation of
contributions for subsequent limitation years.
SECTION 5.06 OTHER LIMITATIONS.
-----------------
Aside from the limitations set forth in Sections 5.05 of the Plan, in no event
shall more than one-third of the Employer contributions to the Plan (including
Matching Contributions) be allocated to the Accounts of Highly Compensated
Employees. In order to ensure such allocations are not made, the Committee
shall, beginning with the Participants whose Compensation exceeds the limit
then in effect under Section 401(a)(17) of the Code, reduce the amount of
Compensation of such Highly Compensated Employees on a pro-rata basis per
individual that would otherwise be taken into account for purposes of allocating
benefits under Section 5.04 of the Plan. If, in order to satisfy this Section
5.06, any such Participant's Compensation must be reduced to an amount that is
lower than the Compensation amount of the next highest paid (based on such
Participant's Compensation) Highly Compensated Employee (the "breakpoint
amount"), then, for purposes of allocating benefits under Section 5.04 of the
Plan, the Compensation of all concerned Participants shall be reduced to an
amount not to exceed such breakpoint amount.
17
<PAGE>
SECTION 5.07 LIMITATIONS AS TO CERTAIN SECTION 1042 TRANSACTIONS.
---------------------------------------------------
To the extent that a shareholder of Company Stock sell qualifying Company Stock
to the Plan and elects (with the consent of the Bank) nonrecognition of gain
under Section 1042 of the Code, no portion of the Company Stock purchased in
such nonrecognition transaction (or dividends or other income attributable
thereto) may accrue or be allocated during the nonallocation period (the ten
(10) year period beginning on the later of the date of the sale of the qualified
Company Stock or the date of the Plan allocation attributable to the final
payment of an Acquisition Loan incurred in connection with such sale) for the
benefit of:
(a) The selling shareholder;
(b) the spouse, brothers or sisters (whether by the whole or half blood),
ancestors or lineal descendants of the selling shareholder or descendant
referred to in (a) above; or
(c) any other person who owns, after application of Section 318(a) of the Code,
more than twenty-five percent (25%) of:
(i) any class of outstanding stock of the Bank or any Affiliate, or
(ii) the total value of any class of outstanding stock of the Bank or any
Affiliate.
For purposes of this Section 5.07, Section 318(a) of the Code shall be applied
without regard to the employee trust exception of Section 318(a)(2)(B)(i) of the
Code.
SECTION 5.08 NONDISCRIMINATION TEST FOR MATCHING CONTRIBUTIONS.
-------------------------------------------------
(a) Notwithstanding anything herein to the contrary, the Plan shall meet the
nondiscrimination test of Section 401(m) of the Code for each Plan Year. In
order to meet the nondiscrimination test, any or all of the following steps may
be taken:
(i) At any time during the Plan Year, the Committee may limit the amount
of Matching Contributions that may be made on behalf of Highly Compensated
Employees;
(ii) The Committee may distribute to Highly Compensated Employees the
excess aggregate contributions made for the Plan Year, to the extent
necessary to meet the requirements of Section 401(m) of Code, on the basis
of the amount of contributions on behalf of, or by, each Highly Compensated
Employee;
(iii) The Committee may recommend to the Board of Directors of the Bank
that the Employer make an additional Matching Contribution to the Plan for
the benefit of
18
<PAGE>
Participants who are not Highly Compensated Employees to the extent
necessary to meet the requirements of Section 401(m) of the Code; and
(iv) The Committee may take any other steps that the Committee deems
appropriate.
(b) The nondiscrimination requirements of Section 401(m) of the Code require
that, in each Plan Year, the "Contribution Percentage" (defined below) of the
eligible Highly Compensated Employees for such Plan Year does not exceed the
greater of:
(i) The Contribution Percentage of all other eligible Employees for the
preceding Plan Year multiplied by 1.25; or
(ii) The lesser of the Contribution Percentage of all other eligible
Employees for the preceding Plan Year multiplied by 2, or the Contribution
Percentage of all other eligible Employees for the preceding Plan Year plus
2 percentage points. (Use of this alternative limitation shall be subject
to the provisions of Section 1.401(m)-2 of the Treasury Regulations
regarding the multiple use of the alternative deferral tests set for forth
in Section 401(k) and 401(m) of the Code.)
The Committee may elect to calculate the Contribution Percentages using the Plan
Year rather than the preceding Plan Year; provided, however, that if the
Committee so elects, the election may only be changed as provided by the
Secretary of the Treasury.
(c) The "Contribution Percentage" for a group of Employees is the average of
the ratios, calculated separately for each Employee in the group, of the amount
of Matching Contributions that are credited under the Plan on behalf of each
Employee for the Plan Year, to the Employee's Compensation for the Plan Year.
SECTION 5.09 DIVIDENDS.
---------
(a) STOCK DIVIDENDS. Dividends on Company Stock which are received by the
Trustee in the form of additional Company Stock shall be retained in the portion
of the Trust Fund consisting of Company Stock, and shall be allocated among the
Participant's Accounts and the Loan Suspense Account in accordance with their
holdings of the Company Stock on which the dividends have been paid.
(b) CASH DIVIDENDS ON ALLOCATED SHARES. Dividends on Company Stock credited to
Participants' Accounts which are received by the Trustee in the form of cash
shall, at the direction of the Bank, either:
(i) be credited to Participants' Accounts in accordance with Section 5.03
of the Plan and invested as part of the Trust Fund;
19
<PAGE>
(ii) be distributed immediately to the Participants;
(iii) be distributed to the Participants within ninety (90) days of the
close of the Plan Year in which paid; or
(iv) be used to repay principal and interest on the Acquisition Loan used
to acquire Company Stock on which the dividends were paid.
(c) CASH DIVIDENDS ON UNALLOCATED SHARES. Dividends on Company Stock held in
the Loan Suspense Account which are received by the Trustee in the form of cash
shall be applied as soon as practicable to payments of principal and interest
under the Acquisition Loan incurred with the purchase of the Company Stock.
(d) FINANCED SHARES. Financed Shares released from the Loan Suspense Account
by reason of dividends paid with respect to such Company Stock shall be
allocated under Sections 5.03 and 5.04 of the Plan as follows:
(i) First, Financed Shares with a fair market value at least equal to the
dividends paid with respect the Company Stock allocated to Participants'
Accounts shall be allocated among and credited to the Accounts of such
Participants, pro rata, according to the number of shares of Company Stock
held in such accounts on the date such dividend is declared by the Company;
(ii) Then, any remaining Financed Shares released from the Loan Suspense
Account by reason of dividends paid with respect to Company Stock held in
the Loan Suspense Account shall be allocated among and credited to the
Accounts of all Participants, pro rata, according to each Participant's
Compensation.
20
<PAGE>
SECTION 6
VESTING AND FORFEITURES
SECTION 6.01 DEFERRED VESTING IN ACCOUNTS.
----------------------------
(a) A Participant shall become vested in his Accounts in accordance with the
following schedule:
<TABLE>
<CAPTION>
Period of Service Vested Percentage
----------------- -----------------
<S> <C>
Less than 2 years 0%
2 years 20%
3 years 40%
4 years 60%
5 years 80%
6 years or more 100%
</TABLE>
(b) For purposes of determining a Participant's Period of Service under this
Section 6.01, employment with the Bank or an Affiliate shall be deemed
employment with the Employer. For purposes of determining a Participant's
vested percentage in his Accounts, all Periods of Service shall be included.
SECTION 6.02 IMMEDIATE VESTING IN CERTAIN SITUATIONS.
---------------------------------------
(a) Notwithstanding Section 6.01(a) of the Plan, a Participant shall become
fully vested in his Accounts upon the earlier of:
(i) Termination of the Plan or upon the permanent and complete
discontinuance of contributions by his Employer to the Plan; provided,
however, that in the event of a partial termination, the interest of each
Participant shall fully vest only with respect to that part of the Plan
which is terminated;
(ii) The Participant's Normal Retirement Age;
(iii) A "Change in Control" (as defined below); or
(iv) Termination of employment by reason of death or Disability.
For purposes of this Section 6.02, a "Change in Control" of the Bank or the
Company means an event of a nature that: (i) would be required to be reported in
response to Item 1 of the current report on Form 8-K, as in effect on the date
hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"); or (ii) results in a Change in Control of the
Bank or the Company within the meaning of the Home Owners' Loan Act of 1933, as
amended,
21
<PAGE>
the Federal Deposit Insurance Act 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 the rules and regulations of the OTS, the Board
shall substitute its judgment for that of the OTS); or (iii) without limitation
such a Change in Control shall be deemed to have occurred at such time as (A)
any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of voting securities of the Bank or the
Company representing 25% or more of the Bank's or the Company's outstanding
voting securities or right to acquire such securities except for any voting
securities of the Bank purchased by the Company and any voting securities
purchased by any employee benefit plan of the Bank or the Company, or (B)
individuals who constitute the Board on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Company's stockholders
was approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (B), considered as though he were a member
of the Incumbent Board, or (C) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the Company or
similar transaction occurs in which the Bank or Company is not the resulting
entity.
SECTION 6.03 TREATMENT OF FORFEITURES.
------------------------
(a) If a Participant who is not fully vested in his Accounts terminates
employment, that portion of his Accounts in which he is not vested shall be
forfeited upon the earlier of:
(i) the date the Participant receives a distribution of his entire vested
benefits under the Plan, or
(ii) the date at which the Participant incurs five (5) consecutive One
Year Periods of Severance.
(b) If a Participant who has terminated employment and has received a
distribution of his entire vested benefits under the Plan is subsequently
reemployed by an Employer prior to incurring five (5) consecutive One Year
Periods of Severance, he shall have the portion of his Accounts which was
previously forfeited restored to his Accounts, provided he repays to the Trustee
within five (5) years of his subsequent employment date an amount equal to the
distribution. The amount restored to the Participant's Account shall be
credited to his Account as of the last day of the Plan Year in which the
Participant repays the distributed amount to the Trustee and the restored amount
shall come from other Employees' forfeitures and, if such forfeitures are
insufficient, from a special contribution by his Employer for that year. If a
Participant's employment terminates prior to his Account having become vested,
such Participant shall be deemed to have received a distribution of his entire
vested interest as of the Valuation Date next following his termination of
employment.
22
<PAGE>
(c) If a Participant who has terminated employment but has not received a
distribution of his entire vested benefits under the Plan is subsequently
reemployed by an Employer subsequent to incurring five (5) consecutive One Year
Periods of Severance, any undistributed balance of his Accounts from his prior
participation which was not forfeited shall be maintained as a fully vested
subaccount with his Account.
(d) If a portion of a Participant's Account is forfeited, assets other than
Company Stock must be forfeited before any Company Stock may be forfeited.
(e) Forfeitures shall be reallocated among the other Participants in the Plan.
SECTION 6.04 ACCOUNTING FOR FORFEITURES.
--------------------------
A forfeiture shall be charged to the Participant's Account as of the first day
of the first Valuation Period in which the forfeiture becomes certain pursuant
to Section 6.03 of the Plan. Except as otherwise provided in Section 6.03 of
the Plan, a forfeiture shall be added to the contributions of the terminated
Participant's Employer which are to be credited to other Participants pursuant
to Section 4 as of the last day of the Plan Year in which the forfeiture becomes
certain.
SECTION 6.05 VESTING UPON REEMPLOYMENT.
-------------------------
(a) If an Employee is not vested in his Accounts, incurs a One Year Period of
Severance and again performs an Hour of Service, such Employee shall receive
credit for his Periods of Service prior to his One Year Period of Severance only
if the number of consecutive One Year Periods of Severance is less than the
greater of: (i) five (5) years of (ii) the aggregate number of his Periods of
Service credited before his One Year Period of Severance.
(b) If a Participant is partially vested in his Accounts, incurs a One Year
Period of Severance and again performs an Hour of Service, such Participant
shall receive credit for his Periods of Service prior to his One Year Period of
Severance; provided, however, that after five (5) consecutive One Year Periods
of Severance, a former Participant's vested interest in his Accounts
attributable to Periods of Service prior to his One Year Period of Severance
shall not be increased as a result of his Periods of Service following his
reemployment date.
(c) If a Participant is fully vested in his Accounts, incurs a One Year Period
of Severance and again performs an Hour of Service, such Participant shall
receive credit for all his Periods of Service prior to his One Year Period of
Severance.
23
<PAGE>
SECTION 7
DISTRIBUTIONS
SECTION 7.01 DISTRIBUTION OF BENEFIT UPON A TERMINATION OF EMPLOYMENT.
--------------------------------------------------------
(a) A Participant whose employment terminates for any reason shall receive the
entire vested portion of his Accounts in a single payment on a date selected by
the Committee; provided, however, that such date shall be on or before the 60th
day after the end of the Plan Year in which the Participant's employment
terminated. The benefits from that portion of the Participant's Other
Investments Account shall be calculated on the basis of the most recent
Valuation Date before the date of payment. Subject to the provisions of Section
7.05 of the Plan, if the Committee so provides, a Participant may elect that his
benefits be distributed to him in the form of either Company Stock, cash, or
some combination thereof.
(b) Notwithstanding paragraph (a) of this Section 7.01, if the balance credited
to a Participant's Accounts exceeds, or has ever exceeded at the time such
benefit was distributable, $5,000, his benefits shall not be paid before the
latest of his 65th birthday or the tenth anniversary of the year in which he
commenced participation in the Plan, unless he elects an early payment date in a
written election filed with the Committee. Such an election is not valid unless
it is made after the Participant has received the required notice under Section
1.411(a)-11(c) of the Treasury Regulations that provides a general description
of the material features of a lump sum distribution and the Participant's right
to defer receipt of his benefits under the Plan. The notice shall be provided
no less than 30 days and no more than 90 days before the first day on which all
events have occurred which entitle the Participant to such benefit. Written
consent of the Participant to the distribution generally may not be made within
30 days of the date the Participant receives the notice and shall not be made
more than 90 days from the date the Participant receives the notice. However, a
distribution may be made less than 30 days after the notice provided under
Section 1.411(a)-11(c) of the Treasury Regulations is given, if:
(i) the Committee clearly informs the Participant that he has a right to
period of at least 30 days after receiving the notice to consider the
decision of whether or not to elect a distribution (and if applicable, a
particular distribution option), and
(ii) the Participant, after receiving the notice, affirmatively elects a
distribution.
A Participant may modify such an election at any time, provided any new benefit
payment date is at least 30 days after a modified election is delivered to the
Committee.
SECTION 7.02 MINIMUM DISTRIBUTION REQUIREMENTS.
---------------------------------
With respect to all Participants, other than those who are "5% owners" (as
defined in Section 416 of the Code), benefits shall be paid no later than the
April 1st of the later of:
24
<PAGE>
(i) the calendar year following the calendar year in which the
Participant attains age 70-1/2, or
(ii) the calendar year in which the Participant retires.
With respect to all Participants who are 5% owners within the meaning of Section
416 of the Code, such Participants benefits shall be paid no later than the
April 1st of the calendar year following the calendar year in which the
Participant attains age 70-1/2.
SECTION 7.03 BENEFITS ON A PARTICIPANT'S DEATH.
---------------------------------
(a) If a Participant dies before his benefits are paid pursuant to Section 7.01
of the Plan, the balance credited to his Accounts shall be paid to his
Beneficiary in a single distribution on or before the 60th day after the end of
the Plan Year in which the Participant died. If the Participant has not named a
Beneficiary or if his named Beneficiary should not survive him, then the balance
in his Account shall be paid to his estate. The benefits from that portion of
the Participant's Other Investments Account shall be calculated on the basis of
the most recent Valuation Date before the date of payment.
(b) If a married Participant dies before his benefit payments begin, then,
unless he has specifically elected otherwise, the Committee shall cause the
balance in his Accounts to be paid to his spouse, as Beneficiary. A married
Participant may name an individual other than his spouse as his Beneficiary,
provided that such election is accompanied by the spouse's written consent,
which must:
(i) acknowledge the effect of the election;
(ii) explicitly provide either that the designated Beneficiary may not
subsequently be changed by the Participant without the spouse's further
consent or that it may be changed without such consent; and
(iii) must be witnessed by the Committee, its representative, or a notary
public.
This requirement shall not apply if the Participant establishes to the
Committee's satisfaction that the spouse may not be located.
(c) The Committee shall from time to time take whatever steps it deems
appropriate to keep informed of each Participant's marital status. Each
Employer shall provide the Committee with the most reliable information in the
Employer's possession regarding its Participants' marital status, and the
Committee may, in its discretion, require a notarized affidavit from any
Participant as to his marital status. The Committee, the Plan, the Trustee, and
the Employers shall be fully protected and discharged from any liability to the
extent of any benefit payments made as a result of the Committee's good faith
and reasonable reliance upon information obtained from a Participant as to the
Participant's marital status.
25
<PAGE>
SECTION 7.04 DELAY IN BENEFIT DETERMINATION.
------------------------------
If the Committee is unable to determine the benefits payable to a Participant or
Beneficiary on or before the latest date prescribed for payment pursuant to this
Section 7, the benefits shall in any event be paid within 60 days after they can
first be determined, with whatever makeup payments may be appropriate in view of
the delay.
SECTION 7.05 OPTIONS TO RECEIVE AND SELL STOCK.
---------------------------------
(a) Unless ownership of virtually all Company Stock is restricted to active
Employees and qualified retirement plans for the benefit of Employees pursuant
to the certificates of incorporation or by-laws of the Employers issuing Company
Stock, a terminated Participant or the Beneficiary of a deceased Participant may
instruct the Committee to distribute the Participant's entire vested interest in
his Accounts in the form of Company Stock. In that event, the Committee shall
apply the Participant's vested interest in his Other Investments Account to
purchase sufficient Company Stock to make the required distribution.
(b) Any Participant who receives Company Stock pursuant to this Section, and
any person who has received Company Stock from the Plan or from such a
Participant by reason of the Participant's death or incompetency, by reason of
divorce or separation from the Participant, or by reason of a rollover
distribution described in Section 402(c) of the Code, shall have the right to
require the Employer which issued the Company Stock to purchase the Company
Stock for its current fair market value (hereinafter referred to as the "put
right"). The put right shall be exercisable by written notice to the Committee
during the first 60 days after the Company Stock is distributed by the Plan,
and, if not exercised in that period, during the first 60 days in the following
Plan Year after the Committee has communicated to the Participant its
determination as to the Company Stock's current fair market value. If the put
right is exercised, the Trustee may, if so directed by the Committee in its sole
discretion, assume the Employer's rights and obligations with respect to
purchasing the Stock. However, the put right shall not apply to the extent that
the Company Stock, at the time the put right would otherwise be exercisable, may
be sold on an established market in accordance with federal and state securities
laws and regulations.
(c) With respect to a put right, the Employer or the Trustee, as the case may
be, may elect to pay for the Company Stock in equal periodic installments, not
less frequently than annually, over a period not longer than five (5) years from
the 30th day after the put right is exercised pursuant to paragraph (b) of this
Section 7.05, with adequate security and interest at a reasonable rate on the
unpaid balance, all such terms to be set forth in a promissory note delivered to
the seller with normal terms as to acceleration upon any uncured default.
(d) Nothing contained in this Section 7.05 shall be deemed to obligate any
Employer to register any Company Stock under any federal or state securities law
or to create or maintain a public market to facilitate the transfer or
disposition of any Company Stock. The put right described in this Section
26
<PAGE>
7.05 may only be exercised by a person described in the paragraph (b) of this
Section 7.05, and may not be transferred with any Company Stock to any other
person. As to all Company Stock purchased by the Plan in exchange for any
Acquisition Loan, the put right be nonterminable. The put right for Company
Stock acquired through a Acquisition Loan shall continue with respect to such
Company Stock after the Acquisition Loan is repaid or the Plan ceases to be an
employee stock ownership plan. Except as provided above, in accordance with the
provisions of Sections 54.4975-7(b)(4) of the Treasury Regulations, no Company
Stock acquired with the proceeds of an Acquisition Loan may be subject to any
put, call or other option or buy-sell or similar arrangement while held by, and
when distributed from, the Plan, whether the Plan is then an employee stock
ownership plan.
SECTION 7.06 RESTRICTIONS ON DISPOSITION OF STOCK.
------------------------------------
Except in the case of Company Stock which is traded on an established market, a
Participant who receives Company Stock pursuant to this Section 7, and any
person who has received Company Stock from the Plan or from such a Participant
by reason of the Participant's death or incompetency, by reason of divorce or
separation from the Participant, or by reason of a rollover distribution
described in Section 402(c) of the Code, shall, prior to any sale or other
transfer of the Company Stock to any other person, first offer the Company Stock
to the issuing Employer and to the Plan at its current fair market value. This
restriction shall apply to any transfer, whether voluntary, involuntary, or by
operation of law, and whether for consideration or gratuitous. Either the
Employer or the Trustee may accept the offer within 14 days after it is
delivered. Any Company Stock distributed by the Plan shall bear a conspicuous
legend describing the right of first refusal under this Section 7.06, as
applicable, as well as any other restrictions upon the transfer of the Company
Stock imposed by federal and state securities laws and regulations.
SECTION 7.07 DIRECT TRANSFER OF ELIGIBLE PLAN DISTRIBUTIONS .
----------------------------------------------
(a) A Participant or Beneficiary may direct that an "eligible rollover
distribution" (as defined below) included in a payment made pursuant to this
Section 7 be paid directly to an "eligible retirement plan" (as defined below).
(b) To effect such a direct transfer, the Participant or Beneficiary must
notify the Committee that a direct transfer is desired and provide to the
Committee the eligible retirement plan to which the payment is to be made. Such
notice shall be made in such form and at such time as the Committee may
prescribe. Upon receipt of such notice, the Committee shall direct the Trustee
to make a trustee-to-trustee transfer of the eligible rollover distribution to
the eligible retirement plan so specified.
(c) For purposes of this Section 7.07, an "eligible rollover distribution"
shall have the meaning set forth in Section 402(c)(4) of the Code and any
Treasury Regulations promulgated thereunder. To the extent such meaning is not
inconsistent with the above references, an eligible rollover distribution shall
mean any distribution of all or any portion of the Participant's Account, except
that
27
<PAGE>
such term shall not include any distribution which is one of a series of
substantially equal periodic payments (not less frequently than annually) made
(i) for the life (or life expectancy) of the Participant or the joint lives (or
joint life expectancies) of the Participant and a designated Beneficiary, or
(ii) for a period of ten years or more. Further, the term "eligible rollover
distribution" shall not include any distribution required to be made under
Section 401(a)(9) of the Code.
(d) For purposes of this Section 7.07, an "eligible retirement plan" shall have
the meaning set forth in Section 402(c)(8) of the Code and any Treasury
Regulations promulgated thereunder. To the extent such meaning is not
inconsistent with the above references, an eligible retirement plan shall mean:
(i) an individual retirement account described in Section 408(a) of the Code;
(ii) an individual retirement annuity described in Section 408(b) of the Code
(other than an endowment contract), (iii) a qualified trust described in Section
401(a) of the Code and exempt under Section 501(a) of the Code, and (iv) an
annuity plan described in Section 403(a) of the Code.
28
<PAGE>
SECTION 8
VOTING OF COMPANY STOCK AND TENDER OFFERS
SECTION 8.01 VOTING OF COMPANY STOCK.
-----------------------
(a) IN GENERAL. The Trustee shall generally vote all shares of Company Stock
held in the Trust in accordance with the provisions of this Section 8.01.
(b) ALLOCATED SHARES. Shares of Company Stock which have been allocated to
Participants' Accounts shall be voted by the Trustee in accordance with the
Participants' written instructions.
(c) UNINSTRUCTED AND UNALLOCATED SHARES. Shares of Company Stock which have
been allocated to Participants' Accounts but for which no written instructions
have been received by the Trustee regarding voting shall be voted by the Trustee
in a manner calculated to most accurately reflect the instructions the Trustee
has received from Participants regarding voting shares of allocated Company
Stock. Shares of unallocated Company Stock shall also be voted by the Trustee
in a manner calculated to most accurately reflect the instructions the Trustee
has received from Participants regarding voting shares of allocated Company
Stock. Notwithstanding the preceding two sentences, all shares of Company Stock
which have been allocated to Participants' Accounts and for which the Trustee
has not timely received written instructions regarding voting and all
unallocated shares of Company Stock must be voted by the Trustee in a manner
determined by the Trustee to be solely in the best interests of the Participants
and Beneficiaries.
(d) VOTING PRIOR TO ALLOCATION. In the event no shares of Company Stock have
been allocated to Participants' Accounts at the time Company Stock is to be
voted, each Participant shall be deemed to have one share of Company Stock
allocated to his Accounts for the sole purpose of providing the Trustee with
voting instructions.
(e) PROCEDURE AND CONFIDENTIALITY. Whenever such voting rights are to be
exercised, the Employers, the Committee, and the Trustee shall see that all
Participants and Beneficiaries are provided with the same notices and other
materials as are provided to other holders of the Company Stock, and are
provided with adequate opportunity to deliver their instructions to the Trustee
regarding the voting of Company Stock allocated to their Accounts or deemed
allocated to their Accounts for purposes of voting. The instructions of the
Participants with respect to the voting of shares of Company Stock shall be
confidential.
SECTION 8.02 TENDER OFFERS.
-------------
In the event of a tender offer, Company Stock shall be tendered by the Trustee
in the same manner set forth in Section 8.01 of the Plan regarding the voting of
Company Stock.
29
<PAGE>
SECTION 9
THE COMMITTEE AND PLAN ADMINISTRATION
SECTION 9.01 IDENTITY OF THE COMMITTEE.
-------------------------
The Committee shall consist of three or more individuals selected by the Bank.
Any individual, including a director, trustee, shareholder, officer, or Employee
of an Employer, shall be eligible to serve as a member of the Committee. The
Bank shall have the power to remove any individual serving on the Committee at
any time without cause upon ten (10) days written notice to such individual and
any individual may resign from the Committee at any time without reason upon ten
(10) days written notice to the Bank. The Bank shall notify the Trustee of any
change in membership of the Committee.
SECTION 9.02 AUTHORITY OF COMMITTEE.
----------------------
(a) The Committee shall be the "plan administrator" within the meaning of
ERISA and shall have exclusive responsibility and authority to control and
manage the operation and administration of the Plan, including the
interpretation and application of its provisions, except to the extent such
responsibility and authority are otherwise specifically:
(i) allocated to the Bank, the Employers, or the Trustee under the Plan
and Trust Agreement;
(ii) delegated in writing to other persons by the Bank, the Employers, the
Committee, or the Trustee; or
(iii) allocated to other parties by operation of law.
(b) The Committee shall have exclusive responsibility regarding decisions
concerning the payment of benefits under the Plan.
(c) The Committee shall have full investment responsibility with respect to the
Investment Fund except to the extent, if any, specifically provided in the Trust
Agreement.
(d) In the discharge of its duties, the Committee may employ accountants,
actuaries, legal counsel, and other agents (who also may be employed by an
Employer or the Trustee in the same or some other capacity) and may pay such
individuals reasonable compensation and expenses for their services rendered
with respect to the operation or administration of the Plan to the extent such
payments are not otherwise prohibited by law.
30
<PAGE>
SECTION 9.03 DUTIES OF COMMITTEE.
-------------------
(a) The Committee shall keep whatever records may be necessary in connection
with the maintenance of the Plan and shall furnish to the Employers whatever
reports may be required from time to time by the Employers. The Committee shall
furnish to the Trustee whatever information may be necessary to properly
administer the Trust. The Committee shall see to the filing with the
appropriate government agencies of all reports and returns required with respect
to the Plan under ERISA and the Code and other applicable laws.
(b) The Committee shall have exclusive responsibility and authority with
respect to the Plan's holdings of Company Stock and shall direct the Trustee in
all respects regarding the purchase, retention, sale, exchange, and pledge of
Company Stock and the creation and satisfaction of any Acquisition Loan to the
extent such responsibilities are not set forth in the Trust Agreement.
(c) The Committee shall at all times act consistently with the Bank's long-term
intention that the Plan, as an employee stock ownership plan, be invested
primarily in Company Stock. Subject to the direction of the Committee with
respect to any Acquisition Loan pursuant to the provisions of Section 4.03 of
the Plan, and subject to the provisions of Sections 7.05 and 11.04 of the Plan
as to Participants' rights under certain circumstances to have their Accounts
invested in Company Stock or in assets other than Company Stock, the Committee
shall determine, in its sole discretion, the extent to which assets of the Trust
shall be used to repay any Acquisition Loan, to purchase Company Stock, or to
invest in other assets selected by the Committee or an investment manager. No
provision of the Plan relating to the allocation or vesting of any interests in
the Company Stock or investments other than Company Stock shall restrict the
Committee from changing any holdings of the Trust Fund, whether the changes
involve an increase or a decrease in the Company Stock or other assets credited
to Participants' Accounts. In determining the proper extent of the Trust Fund's
investment in Company Stock, the Committee shall be authorized to employ
investment counsel, legal counsel, appraisers, and other agents and to pay their
reasonable compensation and expenses to the extent such payments are not
prohibited by law.
(d) If the valuation of any Company Stock is not established by reported
trading on a generally recognized public market, then the Committee shall have
the exclusive authority and responsibility to determine value of the Company
Stock for all purposes under the Plan. Such value shall be determined as of each
Valuation Date and on any other date as of which the Trustee purchases or sells
Company Stock in a manner consistent with Section 4975 of the Code and the
Treasury Regulations thereunder. The Committee shall use generally accepted
methods of valuing stock of similar corporations for purposes of arm's length
business and investment transactions, and in this connection the Committee shall
obtain, and shall be protected in relying upon, the valuation of Company Stock
as determined by an independent appraiser experienced in preparing valuations of
similar businesses.
31
<PAGE>
SECTION 9.04 COMPLIANCE WITH ERISA AND THE CODE.
----------------------------------
The Committee shall perform all acts necessary to ensure the Plan's compliance
with ERISA and the Code. Each individual member of the Committee shall
discharge his duties in good faith and in accordance with the applicable
requirements of ERISA and the Code.
SECTION 9.05 ACTION BY COMMITTEE.
-------------------
All actions of the Committee shall be governed by the affirmative vote of a
number of the members of the Committee which is a majority of the total number
of the members of the Committee. The members of the Committee may meet
informally and may take any action without meeting as a group.
SECTION 9.06 EXECUTION OF DOCUMENTS.
----------------------
Any instrument executed by the Committee may be signed by any member of the
Committee.
SECTION 9.07 ADOPTION OF RULES.
-----------------
The Committee shall adopt such rules and regulations of uniform applicability as
it deems necessary or appropriate for the proper operation, administration and
interpretation of the Plan.
SECTION 9.08 RESPONSIBILITIES TO PARTICIPANTS.
--------------------------------
The Committee shall determine which Employees qualify to participate in the
Plan. The Committee shall furnish to each Eligible Employee whatever summary
plan descriptions, summary annual reports, and other notices and information may
be required under ERISA. The Committee also shall determine when a Participant
or his Beneficiary qualifies for the payment of benefits under the Plan. The
Committee shall furnish to each such Participant or Beneficiary whatever
information is required under ERISA or the Code (or is otherwise appropriate) to
enable the Participant or Beneficiary to make whatever elections may be
available pursuant to Section 7, and the Committee shall provide for the payment
of benefits in the proper form and amount from the Trust. The Committee may
decide in its sole discretion to permit modifications of elections and to defer
or accelerate benefits to the extent consistent with the terms of the Plan,
applicable law, and the best interests of the individuals concerned.
SECTION 9.09 ALTERNATIVE PAYEES IN EVENT OF INCAPACITY.
-----------------------------------------
If the Committee finds at any time that an individual qualifying for benefits
under this Plan is a minor or is incompetent, the Committee may direct the
benefits to be paid, in the case of a minor, to his parents, his legal guardian,
a custodian for him under the Uniform Transfers to Minors Act, or the person
having actual custody of him, or, in the case of an incompetent, to his spouse,
his legal
32
<PAGE>
guardian, or the person having actual custody of him. The Committee and the
Trustee shall not be obligated to inquire as to the actual use of the funds by
the person receiving them under this Section 9.09, and any such payment shall
completely discharge the obligations of the Plan, the Trustee, the Committee,
and the Employers to the extent of the payment.
SECTION 9.10 INDEMNIFICATION BY EMPLOYERS.
----------------------------
Except as separately agreed in writing, the Committee, and any member or
employee of the Committee, shall be indemnified and held harmless by the
Employers, jointly and severally, to the fullest extent permitted by law against
any and all costs, damages, expenses, and liabilities reasonably incurred by or
imposed upon the Committee or such individual in connection with any claim made
against the Committee or such individual or in which the Committee or such
individual may be involved by reason of being, or having been, the Committee, or
a member or employee of the Committee, to the extent such amounts are not paid
by insurance.
SECTION 9.11 ABSTENTION BY INTERESTED MEMBER.
-------------------------------
Any member of the Committee who also is a Participant in the Plan shall take no
part in any determination specifically relating to his own participation or
benefits under the Plan, unless his abstention would render the Committee
incapable of acting on the matter.
33
<PAGE>
SECTION 10
RULES GOVERNING BENEFIT CLAIMS
SECTION 10.01 CLAIM FOR BENEFITS.
------------------
Any Participant or Beneficiary who qualifies for the payment of benefits shall
file a claim for his benefits with the Committee on a form provided by the
Committee. The claim, including any election of an alternative benefit form,
shall be filed at least 30 days before the date on which the benefits are to
begin. If a Participant or Beneficiary fails to file a claim by the 30th day
before the date on which benefits become payable, he shall be presumed to have
filed a claim for payment for the Participant's benefits in the standard form
prescribed by Section 7 of the Plan.
SECTION 10.02 NOTIFICATION BY COMMITTEE.
-------------------------
Within 90 days after receiving a claim for benefits (or within 180 days, if
special circumstances require an extension of time and written notice of the
extension is given to the Participant or Beneficiary within 90 days after
receiving the claim for benefits), the Committee shall notify the Participant or
Beneficiary whether the claim has been approved or denied. If the Committee
denies a claim in any respect, the Committee shall set forth in a written notice
to the Participant or Beneficiary:
(a) each specific reason for the denial;
(b) specific references to the pertinent Plan provisions on which the denial is
based;
(c) a description of any additional material or information which could be
submitted by the Participant or Beneficiary to support his claim, with an
explanation of the relevance of such information; and
(d) an explanation of the claims review procedures set forth in Section 10.03
of the Plan.
SECTION 10.03 CLAIMS REVIEW PROCEDURE.
-----------------------
Within 60 days after a Participant or Beneficiary receives notice from the
Committee that his claim for benefits has been denied in any respect, he may
file with the Committee a written notice of appeal setting forth his reasons for
disputing the Committee's determination. In connection with his appeal the
Participant or Beneficiary or his representative may inspect or purchase copies
of pertinent documents and records to the extent not inconsistent with other
Participants' and Beneficiaries' rights of privacy. Within 60 days after
receiving a notice of appeal from a prior determination (or within 120 days, if
special circumstances require an extension of time and written notice of the
extension is given to the Participant or Beneficiary and his representative
within 60 days after receiving the notice of appeal), the Committee shall
furnish to the Participant or
34
<PAGE>
Beneficiary and his representative, if any, a written statement of the
Committee's final decision with respect to his claim, including the reasons for
such decision and the particular Plan provisions upon which it is based.
35
<PAGE>
SECTION 11
THE TRUST
SECTION 11.01 CREATION OF TRUST FUND.
----------------------
All amounts received under the Plan from an Employer and investments shall be
held in a Trust Fund pursuant to the terms of this Plan and the Trust Agreement.
The benefits described in this Plan shall be payable only from the assets of the
Trust Fund. Neither the Bank, any other Employer, its board of directors or
trustees, its stockholders, its officers, its employees, the Committee, nor the
Trustee shall be liable for payment of any benefit under this Plan except from
the Trust Fund.
SECTION 11.02 COMPANY STOCK AND OTHER INVESTMENTS.
-----------------------------------
Trust Fund held by the Trustee shall be divided into Company Stock and
investments other than Company Stock. The Trustee shall have no investment
responsibility for the portion of the Trust Fund consisting of Company Stock,
but shall accept any Employer contributions made in the form of Company Stock,
and shall acquire, sell, exchange, distribute, and otherwise deal with and
dispose of Company Stock in accordance with the instructions of the Committee.
SECTION 11.03 ACQUISITION OF COMPANY STOCK.
----------------------------
From time to time the Committee may, in its sole discretion, direct the Trustee
to acquire Company Stock from the issuing Employer or from shareholders,
including shareholders who are or have been Employees, Participants, or
fiduciaries with respect to the Plan. The Trustee shall pay for such Company
Stock no more than its fair market value, which shall be determined conclusively
by the Committee pursuant to Section 9.03(d) of the Plan. The Committee may
direct the Trustee to finance the acquisition of Company Stock through an
Acquisition Loan subject to the provisions of Section 4.03 of the Plan.
SECTION 11.04 PARTICIPANTS' OPTION TO DIVERSIFY.
---------------------------------
The Committee shall provide for a procedure under which each Participant may,
during the first five years of a certain six-year period, elect to have up to 25
percent of the value of his Accounts committed to alternative investment options
within an "Investment Fund." For the sixth year in this period, the Participant
may elect to have up to 50 percent of the value of his Accounts committed to
other investments. The six-year period shall begin with the Plan Year following
the first Plan Year in which the Participant has both reached aged 55 and
completed 10 years of participation in the Plan; a Participant's election to
diversify his Accounts must be made within the 90-day period immediately
following the last day of each of the six Plan Years. The Committee shall see
that the Investment Fund includes a sufficient number of investment options to
comply with Section 401(a)(28)(B) of the Code. The Committee may, in its
discretion, permit a transfer of a portion of the Participant's Accounts to the
Savings Plan in order to satisfy this Section 11.04, provided such
36
<PAGE>
investments comply with Section 401(a)(28)(B) and such transfer is not otherwise
prohibited under the Code or ERISA. The Trustee shall comply with any investment
directions received from Participants in accordance with the procedures adopted
from time to time by the Committee under this Section 11.04.
37
<PAGE>
SECTION 12
ADOPTION, AMENDMENT AND TERMINATION
SECTION 12.01 ADOPTION OF PLAN BY OTHER EMPLOYERS.
-----------------------------------
With the consent of the Bank, any entity may become a participating Employer
under the Plan by:
(a) taking such action as shall be necessary to adopt the Plan;
(b) becoming a party to the Trust Agreement establishing the Trust Fund; and
(c) executing and delivering such instruments and taking such other action as
may be necessary or desirable to put the Plan into effect with respect to the
entity's Employees.
SECTION 12.02 ADOPTION OF PLAN BY SUCCESSOR.
-----------------------------
In the event that any Employer shall be reorganized by way of merger,
consolidation, transfer of assets or otherwise, so that an entity other than an
Employer shall succeed to all or substantially all of the Employer's business,
the successor entity may be substituted for the Employer under the Plan by
adopting the Plan and becoming a party to the Trust Agreement. Contributions by
the Employer shall be automatically suspended from the effective date of any
such reorganization until the date upon which the substitution of the successor
entity for the Employer under the Plan becomes effective. If, within 90 days
following the effective date of any such reorganization, the successor entity
shall not have elected to become a party to the Plan, or if the Employer shall
adopt a plan of complete liquidation other than in connection with a
reorganization, the Plan shall be automatically terminated with respect to
Employees of the Employer as of the close of business on the 90th day following
the effective date of the reorganization, or as of the close of business on the
date of adoption of a plan of complete liquidation, as the case may be.
SECTION 12.03 PLAN ADOPTION SUBJECT TO QUALIFICATION.
--------------------------------------
Notwithstanding any other provision of the Plan, the adoption of the Plan and
the execution of the Trust Agreement are conditioned upon their being determined
initially by the Internal Revenue Service to meet the qualification requirements
of Section 401(a) of the Code, so that the Employers may deduct currently for
federal income tax purposes their contributions to the Trust and so that the
Participants may exclude the contributions from their gross income and recognize
income only when they receive benefits. In the event that this Plan is held by
the Internal Revenue Service not to qualify initially under Section 401(a) of
the Code, the Plan may be amended retroactively to the earliest date permitted
by the Code and the applicable Treasury Regulations in order to secure
qualification under Section 401(a) of the Code. If this Plan is held by the
Internal Revenue Service not to qualify initially under Section 401(a) of the
Code either as originally adopted or as amended, each Employer's contributions
to the Trust under this Plan (including any earnings thereon) shall be
38
<PAGE>
returned to it and this Plan shall be terminated. In the event that this Plan is
amended after its initial qualification and the Plan as amended is held by the
Internal Revenue Service not to qualify under Section 401(a) of the Code, the
amendment may be modified retroactively to the earliest date permitted by the
Code and the applicable Treasury Regulations in order to secure approval of the
amendment under Section 401(a) of the Code.
SECTION 12.04 RIGHT TO AMEND OR TERMINATE.
---------------------------
The Bank intends to continue this Plan as a permanent program. However, each
participating Employer separately reserves the right to suspend, supersede, or
terminate the Plan at any time and for any reason, as it applies to that
Employer's Employees, and the Bank reserves the right to amend, suspend,
supersede, merge, consolidate, or terminate the Plan at any time and for any
reason, as it applies to the Employees of all Employers. No amendment,
suspension, supersession, merger, consolidation, or termination of the Plan
shall reduce any Participant's or Beneficiary's proportionate interest in the
Trust Fund, or shall divert any portion of the Trust Fund to purposes other than
the exclusive benefit of the Participants and their Beneficiaries prior to the
satisfaction of all liabilities under the Plan. Except as is required for
purposes of compliance with the Code or ERISA, the provisions of Section 4.04
relating to the crediting of contributions, forfeitures and shares of Company
Stock released from the Loan Suspense Account, nor any other provision of the
Plan relating to the allocation of benefits to Participants, may be amended more
frequently than once every six months. Moreover, there shall not be any transfer
of assets to a successor plan or merger or consolidation with another plan
unless, in the event of the termination of the successor plan or the surviving
plan immediately following such transfer, merger, or consolidation, each
participant or beneficiary would be entitled to a benefit equal to or greater
than the benefit he would have been entitled to if the plan in which he was
previously a participant or beneficiary had terminated immediately prior to such
transfer, merger, or consolidation. Following a termination of this Plan by the
Bank, the Trustee shall continue to administer the Trust and pay benefits in
accordance with the Plan and the Committee's instructions.
39
<PAGE>
SECTION 13
GENERAL PROVISIONS
SECTION 13.01 NONASSIGNABILITY OF BENEFITS.
----------------------------
The interests of Participants and other persons entitled to benefits under the
Plan shall not be subject to the claims of their creditors and may not be
voluntarily or involuntarily assigned, alienated, pledged, encumbered, sold, or
transferred. The prohibitions set forth in this Section 13.01 shall also apply
any judgement, decree, or order (including approval of a property or settlement
agreement) which relates to the provision of child support, alimony, or property
rights to a present or former spouse, child, or other dependent of a Participant
pursuant to a domestic relations order, unless such judgement, decree or order
is determined to be a "qualified domestic relations order" as defined in Section
414(p) of the Code.
SECTION 13.02 LIMIT OF EMPLOYER LIABILITY.
---------------------------
The liability of the Employers with respect to Participants and other persons
entitled to benefits under the Plan shall be limited to making contributions to
the Trust from time to time, in accordance with Section 4 of the Plan.
SECTION 13.03 PLAN EXPENSES.
-------------
All expenses incurred by the Committee or the Trustee in connection with
administering the Plan and Trust shall be paid by the Trustee from the Trust
Fund to the extent the expenses have not been paid or assumed by the Employers
or by the Trustee.
SECTION 13.04 NONDIVERSION OF ASSETS.
----------------------
Except as provided in Sections 5.05 and 12.03 of the Plan, under no
circumstances shall any portion of the Trust Fund be diverted to or used for any
purpose other than the exclusive benefit of the Participants and their
Beneficiaries prior to the satisfaction of all liabilities under the Plan.
SECTION 13.05 SEPARABILITY OF PROVISIONS.
--------------------------
If any provision of the Plan is held to be invalid or unenforceable, the other
provisions of the Plan shall not be affected but shall be applied as if the
invalid or unenforceable provision had not been included in the Plan.
SECTION 13.06 SERVICE OF PROCESS.
------------------
The agent for the service of process upon the Plan shall be the president of the
Bank and the Trustee, or such other person as may be designated from time to
time by the Bank.
40
<PAGE>
SECTION 13.07 GOVERNING LAW.
-------------
The Plan is established under, and its validity, construction and effect shall
be governed by the laws of the State of New Jersey to the extent those laws are
not preempted by federal law, including the provisions of ERISA.
SECTION 13.08 SPECIAL RULES FOR PERSONS SUBJECT TO SECTION 16(B) REQUIREMENTS.
---------------------------------------------------------------
Notwithstanding anything herein to the contrary, any former Participant who is
subject to the provisions of Section 16(b) of the Securities Exchange Act of
1934, who becomes eligible to again participate in the Plan, may not become a
Participant prior to the date that is six months from the date such former
Participant terminated participation in the Plan. In addition, any person
subject to the provisions of Section 16(b) of the 1934 Act receiving a
distribution of Company Stock from the Plan must hold such Company Stock for a
period of six months commencing with the date of distribution. However, this
restriction will not apply to Company Stock distributions made in connection
with death, retirement, disability or termination of employment, or made
pursuant to the terms of a qualified domestic relations order.
41
<PAGE>
SECTION 14
TOP-HEAVY PROVISIONS
SECTION 14.01 TOP-HEAVY PROVISIONS.
--------------------
If, as of the last day of the first Plan Year, or thereafter, if as of the day
next preceding the beginning of any Plan Year (the "Determination Date"), the
Plan is a "top-heavy plan" (determined in accordance with the provisions of
Section 416(g) of the Code); that is, the aggregate present value of the accrued
benefits and account balances of all "Key Employees" (within the meaning of
Section 416(i) of the Code and for this purpose using the definition of
Compensation, as modified under Section 5.5(b) of the Plan) and their
Beneficiaries, the provision specified in this Section 14 will automatically
become effective as of the first day of the Plan Year. For purposes of the
above sentence, the aggregate present value of the accrued benefits and account
balances of a Participant who has not performed any services for the Bank or any
of its Affiliates during the five-year period ending on the Determination Date
shall not be taken into account. This calculation shall be made in accordance
with Section 416(g) of the Code, taking into consideration plans which are
considered part of the Aggregation Group. The term "Aggregation Group" shall
include each plan of the Bank or any of its Affiliates that includes a Key
Employee and each plan of the Bank or any of its Affiliates that allows the Plan
to meet the requirements of Section 401(a)(4) of the Code or Section 410 of the
Code and may include any other plan of the Bank or any of its Affiliates, if the
Aggregation Group would continue to meet the requirements of Sections 401(a)(4)
and 410 of the Code.
SECTION 14.02 PLAN MODIFICATIONS UPON BECOMING TOP-HEAVY.
------------------------------------------
(a) MINIMUM ACCRUALS. Section 5.04 of the Plan will be modified to provide that
the aggregate amount of Employer contributions allocated in each Plan Year to
the Accounts of each Participant who is a Non-Key Employee (within the meaning
of Section 416(i)(1) of the Code), and who is employed by an Employer as of the
last day of the Plan Year, may not be less than the lesser of:
(i) three percent of his Compensation for the Plan Year; and
(ii) a percentage of his Compensation equal to the largest percentage
obtained by dividing the sum of the amount credited to the Accounts of any
key Employee by that key Employee's Compensation; and
(b) SECTION 415(E) OF THE CODE. Section 5.05 of the Plan will be modified to
provide that the dollar limitations in the denominators of the "defined benefit
plan fraction" and "defined contribution plan fraction" (as such terms are
defined in Section 415(e) of the Code) will be multiplied by 1.0 instead of
1.25. However, the above sentence shall not apply if "four percent" is
substituted for "three percent" in paragraph (a) of this Section 14.02.
42
<PAGE>
The preceding provisions will remain in effect for the period in which the Plan
is top-heavy. If, for any particular year thereafter, the Plan is no longer
top-heavy, the provisions contained in this Section 14 shall cease to apply,
except that any previously vested portion of any Account balance shall remain
nonforfeitable.
SECTION 14.03 SUPER TOP-HEAVY PROVISIONS.
--------------------------
If, as of a Determination Date, the aggregate present value of the accrued
benefits and Account balances of all "Key Employees" (within the meaning of
Section 416(i) of the Code) and their Beneficiaries exceed 90% of the aggregate
present value of the accrued benefits and Account balances of all Participants
and Beneficiaries, paragraph (a) of Section 14.02 will automatically become
effective as of the first day of such Plan Year, except that Section 14.02(b) of
the Plan will be modified to provide that the dollar limitations in the
denominators of the defined benefit plan fraction and defined contribution plan
fraction in Section 5.05 of the Plan shall be multiplied by 1.0 instead of 1.25,
whether or not the minimum benefit is increased under Section 14.02(a) of the
Plan.
43
<PAGE>
EXHIBIT 10.2 FORM OF WEST ESSEX BANK EMPLOYEE STOCK OWNERSHIP PLAN TRUST
<PAGE>
FORM OF
TRUST AGREEMENT
BETWEEN
WEST ESSEX BANK
AND
***
FOR THE
WEST ESSEX BANK
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
Section 1 Creation of Trust 1
Section 2 Investment of Trust Fund and
Administrative Powers of the
Trustee 2
Section 3 Compensation and Indemnification
of Trustee and Payment of Expenses
and Taxes 7
Section 4 Records and Valuation 8
Section 5 Instructions from Committee 9
Section 6 Change of Trustees 10
Section 7 Miscellaneous 11
</TABLE>
<PAGE>
This TRUST AGREEMENT [DATE] BETWEEN West Essex Bank, a federally-chartered
savings bank with its principal office at 417 Bloomfield Avenue, Coldwell, NJ
07006-4980 (hereinafter called the "Bank"), AND ***, with offices at ***
(hereinafter called the "Trustee"),
W I T N E S S E T H T H A T:
WHEREAS, effective [JANUARY 1, 1998], the Bank approved and adopted an
employee stock ownership plan for the benefit of its employees, West Essex Bank
Employee Stock Ownership Plan, (hereinafter called the "Plan"); and
WHEREAS, the Bank has authorized the execution of this Trust Agreement and
has appointed *** as Trustee of the Trust Fund created pursuant to the Plan; and
WHEREAS, *** has agreed to act as trustee and to hold and administer the
assets of the Plan in accordance with the terms of this Trust Agreement;
NOW, THEREFORE, the Bank and the Trustee agree as follows:
Section 1. Creation of Trust.
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1.1 Trustee. *** shall be trustee of the Trust Fund created in accordance
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with and in furtherance of the Plan, and shall serve as Trustee until its
removal or resignation in accordance with Section 6.
1.2 Trust Fund. The Trustee hereby agrees to accept contributions from
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the Employer as defined in the Plan and amounts transferred from other qualified
retirement plans from time to time in accordance with the terms of the Plan.
All such property and contributions, together with income thereon and increments
thereto, shall constitute the "Trust Fund" to be held in accordance with the
terms of the Trust Agreement.
1.3 Incorporation of Plan. An instrument entitled "West Essex Bank
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Employee Stock Ownership Plan" is incorporated herein by reference, and this
Trust Agreement shall be interpreted consistently with that Plan. All words and
phrases defined in that Plan shall have the same meaning when used in this Trust
Agreement, unless otherwise noted.
1.4 Name. The name of this trust shall be "West Essex Bank Employee Stock
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Ownership Plan Trust."
1.5 Nondiversion of Assets. In no event shall any part of the corpus or
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income of the Trust Fund be used for, or diverted to, purposes other than for
the exclusive benefit of the Participants and their Beneficiaries prior to the
satisfaction of all liabilities under the Plan, except to the extent that assets
may be returned to the Employer in accordance with the Plan where the Plan fails
to qualify initially under Section 401(a) of the Internal Revenue Code (the
"Code"), or where they are attributable to contributions made by mistake of fact
or in excess of the deductibility allowed under the Code.
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Section 2. Investment of Trust Fund and Administrative Powers of the
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Trustee.
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2.1 Stock and Other Investments. The basic investment policy of the Plan
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shall be to invest primarily in Stock of the Employer for the exclusive benefit
of the Participants and their Beneficiaries. The Committee shall have full and
complete investment authority and responsibility with respect to the purchase,
retention, sale, exchange, and pledge of Stock and the payment of Stock
Obligations, and the Trustee shall not deal in any way with Stock except in
accordance with their obligations pursuant to this trust document and the
written instructions of the Committee. The Trustee shall invest, or keep
invested, all or a portion of the Trust Fund in Stock, and shall pay Stock
Obligations out of assets of the Trust Fund, as instructed from time to time by
the Committee. The Trustee shall invest any balance of the Trust Fund (the
"Investment Fund") in such other property as the Committee, in its sole
discretion, shall deem advisable, subject to any delegation of such investment
responsibility pursuant to Section 2.2. Nothing contained herein shall provide
investment discretion authority or any like kind responsibility in regard to the
assets of the Trust Fund.
In connection with instructions to acquire Stock, the Trustee may purchase
newly issued or outstanding Stock from the Employer or any other holders of
Stock, including Participants, Beneficiaries, and Plan fiduciaries. All
purchases and sales of Stock shall be made by the Trustee at fair market value
as determined by the Committee in good faith and in accordance with any
applicable requirements under the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). Such purchases may be made with assets of the Trust
Fund, with funds borrowed for this purpose (with or without guarantees of
repayment to the lender by the Employer), or by any combination of the
foregoing.
Notwithstanding any other provision of this Trust Agreement or the Plan,
neither the Committee nor Trustee shall make any purchase, sale, exchange,
investment, pledge, valuation, or loan, or take any other action involving those
assets for which it is responsible which (i) is inconsistent with the policy of
the Plan and Trust, (ii) is inconsistent with the prudence and diversification
requirements set forth in Sections 404(a)(1)(B) and (C) of ERISA (to the extent
such requirements apply to an employee stock ownership plan and trust), (iii) is
prohibited by Section 406 or 407 of ERISA, or (iv) would impair the
qualification of the Plan or the exemption of the Trust under Sections 401 and
501, respectively, of the Code.
2.2 Delegation of Investment Responsibility. The Committee may, by
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written notice and in accordance with the Plan, direct the Trustee to segregate
any portion or all of the Investment Fund into one or more separate accounts for
each of which full investment responsibility will be delegated to an investment
manager appointed in such notice pursuant to Section 402(c)(3) of ERISA
(hereinafter a "Manager"). For any separate account where the Trustee is to
maintain custody of the assets, the Trustee and the Manager shall agree upon
procedures for the transmittal of investment instructions from the Manager to
the Trustee, and the Trustee may provide the Manager with such documents as may
be necessary to authorize the Manager to effect transactions directly on behalf
of the segregated account.
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Further, the Committee may, by written notice and in accordance with the
Plan, direct the Trustee to segregate any portion or all of the Investment Fund
into one or more separate accounts for each of which full investment
responsibility will be delegated to an insurance company through one or more
group annuity contracts, deposit administration contracts, or similar contracts,
which may provide for investments in any commingled separate accounts
established under such contracts. An insurance company shall be a Manager with
respect to any amounts held under such a contract except to the extent the
insurer's assets are not deemed assets of the Plan and Trust Fund pursuant to
Section 401(b)(2) of ERISA. The allocation of amounts held under such a
contract among the insurer's general account and one or more individual or
commingled separate accounts shall be determined by the Committee except as
otherwise agreed by the Committee and the insurer.
Any Manager shall have all of the powers given to the Trustee pursuant to
Section 2.3 with respect to the portion of the Trust Fund committed to its
investment discretion and control. The Trustee shall be responsible for the
safekeeping of any assets which remain in its custody, but in no event shall the
Trustee be under any duty to question or make any inquiry or suggestion
regarding the action or inaction of a Manager or an insurer or the advisability
of acquiring, retaining, or disposing of any asset of a segregated account. The
Employer shall indemnify and hold the Trustee harmless from any and all costs,
damages, expenses, and liabilities which the Trustee may incur by reason of any
action taken or omitted to be taken by the Trustee upon directions from the
Committee, a Manager, or an insurer pursuant to this Section 2.2.
2.3 Trustee Powers. In addition to and not by way of limitation upon the
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fiduciary powers granted to it by law, the Trustee shall have the following
specific powers, subject to the limitations set forth in Section 2.1:
2.3-1 to receive, hold, manage, invest and reinvest the money or other
property which constitutes the Trust Fund, without distinction between principal
and income;
2.3-2 to hold funds uninvested temporarily, provided it is a period of
time that is not unreasonable, without liability for interest thereon, and to
deposit funds in one or more savings or similar accounts with any banks and
savings and loan associations which are insured by an instrumentality of the
federal government, including the Trustee if it is such an institution.
2.3-3 at the direction of the Committee, to invest or reinvest the whole
or any portion of the money or other property which constitutes the Trust Fund
in such common or preferred stocks, investment trust shares, mutual funds,
commingled trust funds, partnership interests, bonds, notes, or other evidences
of indebtedness, and real and personal property as the Trustee in its absolute
judgment and discretion may deem to be for the best interests of the Trust Fund,
regardless of nondiversification to the extent that such nondiversification is
clearly prudent, and regardless of whether any such investment or property is
authorized by law regarding the investment of trust funds, of a wasting asset
nature, temporarily nonincome producing, or within or without the United States;
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2.3-4 to invest in common and preferred stocks, bonds, notes, or other
obligations of any corporation or business enterprise in which an Employer or
its owners may own an interest;
2.3-5 at the direction of the Committee, to exchange any investment or
property, real or personal, for other investments or properties at such time and
upon such terms as the Trustee shall deem proper;
2.3-6 at the direction of the Committee, to sell, transfer, convey or
otherwise dispose of any investment or property, real or personal, for cash or
on credit, in such manner and upon such terms and conditions as the Trustee
shall deem advisable, and no person dealing with the Trustee shall be under any
duty to inquire as to the validity, expediency, or propriety of any such sale or
as to the application of the purchase money paid to the Trustee;
2.3-7 to hold any investment or property in the name of the Trustee, with
or without the designation of any fiduciary capacity, or in name of a nominee,
or unregistered, or in such other form that title may pass by delivery;
provided, however, that the Trustee's records always show that such investment
or property belongs to the Trust Fund and the Trustee shall not be relieved
hereby of its responsibility to maintain safe custody of such investment or
property;
2.3-8 to organize one or more corporations to hold, manage, or liquidate
any property, including real estate, owned or acquired by the Trust Fund if in
the sole discretion of the Trustee the organization of such corporation or
corporations is for the best interest of the Trust and the Plan participants and
beneficiaries;
2.3-9 to extend the time for payment of, to modify, to renew, or to
release security from any mortgage, note or other evidence of indebtedness, or
to take advantage of or waive any default; to foreclose mortgages and bid on
property under foreclosure or to take title to property by conveyance in lieu of
foreclosure, either with or without the payment of additional consideration;
2.3-10 to vote in person or by proxy all stocks and other securities
having voting privileges; to exercise or refrain from exercising any option or
privilege with respect to stocks and other securities, including any right or
privilege to subscribe for or otherwise to acquire stocks and other securities;
or to sell any such right or privilege; to assent to and join in any plan of
refinance, merger, consolidation, reorganization or liquidation of any
corporation or other enterprise in which this Trust may have an interest, to
deposit stocks and other securities with any committee formed to effectuate the
same, to pay any expense incidental thereto, to exchange stocks and other
securities for those which may be issued pursuant to any such plan, and to
retain as an investment the stocks and other securities received by the Trustee;
and to deposit any investment in a voting trust; notwithstanding the preceding,
participants and beneficiaries shall be entitled to direct the manner in which
stock allocated to their respective accounts are to be voted on all matters.
All stock which has been allocated to participant's accounts for which the
Trustee has received no written direction and all unallocated Employer
securities will be voted by the Trustee in direct proportion to any participant
directions received and solely in the interest of the participants and
beneficiaries. Whenever such
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voting rights are to be exercised, the Employer, the Committee and the Trustee
shall see that all participants and beneficiaries are provided with adequate
opportunity to deliver their instructions to the Trustee regarding voting of
stock allocated to their accounts. The instructions of the participants with
respect to the voting of allocated shares hereunder shall be confidential;
2.3-11 to abandon any property, real or personal, which the Trustee shall
consider to be worthless or not of sufficient value to warrant its keeping or
protecting; to abstain from the payment of taxes, water rents, assessments,
repairs, maintenance, and upkeep of any such property; to permit any such
property to be lost by tax sale or other proceedings, and to convey any such
property for a nominal consideration or without consideration;
2.3-12 to borrow money from the Employer or from others (including the
Trustee), and to enter into installment contracts, for the purchase of Stock
upon such terms and conditions and at such reasonable rates of interest as the
Committee may deem to be advisable, to issue its promissory notes as Trustee to
evidence such debt, to secure the payment of such notes by pledging any property
of the Trust Fund, and to authorize the holders of any such notes to pledge them
to secure obligations of the holders and in connection therewith to repledge any
assets of the Trust as security therefor; provided that, with respect to any
extension of credit to the Trust involving, as a lender or guarantor, the
Employer or other "disqualified person" within the meaning of Section 4975(e)(2)
of the Code:
(a) each loan or installment contract is primarily for the benefit of
Participants and Beneficiaries of the Plan;
(b) any interest on a loan or installment contract does not exceed a
reasonable rate;
(c) the proceeds of any loan shall be used only to acquire Stock, to repay
the loan, or to repay a previous loan meeting these conditions, and the
subject of any installment contract shall be only the Trust's purchase
of Stock;
(d) any collateral pledged to a creditor by the Trustee shall consist only
of qualifying employer securities as that term is defined under Section
4975(e)(8) of the Code and any other collateral permissible under
applicable law and the creditor shall have no recourse against the
Trust Fund except with respect to the collateral (although the creditor
may have recourse against an Employer as guarantor);
(e) payments with respect to a loan or installment contract shall be made
only from those amounts contributed by the Employer to the Trust Fund,
from amounts earned on such contributions, and from cash dividends
received on unallocated Stock held by the Trust as collateral for such
an obligation; and
(f) upon the payment of any portion of balance due on a loan or upon any
installment payment, a proportionate part of any qualified employer
securities originally pledged as collateral for such indebtedness shall
be released from encumbrance in accordance with the applicable
provisions of the Plan and the Committee shall at least annually advise
the Trustee of the number of shares of Stock so released and the proper
allocation of such shares under the terms of the Plan;
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2.3-13 to manage and operate any real property which shall at any time
constitute an asset of the Trust Fund; to make repairs, alterations, and
improvements thereto; to insure such property against loss by fire or other
casualty; to lease or grant options for the sale of such property, which lease
or option may be for a period of time which may extend beyond the life of this
Trust; and to take any other action or enter into any other contract respecting
such property which is consistent with the best interests of the Trust;
2.3-14 to pay any and all reasonable and normal expenses incurred in
connection with the exercise of any power, right, authority or discretion
granted herein, and, upon prior notice to the Company, to employ and compensate
agents, investment counsel, custodians, actuaries, attorneys, and accountants in
such connection;
2.3-15 to employ and consult with any legal counsel, who also may be
counsel to an Employer or the Administrator, with respect to the meaning or
construction of this Trust Agreement, the extent of the Trustee's obligations
and duties hereunder, and whether the Trustee should take or decline to take a
particular action hereunder, and the Trustee shall be fully protected with
respect to any action taken or omitted by such Trustee in good faith pursuant to
such advice;
2.3-16 to defend any action or proceeding instituted against the Trust
Fund, to institute any action on behalf of the Trust Fund, and to compromise or
submit to arbitration any dispute concerning the Trust Fund;
2.3-17 to make, execute, acknowledge and deliver any and all documents of
transfer and conveyance and any and all other instruments that may be necessary
or appropriate to carry out the powers herein granted;
2.3-18 to commingle the Trust Fund created pursuant hereto, in whole or in
part, in a single trust with all or any portion of any other trust fund,
assigning an undivided interest to each such commingled trust fund, provided
that such commingled trust is itself exempt from taxation pursuant to Section
501(a) of the Code, or its successor Section; and provided further that the
trust agreement governing such commingled trust shall be deemed incorporated by
reference in the Plan;
2.3-19 where two or more trusts governed by this Trust Agreement have an
undivided interest in any property, to credit the income from such property to
such trusts in proportion to their undivided interests, and when non pro rata
distributions of property or money are made from such trusts, to make
appropriate adjustments to the undivided fractional interests of such trusts;
2.3-20 to invest all or any portion of the Trust Fund in one or more group
annuity contracts, deposit administration contracts, and other such contracts
with insurance companies, including any commingled separate accounts established
under such contracts;
2.3-21 generally, with respect to all cash, stocks and other securities,
and property, both real and personal, received or held in the Trust Fund by the
Trustee, to exercise all the same rights and
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powers as are or may be lawfully exercised by persons owning cash, or stocks and
other securities, or such property in their own right; and to do all other acts,
whether or not expressly authorized, which it may deem necessary or proper for
the protection of the Trust Fund; and
2.3-22 whenever more than two persons shall qualify to act as co-trustees,
to exercise and perform every power (including discretionary powers), authority
or duty by the concurrence of a majority of them the same effect as if all had
joined therein, except that the unanimous vote of such persons shall be
necessary to determine the number (one or more) and identity of persons who may
sign checks, make withdrawals from financial institutions, have access to safe
deposit boxes, or direct the sale of trust assets and the disposition of the
proceeds.
2.4 Brokerage. If permitted in writing by the Committee the Trustee shall
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have the power and authority, to be exercised in its sole discretion at any time
and from time to time, to issue and place orders for the purchase or sale of
securities with qualified brokers and dealers. Such orders may be placed with
such qualified brokers and/or dealers who also provide investment information or
other research or statistical services to the Trustee in its capacity as a
fiduciary or investment manager for other clients.
Section 3. Compensation and Indemnification of Trustee and Payment of
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Expenses and Taxes.
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3.1 Fees and Expenses from Fund. Compensation of Trustee. In
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consideration for rendering services pursuant to this Trust Agreement the
Trustee shall be paid fees in accordance with the Trustee's fee schedule as in
effect from time to time. Fee changes resulting in fee increases shall be
effective upon not less than 30 days' notice to the Company. In addition, the
Trustee shall be reimbursed for any reasonable expenses, including reasonable
attorneys' fees, incurred in the administration of the Trust created hereby.
Fees and expenses shall be allocated to Participant Accounts, if any, unless
paid directly by the Employer. All compensation and expenses of the Trustee
shall be paid out of the Trust Fund or by the Employer as specified in the Plan.
If and to the extent the Trust Fund shall not be sufficient, such compensation
and expenses shall be paid by the Employer upon demand. If payment is due but
not paid by the Employer, such amount shall be paid from the assets of the
Trust Fund. The Trustee is hereby empowered to withdraw all such compensation
and expenses which are 60 days past due from the Trust Fund, and, in furtherance
thereof, liquidate any assets of the Trust Fund, without further authorization
or direction from or by any person.
3.2 Indemnification. Notwithstanding any other provision of this Trust
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Agreement, any individual designated as a trustee hereunder shall be indemnified
and held harmless by the Employer to the fullest extent permitted by law against
any and all costs, damages, expenses and liabilities including, but not limited
to attorneys' fees and disbursements reasonably incurred by or imposed upon such
individual in connection with any claim made against him or in which he may be
involved by reason of his being, or having been, a trustee hereunder, to the
extent such amounts are not satisfied by insurance maintained by the Employer,
except liability which is adjudicated to have
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resulted from the gross negligence or willful misconduct of the Trustee by
reason of any action so taken. Further, any corporate trustee and its officers,
directors and agents may be indemnified and held harmless by the Employer to the
fullest extent permitted by law against any and all costs, damages, expenses and
liabilities including, but not limited to attorneys' fees and disbursements
reasonably incurred by or imposed upon such persons and/or corporation in
connection with any claim made against it or them or in which such persons
and/or corporation may be involved by reason of its being, or having been, a
trustee hereunder as may be agreed between the Employer and such trustee, except
liability which is adjudicated to have resulted from the gross negligence or
willful misconduct of the Trustee by reason of any action so taken.
3.3 Expenses. All expenses of administering this Trust and the Plan,
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whether incurred by the Trustee or the Committee, shall be paid by the Trustee
from the Trust Fund to the extent such expenses shall not have been assumed by
the Employer.
3.4 Taxes. All taxes that may be levied or assessed upon or in respect of
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the Trust Fund shall be paid from the Trust Fund. The Trustee shall notify the
Committee of any proposed or final assessments of taxes and may assume that any
such taxes are lawfully levied or assessed unless the Committee advises it in
writing to the contrary within fifteen days after receiving the above notice
from the Trustee. In such case, the Trustee, if requested by the Committee in
writing, shall contest the validity of such taxes in any manner deemed
appropriate by the Committee; the Employer may itself contest the validity of
any such taxes, in which case the Committee shall so notify the Trustee and the
Trustee shall have no responsibility or liability respecting such contest. If
either party to this Agreement contests any such proposed levy or assessments,
the other party shall provide such information and cooperation as the party
conducting the contest shall reasonably request.
Section 4. Records and Valuation.
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4.1 Records. The Trustee, and any investment manager appointed pursuant
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to Section 2.2, shall maintain accurate and detailed records and accounts of all
investments, receipts, disbursements and other transactions made by it with
respect to the Trust Fund, and all accounts, books and records relating thereto
shall be open at all reasonable time to inspection and audit by the Committee
and the Employer.
4.2 Valuation. From time to time upon the request of the Committee, but
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at least annually as of the last day of each Plan Year, the Trustee shall
prepare a balance sheet of the Investment Fund in accordance with Section 8.2 of
the Plan and shall deliver copies of the balance sheet to the Committee and the
Employer.
4.3 Discharge of Trustee. Ninety days after the filing of any balance
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sheet under Section 4.2 or any accounting under Section 6, the Trustee shall be
forever released and discharged from any liability or accountability other than
for gross negligence or wilful misconduct on the part of the Trustee to anyone
with respect to the transactions shown or reflected in such balance sheet or
accounting, except with respect to any acts or transactions as to which the
Committee, within such
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ninety-day period, files written objections with the Trustee. The written
approval of the Committee of any balance sheet or accounting so filed by the
Trustee, or the Committee's failure to file written objections within ninety
days, shall be a settlement of such balance sheet or accounting as against all
persons, and shall forever release and discharge the Trustee from any liability
of accountability to anyone with respect to the transactions shown or reflected
in such balance sheet or accounting other than liability arising out of the
Trustee's gross negligence or wilful misconduct. If a statement of objections is
filed by the Committee and the Committee is satisfied that its objections should
be withdrawn or if the balance sheet or accounting is adjusted to its
satisfaction, the Committee shall indicate its approval of the balance sheet or
accounting in a written statement filed with the Trustee and the Trustee shall
be forever released and discharged from any liability of accountability to
anyone in accordance with the immediately preceding sentence. If an objection is
not settled by the Committee and the Trustee, the Trustee may start a proceeding
for a judicial settlement of the balance sheet or accounting in any court of
competent jurisdictions; the only parties that need be joined in such a
proceeding are the Trustee, the Committee, the Employer and any other parties
whose participation is required by law.
4.4 Right to Judicial Settlement. Nothing in this Agreement shall prevent
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the Trustee from having its account settled by a court of competent jurisdiction
at any time. The only parties that need be joined in any such proceeding are
the Employer, the Committee, the Trustee and any other parties whose
participation is required by law.
Section 5. Instructions from Committee.
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5.1 Certification of Members of the Committee. From time to time the
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Company shall certify to the Trustee in writing the names of the individuals
comprising the Committee and shall furnish to the Trustee specimens of their
signatures and the signatures of their agents, if any. The Trustee shall be
entitled to presume that the identities of such individuals and their agents are
unchanged until it receives a certification from the Company notifying it of any
changes.
5.2 Instructions to Trustee.
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(a) The Trustee shall pay benefits and administrative expenses under the
Plan only when it receives (and in accordance with) written instructions of the
Committee indicating the amount of the payment and the name and address of the
recipient in accordance with the terms of the Plan. The Trustee need not
inquire into whether any payment the Committee instructs the Trustee to make is
consistent with the terms of the Plan or applicable law or otherwise proper.
Any payment made by the Trustee in accordance with such instructions shall be a
complete discharge and acquittance to the Trustee. If the Committee advises the
Trustee that benefits have become payable with respect to a Participant's
interest in the Trust Fund but does not instruct the Trustee as to the manner of
payment, the Trustee shall hold the Participant's interest in the Trust until
the Trustee receives written instructions from the Committee as to the manner of
payment. The Trustee shall not pay benefits from the Trust Fund without such
instructions, even though it may be informed from other sources, including,
without limitation, a Participant or Beneficiary, that benefits are payable
under the Plan.
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The Trustee shall have no responsibility to determine when, to whom or in what
amount benefits and expenses are payable under the Plan. Further, the Trustee
shall have no power, authority or duty to interpret the Plan or inquire into the
decisions or determinations of the Committee, or to question the instructions
given to it by the Committee. If the Committee so directs, the Trustee shall
segregate amounts payable with respect to the interest in the Plan of any
Participant and administer them separately from the rest of the Trust Fund in
accordance with the Committee's instructions.
(b) The Trustee may require the Committee to certify in writing that any
payment of benefits or expenses it instructs the Trustee to make pursuant to
Section 5.2(a) above is: (i) in accordance with the terms of the Plan and/or
(ii) one which the Committee is authorized by the Plan and any other applicable
instruments to direct and/or (iii) made for the exclusive purpose of providing
benefits to Participants and Beneficiaries, or defraying reasonable expenses of
Plan administration and/or (iv) not made to a party in interest (within the
meaning of ERISA Section 3(14)), and/or (v) not a prohibited transaction (within
the meaning of Code Section 4975 and ERISA Section 406). If the Trustee
requests, instructions to pay benefits shall be made by the Committee on forms
prepared by the Trustee to include any or all of the above representations. The
Trustee shall be fully protected in relying on the truth of any such
representation by the Committee and shall have no duty to investigate whether
such representations are correct or to see to the application of any amounts
paid to and received by the recipient.
5.3 Plan Change. In the event of an amendment, merger, division, or
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termination of the Plan, the Trustee shall continue to disburse funds and to
take other proper actions in accordance with the instructions of the Committee.
Section 6. Change of Trustees.
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The Company may at any time remove any person or entity serving as Trustee
hereunder by giving to such person or entity written notice of removal and, if
applicable, the name and address of the successor trustee. Any person or entity
serving as Trustee hereunder may resign at any time by giving written notice to
the Company. Any such removal or resignation shall take effect within 30 days
after notice has been given by the Trustee or by the Company, as the case may
be. Within those 30 days, the removed or resigned Trustee shall transfer, pay
over and deliver any portion of the Trust Fund in its possession or control
(less an appropriate reserve for any unpaid fees, expenses, and liabilities) and
all pertinent records to the successor or remaining trustee; provided, however,
that any assets which are invested in a collective fund or in some other manner
which prevents their immediate transfer shall be transferred and delivered to
the successor trustee as soon as may be practicable. Thereafter, the removed or
resigned Trustee shall have no liability for the Trust Fund or for its
administration by the successor or remaining trustee, but shall render an
accounting to the Committee of its administration of the Trust Fund through the
date on which its trusteeship shall have been terminated. The Company may also,
upon 30 days' notice to each person currently serving as a Trustee, appoint one
or more persons to serve as co-trustees hereunder.
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Section 7. Miscellaneous.
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7.1 Right to Amend. This Trust Agreement may be amended from time to time
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by an instrument executed by the Company; provided, however, that any amendment
affecting the powers, duties or liabilities of the Trustee must be approved by
the Trustee, and provided, further, that no amendment may divert any portion of
the Trust Fund to purposes other than the exclusive benefit of the Participants
and their Beneficiaries prior to the satisfaction of all liabilities for
benefits. Any amendment shall apply to the Trust Fund as constituted at the
time of the amendment as well as to that portion of the Trust Fund which is
subsequently acquired.
7.2 Compliance with ERISA. In the exercise of its powers and the
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performance of its duties, the Trustee shall act in good faith and in accordance
with the applicable requirements under ERISA. Except as may be otherwise
required by ERISA, the Trustee shall not be required to furnish any bond in any
jurisdiction for the performance of its duties and, if a bond is required
despite this provision, no surety shall be required on it.
7.3 Nonresponsibility for Funding. The Trustee shall be under no duty to
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enforce the payment of any contributions and shall not be responsible for the
adequacy of the Trust Fund to satisfy any obligations for benefits, expenses,
and liabilities under the Plan.
7.4 Reports. The Trustee shall file any report which it is required by
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law to file with any governmental authority with respect to this Trust, and the
Committee shall furnish to the Trustee whatever information is necessary to
prepare the report.
7.5 Dealings with Trustee. Persons dealing with the Trustee, including
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but not limited to banks, brokers, dealers, and insurers, shall be under no
obligation to inquire concerning the validity of anything which the Trustee
purports to do, nor need any person see to the proper application of any money
paid or any property transferred upon the order of the Trustee or to inquire
into the Trustee's authority as to any transaction.
7.6 Limitation Upon Responsibilities. The Trustee shall have no
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responsibilities with respect to the Plan or Trust other than those specifically
enumerated or explicitly allocated to it under this Trust Agreement or the
provisions of ERISA. All other responsibilities are retained and shall be
performed by one or more of the Employer, the Committee, and such advisors or
agents as they choose to engage.
The Trustee may execute any of the trusts or powers hereof and perform any
of its duties by or through attorneys, agents, receivers or employees and shall
not be answerable for the conduct of the same if chosen with reasonable care and
shall be entitled to advice of counsel concerning all matters of trust hereof
and the duties hereunder, and may in all cases pay such reasonable compensation
to all such attorneys, agents, receivers and employees as may reasonably be
employed in connection with the trusts hereof. The Trustee may act upon the
opinion or advice of any attorney (who may be the attorney for the trustee or
attorney for the Committee), approved by the Trustee in the exercise of
reasonable care. The Trustee shall not be responsible for any loss or damage
resulting from any action or non-action in good faith in reliance upon such
opinion or advice.
11
<PAGE>
The Trustee shall be protected in acting upon any notice, request, consent,
certificate, order, affidavit, letter, telegram or other paper or document
believed to be genuine and correct and to have been signed or sent by the proper
person or persons, and the Trustee shall be under no duty to make any
investigation or inquiry as to any statement contained in any such writing but
may accept the same as conclusive evidence of the truth and accuracy of the
statements therein contained.
The Trustee shall not be liable for other than its gross negligence or
willful misconduct. Except in the case of gross negligence or wilful misconduct
on the part of the Trustee, the Trustee in its corporate capacity shall not be
liable for claims of any persons in any manner regarding the Plan; such claims
shall be limited to the Trust Fund. Unless the Trustee participates knowingly
in, or knowingly undertakes to conceal, an act or omission of the Committee or
any other fiduciary, knowing such act or omission to be a breach of fiduciary
responsibility, the Trustee shall be under no liability for any loss of any kind
which may result by reason of such act or omission.
Before taking any action hereunder at the request or direction of the
Committee, the Trustee may require that indemnity in form and amount
satisfactory to the Trustee be furnished for the reimbursement of any and all
costs and expenses to which it may be put including, without limitation,
reasonable attorneys' fees and to protect it against all liability, except
liability which is adjudicated to have resulted from the gross negligence or
willful misconduct of the Trustee by reason of any action so taken.
No provision of this Agreement shall require the Trustee to expend or risk
its own funds or otherwise incur any financial liability in the performance of
any of its duties hereunder, or in the exercise of any of its rights or powers..
7.7 Qualification of Plan and Trust. The Trustee shall be fully protected
--------------------------------
in assuming that the Plan and Trust meet the requirements of Code Section 401
and 501, respectively, and all the applicable provisions of ERISA unless it is
advised to the contrary in writing by the Committee or a governmental agency.
7.8 Party in Interest Information. The Employer shall provide the Trustee
------------------------------
with such information concerning the relationship between any person or
organization and the Plan as the Trustee reasonably requests in order to
determine whether such person or organization is a party in interest with
respect to the Plan within the meaning of ERISA Section 3(14).
7.9 Disputes. If a dispute arises as to the payment of any funds or
---------
delivery of any assets by the Trustee, the Trustee may withhold such payment or
delivery until the dispute is determined by a court of competent jurisdiction or
finally settled in writing by the parties concerned.
7.10 Successor Trustees. This Trust Agreement shall apply to any person
-------------------
who shall be appointed to succeed the person currently appointed as the Trustee;
and any reference herein to the Trustee shall be deemed to include any one or
more individuals or corporations or any combination thereof who or which have at
any time acted as a co-trustee or as the sole trustee.
12
<PAGE>
7.11 Governing State Law. This Trust Agreement shall be interpreted in
--------------------
accordance with the laws of the [STATE][COMMONWEALTH] of [STATE][COMMONWEALTH]
to the extent those laws may be applicable under the provisions of ERISA.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ATTEST: WEST ESSEX BANK
By
- ------------------------ -----------------------------------
Corporate Secretary President and Chief Executive Officer
ATTEST: ***
as TRUSTEE
- ------------------------ By:
----------------------------------
14
<PAGE>
EXHIBIT 10.3 FORM OF ESOP LOAN COMMITMENT LETTER
<PAGE>
[LETTERHEAD OF WEST ESSEX BANCORP, INC. APPEARS HERE]
June __, 1998
West Essex Bancorp, Inc.
417 Bloomfield Avenue
Caldwell, New Jersey 07006
Dear Mr. Montanaro:
This letter confirms West Essex Bancorp, Inc.'s (the "Company") commitment
to fund a leveraged ESOP in an amount sufficient to purchase 8% of the shares
offered in the West Essex Bank, FSB's reorganization into the two-tier form of
mutual holding company structure and concurrent stock offering by the Company
(the "Reorganization and Offering"), including those shares contributed to the
charitable foundation formed in connection with the Reorganization and Offering.
The commitment is subject to the following terms and conditions:
1. Lender: West Essex Bancorp, Inc.
------
2. Borrower: West Essex Bank Employee Stock Ownership Plan.
--------
3. Security: Unallocated shares of stock of the Company held in the West
--------
Essex Bank Employee Stock Ownership Plan Trust.
4. Maturity: Up to 10 years from takedown.
--------
5. Amortization: Equal annual principal and interest payments
------------
6. Pricing:
-------
a. Lowest "prime rate" as published in the Wall Street Journal on
the date of the loan transaction.
<PAGE>
8. Interest Payments:
-----------------
a. Annual on a 360 day basis.
9. Prepayment: Voluntary prepayments are permitted at any time.
----------
10. Conditions Precedent to Closing: Receipt by the Company of all
-------------------------------
supporting loan documents in a form and with terms and conditions
satisfactory to the Company and its counsel. Consummation of the
transaction will also be contingent upon no material adverse change
occurring in the condition of West Essex Bank or the Company.
If the terms and conditions are agreeable to you, please indicate your
acceptance by signing the enclosed copy and returning it to my attention.
Sincerely,
Dennis A. Petrello
Executive Vice President and
Chief Financial Officer
Accepted on Behalf of
West Essex Bank
By: _____________________________________ Date: _________________________
Leopold W. Montanaro
President and Chief Executive Officer
<PAGE>
EXHIBIT 10.4 FORM OF WEST ESSEX BANK EMPLOYEE STOCK OWNERSHIP
TRUST LOAN AND SECURITY AGREEMENT
<PAGE>
FORM OF
WEST ESSEX BANK
EMPLOYEE STOCK OWNERSHIP TRUST
LOAN AND SECURITY AGREEMENT
[LENDER] [Date]
***
***
***
Gentlemen:
The undersigned Trustee, *** ("Borrower"), not individually but solely as
Trustee under the West Essex Bank Employee Stock Ownership Plan Trust (the
"Trust") effective [Date], applies to you, [Lender], (hereinafter referred to as
the "Lender"), for your commitment, subject to all terms and conditions hereof
and on the basis of the representations hereinafter set forth, to make a loan
available to the Borrower as hereinafter set forth. The term "Bank" as used
herein refers to West Essex Bank, the sponsoring employer of the West Essex Bank
Employee Stock Ownership Plan (the "ESOP").
SECTION ONE. THE TERM LOAN.
1.1 AMOUNT AND TERMS. Subject to and upon the terms and conditions herein
----------------
set forth, the Lender agrees to lend amounts to the Borrower, (the "Loan"), from
time to time during the period of this agreement up to but not including the
maturity date of [Date] in an aggregate principal amount ("Loan Amount")
sufficient to permit the Borrower to acquire a number of shares ("Shares") of
common stock, par value $0.01 ("Common Stock") of West Essex Bancorp, Inc., a
federally-chartered corporation and the stock holding company of the Bank, equal
to 8% of the Shares issued in connection with the reorganization and offering of
the Bank from a federally-chartered mutual savings bank to a federally-chartered
stock savings bank in the mutual form (the "Reorganization"), including the
shares issued to the [Foundation], a charitable foundation being established in
connection with the Reorganization.
The Loan is intended to be an "exempt loan" as described in Section
4975(d)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), as
defined in Section 54.4975-7(b) of the Treasury Regulations (the "Regulations"),
as described in Section 408(b)(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") and as described in Department of Labor
Regulations Section 2550.408b-3 (collectively, the "Exempt Loan Rules").
<PAGE>
1.2 THE NOTE. The disbursement of the Loan pursuant to Section 1.1
--------
hereof shall be made against and evidenced by a promissory note of the Borrower
in the form annexed hereto as Exhibit A (the "Note"), such Note is to bear
interest as hereinafter provided, and to mature in [number] (#) equal annual
installments consisting of both principal and interest amortized over a [number]
(#) year period in an amount sufficient to repay all borrowed amounts plus
interest, commencing on December 31, 1998 and on the last day of each and every
December each year thereafter, except that the final installment in the amount
of all principal and interest not sooner paid shall be due on [Date], the final
maturity thereof.
Without regard to the principal amount of the Note stated on its face, the
actual principal amount at any time outstanding and owed by the Borrower on
account of the Note shall be the amount of the disbursement of the Loan made by
the Lender under Section 1.1 hereof less all payments of principal actually
received by the Lender. The amount of such disbursement made by the Lender and
any repayments of principal thereof shall be recorded by the Lender on its books
or records or, at its option, endorsed on the reverse side of the Note by the
Lender and the unpaid principal balance at any time so recorded or endorsed by
the Lender shall be prima facie evidence in any court or other proceedings
brought to enforce the Note of the principal amount remaining unpaid thereon.
1.3 EXEMPT LOAN RULES. Notwithstanding anything to the contrary contained
------------------
in this Loan and Security Agreement (the "Agreement") or in the Note, the
Borrower shall be obligated to make repayments of the Loan only to the extent
that such repayments when added to the repayments theretofore made during the
applicable plan year would not exceed an amount which would cause the
limitations of Section 415 of the Code to be exceeded for any ESOP participant.
Except as set forth in the next succeeding sentence and to the extent
permitted by applicable law, including, without limitation, the Exempt Loan
Rules, the principal amount of the Loan and any interest thereon shall be
payable solely from contributions (other than contributions of employer
securities) made to the Trust in accordance with the ESOP, and cash dividends
received on the Shares, to enable the Borrower to pay its obligations under the
Loan and from earnings attributable to the Shares and the investment of such
contributions and dividends.
The Lender acknowledges and agrees that it shall have no other recourse
against the Borrower for repayment of the Loan and that it shall have no
recourse against assets of the ESOP included in the Trust other than pursuant to
Sections 3 and 8 hereof.
SECTION TWO. INTEREST AND FEES.
2.1 INTEREST RATE. The Loan shall bear interest (which the Borrower
-------------
hereby promises to pay) prior to maturity (whether by lapse of time,
acceleration or otherwise) at a rate per annum equal at all times to the
"Interest Rate," defined for purposes of this Agreement to mean the lowest prime
rate reported in the Wall Street Journal on the date of the Reorganization.
2
<PAGE>
2.2 BASIS AND PAYMENT DATES. All interest accruing on the Note prior to
-----------------------
maturity shall be due and payable on a annual basis on the last day of each year
(commencing December 31, 1998) and at maturity (unless prepaid in whole prior to
such date, then on the date of such prepayment in whole) and interest accruing
after maturity shall be due and payable upon demand. All interest on the Note
shall be computed on the basis of a year of 360 days.
SECTION THREE. COLLATERAL.
3.1 GRANT OF SECURITY INTEREST-PLEDGED SHARES. The Borrower hereby
-----------------------------------------
grants, pledges and assigns to the Lender all Shares of the issued and
outstanding common stock, par value $.01 per share all of which were either (i)
purchased by the Borrower from the proceeds of the disbursement of the Loan;
(ii) acquired by the Borrower with the proceeds of a prior exempt loan within
the meaning of Section 54.4975-7(b) of the Regulations, and pledged as
collateral for such prior exempt loan, where the balance of such prior exempt
loan has been repaid with the proceeds of the disbursement of the Loan (the
"Pledged Shares" being hereinafter referred to as the "Collateral"). The Pledged
Shares shall be evidenced by a stock certificate. The assignment and pledge
herein granted and provided for is made and given to secure and shall secure the
prompt payment of principal of and interest on the Note as and when the same
becomes due and payable and the payment, observance and performance of any and
all obligations and liabilities arising under or provided for in this Agreement
or the Note or any of them in each instance as the same may be amended or
modified and whether now existing or hereafter arising.
3.2 FURTHER ASSURANCES. The Borrower covenants and agrees that it will
------------------
at any time and from time to time as requested by the Lender execute and deliver
such further instruments and perform such other acts as the Lender may
reasonably deem necessary or desirable to provide for or perfect the lien of the
Lender in the Collateral hereunder.
3.3 VOTING. Upon the occurrence of a Default, as defined in Section 9
------
hereunder, the Lender shall have the right to transfer the Collateral or any
part thereof into its name or into the name of its nominee. The Lender shall
not be entitled to vote the Pledged Shares unless and until a Default has
occurred and so long as the same shall not have been waived by the Lender.
3.4 PARTIAL RELEASES. The Lender agrees, provided always that no Default
----------------
shall have occurred and be continuing, as promptly as is practicable after
December 31 in each year (the period commencing the date hereof and ending
December 31 and each subsequent 12-month period ending on December 31 being
hereinafter referred to as a "Plan Year"), to release that number of Pledged
Shares then being held to secure the Loan which is equal to the number of such
Pledged Shares held as of the last day of the Plan Year multiplied by a
fraction, the numerator of which is the aggregate amount of all principal and
interest payments made on the Note during the Plan Year and the denominator of
which is the sum of the numerator plus the unpaid principal and interest of the
Note as of the last day of such Plan Year.
3
<PAGE>
SECTION FOUR. PAYMENTS.
4.1 PLACE AND APPLICATION. All payments of principal, interest, fees and
---------------------
all other amounts payable hereunder shall be made to the Lender at ***, for the
account of the Lender (or at such other place for the account of the Lender as
the Lender may from time to time in writing specify to the Borrower) in
immediately available and freely transferable funds. All payments shall be paid
in full without setoff or counterclaim and without reduction for and free from
any and all taxes, levies, duties, fees, charges, deductions, withholdings,
restrictions or conditions of any nature imposed by any government or any
political subdivision or taxing authority thereof.
4.2 PREPAYMENTS. The Borrower shall have the privilege of prepaying in
-----------
whole or in part the Note at any time upon giving three (3) Business Days'
prior notice to the Lender, each such prepayment to be made by the payment of
the principal amount to be prepaid and accrued interest thereon to the date
fixed for prepayment. The term "Business Day" shall mean any day on which
savings institutions are generally open for business in New Jersey, other than
Saturday and Sunday. All such prepayments shall be made without premium or
penalty. Prepayments shall first be applied to the several installments of the
Note in the inverse order of their respective maturities.
SECTION FIVE. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants, to the best of its knowledge, to the
Lender as follows:
5.1 The Trust is a duly organized, validly existing employee stock
ownership trust.
5.2 The proceeds of the disbursement of the Loan shall be applied in their
entirety to the payment of the purchase price for the Pledged Shares.
5.3 The Borrower has full right, power and authority to enter into this
Agreement, to make the borrowings hereunder provided for, to issue the Note in
evidence thereof and to perform each and all of the matters and things herein
and therein provided for and this Agreement does not, and the Note when issued
will not, nor will the performance or observance by the Borrower of any of the
matters or things herein or therein provided, contravene any provision of law or
the Trust or any other covenant or agreement affecting the Trust or any of its
assets. As of the date of the disbursement of the Loan, the Pledged Shares will
be fully paid and non-assessable and the Pledged Shares will be owned by the
Borrower free and clear of all liens, charges and encumbrances whatsoever,
except for any lien of Lender provided for herein.
5.4 Except as disclosed to the Lender in writing, there is no litigation
or governmental proceeding pending, nor to the knowledge of the Borrower
threatened, against the ESOP and Trust.
5.5 The ESOP and Trust have no material liabilities, whether absolute or
contingent, except for those heretofore disclosed to the Lender.
4
<PAGE>
SECTION SIX. REPRESENTATIONS AND WARRANTIES OF THE LENDER
The Lender represents and warrants that:
6.1 The Lender is a corporation duly organized under the laws of the State
of Delaware, and is validly existing and in good standing under the laws of the
State of Delaware. The Lender has full power and authority and legal right to
make and perform this Agreement.
6.2 The execution, delivery and performance by the Lender of this
Agreement have been duly authorized by all necessary action by the Lender and is
not and will not violate any provisions of law applicable to the Lender, any
rules, regulations or orders applicable to the Lender or any judgments or
decrees binding upon the Lender. This Agreement is a valid and legally binding
obligation of the Lender enforceable against the Lender in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting credits' rights generally
and the general principles of equity (regardless of whether considered in a
proceeding at law or in equity).
6.3 No authorizations, approvals or consents of, and no filings or
registrations with, any governmental regulatory authority or agency are required
for the execution, delivery or performance by the Lender of this Agreement, or
any transaction contemplated hereby, or for the validity or enforceability
against the Lender hereof except as have already been received or accomplished.
6.4 The execution, delivery and performance of the Agreement and the
consummation of the transactions contemplated hereby will not violate, conflict
with or constitute a default under (i) any of the provisions of the Lender's
Certificate of Incorporation or Bylaws, (ii) any provision of any agreement,
instrument, order, arbitration award, judgment or decree to which the Lender is
a party or by which it is or its assets are bound (iii) any statute, rule or
regulation of any federal, state or local government or agency applicable to the
Lender, except in any such case (i), (ii), (iii) above, for any such conflicts,
violations, defaults which either individually or in the aggregate do not have a
material adverse effect on the business properties of the Lender and its
subsidiaries, taken as a whole.
6.5 The Bank has taken such actions as are required by applicable law to
be taken by it to establish the ESOP and the Trust.
6.6 There is no action, suit, investigation or proceeding pending, or to
the best knowledge of the Bank, threatened against or affecting the ESOP before
any court or governmental department, agency or instrumentality.
6.7 The Loan will be an "exempt loan" as that term is defined under
Section 54.4975-7(b)(1)(iii) of the Regulations, provided the ESOP Committee
determines that the interest rate is not more than reasonable; and the
transactions contemplated by this Agreement are "prohibited transactions" within
the meaning of Section 4975 of the Code or Section 406(a) of
5
<PAGE>
ERISA are subject to exemption pursuant to Section 4975(d)(3) of the Code and
Section 408 of ERISA.
6.8 Except as otherwise provided in this Agreement, the Shares are not
subject to any restriction on transfer under applicable Federal securities law
and may be freely traded over-the-counter.
6.9 DETERMINATION LETTER. The Bank shall apply for a determination
--------------------
letter from the Internal Revenue Service that the Plan and the Trust, taken
together, qualify as an employee stock ownership plan for purposes of Section
4975(e)(7) of the Code and the rules and regulations thereunder.
SECTION SEVEN. CONDITIONS PRECEDENT.
The obligation of the Lender to make the Loan shall be subject to
satisfaction of the following conditions precedent:
7.1 The Lender shall have received executed originals of this Agreement
and the Note duly signed and properly completed.
7.2 The Lender shall have received either (i) the certificate evidencing
all the Pledged Shares together with duly executed blank stock power therefore
or (ii) if such Pledged Shares are not yet available, a duly executed agreement
to pledge such stock in the form attached hereto as Exhibit B (in which event
such certificate and stock power will be delivered within 6 days of the date of
the Lender makes the Loan).
7.3 The Lender shall have received copies (executed or certified, as may
be appropriate) of all legal documents or proceedings taken in connection with
the execution and delivery of this Agreement and the Note.
SECTION EIGHT. COVENANTS.
Borrower covenants and agrees that so long as any amount remains unpaid on
the Note or the Commitment is outstanding, except to the extent compliance in
any case or cases is waived in writing by the Lender:
8.1 COMPLIANCE. The Borrower will comply with all requirements of the
----------
Code, ERISA and any other law, rule or regulation applicable to it as such laws,
rules or regulations affect the ESOP or the Trust.
6
<PAGE>
8.2 REPORTS.
-------
(a) The Borrower will maintain a system of accounting for the ESOP
and the Trust in accordance with sound accounting practice and will, from
time to time, furnish to the Lender and its duly authorized
representatives, such information and data with respect to the financial
condition of the ESOP and the Trust as the Lender may reasonably request.
(b) Without any request the Borrower will furnish to the Lender
promptly after knowledge thereof shall have come to the attention of the
Borrower, written notice of the occurrence of any Default hereunder or of
any threatened or pending litigation or governmental proceeding against the
Plan or the Trust.
SECTION NINE. DEFAULT AND REMEDIES.
9.1 DEFAULT. Any one or more of the following events shall constitute a
--------
Default hereunder:
(a) As of the date when due, the Borrower fails to make payment of
principal and/or interest with respect to the Note or any other amounts
payable under this Agreement within five (5) business days of the date when
due;
(b) As of the date proven false, the Borrower makes any
representation, warranty or statement herein or in connection with the
making of the Loan which proves to be incorrect in any material respect;
(c) As of the date the Borrower fails to perform or observe any term,
covenant or agreement (other than those referred to in subparts (a) and
(b), inclusive, of this Section 9.1) contained in this Agreement and such
failure continues unremedied for a period of 30 days after notice to the
Borrower by the Lender or any other holder of the Note;
(d) As of the date of termination of the ESOP if such termination is
prior to the expiration of the term of this Agreement.
9.2 LIMITATIONS ON USE OF TRUST ASSETS. When any Default described in
-----------------------------------
subsections (a) to (c), of Section 9.1 has occurred and is continuing, the
Lender or the holder of the Note shall have no rights to assets of the Trust
other than (i) contributions (other than contributions of employer securities)
that are made by the Lender to enable the Borrower to meet its obligations
pursuant to the Loan, cash dividends received by the Borrower on the Pledged
Shares and earnings attributable to the investment of such contributions and
dividends and (ii) the Pledged Shares; provided further, however, that the value
of Trust assets transferred to the Lender as a result of a Default shall not
exceed the amount of the repayment then in default, and, provided further, that
so long as the Lender is a "party in interest" within the meaning of ERISA
Section 3(14) or a "disqualified person" within
7
<PAGE>
the meaning of Section 4975(e)(2) of the Code, a transfer of Trust assets upon
Default shall be made only if, and to the extent of, the Borrower's failure to
meet the loan's payment schedule.
9.3 RIGHTS UPON DEFAULT. When any Default has occurred and is continuing
--------------------
the Lender may, in addition to such other rights or remedies as it may have,
then or at any time or times thereafter exercise with respect to the Collateral
any and all of the rights, options and remedies of a secured party under the
Uniform Commercial Code of New Jersey (the "UCC") including without limitation
the sale of all or any part of the Collateral at any brokers' board or any
public or private sale, provided, however that the Lender shall only be able to
exercise such rights and remedies to the extent of all interest and principal
payments which are due and payable as of the date of the Default and provided
further that prior to such exercise the Lender shall release from the Collateral
so much thereof as it would have been required to release under Section 3.4
hereof if the period from the previous December 31 to the date of such release
constituted a Plan Year and no Default had occurred. The net proceeds of any
such sale, after deducting all costs and expenses incurred in the collection,
protection, sale and delivery of the Collateral (which expenses Borrower
promises to pay) shall be applied first to the payment of any costs and expenses
incurred by the Lender in selling or otherwise disposing of the Collateral,
second, to the payment of the principal of and the interest on the Note, and,
third, ratably as among any other items of the indebtedness hereby secured. Any
surplus remaining after the full payment and satisfaction of the foregoing shall
be returned to the Borrower or to whomsoever a court of competent jurisdiction
shall determine to be entitled thereto. Any requirement of said UCC as to
reasonable notice shall be met by the Lender personally delivering or mailing
notice (by certified mail - return receipt requested) to the Borrower at its
address as provided in Section 10.6 hereof at least ten (10) days prior to the
event giving rise to the requirement of such notice. In connection with any
offer, solicitation or sale of the Collateral, the Lender may restrict bidders
and otherwise proceed in whatever manner it reasonably believes appropriate in
order to comply or assure compliance with applicable legal requirements
pertaining to the offer and sale of securities of the same type as the
Collateral.
9.4 ERISA RESTRICTIONS. The number of Pledged Shares as to which the
-------------------
Lender may exercise the rights set forth in this Section 9 may not exceed that
number of shares (then remaining subject to pledge hereunder) which is then
equal in current value to the amount in default under the Note. The remedies
set forth in this Section 9 may only be exercised to the extent consistent with
the restrictions on remedies set forth in Section 408(b)(3) of ERISA and the
regulations thereunder and Section 4975(d)(3) of the Code and the regulations
thereunder.
SECTION TEN. MISCELLANEOUS.
10.1 HOLIDAYS. If any principal of the Note shall fall due on Saturday,
--------
Sunday or on another day which is a legal holiday for savings institutions in
the State of New Jersey interest at the rate the Note bears for the period prior
to maturity shall continue to accrue on such principal from the stated due date
thereof to and including the next succeeding Business Day on which the same is
payable.
8
<PAGE>
10.2 NO WAIVER, CUMULATIVE REMEDIES. No delay or failure on the part of
------------------------------
the Lender or the part of the holder of the Note in the exercise of any power or
right shall preclude any other or further exercise thereof, or the exercise of
any other power or right, and the rights and remedies hereunder of the Lender
and of any holder of the Note are cumulative to, and not exclusive of, any
rights or remedies which any of them would otherwise have.
10.3 AMENDMENTS, ETC. No amendment, modification, termination or waiver
----------------
of any provision of this Agreement or of the Note nor consent to any departure
by the Borrower therefrom, shall in any event be effective unless the same shall
be in writing and signed by the Lender, and then such consent, modification or
waiver shall be effective only in the specific instance and for the specific
purpose for which given. No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other further notice or demand in similar or
other circumstances.
10.4 SURVIVAL OF REPRESENTATIONS. All representations and warranties
---------------------------
made herein or in certificates given in connection with the Loan shall survive
the execution and delivery of this Agreement and of the Note, and shall continue
in full force and effect with respect to the date as of which they were made as
long as any credit is in use or available hereunder.
10.5 PAYMENTS. So long as the Lender is the holder of the Note, the
--------
Borrower will promptly and punctually pay the principal of and interest on the
Note without presentment of the Note.
10.6 ADDRESSES FOR NOTICES. All communications provided for herein shall
---------------------
be in writing and shall be deemed to have been given or made when served
personally or when deposited in the United States mail addressed, if to the
Borrower at *** with copy to ***; if to the Lender at *** with copy to ***, or
at such other address as shall be designated by any party hereto in a written
notice to each other party pursuant to this Section 10.6.
10.7 HEADINGS. Article and Section headings used in this Agreement are
--------
for convenience or reference only and are not a part of this Agreement for any
other purpose.
10.8 SEVERABILITY OF PROVISIONS. Any provision of this Agreement which is
--------------------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such unenforceability without impairing the enforceability of
the remaining provisions hereof affecting the enforceability of such provision
in any other jurisdiction.
10.9 COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, and by different parties hereto on separate counterparts, and all
such counterparts taken together shall be deemed to constitute one and the same
instrument.
10.10 BINDING NATURE, GOVERNING LAW, ETC. This Agreement shall be
-----------------------------------
binding upon the Borrower and its successors and assigns and shall inure to the
benefit of the Lender and the benefit of its successors and assigns, including
any subsequent holder of the Note. To the extent not
9
<PAGE>
preempted by Federal law, this Agreement and the rights and duties of the
parties hereto shall be construed and determined in accordance with the laws of
the [STATE][COMMONWEALTH] of [STATE][COMMONWEALTH] without regard to principles
of conflicts of laws. This Agreement constitutes the entire understanding of the
parties with respect to the subject matter hereof and any prior agreements,
whether written or oral, with respect thereto are superseded hereby.
10.11 CONCERNING THE BORROWER. The term "Borrower" as used herein
-----------------------
shall mean and include the undersigned as Trustee of the Trust and its
successors in trust not individually but solely as Trustee under that certain
West Essex Bank Employee Stock Ownership Plan Trust effective January 16, 1998,
by and between the undersigned and West Essex Bank and this Agreement shall be
binding upon the undersigned and its successors and assigns and upon the trust
estate. The undersigned assumes no personal or individual liability or
responsibility for payment of the indebtedness evidenced by the Note or for
observance or performance of the covenants and agreements herein contained or
for the truthfulness of the representations and warranties herein contained, the
undersigned having executed this Agreement and the Note solely in its capacity
as Trustee as aforesaid to bind the undersigned, its successors in trust and the
trust estates.
10.12 LIMITED LIABILITY. Anything contained herein or in the Note to
-----------------
the contrary notwithstanding, the sole and only recourse of the Lender and any
other holder of the Note for payment of the obligations hereunder and under the
Note, as against the Borrower for the payment of the obligations hereunder and
under the Note shall be to (i) the Collateral, (ii) contributions, other than
employer securities not constituting Collateral hereunder, made to the ESOP and
the Trust by sponsoring employers to enable the Borrower to meet its obligations
hereunder and under the Note, and (iii) earnings attributable to the Pledged
Shares and to the investment of such employer contributions, but only to the
extent of the failure of the Borrower to meet the payment schedule of the Loan
provided for herein. The Trust assets may be transferred to Lender upon the
occurrence of a Default only upon and to the extent of the failure of the Plan
to meet the payment schedule of the Loan. In no event may the value of the
Trust assets so transferred exceed the amount of the default.
10.13 LENDER'S DUTY OF CARE. It is agreed and understood that the
---------------------
Lender's duty with respect to the Collateral shall be solely to use reasonable
care in the custody and preservation of the Collateral in the Lender's
possession, which shall not include any steps necessary to preserve rights
against prior parties.
All provisions in this Agreement shall be construed so as to maintain (i)
the ESOP as a qualified leveraged employee stock ownership plan under Sections
401(a) and 4975(e)(7) of the Code, (ii) the Trust as exempt from taxation under
Section 501(a) of the Code, and (iii) the Loan as an "exempt loan" under the
Exempt Loan Rules.
[Remainder of this page intentionally left blank]
10
<PAGE>
Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall constitute a contract between us for the uses and purposes
hereinabove set forth.
Dated as of this ___ day of [date]
***, and its successors in trust, as Trustee under that
certain West Essex Bank Employee Stock Ownership Plan
Trust effective [Date] by and between the undersigned
and West Essex Bank.
By
-----------------------------------
Accepted and agreed to at *** as of the date last above written.
[Lender]
By
-----------------------------------
11
<PAGE>
FORM OF
EXHIBIT A
PROMISSORY NOTE
Amount sufficient to satisfy the Loan Amount [Date]
***
For VALUE RECEIVED, the undersigned, ***, not individually but solely as
Trustee under that certain West Essex Bank Employee Stock Ownership Plan Trust
effective [Date] by and between the undersigned ("Borrower") and West Essex Bank
promises to pay to the order of [Lender] (the "Lender") at its office at ***,
the aggregate unpaid principal amount of all loan amounts or advances under the
loan made to the Borrower under Section 1.1 of the Loan and Security Agreement
hereinafter referred to in [number] (#) consecutive annual equal installments,
consisting of both principal and interest, amortized over a [number] (#) year
period in an amount sufficient to repay all borrowed amounts plus interest,
payable annually on the last business day of December, 1998, and continuing on
the last business day of each and every December thereafter, except that the
final installment of principal and interest not sooner paid shall be due on
[Date], the final maturity hereof.
The Borrower promises to pay interest (computed on the basis of a year of
360 days) at said office on the balance of principal from time to time remaining
outstanding and unpaid hereon at the rate per annum equal at all times to the
Interest Rate as defined in Section 2.1 of the Loan and Security Agreement (as
defined below) on the last business day of each and every December, commencing
December 31, 1998, and in each year thereafter and on the final maturity date of
this Note. On demand, the Borrower promises to pay interest on any overdue
principal hereof (whether by lapse of time, acceleration, or otherwise) until
paid at the stated rate.
This Note is issued under the terms and provisions of that certain West
Essex Bank Employee Stock Ownership Trust Loan and Security Agreement bearing
even date herewith by and between the Borrower and the Lender (the "Loan and
Security Agreement") and this Note and the holder hereof are entitled to all the
benefits and security provided for by or referred to in such Loan and Security
Agreement.
This Note may be declared due prior to its express maturity and voluntary
prepayments may be made hereon, all in the events, on the terms and in the
manner as provided in such Loan and Security Agreement.
Recourse for the payment of this Note has been limited by the provisions of
the Loan and Security Agreement and this Note is expressly made subject to such
provisions notwithstanding anything contained herein to the contrary. This Note
shall be governed by and construed in
12
<PAGE>
accordance with the laws of [State] without regard to principles of conflicts of
laws. The Borrower hereby waives presentment for payment and demand.
Upon the occurrence of a Default as such term is defined in the Loan and
Security Agreement at the option of the Lender, all amounts payable by the
Borrower to the Lender under the terms of this Note may immediately become due
and payable by the Borrower to the Lender pursuant to the provisions of Section
9.3 of the Loan and Security Agreement, and the Lender shall have all of the
rights, powers, and remedies available under the terms of this Note, any of the
other documents evidencing and securing this Loan and all applicable laws. The
Borrower and all endorsers, guarantors, and other parties who may now or in the
future be primarily or secondarily liable for the payment of the indebtedness
evidenced by this Note hereby severally waive presentment, protest and demand,
notice of protest, notice of demand and of dishonor and non-payment of this Note
and expressly agree that this Note and any payment hereunder may be extended
from time to time without in any way affecting the liability of the Borrower,
guarantors and endorsers.
*** its successors in trust, as Trustee
under that certain West Essex Bank Employee
Stock Ownership Plan Trust effective [Date]
by and between the undersigned and West
Essex Bank
By:
--------------------
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<PAGE>
FORM OF
EXHIBIT B
SECURITY AGREEMENT
INSTRUMENTS OR NEGOTIABLE DOCUMENTS TO BE DEPOSITED
For new value contemporaneously given by [Lender], ("Lender") to the
undersigned ("Borrower"), the receipt whereof is hereby acknowledged and subject
to the terms and provisions of the Loan and Security Agreement described below,
the Borrower does hereby grant a security interest to said Lender in the
instruments or negotiable documents hereafter described ("Collateral"), in all
of which Collateral the Borrower warrants that the Borrower has good, valid and
effective rights to the ownership and possession thereof and to the grant the
security interest hereby made:
All Shares of the common stock, par value $.01 per share, of West Essex
Bancorp, Inc., a federally-chartered corporation, acquired with the
proceeds of the Loan Amount.
Borrower agrees to deliver said collateral to said Lender as soon as
practicable after Borrower's receipt of one or more certificates therefore.
Said security interest secures the payment of all indebtedness and
liabilities as undertaken in the Loan and Security Agreement to which this is a
part, now existing or hereafter arising, and the Lender has all the rights with
respect to said Collateral and said security interest as more fully set forth in
the form of secured note or notes executed and delivered by the undersigned to
said Lender prior hereto or contemporaneously herewith.
This agreement, including matters of interpretation and construction, and
the rights of the Lender and the duties and obligations of the debt hereunder
are to be determined in accordance with the laws of the State of [State],
particularly the Uniform Commercial Code, except where preempted by federal law.
Dated at *** the ____ day of ***
***, and its successors in trust, as
Trustee under that certain West Essex
Bank Employee Stock Ownership Plan Trust
effective [Date] by and between the
undersigned and West Essex Bank.
By:
---------------------------------
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EXHIBIT 10.5 FORM OF PROPOSED EMPLOYMENT AGREEMENT BETWEEN WEST ESSEX BANK AND
CERTAIN EXECUTIVE OFFICERS
<PAGE>
FORM OF
WEST ESSEX BANK
EMPLOYMENT AGREEMENT
This AGREEMENT is made and entered into this ____ day of _______________,
199__, by and among West Essex Bank (the "Bank"), a federally-chartered stock
savings institution, with its principal administrative office at 417 Bloomfield
Avenue, Caldwell, New Jersey, West Essex Bancorp, Inc., a federally-chartered
corporation and holding company for the Bank ("Holding Company") and
______________________________ ("Executive").
WHEREAS, the Bank wishes to continue to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Bank on a full-
time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive shall be nominated
and elected [and or appointed] to serve as a_______________________ of the Bank.
Executive shall render administrative and management services to the Bank such
as are customarily performed by persons situated in a similar executive
capacity. During said period, Executive also agrees to serve, if elected, as an
officer and director of any subsidiary or affiliate of the Bank.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of____________ (____) full calendar months thereafter. Commencing
on the first anniversary date of this Agreement, and continuing at each
anniversary date thereafter, the Board of Directors of the Bank ("Board"), may
extend the Agreement an additional year such that the remaining term of the
Agreement shall be_________ (___) years unless the Executive elects not to
extend the term of this Agreement by giving notice in accordance with Section 9
of the Agreement. The Board will review the Executive's performance annually for
purposes of determining, whether to extend the Agreement, and the rationale and
the results thereof shall be included in the minutes of the Board's meeting. The
Board shall give notice to the Executive as soon as possible after such review
as to whether the Agreement is to be extended.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the
<PAGE>
organization, operation and management of the Bank and which activities may
include participation in community and civic organizations; provided, however,
that, with the approval of the Board, as evidenced by a resolution of such
Board, from time to time, Executive may serve, or continue to serve, on the
boards of directors of, and hold any other offices or positions in, companies or
organizations, which, in such Board's judgment, will not present any conflict of
interest with the Bank, or materially affect the performance of Executive's
duties pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary, Executive's
employment with the Bank may be terminated by the Bank or the Executive during
the term of this Agreement, subject to the terms and condition of this
Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Executive shall be entitled to a salary from the Bank of not less
than $___________________ per year ("Base Salary"). Base Salary shall include
any amounts of compensation deferred by Executive under any tax-qualified
retirement or welfare benefit plan or any other deferred compensation
arrangement maintained by the Bank. Executive's Base Salary shall be payable in
accordance with the Bank's normal payroll practices. During the period of this
Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by the Board or a Committee designated
by the Board, and the Board or the Committee of the Board may increase
Executive's Base Salary. The increased Base Salary shall become the "Base
Salary" for purposes of the Agreement. In addition to the Base Salary provided
in this Section 3(a), Executive shall be entitled to incentive compensation and
bonuses as provided in any plan of the Bank in which Executive is eligible to
participate.
(b) The Executive shall be entitled to participate in employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, including the payment for (i)
the use of an automobile and payment for automobile insurance and any costs
associated with its operation and maintenance, (ii) membership to a country club
and the expenses and assessments associated therewith and (iii) attendance to
national and state conventions and educational conferences and the expenses
associated therewith for the Executive and his spouse, and the Bank will not,
without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would materially adversely affect Executive's
rights or benefits thereunder except to the extent that such changes would
affect all of the Bank's employees. Without limiting the generality of the
foregoing provisions of this Subsection (b), Executive shall be entitled to
participate in or receive benefits under all plans relating to stock options,
restricted stock awards, stock purchases, pension, thrift, supplemental
retirement, profit-sharing, employee stock ownership, group life insurance,
medical and other health and welfare coverage, education, cash or stock bonuses
that are now or hereafter made available by the Bank in the future to its senior
executives and key management employees, subject to and on a basis consistent
with the terms, conditions and
2
<PAGE>
overall administration of such plans and arrangements. Nothing paid to the
Executive under any such plan or arrangement will be deemed to be in lieu of
other compensation to which the Executive is entitled under this Agreement.
(c) This Bank shall pay or reimburse Executive for all reasonable travel
and other reasonable expenses incurred by Executive performing his obligations
under this Agreement and may provide such additional compensation in such form
and such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Bank of Executive's full-time employment hereunder for any
reason other than a Change in Control, as defined in Section 5(a) hereof,
Termination for Cause, as defined in Section 8 hereof, retirement in accordance
with the Bank's pension plan or Disability as defined in Section 7; (ii)
Executive's resignation from the Bank's employ, in the manner set forth below,
upon any (A) failure to elect or appoint Executive as _________ and
_____________ of the Bank unless consented to by the Executive, (B) material
changes in Executive's functions, duties or responsibilities, which would cause
Executive's position to become one of lesser responsibility, importance or scope
from the position and attributes described in Section 1, above, unless consented
to by the Executive, (C) relocation of Executive's principal place of employment
by more than 50 miles from its location at the effective date of this Agreement,
unless consented to by the Executive, (D) material reduction in the benefits and
perquisites to the Executive from those being provided as of the effective date
of this Agreement, unless consented to by the Executive, (E) liquidation or
dissolution of the Bank or in the event of any governmental confiscation of the
net worth of the Bank, or (F) breach of this Agreement by the Bank. Upon the
occurrence of any event described in clauses (A), (B), (C), (D) or (F), above,
Executive shall have the right to elect to terminate his employment under this
Agreement by resignation upon not less than sixty (60) days prior written notice
given within six full calendar months after the event giving rise to said right
to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, the Bank shall be obligated to pay Executive, or, in the event of
his subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be a sum equal to: (i) the Base Salary and bonuses in accordance with
Section 3(a) of this Agreement, that would have been paid to Executive for the
remaining term of this Agreement had the Event of Termination not occurred, plus
the value as calculated by a recognized firm customarily performing such
valuation, of any stock options or related rights which as of the Date of
Termination have been granted to Executive but are not exercisable by Executive
and the value of any restricted stock or related rights which have been granted
to Executive, but in which Executive does not have a non-forfeitable or fully
vested interest as of the Date of Termination; (ii) all benefits that would have
been provided to Executive for the remaining term of this Agreement had an Event
of Termination not occurred,
3
<PAGE>
provided, however, that any payments pursuant to this subsection shall not, in
- -------- -------
the aggregate, exceed three times Executive's Average Annual Compensation for
the five most recent taxable years that Executive has been employed by the Bank
or such lesser number of years in the event that Executive shall have been
employed by the Bank for less than five years ("Average Annual Compensation").
Average Annual Compensation shall include all taxable income paid by the Bank or
Holding Company including but not limited to Base Salary, commissions and
bonuses, as well as contributions on behalf of Executive to any pension and
profit sharing plan, director or committee fees and fringe benefits paid or to
be paid to the Executive in any such year and any payment of expense items
without accountability or business purpose or that do not meet the Internal
Revenue Service requirements for deductibility by the Bank. In the event that
the Bank is not in compliance with its minimum capital requirements or if such
payments would cause the Bank's capital to be reduced below its minimum capital
requirements, such payments shall be deferred to the extent required by
applicable law until such time as the Bank is in capital compliance. At the
election of the Executive, which election is to be made prior to the Executive's
Date of Termination, such payments shall be made in a lump sum or paid monthly
during the remaining term of this Agreement following the Executive's
termination. In the event that no lump sum election is made, payment to the
Executive will be made on a monthly basis during the remaining term of this
Agreement. Such payments shall not be reduced in the event the Executive obtains
other employment following termination of employment unless the Executive's
other employment constitutes a breach of Section 11 of this Agreement. In such
event the Bank shall be entitled to seek any remedies available to it for breach
of this Agreement.
(c) Upon the occurrence of an Event of Termination, the Bank will cause to
be continued life, medical, dental and long-term disability coverage
substantially identical to the coverage maintained by the Bank for Executive
prior to his termination at no premium cost to the Executive. Such coverage
shall cease upon the expiration of the remaining term of this Agreement. Any
bond outstanding for country club membership shall be transferred without
payment therefore by the Executive and the Bank shall pay the annual membership
dues and assessments for the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Bank or
Holding Company shall mean an event of a nature that: (A) would be required to
be reported in response to Item 1 of the Current Report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); (B) results in a Change in Control of
the Bank or the Holding Company within the meaning of the Home Owners' Loan Act
of 1933, as amended, the Federal Deposit Insurance Act, and the Rules and
Regulations promulgated by the Office of Thrift Supervision (or its successor
agency), as in effect on the date hereof (provided that in applying the
definition of a change in control as set forth under the rules and regulations
of the OTS, the Board shall substitute its judgment for that of the OTS); or (C)
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,
4
<PAGE>
of voting securities of the Bank or the Holding Company representing 20% or more
of the Bank's or the Holding Company's outstanding voting securities or right to
acquire such securities except for any voting securities of the Bank purchased
by the Holding Company and any voting securities purchased by any of the Bank's
or the Holding Company's employee benefit plans; or (b) individuals who
constitute the Board of the Bank or the Holding Company on the date of the
Conversion (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 of the Conversion or Reorganization whose election was approved by a vote
of at least three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Bank's or the Holding Company's
stockholders was approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (b), considered as though
he were a member of the Incumbent Board; or (c) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the Bank
or the Holding Company or similar transaction occurs in which the Bank or the
Holding Company is not the resulting entity, provided however, that such an
event listed above will be deemed to have occurred or to have been effectuated
upon the receipt of all required regulatory approvals not including the lapse of
any statutory waiting periods.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board has determined that a Change in
Control has occurred, Executive shall be entitled to the benefits provided in
paragraphs (c) and (d) of this Section 5 upon his subsequent termination of
employment at any time during the term of this Agreement due to: (1) Executive's
dismissal; or (2) voluntary resignation following any demotion, loss of title,
office or significant authority or responsibility, reduction in any compensation
or benefits or relocation of his principal place of employment by more than 50
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death or Termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Bank shall pay Executive, or in the event of his subsequent death following
such termination, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay or liquidated damages, or both, a sum equal to the
greater of (i) the Base Salary and bonuses that would have been paid in
accordance with Section 3(a) of this Agreement had the event described in
Subsection b of this Section 5 not occurred, plus the value, as calculated by a
recognized firm customarily performing such valuation, of any stock option or
related rights which as of the Date of Termination have been granted to
Executive, but are not exercisable by Executive and the value of restricted
stock awards or related rights which have been granted to Executive, but which
Executive does not have a non-forfeitable or fully vested interest as of the
Date of Termination and all benefits, including health insurance, in accordance
with Section 3(b) that would have been provided to Executive for the remaining
term of this Agreement had the event described in Subsection (b) of this Section
5 not occurred, or (ii) three (3) times Executive's "Average Annual
Compensation" (as defined herein) for the five (5) most recent taxable years
that Executive has been employed by the Bank. At the election of the Executive,
which election is to be made prior to a Change in Control, such payment may be
made in a lump sum as of the
5
<PAGE>
Executive's Date of Termination. In the event that no election is made, payment
to the Executive will be made on a monthly basis during the remaining term of
the Agreement. Such payments shall not be reduced in the event Executive obtains
other employment following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Bank will cause to be continued life, medical, dental and long-term
disability coverage substantially equivalent to the coverage maintained by the
Bank for Executive at no premium cost to Executive prior to his severance. Such
coverage and payments shall cease upon the expiration of ____________ (___)
months.
6. CHANGE IN CONTROL RELATED PROVISIONS
Notwithstanding the paragraphs of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive, under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Code or any successor thereto, and in order to avoid
such a result, Termination Benefits will be reduced, if necessary to an amount
(the "Non-Triggering Amount"), the value of which is one dollar ($1.00) less
than an amount equal to three (3) times Executive's "base amount", as determined
in accordance with said Section 280G. The allocation of the reduction required
hereby among the Termination Benefits provided by the paragraphs of Section 5
shall be determined by the Executive.
7. TERMINATION FOR DISABILITY
(a) If, as a result of Executive's permanent incapacity due to injury or
sickness, such incapacity being determined by a doctor selected by the Bank and
the Executive, he shall have been absent from his duties with the Bank on a
full-time basis for six (6) consecutive months, and within thirty (30) days
after written notice of potential termination is given he shall not have
returned to the full-time performance of his duties, the Bank may terminate
Executive's employment for "Disability."
(b) The Bank will pay Executive, as disability pay, a bi-weekly payment
equal to one hundred percent (100%) of Executive's monthly rate of Base Salary
on the effective date of such termination. These disability payments shall
commence on the effective date of Executive's termination and will end on the
earlier of (i) the date Executive returns to the full-time employment of the
Bank in the same capacity as he was employed prior to his termination for
Disability and pursuant to an employment agreement between Executive and the
Bank; (ii) Executive's death; or (iii) the Executive reaching age 65.
Notwithstanding any other provisions to the contrary, any amounts due under this
subsection (b) shall first be reduced by any benefits payable to the Executive
under a disability insurance policy provided by the Bank.
(c) The Bank will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
Bank for Executive prior to his termination for Disability. Disability coverage
under this subsection (c) and payments shall cease
6
<PAGE>
upon the earlier of (i) the date Executive returns to the full-time employment
of the Bank, in the same capacity as he was employed prior to his termination
for Disability and pursuant to an employment agreement between Executive and the
Bank; (ii) the Executive's death; or (iii) the Executive reaching the age of 65.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to Executive during any period which Executive is
incapable of performing his duties hereunder by reason of temporary disability.
8. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of the
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement. For purposes of this Section, no act,
or the failure to act, on Executive's part shall be "willful" unless done, or
omitted to be done, not in good faith and without reasonable belief that the
action or omission was in the best interest of its affiliates. In determining
incompetence, the acts or omissions shall be measured against standards
generally prevailing in the savings institutions industry. Notwithstanding the
foregoing, Executive shall not be deemed to have been Terminated for Cause
unless and until there shall have been delivered to him a Notice of Termination
that shall include a copy of a resolution duly adopted by the affirmative vote
of not less than a majority of the members of the Board at a meeting of the
Board called and held for that purpose (after reasonable notice to Executive and
an opportunity for him, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, Executive was guilty of
conduct justifying Termination for Cause and specifying the reasons thereof in
detail. The Executive shall not have the right to receive compensation or other
benefits for any period after Termination for Cause.
9. NOTICE.
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean (A) if Executive's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given).
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<PAGE>
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties or, by a binding arbitration award,
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence and
solely in accordance with Section 20 of this agreement. Notwithstanding the
pendency of any such dispute, unless otherwise prohibited by Section 16 of this
Agreement, the Bank will continue to pay Executive his full compensation in
effect when the notice giving rise to the dispute was given (including, but not
limited to, Base Salary) and continue him as a participant in all compensation,
benefit and insurance plans in which he was participating when the notice of
dispute was given, until the earlier of: (1) the resolution of the dispute in
accordance with this Agreement; or (2) the expiration of the remaining term of
this Agreement as determined as of the Date of Termination. Amounts paid under
this Section are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement.
10. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 10 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Bank. Executive shall, upon reasonable notice,
furnish such information and assistance to the Bank as may reasonably be
required by the Bank in connection with any litigation in which it or any of its
subsidiaries or affiliates is, or may become, a party.
11. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
an Event of Termination as provided in Section 4 hereof, Executive agrees not to
compete with the Bank for a period of one (1) year following such termination in
any city, town or county in which the Bank has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination except as otherwise agreed to pursuant to a
resolution duly adopted by the Board. Executive agrees that during such period
and within said cities, towns and counties, Executive shall not work in an
executive capacity for any financial institution whose business materially
competes with the depository, lending or other business activities of the Bank.
The parties hereto, recognizing that irreparable injury will result to the Bank,
its business and property in the event of Executive's breach of this
Subsection 11 (a) agree that in the event of any such breach by Executive, the
Bank will be entitled, in addition to any other remedies and damages available,
to an injunction to restrain the violation hereof by Executive, Executive's
partners, agents, servants, employers, employees and all persons acting for or
with Executive. Nothing herein will be construed as prohibiting the Bank from
pursuing
8
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any other remedies available to the Bank for such breach or threatened breach,
including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, following the term of his
employment, disclose any knowledge of the past, present, planned or considered
business activities of the Bank or affiliates thereof to any person, firm,
corporation, or other entity for any reason or purpose whatsoever except as
authorized by the Board. Notwithstanding the foregoing, Executive may disclose
any knowledge of banking, financial and/or economic principles, concepts or
ideas which are not solely and exclusively derived from the business plans and
activities of the Bank. Further, Executive may disclose information regarding
the business activities of the Bank to the Office of Thrift Supervision and the
Federal Deposit Insurance Corporation pursuant to formal regulatory requests.
In the event of a breach or threatened breach by the Executive of the provisions
of this Section 11, the Bank will be entitled to an injunction restraining
Executive from disclosing, in whole or in part, the knowledge of the past,
present, planned or considered business activities of the Bank or affiliates
thereof, or from rendering any services to any person, firm, corporation, other
entity to whom such knowledge, in whole or in part, has been disclosed or is
threatened to be disclosed. Nothing herein will be construed as prohibiting the
Bank from pursuing any other remedies available to the Bank for such breach or
threatened breach, including the recovery of damages from Executive.
12. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Bank. The Holding Company however,
unconditionally guarantees payment and provision of all amounts and benefits due
hereunder to Executive and, if such amounts and benefits due from the Bank are
not timely paid or provided by the Bank, such amounts and benefits shall be paid
or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated_________________,
1998, between Executive and the Holding Company, such compensation payments and
benefits paid by the Holding Company will be subtracted from any amounts due
simultaneously to Executive under similar provisions of this Agreement.
Payments pursuant to this Agreement and the Holding Company Agreement shall be
allocated in proportion to the services rendered and time expended on such
activities by Executive as determined b the Holding Company and the Bank on a
quarterly basis.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto, except that this Agreement shall not affect or operate to reduce any
benefit or compensation inuring to the
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Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
16. REQUIRED PROVISIONS.
(a) The Bank may terminate the Executive's employment at any time, but any
termination by the Bank, other than Termination for Cause, shall not prejudice
Executive's right to compensation or other benefits under this Agreement.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 8 herein above.
(b) If the Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by a notice
served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12
U.S.C. Section 1818(e)(3) or (g)(1), the Bank's obligations under this contract
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may in its
discretion (i) pay the Executive all or part of the compensation withheld while
their contract obligations were suspended and (ii) reinstate (in whole or in
part) any of the obligations which were suspended.
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In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 16(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Bank will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 5 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) (12 U.S.C. Section 1818(e)(4) or 8(g)(1)) of the Federal Deposit
Insurance Act (12 U.S.C. Section 1818(e)(4) or (g)(1)), all obligations of the
Bank under this contract shall terminate as of the effective date of the order,
but vested rights of the contracting parties shall not be affected.
(d) If the Bank is in default (as defined in Section 3(x)(1) (12 U.S.C.
Section 1813(x)(1)) of the Federal Deposit Insurance Act) all obligations of the
Bank under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
(e) All obligations of the Bank under this contract shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the institution, (i) by the Federal Deposit
Insurance Corporation, at the time FDIC enters into an agreement to provide
assistance to or on behalf of the Bank under the authority contained in Section
13(c) (12 U.S.C. Section 1823(c)) of the Federal Deposit Insurance Act, or (ii)
by the Office of Thrift Supervision ("OTS") at the time the OTS or its District
Director approves a supervisory merger to resolve problems related to the
operations of the Bank or when the Bank is determined by the OTS or FDIC to be
in an unsafe or unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by such action.
(f) Any payments made to the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and any rules and regulations promulgated thereunder.
17. REINSTATEMENT OF BENEFITS UNDER SECTION 16(b).
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 16(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Bank will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 5 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
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18. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
19. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
20. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of New Jersey but
only to the extent not superseded by Federal law.
21. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within fifty
(50) miles from the location of the Bank, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
22. PAYMENT OF LEGAL FEES.
In the event any action is instituted by the Executive or the Bank
including under Section 21 of this Agreement all legal fees and expenses shall
be paid and reimbursed by the party who is not successful on the merits as
determined by a legal judgment, settlement or arbitration award.
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23. INDEMNIFICATION.
The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) to the fullest extent permitted under
Federal and New Jersey law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Bank (whether or not he continues to be a director or officer
at the time of incurring such expenses or liabilities), such expenses and
liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
24. SUCCESSOR TO THE BANK.
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Holding Company,
expressly and unconditionally to assume and agree to perform the Bank's
obligations under this Agreement, in the same manner and to the same extent that
the Bank would be required to perform if no such succession or assignment had
taken place.
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SIGNATURES
IN WITNESS WHEREOF,________________ , has caused this agreement to be
executed and its seal to be affixed hereunto by its duly authorized officers,
and Executive has signed this Agreement, on the____ day of__________________,
1998.
ATTEST: [SEAL]
________________________________ By: ___________________________________
Secretary Chairman of the Board of Directors
WITNESS:
________________________________ ___________________________________
Executive
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EXHIBIT 10.6 FORM OF PROPOSED EMPLOYMENT AGREEMENT BETWEEN
WEST ESSEX BANCORP, INC. AND CERTAIN EXECUTIVE OFFICERS
<PAGE>
FORM OF
WEST ESSEX BANCORP, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT is made and entered into this ____ day of _______________,
199__, by and among West Essex Bancorp, Inc (the "Holding Company"), a
federally-chartered corporation and holding company for West Essex Bank (the
"Bank"), with its principal administrative office at 417 Bloomfield Avenue,
Caldwell, New Jersey, and ______________________________ ("Executive").
WHEREAS, the Holding Company wishes to continue to assure itself of the
services of Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Holding Company
on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive shall be nominated
and elected [and or appointed] to serve as a_______________________ of the
Holding Company. Executive shall render administrative and management services
to the Holding Company such as are customarily performed by persons situated in
a similar executive capacity. During said period, Executive also agrees to
serve, if elected, as an officer and director of any subsidiary or affiliate of
the Holding Company.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of____________ (____) full calendar months thereafter. Commencing
on the first anniversary date of this Agreement, and continuing at each
anniversary date thereafter, the Board of Directors of the Holding Company
("Board"), may extend the Agreement an additional year such that the remaining
term of the Agreement shall be_________ (___) years unless the Executive elects
not to extend the term of this Agreement by giving notice in accordance with
Section 9 of the Agreement. The Board will review the Executive's performance
annually for purposes of determining whether to extend the Agreement, and the
rationale and the results thereof shall be included in the minutes of the
Board's meeting. The Board shall give notice to the Executive as soon as
possible after such review as to whether the Agreement is to be extended.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the
<PAGE>
faithful performance of his duties hereunder including activities and services
related to the organization, operation and management of the Holding Company and
which activities may include participation in community and civic organizations;
provided, however, that, with the approval of the Board, as evidenced by a
resolution of such Board, from time to time, Executive may serve, or continue to
serve, on the boards of directors of, and hold any other offices or positions
in, companies or organizations, which, in such Board's judgment, will not
present any conflict of interest with the Holding Company, or materially affect
the performance of Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary, Executive's
employment with the Holding Company may be terminated by the Holding Company or
the Executive during the term of this Agreement, subject to the terms and
condition of this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Executive shall be entitled to a salary from the Holding Company or
its subsidiaries of not less than $___________________ per year ("Base Salary").
Base Salary shall include any amounts of compensation deferred by Executive
under any tax-qualified retirement or welfare benefit plan or any other deferred
compensation arrangement maintained by the Holding Company or its subsidiaries.
Executive's Base Salary shall be payable in accordance with the normal payroll
practices of the Holding Company or its subsidiaries. During the period of this
Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by the Board or a Committee designated
by the Board, and the Board or the Committee of the Board may increase
Executive's Base Salary. The increased Base Salary shall become the "Base
Salary" for purposes of the Agreement. In addition to the Base Salary provided
in this Section 3(a), Executive shall be entitled to incentive compensation and
bonuses as provided in any plan of the Holding Company or its subsidiaries in
which Executive is eligible to participate.
(b) The Executive shall be entitled to participate in employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, including the payment for (i)
the use of an automobile and payment for automobile insurance and any costs
associated with its operation and maintenance, (ii) membership to a country club
and the expenses and assessments associated therewith and (iii) attendance to
national and state conventions and educational conferences and the expenses
associated therewith for the Executive and his spouse, and the Holding Company
or its subsidiaries will not, without Executive's prior written consent, make
any changes in such plans, arrangements or perquisites which would materially
adversely affect Executive's rights or benefits thereunder except to the extent
that such changes would affect all of the Holding Company's or its subsidiaries
employees. Without limiting the generality of the foregoing provisions of this
Subsection (b), Executive shall be entitled to participate in or receive
benefits
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under all plans relating to stock options, restricted stock awards, stock
purchases, pension, thrift, supplemental retirement, profit-sharing, employee
stock ownership, group life insurance, medical and other health and welfare
coverage, education, cash or stock bonuses that are now or hereafter made
available by the Holding Company or its subsidiaries in the future to its senior
executives and key management employees, subject to and on a basis consistent
with the terms, conditions and overall administration of such plans and
arrangements. Nothing paid to the Executive under any such plan or arrangement
will be deemed to be in lieu of other compensation to which the Executive is
entitled under this Agreement.
(c) This Holding Company shall pay or reimburse Executive for all
reasonable travel and other reasonable expenses incurred by Executive performing
his obligations under this Agreement and may provide such additional
compensation in such form and such amounts as the Board may from time to time
determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Holding Company or its subsidiaries of Executive's full-time
employment hereunder for any reason other than a Change in Control, as defined
in Section 5(a) hereof, Termination for Cause, as defined in Section 8 hereof,
retirement in accordance with the Bank's pension plan or Disability as defined
in Section 7; (ii) Executive's resignation from the Holding Company's employ, in
the manner set forth below, upon any (A) failure to elect or appoint Executive
as _________ and _____________ of the Holding Company unless consented to by the
Executive, (B) material changes in Executive's functions, duties or
responsibilities, which would cause Executive's position to become one of lesser
responsibility, importance or scope from the position and attributes described
in Section 1, above, unless consented to by the Executive, (C) relocation of
Executive's principal place of employment by more than 50 miles from its
location at the effective date of this Agreement, unless consented to by the
Executive, (D) material reduction in the benefits and perquisites to the
Executive from those being provided as of the effective date of this Agreement,
unless consented to by the Executive, (E) liquidation or dissolution of the
Holding Company or its subsidiaries or in the event of any governmental
confiscation of the net worth of the Holding Company or its subsidiaries, or (F)
breach of this Agreement by the Holding Company. Upon the occurrence of any
event described in clauses (A), (B), (C), (D) or (F), above, Executive shall
have the right to elect to terminate his employment under this Agreement by
resignation upon not less than sixty (60) days prior written notice given within
six full calendar months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, the Bank shall be obligated to pay Executive, or, in the event of
his subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be a sum equal to: (i) the Base Salary and bonuses in accordance with
Section 3(a) of this Agreement, that would have been paid to Executive for
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the remaining term of this Agreement had the Event of Termination not occurred,
plus the value as calculated by a recognized firm customarily performing such
valuation, of any stock options or related rights which as of the Date of
Termination have been granted to Executive but are not exercisable by Executive
and the value of any restricted stock or related rights which have been granted
to Executive, but in which Executive does not have a non-forfeitable or fully
vested interest as of the Date of Termination; and (ii) all benefits set forth
in Section 3(b) of this Agreement that would have been paid or provided to
Executive for the remaining term of this Agreement had an Event of Termination
not occurred, provided, however, that any payments pursuant to this subsection
-------- -------
shall not, in the aggregate, exceed three times Executive's Average Annual
Compensation for the five most recent taxable years that Executive has been
employed by the Bank or such lesser number of years in the event that Executive
shall have been employed by the Bank for less than five years ("Average Annual
Compensation"). Average Annual Compensation shall include all taxable income
paid by the Bank or Holding Company including but not limited to Base Salary,
commissions and bonuses, as well as contributions on behalf of Executive to any
pension and profit sharing plan, director or committee fees and fringe benefits
paid or to be paid to the Executive in any such year and any payment of expense
items without accountability or business purpose or that do not meet the
Internal Revenue Service requirements for deductibility by the Holding Company
or its subsidiaries. In the event that the Holding Company or its subsidiaries
are not in compliance with its minimum capital requirements or if such payments
would cause the Bank's capital to be reduced below its minimum capital
requirements, such payments shall be deferred to the extent required by
applicable law until such time as the Bank is in capital compliance. At the
election of the Executive, which election is to be made prior to the Executive's
Date of Termination, such payments shall be made in a lump sum or paid monthly
during the remaining term of this Agreement following the Executive's
termination. In the event that no lump sum election is made, payment to the
Executive will be made on a monthly basis during the remaining term of this
Agreement. Such payments shall not be reduced in the event the Executive obtains
other employment following termination of employment unless the Executive's
other employment constitutes a breach of Section 11 of this Agreement. In such
event the Bank shall be entitled to seek any remedies available to it for breach
of this Agreement.
(c) Upon the occurrence of an Event of Termination, the Holding Company or
its subsidiaries will cause to be continued life, medical, dental and long-term
disability coverage substantially identical to the coverage maintained by the
Holding Company or its subsidiaries for Executive prior to his termination at no
premium cost to the Executive. Such coverage shall cease upon the expiration of
the remaining term of this Agreement. Any bond outstanding for country club
membership shall be transferred without payment therefore by the Executive and
the Holding Company or its subsidiaries shall pay the annual membership dues and
assessments for the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Bank or
Holding Company shall mean an event of a nature that: (A) would be required to
be reported in response
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to Item 1 of the Current Report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); (B) results in a Change in Control of the Bank or the Holding
Company within the meaning of the Home Owners' Loan Act of 1933, as amended, the
Federal Deposit Insurance Act, and the Rules and Regulations promulgated by the
Office of Thrift Supervision (or its successor agency), as in effect on the date
hereof (provided that in applying the definition of a change in control as set
forth under the rules and regulations of the OTS, the Board shall substitute its
judgment for that of the OTS); or (C) without limitation such a Change in
Control shall be deemed to have occurred at such time as (a) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of voting securities of the Bank or the Holding Company
representing 20% or more of the Bank's or the Holding Company's outstanding
voting securities or right to acquire such securities except for any voting
securities of the Bank purchased by the Holding Company and any voting
securities purchased by any of the Bank's or the Holding Company's employee
benefit plans; or (b) individuals who constitute the Board of the Bank or the
Holding Company on the date of the Conversion (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 of the Conversion or Reorganization
whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Bank's or the Holding Company's stockholders was approved by the same
Nominating Committee serving under an Incumbent Board, shall be, for purposes of
this clause (b), considered as though he were a member of the Incumbent Board;
or (c) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Holding Company or similar
transaction occurs in which the Bank or the Holding Company is not the resulting
entity, provided however, that such an event listed above will be deemed to have
occurred or to have been effectuated upon the receipt of all required regulatory
approvals not including the lapse of any statutory waiting periods.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board has determined that a Change in
Control has occurred, Executive shall be entitled to the benefits provided in
paragraphs (c) and (d) of this Section 5 upon his subsequent termination of
employment at any time during the term of this Agreement due to: (1) Executive's
dismissal; or (2) voluntary resignation following any demotion, loss of title,
office or significant authority or responsibility, reduction in any compensation
or benefits or relocation of his principal place of employment by more than 50
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death or Termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Holding Company or its subsidiaries shall pay Executive, or in the event of
his subsequent death following such termination, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the greater of (i) the Base Salary and bonuses
that would have been paid in accordance with Section 3(a) of this Agreement had
the event described in Subsection b of this Section 5 not occurred, plus the
value, as calculated
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<PAGE>
by a recognized firm customarily performing such valuation, of any stock option
or related rights which as of the Date of Termination have been granted to
Executive, but are not exercisable by Executive and the value of restricted
stock awards or related rights which have been granted to Executive, but which
Executive does not have a non-forfeitable or fully vested interest as of the
Date of Termination and all benefits, including health insurance, in accordance
with Section 3(b) that would have been provided to Executive for the remaining
term of this Agreement had the event described in Subsection (b) of this Section
5 not occurred, or (ii) three (3) times Executive's "Average Annual
Compensation" (as defined herein) for the five (5) most recent taxable years
that Executive has been employed by the Holding Company or its subsidiaries. At
the election of the Executive, which election is to be made prior to a Change in
Control, such payment may be made in a lump sum as of the Executive's Date of
Termination. In the event that no election is made, payment to the Executive
will be made on a monthly basis during the remaining term of the Agreement. Such
payments shall not be reduced in the event Executive obtains other employment
following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Holding Company or its subsidiaries will cause to be continued life,
medical, dental and long-term disability coverage substantially equivalent to
the coverage maintained by the Holding Company or its Subsidiaries for Executive
at no premium cost to Executive prior to his severance. Such coverage and
payments shall cease upon the expiration of ____________ (___) months.
6. CHANGE IN CONTROL RELATED PROVISIONS
Notwithstanding the paragraphs of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive, under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Code or any successor thereto, and in order to avoid
such a result, Termination Benefits will be reduced, if necessary to an amount
(the "Non-Triggering Amount"), the value of which is one dollar ($1.00) less
than an amount equal to three (3) times Executive's "base amount", as determined
in accordance with said Section 280G. The allocation of the reduction required
hereby among the Termination Benefits provided by the paragraphs of Section 5
shall be determined by the Executive.
7. TERMINATION FOR DISABILITY
(a) If, as a result of Executive's permanent incapacity due to injury or
sickness, such incapacity being determined by a doctor selected by the Holding
Company or its subsidiaries and the Executive, he shall have been absent from
his duties with the Holding Company or its subsidiaries on a full-time basis for
six (6) consecutive months, and within thirty (30) days after written notice of
potential termination is given he shall not have returned to the full-time
performance of his duties, the Holding Company may terminate Executive's
employment for "Disability."
(b) The Holding Company or its subsidiaries will pay Executive, as
disability pay, a bi-weekly payment equal to one hundred percent (100%) of
Executive's monthly rate of Base
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Salary on the effective date of such termination. These disability payments
shall commence on the effective date of Executive's termination and will end on
the earlier of (i) the date Executive returns to the full-time employment of the
Holding Company in the same capacity as he was employed prior to his termination
for Disability and pursuant to an employment agreement between Executive and the
Holding Company; (ii) Executive's death; or (iii) the Executive reaching age 65.
Notwithstanding any other provisions to the contrary, any amounts due under this
subsection (b) shall first be reduced by any benefits payable to the Executive
under a disability insurance policy provided by the Holding Company or its
subsidiaries.
(c) The Holding Company or its subsidiaries will cause to be continued
life, medical, dental and disability coverage substantially identical to the
coverage maintained by the Holding Company or its subsidiaries for Executive
prior to his termination for Disability. Disability coverage under this
subsection (c) and payments shall cease upon the earlier of (i) the date
Executive returns to the full-time employment of the Holding Company, in the
same capacity as he was employed prior to his termination for Disability and
pursuant to an employment agreement between Executive and the Holding Company;
(ii) the Executive's death; or (iii) the Executive reaching the age of 65.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to Executive during any period which Executive is
incapable of performing his duties hereunder by reason of temporary disability.
8. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of the
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement. For purposes of this Section, no act,
or the failure to act, on Executive's part shall be "willful" unless done, or
omitted to be done, not in good faith and without reasonable belief that the
action or omission was in the best interest of its affiliates. In determining
incompetence, the acts or omissions shall be measured against standards
generally prevailing in the savings institutions industry. Notwithstanding the
foregoing, Executive shall not be deemed to have been Terminated for Cause
unless and until there shall have been delivered to him a Notice of Termination
that shall include a copy of a resolution duly adopted by the affirmative vote
of not less than a majority of the members of the Board at a meeting of the
Board called and held for that purpose (after reasonable notice to Executive and
an opportunity for him, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, Executive was guilty of
conduct justifying Termination for Cause and specifying the reasons thereof in
detail. The Executive shall not have the right to receive compensation or other
benefits for any period after Termination for Cause.
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<PAGE>
9. NOTICE.
(a) Any purported termination by the Holding Company or by Executive shall
be communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean (A) if Executive's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties or, by a binding arbitration award,
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence and
solely in accordance with Section 20 of this agreement. Notwithstanding the
pendency of any such dispute, unless otherwise prohibited by Section 16 of this
Agreement, the Holding Company or its subsidiaries will continue to pay
Executive his full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, Base Salary) and continue him
as a participant in all compensation, benefit and insurance plans in which he
was participating when the notice of dispute was given, until the earlier of:
(1) the resolution of the dispute in accordance with this Agreement; or (2) the
expiration of the remaining term of this Agreement as determined as of the Date
of Termination. Amounts paid under this Section are in addition to all other
amounts due under this Agreement and shall not be offset against or reduce any
other amounts due under this Agreement.
10. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 10 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company or its subsidiaries. Executive
shall, upon reasonable notice, furnish such information and assistance to the
Holding Company as may reasonably be required by the Holding Company in
connection with any litigation in which it or any of its subsidiaries or
affiliates is, or may become, a party.
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11. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to an
Event of Termination as provided in Section 4 hereof, Executive agrees not to
compete with the Holding Company or its subsidiaries for a period of one (1)
year following such termination in any city, town or county in which the Holding
Company or its subsidiaries have an office or have filed an application for
regulatory approval to establish an office, determined as of the effective date
of such termination except as otherwise agreed to pursuant to a resolution duly
adopted by the Board. Executive agrees that during such period and within said
cities, towns and counties, Executive shall not work in an executive capacity
for any financial institution whose business materially competes with the
depository, lending or other business activities of the Holding Company or its
subsidiaries. The parties hereto, recognizing that irreparable injury will
result to the Holding Company or its subsidiaries, its business and property in
the event of Executive's breach of this Subsection 11 (a) agree that in the
event of any such breach by Executive, the Holding Company will be entitled, in
addition to any other remedies and damages available, to an injunction to
restrain the violation hereof by Executive, Executive's partners, agents,
servants, employers, employees and all persons acting for or with Executive.
Nothing herein will be construed as prohibiting the Holding Company from
pursuing any other remedies available to the Holding Company for such breach or
threatened breach, including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
affiliates thereof, as it may exist from time to time, is a valuable, special
and unique asset of the business of the Holding Company. Executive will not,
following the term of his employment, disclose any knowledge of the past,
present, planned or considered business activities of the Holding Company or
affiliates thereof to any person, firm, corporation, or other entity for any
reason or purpose whatsoever except as authorized by the Board. Notwithstanding
the foregoing, Executive may disclose any knowledge of banking, financial and/or
economic principles, concepts or ideas which are not solely and exclusively
derived from the business plans and activities of the Holding Company or its
subsidiaries. Further, Executive may disclose information regarding the
business activities of the Holding Company to the Office of Thrift Supervision
and the Federal Deposit Insurance Corporation pursuant to formal regulatory
requests. In the event of a breach or threatened breach by the Executive of the
provisions of this Section 11, the Holding Company will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Holding Company or affiliates thereof, or from rendering any services to any
person, firm, corporation, other entity to whom such knowledge, in whole or in
part, has been disclosed or is threatened to be disclosed. Nothing herein will
be construed as prohibiting the Holding Company from pursuing any other remedies
available to the Holding Company for such breach or threatened breach, including
the recovery of damages from Executive.
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12. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated_________________,
1998, between Executive and the Bank, such compensation payments and benefits
paid by the Bank will be subtracted from any amounts due simultaneously to
Executive under similar provisions of this Agreement. Payments pursuant to this
Agreement and the Bank Agreement shall be allocated in proportion to the
services rendered and time expended on such activities by Executive as
determined by the Holding Company and the Bank on a quarterly basis.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto, except that this Agreement shall not affect or operate to reduce any
benefit or compensation inuring to the Executive of a kind elsewhere provided.
No provision of this Agreement shall be interpreted to mean that Executive is
subject to receiving fewer benefits than those available to him without
reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall
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operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future as to any act other
than that specifically waived.
16. REQUIRED PROVISIONS.
(a) The Holding Company may terminate the Executive's employment at any
time, but any termination by the Holding Company, other than Termination for
Cause, shall not prejudice Executive's right to compensation or other benefits
under this Agreement. Executive shall not have the right to receive compensation
or other benefits for any period after Termination for Cause as defined in
Section 8 herein above.
(b) If the Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Holding Company's affairs by a notice
served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12
U.S.C. Section 1818(e)(3) or (g)(1), the Holding Company's obligations under
this contract shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the Holding
Company may in its discretion (i) pay the Executive all or part of the
compensation withheld while their contract obligations were suspended and (ii)
reinstate (in whole or in part) any of the obligations which were suspended.
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Holding Company's affairs by a notice
described in Section 16(b) hereof (the "Notice") during the term of this
Agreement and a Change in Control, as defined herein, occurs, the Holding
Company will assume its obligation to pay and Executive will be entitled to
receive all of the termination benefits provided for under Section 5 of this
Agreement upon the Holding Company's receipt of a dismissal of charges in the
Notice.
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Holding Company's affairs by an order issued
under Section 8(e)(4) (12 U.S.C. Section 1818(e)(4) or 8(g)(1)) of the Federal
Deposit Insurance Act (12 U.S.C. Section 1818(e)(4) or (g)(1)), all obligations
of the Holding Company under this contract shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(d) If the Holding Company is in default (as defined in Section 3(x)(1) (12
U.S.C. Section 1813(x)(1)) of the Federal Deposit Insurance Act) all obligations
of the Holding Company under this contract shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the
contracting parties.
(e) All obligations of the Holding Company under this contract shall be
terminated, except to the extent determined that continuation of the contract is
necessary for the continued operation of the institution, (i) by the Federal
Deposit Insurance Corporation, at the time FDIC enters into an agreement to
provide assistance to or on behalf of the Holding Company under the authority
contained in Section 13(c) (12 U.S.C. Section 1823(c)) of the Federal Deposit
Insurance Act, or (ii) by the Office of Thrift Supervision ("OTS") at the time
the OTS or its District Director
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approves a supervisory merger to resolve problems related to the operations of
the Holding Company or when the Holding Company is determined by the OTS or FDIC
to be in an unsafe or unsound condition. Any rights of the parties that have
already vested, however, shall not be affected by such action.
(f) Any payments made to the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and any rules and regulations promulgated thereunder.
17. REINSTATEMENT OF BENEFITS UNDER SECTION 16(b).
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Holding Company's affairs by a notice
described in Section 16(b) hereof (the "Notice") during the term of this
Agreement and a Change in Control, as defined herein, occurs, the Holding
Company will assume its obligation to pay and Executive will be entitled to
receive all of the termination benefits provided for under Section 5 of this
Agreement upon the Holding Company's receipt of a dismissal of charges in the
Notice.
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18. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
19. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
20. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of New Jersey,
but only to the extent not superseded by Federal law.
21. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within fifty
(50) miles from the location of the Holding Company, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
22. PAYMENT OF LEGAL FEES.
In the event any action is instituted by the Executive or the Holding
Company including under Section 21 of this Agreement all legal fees and expenses
shall be paid and reimbursed by the party who is not successful on the merits as
determined by a legal judgment, settlement or arbitration award.
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23. INDEMNIFICATION.
The Holding Company shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) to the fullest extent permitted under
Federal and New Jersey law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
24. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Holding Company,
expressly and unconditionally to assume and agree to perform the Holding
Company's obligations under this Agreement, in the same manner and to the same
extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF,________________ , has caused this agreement to be
executed and its seal to be affixed hereunto by its duly authorized officers,
and Executive has signed this Agreement, on the____ day of__________________,
1998.
ATTEST: [SEAL]
By:
- ------------------------ ----------------------------------
Secretary Chairman of the Board of Directors
WITNESS:
- ------------------------ -------------------------------
Executive
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EXHIBIT 10.7 FORM OF PROPOSED CHANGE IN CONTROL AGREEMENT BETWEEN WEST ESSEX
BANK AND CERTAIN EXECUTIVE OFFICERS
<PAGE>
FORM OF WEST ESSEX BANK
CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of____________, 199__, by and between
West Essex Bank (the "Bank"), a federally chartered stock savings institution,
with its principal administrative office at 417 Bloomfield Avenue, Caldwell, New
Jersey, 07006, ________________________ ("Executive"), and West Essex Bancorp,
Inc. (the "Holding Company"), a corporation organized under the laws of the
United States which is the holding company of the Bank.
WHEREAS, the Bank recognizes the substantial contribution Executive has
made to the Bank and wishes to protect Executive's position therewith for the
period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Bank.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
-----------------
The term of the West Essex Bank Change in Control Agreement (the
"Agreement") shall be deemed to have commenced as of the date first above
written and shall continue for a period of___________ (__) full calendar months
thereafter. Commencing on the first anniversary date of this Agreement and
continuing at each anniversary date thereafter, the Board of Directors of the
Bank ("Board") may extend the Agreement for an additional year. The Board will
review the Agreement and Executive's performance annually for purposes of
determining whether to extend the Agreement, and the results thereof shall be
included in the minutes of the Board's meeting.
2. CHANGE IN CONTROL.
-----------------
(a) If a Change in Control (as defined herein) has occurred or the Board
has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in Section 3 upon his subsequent termination
of employment at any time during the term of this Agreement due to (i)
Executive's dismissal, or (ii) Executive's voluntary resignation following any
demotion, loss of title, office or significant authority or responsibility,
reduction in the annual compensation or material reduction in benefits or
relocation of his principal place of employment by more than 50 miles from its
location immediately prior to the Change in Control, unless such termination is
because of his death or termination for Cause.
<PAGE>
(b) For purposes of this Plan, a "Change in Control" of the Bank or
Holding Company shall mean an event of a nature that: (i) would be required to
be reported in response to Item 1 of the Current Report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in
Control of the Bank or the Holding Company within the meaning of the Home
Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance Act, or the
Rules and Regulations promulgated by the Office of Thrift Supervision ("OTS")
(or its predecessor agency), as in effect on the date hereof (provided, that in
applying the definition of change in control as set forth under the Rules and
Regulations of the OTS, the Board shall substitute its judgment for that of the
OTS); or (iii) without limitation such a Change in Control shall be deemed to
have occurred at such time as (A) any "person" (as the term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Bank or the Holding Company representing 25% or more of the
Bank's or the Holding Company's outstanding voting securities or right to
acquire such securities except for any voting securities of the Bank purchased
by the Holding Company in connection with the conversion of the Bank to the
stock form and any voting securities purchased by any employee benefit plan of
the Bank or the Holding Company, or (B) individuals who constitute the Board on
the date hereof (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the date hereof whose election was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board, or whose
nomination for election by the Holding Company's stockholders was approved by
the same Nominating Committee serving under an Incumbent Board, shall be, for
purposes of this clause (B), considered as though he were a member of the
Incumbent Board, or (C) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Bank or the Holding Company or
similar transaction occurs in which the Bank or Holding Company is not the
resulting entity; provided, however, that such an event listed above will be
deemed to have occurred or to have been effectuated upon the receipt of all
required regulatory approvals not including the lapse of any statutory periods.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of Executive's personal dishonesty,
incompetence, willful misconduct, any breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of any provision
of this Agreement. Notwithstanding the foregoing, Executive shall not be deemed
to have been Terminated for Cause unless and until there shall have been
delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the Board of Directors of the Bank at a meeting of the Board called and held for
that purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive's conduct justified a finding of
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after the Date of Termination for Cause. During the period beginning
on the date of the
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Notice of Termination for Cause pursuant to Section 4 hereof through the Date of
Termination for Cause, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the Bank,
the Company or any subsidiary or affiliate thereof, vest. At the Date of
Termination for Cause, such stock options and related limited rights and any
such unvested awards shall become null and void and shall not be exercisable by
or delivered to Executive at any time subsequent to such Termination for Cause.
3. TERMINATION BENEFITS.
--------------------
(a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by termination of the Executive's employment
due to: (1) Executive's dismissal or (2) Executive's voluntary termination
pursuant to Section 2(a), unless such termination is due to Termination for
Cause, the Bank and the Holding Company shall pay Executive, or in the event of
his subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be, a sum equal to_________(____) times Executive's average annual
compensation for the five most recent taxable years that Executive has been
employed by the Bank or such lesser number of years in the event that Executive
shall have been employed by the Bank for less than five years. Such average
annual compensation shall include Base Salary, commissions, and bonuses, as well
as contributions on Executive's behalf to any pension and/or profit sharing
plan, retirement payments, directors or committee fees, fringe benefits paid or
to be paid to the Executive in any such year and payment of any expense items
without accountability or business purpose or that do not meet the Internal
Revenue Service requirements for deductibility by the Bank; provided however,
-------- -------
that any payment under this provision and subsection 3(b) below shall not exceed
three (3) times the Executive's average annual compensation. At the election of
Executive, which election is to be made prior to a Change in Control, such
payment shall be made in a lump sum. In the event that no election is made,
payment to Executive will be made on a monthly basis in approximately equal
installments during the remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the Bank or the Holding
Company followed at any time during the term of this Agreement by Executive's
voluntary or involuntary termination of employment, other than for Termination
for Cause, the Bank shall cause to be continued life, medical and disability
coverage substantially identical to the coverage maintained by the Bank or
Holding Company for Executive prior to his severance, except to the extent such
coverage may be changed in its application to all Bank or Holding Company
employees on a nondiscriminatory basis. Such coverage and payments shall cease
upon the expiration of__________(____) full calendar months from the Date of
Termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in no
event shall the aggregate payments or benefits to be made or afforded to
Executive under said paragraphs (the "Termination Benefits") constitute an
"excess parachute payment" under Section 280G of the Code or any successor
thereto, and in order to avoid such a result Termination Benefits will be
reduced, if necessary, to an amount (the "Non-Triggering Amount"), the value of
which is one
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dollar ($1.00) less than an amount equal to three (3) times Executive's "base
amount," as determined in accordance with said Section 280G. The allocation of
the reduction required hereby among the Termination Benefits provided by the
preceding paragraphs of this Section 3 shall be determined by Executive.
4. NOTICE OF TERMINATION.
---------------------
(a) Any purported termination by the Bank or by Executive in connection
with a Change in Control shall be communicated by Notice of Termination to the
other party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a written notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the instance of Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute in connection with a Change in
Control, in the event the Executive is terminated for reasons other than
Termination for Cause, the Bank will continue to pay Executive his full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to his annual salary) and continue him as a
participant in all compensation, benefit and insurance plans in which he was
participating when the notice of dispute was given, until the earlier of: (1)
the resolution of the dispute in accordance with this Agreement or (2) the
expiration of the remaining term of this Agreement as determined as of the Date
of Termination.
5. SOURCE OF PAYMENTS.
------------------
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Bank.
Further, the Holding Company guarantees such payment and provision of all
amounts and benefits due hereunder to Executive and, if such amounts and
benefits due from the Bank are not timely paid or provided by the Bank, such
amounts and benefits shall be paid or provided by the Holding Company.
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6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
-----------------------------------------------------
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the Bank and Executive, except that
this Agreement shall not affect or operate to reduce any benefit or compensation
inuring to Executive of a kind elsewhere provided. No provision of this
Agreement shall be interpreted to mean that Executive is subject to receiving
fewer benefits than those available to him without reference to this Agreement.
Nothing in this Agreement shall confer upon Executive the right to continue
in the employ of Bank or shall impose on the Bank any obligation to employ or
retain Executive in its employ for any period.
7. NO ATTACHMENT.
-------------
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Bank and their respective successors, heirs and assigns.
8. MODIFICATION AND WAIVER.
-----------------------
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
9. REQUIRED REGULATORY PROVISIONS.
------------------------------
(a) The board of directors may terminate Executive's employment at any
time, but any termination by the board of directors, other than Termination for
Cause, shall not prejudice Executive's right to compensation or other benefits
under this Agreement. Executive shall not have the right to receive
compensation or other benefits for any period after Termination for Cause as
defined in Section 2(c) hereinabove.
5
<PAGE>
(b) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act (12 U.S.C.
Section 1818(e)(3) or (g)(1)), the Bank's obligations under this contract shall
be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may in its
discretion (i) pay Executive all or part of the compensation withheld while
their contract obligations were suspended and (ii) reinstate (in whole or in
part) any of the obligations which were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act (12 U.S.C.
Section 1818(c)(4) or (g)(1)), all obligations of the Bank under this contract
shall terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Bank is in default as defined in Section 3(x)(1) of the Federal
Deposit Insurance Act, all obligations of the Bank under this contract shall
terminate as of the date of default, but this paragraph shall not affect any
vested rights of the contracting parties.
(e) All obligations under this contract shall be terminated, except to the
extent determined that continuation of the contract is necessary for the
continued operation of the institution: (i) by the Director of the Office of
Thrift Supervision (or his or her designee) at the time the Federal Deposit
Insurance Corporation enters into an agreement to provide assistance to or on
behalf of the Bank under the authority contained in Section 13(c) of the Federal
Deposit Insurance Act; or (ii) by the Director of the Office of Thrift
Supervision (or his or her designee) at the time the Director (or his or her
designee) approves a supervisory merger to resolve problems related to operation
of the Bank or when the Bank is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested, however,
shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and any rules and regulations promulgated thereunder.
10. REINSTATEMENT OF BENEFITS UNDER SECTION 9(b).
--------------------------------------------
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 9(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Bank will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 3 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
6
<PAGE>
11. SEVERABILITY.
------------
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
12. HEADINGS FOR REFERENCE ONLY.
---------------------------
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement. In addition, references to the
masculine shall apply equally to the feminine.
13. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of New Jersey but only to
the extent not preempted by Federal law.
14. ARBITRATION.
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Bank's main office, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement, other
than in the case of a Termination for Cause.
15. PAYMENT OF COSTS AND LEGAL FEES.
-------------------------------
All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Bank (which payments are guaranteed by the Holding
Company pursuant to Section 5 hereof) if Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement.
16. INDEMNIFICATION.
---------------
(a) The Bank shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, and shall indemnify Executive (and
his heirs, executors and administrators) to the fullest extent permitted under
New Jersey law against all expenses and liabilities reasonably incurred by him
in connection with or arising out of any action, suit or proceeding in which he
7
<PAGE>
may be involved by reason of his having been a director or officer of the Bank
(whether or not he continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
17. SUCCESSOR TO THE BANK
---------------------
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's obligations under this
Agreement, in the same manner and to the same extent that the Bank would be
required to perform if no such succession or assignment had taken place.
8
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, West Essex Bank and West Essex Bancorp, Inc. have
caused this Agreement to be executed by their duly authorized officers, and
Executive has signed this Agreement, on the _____ day of ________, 1998.
ATTEST: WEST ESSEX BANK
_______________________________ By: ___________________________
Secretary President and Chief Executive Officer
For the Entire Board of Directors
SEAL
ATTEST: WEST ESSEX BANCORP, INC..
(Guarantor)
______________________________ By: ___________________________
Secretary President and Chief Executive Officer
For the Entire Board of Directors
SEAL
WITNESS:
______________________________ ___________________________
Executive
9
<PAGE>
EXHIBIT 10.8 FORM OF PROPOSED CHANGE IN CONTROL AGREEMENT
BETWEEN WEST ESSEX BANCORP, INC. AND CERTAIN EXECUTIVE OFFICERS
<PAGE>
FORM OF WEST ESSEX BANCORP, INC.
CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of____________, 199__, by and between
West Essex Bancorp, Inc. (the "Holding Company"), a corporation organized under
the laws of the United States which is the holding company of West Essex Bank
(the "Bank") with its principal administrative office at 417 Bloomfield Avenue,
Caldwell, New Jersey 07006 and ______________ ("Executive").
WHEREAS, the Holding Company recognizes the substantial contribution
Executive has made to the Holding Company and its subsidiaries and wishes to
protect Executive's position therewith for the period provided in this
Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Holding
Company.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
-----------------
The term of the West Essex Bancorp, Inc. Change in Control Agreement (the
"Agreement") shall be deemed to have commenced as of the date first above
written and shall continue for a period of___________ (__) full calendar months
thereafter. Commencing on the first anniversary date of this Agreement and
continuing at each anniversary date thereafter, the Board of Directors of the
Holding Company ("Board") may extend the Agreement for an additional year. The
Board will review the Agreement and Executive's performance annually for
purposes of determining whether to extend the Agreement, and the results thereof
shall be included in the minutes of the Board's meeting.
2. CHANGE IN CONTROL.
-----------------
(a) If a Change in Control (as defined herein) has occurred or the Board
has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in Section 3 upon his subsequent termination
of employment at any time during the term of this Agreement due to (i)
Executive's dismissal, or (ii) Executive's voluntary resignation following any
demotion, loss of title, office or significant authority or responsibility,
reduction in the annual compensation or material reduction in benefits or
relocation of his principal place of employment by more than 50 miles from its
location immediately prior to the Change in Control, unless such termination is
because of his death or termination for Cause.
<PAGE>
(b) For purposes of this Plan, a "Change in Control" of the Bank or Holding
Company shall mean an event of a nature that: (i) would be required to be
reported in response to Item 1 of the Current Report on Form 8-K, as in effect
on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (the "Exchange Act"); or (ii) results in a Change in Control of the
Bank or the Holding Company within the meaning of the Home Owners' Loan Act of
1933, as amended, the Federal Deposit Insurance Act, or the Rules and
Regulations promulgated by the Office of Thrift Supervision ("OTS") (or its
predecessor agency), as in effect on the date hereof (provided, that in applying
the definition of change in control as set forth under the Rules and Regulations
of the OTS, the Board shall substitute its judgment for that of the OTS); or
(iii) without limitation such a Change in Control shall be deemed to have
occurred at such time as (A) any "person" (as the term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Bank or the Holding Company representing 25% or more of the Bank's or the
Holding Company's outstanding voting securities or right to acquire such
securities except for any voting securities of the Bank purchased by the Holding
Company in connection with the conversion of the Bank to the stock form and any
voting securities purchased by any employee benefit plan of the Bank or the
Holding Company, or (B) individuals who constitute the Board on the date hereof
(the "Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Holding Company's stockholders was approved by the same Nominating Committee
serving under an Incumbent Board, shall be, for purposes of this clause (B),
considered as though he were a member of the Incumbent Board, or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Holding Company or similar transaction occurs in which
the Bank or Holding Company is not the resulting entity; provided, however, that
such an event listed above will be deemed to have occurred or to have been
effectuated upon the receipt of all required regulatory approvals not including
the lapse of any statutory periods.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of Executive's personal dishonesty,
incompetence, willful misconduct, any breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of any provision
of this Agreement. Notwithstanding the foregoing, Executive shall not be deemed
to have been Terminated for Cause unless and until there shall have been
delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the Board of Directors of the Holding Company at a meeting of the Board called
and held for that purpose (after reasonable notice to Executive and an
opportunity for him, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, Executive's conduct
justified a finding of Termination for Cause and specifying the particulars
thereof in detail. Executive shall not have the right to receive compensation
or other benefits for any period after the Date of Termination for Cause.
During the period beginning on the date of
2
<PAGE>
the Notice of Termination for Cause pursuant to Section 4 hereof through the
Date of Termination for Cause, stock options and related limited rights granted
to Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the Bank,
the Company or any subsidiary or affiliate thereof, vest. At the Date of
Termination for Cause, such stock options and related limited rights and any
such unvested awards shall become null and void and shall not be exercisable by
or delivered to Executive at any time subsequent to such Termination for Cause.
3. TERMINATION BENEFITS.
--------------------
(a) Upon the occurrence of a Change in Control, followed at any time during
the term of this Agreement by termination of the Executive's employment due to:
(1) Executive's dismissal or (2) Executive's voluntary termination pursuant to
Section 2(a), unless such termination is due to Termination for Cause, the Bank
and the Holding Company shall pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, a
sum equal to_________(____) times Executive's average annual compensation for
the five most recent taxable years that Executive has been employed by the
Holding Company or its subsidiaries or such lesser number of years in the event
that Executive shall have been employed by the Holding Company or its
subsidiaries for less than five years. Such average annual compensation shall
include Base Salary, commissions, and bonuses, as well as contributions on
Executive's behalf to any pension and/or profit sharing plan, retirement
payments, directors or committee fees, fringe benefits paid or to be paid to the
Executive in any such year and payment of any expense items without
accountability or business purpose or that do not meet the Internal Revenue
Service requirements for deductibility by the Holding Company or its
subsidiaries; provided however, that any payment under this provision and
-------- -------
subsection 3(b) below shall not exceed three (3) times the Executive's average
annual compensation. At the election of Executive, which election is to be made
prior to a Change in Control, such payment shall be made in a lump sum. In the
event that no election is made, payment to Executive will be made on a monthly
basis in approximately equal installments during the remaining term of this
Agreement.
(b) Upon the occurrence of a Change in Control of the Bank or the Holding
Company followed at any time during the term of this Agreement by Executive's
voluntary or involuntary termination of employment, other than for Termination
for Cause, the Holding Company or its subsidiaries shall cause to be continued
life, medical and disability coverage substantially identical to the coverage
maintained by the Bank or Holding Company for Executive prior to his severance,
except to the extent such coverage may be changed in its application to all Bank
or Holding Company employees on a nondiscriminatory basis. Such coverage and
payments shall cease upon the expiration of__________(____) full calendar months
from the Date of Termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in no event
shall the aggregate payments or benefits to be made or afforded to Executive
under said paragraphs (the "Termination Benefits") constitute an "excess
parachute payment" under Section 280G of the
3
<PAGE>
Code or any successor thereto, and in order to avoid such a result Termination
Benefits will be reduced, if necessary, to an amount (the "Non-Triggering
Amount"), the value of which is one dollar ($1.00) less than an amount equal to
three (3) times Executive's "base amount," as determined in accordance with said
Section 280G. The allocation of the reduction required hereby among the
Termination Benefits provided by the preceding paragraphs of this Section 3
shall be determined by Executive.
4. NOTICE OF TERMINATION.
---------------------
(a) Any purported termination by the Holding Company or by Executive in
connection with a Change in Control shall be communicated by Notice of
Termination to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a written notice which shall indicate the
specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the instance of Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute in connection with a Change in
Control, in the event the Executive is terminated for reasons other than
Termination for Cause, the Holding Company or its subsidiaries will continue to
pay Executive his full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to his annual salary) and continue
him as a participant in all compensation, benefit and insurance plans in which
he was participating when the notice of dispute was given, until the earlier of:
(1) the resolution of the dispute in accordance with this Agreement or (2) the
expiration of the remaining term of this Agreement as determined as of the Date
of Termination.
5. SOURCE OF PAYMENTS.
------------------
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Holding
Company or its subsidiaries.
4
<PAGE>
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
-----------------------------------------------------
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the Holding Company and Executive,
except that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to Executive of a kind elsewhere provided. No provision of
this Agreement shall be interpreted to mean that Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
Nothing in this Agreement shall confer upon Executive the right to continue
in the employ of the Holding Company or shall impose on the Holding Company any
obligation to employ or retain Executive in its employ for any period.
7. NO ATTACHMENT.
-------------
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Holding Company and their respective successors, heirs and
assigns.
8. MODIFICATION AND WAIVER.
-----------------------
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
9. REQUIRED REGULATORY PROVISIONS.
------------------------------
(a) The board of directors may terminate Executive's employment at any
time, but any termination by the board of directors, other than Termination for
Cause, shall not prejudice Executive's right to compensation or other benefits
under this Agreement. Executive shall not have the right to receive
compensation or other benefits for any period after Termination for Cause as
defined in Section 2(c) hereinabove.
5
<PAGE>
(b) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Holding Company's affairs by a notice
served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act (12
U.S.C. Section 1818(e)(3)or (g)(1)), the Bank's obligations under this contract
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Holding Company may
in its discretion (i) pay Executive all or part of the compensation withheld
while their contract obligations were suspended and (ii) reinstate (in whole or
in part) any of the obligations which were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Holding Company's affairs by an order issued
under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act (12 U.S.C.
Section 1818(c)(4) or (g)(1)), all obligations of the Holding Company under this
contract shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(d) If the Holding Company is in default as defined in Section 3(x)(1) of
the Federal Deposit Insurance Act, all obligations of the Holding Company under
this contract shall terminate as of the date of default, but this paragraph
shall not affect any vested rights of the contracting parties.
(e) All obligations under this contract shall be terminated, except to the
extent determined that continuation of the contract is necessary for the
continued operation of the institution: (i) by the Director of the Office of
Thrift Supervision (or his or her designee) at the time the Federal Deposit
Insurance Corporation enters into an agreement to provide assistance to or on
behalf of the Holding Company under the authority contained in Section 13(c) of
the Federal Deposit Insurance Act; or (ii) by the Director of the Office of
Thrift Supervision (or his or her designee) at the time the Director (or his or
her designee) approves a supervisory merger to resolve problems related to
operation of the Holding Company or when the Holding Company is determined by
the Director to be in an unsafe or unsound condition. Any rights of the parties
that have already vested, however, shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and any rules and regulations promulgated thereunder.
10. REINSTATEMENT OF BENEFITS UNDER SECTION 9(b).
--------------------------------------------
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Holding Company's affairs by a notice
described in Section 9(b) hereof (the "Notice") during the term of this
Agreement and a Change in Control, as defined herein, occurs, the Bank will
assume its obligation to pay and Executive will be entitled to receive all of
the termination benefits provided for under Section 3 of this Agreement upon the
Holding Company's receipt of a dismissal of charges in the Notice.
6
<PAGE>
11. SEVERABILITY.
------------
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
12. HEADINGS FOR REFERENCE ONLY.
---------------------------
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement. In addition, references to the
masculine shall apply equally to the feminine.
13. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of New Jersey but only to
the extent not preempted by Federal law.
14. ARBITRATION.
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Bank's main office, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement, other
than in the case of a Termination for Cause.
15. PAYMENT OF COSTS AND LEGAL FEES.
-------------------------------
All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Holding Company if Executive is successful on the
merits pursuant to a legal judgment, arbitration or settlement.
16. INDEMNIFICATION.
---------------
(a) The Holding Company shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense, and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under New Jersey law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
7
<PAGE>
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
17. SUCCESSOR TO THE HOLDING COMPANY
--------------------------------
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Holding Company, expressly and
unconditionally to assume and agree to perform the Holding Company's obligations
under this Agreement, in the same manner and to the same extent that the Holding
Company would be required to perform if no such succession or assignment had
taken place.
8
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, West Essex Bancorp, Inc. has caused this Agreement to
be executed by its duly authorized officers, and Executive has signed this
Agreement, on the _____ day of ________, 1998.
ATTEST: WEST ESSEX BANCORP, INC.
By:
- ------------------------------- -------------------------------------
Secretary President and Chief Executive Officer
For the Entire Board of Directors
SEAL
WITNESS:
- ------------------------------- -------------------------------------
Executive
9
<PAGE>
EXHIBIT 10.9 FORM OF PROPOSED WEST ESSEX BANK EMPLOYEE SEVERANCE
COMPENSATION PLAN
<PAGE>
FORM OF
WEST ESSEX BANK
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of the West Essex Bank Employee Severance Compensation Plan is
to assure for West Essex Bank (the "Bank") the services of Employees of the Bank
in the event of a Change in Control (capitalized terms are defined in section
2.1) of West Essex Bancorp, Inc. (the "Holding Company") or the Bank. The
benefits contemplated by the Plan recognize the value to the Bank of the
services and contributions of the Employees of the Bank and the effect upon the
Bank resulting from the uncertainties of continued employment, reduced Employee
benefits, management changes and relocations that may arise in the event of a
Change in Control of the Bank or the Holding Company. The Bank's and the
Holding Company's Boards of Directors believe that it is in the best interests
of the Bank and the Holding Company to provide Employees of the Bank who have
been with the Bank for a minimum of one (1) year with such benefits in order to
defray the costs and changes in Employee status that could follow a Change in
Control. The Board of Directors believes that the Plan will also aid the Bank
in attracting and retaining highly qualified individuals who are essential to
its success and the Plan's assurance of fair treatment of the Bank's Employees
will reduce the distractions and other adverse effects on Employees' performance
in the event of a Change in Control.
ARTICLE I
ESTABLISHMENT OF PLAN
1.1 Establishment of Plan
---------------------
As of the Effective Date of the Plan as defined herein, the Bank hereby
establishes an employee severance compensation plan to be known as the "West
Essex Bank Employee Severance Compensation Plan."
1.2 Applicability of Plan
---------------------
The benefits provided by this Plan shall be available to all Employees of
the Bank, who, at or after the Effective Date, meet the eligibility requirements
of Article III, except for those executive officers who have entered into, or
who enter into in the future, and continue to be subject to an employment or
change in control agreement with the Employer.
1.3 Contractual Right to Benefits
-----------------------------
This Plan establishes and vests in each Participant a contractual right to
the benefits to which each Participant is entitled hereunder, enforceable by the
Participant against the Employer.
<PAGE>
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions
-----------
Whenever used in the Plan, the following terms shall have the meanings set
forth below.
(a) "Annual Compensation" of a Participant means and includes all wages,
salary, bonus, and cash compensation, if any, paid (including accrued amounts)
by an Employer as consideration for the Participant's service during the 12
months ended the date as of which Annual Compensation is to be determined, which
are or would be includable in the gross income of the Participant receiving the
same for federal income tax purposes.
(b) "Bank" means West Essex Bank or any successor as provided for in
Article VII hereof.
(c) "Change in Control" shall mean an event of a nature that: (i) would be
required to be reported in response to Item 1(a) of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Holding Company within the meaning of the
Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance Act or
the Rules and Regulations promulgated by the Office of Thrift Supervision
("OTS") (or its predecessor agency) as in effect on the date hereof (provided
that in applying the definition of change in control as set forth under the
rules and regulations of the OTS, the Board shall substitute its judgment for
that of the OTS); or (iii) without limitation such a Change in Control shall be
deemed to have occurred at such time as (A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Bank or the Holding Company representing 20% or
more of the Bank's or the Holding Company's outstanding securities except for
any securities of the Bank purchased by the Holding Company in connection with
the conversion of the Bank to the stock form and any securities purchased by any
tax qualified employee benefit plan of the Bank; or (B) individuals who
constitute the Board of Directors on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (B), considered as though
he were a member of the Incumbent Board; or (C) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the Bank
or the Holding Company or similar transaction occurs in which the Bank or
Holding Company is not the resulting entity.
(d) "Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of an employee to perform the work
customarily assigned to him. Additionally, a medical doctor selected or approved
by the Board of Directors must advise the
2
<PAGE>
Board that it is either not possible to determine if or when such Disability
will terminate or that it appears probable that such Disability will be
permanent during the remainder of said employees lifetime.
(e) "Effective Date" means the date the Plan is approved by the Board of
Directors of the Bank, or such other date as the Board of Directors of the Bank
shall designate in its resolution approving the Plan.
(f) "Employee" means any Employee of the Bank or any subsidiary of the
Bank or any parent of the Bank who has completed at least one Year of Service
with the Bank, or any subsidiary thereof, provided, however, that any Employee
who is covered or hereinafter becomes covered by an employment contract or
change in control agreement with the Employer shall not be considered to be an
"Employee" for purposes of this Plan.
(g) "Employer" means the Bank or a subsidiary of the Bank or a parent of
the Bank which has adopted the Plan pursuant to Article VI hereof.
(h) "ERISA" means Employee Retirement Income Security Act of 1974, as
amended.
(i) "Expiration Date" means the date ten (10) years from the Effective
Date, unless the Plan is earlier terminated pursuant to Section 8.2 of the Plan
or extended pursuant to Section 8.1 of the Plan.
(j) "Termination for Cause" shall include termination because of a
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 violation of any final cease-and
desist order. In determining incompetence, the acts or omissions shall be
measured against standards generally prevailing in the savings institutions
industry.
(k) "Leave of Absence" and "LOA" mean (i) the taking of an authorized or
approved leave of absence under the provisions of the federal Family and Medical
Leave Act ("FMLA"), (ii) any state law providing qualitatively similar benefits
as the FMLA, or (iii) a leave of absence authorized under the policies of the
Bank. "Leave of Absence" and "LOA" are defined in this paragraph for the
exclusive purposes of this Plan.
(l) "Payment" means the payment of severance compensation as provided for
in Article IV hereof.
(m) "Participant" means an Employee who meets the eligibility requirements
of Article III.
(n) "Plan Year" means the period beginning on the Effective Date and
ending on December 31 and the 12 consecutive-month period ending each year
thereafter.
3
<PAGE>
(o) "Plan" means this West Essex Bank Employee Severance Compensation
Plan.
(p) "Year of Service" means each consecutive 12 month period, beginning
with an Employee's date of hire in which an Employee is credited with at least
one hour of service in each of the 12 calendar months in such period. The
taking of a LOA shall not eliminate a period of time from being a Year of
Service if such period of time otherwise qualifies as such. Further if a
particular 12 month period of time would not otherwise qualify under the Plan as
a Year of Service because one hour of service is not credited during each month
of such period due to the taking of a LOA, then such period of time shall be
deemed to be a Year of Service for all other purposes of this Plan.
2.2 Applicable Law
--------------
The laws of the State of New Jersey shall be the controlling law in all
matters relating to the Plan to the extent not preempted by Federal law.
2.3 Severability
------------
If a provision of this Plan shall be held illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of the Plan and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
ARTICLE III
ELIGIBILITY
3.1 Participation
-------------
The term Participant shall include all Employees of the Employer who have
completed at least one (1) Year of Service with the Employer at the time of any
termination pursuant to Section 4.2 of this Plan. Notwithstanding the
foregoing, persons who have entered into and continue to be covered by an
employment contract or change in control agreement with the Employer shall not
be entitled to participate in this Plan.
3.2 Duration of Participation
-------------------------
A Participant shall cease to be a Participant in the Plan when the
Participant ceases to be an Employee of an Employer, unless such Participant is
entitled to a Payment as provided in the Plan. A Participant entitled to
receipt of a Payment shall remain a Participant in this Plan until the full
amount of such Payment has been paid to the Participant.
4
<PAGE>
ARTICLE IV
PAYMENTS
4.1 Right to Payment
----------------
A Participant shall be entitled to receive from his respective Employer a
Payment in the amount provided in Section 4.3 of the Plan if there has been a
Change in Control of the Bank or the Holding Company and if, within one (1) year
thereafter, the Participant's employment by an Employer shall terminate for any
reason specified in Section 4.2 of the Plan, whether the termination of
employment is voluntary or involuntary. A Participant shall not be entitled to
a Payment if termination occurs by reason of death, voluntary retirement,
voluntary termination other than for reasons specified in Section 4.2 of the
Plan, Disability, or as a result of Termination for Cause .
4.2 Reasons for Termination
-----------------------
Following a Change in Control, a Participant shall be entitled to a Payment
if employment by an Employer is terminated, voluntarily or involuntarily, for
any one or more of the following reasons:
(a) The Employer reduces the Participant's base salary or rate of
compensation as in effect immediately prior to the Change in Control.
(b) The Employer materially changes the Participant's function,
duties or responsibilities which would cause the Participant's position to be
one of lesser responsibility, importance or scope with the Employer than
immediately prior to the change in control.
(c) The Employer requires the Participant to change the location of
the Participant's job or office, so that such Participant will be based at a
location more than _______ (__) miles from the location of the Participant's job
or office immediately prior to the Change in Control provided that such new
location is not closer to the Participant's home.
(d) The Employer materially reduces the benefits and perquisites
available to the Participant immediately prior to the Change in Control,
provided, however, that a material reduction in benefits and perquisites
generally provided to all Employees of the Employer on a nondiscriminatory basis
would not trigger a payment pursuant to this Plan.
(e) A successor to the Bank fails or refuses to assume the Employer's
obligations under this Plan, as required by Article VII.
(f) The Bank or any successor to the Bank breaches any other
provisions of this Plan.
(g) The Employer terminates the employment of a Participant at or
after a Change in Control other than for Termination for Cause.
5
<PAGE>
4.3 Amount of Payment
-----------------
(a) Each Participant entitled to a Payment under this Plan shall
receive from the Bank, a lump sum cash payment equal to one-twelfth of his
Annual Compensation for each Year of Service up to a maximum of 199% of Annual
Compensation.
(b) Notwithstanding the provisions of paragraph (a) above, if a
Payment to a Participant who is a "Disqualified Individual" shall be in an
amount which includes an "Excess Parachute Payment," the Payment hereunder to
that Participant shall be reduced to the maximum amount which does not include
an Excess Parachute Payment. The terms "Disqualified Individual" and "Excess
Parachute Payment" shall have the same meanings as under Section 280G of the
Internal Revenue Code of 1986, as amended, or any successor provision thereto.
The Participant shall not be required to mitigate damages on the amount of
the Payment by seeking other employment or otherwise, nor shall the amount of
such Payment be reduced by any compensation earned by the Participant as a
result of employment after termination of employment hereunder.
4.4 Time of Payment
---------------
The Payment to which a Participant is entitled shall be paid to the
Participant by the Employer or the successor to the Employer, in cash and in
full, not later than twenty (20) business days after the termination of the
Participant's employment. If any Participant should die after termination of
the employment but before all amounts have been paid, such unpaid amounts shall
be paid to the Participant's named beneficiary, if living, otherwise to the
personal representative on behalf of or for the benefit of the Participant's
estate.
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Other Benefits
--------------
Neither the provisions of this Plan nor the Payment provided for hereunder
shall reduce any amounts otherwise payable, or in any way diminish the
Participant's rights as an Employee of an Employer, whether existing now or
hereafter, under any benefit, incentive, retirement, stock option, stock bonus,
stock ownership or any employment agreement or other plan or arrangement.
5.2 Employment Status
-----------------
This Plan does not constitute a contract of employment or impose on the
Participant or the Participant's Employer any obligation to retain the
Participant as an Employee, to change the status of the Participant's
employment, or to change the Employer's policies regarding termination of
employment.
6
<PAGE>
ARTICLE VI
PARTICIPATING EMPLOYERS
6.1 Upon approval by the Board of Directors of the Bank, this Plan may be
adopted by any "Subsidiary" or "Parent" of the Bank. Upon such adoption, the
Subsidiary or Parent shall become an Employer hereunder and the provisions of
the Plan shall be fully applicable to the Employees of that Subsidiary or
Parent. The term "Subsidiary" means any corporation in which the Bank, directly
or indirectly, holds a majority of the voting power of its outstanding shares of
capital stock. The term "Parent" means any corporation which holds a majority
of the voting power of the Bank's outstanding shares of capital stock.
ARTICLE VII
SUCCESSOR TO THE BANK
7.1 The Employer shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Employer, expressly and
unconditionally to assume and agree to perform the Employer's obligations under
this plan, in the same manner and to the same extent that the Employer would be
required to perform if no such succession or assignment had taken place.
ARTICLE VIII
DURATION, AMENDMENT AND TERMINATION
8.1 Duration
--------
If a Change in Control has not occurred, this Plan shall expire as of the
Expiration Date, unless sooner terminated as provided in Section 8.2 of the
Plan, or unless extended for an additional period or periods by resolution
adopted by the Board of Directors of the Bank.
Notwithstanding the foregoing, if a Change in Control occurs this Plan
shall continue in full force and effect, and shall not terminate or expire until
such date as all Participants who become entitled to Payments hereunder shall
have received such Payments in full.
8.2 Amendment and Termination
-------------------------
The Plan may be terminated or amended in any respect by resolution adopted
by a majority of the Board of Directors of the Bank, unless a Change in Control
has previously occurred. If a Change in Control occurs, the Plan no longer
shall be subject to amendment, change, substitution, deletion, revocation or
termination in any respect whatsoever.
7
<PAGE>
8.3 Form of Amendment
-----------------
The form of any proper amendment or termination of the Plan shall be a
written instrument signed by a duly authorized officer or officers of the Bank,
certifying that the amendment or termination has been approved by the Board of
Directors. A proper amendment of the Plan automatically shall effect a
corresponding amendment to each Participant's rights hereunder. A proper
termination of the Plan automatically shall effect a termination of all
Participants' rights and benefits hereunder.
8.4 No Attachment
-------------
(a) Except as required by law, no right to receive payments under
this Plan shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect such action shall be null, void,
and of no effect.
(b) This Plan shall be binding upon, and inure to the benefit of,
Employee and the Bank and their respective successors and assigns.
ARTICLE IX
LEGAL FEES AND EXPENSES
9.1 All reasonable legal fees and other expenses paid or incurred by a
party hereto pursuant to any dispute or question of interpretation relating to
this Plan shall be paid or reimbursed by the prevailing party in any legal
judgment, arbitration or settlement.
ARTICLE X
REQUIRED PROVISIONS
10.1 The Employer may terminate an Employee's employment at any time, but
any termination by the Employer, other than Termination for Cause, shall not
prejudice the Employee's right to compensation or other benefits under this
Plan. Employee shall not have the right to receive compensation or other
benefits for any period after Termination for Cause as otherwise provided
hereunder.
10.2 If the Employee is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
Section 1818(e)(3) or (g)(1), the Bank's obligations under this contract shall
be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may in its
discretion (i) pay the Employee all or part of the compensation withheld while
their contract obligations were suspended and (ii) reinstate (in whole or in
part) any of the obligations which were suspended.
8
<PAGE>
10.3 If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
Section 1818(e)(4) or (g)(1), all obligations of the Bank under this contract
shall terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
10.4 If the Bank is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. Section 1813(x)(1), all obligations of
the Bank under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
10.5 All obligations of the Bank under this Plan shall be terminated,
except to the extent determined that continuation of the plan is necessary for
the continued operation of the institution: (i) by the Director of the OTS (or
his designee), the FDIC or the Resolution Trust Corporation, at the time the
FDIC enters into an agreement to provide assistance to or on behalf of the Bank
under the authority contained in Section 13(c) of the Federal Deposit Insurance
Act, 12 U.S.C. Section 1823(c); or (ii) by the Director of the OTS (or his
designee) at the time the Director (or his designee) approves a supervisory
merger to resolve problems related to the operations of the Bank or when the
Bank is determined by the Director to be in an unsafe or unsound condition. Any
rights of the Participants that have already vested, however, shall not be
affected by such action.
10.6 Any payments made to a Participant pursuant to this Plan, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
ARTICLE XI
ADMINISTRATIVE PROVISIONS
11.1 Plan Administrator. The administrator of the Plan shall be under the
-------------------
supervision of the Board of Directors of the Bank or a Committee appointed by
the Board of Directors of the Bank (the "Board"). It shall be a principal duty
of the Board to see that the Plan is carried out in accordance with its terms,
for the exclusive benefit of persons entitled to participate in the Plan without
discrimination among them. The Board will have full power to administer the
Plan in all of its details subject, however, to the requirements of ERISA if the
Plan is subject to such requirements. For this purpose, the Board's powers will
include, but will not be limited to, the following authority, in addition to all
other powers provided by this Plan: (a) to make and enforce such rules and
regulations as it deems necessary or proper for the efficient administration of
the Plan; (b) to interpret the Plan, its interpretation thereof in good faith
to be final and conclusive on all persons claiming benefits under the Plan; (c)
to decide all questions concerning the Plan and the eligibility of any person to
participate in the Plan; (d) to compute the amount of Payment that will be
payable to any Participant or other person in accordance with the provisions of
the Plan, and to determine the person or persons to whom such benefits will be
paid; (e) to authorize Payments; (f) to appoint such agents, counsel,
accountants, consultants and actuaries as may be required to assist in
administering the Plan; and (g) to allocate and delegate its
9
<PAGE>
responsibilities under the Plan and to designate other persons to carry out any
of its responsibilities under the Plan, any such allocation, delegation or
designation to be by written instrument and in accordance with Section 405 of
ERISA if applicable.
11.2 Named fiduciary. The Board will be a "named fiduciary" for purposes
----------------
of Section 402(a)(1) of ERISA with authority to control and manage the operation
and administration of the Plan, and will be responsible for complying with all,
if any, of the reporting and disclosure requirements of Part 1 of Subtitle B of
Title I of ERISA.
11.3 Claims and review procedures.
-----------------------------
(a) Claims procedure. If any person believes he is being denied any
-----------------
rights or benefits under the Plan, such person may file a claim in writing with
the Board. If any such claim is wholly or partially denied, the Board will
notify such person of its decision in writing. Such notification will be written
in a manner calculated to be understood by such person and will contain (i)
specific reasons for the denial, (ii) specific reference to pertinent Plan
provisions, (iii) a description of any additional material or information
necessary for such person to perfect such claim and an explanation of why such
material or information is necessary and (iv) information as to the steps to be
taken if the person wishes to submit a request for review. Such notification
will be given within 90 days after the claim is received by the Board (or within
180 days, if special circumstances require an extension of time for processing
the claim, and if written notice of such extension and circumstances is given to
such person within the initial 90 day period). If such notification is not
given within such period, the claim will be considered denied as of the last day
of such period and such person may request a review of his claim.
(b) Review procedure. Within 60 days after the date on which a
-----------------
person receives a written notice of a denied claim (or, if applicable, within 60
days after the date on which such denial is considered to have occurred) such
person (or his duly authorized representative) may (i) file a written request
with the Board for a review of his denied claim and of pertinent documents and
(ii) submit written issues and comments to the Board. The Board will notify
such person of its decision in writing. Such notification will be written in a
manner calculated to be understood by such person and will contain specific
reasons for the decision as well as specific references to pertinent Plan
provisions. The decision on review will be made within 60 days after the
request for review is received by the Board (or within 120 days, if special
circumstances require an extension of time for processing the requests such as
an election by the Board to hold a hearing, and if written notice of such
extension and circumstances is given to such person within the initial 60 day
period). If the decision on review is not made within such period, the claim
will be considered denied.
11.4 Nondiscriminatory exercise of authority. Whenever, in the
----------------------------------------
administration of the Plan, any discretionary action by the Board is required,
the Board shall exercise its authority in a nondiscriminatory manner so that all
persons similarly situated will receive substantially the same treatment.
10
<PAGE>
11.5 Indemnification of Board. The Bank will indemnify and defend to the
-------------------------
fullest extent permitted by law any person serving on the Board or as a member
of a committee designated as Board (including any person who formerly served as
a Board member or as a member of such committee) against all liabilities,
damages, costs and expenses (including attorneys fees and amounts paid in
settlement of any claims approved by the Bank) occasioned by any act or omission
to act in connection with the Plan, if such act or omission is in good faith.
11.6 Benefits solely from general assets. The benefits provided hereunder
------------------------------------
will be paid solely from the general assets of the Employer. Nothing herein
will be construed to require the Employer or the Board to maintain any fund or
segregate any amount for the benefit of any Participant, and no Participant or
other person shall have any claim against, right to, or security or other
interest in, any fund, account or asset of the Employer from which any payment
under the Plan may be made.
11
<PAGE>
Having been adopted by its Board of Directors on __________________, this Plan
is executed by its duly authorized officers this __th day of __________, 1998.
Attest WEST ESSEX BANK
By:
- ------------------------------ -----------------------------
Secretary For the Entire Board of Directors
12
<PAGE>
EXHIBIT 10.10 FORM OF PROPOSED WEST ESSEX BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
FORM OF
WEST ESSEX BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ARTICLE I................................................ 2
Purpose of the Plan.................................. 2
ARTICLE II............................................... 2
Definitions.......................................... 2
2.1 Bank....................................... 2
----
2.2 Board...................................... 2
-----
2.3 Code....................................... 2
----
2.4 Eligible Employee.......................... 2
-----------------
2.5 Employee................................... 2
--------
2.6 ERISA...................................... 2
-----
2.7 ESOP....................................... 2
----
2.8 Former Participant......................... 2
------------------
2.9 Non-qualified Plan......................... 3
------------------
2.10 Participant................................ 3
-----------
2.11 Period of Participation.................... 3
-----------------------
2.12 SERP....................................... 3
----
2.13 Supplemental ESOP Benefit.................. 3
-------------------------
2.14 Termination of Service..................... 3
----------------------
ARTICLE III.............................................. 3
Participation........................................ 3
3.1 Eligibility for Participation.............. 3
-----------------------------
3.2 Supplemental ESOP Benefit Account.......... 3
---------------------------------
3.3 Commencement of Participation.............. 4
-----------------------------
3.4 Termination of Participation............... 4
----------------------------
ARTICLE IV............................................... 4
Benefits to Participants............................. 4
4.1 Supplemental Benefits...................... 4
---------------------
4.2 Benefits Under Previous Benefit Formulas... 4
----------------------------------------
4.3 Release from Liability..................... 5
----------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE V................................................ 5
Administration....................................... 5
5.1 Duties of the Board........................ 5
-------------------
5.2 Liabilities of the Board................... 5
------------------------
5.3 Expenses................................... 5
--------
5.4 Unfunded Character of Plan................. 5
--------------------------
ARTICLE VI............................................... 6
Amendment and Termination............................ 6
6.1 Amendment and Termination.................. 6
-------------------------
6.2 Vesting and Payment Upon Termination....... 6
------------------------------------
6.3 Preservation of Benefits on Amendment...... 6
-------------------------------------
ARTICLE VII.............................................. 6
Miscellaneous Provisions............................. 6
7.1 Governing Law.............................. 6
-------------
7.2 No Right to Continued Employment........... 7
--------------------------------
7.3 Construction of Language................... 7
------------------------
7.4 Non-alienation of Benefits................. 7
--------------------------
7.5 Operation as Unfunded Nonqualified Plan.... 7
---------------------------------------
7.6 Reliance Upon Information.................. 7
-------------------------
7.5 Effective Date............................. 8
--------------
</TABLE>
ii
<PAGE>
WHEREAS, the Board of Directors of West Essex Bank ("Bank") has adopted the
West Essex Bank Employee Stock Ownership Plan ("ESOP") to provide benefits to
the employees of the Bank; and
WHEREAS, the Internal Revenue Code of 1986, as amended ("Code") imposes
limitations on the amount of contributions that may be made to the ESOP by the
Bank on the behalf of Participants, and limits the amount of compensation which
may be considered in determining benefits under the plan; and
WHEREAS, the Board of Directors of the Bank desires to implement a plan to
provide certain employees with benefits to replace benefits to which they would
be entitled under the ESOP but for the application of the limitations imposed by
the Code;
THEREFORE, by resolution of the Board of Directors, the Supplemental
Executive Retirement Plan has been adopted.
1
<PAGE>
ARTICLE I
Purpose of the Plan
-------------------
The purpose of the West Essex Bank Supplemental Executive Retirement Plan
("SERP") is to provide designated executives of the Bank with deferred benefits
to which they would otherwise be entitled under the terms of the ESOP, but for
limitations on benefits and includible compensation imposed by the Code. This
plan is intended to benefit only a select group of highly compensated employees.
The benefits under this SERP will be paid out of the Bank's general assets
exclusively.
ARTICLE II
Definitions
-----------
Wherever appropriate to the purposes of the SERP, capitalized terms shall
have the meanings assigned to them under the ESOP. Notwithstanding the
preceding, the following definitions shall apply for the purposes of this SERP
unless a different meaning is clearly indicated by the context.
2.1 Bank means West Essex Bank having its principal office at 417
----
Bloomfield Avenue, Caldwell, New Jersey 07006 and its successors or
assigns.
2.2 Board means the Board of Directors of the Bank.
-----
2.3 Code means the Internal Revenue Code of 1986, as amended from time
----
to time (including the corresponding provisions of any succeeding law).
2.4 Eligible Employee means an Employee who is eligible for participation
-----------------
in the SERP in accordance with the provisions of Article III.
2.5 Employee means any person, including an officer, who is employed by
--------
the Bank.
2.6 ERISA means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time (including the corresponding provisions of any
succeeding law).
2.7 ESOP means the West Essex Bank Employee Stock Ownership Plan.
----
2.8 Former Participant means a person whose participation in the SERP
-------------------
has terminated as provided under Section 3.4.
2
<PAGE>
2.9 Non-qualified Plan means a plan of deferred compensation which does
------------------
not meet the requirements of Section 401(a) of the Code.
2.10 Participant means any person who is participating in the SERP in
------------
accordance with its terms.
2.11 Period of Participation means the period during which a person is a
-----------------------
Participant.
2.12 SERP means this West Essex Bank Supplemental Executive
----
Retirement Plan, as amended from time to time.
2.13 Supplemental ESOP Benefit means the benefit provided by this SERP
-------------------------
based on limitations, imposed by Sections 401(a)(17) and/or 415 of the
Code, on the benefits of a Participant under the ESOP.
2.14 Termination of Service means an Employee's separation from the
----------------------
service of the Bank, whether by resignation, discharge, death,
disability, retirement or otherwise.
ARTICLE III
-----------
Participation
-------------
3.1 Eligibility for Participation.
------------------------------
Only Eligible Employees may be or may become Participants.
An Employee shall become an Eligible Employee for Supplemental ESOP
Benefits if:
(1) The Board, in its sole discretion, designates him as an Eligible
Employee; and
(2) He is a Participant in the ESOP and his benefits thereunder are
limited by the application of Sections 401(a)(17) and/or 415 of the
Code.
3.2 Supplemental ESOP Benefit Account
---------------------------------
A Participant's Supplemental ESOP Benefit under the Plan shall be equal to
the excess of (a) over (b), where:
(a) is annual contributions made by the Employer that would otherwise be
allocated to the accounts of the Participant under the ESOP for a
particular year if the provisions of the ESOP were administered without
regard to the limitations imposed by Sections 401(a)(17) and/or 415 of
the Code; and
3
<PAGE>
(b) is the annual contributions made by the Employer and that are actually
allocated to the accounts of the Participant under the provisions of
the ESOP for that particular year after giving effect to any reduction
of such allocation required by the limitations imposed by Sections
401(a)(17) and/or 415 of the Code.
3.3 Commencement of Participation.
-----------------------------
An Eligible Employee shall become a Participant on the date
determined by the Board. However, in no event will an Employee become a
Participant prior to ________________, 1998.
3.4 Termination of Participation.
----------------------------
Participation in the Plan shall cease on the: (a) date of the
Participant's Termination of Service; or (b) date on which he ceases to
be an Eligible Employee.
ARTICLE IV
----------
Benefits to Participants
------------------------
4.1 Supplemental Benefits.
---------------------
(a) A Participant who satisfies Section 3.1 of the SERP shall be
entitled to an unfunded, unsecured promise from the Bank of Supplemental
ESOP Benefits.
(b) A Participant shall be vested in benefits payable under Section 3.1
of this SERP in the same percentage that such Participant has a vested
interest in his account under the ESOP.
(f) The Supplemental ESOP Benefit provided for in Section 3.2 shall be
paid commencing upon Termination of Service to the Participant or his
designated beneficiary in the manner and for the period as the
Participant shall have elected with respect to his benefit under the
ESOP.
4.2 Payment to Missing Person.
--------------------------
If the Bank is unable to effect delivery of any amount payable hereunder to
the person entitled thereto, or upon his death, to his personal representative,
it shall so advise the Board and the Board shall give written notice to such
person at his last known address as shown in such Participant's record of
employment. If such person or his personal representative does not present
himself to the Board after ninety days from the date of mailing such notice,
then the Board shall direct such amount, including any amount thereafter
becoming due to such person or his personal representative to be distributed in
the manner provided herein with respect to the death of a Participant. If there
is no valid designation of Beneficiary on file; or, if there can be
4
<PAGE>
no distribution under the foregoing provision, benefit shall be paid over to the
estate of the Participant.
4.3 Release from Liability.
-----------------------
Payment to any Participant, legal representative or Beneficiary, in
accordance with the provisions of this Plan, is deemed to be in full
satisfaction of all claims by the Participant, representative or Beneficiary
against this SERP, the Board, and the Bank. The Board may require such
Participant, legal representative, or Beneficiary as a condition precedent to
payment to execute a receipt and release in such form as shall be determined by
the Board.
ARTICLE V
---------
Administration
---------------
5.1 Duties of the Board.
-------------------
The Board shall have full responsibility for the management, operation,
interpretation and administration of the Plan in accordance with its terms, and
shall have such authority as is necessary or appropriate in carrying out its
responsibilities. Actions taken by the Board pursuant to this Section 5.1 shall
be conclusive and binding upon the Bank, Participants, Former Participants,
Beneficiaries, and other interested parties.
5.2 Liabilities of the Board.
-------------------------
Neither the Board nor its individual members shall be deemed to be a
fiduciary with respect to this Plan; nor shall any of the foregoing individuals
or entities be liable to any Participants, Former Participants or Beneficiaries
in connection with the management, operation, interpretation or administration
of the Plan, any such liability being solely that of the Bank.
5.3 Expenses.
--------
Any expenses incurred in the management, operation, interpretation or
administration of the Plan shall be paid by the Bank. In no event shall the
benefits otherwise payable under this Plan be reduced to offset the expenses
incurred in managing, operating, interpreting or administering the Plan.
5.4 Unfunded Character of Plan.
--------------------------
The SERP shall be unfunded. Neither the Bank nor the Board nor its
individual members shall segregate or otherwise identify specific assets to be
applied to the purposes of the Plan, nor shall any of them be deemed to be a
trustee of any amounts to be paid under the Plan.
5
<PAGE>
Any liability of the Bank to any person with respect to benefits payable under
the Plan shall be based solely upon such contractual obligations, if any, as
shall be created by the Plan, and shall give rise only to a claim against the
general assets of the Bank. No such liability shall he deemed to be secured by
any pledge or any other encumbrance on any specific property of the Bank.
ARTICLE VI
----------
Amendment and Termination
-------------------------
6.1 Amendment and Termination.
--------------------------
Subject to the provisions of Sections 6.2 and 6.3, the Board shall have
the right to amend or terminate the Plan, in whole or in part.
6.2 Vesting and Payment Upon Termination.
------------------------------------
(a) In the event of the termination or partial termination of this
SERP, the rights of all affected parties, if any, to any benefits
accrued to the date of such termination or partial termination,
shall become nonforfeitable.
(b) In the event of the termination of this SERP all benefit shall
be immediately payable to the Participant by the Bank in whatever
form the SERP otherwise provides, or in the discretion of the Board
may be paid in a lump sum payment of the present value as
determined by the Board in accordance with the assumptions and
methodology of Section 7520 of the Code.
6.3 Preservation of Benefits on Amendment.
-------------------------------------
No amendment of this SERP shall reduce the vested and accrued benefits,
if any, of a Participant under this SERP.
ARTICLE VII
-----------
Miscellaneous Provisions
------------------------
7.1 Governing Law.
-------------
The SERP shall be construed, administered, and enforced according to laws
of the State of New Jersey, except to the extent that such laws are pre-empted
by the federal laws of the United States of America.
6
<PAGE>
7.2 No Right to Continued Employment.
--------------------------------
Neither the establishment of the SERP nor any provisions of the SERP, nor
any action of the Board shall be held or construed to confer upon any Employee
the right to a continuation of employment by the Bank. Subject to any employment
contract, the Bank reserves the right to dismiss any Employee or otherwise deal
with any Employee to the same extent as though the SERP had not been adopted.
7.3 Construction of Language.
------------------------
Wherever appropriate in the SERP, words used in the singular may be read
in the plural, words in the plural may be read in the singular, and words
importing the masculine gender shall be deemed equally to refer to the feminine
and the neuter. Any reference to any Article or Section shall be to an Article
or Section of this SERP, unless otherwise indicated.
7.4 Non-alienation of Benefits.
--------------------------
The right to receive a benefit under the SERP shall not be subject in
any manner to anticipation, alienation, or assignment, nor shall such right be
liable for or subject to debts, contracts, liabilities. Should any Participants,
Former Participants, Beneficiaries or other person attempt to anticipate,
alienate or assign his interest in or right to a benefit, or should any person
claiming against him seem to subject such interest or right to legal or
equitable process, all the interest or right of such Participants or Former
Participants, Beneficiaries or ocher person entitled to benefits under the SERP
shall cease, and in that event, such interest or right shall be held or applied,
at the direction of the Board, for or to the benefit of such Participants,
Former Participants, Beneficiaries or other person or his spouse, children or
other dependents in such manner and in such proportions as the Board may deem
proper.
7.5 Operation as Unfunded Non-qualified Plan.
----------------------------------------
The SERP is intended to be an unfunded, Non-qualified Plan maintained
primarily for the purpose of providing deferred compensation for a select group
of management or highly compensated employees. The SERP is not intended to
comply with the requirements of Section 401(a) of the Code. The SERP shall be
administered and construed so as to effectuate this intent.
7.6 Reliance Upon Information
-------------------------
The Board shall not be liable for any decision or action taken in good
faith in connection with the administration of the SERP. Without limiting the
generality of the foregoing, any such decision or action taken by the Board in
reliance upon any information supplied to them by an officer of the Bank, the
Bank's legal counsel, or the Bank's independent accountants in connection with
the administration of the SERP shall be deemed to have been taken in good faith.
7
<PAGE>
7.7 Effective Date
--------------
The SERP shall become effective ___________, 1998.
8
<PAGE>
EXHIBIT 10.11 FORM OF PROPOSED WEST ESSEX BANK MANAGEMENT SUPPLEMENTAL
EXECUTIVE RETIREMENT PLAN
<PAGE>
FORM OF WEST ESSEX BANK
MANAGEMENT SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I.................................................. 1
PURPOSE OF THE PLAN..................................... 1
ARTICLE II................................................. 2
DEFINITIONS............................................. 2
2.1 Bank....................................... 2
----
2.2 Board of Directors......................... 2
------------------
2.3 Change in Control.......................... 2
-----------------
2.4 Code....................................... 3
----
2.5 Committee.................................. 3
---------
2.6 Company.................................... 3
-------
2.7 Company Stock.............................. 3
-------------
2.8 Eligible Employee.......................... 3
-----------------
2.9 Employee................................... 4
--------
2.10 ERISA...................................... 4
-----
2.11 ESOP....................................... 4
----
2.12 Nonqualified Plan.......................... 4
-----------------
2.13 Participant................................ 4
-----------
2.14 SERP Benefit............................... 4
------------
2.15 SERP....................................... 4
----
2.16 Termination for Cause...................... 4
---------------------
2.17 Termination of Service..................... 4
----------------------
ARTICLE III................................................ 4
PARTICIPATION........................................... 4
3.1 Eligibility for Participation.............. 4
-----------------------------
3.2 Commencement of Participation.............. 5
-----------------------------
3.3 Vesting.................................... 5
-------
3.4 Termination of Participation............... 5
----------------------------
ARTICLE IV................................................. 5
BENEFITS TO PARTICIPANTS................................ 5
4.1 SERP Benefits.............................. 5
-------------
4.2 Form of Benefits........................... 6
----------------
ARTICLE V.................................................. 7
ADMINISTRATION.......................................... 7
5.1 The Committee.............................. 7
-------------
5.2 Duties of the Committee.................... 7
-----------------------
5.3 Liability of the Committee................. 8
--------------------------
5.4 Expenses................................... 8
--------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE VI................................................ 8
AMENDMENT AND TERMINATION.............................. 8
6.1 Amendment and Termination................. 8
-------------------------
ARTICLE VII............................................... 9
MISCELLANEOUS PROVISIONS............................... 9
7.1 No Right to Continual Employment.......... 9
--------------------------------
7.2 Non-Alienation of Benefits................ 9
--------------------------
7.3 Payment if Participant is Incompetent..... 9
-------------------------------------
7.4 Termination for Cause..................... 9
---------------------
7.5 The Bank Sole Source of Benefits.......... 10
--------------------------------
7.6 Lost Participants......................... 10
-----------------
7.7 Withholding............................... 10
-----------
7.8 Governing Law............................. 10
-------------
7.9 Operation as Unfunded Nonqualified Plan... 10
---------------------------------------
7.10 Required Regulatory Provisions............ 11
------------------------------
</TABLE>
(ii)
<PAGE>
FORM OF WEST ESSEX BANK
MANAGEMENT SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
EFFECTIVE ______________, 1998
WHEREAS, West Essex Bank (the "Bank") adopted the West Essex Bank Employee
Stock Ownership Plan (the "ESOP"), a tax-qualified employee stock ownership plan
effective January 1, 1998; and
WHEREAS, the ESOP is leveraged with a___-year exempt loan used to acquire
shares of Company Stock; and
WHEREAS, the final payment with respect to the ESOP loan is scheduled to be
made by the ESOP trustee on__________________; and
WHEREAS, the Bank expects that certain key management employees will retire
from the employ of the Bank prior to final payment of the ESOP loan and the
final allocation of Company Stock acquired with the proceeds of the ESOP loan;
and
WHEREAS, the Board of Directors of the Bank (the "Board of Directors")
desires to implement a plan to provide certain key management employees with
benefits to replace the benefits to which they would have otherwise been
entitled under the ESOP had they remained in the employ of the Bank until the
complete repayment of the ESOP loan and the final allocation of Company Stock
acquired with the proceeds of the ESOP loan;
NOW, THEREFORE, by resolution of the Board of Directors of the Bank, the
West Essex Bank Management Supplemental Executive Retirement Plan (the "SERP")
has been established.
ARTICLE I
---------
PURPOSE OF THE PLAN
The purpose of the SERP is to provide certain key management employees of
the Bank who retire prior to complete repayment of the ESOP loan and the final
allocation of Company Stock acquired with the proceeds of the ESOP loan with
benefits to make up lost benefits to which they would otherwise have been
entitled under the terms of the ESOP had they continued their employment with
the Bank until complete repayment of the ESOP loan.
<PAGE>
ARTICLE II
----------
DEFINITIONS
The following definitions shall apply for the purposes of this SERP unless
a different meaning is clearly indicated by the context.
2.1 Bank means West Essex Bank, having its principal office at 417
----
Bloomfield Avenue, Caldwell, New Jersey 07006 and its successors or assigns.
The term "Bank" shall include any other employee affiliated with the Bank which
adopts the SERP with the consent of the Bank, in which case the provisions of
the SERP shall be interpreted accordingly with respect to such Employer.
2.2 Board of Directors means the Board of Directors of the Bank, as duly
------------------
constituted from time to time.
2.3 Change in Control shall mean an event of a nature that: (i) would be
-----------------
required to be reported in response to Item 1(a) of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Holding Company within the meaning of the
Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance Act or
the Rules and Regulations promulgated by the Office of Thrift Supervision
("OTS") (or its predecessor agency) as in effect on the date hereof (provided
that in applying the definition of change in control as set forth under the
rules and regulations of the OTS, the Board shall substitute its judgment for
that of the OTS); or (iii) without limitation such a Change in Control shall be
deemed to have occurred at such time as (A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Bank or the Holding Company representing 20% or
more of the Bank's or the Holding Company's outstanding securities except for
any securities of the Bank purchased by the Holding Company in connection with
the conversion of the Bank to the stock form and any securities purchased by any
tax qualified employee benefit plan of the Bank; or (B) individuals who
constitute the Board of Directors on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (B), considered as though
he were a member of the Incumbent Board; or (C) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the Bank
or the Holding Company or similar transaction occurs in which the Bank or
Holding Company is not the resulting entity.
2.4 Code means the Internal Revenue Code of 1986, as amended from time to
----
time (including the corresponding provisions of any succeeding law).
2
<PAGE>
2.5 Committee means the administrative committee appointed by the Board to
---------
administer the SERP pursuant to the terms of Article V hereof.
2.6 Company means West Essex Bancorp, Inc., the holding company of the
-------
Bank.
2.7 Company Stock means the common stock of the Company.
-------------
2.8 Eligible Employee means an Employee who is eligible for participation
-----------------
in the SERP pursuant to the provisions of Article III hereof.
2.9 Employee means any person, including an officer, who is employed by
--------
the Bank.
2.10 ERISA means the Employee Retirement Income Security Act of 1974,
-----
as amended from time to time (including the corresponding provisions of any
succeeding law).
2.11 ESOP means the West Essex Bank Employee Stock Ownership Plan.
----
2.12 Nonqualified Plan means a plan of deferred compensation which does
-----------------
not meet the requirements of Section 401(a) of the Code.
2.13 Participant means any person who participates in the SERP in
-----------
accordance with its terms.
2.14 SERP Benefit means the benefit payable to a Participant pursuant
------------
to the terms of the SERP.
2.15 SERP means the West Essex Bank Management Supplemental Executive
----
Retirement Plan, as set forth herein, and as amended from time to time.
2.16 Termination for Cause means termination of employment because of
---------------------
the Employee's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, or willful violation of any law, rule or regulation (other than traffic
violations or similar offenses). The basis for any Employee's Termination for
Cause shall be determined by the Board of Directors in its sole discretion.
2.17 Termination of Service means an Employee's separation from the service
----------------------
of the Bank, whether by resignation, discharge, death, disability, retirement or
otherwise.
3
<PAGE>
ARTICLE III
-----------
PARTICIPATION
3.1 Eligibility for Participation.
-----------------------------
Only Eligible Employees may be or become Participants. An Employee shall
become an Eligible Employee for SERP Benefits if:
(a) He is a participant in the ESOP, and
(b) The Board of Directors, in its sole discretion, designates him as
an Eligible Employee.
3.2 Commencement of Participation.
-----------------------------
An Eligible Employee shall become a Participant in the SERP on the date
determined by the Board of Directors.
3.3 Vesting.
--------
A Participant shall vest in his SERP Benefit according to the following
schedule:
<TABLE>
<CAPTION>
Years of Service with the Bank Vested Percentage
------------------------------ -----------------
<S> <C>
1st 20%
2nd 40%
3rd 60%
4th 80%
5th 100%
</TABLE>
Notwithstanding the preceding, a Participant shall receive his vested SERP
Benefit upon the occurrence of a Change in Control of the Bank or the Company.
4
<PAGE>
3.4 Termination of Participation.
----------------------------
A Participant's participation in the SERP shall cease on the earlier of
(a) the date of the Participant's Termination of Service, or
(b) the date on which the Participant ceases to be an Eligible
Employee.
ARTICLE IV
----------
BENEFITS TO PARTICIPANTS
4.1 SERP Benefits.
-------------
(a) An individual who satisfies the eligibility requirements of Section
3.1 of the SERP and becomes a Participant pursuant to Section 3.2 of the SERP
shall be entitled to an unfunded, unsecured promise from the Bank to receive a
SERP Benefit upon Termination of Service as a result of his attainment of
"Normal Retirement Age" (as defined in the ESOP) under the terms of ESOP.
(b) The SERP Benefit shall be determined by:
(i) projecting the total number of shares of Company Stock that would
have been allocated to the Participant's account under the ESOP had
the Participant continued in the employ of the Bank, measured from the
date the Participant was first eligible to participate in the ESOP
until the ESOP loan would have been repaid in full and the final
allocation of shares of Company Stock acquired with the ESOP loan
would have been made; and then
(ii) reducing the number of shares projected in (i), above, by the
actual number of shares of Company Stock allocated to the
Participant's account under the terms of the ESOP as of the last day
of the final Plan Year in which the Participant was an "Active
Participant" (as defined in the ESOP) in the ESOP; and then
(iii) multiplying the number of shares of Company Stock determined
after application of (ii), above, by the average fair market value of
the Company Stock for the five-year period immediately preceding the
Participant's Termination of Service (or the number of years the
Participant has participated in the SERP if such number is fewer than
five).
5
<PAGE>
The projection of shares required by (i), above, shall be performed by a public
accountant based on assumptions which the Board of Directors has approved as
reasonable at the time the calculation for the SERP Benefit is performed.
4.2 Form of Benefits.
----------------
(a) SERP Benefits shall be payable in a lump sum payment as soon as
practicable after the Participant's Termination of Service. However, the
Committee reserves the right to make payments in a series of periodic payments.
(b) SERP Benefits, at the discretion of the Committee, shall be paid in
cash, Company Stock or some combination thereof.
ARTICLE V
---------
ADMINISTRATION
5.1 The Committee.
-------------
Except for the functions reserved to the Bank or the Board of Directors,
the administration of the SERP shall be the responsibility of the Committee.
The Committee shall consist of three (3) or more persons designated by the Board
of Directors. Members of the Committee shall serve for such terms as the Board
of Directors shall determine and until their successors are designated and
qualified. Any member of the Committee may resign upon at least sixty (60) days
written notice to the Board, or may be removed from office by the Board of
Directors for failure or inability to carry out his responsibilities in an
effective manner.
5.2 Duties of the Committee.
-----------------------
The Committee shall have the power and the duty to take all actions and to
make all decisions necessary or proper to carry out the purpose of the SERP.
The determination of the Committee as to any question involving the general
administration and interpretation of the SERP shall be final, conclusive and
binding. Any discretionary actions to be taken under the SERP by the Committee
shall be uniform in their nature and applicable to all persons similarly
situated. Without limiting the generality of the foregoing, the Committee shall
have the following powers and duties:
(a) the duty to furnish to all Participants, upon request, copies of
the SERP and to require any person to furnish such information as it may request
for the purpose of the proper administration of the SERP as a condition to
receiving any benefits under the SERP;
(b) the duty to make and enforce such rules and regulations and
prescribe the use of such forms as it shall deem necessary for the efficient
administration of the SERP;
6
<PAGE>
(c) the duty to interpret the SERP, and to resolve ambiguities,
inconsistencies and omissions, which findings shall be binding, final and
conclusive;
(d) the duty to decide on questions concerning the SERP in accordance
with the provisions of the SERP;
(e) the duty to determine the amount of benefits which shall be
payable to any person in accordance with the provisions of the SERP and to
provide a full and fair review to any Participant whose claim for benefits has
been denied in whole or in part;
(f) the power to designate a person who may or may not be a member of
the Committee as SERP "Administrator." If the Committee does not so designate
an Administrator, the Bank shall be the SERP Administrator;
(g) the power to allocate any such powers and duties to or among
individual members of the Committee; and
(h) the power to designate persons other than Committee members to
carry out any duty or power which would otherwise be a responsibility of the
Committee or Administrator, under the terms of the SERP.
5.3 Liability of the Committee.
--------------------------
To the extent permitted by law, the Committee and any person to whom it may
delegate any duty or power in connection with administering the SERP, the Bank,
any Employer, and the officers and directors thereof, shall be entitled to rely
conclusively upon, and shall be fully protected in any action taken or suffered
by them in good faith in the reliance upon, any actuary, counsel, accountant,
other specialist, or other person selected by the Committee, or in reliance upon
any tables, valuations, certificates, opinions or reports which shall be
furnished by any of them. Further, to the extent permitted by law, no member of
the Committee, nor the Bank, any Employer, nor the officers or directors
thereof, shall be liable for any neglect, omission or wrongdoing of any other
members of the Committee, agent, officer or employee of the Bank or any
Employer. Any person claiming benefits under the SERP shall look solely to the
Bank for redress.
5.4 Expenses.
--------
All expenses incurred prior to the termination of the SERP that shall arise
in connection with the administration of the SERP (including, but not limited to
administrative expenses, proper charges and disbursements, compensation and
other expenses and charges of any actuary, counsel, accountant, specialist, or
other person who shall be retained or employed by the Committee in connection
with the administration of the SERP), shall be paid by the Bank.
7
<PAGE>
ARTICLE VI
----------
AMENDMENT AND TERMINATION
6.1 Amendment and Termination.
-------------------------
The Board of Directors shall have the power to suspend or terminate the
SERP in whole or in part at any time, and from time to time to extend, modify,
amend or revise the SERP in such respects as the Board of Directors, by
resolution, may deem advisable; provided, however, that no such extension,
modification, amendment, revision, or termination shall deprive a Participant or
any beneficiary of any benefit payable under the SERP at the time of such
extension, modification, amendment, revision, or termination.
ARTICLE VII
-----------
MISCELLANEOUS PROVISIONS
7.1 No Right to Continual Employment.
--------------------------------
The SERP shall not be deemed to constitute a contract of employment between
the Bank and any Employee or other person, whether or not in the employ of the
Bank, nor shall anything herein contained be deemed to give any Employee or
other person, whether or not in the employ of the Bank, any right to be retained
in the employ of the Bank, or to interfere with the right of the Bank to
discharge any Employee at any time and to treat such Employee without any regard
to the effect which such treatment might have upon such Employee as a
Participant of the SERP.
7.2 Non-Alienation of Benefits.
--------------------------
Except as may otherwise be required by law, no distribution or payment
under the SERP to any Participant or beneficiary shall be subject in any manner
to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
charge, whether voluntary or involuntary, and any attempt to so anticipate,
alienate, sell, transfer, assign, pledge, encumber or charge the same shall be
void; nor shall any such distribution or payment be in any way liable for or
subject to the debts, contracts, liabilities, engagements or torts of any person
entitled to such distribution or payment. If any Participant or beneficiary is
adjudicated bankrupt or purports to anticipate, alienate, sell, transfer,
assign, pledge, encumber or charge any such distribution or payment, voluntarily
or involuntarily, the Committee, in its sole discretion, may cancel such
distribution or payment or may hold or cause to be held or applied such
distribution or payment, or any part thereof, to or for the benefit of such
Participant or beneficiary, in such manner as the Committee shall direct.
8
<PAGE>
7.3 Payment if Participant is Incompetent.
-------------------------------------
If the Bank determines that any person entitled to payments under the SERP
is incompetent by reason of physical or mental disability, it may cause all
payments thereafter becoming due to such person to be made to any other person
for the benefit of the incompetent person, without responsibility to follow
application of amounts so paid. Payments made pursuant to this provision shall
completely discharge the SERP, the Bank and the Committee.
7.4 Termination for Cause.
---------------------
If any Participant entitled to payments under the SERP separates from
service as a result of Termination for Cause, the Bank shall cause all payments
thereafter becoming due to such Participant to be forfeited under the SERP.
7.5 The Bank Sole Source of Benefits.
--------------------------------
The Bank shall be the sole source of benefits under the SERP, and each
Employee, Participant, beneficiary, or any other person who shall claim the
right to any payment or benefit under the SERP shall be entitled to look solely
to the Bank for payment of benefits.
7.6 Lost Participants.
-----------------
If the Bank is unable to make payment to any Participant, beneficiary, or
any other person to whom a payment is due under the SERP, because it cannot
ascertain the identity or whereabouts of such Participant, beneficiary, or other
person after reasonable efforts have been made to identify or locate such person
(including a notice of the payment so due mailed to the last known address of
such Participant, beneficiary, or other person shown on the records of the
Bank), such payment and all subsequent payments otherwise due to such
Participant, beneficiary or other person shall be forfeited six (6) months after
the date such payment first became due; provided, however, that such payment and
any subsequent payments shall be reinstated, retroactively, no later than sixty
(60) days after the date on which the Participant, beneficiary, or other person
is identified or located.
7.7 Withholding.
-----------
If upon the payment of any benefits under the SERP, the Bank shall be
required to withhold any amounts with respect to such payment by reason of any
federal, state or local tax laws, rules or regulations, then the Bank shall be
entitled to deduct and withhold such amounts from any such payments. In any
event, such person shall make available to the Bank, promptly when requested by
the Bank, sufficient funds or other property to meet the requirements of such
withholding. Furthermore, the Bank shall be entitled to take and authorize such
steps as it may deem advisable in order to have the amounts required to be
withheld made available to the Bank
9
<PAGE>
out of any funds or property due to become due to such person, whether under the
SERP or otherwise.
7.8 Governing Law.
-------------
The provisions of the SERP shall be construed, administered and governed
under applicable federal laws and the laws of the State of New Jersey.
7.9 Operation as Unfunded Nonqualified Plan.
---------------------------------------
The SERP is intended to be an unfunded, Nonqualified Plan maintained
"primarily for the purpose of providing deferred compensation for a select group
of management or highly compensated employees" as that phrase is used for
purposes of Sections 201, 301 and 401 of ERISA. The SERP is not intended to
comply with the requirements of section 401(a) of the Code. The SERP shall be
administered and construed so as to effectuate this intent.
7.10 Required Regulatory Provisions.
------------------------------
(a) If the Bank is in default as defined in Section 3(x)(1) of the Federal
Deposit Insurance Act, 12 U.S.C. Section 1813(x)(1) all obligations of the Bank
under this Plan shall terminate as of the date of default, but this paragraph
shall not affect any vested rights of the Participants.
(b) All obligations of the Bank under this Plan shall be terminated, except
to the extent determined that continuation of the contract is necessary for the
continued operation of the institution: (i) by the Director of the OTS (or his
designee), the FDIC or the Resolution Trust Corporation, at the time the FDIC
enters into an agreement to provide assistance to or on behalf of the Bank under
the authority contained in Section 13(c) of the Federal Deposit Insurance Act,
12 U.S.C. Section 1823(c); or (ii) by the Director of the OTS (or his designee)
at the time the Director (or his designee) approves a supervisory merger to
resolve problems related to the operations of the Bank or when the Bank is
determined by the Director to be in an unsafe or unsound condition. Any rights
of the parties that have already vested, however, shall not be affected by such
action.
(c) Any payments made to Participants pursuant to this Plan, or otherwise,
are subject to and conditioned upon compliance with 12 U.S.C. Section 1828(k),
12 C.F.R. Part 359 and 12 C.F.R. Section 545.121 and any rules and regulations
promulgated thereunder.
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West Essex Bank has adopted this Plan, to be executed by a designee of the Board
and duly attested, on this the ___________ day of _______, 199__.
ATTEST: WEST ESSEX BANK
By
- --------------------------------- ------------------------------------
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EXHIBIT 10.12 EMPLOYMENT AGREEMENT BETWEEN WEST ESSEX BANK AND LEOPOLD W.
MONTANARO
<PAGE>
EMPLOYMENT AGREEMENT
This AGREEMENT is made and entered into this 30th day of January, 1998, by
and between West Essex Bank (the "Bank"), a federally chartered savings
institution, with its principal administrative office at 417 Bloomfield Avenue,
Caldwell, New Jersey and Leopold W. Montanaro.
WHEREAS, the Bank wishes to continue to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Bank on a full-
time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive shall be nominated
and elected to serve as a director of the Bank and shall be appointed the Chief
Executive Officer and President of the Bank. Executive shall render
administrative and management services to the Bank such as are customarily
performed by persons situated in a similar executive capacity. During said
period, Executive also agrees to serve, if elected, as an officer and director
of any subsidiary or affiliate of the Bank.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the first anniversary date of this Agreement, and continuing at each anniversary
date thereafter, the Board of Directors of the Bank ("Board"), may extend the
Agreement an additional year such that the remaining term of the Agreement shall
be three (3) years unless the Executive elects not to extend the term of this
Agreement by giving notice in accordance with Section 9 of the Agreement. The
Board will review the Executive's performance annually for purposes of
determining, whether to extend the Agreement, and the rationale and the results
thereof shall be included in the minutes of the Board's meeting. The Board shall
give notice to the Executive as soon as possible after such review as to whether
the Agreement is to be extended.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
operation and management of the Bank and which activities may include
participation in community and civic organizations; provided, however, that,
with the approval of
<PAGE>
the Board, as evidenced by a resolution of such Board, from time to time,
Executive may serve, or continue to serve, on the boards of directors of, and
hold any other offices or positions in, companies or organizations, which, in
such Board's judgment, will not present any conflict of interest with the Bank,
or materially affect the performance of Executive's duties pursuant to this
Agreement.
(c) Notwithstanding anything herein contained to the contrary, Executive's
employment with the Bank may be terminated by the Bank or the Executive during
the term of this Agreement, subject to the terms and condition of this
Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Executive shall be entitled to a salary from the Bank of not less
than $275,000 per year ("Base Salary"). Executive's Base Salary shall be payable
monthly. During the period of this Agreement, Executive's Base Salary shall be
reviewed at least annually; the first such review will be made no later than one
year from the date of this Agreement. Such review shall be conducted by the
Board or a Committee designated by the Board, and the Board or the Committee of
the Board may increase Executive's Base Salary. The increased Base Salary shall
become the "Base Salary" for purposes of the Agreement. In addition to the Base
Salary provided in this Section 3(a), the Bank shall provide Executive at no
premium cost to Executive all such other benefits as provided uniformly to
permanent full-time employees of the Bank.
(b) The Executive shall be entitled to participate in employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, including the payment for (i)
the use of an automobile and payment for automobile insurance and any costs
associated with its operation and maintenance, (ii) membership to a country club
and the expenses and assessments associated therewith and (iii) attendance to
national and state conventions and educational conferences and the expenses
associated therewith for the Executive and his spouse, and the Bank will not,
without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would materially adversely affect Executive's
rights or benefits thereunder except to the extent that such changes would
affect all of the Bank's employees. Without limiting the generality of the
foregoing provisions of this Subsection (b), Executive shall be entitled to
participate in or receive benefits under any employee benefit plans including
but not limited to, retirement plans, supplemental executive retirement plans,
pension plans, profit-sharing plans, health-and-accident plan, long-term
disability plan, medical coverage or any other employee benefit plan or
arrangement made available by the Bank in the future to its senior executives
and key management employees, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans and arrangements.
Executive shall be entitled to incentive compensation and bonuses as provided in
any plan of the Bank in which Executive is eligible to participate. Nothing paid
to the Executive under any such plan or arrangement will be deemed to be in lieu
of other compensation to which the Executive is entitled under this Agreement.
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<PAGE>
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the Bank shall pay or reimburse Executive for all reasonable travel
and other reasonable expenses incurred by Executive performing his obligations
under this Agreement and may provide such additional compensation in such form
and such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Bank of Executive's full-time employment hereunder for any
reason other than a Change in Control, as defined in Section 5(a) hereof,
Termination for Cause, as defined in Section 8 hereof, retirement in accordance
with the Bank's pension plan or Disability as defined in Section 7; (ii)
Executive's resignation from the Bank's employ, in the manner set forth below,
upon any (A) failure to elect or appoint Executive as a director and the Chief
Executive Officer and President of the Bank unless consented to by the
Executive, (B) material changes in Executive's functions, duties or
responsibilities, which would cause Executive's position to become one of lesser
responsibility, importance or scope from the position and attributes described
in Section 1, above, unless consented to by the Executive, (C) relocation of
Executive's principal place of employment by more than 50 miles from its
location at the effective date of this Agreement, unless consented to by the
Executive, (D) material reduction in the benefits and perquisites to the
Executive from those being provided as of the effective date of this Agreement,
unless consented to by the Executive, (E) liquidation or dissolution of the Bank
or in the event of any governmental confiscation of the net worth of the Bank,
or (F) breach of this Agreement by the Bank. Upon the occurrence of any event
described in clauses (A), (B), (C), (D) or (F), above, Executive shall have the
right to elect to terminate his employment under this Agreement by resignation
upon not less than sixty (60) days prior written notice given within six full
calendar months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, the Bank shall be obligated to pay Executive, or, in the event of
his subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be a sum equal to: (i) the amount of the remaining salary payments that
the Executive would have earned if he continued his employment with the Bank
during the remaining unexpired term of this Agreement at the Executive's Base
Salary at the Date of Termination; (ii) the average of the amount of any bonus
and other compensation paid to the Executive during the term of the Agreement
times the remaining number of years of the Agreement and any fraction thereof;
and (iii) an amount equal to the average of the annual contributions that were
made on the Executive's behalf to any employee benefit plans of the Bank during
the term of the Agreement times the remaining number of years of the Agreement
and any fraction thereof, provided that any payments pursuant to this subsection
shall not, in the aggregate, exceed three times Executive's Average Annual
Compensation for the five most recent taxable years that Executive has been
employed by the Bank or such lesser number of years in the event that Executive
shall have been employed by the Bank for less than five years ("Average
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<PAGE>
Annual Compensation"). Average Annual Compensation shall include all taxable
income including but not limited to any commissions, bonuses, contributions on
behalf of Executive to any pension and profit sharing plan, severance payments,
director or committee fees and fringe benefits paid or to be paid to the
Executive in any such year. In the event that the Bank is not in compliance with
its minimum capital requirements or if such payments would cause the Bank's
capital to be reduced below its minimum capital requirements, such payments
shall be deferred to the extent required by applicable law until such time as
the Bank is in capital compliance. At the election of the Executive, which
election is to be made prior to the Executive's Date of Termination, such
payments shall be made in a lump sum or paid monthly during the remaining term
of this Agreement following the Executive's termination. In the event that no
lump sum election is made, payment to the Executive will be made on a monthly
basis during the remaining term of this Agreement. Such payments shall not be
reduced in the event the Executive obtains other employment following
termination of employment unless the Executive's other employment constitutes a
breach of Section 11 of this Agreement. In such event the Bank shall be entitled
to seek any remedies available to it for breach of this Agreement.
(c) Upon the occurrence of an Event of Termination, the Bank will cause to
be continued life, medical, dental and long-term disability coverage
substantially identical to the coverage maintained by the Bank for Executive
prior to his termination at no premium cost to the Executive. Such coverage
shall cease upon the expiration of the remaining term of this Agreement. Any
bond outstanding for country club membership shall be transferred without
payment therefore by the Executive and the Bank shall pay the annual membership
dues and assessments for the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a Change in Control of the Bank shall
be deemed to have occurred upon the occurrence of one of the following events:
(i) individuals who constitute the Board of Directors of the Bank on
the date hereof (or the Board of Directors of any direct or
indirect parent company of the Bank as of the dates such company
were first organized) (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof
whose election was approved by a vote of at least three-quarters
of the directors comprising the Incumbent Board, or whose
nomination for election by the Bank's members was approved by
the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (i), considered as though
he or she were a member of the Incumbent Board;
(ii) a merger, merger conversion, consolidation, or sale of all or
substantially all of the assets of the Bank or any direct or
indirect parent company of the
4
<PAGE>
Bank, in which the Bank or any direct or indirect parent company
of the Bank is not the resulting entity;
(iii) the occurrence of a Change in Control of the Bank or any direct
or indirect parent company of the Bank within the meaning of the
Home Owners' Loan Act of 1933, as amended, the Federal Deposit
Insurance Act, and the Rules and Regulations promulgated by the
Office of Thrift Supervision, as determined by the Board of
Directors of the Bank; or
(iv) in the event that the Bank (or following any Reorganization, the
mutual holding company which owns at least 50.1% of the voting
securities of the Bank or any direct or indirect parent holding
company of the Bank) converts from the mutual to stock form of
ownership at any time subsequent to the effective date of this
Agreement, a Change in Control of the Bank or its holding
company ("Holding Company") for purposes of this Agreement shall
mean an event of a nature that (A) would be required to be
reported in response to Item 1 of the Current Report on Form 8-
K, as in effect on the date hereof, pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 (the "Exchange
Act"); (B) results in a Change in Control of the Bank or the
Holding Company within the meaning of the Home Owners' Loan Act
of 1933, as amended, the Federal Deposit Insurance Act, and the
Rules and Regulations promulgated by the Office of Thrift
Supervision (or its successor agency), as in effect on the date
hereof (provided that in applying the definition of a change in
control as set forth under the rules and regulations of the OTS,
the Board shall substitute its judgment for that of the OTS); or
(C) without limitation such a Change in Control shall be deemed
to have occurred at such time as (a) any "person" (as the term
is used in Sections 13(d) and 14(d) of the Exchange Act) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of voting securities
of the Bank or the Holding Company representing 20% or more of
the Bank's or the Holding Company's outstanding voting
securities or right to acquire such securities except for any
voting securities of the Bank purchased by the Holding Company
and any voting securities purchased by any of the Bank's or the
Holding Company's employee benefit plans; or (b) individuals who
constitute the Board of the Bank or the Holding Company on the
date of the Conversion (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 of the
Conversion or Reorganization whose election was approved by a
vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Bank's
or the Holding Company's stockholders was approved by the same
Nominating Committee serving under an Incumbent Board, shall be,
for purposes of this clause (b),
5
<PAGE>
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 the
Holding Company is not the resulting entity, provided however,
that such an event listed above will be deemed to have occurred
or to have been effectuated upon the receipt of all required
regulatory approvals not including the lapse of any statutory
waiting periods.
Payments pursuant to this Change in Control section shall not be triggered
by a conversion of the Bank from the mutual to stock form of organization
("Conversion") or reorganization of the Bank into the mutual holding form of
ownership ("Reorganization") except in the event the Bank is not the resulting
entity. Upon any Conversion or Reorganization, the resulting Bank and the
Holding Company (if one is formed in the transaction) shall be subject to the
provisions of Section 23 hereof and the obligations of the Bank herein and
further shall enter into agreements or amendments hereto with the Executive
providing for at least the same benefits under this Agreement. Further, upon any
Conversion or Reorganization and the issuance of common stock to the public, the
Bank agrees that it will establish employee stock benefit plans and other
compensation arrangements for executive officers, employees and directors of the
Bank and the Holding Company similar in nature and scope to those established by
converted savings institutions in the New York and New Jersey metropolitan
areas. The Executive shall be entitled to participate in such employee stock
benefit plans and other compensation arrangements and will receive awards and/or
other benefits under such plans or arrangements at a level commensurate to that
received by the senior executive officers of converted savings institutions in
the New York and New Jersey metropolitan areas.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board has determined that a Change in
Control has occurred, Executive shall be entitled to the benefits provided in
paragraphs (c) and (d) of this Section 5 upon his subsequent termination of
employment at any time during the term of this Agreement due to: (1) Executive's
dismissal; or (2) voluntary resignation following any demotion, loss of title,
office or significant authority or responsibility, reduction in any compensation
or benefits or relocation of his principal place of employment by more than 50
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death or Termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Bank shall pay Executive, or in the event of his subsequent death following
such termination, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay or liquidated damages, or both, a sum equal to the
greater of (i) the payments due for the remaining term of the Agreement; or (ii)
three (3) times Executive's Average Annual Compensation for the five (5) most
recent taxable years that Executive has been employed by the Bank. At the
election of the Executive, which election is to be made prior to a Change in
Control, such payment may be made in a lump sum as of the Executive's Date of
Termination. In the event that no election is
6
<PAGE>
made, payment to the Executive will be made on a monthly basis during the
remaining term of the Agreement. Such payments shall not be reduced in the event
Executive obtains other employment following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Bank will cause to be continued life, medical, dental and long-term
disability coverage substantially equivalent to the coverage maintained by the
Bank for Executive at no premium cost to Executive prior to his severance. Such
coverage and payments shall cease upon the expiration of thirty-six (36) months.
6. CHANGE IN CONTROL RELATED PROVISIONS
Notwithstanding the paragraphs of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive, under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Code or any successor thereto, and in order to avoid
such a result, Termination Benefits will be reduced, if necessary to an amount
(the "Non-Triggering Amount"), the value of which is one dollar ($1.00) less
than an amount equal to three (3) times Executive's "base amount", as determined
in accordance with said Section 280G. The allocation of the reduction required
hereby among the Termination Benefits provided by the paragraphs of Section 5
shall be determined by the Executive.
7. TERMINATION FOR DISABILITY
(a) If, as a result of Executive's permanent incapacity due to injury or
sickness, such incapacity being determined by a doctor selected by the Bank and
the Executive, he shall have been absent from his duties with the Bank on a
full-time basis for six (6) consecutive months, and within thirty (30) days
after written notice of potential termination is given he shall not have
returned to the full-time performance of his duties, the Bank may terminate
Executive's employment for "Disability."
(b) The Bank will pay Executive, as disability pay, a bi-weekly payment
equal to one hundred percent (100%) of Executive's monthly rate of Base Salary
on the effective date of such termination. These disability payments shall
commence on the effective date of Executive's termination and will end on the
earlier of (i) the date Executive returns to the full-time employment of the
Bank in the same capacity as he was employed prior to his termination for
Disability and pursuant to an employment agreement between Executive and the
Bank; (ii) Executive's death; or (iii) the Executive reaching age 65.
Notwithstanding any other provisions to the contrary, any amounts due under this
subsection (b) shall first be reduced by any benefits payable to the Executive
under a disability insurance policy provided by the Bank.
(c) The Bank will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
Bank for Executive prior to his termination for Disability. Disability coverage
under this subsection (c) and payments shall cease upon the earlier of (i) the
date Executive returns to the full-time employment of the Bank, in the
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<PAGE>
same capacity as he was employed prior to his termination for Disability and
pursuant to an employment agreement between Executive and the Bank; (ii) the
Executive's death; or (iii) the Executive reaching the age of 65.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to Executive during any period which Executive is
incapable of performing his duties hereunder by reason of temporary disability.
8. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of the
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement. For purposes of this Section, no act,
or the failure to act, on Executive's part shall be "willful" unless done, or
omitted to be done, not in good faith and without reasonable belief that the
action or omission was in the best interest of its affiliates. In determining
incompetence, the acts or omissions shall be measured against standards
generally prevailing in the savings institutions industry. Notwithstanding the
foregoing, Executive shall not be deemed to have been Terminated for Cause
unless and until there shall have been delivered to him a Notice of Termination
that shall include a copy of a resolution duly adopted by the affirmative vote
of not less than a majority of the members of the Board at a meeting of the
Board called and held for that purpose (after reasonable notice to Executive and
an opportunity for him, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, Executive was guilty of
conduct justifying Termination for Cause and specifying the reasons thereof in
detail. The Executive shall not have the right to receive compensation or other
benefits for any period after Termination for Cause.
9. NOTICE.
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean (A) if Executive's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given).
8
<PAGE>
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties or, by a binding arbitration award,
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence and
solely in accordance with Section 20 of this agreement. Notwithstanding the
pendency of any such dispute, unless otherwise prohibited by Section 16 of this
Agreement, the Bank will continue to pay Executive his full compensation in
effect when the notice giving rise to the dispute was given (including, but not
limited to, Base Salary) and continue him as a participant in all compensation,
benefit and insurance plans in which he was participating when the notice of
dispute was given, until the earlier of: (1) the resolution of the dispute in
accordance with this Agreement; or (2) the expiration of the remaining term of
this Agreement as determined as of the Date of Termination. Amounts paid under
this Section are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement.
10. POST-TERMINATION OBLIGATIONS.
(a) All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 10 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Bank. Executive shall, upon reasonable notice,
furnish such information and assistance to the Bank as may reasonably be
required by the Bank in connection with any litigation in which it or any of its
subsidiaries or affiliates is, or may become, a party.
11. NON-COMPETITION.
(a) Upon any termination of Executive's employment hereunder pursuant to an
Event of Termination as provided in Section 4 hereof, Executive agrees not to
compete with the Bank for a period of one (1) year following such termination in
any city, town or county in which the Bank has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination except as otherwise agreed to pursuant to a
resolution duly adopted by the Board. Executive agrees that during such period
and within said cities, towns and counties, Executive shall not work in an
executive capacity for any financial institution whose business materially
competes with the depository, lending or other business activities of the Bank.
The parties hereto, recognizing that irreparable injury will result to the Bank,
its business and property in the event of Executive's breach of this Subsection
11 (a) agree that in the event of any such breach by Executive, the Bank will be
entitled, in addition to any other remedies and damages available, to an
injunction to restrain the violation hereof by Executive, Executive's partners,
agents, servants, employers, employees and all persons acting for or with
Executive. Nothing herein will be construed as prohibiting the Bank from
pursuing
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any other remedies available to the Bank for such breach or threatened breach,
including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, following the term of his
employment, disclose any knowledge of the past, present, planned or considered
business activities of the Bank or affiliates thereof to any person, firm,
corporation, or other entity for any reason or purpose whatsoever except as
authorized by the Board. Notwithstanding the foregoing, Executive may disclose
any knowledge of banking, financial and/or economic principles, concepts or
ideas which are not solely and exclusively derived from the business plans and
activities of the Bank. In the event of a breach or threatened breach by the
Executive of the provisions of this Section 11, the Bank will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Bank or affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Bank from pursuing any other remedies available to the Bank for
such breach or threatened breach, including the recovery of damages from
Executive.
12. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Bank. Such payments may be provided for in
the form of an irrevocable grantor trust established by the Bank for the purpose
of satisfying the Bank's obligations under the Agreement.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto, except that this Agreement shall not affect or operate to reduce any
benefit or compensation inuring to the Executive of a kind elsewhere provided.
No provision of this Agreement shall be interpreted to mean that Executive is
subject to receiving fewer benefits than those available to him without
reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
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(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
16. REQUIRED PROVISIONS.
(a) The Bank may terminate the Executive's employment at any time, but any
termination by the Bank, other than Termination for Cause, shall not prejudice
Executive's right to compensation or other benefits under this Agreement.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 8 herein above.
(b) If the Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
Section 1818(e)(3) or (g)(1), the Bank's obligations under this contract shall
be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may in its
discretion (i) pay the Executive all or part of the compensation withheld while
their contract obligations were suspended and (ii) reinstate (in whole or in
part) any of the obligations which were suspended.
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 16(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Bank will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 5 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) (12 U.S.C. Section 1818(e)(4) or 8(g)(1)) of the Federal Deposit
Insurance Act (12 U.S.C. Section 1818(e)(4) or (g)(1)), all obligations of the
Bank under this contract shall terminate as of the effective date of the order,
but vested rights of the contracting parties shall not be affected.
11
<PAGE>
(d) If the Bank is in default (as defined in Section 3(x)(1) (12 U.S.C.
Section 1813(x)(1)) of the Federal Deposit Insurance Act) all obligations of the
Bank under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
(e) All obligations of the Bank under this contract shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the institution, (i) by the Federal Deposit
Insurance Corporation, at the time FDIC enters into an agreement to provide
assistance to or on behalf of the Bank under the authority contained in Section
13(c) (12 U.S.C. Section 1823(c)) of the Federal Deposit Insurance Act, or (ii)
by the Office of Thrift Supervision ("OTS") at the time the OTS or its District
Director approves a supervisory merger to resolve problems related to the
operations of the Bank or when the Bank is determined by the OTS or FDIC to be
in an unsafe or unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by such action.
(f) Any payments made to the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and any rules and regulations promulgated thereunder.
17. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
18. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
19. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of New Jersey but
only to the extent not superseded by Federal law.
20. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within fifty
(50) miles from the location of the Bank, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
12
<PAGE>
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
21. PAYMENT OF LEGAL FEES.
In the event any action is instituted by the Executive or the Bank
including under Section 20 of this Agreement all legal fees and expenses shall
be paid and reimbursed by the party who is not successful on the merits as
determined by a legal judgment, settlement or arbitration award.
22. INDEMNIFICATION.
The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) to the fullest extent permitted under
Federal and New Jersey law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Bank (whether or not he continues to be a director or officer
at the time of incurring such expenses or liabilities), such expenses and
liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
23. SUCCESSOR TO THE BANK.
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation, Conversion, Reorganization or
otherwise, to all or substantially all the business or assets of the Bank,
expressly and unconditionally to assume and agree to perform the Bank's
obligations under this Agreement, in the same manner and to the same extent that
the Bank would be required to perform if no such succession or assignment had
taken place.
13
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, John J. Burke, has caused this agreement to be executed
and its seal to be affixed hereunto by its duly authorized officers, and
Executive has signed this Agreement, on the 4th day of February, 1998.
ATTEST: [SEAL]
/s/ Craig Montanaro By: /s/ William J. Foody
- -------------------------------- --------------------------
Secretary Chairman of the Board
WITNESS:
/s/ John J. Burke /s/ Leopold W. Montanaro
- -------------------------------- --------------------------
Leopold W. Montanaro
14
<PAGE>
EXHIBIT 10.13 RESTATED EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT FOR
LEOPOLD W. MONTANARO
<PAGE>
RESTATED EXECUTIVE SUPPLEMENTAL RETIREMENT
INCOME AGREEMENT
FOR
LEOPOLD W. MONTANARO
WEST ESSEX BANK, F.S.B.
CALDWELL, NEW JERSEY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION I DEFINITIONS........................................................ 2
-----------
SECTION II BENEFITS-GENERALLY................................................. 7
------------------
2.1 (a) Retirement Income Trust Fund and Accrued Benefit Account. 7
--------------------------------------------------------
(b) Withdrawal Rights Not Exercised.......................... 8
-------------------------------
(1) Contributions Made Annually......................... 8
---------------------------
(2) Death Prior to Benefit Age During Employment........ 8
--------------------------------------------
(3) Change in Control................................... 9
-----------------
(4) Termination for Cause............................... 10
---------------------
(c) Withdrawal Rights Exercised.............................. 10
---------------------------
(1) Phantom Contributions Made Annually................. 10
-----------------------------------
(2) Death Prior to Benefit Age During Employment........ 11
--------------------------------------------
(3) Change in Control................................... 11
-----------------
(4) Termination for Cause............................... 12
---------------------
2.2 Withdrawals from Retirement Income Trust Fund................ 12
---------------------------------------------
SECTION III RETIREMENT BENEFIT................................................. 13
------------------
3.1 (a) Normal form of payment................................... 13
----------------------
(b) Alternative payout option................................ 15
-------------------------
SECTION IV PRE-RETIREMENT DEATH BENEFIT....................................... 16
----------------------------
4.1 (a) Normal form of payment................................... 16
----------------------
(b) Alternative payout option................................ 18
-------------------------
SECTION V BENEFIT(S) IN THE EVENT OF TERMINATION OF SERVICE
-------------------------------------------------
PRIOR TO BENEFIT AGE............................................... 18
--------------------
5.1 Voluntary or Involuntary Termination of Service
-----------------------------------------------
Other than for Cause....................................... 18
--------------------
(a) Normal form of payment................................... 19
----------------------
(1) Executive Lives Until Benefit Age................... 19
---------------------------------
(2) Executive Dies Prior to Benefit Age................. 21
-----------------------------------
(b) Alternative Payout Option................................ 22
-------------------------
(1) Executive Lives Until Benefit Age................... 22
---------------------------------
(2) Executive Dies Prior to Benefit Age................. 23
-----------------------------------
5.2 Termination for Cause........................................ 24
---------------------
SECTION VI OTHER BENEFITS..................................................... 24
--------------
6.1 (a) Disability Benefit....................................... 24
------------------
(b) Disability Benefit - Supplemental........................ 25
---------------------------------
6.2 Additional Death Benefit - Burial Expense.................... 26
-----------------------------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
SECTION VII NON-COMPETITION.................................................... 26
---------------
7.1 Non-Competition.............................................. 26
---------------
7.2 Breach of Non-Competition Clause............................. 26
--------------------------------
(a) During Employment........................................ 26
-----------------
(b) Termination of Employment Following Breach............... 27
------------------------------------------
(c) Breach Following Executive's Termination of Employment... 27
------------------------------------------------------
SECTION VIII BENEFICIARY DESIGNATION............................................ 28
-----------------------
SECTION IX EXECUTIVE'S RIGHT TO ASSETS........................................ 28
---------------------------
SECTION X RESTRICTIONS UPON FUNDING.......................................... 29
-------------------------
SECTION XI ACT PROVISIONS..................................................... 30
--------------
11.1 Named Fiduciary and Administrator............................ 30
---------------------------------
11.2 Claims Procedure and Arbitration............................. 30
--------------------------------
SECTION XII MISCELLANEOUS...................................................... 31
-------------
12.1 No Effect on Employment Rights............................... 31
------------------------------
12.2 State Law.................................................... 33
---------
12.3 Severability................................................. 33
------------
12.4 Incapacity of Recipient...................................... 33
-----------------------
12.5 Unclaimed Benefit............................................ 33
-----------------
12.6 Limitations on Liability..................................... 34
------------------------
12.7 Gender....................................................... 34
------
12.8 Effect on Other Corporate Benefit Agreements................. 34
--------------------------------------------
12.9 Suicide...................................................... 34
-------
12.10 Inurement.................................................... 35
---------
12.11 Headings..................................................... 35
--------
SECTION XIII AMENDMENT/PLAN TERMINATION......................................... 35
--------------------------
13.1 Amendment or Plan Termination................................ 35
-----------------------------
13.2 Executive's Right to Payment Following Plan Termination...... 36
-------------------------------------------------------
SECTION XIV EXECUTION.......................................................... 36
---------
</TABLE>
ii
<PAGE>
RESTATED EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT
This Restated Executive Supplemental Retirement Income Agreement (the
"Agreement"), effective as of the 22nd day of December, 1995, amends and
restates the Executive Supplemental Income Master Agreement entered into on
January 1, 1995, and formalizes the understanding by and between WEST ESSEX
BANK, F.S.B. (the "Bank"), a federally chartered savings bank, and Leopold W.
Montanaro, hereinafter referred to as "Executive".
WITNESSETH:
WHEREAS, the Executive is employed by the Bank; and
WHEREAS, the Bank recognizes the valuable services heretofore performed by
the Executive and wishes to encourage continued employment; and
WHEREAS, the Executive wishes to be assured that he will be entitled to a
certain amount of additional compensation for some definite period of time from
and after retirement from active service with the Bank or other termination of
employment and wishes to provide his beneficiary with benefits from and after
death; and
WHEREAS, the Bank and the Executive wish to provide the terms and
conditions upon which the Bank shall pay such additional compensation to the
Executive after retirement or other termination of employment and/or death
benefits to his beneficiary after death; and
WHEREAS, the Bank has adopted this Restated Executive Supplemental
Retirement Income Agreement which controls all issues relating to benefits as
described herein;
NOW, THEREFORE, in consideration of the premises and of the mutual promises
herein contained, the Bank and the Executive agree as follows:
1
<PAGE>
SECTION I
DEFINITIONS
-----------
When used herein, the following words and phrases shall have the meanings
below unless the context clearly indicates otherwise:
1.1 "Accrued Benefit Account" shall be represented by the bookkeeping entries
required to record the Executive's (i) Phantom Contributions plus (ii)
accrued interest, equal to the Interest Factor, earned to-date on such
amounts. However, neither the existence of such bookkeeping entries nor the
Accrued Benefit Account itself shall be deemed to create either a trust of
any kind, or a fiduciary relationship between the Bank and the Executive or
Beneficiary.
1.2 "Act" means the Employee Retirement Income Security Act of 1974, as amended
from time to time.
1.3 "Bank" means WEST ESSEX BANK, F.S.B. and any successor thereto.
1.4 "Beneficiary" means the person or persons (and their heirs) designated as
Beneficiary in Exhibit B of this Agreement to whom the deceased Executive's
benefits are payable. If no Beneficiary is so designated, then the
Executive's Spouse, if living, will be deemed the Beneficiary. If the
Executive's Spouse is not living, then the Children of the Executive will
be deemed the Beneficiaries and will take on a per stirpes basis. If there
are no Children, then the Estate of the Executive will be deemed the
Beneficiary.
1.5 "Benefit Age" means the Executive's sixty-fifth (65th) birthday.
2
<PAGE>
1.6 "Benefit Eligibility Date" means the date on which the Executive is
entitled to receive any, benefit(s) pursuant to Section(s) III or V of this
Agreement. It shall be the first day of the month following the month in
which the Executive attains his Benefit Age.
1.7 "Board of Directors" means the board of directors of the Bank.
1.8 "Cause" means personal dishonesty, willful misconduct, willful malfeasance,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule, regulation
(other than traffic violations or similar offenses), or final cease-and-
desist order, material breach of any provision of this Agreement, or gross
negligence in matters of material importance to the Bank.
1.9 "Change in Control" of the Bank shall mean and include the following:
(1) a Change in Control of a nature that would be required to be reported
in response to Item 1(a) of the Current Report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or
(2) a Change in Control of the Bank within the meaning of 12 C.F.R. 574.4;
or
(3) a Change in Control at such time as
(i) 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 representing Twenty Percent
(20.0%) or more of the combined voting power of the Bank's
outstanding securities ordinarily having the right to vote at the
election of Directors, except for (i) any stock of the
3
<PAGE>
Bank purchased by the Holding Company in connection with the
conversion of the Bank to stock form, and (ii) any stock
purchased by the Bank's Employee Stock Ownership Plan and/or
trust; or
(ii) individuals who constitute the Board of Directors on the date
hereof (the "Incumbent Board") cease for any reason to constitute
at least a majority thereof, provided that any person becoming a
Director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the Directors
comprising the Incumbent Board, or whose nomination for election
by the Bank's stockholders was approved by the Bank's or the
Bank's Nominating Committee which is comprised of members of the
Incumbent Board, shall be, for purposes of this clause (ii),
considered as though he were a member of the Incumbent Board; or
(iii)merger, consolidation, or sale of all or substantially all of
the assets of the Bank occurs; or
(iv) a proxy statement is issued soliciting proxies from the members
(or stockholders) of the Bank by someone other than the current
management of the Bank, seeking member (or stockholder) approval
of a plan of reorganization, merger, or consolidation of the Bank
with one or more corporations as a result of which the
outstanding shares of the class of the Bank's securities are
exchanged for or converted into cash or property or securities
not issued by the Bank.
1.10 "Children" means all natural or adopted children of the Executive, and
issue of any predeceased child or children.
1.11 "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
4
<PAGE>
1.12 "Contribution(s)" means those annual contributions which the Bank is
required to make to the Retirement Income Trust Fund on behalf of the
Executive in accordance with Subsection 2.1(a) and in the amounts set forth
in Exhibit A of the Agreement.
1.13 (a) "Disability Benefit" means the benefit payable to the Executive
following a determination, in accordance with Subsection 6.1 (a), that
he is no longer able, properly and satisfactorily, to perform his
duties at the Bank.
(b) "Disability Benefit- Supplemental" (if applicable) means the benefit
payable to the Executive's Beneficiary upon the Executive's death in
accordance with Subsection 6.1 (b).
1.14 "Effective Date" of this Agreement shall be December 22, 1995.
1.15 "Estate" means the estate of the Executive.
1.16 "Interest Factor" means compounding, discounting or annuitizing, as
applicable, at a rate set forth in Exhibit A.
1.17 "Payout Period" means the time frame during which certain benefits payable
hereunder shall be distributed. Payments shall be made in monthly
installments commencing on the first day of the month following the
occurrence of the event which triggers distribution and continuing for a
period of one hundred eighty (180) months. Should the Executive make a
Timely Election to receive a lump sum benefit payment, the Executive's
Payout Period shall be deemed to be one (1) month.
1.18 "Phantom Contributions" means those annual Contributions which the Bank is
no longer required to make on behalf of the Executive to the Retirement
Income Trust Fund. Rather, once the Executive has exercised the withdrawal
rights provided for in Subsection 2.2, the
5
<PAGE>
Bank shall be required to record the annual amounts set forth in Exhibit A
of the Agreement in the Executive's Accrued Benefit Account, pursuant to
Subsection 2.1.
1.19 "Plan Year" shall mean the twelve (12) month period commencing January 1,
1996 and each consecutive twelve (12) month period thereafter.
1.20 "Retirement Income Trust Fund" means the trust fund account established by
the Executive and into which annual Contributions will be made by the Bank
on behalf of the Executive pursuant to Subsection 2.1. The contractual
rights of the Bank and the Executive with respect to the Retirement Income
Trust Fund shall be outlined in a separate writing to be known as the
Leopold W. Montanaro Grantor Trust Agreement.
1.21 "Supplemental Retirement Income Benefit" means (assuming the normal form of
payment is applicable) an annual amount (before taking into account federal
------
and state income taxes), payable in monthly installments, which is
projected pursuant to the Agreement, for the purpose of determining the
Contribution to be made or the Phantom Contribution to be recorded on
behalf of an Executive who maintains continuous service until his Benefit
Age. The annual Contributions and Phantom Contributions have been
actuarially determined, using the assumptions set forth in Exhibit A, in
order to fund for the projected Supplemental Retirement Income Benefit. The
Supplemental Retirement Income Benefit which is projected, and for which
Contributions and/or Phantom Contributions are being made and/or recorded,
is set forth in Exhibit A.
1.22 "Timely Election" means the Executive has made an election to change the
form of his benefit payment(s) by filing with the Administrator a Notice of
Election to Change Form of Payment (Exhibit C of this Agreement), such
election having been made prior to the event which triggers distribution
and at least two (2) years prior to the Executive's Benefit Eligibility
Date.
6
<PAGE>
SECTION II
BENEFITS - GENERALLY
--------------------
2.1 (a) Retirement Income Trust Fund and Accrued Benefit Account. The
--------------------------------------------------------
Executive shall establish the Leopold W. Montanaro Grantor Trust into
which the Bank shall be required to make annual Contributions on the
Executive's behalf, pursuant to Exhibit A and this Section II of the
Agreement. A trustee shall be selected by the Executive. The trustee
shall maintain an account, separate and distinct from the Executive's
personal contributions, which account shall constitute the Retirement
Income Trust Fund. The trustee shall be charged with the
responsibility of investing all contributed funds. Distributions from
the Retirement Income Trust Fund of the Leopold W. Montanaro Grantor
Trust shall be made by the trustee to the Executive, for purposes of
payment of any income taxes due and owing on Contributions by the Bank
to the Retirement Income Trust Fund, if any, and on any taxable
earnings associated with such Contributions which the Executive shall
be required to pay from year to year under applicable law prior to
actual receipt of any benefit payments from the Retirement Income
Trust Fund. If the Executive exercises his withdrawal rights pursuant
to Subsection 2.2, the Bank's obligation to make Contributions to the
Retirement Income Trust Fund shall cease and the Bank's obligation to
record Phantom Contributions in the Accrued Benefit Account shall
immediately commence pursuant to Exhibit A and this Section II of the
Agreement. To the extent this Agreement is inconsistent with the
Leopold W. Montanaro Grantor Trust Agreement, this Agreement shall
supersede the Leopold W. Montanaro Grantor Trust Agreement.
The annual Contributions (or Phantom Contributions) required to be
made by the Bank to the Retirement Income Trust Fund (or recorded by
the Bank in the Accrued Benefit Account) have been fixed and
determined and are set forth in
7
<PAGE>
Exhibit A which is attached hereto and incorporated herein by
reference. Contributions shall be made by the Bank to the Retirement
Income Trust Fund (i) within five (5) days of establishment of such
trust, and (ii) within the first five (5) days of the beginning of
each succeeding Plan Year, unless this Section expressly provides
otherwise. Phantom Contributions, if any, shall be recorded in the
Accrued Benefit Account within the first five (5) days of the
beginning of each applicable Plan Year, unless this Section expressly
provides otherwise. Phantom Contributions shall accrue interest at a
rate equal to the Interest Factor, up to and throughout the Payout
Period, until the balance or the Accrued Benefit Account has been
fully distributed. Interest on any Phantom Contribution shall not
commence until one (1) calendar year following the date such Phantom
Contribution is initially recorded in the Executive's Accrued Benefit
Account.
(b) Withdrawal Rights Not Exercised.
-------------------------------
(1) Contributions Made Annually
---------------------------
If the Executive does not exercise any withdrawal rights pursuant
to Subsection 2.2, such annual Contributions to the Retirement
Income Trust Fund shall continue each year, unless this
Subsection 2.1(b) specifically states otherwise, until the
earlier of (i) the last Plan Year that Contributions are required
pursuant to Exhibit A, or (ii) the Plan Year of the Executive's
termination of employment.
(2) Death Prior to Benefit Age During Employment
--------------------------------------------
If the Executive (i) does not exercise any withdrawal rights
pursuant to Subsection 2.2 and (ii) dies prior to attaining
Benefit Age but while employed by the Bank (including employment
following a Change in Control), all annual Contributions set
forth in Exhibit A shall be required of the Bank. Such
Contributions to the Retirement Income Trust Fund shall commence
in the Plan Year in which the Retirement Income Trust Fund
8
<PAGE>
is established and shall continue through the Plan Year in which
the Executive dies. The final Contribution payable in the year of
the Executive's death shall be equal to: (i) the full
Contribution required for the Plan Year in which the Executive
dies, if not made prior to death, plus (ii) the sum of the total
Contributions which would have been required in accordance with
Exhibit A for the Plan Year(s) following the year of the
Executive's death. Such final Contribution shall be payable in a
lump sum to the Retirement Income Trust Fund within ten (10) days
of the Executive's death.
(3) Change in Control.
-----------------
If (i) the Executive does not exercise his withdrawal rights
pursuant to Subsection 2.2 and (ii) a Change in Control occurs at
the Bank, the Contributions set forth below shall be required of
the Bank. The annual Contributions set forth in Exhibit A shall
be made to the Retirement Income Trust Fund, commencing in the
Plan Year in which the Retirement Income Trust Fund is
established and continuing through the Plan Year in which the
Change in Control occurs. Upon the occurrence, of said Change in
Control, the Bank shall be required to make an immediate lump sum
Contribution to the Executive's Retirement Income Trust Fund in
an amount equal to: (1) the full Contribution required for the
Plan Year in which such Change in Control occurs as provided for
in Exhibit A, if not made prior to such Change in Control, plus
(ii) the present value (computed using a discount rate equal to
the Interest Factor) of the total Contributions which would have
been required in accordance with Exhibit A for the three (3) Plan
Years following the year in which such Change in Control occurs.
In the event the Executive continues employment with the Bank
following the date of the Change in Control, the Bank shall be
required to resume making Contributions in accordance with the
schedule
9
<PAGE>
provided for in Exhibit A, in the fourth (4th) year following the
year in which the Change in Control occurred and shall continue
for the lesser of: (i) the number of years remaining in the
schedule provided for in Exhibit A, or (ii) the number of years
the Executive remains employed by the Bank.
(4) Termination For Cause.
---------------------
If the Executive (i) does not exercise his withdrawal rights
pursuant to Subsection 2.2 and (ii) is terminated for Cause
pursuant to Subsection 5.2, no further Contribution(s) to the
Retirement Income Trust Fund shall be required of the Bank, and,
if not yet made, no Contribution shall be required for the year
in which such termination for Cause occurs.
(c) Withdrawal Rights Exercised.
---------------------------
(1) Phantom Contributions Made Annually.
-----------------------------------
If the Executive exercises his withdrawal rights pursuant to
Subsection 2.2, no further Contributions to the Retirement Income
Trust Fund shall be required of the Bank. Thereafter, Phantom
Contributions shall be recorded annually in the Executive's
Accrued Benefit Account, within five (5) days of the beginning of
each Plan Year, commencing with the first Plan Year following the
Plan Year in which the Executive exercises his withdrawal rights.
Such Phantom Contributions shall continue to be recorded
annually, unless this Subsection 2.1(c) specifically states
otherwise, until the earlier of (i) the last Plan Year that
Phantom Contributions are required pursuant to Exhibit A, or (ii)
the Plan Year of the Executive's termination of employment.
10
<PAGE>
(2) Death Prior to Benefit Age During Employment
--------------------------------------------
If the Executive (i) exercises his withdrawal rights pursuant to
Subsection 2.2 and (ii) dies while employed by the Bank but prior
to attaining Benefit Age (including employment following a Change
in Control), all annual Contributions set forth in Exhibit A for
all Plan Years preceding such exercise of withdrawal rights shall
be required of the Bank. Such Contributions to the Retirement
Income Trust Fund shall commence in the Plan Year in which the
Retirement Income Trust Fund is established and shall continue
through the Plan Year in which the Executive first exercises his
withdrawal rights. Thereafter, Phantom Contributions shall be
recorded annually, pursuant to Exhibit A, in the Executive's
Accrued Benefit Account and shall continue through the Plan Year
in which the Executive dies. The final Phantom Contribution
recorded in the Accrued Benefit Account in the year of the
Executive's death shall be equal to: (i) the full Phantom
Contribution required for the Plan Year in which the Executive
dies, if not made prior to death, plus (ii) the sum of the total
Phantom Contributions which would have been required in
accordance with Exhibit A for the Plan Year(s) following the year
of the Executive's death. Such final Phantom Contribution shall
be recorded in the Accrued Benefit Account within ten (10) days
of the Executive's death.
(3) Change in Control
-----------------
Phantom Contributions shall commence in the Plan Year following
the Plan Year in which the Executive first exercises his
withdrawal rights and shall continue through the Plan Year in
which the Change in Control occurs. Upon the occurrence of said
Change in Control, the Bank shall be required to record an
immediate lump sum Phantom Contribution in the Executive's
Accrued Benefit Account in an amount equal to: (i) the full
Phantom Contribution required for the Plan Year in which such
Change
11
<PAGE>
in Control occurs, if not made prior to such Change in Control,
plus (ii) the present value (computed using a discount rate equal
to the Interest Factor) of the total Phantom Contributions which
would have been required in accordance with Exhibit A for the
three (3) Plan Years following the year in which such Change in
Control occurs. In the event the Executive continues employment
with the Bank following the date of the Change in Control, the
Bank shall be required to resume recording Phantom Contributions
in accordance with the schedule provided for in Exhibit A. Such
Phantom Contributions shall resume in the fourth (4th) year
following the year in which the Change in Control occurred and
shall continue for the lesser of: (i) the number of years
remaining in the schedule provided for in Exhibit A, or (ii) the
number of years the Executive remains employed by the Bank.
(4) Termination For Cause
---------------------
If the Executive is terminated for Cause pursuant to Subsection
5.2, the entire balance of the Executive's Accrued Benefit
Account at the time of such termination, which shall include ally
Phantom Contributions which have been recorded plus interest
accrued on such Phantom Contributions, shall be forfeited.
2.2 Withdrawals From Retirement Income Trust Fund.
---------------------------------------------
Exercise of withdrawal rights by the Executive pursuant to the Leopold W.
Montanaro Grantor Trust Agreement shall terminate the Bank's obligation to
make any further Contributions to the Retirement Income Trust Fund, and the
Bank's obligation to record Phantom Contributions pursuant to Subsection
2.1(c) shall commence. For purposes of this Subsection 2.2, "exercise of
withdrawal rights" shall mean those withdrawal rights to which the
Executive is entitled under Article III of the Leopold W. Montanaro Grantor
Trust Agreement and shall exclude any distributions made by the trustee of
the Retirement Income
12
<PAGE>
Trust Fund to the Executive for purposes of payment of income taxes in
accordance with Subsection 2.1 of this Agreement.
SECTION III
RETIREMENT BENEFIT
------------------
3.1 (a) Normal form of payment.
----------------------
If (i) the Executive is employed with the Bank until reaching his
Benefit Age (including employment with the Bank until Benefit Age
following a Change in Control), and (ii) the Executive has not made a
Timely Election to receive a lump sum benefit, this Subsection 3.1(a)
shall be controlling with respect to retirement benefits.
The Retirement Income Trust Fund, measured as of the Executive's
Benefit Age, shall be annuitized (using the Interest Factor) into
monthly installments and shall be payable for the Payout Period. Such
benefit payments shall commence on the Executive's Benefit Eligibility
Date. Should Retirement Income Trust Fund assets actually earn a rate
of return, following the date such balance is annuitized, which is
less than the rate of return used to annuitize the Retirement Income
Trust Fund, no additional contributions to the Retirement Income Trust
Fund shall be required by the Bank in order to fund the final benefit
payment(s) and make up for any shortage attributable to the less-than-
expected rate of return. Should Retirement Income Trust Fund assets
actually earn a rate of return, following the date such balance is
annuitized, which is greater than the rate of return used to annuitize
the Retirement Income Trust Fund, the final benefit payment to the
Executive (or his Beneficiary) shall distribute the excess amounts
attributable to the greater-than-expected rate of return. In the event
the Executive dies at any time after attaining his Benefit Age, but
prior to commencement or completion of all the payments due and owing
hereunder, (i) the trustee of the Retirement
13
<PAGE>
Income Trust Fund shall pay to the Executive's Beneficiary the monthly
installments (or a continuation of such monthly installments if they
have already commenced) for the balance of months remaining in the
Payout Period, or (ii) the Executive's Beneficiary may request to
receive the unpaid balance of the Executive's Retirement Income Trust
Fund in a lump sum payment. If a lump sum payment is requested by the
Beneficiary, payment of the balance of the Retirement Income Trust
Fund in such lump sum form shall be made only if the Executive's
Beneficiary (i) obtains approval from the trustee of the Leopold W.
Montanaro Grantor Trust and (ii) notifies the Administrator in writing
of such election within ninety (90) days of the Executive's death.
Such lump sum payment, if approved by the trustee, shall be payable
within thirty (30) days of such trustee approval.
The Executive's Accrued Benefit Account (if applicable), measured as
of the Executive's Benefit Age, shall be annuitized (using the
Interest Factor) into monthly installments and shall be payable for
the Payout Period. Such benefit payments shall commence on the
Executive's Benefit Eligibility Date. In the event the Executive dies
at any time after attaining his Benefit Age, but prior to commencement
or completion of all the payments due and owing hereunder, (i) the
Bank shall pay to the Executive's Beneficiary the same monthly
installments (or a continuation of such monthly installments if they
have already commenced) for the balance of months remaining in the
Payout Period, or (ii) the Executive's Beneficiary may request to
receive the remainder of any unpaid benefit payments in a lump sum
payment. If a lump sum payment is requested by the Beneficiary, the
amount of such lump sum payment shall be equal to the unpaid balance
of the Executive's Accrued Benefit Account. Payment in such lump sum
form shall be made only if the Executive's Beneficiary (i) obtains
Board of Director approval, and (ii) notifies the Administrator in
writing of such election within ninety (90) days of the Executive's
death. Such lump sum payment, if approved by the Board
14
<PAGE>
of Directors, shall be payable within thirty (30) days of such Board
of Director approval.
(b) Alternative payout option.
-------------------------
If (i) the Executive is employed with the Bank until reaching his
Benefit Age, (including employment with the Bank until Benefit Age
following a Change in Control), and (ii) the Executive has made a
Timely Election to receive a lump sum benefit, this Subsection 3.1(b)
shall be controlling with respect to retirement benefits.
The balance of the Retirement Income Trust Fund, measured as of the
Executive's Benefit Age, shall be paid to the Executive in a lump sum
on his Benefit Eligibility Date. In the event the Executive dies after
becoming eligible for such payment (upon attainment of his Benefit
Age), but before the actual payment is made, his Beneficiary shall be
entitled to receive the lump sum benefit in accordance with this
Subsection 3.1(b) within thirty (30) days of the date the
Administrator receives notice of the Executive's death.
The balance of the Executive's Accrued Benefit Account (if
applicable), measured as of the Executive's Benefit Age, shall be paid
to the Executive in a lump sum on his Benefit Eligibility Date. In the
event the Executive dies after becoming eligible for such payment
(upon attainment of his Benefit Age), but before the actual payment is
made, his Beneficiary shall be entitled to receive the lump sum
benefit in accordance with this Subsection 3.1(b) within thirty (30)
days of the date the Administrator receives notice of the Executive's
death.
15
<PAGE>
SECTION IV
PRE-RETIREMENT DEATH BENEFIT
----------------------------
4.1 (a) Normal form of payment.
----------------------
If (i) the Executive dies while employed by the Bank prior to
attaining his Benefit Age, (including the Executive's death while
employed by the Bank following a Change in Control) and (ii) the
Executive has not made a Timely Election to receive a lump sum
benefit, this Subsection 4.1(a) shall be controlling with respect to
pre-retirement death benefits.
The Executive's Beneficiary shall be entitled to receive benefits in
accordance with this Subsection 4.1(a). The Executive's Retirement
Income Trust Fund, measured as of the later of (i) the date of the
Executive's death, or (ii) the date any final lump sum Contribution is
made pursuant to Subsection 2.1(b), shall be annuitized (using the
Interest Factor) into monthly installments and shall be payable for
the Payout Period. Such benefit payments shall commence within thirty
(30) days of the date the Administrator receives notice of the
Executive's death, or, if later, within thirty (30) days after any
final lump sum Contribution is made to the Retirement Income Trust
Fund. Should Retirement Income Trust Fund assets actually earn a rate
of return, following the date such balance is annuitized, which is
less than the rate of return used to annuitize the Retirement Income
Trust Fund, no additional contributions to the Retirement Income Trust
Fund shall be required by the Bank in order to fund the final benefit
payment(s) and make up for any shortage attributable to the less-than-
expected rate of return. Should Retirement Income Trust Fund assets
actually earn a rate of return, following the date such balance is
annuitized, which is greater than the rate of return used to annuitize
the Retirement Income Trust Fund, the final benefit payment to the
Executive's Beneficiary shall distribute the excess amounts
attributable to the greater-than-expected rate of return. The
Executive's
16
<PAGE>
Beneficiary may request to receive the unpaid balance of the
Executive's Retirement Income Trust Fund in a lump sum payment. If a
lump sum payment is requested by the Beneficiary, payment of the
balance of the Retirement Income Trust Fund in such lump sum form
shall be made only if the Executive's Beneficiary (i) obtains approval
from the trustee of the Leopold W. Montanaro Grantor Trust and (ii)
notifies the Administrator in writing of such election within ninety
(90) days of the Executive's death. Such lump sum payment, if approved
by the trustee, shall be made within thirty (30) days of such trustee
approval.
The Executive's Accrued Benefit Account (if applicable), measured as
of the later of (i) the date of the Executive's death, or (ii) the
date any final Phantom Contribution is recorded pursuant to Subsection
2.1(c), shall be annuitized (using the Interest Factor) into monthly
installments and shall be payable to the Beneficiary for the Payout
Period. Such benefit payments shall commence within thirty (30) days
of the date the Administrator receives notice of the Executive's
death, or, if later, within thirty (30) days after any final lump sum
Phantom Contribution is recorded in the Accrued Benefit Account. The
Executive's Beneficiary may request to receive the remainder of any
unpaid monthly benefit payments due from the Accrued Benefit Account
in a lump sum payment. If a lump sum payment is requested by the
Beneficiary, the amount of such lump sum payment shall be equal to the
balance of the Executive's Accrued Benefit Account. Payment in such
lump sum form shall be made only if the Executive's Beneficiary (i)
obtains Board of Director approval, and (ii) notifies the
Administrator in writing of such election within ninety (90) days of
the Executive's death. Such lump sum payment, if approved by the Board
of Directors, shall be payable within thirty (30) days of such Board
of Director approval.
17
<PAGE>
(b) Alternative payout option.
-------------------------
If (i) the Executive dies prior to attaining his Benefit Age,
(including the Executive's death while employed by the Bank following
a Change in Control), and (ii) the Executive has made a Timely
Election to receive a lump sum benefit, this Subsection 4.1(b) shall
be controlling with respect to preretirement death benefits.
The Executive's Beneficiary shall be entitled to receive a lump sum
benefit in accordance with this Subsection 4.1(b). The balance of the
Executive's Retirement Income Trust Fund, measured as of the date any
final lump sum Contribution is made pursuant to Subsection 2.1(b),
shall be paid to the Executive's Beneficiary in a lump sum within
thirty (30) days of the date the Administrator receives notice of the
Executive's death.
The balance of the Executive's Accrued Benefit Account (if applicable), measured
as of the date any final Phantom Contribution is recorded pursuant to Subsection
2.1(c), shall be paid to the Executive's Beneficiary in a lump sum within thirty
(30) days of the (late the Administrator receives notice of the Executive's
death.
SECTION V
BENEFIT(S) IN THE EVENT OF TERMINATION OF SERVICE
-------------------------------------------------
PRIOR TO BENEFIT AGE
--------------------
5.1 Voluntary or Involuntary Termination of Service Other Than for Cause. In
--------------------------------------------------------------------
the event the Executive's service with the Bank is voluntarily or
involuntarily terminated prior to Benefit Age, for any reason including a
Change in Control, but excluding (i) any termination related to disability
which shall be covered in Section VI, or (ii) termination for Cause which
shall be covered in Subsection 5.2, the Executive (or his Beneficiary)
shall be entitled to receive benefits in accordance with this Subsection
5.1. Payments of benefits pursuant to this
18
<PAGE>
Subsection 5.1 shall be made in accordance with Subsection 5.1(a) or 5.1(b)
below, as applicable.
(a) Normal form of payment.
----------------------
(1) Executive Lives Until Benefit Age
---------------------------------
If (i) after such termination, the Executive lives until
attaining his Benefit Age, and (ii) the Executive has not made a
Timely Election to receive a lump sum benefit, this Subsection
5.1(a)(1) shall be controlling with respect to retirement
benefits.
The Retirement Income Trust Fund, measured as of the Executive's
Benefit Age, shall be annuitized (using the Interest Factor) into
monthly installments and shall be payable for the Payout Period.
Such payments shall commence on the Executive's Benefit
Eligibility Date. Should Retirement Income Trust Fund assets
actually earn a rate of return, following the date such balance
is annuitized, which is less than the rate of return used to
annuitize the Retirement Income Trust Fund, no additional
contributions to the Retirement Income Trust Fund shall be
required by the Bank in order to fund the final benefit
payment(s) and make up for any shortage attributable to the less-
than-expected rate of return. Should Retirement Income Trust Fund
assets actually earn a rate of return, following the date such
balance is annuitized, which is greater than the rate of return
used to annuitize the Retirement Income Trust Fund, the final
benefit payment to the Executive (or his Beneficiary) shall
distribute the excess amounts attributable to the greater-than-
expected rate of return. In the event the Executive dies at any
time after attaining his Benefit Age, but prior to commencement
or completion of all the payments due and owing hereunder, (i)
the trustee of the Retirement Income Trust Fund shall pay to the
Executive's Beneficiary the monthly
19
<PAGE>
installments (or a continuation of the monthly installments if
they have already commenced) for the balance of months remaining
in the Payout Period, or (ii) the Executive's Beneficiary may
request to receive the unpaid balance of the Executive's
Retirement Income Trust Fund in a lump sum payment. If a lump sum
payment is requested by the Beneficiary, payment of the balance
of the Retirement Income Trust Fund in such lump sum form shall
be made only if the Executive's Beneficiary (i) obtains approval
from the trustee of the Leopold W. Montanaro Grantor Trust and
(ii) notifies the Administrator in writing of such election
within ninety (90) days of the Executive's death. Such lump sum
payment, if approved by the trustee, shall be made within thirty
(30) days of such trustee approval.
The Executive's Accrued Benefit Account (if applicable), measured
as of the Executive's Benefit Age, shall be annuitized (using the
Interest Factor) into monthly installments and shall be payable
for the Payout Period. Such benefit payments shall commence on
the Executive's Benefit Eligibility Date. In the event the
Executive dies at any time after attaining his Benefit Age, but
prior to commencement or completion of all the payments due and
owing hereunder, (i) the Bank shall pay to the Executive's
Beneficiary the same monthly installments (or a continuation of
such monthly installments if they have already commenced) for the
balance of months remaining in the Payout Period, or (ii) the
Executive's Beneficiary may request to receive the remainder of
any unpaid benefit payments in a lump sum payment. If a lump sum
payment is requested by the Beneficiary, the amount of such lump
sum payment shall be equal to the unpaid balance of the
Executive's Accrued Benefit Account. Payment in such lump sum
form shall be made only if the Executive's Beneficiary (i)
obtains Board of Director approval, and (ii) notifies the
Administrator in writing of such
20
<PAGE>
election within ninety (90) days of the Executive's death. Such
lump sum payment, if approved by the Board of Directors, shall be
made within thirty (30) days Of Such Board of Director approval,
(2) Executive Dies Prior to Benefit Age
-----------------------------------
If (i) after such termination, the Executive dies prior to
attaining his Benefit Age, and (ii) the Executive has not made a
Timely Election to receive a lump sum benefit, this Subsection
5.1(a)(2) shall be controlling with respect to retirement
benefits.
The Executive's Beneficiary shall be entitled to receive benefits
in accordance with this Subsection 5.1(a)(2). The Retirement
Income Trust Fund, measured as of the date of the Executive's
death, shall be annuitized (using the Interest Factor) into
monthly installments and shall be payable for the Payout Period.
Such benefit payments shall commence within thirty (30) days of
the date the Administrator receives notice of the Executive's
death. Should Retirement Income Trust Fund assets actually earn a
rate of return, following the date such balance is annuitized,
which is less than the rate of return used to annuitize the
Retirement Income Trust Fund, no additional contributions to the
Retirement Income Trust Fund shall be required by the Bank in
order to fund the final benefit payment(s) and make up for any
shortage attributable to the less-than-expected rate of return.
Should Retirement Income Trust Fund assets actually earn a rate
of return, following the date such balance is annuitized, which
is greater than the rate of return used to annuitize the
Retirement Income Trust Fund as of the date of the Executive's
death, the final benefit payment to the Executive's Beneficiary
shall distribute the excess amounts attributable to the greater-
than-expected rate of return. The Executive's Beneficiary may
request to receive the unpaid balance of the Executive's
21
<PAGE>
Retirement Income Trust Fund in the form of a lump sum payment.
If a lump sum payment is requested by the Beneficiary, payment of
the balance of the Retirement Income Trust Fund in such lump sum
form shall be made only if the Executive's Beneficiary (i)
obtains approval from the trustee of the Leopold W. Montanaro
Grantor Trust and (ii) notifies the Administrator in writing of
such election within ninety (90) days of the Executive's death.
Such Lump Sum payment, if approved by the trustee, shall be made
within thirty (30) days of such trustee approval.
The Executive's Accrued Benefit Account (if applicable), measured
as of the date of the Executive's death, shall be annuitized
(using the Interest Factor) into monthly installments and shall
be payable for the Payout Period. Such payments shall commence
within thirty (30) days of the date the Administrator receives
notice of the Executive's death. The Executive's Beneficiary may
request to receive the unpaid balance of the Executive's Accrued
Benefit Account in the form of a lump sum payment. If a lump sum
payment is requested by the Beneficiary, payment of the balance
of the Accrued Benefit Account in such lump sum form shall be
made only if the Executive's Beneficiary (i) obtains Board of
Director approval, and (ii) notifies the Administrator in writing
of such election within ninety (90) days of the Executive's
death. Such lump sum payment, if approved by the Board of
Directors, shall be made within thirty (30) days of such Board of
Director approval.
(b) Alternative Payout Option.
-------------------------
(1) Executive Lives Until Benefit Age
---------------------------------
If (i) after such termination, the Executive lives until
attaining his Benefit Age, and (ii) the Executive has made a
Timely Election to receive a lump
22
<PAGE>
sum benefit, this Subsection 5.1(b)(1) shall be controlling with
respect to retirement benefits.
The balance of the Retirement Income Trust Fund, measured as of
the Executive's Benefit Age, shall be paid to the Executive in a
lump sum on his Benefit Eligibility Date. In the event the
Executive dies after becoming eligible for such payment (upon
attainment of his Benefit Age), but before the actual payment is
made, his Beneficiary shall be entitled to receive the lump sum
benefit in accordance with this Subsection 5.1(b)(1) within
thirty (30) days of the date the Administrator receives notice of
the Executive's death.
The balance of the Executive's Accrued Benefit Account (if
applicable), measured as of the Executive's Benefit Age, shall be
paid to the Executive in a lump sum on his Benefit Eligibility
Date. In the event the Executive dies after becoming eligible for
such payment (upon attainment of his Benefit Age), but before the
actual payment is made, his Beneficiary shall be entitled to
receive the lump sum benefit in accordance with this Subsection
5.1(b)(1) within thirty (30) days of the date the Administrator
receives notice of the Executive's death.
(2) Executive Dies Prior to Benefit Age
-----------------------------------
If (i) after such termination, the Executive dies prior to
attaining his Benefit Age, and (ii) the Executive has made a
Timely Election to receive a lump sum benefit, this Subsection
5.1(b)(2) shall be controlling with respect to pre-retirement
death benefits.
The balance of the Retirement Income Trust Fund, measured as of
the date of the Executive's death, shall be paid to the
Executive's Beneficiary
23
<PAGE>
within thirty (30) days of the date the Administrator receives
notice of the Executive's death.
The balance of the Executive's Accrued Benefit Account (if
applicable), measured as of the date of the Executive's death,
shall be paid to the Executive's Beneficiary within thirty (30)
days of the date the Administrator receives notice of the
Executive's death.
5.2 Termination For Cause.
---------------------
If the Executive is Terminated for Cause, all benefits under this
Agreement, other than those which can be paid from previous Contributions
to the Retirement Income Trust Fund (and earnings on such Contributions),
shall be forfeited. Furthermore, no further Contributions or Phantom
Contributions, as applicable, shall be required of the Bank for the year in
which such Termination for Cause occurs (if not yet made). The Executive
shall be entitled to receive a benefit in accordance with this Subsection
5.2.
The balance of the Executive's Retirement Income Trust Fund shall be paid
to the Executive in a lump sum on his Benefit Eligibility Date. In the
event the Executive dies prior to his Benefit Eligibility Date, his
Beneficiary shall be entitled to receive the balance of the Executive's
Retirement Income Trust Fund in a lump sum within thirty (30) days of the
date the Administrator receives notice of the Executive's death.
SECTION VI
OTHER BENEFITS
--------------
6.1 (a) Disability Benefit.
------------------
If the Executive's service is terminated prior to Benefit Age due to a
disability which meets the criteria set forth below, the Executive may
request to receive the
24
<PAGE>
Disability Benefit in lieu of the retirement benefit(s) available
pursuant to Section 5.1 (which is (are) not available prior to the
Executive's Benefit Eligibility Date).
Notwithstanding any other provision hereof, if requested by the
Executive and approved by the Board of Directors, the Executive shall
receive a lump sum Disability Benefit hereunder, in any case in which
it is determined by a duly licensed independent physician selected by
the Bank, that the Executive is no longer able, properly and
satisfactorily, to perform his regular duties as an Executive, because
of ill health, accident, disability or general inability due to age.
The lump sum benefit(s) to which the Executive is entitled shall
include: (i) the balance of the Retirement Income Trust Fund, plus
(ii) the balance of the Accrued Benefit Account (if applicable), both
measured as of the date of the disability determination. The
benefit(s) shall be paid within thirty (30) days following the date of
the Executive's request for such benefit. In the event the Executive
dies after becoming eligible for such payment(s) but before the actual
payment(s) is (are) made, his Beneficiary shall be entitled to receive
the benefit(s) provided for in this Subsection 6.1(a) within thirty
(30) days of the date the Administrator receives notice of the
Executive's death.
(b) Disability Benefit - Supplemental.
---------------------------------
If Board of Director approval is obtained within thirty (30) days of
the Executive's death, the Bank shall make a direct, lump sum payment
to the Executive's Beneficiary in an amount equal to the following:
the sum of all Contributions (or Phantom Contributions) set forth in
Exhibit A, but not required pursuant to Subsection 2.1(b) (or 2.1(c))
due to the disability-related termination. Such lump sum payment, if
approved by the Board of Directors, shall be payable within thirty
(30) days of such Board of Director approval.
25
<PAGE>
6.2 Additional Death Benefit - Burial Expense. Upon the Executive's death, the
-----------------------------------------
Executive's Beneficiary shall also be entitled to receive a one-time lump
sum death benefit in the amount of Ten Thousand Dollars ($10,000.00). This
benefit shall be paid directly from the Bank to the Beneficiary and shall
be provided specifically for the purpose of providing payment for burial
and/or funeral expenses of the Executive. Such death benefit shall be
payable within thirty (30) days of the date the Administrator receives
notice of the Executive's death. The Executive's Beneficiary shall not be
entitled to such benefit if the Executive is Terminated for Cause prior to
death.
SECTION VII
NON-COMPETITION
---------------
7.1 Non-Competition.
---------------
In consideration of the agreements of the Bank contained herein and of the
payments to be made by the Bank pursuant hereto, the Executive hereby
agrees that, for as long as he remains employed by the Bank, he will devote
substantially all of his time, skill, diligence and attention to the
business of the Bank, and will not actively engage, either directly or
indirectly, in any, business or other activity which is, or may be deemed
to be, in any way competitive with or adverse to the best interests of the
business of the Bank. The Executive further agrees that following his
employment with the Bank and continuing through the Payout Period he will
not actively engage, either directly or indirectly, in any business or
other activity which is, or may be deemed to be, in any way competitive
with or adverse to the best interests of the Bank, unless the Executive has
the express written consent of the Board of Directors of the Bank.
7.2 Breach of Non-Competition Clause.
--------------------------------
(a) During Employment.
-----------------
In the event the Executive breaches Subsection 7.1 while employed at
the Bank, all further Contributions to the Retirement Income Trust
Fund (or Phantom
26
<PAGE>
Contributions to the Accrued Benefit Account) shall immediately cease,
and all benefits under this Agreement, other than those which can be
paid from previous Contributions to the Retirement Income Trust Fund
(and earnings on such Contributions), shall be forfeited. If,
following such breach, the Executive lives until attaining his Benefit
Age, he shall be entitled to receive a benefit from the Retirement
Income Trust Fund equal to the balance of the Retirement Income Trust
Fund, measured as of the Executive's Benefit Age, in a lump sum
payable on his Benefit Eligibility Date. In the event the Executive
dies after attaining his Benefit Age but before actual payment is
made, his Beneficiary shall be entitled to receive the lump sum
benefit payable within thirty (30) days of the date of the
Administrator receives notice of the Executive's death. If, following
such breach, the Executive dies prior to attaining his Benefit Age,
his Beneficiary shall be entitled to receive a benefit from the
Retirement Income Trust Fund equal to the balance of the Retirement
Income Trust Fund, measured as of the date of the Executive's death,
payable in a lump sum within thirty (30) days of the date the
Administrator receives notice of the Executive's death.
(b) Termination of Employment Following Breach.
------------------------------------------
In the event (i) any breach by the Executive of the agreements and
covenants described in Subsection 7.1 occurs, and (ii) the Executive's
employment with the Bank is terminated due to such breach, such
termination shall be deemed to be for Cause and the benefits payable
to the Executive shall be paid in accordance with Subsection 5.2 of
this Agreement.
(c) Breach Following Executive's Termination of Employment.
------------------------------------------------------
In the event the Executive breaches Subsection 7.1 following the
Executive's termination of employment with the Bank, all benefits
under this Agreement, other than those which can be paid from previous
Contributions to the Retirement Income Trust Fund shall be forfeited,
regardless of whether the Executive is
27
<PAGE>
receiving benefits at such time. If the Executive has attained his
Benefit Age and is receiving a benefit at the time of such breach, his
remaining balance in the Retirement Income Trust Fund shall be paid to
him in a lump sum within thirty (30) days of the date the Bank has
received notice of such breach (or in the event of his death prior to
payment of such lump sum, to his Beneficiary). If the Executive has
not attained his Benefit Age, and following such breach, the Executive
lives until his Benefit Age, he (or his Beneficiary, in the event of
his death prior to payment of his benefit) shall receive a benefit
payable in a lump sum from the Retirement Income Trust Fund in the
same manner as set forth above in Subsection 7.2(a).
SECTION VIII
BENEFICIARY DESIGNATION
-----------------------
The Executive shall make an initial designation of primary and secondary
Beneficiaries upon execution of this Agreement and shall have the right to
change such designation, at any subsequent time, by submitting to (i) the
Administrator, and (ii) the trustee of the Retirement Income Trust Fund, in
---
substantially the form attached as Exhibit B to this Agreement, a written
designation of primary and secondary Beneficiaries. Any Beneficiary designation
made subsequent to execution of this Agreement shall become effective only when
receipt thereof is acknowledged in writing by the Administrator.
SECTION IX
EXECUTIVE'S RIGHT TO ASSETS
---------------------------
The rights of the Executive, any Beneficiary, or any other person claiming
through the Executive under this Agreement, shall be solely those of an
unsecured general creditor of the Bank, unless this Agreement provides
otherwise. The Executive, the Beneficiary, or any other person claiming through
the Executive, shall only have the right to receive from the Bank those payments
so specified under
28
<PAGE>
this Agreement. The Executive agrees that he, his Beneficiary, or any other
person claiming through him shall have no rights or interests whatsoever in any
asset of the Bank, including any insurance policies or contracts which the Bank
may possess or obtain to informally fund this Agreement. Any asset used or
acquired by the Bank in connection with the liabilities it has assumed under
this Agreement, unless expressly provided herein, shall not be deemed to be held
under any trust for the benefit of the Executive or his Beneficiaries, nor shall
any asset be considered security for the performance of the obligations of the
Bank. Any such asset shall be and remain, a general, unpledged, and unrestricted
asset of the Bank.
SECTION X
RESTRICTIONS UPON FUNDING
-------------------------
The Bank shall have no obligation to set aside, earmark or entrust any fund or
money with which to pay its obligations under this Agreement, unless this
Agreement provides otherwise. Except as otherwise provided for in this
Agreement, the Executive, his Beneficiaries or any successor in interest to him
shall be and remain simply a general unsecured creditor of the Bank in the same
manner as any other creditor having a general claim for matured and unpaid
compensation. The Bank reserves the absolute right in its sole discretion to
either purchase assets to meet its obligations undertaken by this Agreement or
to refrain from the same and to determine the extent, nature, and method of such
asset purchases. Should the Bank decide to purchase assets such as life
insurance, mutual funds, disability policies or annuities, the Bank reserves the
absolute right, in its sole discretion, to terminate such assets at any time, in
whole or in part. At no time shall the Executive be deemed to have any lien,
right, title or interest in or to any specific investment or to any assets of
the Bank. If the Bank elects to invest in a life insurance, disability or
annuity policy upon the life of the Executive, then the Executive shall assist
the Bank by freely submitting to a physical examination and by supplying such
additional information necessary to obtain such insurance or annuities.
29
<PAGE>
SECTION XI
ACT PROVISIONS
--------------
11.1 Named Fiduciary and Administrator. The Bank shall be the Named Fiduciary
---------------------------------
and Administrator (the "Administrator") of this Agreement. As
Administrator, the Bank shall be responsible for the management, control
and administration of the Agreement as established herein. The
Administrator may delegate to others certain aspects of the management and
operational responsibilities of the Agreement, including the employment of
advisors and the delegation of ministerial duties to qualified individuals.
11.2 Claims Procedure and Arbitration. In the event that benefits under this
--------------------------------
Agreement are not paid to the Executive (or to his Beneficiary in the case
of the Executive's death) and such claimants feel they are entitled to
receive such benefits, then a written claim must be made to the
Administrator within sixty (60) days from the date payments are refused.
The Administrator shall review the written claim and, if the claim is
denied, in whole or in part, it shall provide in writing, within ninety
(90) days of receipt of such claim, its specific reasons for such denial,
reference to the provisions of this Agreement upon which the denial is
based, and any additional material or information necessary to perfect the
claim. Such writing by the Administrator shall further indicate the
additional steps which must be undertaken by claimants if an additional
review of the claim denial is desired.
If claimants desire a second review, they shall notify the Administrator in
writing within sixty (60) days of the first claim denial. Claimants may
review this Agreement or any documents relating thereto and submit any
issues and comments, in writing, they may feel appropriate. In its sole
discretion, the Administrator shall then review the second claim and
provide a written decision within sixty (60) days of receipt of such claim.
This decision shall state the specific reasons for the decision and shall
include reference to specific provisions of this Agreement upon which the
decision is based.
30
<PAGE>
If claimants continue to dispute the benefit denial based upon completed
performance of this Agreement or the meaning and effect of the terms and
conditions thereof, then claimants may submit the dispute to a Board of
Arbitration for final arbitration. Said Board of Arbitration shall consist
of one member selected by the claimant, one member selected by the Bank,
and the third member selected by the first two members. The Board of
Arbitration shall operate under any generally recognized set of arbitration
rules. The parties hereto agree that they, their heirs, personal
representatives, successors and assigns shall be bound by the decision of
such Board of Arbitration with respect to any controversy properly
submitted to it for determination.
SECTION XII
MISCELLANEOUS
-------------
12.1 No Effect on Employment Rights. Nothing contained herein will confer upon
------------------------------
the Executive the right to be retained in the service of the Bank nor limit
the right of the Bank to discharge or otherwise deal with the Executive
without regard to the existence of the Agreement. Pursuant to 12 C.F.R.
(S)563.39(b), the following conditions shall apply to this Agreement:
(1) The Bank's Board of Directors may terminate the Executive at any
time, but any termination by the Bank's Board of Directors other
than termination for Cause shall not prejudice the Executive's
vested right to compensation or other benefits tinder the contract.
As provided in Subsection 5.2, the Executive shall have no right to
receive additional compensation or other benefits, other than those
provided for in Subsection 5.2, after termination for Cause.
(2) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice
served under Section 8(e)(3) or (g)(1) of the Federal Deposit
Insurance Act
31
<PAGE>
(12 U.S.C. (S)1818(e)(3) and (g)(1)) the Bank's obligations under
the contract shall be suspended (except vested rights) as of the
date of termination of service unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank
may in its discretion (i) pay the Executive all or part of the
compensation withheld while its contract obligations were suspended
and (ii) reinstate (in whole or in part) any of its obligations
which were suspended.
(3) If the Executive is terminated and/or permanently prohibited from
participating in the conduct of the Bank's affairs by au order
issued under Section 8(e)(4) or (g)(1) of the Federal Deposit
Insurance Act (12 U.S.C. (S)1818(e)(4) or (g)(1)), all non-vested
obligations of the Bank under the contract shall terminate as of
the effective date of the order,
(4) If the Bank is in default (as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act), all non-vested obligations under
the contract shall terminate as of the date of default.
(5) All non-vested obligations under the contract shall be terminated,
except to the extent determined that continuation of the contract
is necessary for the continued operation of the Bank:
(i) by the Director [of the Federal Deposit Insurance Corporation
or the Resolution Trust Corporation] or his designee at the
time the Federal Deposit Insurance Corporation or the
Resolution Trust Corporation enters into an agreement to
provide assistance to or on behalf of the Bank under the
authority contained in (S) 13(c) of the Federal Deposit
Insurance Act; or
32
<PAGE>
(ii) by the Director [of the Federal Deposit Insurance Corporation
or the Resolution Trust Corporation] or his designee, at the
time the Director or his designee approves a supervisory
merger to resolve problems related to operation of the Bank or
when the Bank is determined by the Director to be in an unsafe
or unsound condition.
Any rights of the parties that have already vested, (i.e., the balance of
the Executive's Retirement Income Trust Fund and the balance of the
Executive's Accrued Benefit Account, if applicable), however, shall not be
affected by such action.
12.2 State Law. The Agreement is established under, and will be construed
---------
according to, the laws of the state of New Jersey, to the extent such laws
are not preempted by the Act and valid regulations published thereunder.
12.3 Severability. In the event that any of the provisions of this Agreement or
------------
portion thereof, are held to be inoperative or invalid by any court of
competent jurisdiction, then: (1) insofar as is reasonable, effect will be
given to the intent manifested in the provisions held invalid or
inoperative, and (2) the validity and enforceability of the remaining
provisions will not be affected thereby.
12.4 Incapacity of Recipient. In the event the Executive is declared incompetent
-----------------------
and a conservator or other person legally charged with the care of his
person or Estate is appointed, any benefits tinder the Agreement to which
such Executive is entitled shall be paid to such conservator or other
person legally charged with the care of his person or Estate.
12.5 Unclaimed Benefit. The Executive shall keep the Bank informed of his
-----------------
current address and the current address of his Beneficiaries. The Bank
shall not be obligated to search for the whereabouts of any person. If the
location of the Executive is not made known to the Bank as of the date upon
which any payment of any benefits from the Accrued Benefit Account
33
<PAGE>
may first be made, the Bank shall delay payment of the Executive's benefit
payment(s) until the location of the Executive is made known to the Bank;
however, the Bank shall only be obligated to hold such benefit payment(s)
for the Executive until the expiration of thirty-six (36) months. Upon
expiration of the thirty-six (36) month period, the Bank may discharge its
obligation by payment to the Executive's Beneficiary. If the location of
the Executive's Beneficiary is not made known to the Bank by the end of an
additional two (2) month period following expiration of the thirty-six (36)
month period, the Bank may discharge its obligation by payment to the
Executive's Estate. If there is no Estate in existence at such time or if
such fact cannot be determined by the Bank, the Executive and his
Beneficiary(ies) shall thereupon forfeit any rights to the balance, if any,
of the Executive's Accrued Benefit Account provided for such Executive
and/or Beneficiary under this Agreement.
12.6 Limitations on Liability. Notwithstanding any of the preceding provisions
------------------------
of the Agreement, no individual acting as an employee or agent of the Bank,
or as a member of the Board of Directors shall be personally liable to the
Executive or any other person for any claim, loss, liability or expense
incurred in connection with the Agreement.
12.7 Gender. Whenever in this Agreement words are used in the masculine or
------
neuter gender, they shall be read and construed as in the masculine,
feminine or neuter gender, whenever they should so apply.
12.8 Effect on Other Corporate Benefit Agreements. Nothing contained in this
--------------------------------------------
Agreement shall affect the right of the Executive to participate in or be
covered by any qualified or non-qualified pension, profit sharing, group,
bonus or other supplemental compensation or fringe benefit agreement
constituting a part of the Bank's existing or future compensation
structure.
12.9 Suicide. Notwithstanding anything to the contrary in this Agreement, if the
-------
Executive's death results from Suicide, whether sane or insane, within
twenty-six (26) months after execution
34
<PAGE>
of this Agreement, all further Contributions to the Retirement Income
Trust Fund (or Phantom Contributions recorded in the Accrued Benefit
Account) shall thereupon cease, and no Contribution (or Phantom
Contribution) shall be made by the Bank to the Retirement Income Trust
Fund (or recorded in the Accrued Benefit Account) in the year such death
resulting from suicide occurs (if not yet made). All benefits other than
those available from previous Contributions to the Retirement Income Trust
Fund under this Agreement shall be forfeited, and this Agreement shall
become null and void. The balance of the Retirement Income Trust Fund,
measured as of the Executive's date of death, shall be paid to the
Beneficiary within thirty (30) days of the date the Administrator receives
notice of the Executive's death.
12.10 Inurement. This Agreement shall be binding upon and shall inure to
---------
the benefit of the Bank, its successors and assigns, and the Executive,
his successors, heirs, executors, administrators, and Beneficiaries.
12.11 Headings. Headings and sub-headings in this Agreement are inserted
--------
for reference and convenience only and shall not be deemed a part of this
Agreement.
SECTION XIII
AMENDMENT/PLAN TERMINATION
--------------------------
13.1 Amendment or Plan Termination. The Bank intends this Agreement to be
-----------------------------
permanent, but reserves the right to amend or terminate the Agreement
when, in the sole opinion of the Bank, such amendment or termination is
advisable. However, any termination of the Agreement which is done in
anticipation of or pursuant to a "Change in Control", as defined in
Subsection 1.9, shall be deemed to trigger Subsections 5.1 and 2.1(b)(3)
(or 2.1(c)(3), as applicable) of the Agreement, and benefit(s) shall be
paid from the Retirement Income Trust Fund (and Accrued Benefit Account,
if applicable) in accordance with such Subsections. Any amendment or
termination of the Agreement shall be made pursuant to a resolution of
35
<PAGE>
the Board of Directors of the Bank and shall be effective as of the date of
such resolution. No amendment or termination of the Agreement shall
directly or indirectly), deprive the Executive of all or any portion of the
Executive's Retirement Income Trust Fund (and Accrued Benefit Account, if
applicable) as of the effective date of the resolution amending or
terminating the Agreement.
13.2 Executive's Right to Payment Following Plan Termination. In the event of a
-------------------------------------------------------
termination of the Agreement, the Executive shall be entitled to the
balance, if any, of his Retirement Income Trust Fund (and Accrued Benefit
Account, if applicable), measured as of the date of plan termination.
However, if such termination is done in anticipation of or pursuant to a
"Change in Control," such balance(s) shall be measured as of the date the
lump sum Contribution (or Phantom Contribution) is made (or recorded)
pursuant to Subsection 2.1(b)(3) (or 2.1(c)(3)). Payment of the balance(s)
of the Executive's Retirement Income Trust Fund (and Accrued Benefit
Account, if applicable) shall not be dependent upon his continuation of
employment with the Bank following the termination date of the Agreement.
Payment of the balance(s) of the Executive's Retirement Income Trust Fund
(and Accrued Benefit account, if applicable) shall be made in a lump sum
within thirty (30) days of the date of termination of the Agreement.
SECTION XIV
EXECUTION
---------
14.1 This Agreement and the Leopold W. Montanaro Grantor Trust Agreement set
forth the entire understanding of the parties hereto with respect to the
transactions contemplated hereby, and any previous agreements or
understandings between the parties hereto regarding the subject matter
hereof are merged into and superseded by this Agreement and the Leopold W.
Montanaro Grantor Trust Agreement.
36
<PAGE>
14.2 This Agreement shall be executed in triplicate, each copy of which, when so
executed and delivered, shall be an original, but all three copies shall
together constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
37
<PAGE>
IN WITNESS WHEREOF, the Bank and the Executive have caused this Agreement
to be executed on the day and date first above written.
WEST ESSEX BANK, F.S.B.:
ATTEST:
By: /s/ Dennis A. Petrello
----------------------
/s/ Craig Montanaro Executive Vice President
- -------------------------- ------------------------
Craig Montanaro, Secretary (Title)
WITNESS: EXECUTIVE
/s/ Lisa A. Mulligan /s/ Leopold W. Montanaro
- -------------------- ------------------------
Leopold W. Montanaro
38
<PAGE>
CONDITIONS, ASSUMPTIONS,
AND
SCHEDULE OF CONTRIBUTIONS AND PHANTOM CONTRIBUTIONS
1. Interest Factor - for purposes of:
a. the Accrued Benefit Account - shall be six percent (6%) per annum,
compounded monthly.
b. the Retirement Income Trust Fund - shall be five and one-half percent
(5.5%) per annum, compounded monthly, provided, however, for purposes
of annuitizing the balance of the Retirement Income Trust Fund over
the Payout Period, the trustee of the Leopold W. Montanaro Grantor
Trust may exercise discretion in selecting a rate other than five and
one-half percent (5.5%) per annum for such purpose if another rate is
more reasonable given the nature of the investments contained in the
Retirement Income Trust Fund and the expected return associated with
the investments.
2. The amount of the annual Contributions (or Phantom Contributions) to the
Retirement Income Trust Fund (or Accrued Benefit Account) has been based on
the annual incremental accounting accruals which would be required of the
Bank until the earlier of the Executive's death or Benefit Age, (i)
pursuant to APB Opinion No. 12, as amended by FAS 106 and (ii) assuming a
discount rate equal to six percent (6%) per annum, in order to provide the
unfunded, non-qualified Supplemental Retirement Income Benefit.
3. Supplemental Retirement Income Benefit means an annual amount equal to
Sixty-Six Thousand Three Hundred Forty-Eight Dollars ($66,348.00).
The definition of Supplemental Retirement Income Benefit has been
incorporated into the Agreement for the sole purpose of establishing the
amount of annual Contributions (or Phantom Contributions) to the Retirement
Income Trust Fund (or Accrued Benefit Account). The amount of any actual
retirement, pre-retirement, or disability benefit payable pursuant to the
Agreement will be a function of (i) the amount and timing of Contributions
(or Phantom Contributions) to the Retirement Income Trust Fund (or Accrued
Benefit Account) and (ii) the actual investment experience of such
Contributions (or the monthly compounding rate of Phantom Contributions).
<PAGE>
Exhibit A
<PAGE>
LEOPOLD W. MONTANARO
RESTATED EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT
SCHEDULE OF
GROSS "CONTRIBUTIONS"
(or "PHANTOM CONTRIBUTIONS")
<TABLE>
<CAPTION>
<S> <C>
Establishment $ 78,044.00
First Plan Year $ 55,896.00
Second Plan Year $ 61,988.00
Third Plan Year $ 68,638.00
Fourth Plan Year $ 75,887.00
Fifth Plan Year $ 83,785.00
Sixth Plan Year $ 92,385.00
Seventh Plan Year $101,742.00
Eighth Plan Year $ 87,872.00
</TABLE>
<PAGE>
Exhibit B
<PAGE>
RESTATED EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT
BENEFICIARY DESIGNATION
The Executive, under the terms of the Restated Executive Supplemental
Retirement Income Agreement executed by the Bank of Caldwell, New Jersey, dated
the 22nd day of December, 1995 hereby designates the following Beneficiary(ies)
to receive any guaranteed payments or death benefits under such Agreement,
following his death:
PRIMARY BENEFICIARY: Lenore A. Montanaro, Wife
SECONDARY BENEFICIARY: Danielle Dudek, Daughter
Craig L. Montanaro, Son
or if deceased their issue, if any, per Stirpes
This Beneficiary Designation hereby revokes any prior Beneficiary
Designation which may have been in effect.
Such Beneficiary Designation is revocable.
DATE: December 22, 1995
/s/ Lisa A. Mulligan /s/ Leopold W. Montanaro
- -------------------- ------------------------
(WITNESS) LEOPOLD W. MONTANARO
EXECUTIVE
/s/ Dennis A. Petrello
- ----------------------
(WITNESS)
<PAGE>
EXHIBIT 10.14 RESTATED EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT FOR
CHARLES E. FILIPPO
<PAGE>
RESTATED EXECUTIVE SUPPLEMENTAL RETIREMENT
INCOME AGREEMENT
FOR
CHARLES E. FILIPPO, SR.
WEST ESSEX BANK, F.S.B.
CALDWELL, NEW JERSEY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION I DEFINITIONS........................................................ 2
-----------
SECTION II BENEFITS-GENERALLY................................................. 7
------------------
2.1 (a) Retirement Income Trust Fund and Accrued Benefit Account. 7
--------------------------------------------------------
(b) Withdrawal Rights Not Exercised.......................... 8
-------------------------------
(1) Contributions Made Annually......................... 8
---------------------------
(2) Death Prior to Benefit Age During Employment........ 8
--------------------------------------------
(3) Change in Control................................... 9
-----------------
(4) Termination for Cause............................... 10
---------------------
(c) Withdrawal Rights Exercised.............................. 10
---------------------------
(1) Phantom Contributions Made Annually................. 10
-----------------------------------
(2) Death Prior to Benefit Age During Employment........ 10
--------------------------------------------
(3) Change in Control................................... 11
-----------------
(4) Termination for Cause............................... 12
---------------------
2.2 Withdrawals from Retirement Income Trust Fund................ 12
---------------------------------------------
SECTION III RETIREMENT BENEFIT................................................. 13
------------------
3.1 (a) Normal form of payment................................... 13
----------------------
(b) Alternative payout option................................ 15
-------------------------
SECTION IV PRE-RETIREMENT DEATH BENEFIT....................................... 15
----------------------------
4.1 (a) Normal form of payment................................... 15
----------------------
(b) Alternative payout option................................ 17
-------------------------
SECTION V BENEFIT(S) IN THE EVENT OF TERMINATION OF SERVICE
-------------------------------------------------
PRIOR TO BENEFIT AGE............................................... 18
--------------------
5.1 Voluntary or Involuntary Termination of Service
-----------------------------------------------
Other than for Cause....................................... 18
--------------------
(a) Normal form of payment................................... 18
----------------------
(1) Executive Lives Until Benefit Age................... 18
---------------------------------
(2) Executive Dies Prior to Benefit Age................. 20
-----------------------------------
(b) Alternative Payout Option................................ 22
-------------------------
(1) Executive Lives Until Benefit Age.................... 22
---------------------------------
(2) Executive Dies Prior to Benefit Age.................. 23
-----------------------------------
5.2 Termination for Cause........................................ 23
---------------------
SECTION VI OTHER BENEFITS..................................................... 24
--------------
6.1 (a) Disability Benefit....................................... 24
------------------
(b) Disability Benefit - Supplemental........................ 25
---------------------------------
6.2 Additional Death Benefit - Burial Expense.................... 25
-----------------------------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
SECTION VII NON-COMPETITION..................................................... 26
---------------
7.1 Non-Competition............................................... 26
---------------
7.2 Breach of Non-Competition Clause.............................. 26
--------------------------------
(a) During Employment......................................... 26
-----------------
(b) Termination of Employment Following Breach................ 26
------------------------------------------
(c) Breach Following Executive's Termination of Employment.... 27
------------------------------------------------------
SECTION VIII BENEFICIARY DESIGNATION............................................. 27
-----------------------
SECTION IX EXECUTIVE'S RIGHT TO ASSETS......................................... 28
---------------------------
SECTION X RESTRICTIONS UPON FUNDING........................................... 28
-------------------------
SECTION XI ACT PROVISIONS...................................................... 29
--------------
11.1 Named Fiduciary and Administrator............................. 29
---------------------------------
11.2 Claims Procedure and Arbitration.............................. 29
--------------------------------
SECTION XII MISCELLANEOUS....................................................... 30
-------------
12.1 No Effect on Employment Rights................................ 30
------------------------------
12.2 State Law..................................................... 32
---------
12.3 Severability.................................................. 32
------------
12.4 Incapacity of Recipient....................................... 32
-----------------------
12.5 Unclaimed Benefit............................................. 33
-----------------
12.6 Limitations on Liability...................................... 33
------------------------
12.7 Gender........................................................ 33
------
12.8 Effect on Other Corporate Benefit Agreements.................. 34
--------------------------------------------
12.9 Suicide....................................................... 34
-------
12.10 Inurement..................................................... 35
---------
12.10 Headings...................................................... 35
--------
SECTION XIII AMENDMENT/PLAN TERMINATION.......................................... 35
--------------------------
13.1 Amendment or Plan Termination................................. 35
-----------------------------
13.2 Executive's Right to Payment Following Plan Termination....... 35
-------------------------------------------------------
SECTION XIV EXECUTION........................................................... 36
---------
</TABLE>
ii
<PAGE>
RESTATED EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT
This Restated Executive Supplemental Retirement Income Agreement (the
"Agreement"), effective as of the 22nd day of December, 1995, amends and
restates the Executive Supplemental Income Master Agreement entered into on
January 1, 1995, and formalizes the understanding by and between WEST ESSEX
BANK, F.S.B. (the "Bank"), a federally chartered savings bank, and Charles E.
Filippo, Sr., hereinafter referred to as "Executive."
WITNESSETH:
WHEREAS, the Executive is employed by the Bank; and
WHEREAS, the Bank recognizes the valuable services heretofore performed by
the Executive and wishes to encourage continued employment; and
WHEREAS, the Executive wishes to be assured that he will be entitled to a
certain amount of additional compensation for some definite period of time from
and after retirement from active service with the Bank or other termination of
employment and wishes to provide his beneficiary with benefits from and after
death; and
WHEREAS, the Bank and the Executive wish to provide the terms and
conditions upon which the Bank shall pay such additional compensation to the
Executive after retirement or other termination of employment and/or death
benefits to his beneficiary after death; and
WHEREAS, the Bank has adopted this Restated Executive Supplemental
Retirement Income Agreement which controls all issues relating to benefits as
described herein;
NOW, THEREFORE, in consideration of the premises and of the mutual promises
herein contained, the Bank and the Executive agree as follows:
1
<PAGE>
SECTION I
DEFINITIONS
-----------
When used herein, the following words and phrases shall have the meanings
below unless the context clearly indicates otherwise:
1.1 "Accrued Benefit Account" shall be represented by the bookkeeping entries
required to record the Executive's (i) Phantom Contributions plus (ii)
accrued interest, equal to the Interest Factor, earned to-date on such
amounts. However, neither the existence of such bookkeeping entries nor the
Accrued Benefit Account itself shall be deemed to create either a trust of
any kind, or a fiduciary relationship between the Bank and the Executive or
Beneficiary.
1.2 "Act" means the Employee Retirement Income Security Act of 1974, as amended
from time to time.
1.3 "Bank" means WEST ESSEX BANK, F.S.B. and any successor thereto.
1.4 "Beneficiary" means the person or persons (and their heirs) designated as
Beneficiary in Exhibit B of this Agreement to whom the deceased Executive's
benefits are payable. If no Beneficiary is so designated, then the
Executive's Spouse, if living, will be deemed the Beneficiary. If the
Executive's Spouse is not living, then the Children of the Executive will
be deemed the Beneficiaries and will take on a per stirpes basis. If there
are no Children, then the Estate of the Executive will be deemed the
Beneficiary.
1.5 "Benefit Age" means the Executive's sixty-fifth (65th) birthday.
2
<PAGE>
1.6 "Benefit Eligibility Date" means the date on which the Executive is
entitled to receive any, benefit(s) pursuant to Section(s) III or V of this
Agreement. It shall be the first day of the month following the month in
which the Executive attains his Benefit Age.
1.7 "Board of Directors" means the board of directors of the Bank.
1.8 "Cause" means personal dishonesty, willful misconduct, willful malfeasance,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule, regulation
(other than traffic violations or similar offenses), or final cease-and-
desist order, material breach of any provision of this Agreement, or gross
negligence in matters of material importance to the Bank.
1.9 "Change in Control" of the Bank shall mean and include the following:
(1) a Change in Control of a nature that would be required to be reported
in response to Item 1(a) of the Current Report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or
(2) a Change in Control of the Bank within the meaning of 12 C.F.R. 574.4;
or
(3) a Change in Control at such time as
(i) 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 representing Twenty Percent
(20.0%) or more of the combined voting power of the Bank's
outstanding securities ordinarily having the right to vote at the
election of Directors, except for (i) any stock of the Bank
purchased by the Holding
3
<PAGE>
Company in connection with the conversion of the Bank to stock
form, and (ii) any stock purchased by the Bank's Employee Stock
Ownership Plan and/or trust; or
(ii) individuals who constitute the Board of Directors on the date
hereof (the "Incumbent Board") cease for any reason to constitute
at least a majority thereof, provided that any person becoming a
Director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the Directors
comprising the Incumbent Board, or whose nomination for election
by the Bank's stockholders was approved by the Bank's or the
Bank's Nominating Committee which is comprised of members of the
Incumbent Board, shall be, for purposes of this clause (ii),
considered as though he were a member of the Incumbent Board; or
(iii) merger, consolidation, or sale of all or substantially all of
the assets of the Bank occurs; or
(iv) a proxy statement is issued soliciting proxies from the members
(or stockholders) of the Bank by someone other than the current
management of the Bank, seeking member (or stockholder) approval
of a plan of reorganization, merger, or consolidation of the Bank
with one or more corporations as a result of which the
outstanding shares of the class of the Bank's securities are
exchanged for or converted into cash or property or securities
not issued by the Bank.
1.10 "Children" means all natural or adopted children of the Executive, and
issue of any predeceased child or children.
1.11 "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
4
<PAGE>
1.12 "Contribution(s)" means those annual contributions which the Bank is
required to make to the Retirement Income Trust Fund on behalf of the
Executive in accordance with Subsection 2.1 (a) and in the amounts set
forth in Exhibit A of the Agreement.
1.13 (a) "Disability Benefit" means the benefit payable to the Executive
following a determination, in accordance with Subsection 6.1 (a), that
he is no longer able, properly and satisfactorily, to perform his
duties at the Bank.
(b) "Disability Benefit- Supplemental " (if applicable) means the benefit
payable to the Executive's Beneficiary upon the Executive's death in
accordance with Subsection 6.1 (b).
1.14 "Effective Date" of this Agreement shall be December 22, 1995.
1.15 "Estate" means the estate of the Executive.
1.16 "Interest Factor" means compounding, discounting or annuitizing, as
applicable, at a rate set forth in Exhibit A.
1.17 "Payout Period" means the time frame during which certain benefits payable
hereunder shall be distributed. Payments shall be made in monthly
installments commencing on the first day of the month following the
occurrence of the event which triggers distribution and continuing for a
period of one hundred eighty (180) months. Should the Executive make a
Timely Election to receive a lump sum benefit payment, the Executive's
Payout Period shall be deemed to be one (1) month.
1.18 "Phantom Contributions" means those annual Contributions which the Bank is
no longer required to make on behalf of the Executive to the Retirement
Income Trust Fund. Rather, once the Executive has exercised the withdrawal
rights provided for in Subsection 2.2, the
5
<PAGE>
Bank shall be required to record the annual amounts set forth in Exhibit A
of the Agreement in the Executive's Accrued Benefit Account, pursuant to
Subsection 2.1.
1.19 "Plan Year" shall mean the twelve (12) month period commencing January 1,
1996 and each consecutive twelve (12) month period thereafter.
1.20 "Retirement Income Trust Fund" means the trust fund account established by
the Executive and into which annual Contributions will be made by the Bank
on behalf of the Executive pursuant to Subsection 2.1. The contractual
rights of the Bank and the Executive with respect to the Retirement Income
Trust Fund shall be outlined in a separate writing to be known as the
Charles E. Filippo, Sr. Grantor Trust Agreement.
1.21 "Supplemental Retirement Income Benefit" means (assuming the normal form of
payment is applicable) an annual amount (before taking into account federal
------
and state income taxes), payable in monthly installments, which is
projected pursuant to the Agreement, for the purpose of determining the
Contribution to be made or the Phantom Contribution to be recorded on
behalf of an Executive who maintains continuous service until his Benefit
Age. The annual Contributions and Phantom Contributions have been
actuarially determined, using the assumptions set forth in Exhibit A, in
order to fund for the projected Supplemental Retirement Income Benefit. The
Supplemental Retirement Income Benefit which is projected, and for which
Contributions and/or Phantom Contributions are being made and/or recorded,
is set forth in Exhibit A.
1.22 "Timely Election" means the Executive has made an election to change the
form of his benefit payment(s) by filing with the Administrator a Notice of
Election to Change Form of Payment (Exhibit C of this Agreement), such
election having been made prior to the event which triggers distribution
and at least two (2) years prior to the Executive's Benefit Eligibility
Date.
6
<PAGE>
SECTION II
BENEFITS - GENERALLY
--------------------
2.1 (a) Retirement Income Trust Fund and Accrued Benefit Account. The
--------------------------------------------------------
Executive shall establish the Charles E. Filippo, Sr. Grantor Trust
into which the Bank shall be required to make annual Contributions on
the Executive's behalf, pursuant to Exhibit A and this Section II of
the Agreement. A trustee shall be selected by the Executive. The
trustee shall maintain an account, separate and distinct from the
Executive's personal contributions, which account shall constitute the
Retirement Income Trust Fund. The trustee shall be charged with the
responsibility of investing all contributed funds. Distributions from
the Retirement Income Trust Fund of the Charles E. Filippo, Sr.
Grantor Trust shall be made by the trustee to the Executive, for
purposes of payment of any income taxes due and owing on Contributions
by the Bank to the Retirement Income Trust Fund, if any, and on any
taxable earnings associated with such Contributions which the
Executive shall be required to pay from year to year under applicable
law prior to actual receipt of any benefit payments from the
Retirement Income Trust Fund. If the Executive exercises his
withdrawal rights pursuant to Subsection 2.2, the Bank's obligation to
make Contributions to the Retirement Income Trust Fund shall cease and
the Bank's obligation to record Phantom Contributions in the Accrued
Benefit Account shall immediately commence pursuant to Exhibit A and
this Section II of the Agreement. To the extent this Agreement is
inconsistent with the Charles E. Filippo, Sr. Grantor Trust agreement,
this Agreement shall supersede the Charles E. Filippo, Sr. Grantor
Trust agreement.
The annual Contributions (or Phantom Contributions) required to be
made by the Bank to the Retirement Income Trust Fund (or recorded by
the Bank in the Accrued Benefit Account) have been fixed and
determined and are set forth in Exhibit A which is attached hereto and
incorporated herein by reference. Contributions shall be made by the
Bank to the Retirement Income Trust Fund (i) within five (5) days of
7
<PAGE>
establishment of such trust, and (ii) within the first five (5) days
of the beginning of each succeeding Plan Year, unless this Section
expressly provides otherwise. Phantom Contributions, if any, shall be
recorded in the Accrued Benefit Account within the first five (5) days
of the beginning of each applicable Plan Year, unless this Section
expressly provides otherwise. Phantom Contributions shall accrue
interest at a rate equal to the Interest Factor, up to and throughout
the Payout Period, until the balance or the Accrued Benefit Account
has been fully distributed. Interest on any Phantom Contribution shall
not commence until one (1) calendar year following the date such
Phantom Contribution is initially recorded in the Executive's Accrued
Benefit Account.
(b) Withdrawal Rights Not Exercised.
-------------------------------
(1) Contributions Made Annually
---------------------------
If the Executive does not exercise any withdrawal rights pursuant
to Subsection 2.2, such annual Contributions to the Retirement
Income Trust Fund shall continue each year, unless this
Subsection 2.1(b) specifically states otherwise, until the
earlier of (i) the last Plan Year that Contributions are required
pursuant to Exhibit A, or (ii) the Plan Year of the Executive's
termination of employment.
(2) Death Prior to Benefit Age During Employment
--------------------------------------------
If the Executive (i) does not exercise any withdrawal rights
pursuant to Subsection 2.2 and (ii) dies prior to attaining
Benefit Age but while employed by the Bank (including employment
following a Change in Control), all annual Contributions set
forth in Exhibit A shall be required of the Bank. Such
Contributions to the Retirement Income Trust Fund shall commence
in the Plan Year in which the Retirement Income Trust Fund is
established and shall continue through the Plan Year in which the
Executive dies. The final Contribution payable in the year of the
Executive's death shall be equal to: (i)
8
<PAGE>
the full Contribution required for the Plan Year in which the
Executive dies, if not made prior to death, plus (ii) the sum of
the total Contributions which would have been required in
accordance with Exhibit A for the Plan Year(s) following the year
of the Executive's death. Such final Contribution shall be
payable in a lump sum to the Retirement Income Trust Fund within
ten (10) days of the Executive's death.
(3) Change in Control
-----------------
If (i) the Executive does not exercise his withdrawal rights
pursuant to Subsection 2.2 and (ii) a Change in Control occurs at
the Bank, the Contributions set forth below shall be required of
the Bank. The annual Contributions set forth in Exhibit A shall
be made to the Retirement Income Trust Fund, commencing in the
Plan Year in which the Retirement Income Trust Fund is
established and continuing through the Plan Year in which the
Change in Control occurs. Upon the occurrence, of said Change in
Control, the Bank shall be required to make an immediate lump sum
Contribution to the Executive's Retirement Income Trust Fund in
an amount equal to: (1) the full Contribution required for the
Plan Year in which such Change in Control occurs as provided for
in Exhibit A, if not made prior to such Change in Control, plus
(ii) the present value (computed using a discount rate equal to
the Interest Factor) of the total Contributions which would have
been required in accordance with Exhibit A for the three (3) Plan
Years following the year in which such Change in Control occurs.
In the event the Executive continues employment with the Bank
following the date of the Change in Control, the Bank shall be
required to resume making Contributions in accordance with the
schedule provided for in Exhibit A, in the fourth (4th) year
following the year in which the Change in Control occurred and
shall continue for the lesser of: (i) the number of years
remaining in the schedule
9
<PAGE>
provided for in Exhibit A, or (ii) the number of years the
Executive remains employed by the Bank.
(4) Termination For Cause
---------------------
If the Executive (i) does not exercise his withdrawal rights
pursuant to Subsection 2.2 and (ii) is terminated for Cause
pursuant to Subsection 5.2, no further Contribution(s) to the
Retirement Income Trust Fund shall be required of the Bank, and,
if not yet made, no Contribution shall be required for the year
in which such termination for Cause occurs.
(c) Withdrawal Rights Exercised.
---------------------------
(1) Phantom Contributions Made Annually.
-----------------------------------
If the Executive exercises his withdrawal rights pursuant to
Subsection 2.2, no further Contributions to the Retirement Income
Trust Fund shall be required of the Bank. Thereafter, Phantom
Contributions shall be recorded annually in the Executive's
Accrued Benefit Account, within five (5) days of the beginning of
each Plan Year, commencing with the first Plan Year following the
Plan Year in which the Executive exercises his withdrawal rights.
Such Phantom Contributions shall continue to be recorded
annually, unless this Subsection 2.1(c) specifically states
otherwise, until the earlier of (i) the last Plan Year that
Phantom Contributions are required pursuant to Exhibit A, or (ii)
the Plan Year of the Executive's termination of employment.
(2) Death Prior to Benefit Age During Employment
--------------------------------------------
If the Executive (i) exercises his withdrawal rights pursuant to
Subsection 2.2 and (ii) dies while employed by the Bank but prior
to attaining Benefit Age (including employment following a Change
in Control), all annual Contributions set forth in Exhibit A for
all Plan Years preceding such
10
<PAGE>
exercise of withdrawal rights shall be required of the Bank. Such
Contributions to the Retirement Income Trust Fund shall commence
in the Plan Year In which the Retirement Income Trust Fund is
established and shall continue through the Plan Year in which the
Executive first exercises his withdrawal rights. Thereafter,
Phantom Contributions shall be recorded annually, pursuant to
Exhibit A, in the Executive's Accrued Benefit Account and shall
continue through the Plan Year in which the Executive dies. The
final Phantom Contribution recorded in the Accrued Benefit
Account in the year of the Executive's death shall be equal to:
(i) the full Phantom Contribution required for the Plan Year in
which the Executive dies, if not made prior to death, plus (ii)
the sum of the total Phantom Contributions which would have been
required in accordance with Exhibit A for the Plan Year(s)
following the year of the Executive's death. Such final Phantom
Contribution shall be recorded in the Accrued Benefit Account
within ten (10) days of the Executive's death.
(3) Change in Control
-----------------
Phantom Contributions shall commence in the Plan Year following
the Plan Year in which the Executive first exercises his
withdrawal rights and shall continue through the Plan Year in
which the Change in Control occurs. Upon the occurrence of said
Change in Control, the Bank shall be required to record an
immediate lump sum Phantom Contribution in the Executive's
Accrued Benefit Account in an amount equal to: (i) the full
Phantom Contribution required for the Plan Year in which such
Change in Control occurs, if not made prior to such Change in
Control, plus (ii) the present value (computed using a discount
rate equal to the Interest Factor) of the total Phantom
Contributions which would have been required in accordance with
Exhibit A for the three (3) Plan Years following the year in
which such Change in Control occurs. In the event the Executive
continues employment
11
<PAGE>
with the Bank following the date of the Change in Control, the
Bank shall be required to resume recording Phantom Contributions
in accordance with the schedule provided for in Exhibit A. Such
Phantom Contributions shall resume in the fourth (4th) year
following the year in which the Change in Control occurred and
shall continue for the lesser of: (i) the number of years
remaining in the schedule provided for in Exhibit A, or (ii) the
number of years the Executive remains employed by the Bank.
(4) Termination For Cause
---------------------
If the Executive is terminated for Cause pursuant to Subsection
5.2, the entire balance of the Executive's Accrued Benefit
Account at the time of such termination, which shall include ally
Phantom Contributions which have been recorded plus interest
accrued on such Phantom Contributions, shall be forfeited.
2.2 Withdrawals From Retirement Income Trust Fund.
---------------------------------------------
Exercise of withdrawal rights by the Executive pursuant to the Charles E.
Filippo, Sr. Grantor Trust Agreement shall terminate the Bank's obligation
to make any further Contributions to the Retirement Income Trust Fund, and
the Bank's obligation to record Phantom Contributions pursuant to
Subsection 2.1(c) shall commence. For purposes of this Subsection 2.2,
"exercise of withdrawal rights" shall mean those withdrawal rights to which
the Executive is entitled under Article III of the Charles E. Filippo, Sr.
Grantor Trust Agreement and shall exclude any distributions made by the
trustee of the Retirement Income Trust Fund to the Executive for purposes
of payment of income taxes in accordance with Subsection 2.1 of this
Agreement.
12
<PAGE>
SECTION III
RETIREMENT BENEFIT
------------------
3.1 (a) Normal form of payment.
----------------------
If (i) the Executive is employed with the Bank until reaching his
Benefit Age (including employment with the Bank until Benefit Age
following a Change in Control), and (ii) the Executive has not made a
Timely Election to receive a lump sum benefit, this Subsection 3.1(a)
shall be controlling with respect to retirement benefits.
The Retirement Income Trust Fund, measured as of the Executive's
Benefit Age, shall be annuitized (using the Interest Factor) into
monthly installments and shall be payable for the Payout Period. Such
benefit payments shall commence on the Executive's Benefit Eligibility
Date. Should Retirement Income Trust Fund assets actually earn a rate
of return, following the date such balance is annuitized, which is
less than the rate of return used to annuitize the Retirement Income
Trust Fund, no additional contributions to the Retirement Income Trust
Fund shall be required by the Bank in order to fund the final benefit
payment(s) and make up for any shortage attributable to the less-than-
expected rate of return. Should Retirement Income Trust Fund assets
actually earn a rate of return, following the date such balance is
annuitized, which is greater than the rate of return used to annuitize
the Retirement Income Trust Fund, the final benefit payment to the
Executive (or his Beneficiary) shall distribute the excess amounts
attributable to the greater-than-expected rate of return. In the event
the Executive dies at any time after attaining his Benefit Age, but
prior to commencement or completion of all the payments due and owing
hereunder, (i) the trustee of the Retirement Income Trust Fund shall
pay to the Executive's Beneficiary the monthly installments (or a
continuation of such monthly installments if they have already
commenced) for the balance of months remaining in the Payout Period,
or (ii) the Executive's Beneficiary may request to receive the unpaid
balance
13
<PAGE>
of the Executive's Retirement Income Trust Fund in a lump sum payment.
If a lump sum payment is requested by the Beneficiary, payment of the
balance of the Retirement Income Trust Fund in such lump sum form
shall be made only if the Executive's Beneficiary (i) obtains approval
from the trustee of the Charles E. Filippo, Sr. Grantor Trust and (ii)
notifies the Administrator in writing of such election within ninety
(90) days of the Executive's death. Such lump sum payment, if approved
by the trustee, shall be payable within thirty (30) days of such
trustee approval.
The Executive's Accrued Benefit Account (if applicable), measured as
of the Executive's Benefit Age, shall be annuitized (using the
Interest Factor) into monthly installments and shall be payable for
the Payout Period. Such benefit payments shall commence on the
Executive's Benefit Eligibility Date. In the event the Executive dies
at any time after attaining his Benefit Age, but prior to commencement
or completion of all the payments due and owing hereunder, (i) the
Bank shall pay to the Executive's Beneficiary the same monthly
installments (or a continuation of such monthly installments if they
have already commenced) for the balance of months remaining in the
Payout Period, or (ii) the Executive's Beneficiary may request to
receive the remainder of any unpaid benefit payments in a lump sum
payment. If a lump sum payment is requested by the Beneficiary, the
amount of such lump sum payment shall be equal to the unpaid balance
of the Executive's Accrued Benefit Account. Payment in such lump sum
form shall be made only if the Executive's Beneficiary (i) obtains
Board of Director approval, and (ii) notifies the Administrator in
writing of such election within ninety (90) days of the Executive's
death. Such lump sum payment, if approved by the Board of Directors,
shall be payable within thirty (30) days of such Board of Director
approval.
14
<PAGE>
(b) Alternative payout option.
-------------------------
If (i) the Executive is employed with the Bank until reaching his
Benefit Age, (including employment with the Bank until Benefit Age
following a Change in Control), and (ii) the Executive has made a
Timely Election to receive a lump sum benefit, this Subsection 3.1(b)
shall be controlling with respect to retirement benefits.
The balance of the Retirement Income Trust Fund, measured as of the
Executive's Benefit Age, shall be paid to the Executive in a lump sum
on his Benefit Eligibility Date. In the event the Executive dies after
becoming eligible for such payment (upon attainment of his Benefit
Age), but before the actual payment is made, his Beneficiary shall be
entitled to receive the lump sum benefit in accordance with this
Subsection 3.1 (b) within thirty (30) days of the date the
Administrator receives notice of the Executive's death.
The balance of the Executive's Accrued Benefit Account (if
applicable), measured as of the Executive's Benefit Age, shall be paid
to the Executive in a lump sum on his Benefit Eligibility Date. In the
event the Executive dies after becoming eligible for such payment
(upon attainment of his Benefit Age), but before the actual payment is
made, his Beneficiary shall be entitled to receive the lump sum
benefit in accordance with this Subsection 3.1(b) within thirty (30)
days of the date the Administrator receives notice of the Executive's
death.
SECTION IV
PRE-RETIREMENT DEATH BENEFIT
----------------------------
4.1 (a) Normal form of payment.
----------------------
If (i) the Executive dies while employed by the Bank prior to
attaining his Benefit Age, (including the Executive's death while
employed by the Bank following a Change in Control) and (ii) the
Executive has not made a Timely Election to receive
15
<PAGE>
a lump sum benefit, this Subsection 4.1(a) shall be controlling with
respect to pre-retirement death benefits.
The Executive's Beneficiary shall be entitled to receive benefits in
accordance with this Subsection 4.1(a). The Executive's Retirement
Income Trust Fund, measured as of the later of (i) the date of the
Executive's death, or (ii) the date any final lump sum Contribution is
made pursuant to Subsection 2.1(b), shall be annuitized (using the
Interest Factor) into monthly installments and shall be payable for
the Payout Period. Such benefit payments shall commence within thirty
(30) days of the date the Administrator receives notice of the
Executive's death, or, if later, within thirty (30) days after any
final lump sum contribution is made to the Retirement Income Trust
Fund. Should Retirement Income Trust Fund assets actually earn a rate
of return, following the date such balance is annuitized, which is
less than the rate of return used to annuitize the Retirement Income
Trust Fund, no additional contributions to the Retirement Income Trust
Fund shall be required by the Bank in order to fund the final benefit
payment(s) and make up for any shortage attributable to the less-than-
expected rate of return. Should Retirement Income Trust Fund assets
actually earn a rate of return, following the date such balance is
annuitized, which is greater than the rate of return used to annuitize
the Retirement Income Trust Fund, the final benefit payment to the
Executive's Beneficiary shall distribute the excess amounts
attributable to the greater-than-expected rate of return. The
Executive's Beneficiary may request to receive the unpaid balance of
the Executive's Retirement Income Trust Fund in a lump sum payment. If
a lump sum payment is requested by the Beneficiary, payment of the
balance of the Retirement Income Trust Fund in such lump sum form
shall be made only if the Executive's Beneficiary (i) obtains approval
from the trustee of the Charles E. Filippo, Sr. Grantor Trust and (ii)
notifies the Administrator in writing of such election within ninety
(90) days of the Executive's death. Such lump sum payment, if approved
by the trustee, shall be made within thirty (30) days of such trustee
approval.
16
<PAGE>
The Executive's Accrued Benefit Account (if applicable), measured as
of the later of (i) the date of the Executive's death, or (ii) the
date any final Phantom Contribution is recorded pursuant to Subsection
2.1(c), shall be annuitized (using the Interest Factor) into monthly
installments and shall be payable to the Beneficiary for the Payout
Period. Such benefit payments shall commence within thirty (30) days
of the date the Administrator receives notice of the Executive's
death, or, if later, within thirty (30) days after any final lump sum
Phantom Contribution is recorded in the Accrued Benefit Account. The
Executive's Beneficiary may request to receive the remainder of any
unpaid monthly benefit payments due from the Accrued Benefit Account
in a lump sum payment. If a lump sum payment is requested by the
Beneficiary, the amount of such lump sum payment shall be equal to the
balance of the Executive's Accrued Benefit Account. Payment in such
lump sum form shall be made only if the Executive's Beneficiary (i)
obtains Board of Director approval, and (ii) notifies the
Administrator in writing of such election within ninety (90) days of
the Executive's death. Such lump sum payment, if approved by the Board
of Directors, shall be payable within thirty (30) days of such Board
of Director approval.
(b) Alternative payout option.
-------------------------
If (i) the Executive dies prior to attaining his Benefit Age,
(including the Executive's death while employed by the Bank following
a Change in Control), and (ii) the Executive has made a Timely
Election to receive a lump sum benefit, this Subsection 4.1(b) shall
be controlling with respect to preretirement death benefits.
The Executive's Beneficiary shall be entitled to receive a lump sum
benefit in accordance with this Subsection 4.1(b). The balance of the
Executive's Retirement Income Trust Fund, measured as of the date any
final lump sum Contribution is made pursuant to Subsection 2.1(b),
shall be paid to the Executive's Beneficiary in a lump
17
<PAGE>
sum within thirty (30) days of the date the Administrator receives
notice of the Executive's death.
The balance of the Executive's Accrued Benefit Account (if applicable), measured
as of the date any final Phantom Contribution is recorded pursuant to Subsection
2.1(c), shall be paid to the Executive's Beneficiary in a lump sum within thirty
(30) days of the (late the Administrator receives notice of the Executive's
death.
SECTION V
BENEFIT(S) IN THE EVENT OF TERMINATION OF SERVICE
-------------------------------------------------
PRIOR TO BENEFIT AGE
--------------------
5.1 Voluntary or Involuntary Termination of Service Other Than for Cause. In
--------------------------------------------------------------------
the event the Executive's service with the Bank is voluntarily or
involuntarily terminated prior to Benefit Age, for any reason including a
Change in Control, but excluding (i) any termination related to disability
which shall be covered in Section VI, or (ii) termination for Cause which
shall be covered in Subsection 5.2, the Executive (or his Beneficiary)
shall be entitled to receive benefits in accordance with this Subsection
5.1. Payments of benefits pursuant to this Subsection 5.1 shall be made in
accordance with Subsection 5.1(a) or 5.1(b) below, as applicable.
(a) Normal form of payment.
----------------------
(1) Executive Lives Until Benefit Age
---------------------------------
If (i) after such termination, the Executive lives until
attaining his Benefit Age, and (ii) the Executive has not made a
Timely Election to receive a lump sum benefit, this Subsection
5.1(a)(1) shall be controlling with respect to retirement
benefits.
18
<PAGE>
The Retirement Income Trust Fund, measured as of the Executive's
Benefit Age, shall be annuitized (using the Interest Factor) into
monthly installments and shall be payable for the Payout Period.
Such payments shall commence on the Executive's Benefit
Eligibility Date. Should Retirement Income Trust Fund assets
actually earn a rate of return, following the date such balance
is annuitized, which is less than the rate of return used to
annuitize the Retirement Income Trust Fund, no additional
contributions to the Retirement Income Trust Fund shall be
required by the Bank in order to fund the final benefit
payment(s) and make up for any shortage attributable to the less-
than-expected rate of return. Should Retirement Income Trust Fund
assets actually earn a rate of return, following the date such
balance is annuitized, which is greater than the rate of return
used to annuitize the Retirement Income Trust Fund, the final
benefit payment to the Executive (or his Beneficiary) shall
distribute the excess amounts attributable to the greater-than-
expected rate of return. In the event the Executive dies at any
time after attaining his Benefit Age, but prior to commencement
or completion of all the payments due and owing hereunder, (i)
the trustee of the Retirement Income Trust Fund shall pay to the
Executive's Beneficiary the monthly installments (or a
continuation of the monthly installments if they have already
commenced) for the balance of months remaining in the Payout
Period, or (ii) the Executive's Beneficiary may request to
receive the unpaid balance of the Executive's Retirement Income
Trust Fund in a lump sum payment. If a lump sum payment is
requested by the Beneficiary, payment of the balance of the
Retirement Income Trust Fund in such lump sum form shall be made
only if the Executive's Beneficiary (i) obtains approval from the
trustee of the Charles E. Filippo, Sr. Grantor Trust and (ii)
notifies the Administrator in writing of such election within
ninety (90) days of the Executive's death. Such lump sum payment,
if approved by the trustee, shall be made within thirty (30) days
of such trustee approval.
19
<PAGE>
The Executive's Accrued Benefit Account (if applicable), measured
as of the Executive's Benefit Age, shall be annuitized (using the
Interest Factor) into monthly installments and shall be payable
for the Payout Period. Such benefit payments shall commence on
the Executive's Benefit Eligibility Date. In the event the
Executive dies at any time after attaining his Benefit Age, but
prior to commencement or completion of all the payments due and
owing hereunder, (i) the Bank shall pay to the Executive's
Beneficiary the same monthly installments (or a continuation of
such monthly installments if they have already commenced) for the
balance of months remaining in the Payout Period, or (ii) the
Executive's Beneficiary may request to receive the remainder of
any unpaid benefit payments in a lump sum payment. If a lump sum
payment is requested by the Beneficiary, the amount of such lump
sum payment shall be equal to the unpaid balance of the
Executive's Accrued Benefit Account. Payment in such lump sum
form shall be made only if the Executive's Beneficiary (i)
obtains Board of Director approval, and (ii) notifies the
Administrator in writing of such election within ninety (90) days
of the Executive's death. Such lump sum payment, if approved by
the Board of Directors, shall be made within thirty (30) days Of
Such Board of Director approval.
(2) Executive Dies Prior to Benefit Age
-----------------------------------
If (i) after such termination, the Executive dies prior to
attaining his Benefit Age, and (ii) the Executive has not made a
Timely Election to receive a lump sum benefit, this Subsection
5.1(a)(2) shall be controlling with respect to retirement
benefits.
The Executive's Beneficiary shall be entitled to receive benefits
in accordance with this Subsection 5.1(a)(2). The Retirement
Income Trust Fund, measured as of the date of the Executive's
death, shall be annuitized (using the Interest
20
<PAGE>
Factor) into monthly installments and shall be payable for the
Payout Period. Such benefit payments shall commence within thirty
(30) days of the date the Administrator receives notice of the
Executive's death. Should Retirement Income Trust Fund assets
actually earn a rate of return, following the date such balance
is annuitized, which is less than the rate of return used to
annuitize the Retirement Income Trust Fund, no additional
contributions to the Retirement Income Trust Fund shall be
required by the Bank in order to fund the final benefit
payment(s) and make up for any shortage attributable to the less-
than-expected rate of return. Should Retirement Income Trust Fund
assets actually earn a rate of return, following the date such
balance is annuitized, which is greater than the rate of return
used to annuitize the Retirement Income Trust Fund as of the date
of the Executive's death, the final benefit payment to the
Executive's Beneficiary shall distribute the excess amounts
attributable to the greater-than-expected rate of return. The
Executive's Beneficiary may request to receive the unpaid balance
of the Executive's Retirement Income Trust Fund in the form of a
lump sum payment. If a lump sum payment is requested by the
Beneficiary, payment of the balance of the Retirement Income
Trust Fund in such lump sum form shall be made only if the
Executive's Beneficiary (i) obtains approval from the trustee of
the Charles E. Filippo, Sr. Grantor Trust and (ii) notifies the
Administrator in writing of such election within ninety (90) days
of the Executive's death. Such Lump Sum payment, if approved by
the trustee, shall be made within thirty (30) days of such
trustee approval.
The Executive's Accrued Benefit Account (if applicable), measured
as of the date of the Executive's death, shall be annuitized
(using the Interest Factor) into monthly installments and shall
be payable for the Payout Period. Such payments shall commence
within thirty (30) days of the date the Administrator receives
notice of the Executive's death. The Executive's
21
<PAGE>
Beneficiary may request to receive the unpaid balance of the
Executive's Accrued Benefit Account in the form of a lump sum
payment. If a lump sum payment is requested by the Beneficiary,
payment of the balance of the Accrued Benefit Account in such
lump sum form shall be made only if the Executive's Beneficiary
(i) obtains Board of Director approval, and (ii) notifies the
Administrator in writing of such election within ninety (90) days
of the Executive's death. Such lump sum payment, if approved by
the Board of Directors, shall be made within thirty (30) days of
such Board of Director approval.
(b) Alternative Payout Option.
-------------------------
(1) Executive Lives Until Benefit Age
---------------------------------
If (i) after such termination, the Executive lives until
attaining his Benefit Age, and (ii) the Executive has made a
Timely Election to receive a lump sum benefit, this Subsection
5.1(b)(1) shall be controlling with respect to retirement
benefits.
The balance of the Retirement Income Trust Fund, measured as of
the Executive's Benefit Age, shall be paid to the Executive in a
lump sum on his Benefit Eligibility Date. In the event the
Executive dies after becoming eligible for such payment (upon
attainment of his Benefit Age), but before the actual payment is
made, his Beneficiary shall be entitled to receive the lump sum
benefit in accordance with this Subsection 5.1(b)(1) within
thirty (30) days of the date the Administrator receives notice of
the Executive's death.
The balance of the Executive's Accrued Benefit Account (if
applicable), measured as of the Executive's Benefit Age, shall be
paid to the Executive in a lump sum on his Benefit Eligibility
Date. In the event the Executive dies
22
<PAGE>
after becoming eligible for such payment (upon attainment of his
Benefit Age), but before the actual payment is made, his
Beneficiary shall be entitled to receive the lump sum benefit in
accordance with this Subsection 5.1(b)(1) within thirty (30) days
of the date the Administrator receives notice of the Executive's
death.
(2) Executive Dies Prior to Benefit Age
-----------------------------------
If (i) after such termination, the Executive dies prior to
attaining his Benefit Age, and (ii) the Executive has made a
Timely Election to receive a lump sum benefit, this Subsection
5.1(b)(2) shall be controlling with respect to pre-retirement
death benefits.
The balance of the Retirement Income Trust Fund, measured as of
the date of the Executive's death, shall be paid to the
Executive's Beneficiary within thirty (30) days of the date the
Administrator receives notice of the Executive's death.
The balance of the Executive's Accrued Benefit Account (if
applicable), measured as of the date of the Executive's death,
shall be paid to the Executive's Beneficiary within thirty (30)
days of the date the Administrator receives notice of the
Executive's death.
5.2 Termination For Cause.
---------------------
If the Executive is Terminated for Cause, all benefits under this
Agreement, other than those which can be paid from previous Contributions
to the Retirement Income Trust Fund (and earnings on such Contributions),
shall be forfeited. Furthermore, no further Contributions or Phantom
Contributions, as applicable, shall be required of the Bank for the year in
which such Termination for Cause occurs (if not yet made). The Executive
shall be entitled to receive a benefit in accordance with this Subsection
5.2.
23
<PAGE>
The balance of the Executive's Retirement Income Trust Fund shall be paid
to the Executive in a lump sum on his Benefit Eligibility Date. In the
event the Executive dies prior to his Benefit Eligibility Date, his
Beneficiary shall be entitled to receive the balance of the Executive's
Retirement Income Trust Fund in a lump sum within thirty (30) days of the
date the Administrator receives notice of the Executive's death.
SECTION VI
OTHER BENEFITS
--------------
6.1 (a) Disability Benefit.
------------------
If the Executive's service is terminated prior to Benefit Age due to a
disability which meets the criteria set forth below, the Executive may
request to receive the Disability Benefit in lieu of the retirement
benefit(s) available pursuant to Section 5.1 (which is (are) not
available prior to the Executive's Benefit Eligibility Date).
Notwithstanding any other provision hereof, if requested by the
Executive and approved by the Board of Directors, the Executive shall
receive a lump sum Disability Benefit hereunder, in any case in which
it is determined by a duly licensed independent physician selected by
the Bank, that the Executive is no longer able, properly and
satisfactorily, to perform his regular duties as an Executive, because
of ill health, accident, disability or general inability due to age.
The lump sum benefit(s) to which the Executive is entitled shall
include: (i) the balance of the Retirement Income Trust Fund, plus
(ii) the balance of the Accrued Benefit Account (if applicable), both
measured as of the date of the disability determination. The
benefit(s) shall be paid within thirty (30) days following the date of
the Executive's request for such benefit. In the event the Executive
dies after becoming eligible for such payment(s) but before the actual
payment(s) is (are) made, his Beneficiary shall be entitled to receive
the benefit(s) provided for in this Subsection 6.1(a) within thirty
(30) days of the date the Administrator receives notice of the
Executive's death.
24
<PAGE>
(b) Disability Benefit - Supplemental.
---------------------------------
If Board of Director approval is obtained within thirty (30) days of
the Executive's death, the Bank shall make a direct, lump sum payment
to the Executive's Beneficiary in an amount equal to the following:
the sum of all Contributions (or Phantom Contributions) set forth in
Exhibit A, but not required pursuant to Subsection 2.1(b) (or 2.1(c))
due to the disability-related termination. Such lump sum payment, if
approved by the Board of Directors, shall be payable within thirty
(30) days of such Board of Director approval.
6.2 Additional Death Benefit - Burial Expense. Upon the Executive's death, the
-----------------------------------------
Executive's Beneficiary shall also be entitled to receive a one-time lump
sum death benefit in the amount of Ten Thousand Dollars ($10,000.00). This
benefit shall be paid directly from the Bank to the Beneficiary and shall
be provided specifically for the purpose of providing payment for burial
and/or funeral expenses of the Executive. Such death benefit shall be
payable within thirty (30) days of the date the Administrator receives
notice of the Executive's death. The Executive's Beneficiary shall not be
entitled to such benefit if the Executive is Terminated for Cause prior to
death.
SECTION VII
NON-COMPETITION
---------------
7.1 Non-Competition.
---------------
In consideration of the agreements of the Bank contained herein and of the
payments to be made by the Bank pursuant hereto, the Executive hereby
agrees that, for as long as he remains employed by the Bank, he will devote
substantially all of his time, skill, diligence and attention to the
business of the Bank, and will not actively engage, either directly or
indirectly, in any, business or other activity which is, or may be deemed
to be, in any way competitive with or adverse to the best interests of the
business of the Bank. The Executive further agrees that following his
employment with the Bank and continuing through the
25
<PAGE>
Payout Period he will not actively engage, either directly or indirectly,
in any business or other activity which is, or may be deemed to be, in any
way competitive with or adverse to the best interests of the Bank, unless
the Executive has the express written consent of the Board of Directors of
the Bank.
7.2 Breach of Non-Competition Clause.
--------------------------------
(a) During Employment.
-----------------
In the event the Executive breaches Subsection 7.1 while employed at
the Bank, all further Contributions to the Retirement Income Trust
Fund (or Phantom Contributions to the Accrued Benefit Account) shall
immediately cease, and all benefits under this Agreement, other than
those which can be paid from previous Contributions to the Retirement
Income Trust Fund (and earnings on such Contributions), shall be
forfeited. If, following such breach, the Executive lives until
attaining his Benefit Age, he shall be entitled to receive a benefit
from the Retirement Income Trust Fund equal to the balance of the
Retirement Income Trust Fund, measured as of the Executive's Benefit
Age, in a lump sum payable on his Benefit Eligibility Date. In the
event the Executive dies after attaining his Benefit Age but before
actual payment is made, his Beneficiary shall be entitled to receive
the lump sum benefit payable within thirty (30) days of the date of
the Administrator receives notice of the Executive's death. If,
following such breach, the Executive dies prior to attaining his
Benefit Age, his Beneficiary shall be entitled to receive a benefit
from the Retirement Income Trust Fund equal to the balance of the
Retirement Income Trust Fund, measured as of the date of the
Executive's death, payable in a lump sum within thirty (30) days of
the date the Administrator receives notice of the Executive's death.
(b) Termination of Employment Following Breach.
------------------------------------------
In the event (i) any breach by the Executive of the agreements and
covenants described in Subsection 7.1 occurs, and (ii) the Executive's
employment with the
26
<PAGE>
Bank is terminated due to such breach, such termination shall be
deemed to be for Cause and the benefits payable to the Executive shall
be paid in accordance with Subsection 5.2 of this Agreement.
(c) Breach Following Executive's Termination of Employment.
------------------------------------------------------
In the event the Executive breaches Subsection 7.1 following the
Executive's termination of employment with the Bank, all benefits
under this Agreement, other than those which can be paid from previous
Contributions to the Retirement Income Trust Fund shall be forfeited,
regardless of whether the Executive is receiving benefits at such
time. If the Executive has attained his Benefit Age and is receiving a
benefit at the time of such breach, his remaining balance in the
Retirement Income Trust Fund shall be paid to him in a lump sum within
thirty (30) days of the date the Bank has received notice of such
breach (or in the event of his death prior to payment of such lump
sum, to his Beneficiary). If the Executive has not attained his
Benefit Age, and following such breach, the Executive lives until his
Benefit Age, he (or his Beneficiary, in the event of his death prior
to payment of his benefit) shall receive a benefit payable in a lump
sum from the Retirement Income Trust Fund in the same manner as set
forth above in Subsection 7.2(a).
SECTION VIII
BENEFICIARY DESIGNATION
-----------------------
The Executive shall make an initial designation of primary and secondary
Beneficiaries upon execution of this Agreement and shall have the right to
change such designation, at any subsequent time, by submitting to (i) the
Administrator, and (ii) the trustee of the Retirement Income Trust Fund, in
---
substantially the form attached as Exhibit B to this Agreement, a written
designation of primary and secondary Beneficiaries. Any Beneficiary designation
made subsequent to execution of this Agreement shall become effective only when
receipt thereof is acknowledged in writing by the Administrator.
27
<PAGE>
SECTION IX
EXECUTIVE'S RIGHT TO ASSETS
---------------------------
The rights of the Executive, any Beneficiary, or any other person claiming
through the Executive under this Agreement, shall be solely those of an
unsecured general creditor of the Bank, unless this Agreement provides
otherwise. The Executive, the Beneficiary, or any other person claiming through
the Executive, shall only have the right to receive from the Bank those payments
so specified under this Agreement. The Executive agrees that he, his
Beneficiary, or any other person claiming through him shall have no rights or
interests whatsoever in any asset of the Bank, including any insurance policies
or contracts which the Bank may possess or obtain to informally fund this
Agreement. Any asset used or acquired by the Bank in connection with the
liabilities it has assumed under this Agreement, unless expressly provided
herein, shall not be deemed to be held under any trust for the benefit of the
Executive or his Beneficiaries, nor shall any asset be considered security for
the performance of the obligations of the Bank. Any such asset shall be and
remain, a general, unpledged, and unrestricted asset of the Bank.
SECTION X
RESTRICTIONS UPON FUNDING
-------------------------
The Bank shall have no obligation to set aside, earmark or entrust any fund or
money with which to pay its obligations under this Agreement, unless this
Agreement provides otherwise. Except as otherwise provided for in this
Agreement, the Executive, his Beneficiaries or any successor in interest to him
shall be and remain simply a general unsecured creditor of the Bank in the same
manner as any other creditor having a general claim for matured and unpaid
compensation. The Bank reserves the absolute right in its sole discretion to
either purchase assets to meet its obligations undertaken by this Agreement or
to refrain from the same and to determine the extent, nature, and method of such
asset purchases. Should the Bank decide to purchase assets such as life
insurance, mutual funds, disability policies or annuities, the Bank reserves the
absolute right, in its sole discretion, to terminate such assets at any time, in
whole or in part. At no time shall the Executive
28
<PAGE>
be deemed to have any lien, right, title or interest in or to any specific
investment or to any assets of the Bank. If the Bank elects to invest in a life
insurance, disability or annuity policy upon the life of the Executive, then the
Executive shall assist the Bank by freely submitting to a physical examination
and by supplying such additional information necessary to obtain such insurance
or annuities.
SECTION XI
ACT PROVISIONS
--------------
11.1 Named Fiduciary and Administrator. The Bank shall be the Named Fiduciary
---------------------------------
and Administrator (the "Administrator") of this Agreement. As
Administrator, the Bank shall be responsible for the management, control
and administration of the Agreement as established herein. The
Administrator may delegate to others certain aspects of the management and
operational responsibilities of the Agreement, including the employment of
advisors and the delegation of ministerial duties to qualified individuals.
11.2 Claims Procedure and Arbitration. In the event that benefits under this
--------------------------------
Agreement are not paid to the Executive (or to his Beneficiary in the case
of the Executive's death) and such claimants feel they are entitled to
receive such benefits, then a written claim must be made to the
Administrator within sixty (60) days from the date payments are refused.
The Administrator shall review the written claim and, if the claim is
denied, in whole or in part, it shall provide in writing, within ninety
(90) days of receipt of such claim, its specific reasons for such denial,
reference to the provisions of this Agreement upon which the denial is
based, and any additional material or information necessary to perfect the
claim. Such writing by the Administrator shall further indicate the
additional steps which must be undertaken by claimants if an additional
review of the claim denial is desired.
If claimants desire a second review, they shall notify the Administrator in
writing within sixty (60) days of the first claim denial. Claimants may
review this Agreement or any
29
<PAGE>
documents relating thereto and submit any issues and comments, in writing,
they may feel appropriate. In its sole discretion, the Administrator shall
then review the second claim and provide a written decision within sixty
(60) days of receipt of such claim. This decision shall state the specific
reasons for the decision and shall include reference to specific provisions
of this Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based upon completed
performance of this Agreement or the meaning and effect of the terms and
conditions thereof, then claimants may submit the dispute to a Board of
Arbitration for final arbitration. Said Board of Arbitration shall consist
of one member selected by the claimant, one member selected by the Bank,
and the third member selected by the first two members. The Board of
Arbitration shall operate under any generally recognized set of arbitration
rules. The parties hereto agree that they, their heirs, personal
representatives, successors and assigns shall be bound by the decision of
such Board of Arbitration with respect to any controversy properly
submitted to it for determination.
SECTION XII
MISCELLANEOUS
-------------
12.1 No Effect on Employment Rights. Nothing contained herein will confer upon
------------------------------
the Executive the right to be retained in the service of the Bank nor limit
the right of the Bank to discharge or otherwise deal with the Executive
without regard to the existence of the Agreement. Pursuant to 12 C.F.R.
Section 563.39(b), the following conditions shall apply to this Agreement:
(1) The Bank's Board of Directors may terminate the Executive at any time,
but any termination by the Bank's Board of Directors other than
termination for Cause shall not prejudice the Executive's vested right
to compensation or other benefits tinder the contract. As provided in
Subsection 5.2, the Executive shall have no right to receive
additional compensation or other
30
<PAGE>
benefits, other than those provided for in Subsection 5.2, after
termination for Cause.
(2) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served
under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. Section 1818(e)(3) and (g)(1)) the Bank's obligations under
the contract shall be suspended (except vested rights) as of the date
of termination of service unless stayed by appropriate proceedings. If
the charges in the notice are dismissed, the Bank may in its
discretion (i) pay the Executive all or part of the compensation
withheld while its contract obligations were suspended and (ii)
reinstate (in whole or in part) any of its obligations which were
suspended.
(3) If the Executive is terminated and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued
under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. Section 1818(e)(4) or (g)(1)), all non-vested obligations
of the Bank under the contract shall terminate as of the effective
date of the order,
(4) If the Bank is in default (as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act), all non-vested obligations under the
contract shall terminate as of the date of default.
(5) All non-vested obligations under the contract shall be terminated,
except to the extent determined that continuation of the contract is
necessary for the continued operation of the Bank:
31
<PAGE>
(i) by the Director [of the Federal Deposit Insurance Corporation or
the Resolution Trust Corporation] or his designee at the time the
Federal Deposit Insurance Corporation or the Resolution Trust
Corporation enters into an agreement to provide assistance to or
on behalf of the Bank under the authority contained in Section
13(c) of the Federal Deposit Insurance Act; or
(ii) by the Director [of the Federal Deposit Insurance Corporation or
the Resolution Trust Corporation] or his designee, at the time
the Director or his designee approves a supervisory merger to
resolve problems related to operation of the Bank or when the
Bank is determined by the Director to be in an unsafe or unsound
condition.
Any rights of the parties that have already vested, (i.e., the balance of
the Executive's Retirement Income Trust Fund and the balance of the
Executive's Accrued Benefit Account, if applicable), however, shall not be
affected by such action.
12.2 State Law. The Agreement is established under, and will be construed
---------
according to, the laws of the state of New Jersey, to the extent such laws
are not preempted by the Act and valid regulations published thereunder.
12.3 Severability. In the event that any of the provisions of this Agreement or
------------
portion thereof, are held to be inoperative or invalid by any court of
competent jurisdiction, then: (1) insofar as is reasonable, effect will be
given to the intent manifested in the provisions held invalid or
inoperative, and (2) the validity and enforceability of the remaining
provisions will not be affected thereby.
12.4 Incapacity of Recipient. In the event the Executive is declared incompetent
-----------------------
and a conservator or other person legally charged with the care of his
person or Estate is appointed, any
32
<PAGE>
benefits under the Agreement to which such Executive is entitled shall be
paid to such conservator or other person legally charged with the care of
his person or Estate.
12.5 Unclaimed Benefit. The Executive shall keep the Bank informed of his
-----------------
current address and the current address of his Beneficiaries. The Bank
shall not be obligated to search for the whereabouts of any person. If the
location of the Executive is not made known to the Bank as of the date upon
which any payment of any benefits from the Accrued Benefit Account may
first be made, the Bank shall delay payment of the Executive's benefit
payment(s) until the location of the Executive is made known to the Bank;
however, the Bank shall only be obligated to hold such benefit payment(s)
for the Executive until the expiration of thirty-six (36) months. Upon
expiration of the thirty-six (36) month period, the Bank may discharge its
obligation by payment to the Executive's Beneficiary. If the location of
the Executive's Beneficiary is not made known to the Bank by the end of an
additional two (2) month period following expiration of the thirty-six (36)
month period, the Bank may discharge its obligation by payment to the
Executive's Estate. If there is no Estate in existence at such time or if
such fact cannot be determined by the Bank, the Executive and his
Beneficiary(ies) shall thereupon forfeit any rights to the balance, if any,
of the Executive's Accrued Benefit Account provided for such Executive
and/or Beneficiary under this Agreement.
12.6 Limitations on Liability. Notwithstanding any of the preceding provisions
------------------------
of the Agreement, no individual acting as an employee or agent of the Bank,
or as a member of the Board of Directors shall be personally liable to the
Executive or any other person for any claim, loss, liability or expense
incurred in connection with the Agreement.
12.7 Gender. Whenever in this Agreement words are used in the masculine or
------
neuter gender, they shall be read and construed as in the masculine,
feminine or neuter gender, whenever they should so apply.
33
<PAGE>
12.8 Effect on Other Corporate Benefit Agreements. Nothing contained in this
--------------------------------------------
Agreement shall affect the right of the Executive to participate in or be
covered by any qualified or non-qualified pension, profit sharing, group,
bonus or other supplemental compensation or fringe benefit agreement
constituting a part of the Bank's existing or future compensation
structure.
12.9 Suicide. Notwithstanding anything to the contrary in this Agreement, if
-------
the Executive's death results from Suicide, whether sane or insane, within
twenty-six (26) months after execution of this Agreement, all further
Contributions to the Retirement Income Trust Fund (or Phantom
Contributions recorded in the Accrued Benefit Account) shall thereupon
cease, and no Contribution (or Phantom Contribution) shall be made by the
Bank to the Retirement Income Trust Fund (or recorded in the Accrued
Benefit Account) in the year such death resulting from suicide occurs (if
not yet made). All benefits other than those available from previous
Contributions to the Retirement Income Trust Fund under this Agreement
shall be forfeited, and this Agreement shall become null and void. The
balance of the Retirement Income Trust Fund, measured as of the
Executive's date of death, shall be paid to the Beneficiary within thirty
(30) days of the date the Administrator receives notice of the Executive's
death.
12.10 Inurement. This Agreement shall be binding upon and shall inure to the
---------
benefit of the Bank, its successors and assigns, and the Executive, his
successors, heirs, executors, administrators, and Beneficiaries.
12.11 Headings. Headings and sub-headings in this Agreement are inserted for
--------
reference and convenience only and shall not be deemed a part of this
Agreement.
34
<PAGE>
SECTION XIII
AMENDMENT/PLAN TERMINATION
--------------------------
13.1 Amendment or Plan Termination. The Bank intends this Agreement to be
-----------------------------
permanent, but reserves the right to amend or terminate the Agreement when,
in the sole opinion of the Bank, such amendment or termination is
advisable. However, any termination of the Agreement which is done in
anticipation of or pursuant to a "Change in Control", as defined in
Subsection 1.9, shall be deemed to trigger Subsections 5.1 and 2.1(b)(3)
(or 2.1(c)(3), as applicable) of the Agreement, and benefit(s) shall be
paid from the Retirement Income Trust Fund (and Accrued Benefit Account, if
applicable) in accordance with such Subsections. Any amendment or
termination of the Agreement shall be made pursuant to a resolution of the
Board of Directors of the Bank and shall be effective as of the date of
such resolution. No amendment or termination of the Agreement shall
directly or indirectly deprive the Executive of all or any portion of the
Executive's Retirement Income Trust Fund (and Accrued Benefit Account, if
applicable) as of the effective date of the resolution amending or
terminating the Agreement.
13.2 Executive's Right to Payment Following Plan Termination. In the event of a
-------------------------------------------------------
termination of the Agreement, the Executive shall be entitled to the
balance, if any, of his Retirement Income Trust Fund (and Accrued Benefit
Account, if applicable), measured as of the date of plan termination.
However, if such termination is done in anticipation of or pursuant to a
"Change in Control," such balance(s) shall be measured as of the date the
lump sum Contribution (or Phantom Contribution) is made (or recorded)
pursuant to Subsection 2.1 (b)(3) (or 2.1(c)(3)). Payment of the balance(s)
of the Executive's Retirement Income Trust Fund (and Accrued Benefit
Account, if applicable) shall not be dependent upon his continuation of
employment with the Bank following the termination date of the Agreement.
Payment of the balance(s) of the Executive's Retirement Income Trust Fund
(and Accrued Benefit account, if applicable) shall be made in a lump sum
within thirty (30) days of the date of termination of the Agreement.
35
<PAGE>
SECTION XIV
EXECUTION
---------
14.1 This Agreement and the Charles E. Filippo, Sr. Grantor Trust Agreement set
forth the entire understanding of the parties hereto with respect to the
transactions contemplated hereby, and any previous agreements or
understandings between the parties hereto regarding the subject matter
hereof are merged into and superseded by this Agreement and the Charles E.
Filippo, Sr. Grantor Trust Agreement.
14.2 This Agreement shall be executed in triplicate, each copy of which, when so
executed and delivered, shall be an original, but all three copies shall
together constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
36
<PAGE>
IN WITNESS WHEREOF, the Bank and the Executive have caused this Agreement
to be executed on the day and date first above written.
WEST ESSEX BANK, F.S.B.:
ATTEST:
By: /s/ Dennis A. Petrello
-----------------------
/s/ Craig Montanaro Executive Vice President
- ---------------------------------- ------------------------
Craig Montanaro, Secretary (Title)
WITNESS: EXECUTIVE
/s/ Lisa A. Mulligan /s/ Charles E. Filippo, Sr.
- ---------------------------------- ---------------------------
Charles E. Filippo, Sr.
37
<PAGE>
CONDITIONS, ASSUMPTIONS,
AND
SCHEDULE OF CONTRIBUTIONS AND PHANTOM CONTRIBUTIONS
1. Interest Factor - for purposes of.
a. the Accrued Benefit Account - shall be six percent (6%) per annum,
compounded monthly.
b. the Retirement Income Trust Fund - shall be five and one-half percent
(5.5%) per annum, compounded monthly, provided, however, for purposes
of annuitizing the balance of the Retirement Income Trust Fund over
the Payout Period, the trustee of the Charles E. Filippo, Sr. Grantor
Trust may exercise discretion in selecting a rate other than five and
one-half percent (5.5%) per annum for such purpose if another rate is
more reasonable given the nature of the investments contained in the
Retirement Income Trust Fund and the expected return associated with
the investments.
2. The amount of the annual Contributions (or Phantom Contributions) to the
Retirement Income Trust Fund (or Accrued Benefit Account) has been based on
the annual incremental accounting accruals which would be required of the
Bank until the earlier of the Executive's death or Benefit Age, (i)
pursuant to APB Opinion No. 12, as amended by FAS 106 and (ii) assuming a
discount rate equal to six percent (6%) per annum, in order to provide the
unfunded, non-qualified Supplemental Retirement Income Benefit.
3. Supplemental Retirement Income Benefit means all annual amount equal to
Twenty-Nine Thousand Seven Hundred Seventy-Seven Dollars ($29,777.00).
The definition of Supplemental Retirement Income Benefit has been
incorporated into the Agreement for the sole purpose of establishing the
amount of annual Contributions (or Phantom Contributions) to the Retirement
Income Trust Fund (or Accrued Benefit Account). The amount of any actual
retirement, pre-retirement, or disability benefit payable pursuant to the
Agreement will be a function of (i) the amount and timing of Contributions
(or Phantom Contributions) to the Retirement Income Trust Fund (or Accrued
Benefit Account) and (ii) the actual investment experience of such
Contributions (or the monthly compounding rate of Phantom Contributions).
<PAGE>
Exhibit A
<PAGE>
CHARLES E. FILIPPO, SR.
RESTATED EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT
SCHEDULE OF
GROSS "CONTRIBUTIONS"
(or "PHANTOM CONTRIBUTIONS")
<TABLE>
<CAPTION>
<S> <C>
Establishment $28,984.00
First Plan Year $20,954.00
Second Plan Year $23,221.00
Third Plan Year $25,697.00
Fourth Plan Year $28,397.00
Fifth Plan Year $31,337.00
Sixth Plan Year $34,539.00
Seventh Plan Year $38,024.00
Eighth Plan Year $41,814.00
Ninth Plan Year $41,199.00
</TABLE>
<PAGE>
Exhibit B
<PAGE>
RESTATED EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT
BENEFICIARY DESIGNATION
The Executive, under the terms of the Restated Executive Supplemental
Retirement Income Agreement executed by the Bank of Caldwell, New Jersey, dated
the 22nd day of December, 1995 hereby designates the following Beneficiary(ies)
to receive any guaranteed payments or death benefits under such Agreement,
following his death:
PRIMARY BENEFICIARY: Patricia J. Filippo, Wife
SECONDARY BENEFICIARY: Charles E. Filippo, Jr.
Laura J. Filippo
Michelle Filippo
or if deceased their issue, if any, per Stirpes
This Beneficiary Designation hereby revokes any prior Beneficiary
Designation which may have been in effect.
Such Beneficiary Designation is revocable.
DATE: December 22, 1995
/s/ Dennis A. Petrello /s/ Charles E. Filippo, Sr.
- ---------------------- ---------------------------
(WITNESS) Charles E. Filippo, Sr.
EXECUTIVE
/s/ Lisa A. Mulligan
- --------------------
(WITNESS)
<PAGE>
EXHIBIT 23.1 CONSENT OF RADICS & CO., LLC
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use of our report dated March 6, 1998, except
for the tenth paragraph of Note 10, as to which the date is April 8, 1998, on
the consolidated financial statements of West Essex Bank and Subsidiary as of
December 31, 1997 and 1996 and for each of the years in the three-year period
ended December 31, 1997 in the Registration Statement on Form S-1 filed by West
Essex Bancorp, Inc. (the "Company"); in the Application H-(e)1 filed by the
Company; in the Notice of Mutual Holding Company Reorganization, Form MHC-1,
filed by West Essex Bank, and in the Application for Approval of a Minority
Stock Issuance by a Savings Bank Subsidiary of a Mutual Holding Company, Form
MHC-2, filed by the Company, all relating to the reorganization of the Bank from
a federally chartered mutual savings bank to the two-tier form of mutual holding
company organization and concurrent minority stock offering of the Company's
common stock. We further consent to the reference to our firm under the heading
"Experts" in the offering circular.
/s/ Radics & Co., LLC
Pine Brook, New Jersey
June 12, 1998
<PAGE>
EXHIBIT 23.2 CONSENT OF MULDOON, MURPHY & FAUCETTE
<PAGE>
CONSENT
We hereby consent to the references to this firm and our opinions in the Notice
of Mutual Holding Company Reorganization on Form MHC-1, filed by West Essex
Bank, the Application for Approval of a Minority Stock Issuance by a Savings
Association Subsidiary of a Mutual Holding Company on Form MHC-2 filed by West
Essex Bancorp, Inc. (the "Company"), the Application H-(e)1 filed by the Company
and the Registration Statement on Form S-1, filed by the Company, and all
amendments thereto relating to the reorganization of the Bank into a two-tier
mutual holding company structure and the concurrent minority stock offering of
the Company.
/s/ Muldoon, Murphy & Faucette
MULDOON, MURPHY & FAUCETTE
Dated this 12th day of June, 1998
<PAGE>
EXHIBIT 23.3 CONSENT OF FONTANELLA AND BABITTS
<PAGE>
[LETTERHEAD OF FONTANELLA AND BABITTS APPEARS HERE]
Board of Directors
West Essex Bank, FSB
417 Bloomfield Avenue
Caldwell, New Jersey 07006
CONSENT
-------
We hereby consent to the filing of the New Jersey Tax Opinion, relating to
Reorganization of the West Essex Bank, FSB from a federally chartered mutual
savings bank to a two-tier mutual holding company structure in which the Mutual
Company, Bancorp, and Stock Bank will be chartered by the Office of Thrift
Supervision and also the Federal and New Jersey Tax Opinion relating to the
income tax deductibility of the common stock and cash donation of the Bancorp to
the Charitable Private Foundation as exhibits to the Registration Statement on
Form S-1 filed by the Company; the Application H-(e)1 filed by the Company; the
Notice of Mutual Holding Company Reorganization, Form MHC-1 filed by West Essex
Bank, F.S.B.; and the Application for Approval of a Minority Stock Issuance by a
Savings Association Subsidiary of a Mutual Holding Company, Form MHC-2 filed by
the Company.
/s/ Fontanella and Babitts
Fontanella and Babitts
Dated this 12th day of
June, 1998
<PAGE>
EXHIBIT 23.4 CONSENT AND SUBSCRIPTION RIGHTS OPINION OF FINPRO, INC.
<PAGE>
[FINPRO LETTERHEAD APPEARS HERE]
June 12, 1998
Board of Directors
West Essex Bank, FSB
417 Bloomfield Avenue
Caldwell, New Jersey 07006
Dear Board Members:
We hereby consent to the use of our firm's name, FinPro, Inc. ("FinPro") in the
Form S-1 Registration Statement, and amendments thereto, of West Essex Bancorp,
Inc. so filed with the Securities and Exchange Commission, the combined Notice
of Mutual Holding Company Reorganization and Application for Approval of a
Minority Stock Issuance by a Subsidiary of a Mutual Holding Company on "Form
MHC-1/MHC-2" filed by West Essex Bank, FSB, and any amendments thereto, and the
Conversion Valuation Appraisal Report ("Report") regarding the valuation of the
Association provided by FinPro, and our opinion regarding subscription rights
filed as exhibits to the form S-1 and the forms MHC-1/MHC-2. We also consent to
the use of our firm's name and the inclusion of, summary of and references to
our Report and Opinion in the Prospectus included in the form S-1 and the forms
MHC-1/MHC-2, and any amendments thereto.
Very Truly Yours,
/s/ Donald J. Musso
---------------------
Donald J. Musso
Liberty Corner, New Jersey
June 12, 1998
<PAGE>
[FINPRO LETTERHEAD APPEARS HERE]
June 12, 1998
Board of Directors
West Essex Bank, FSB
417 Bloomfield Avenue
Caldwell, New Jersey 07006
Dear Board Members:
All capitalized terms not otherwise defined in this letter have the meanings
given such terms in the Plan of Reorganization from Mutual Savings Association
to Mutual Holding Company and Stock Issuance Plan (the "Plan") adopted by the
Board of Directors of West Essex Bank, FSB (the "Bank"), whereby the Bank will
reorganize into the Mutual Holding Company form of organization by converting
from a federally chartered mutual savings association to a federally chartered
stock savings bank and issuing in excess of 50% of the Bank's outstanding
capital stock to West Essex Bancorp, Inc. (the "Company") so long as the Company
remains in the mutual form.
We understand that in accordance with the Plan, Subscription Rights to purchase
shares of the Common Stock are to be issued to (i) Eligible Account Holders;
(ii) the ESOP; (iii) Supplemental Eligible Account Holders; (iv) Other Members;
and (v) Directors, Officers and Employees, collectively referred to as the
"Recipients". Based solely on our observation that the Subscription Rights will
be available to such Recipients without cost, will be legally non-transferable
and of short duration, and will afford the Recipients the right only to purchase
shares of Common Stock at the same price as will be paid by members of the
general public in the Selected Community Offering, but without undertaking any
independent investigation of state or federal law or the position of the
Internal Revenue Service with respect to this issue, we are of the opinion that:
(1) the Subscription Rights will have no ascertainable market value;
and
(2) the price at which the Subscription Rights are excercisable will
not be more or less than the pro forma market value of the shares
upon issuance.
Changes in the local and national economy, the legislative and regulatory
environment, the stock market, interest rates, and other external forces (such
as natural disasters or significant world events) may occur from time to time,
often with great unpredictability and may materially impact the value of thrift
stocks as a whole or the Company's value alone. Accordingly, no assurance can
be given that persons who subscribe to shares of Conversion Stock in the
conversion will thereafter be able to buy or sell such shares at the same price
paid in the Subscription Offering.
Very Truly Yours,
FinPro, Inc.
/s/ Donald J. Musso
-------------------
Donald J. Musso
President
<PAGE>
EXHIBIT 24.1 POWERS OF ATTORNEY
<PAGE>
CONFORMED
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Leopold W. Montanaro and Dennis A. Petrello as
the true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any or all amendments to the Form MHC-1 Notice of Mutual
Holding Company Reorganization ("Notice"), the Form MHC-2 Application for
Approval of a Minority Stock Issuance by a Savings Bank Subsidiary of a Mutual
Holding Company ("Application") and the Form S-1 Registration Statement (the
"Form S-1") and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Office of Thrift Supervision or the U.S.
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent 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
attorney-in-fact and agent or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of Part 563b of the OTS Rules and Regulations
and the Securities Act of 1933, as amended, and any rules and regulations
promulgated thereunder, the foregoing Powers of Attorney prepared in conjunction
with the Notice, Application and the Form S-1 have been duly signed by the
following persons in the capacities on the dates indicated.
NAME DATE
---- ----
/s/ Leopold W. Montanaro June 12, 1998
- ------------------------------------
Leopold W. Montanaro
President, Chief Executive Officer and Director
(duly authorized representative and
principal executive officer)
West Essex Bancorp, Inc.
President, Chief Executive Officer and Director
(duly authorized representative and
principal executive officer)
West Essex Bank, F.S.B.
/s/ Dennis A. Petrello June 12, 1998
- ------------------------------------
Dennis A. Petrello
Executive Vice President and Chief Financial Officer
(principal financial and accounting officer)
West Essex Bancorp, Inc.
Executive Vice President and Chief Financial Officer
(principal financial and accounting officer)
West Essex Bank, F.S.B.
<PAGE>
/s/ William J. Foody June 12, 1998
- ------------------------------------
William J. Foody
Director
West Essex Bancorp, Inc.
Chairman of the Board
West Essex Bank, F.S.B.
/s/ David F. Brandley June 12, 1998
- ------------------------------------
David F. Brandley
Director
West Essex Bancorp, Inc.
Director
West Essex Bank, F.S.B.
/s/ Everett N. Leonard June 12, 1998
- ------------------------------------
Everett N. Leonard
Director
West Essex Bancorp, Inc.
Director
West Essex Bank, F.S.B.
/s/ James P. Vreeland June 12, 1998
- ------------------------------------
James P. Vreeland
Director
West Essex Bancorp, Inc.
Director
West Essex Bank, F.S.B.
/s/ John J. Burke June 12, 1998
- ------------------------------------
John J. Burke
Director
West Essex Bancorp, Inc.
Director
West Essex Bank, F.S.B.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of West Essex Bank, F.S.B at and for the year ended
December 31, 1997 and for the three months ended March 31, 1998 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 1,832,548 1,839,621
<INT-BEARING-DEPOSITS> 6,863,570 20,489,434
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 7,080,550 7,105,300
<INVESTMENTS-CARRYING> 153,103,157 151,401,058
<INVESTMENTS-MARKET> 155,019,654 153,480,741
<LOANS> 114,619,762 116,165,430
<ALLOWANCE> 1,885,021 1,862,971
<TOTAL-ASSETS> 299,024,832 312,521,792
<DEPOSITS> 238,192,141 239,120,486
<SHORT-TERM> 25,350,000 7,350,000
<LIABILITIES-OTHER> 1,257,982 1,300,210
<LONG-TERM> 4,950,000 34,950,000
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 29,274,709 29,801,096
<TOTAL-LIABILITIES-AND-EQUITY> 299,024,832 312,521,792
<INTEREST-LOAN> 7,908,541 2,298,412
<INTEREST-INVEST> 9,806,093 2,720,076
<INTEREST-OTHER> 400,842 96,925
<INTEREST-TOTAL> 18,115,476 5,115,413
<INTEREST-DEPOSIT> 8,089,473 2,433,347
<INTEREST-EXPENSE> 9,655,638 2,869,975
<INTEREST-INCOME-NET> 8,459,838 2,245,438
<LOAN-LOSSES> 487,015 (22,050)
<SECURITIES-GAINS> (20,245) 0
<EXPENSE-OTHER> 7,172,941 1,636,699
<INCOME-PRETAX> 1,173,119 770,700
<INCOME-PRE-EXTRAORDINARY> 736,840 511,141
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 736,840 511,141
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<YIELD-ACTUAL> 3.44 3.17
<LOANS-NON> 2,413,000 2,214,000
<LOANS-PAST> 76,000 48,000
<LOANS-TROUBLED> 94,000 92,000
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 1,563,991 1,885,021
<CHARGE-OFFS> 165,985 0
<RECOVERIES> 0 0
<ALLOWANCE-CLOSE> 1,885,021 1,862,971
<ALLOWANCE-DOMESTIC> 1,367,021 1,328,971
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 518,000 534,000
</TABLE>
