<PAGE>
As filed with the Securities and Exchange Commission on October 9, 1998
Registration No. 333-__________
===============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SOUTH JERSEY FINANCIAL CORPORATION, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CERTIFICATE OF INCORPORATION)
<TABLE>
<S> <C> <C>
DELAWARE 6036 BEING APPLIED FOR
(State or Other Jurisdiction of (Primary Standard Industrial (IRS Employer Identification No.)
Incorporation or Organization) Classification Code Number)
</TABLE>
<TABLE>
<S> <C>
4651 ROUTE 42 SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION
TURNERSVILLE, NEW JERSEY 08012 4651 ROUTE 42
(609) 629-6000 TURNERSVILLE, NEW JERSEY 08012
(609) 629-6000
(Address and Telephone Number of Principal Executive (Address of Principal Place of Business or Intended Principal Place of
Offices) Business)
</TABLE>
ROBERT J. COLACICCO
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION
4651 ROUTE 42
TURNERSVILLE, NEW JERSEY 08012
(609) 629-6000
(Name, Address and Telephone Number of Agent for Service)
Copies to:
JOSEPH A. MULDOON, JR., ESQUIRE
THOMAS J. HAGGERTY, ESQUIRE
KENT M. KRUDYS, ESQUIRE
MULDOON, MURPHY & FAUCETTE
5101 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20016
(202) 362-0840
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: As soon as practicable after
this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act Registration Statement number of the earlier
effective Registration Statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------
Proposed
Maximum Proposed Maximum
Title of each Class of Amount to Offering Price Aggregate Offering Amount of
Securities to be Registered be Registered Per Unit Price (1) Registration Fee
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 4,699,107
$.01 par Value Shares(2) $10.00 $46,991,070 $13,863
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes shares to be issued to South Jersey Savings Charitable Foundation,
a privately-formed charitable foundation.
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 the Syndicated Community Offering only]
SYNDICATED PROSPECTUS SUPPLEMENT
SOUTH JERSEY FINANCIAL CORPORATION, INC.
(PROPOSED HOLDING COMPANY FOR
SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION)
UP TO __________ SHARES OF COMMON STOCK
South Jersey Financial Corporation, Inc. (the "Company"), a Delaware
corporation, is offering for sale in a syndicated community offering (the
"Syndicated Community Offering") up to __________ shares, at a per share price
of $10.00, of its common stock, par value $.01 per share (the "Common Stock"),
to be sold upon the conversion (the "Conversion") of South Jersey Savings and
Loan Association, Turnersville, New Jersey (the "Association") from a mutual to
a stock association and the issuance of the Association's outstanding capital
stock to the Company pursuant to a plan of conversion, as amended (the "Plan of
Conversion"). The remaining __________ shares of the Common Stock to be sold in
the Conversion have been subscribed for in subscription and community offerings
(the "Subscription and Community Offerings") by holders of deposit accounts with
the Association with a balance of $50 or more as of June 30, 1997, by the South
Jersey Savings and Loan Association Employee Stock Ownership Plan, a tax-
qualified employee benefit plan, and related trust (the "ESOP"), by holders of
deposit accounts with the Association with a balance of $50 or more as of
______________, 1998, by certain other account holders and borrowers of the
Association and, then, by certain members of the general public. See "The
Conversion - General." Following this prospectus supplement 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 Association with purchase orders will earn interest
at the Association's passbook rate of interest from the date of receipt until
completion or termination of the Conversion. This Syndicated Community Offering
will expire no later than _______________, 1999, unless extended by the
Association and the Company with the approval of the Office of Thrift
Supervision. Such extensions may not go beyond _______________, 2001. If the
Syndicated Community Offering is extended, 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
Association of his intention to confirm, modify or rescind his subscription. If
an affirmative response to any resolicitation is not received by the Association
and the Company from subscribers,
<PAGE>
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 Conversion, no person, together with associates of
and persons acting in concert with such person, may purchase in the Community
Offering or Syndicated Community Offering more than the total number of shares
offered that could be purchased for $200,000 at the Purchase Price; provided
however, that shares of Common Stock purchased in the Community Offering by any
persons, together with associates of and persons acting in concert with such
persons, will be aggregated with purchases in the Syndicated Community Offering
and be subject to an overall maximum purchase limitation of 1.0% of the shares
offered. See "The Conversion - Subscription Offering and Subscription Rights,"
"-Syndicated Community Offering" and "-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.
The Company and the Association 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 7.0% 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.
The Company has received conditional approval to have its Common Stock
quoted on the Nasdaq National Market ("NASDAQ") under the symbol "________."
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.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PARTICIPANT, SEE "RISK FACTORS" ON PAGES __ TO __ OF THE PROSPECTUS.
THESE SHARES OF COMMON STOCK HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE OFFICE
OF THRIFT SUPERVISION, THE NEW JERSEY DEPARTMENT OF BANKING AND INSURANCE OR ANY
OTHER STATE OR FEDERAL AGENCY, NOR HAS SUCH OFFICE OR OTHER AGENCY PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK 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 ASSOCIATION OR THE COMPANY. THE
COMMON STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL INVESTED.
2
<PAGE>
<TABLE>
<CAPTION>
Estimated Net
Proceeds of
Estimated Estimated Net Subscription,
Underwriting Proceeds of Community and
Syndicated Commissions Syndicated Syndicated
Community and Other Fees Community Community
Offering Price and Expenses Offering Offerings
=============== =============== ============= ===============
<S> <C> <C> <C> <C>
Minimum Per Share $10.00 $ $ $
- --------------------
Midpoint Per Share $10.00 $ $ $
- --------------------
Maximum Per Share $10.00 $ $ $
- --------------------
Total Minimum $ $ $ $
- --------------------
Total Midpoint $ $ $ $
- --------------------
Total Maximum $ $ $ $
- --------------------
Total Maximum, As $ $ $ $
Adjusted
==================== ============= ============== ============== ==============
</TABLE>
SANDLER O'NEILL & PARTNERS, L.P.
---------------------------------
The date of this Prospectus Supplement is _______________, 1998.
3
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
SOUTH JERSEY FINANCIAL CORPORATION, INC.
(Proposed Holding Company for
South Jersey Savings and Loan Association)
UP TO 4,351,025 SHARES OF COMMON STOCK
This offering is made as part of the plan of conversion of South Jersey
Savings and Loan Association, Turnersville, New Jersey, from a mutual to a stock
association. In this conversion, the Association will become a wholly-owned
subsidiary of South Jersey Financial Corporation, Inc., a Delaware corporation.
No shares will be sold if the minimum number of shares are not sold or if the
necessary approvals from banking regulatory authorities and the members of the
Association are not received.
There is currently no public market for the common stock. The Company has
received conditional approval for the common stock to be quoted on the Nasdaq
National Market, under the symbol "_____", upon completion of the conversion.
The shares of common stock are being offered in a Subscription Offering to
persons who have specified priorities of subscription rights based on their
relationship with the Association. IN ORDER TO PURCHASE SHARES PURSUANT TO A
SUBSCRIPTION RIGHT, YOU MUST SUBMIT A PROPERLY COMPLETED STOCK ORDER AND
CERTIFICATION FORM, TOGETHER WITH PAYMENT FOR THE SHARES, TO THE ASSOCIATION
PRIOR TO THE EXPIRATION DATE, 12:00 NOON, EASTERN TIME, ON _______________,
1999, UNLESS EXTENDED.
To the extent sufficient shares to complete the conversion are not sold in
the Subscription Offering, the remaining shares will be offered for sale in a
Community Offering and, if necessary, a Syndicated Community Offering or other
offering. The Community Offering may be commenced prior to the completion of
the Subscription Offering.
<TABLE>
<CAPTION>
MAXIMUM,
MINIMUM AS ADJUSTED
2,796,500 4,351,025
PER SHARE SHARES SHARES
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Public offering price................ $10.00 $27,965,000 $43,510,250
- ------------------------------------------------------------------------------
Estimated underwriting commissions
and other expenses............... 1,157,000 1,334,000
- ------------------------------------------------------------------------------
Estimated proceeds to Company........ 26,808,000 42,176,250
- ------------------------------------------------------------------------------
</TABLE>
Investing in the common stock involves certain risks. See "Risk Factors"
beginning on page __.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
THESE SHARES OF COMMON STOCK HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
OFFICE OF THRIFT SUPERVISION, THE NEW JERSEY DEPARTMENT OF BANKING AND INSURANCE
OR ANY OTHER FEDERAL OR STATE AGENCY, NOR HAS SUCH OFFICE OR OTHER AGENCY PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
THE SHARES OF COMMON STOCK 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 ASSOCIATION OR THE COMPANY.
THE COMMON STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL INVESTED.
Sandler O'Neill & Partners, L.P. has agreed to assist the Company in
selling the shares, but does not guarantee that at least the minimum number of
shares will be sold.
----------------------------------
SANDLER O'NEILL & PARTNERS, L.P.
----------------------------------
The date of this Prospectus is __________, 1998.
<PAGE>
INSERT MAP PAGE HERE
2
<PAGE>
SUMMARY
. This summary highlights selected information in this Prospectus but does not
contain all of the information that you need to know before making an
informed investment decision. To understand the stock offering fully, you
should read carefully this entire Prospectus, including the financial
statements and the notes to the financial statements of South Jersey Savings
and Loan Association.
. References in this document to the "Association" refer to South Jersey
Savings and Loan Association, and references to the "Company" refer to South
Jersey Financial Corporation, Inc. References in this document to "we," "us"
and "our" refer to the Association. In certain circumstances, where
appropriate, "we," "us" or "our" refer collectively to the Association and
the Company.
SOUTH JERSEY FINANCIAL
CORPORATION, INC. ...... South Jersey Financial Corporation, Inc. was
recently formed to become the holding company of the
Association upon completion of the Association's
conversion to stock form. To date, the Company has
not engaged in any business.
The Company's office is located at 4651 Route 42,
Turnersville, New Jersey 08012 and its telephone
number is (609) 629-6000. The Association's
executive office has the same address and phone
number.
SOUTH JERSEY SAVINGS AND
LOAN ASSOCIATION........ The Association is a New Jersey mutual savings and
loan association. At July 31, 1998, the Association
had total assets of $259.7 million, total deposits
of $231.2 million and total equity of $26.0 million.
We operate three banking offices in Gloucester and
Camden Counties in Southwest New Jersey. We
historically have operated as a community-oriented
banking institution primarily offering one- to four-
family residential mortgage loans and consumer loans
and a variety of retail deposit products.
THE CONVERSION............ We have adopted a Plan of Conversion, as amended
(the "Plan"), which is subject to requirements of
the Office of Thrift Supervision (the "OTS") and the
New Jersey Department of Banking and Insurance (the
"Department"). The conversion, which is referred to
as the "Conversion," is governed by the Plan and has
three major components:
(1) The conversion of the Association to stock
form;
(2) The acquisition by the Company of all of the
outstanding capital stock of the Association;
and
(3) The sale by the Company of shares of its common
stock.
After the Conversion, members of the Association
will no longer have voting rights. The Company, as
sole stockholder of the Association, will possess
all voting rights of the Association. Voting rights
of the Company will be vested in the holders of the
Company's common stock.
3
<PAGE>
SOUTH JERSEY SAVINGS
CHARITABLE FOUNDATION... We intend to establish a charitable foundation, the
South Jersey Savings Charitable Foundation, or the
"Foundation." The Company intends to contribute to
the Foundation shares of its common stock equal to
8% of the common stock sold in the Conversion. The
authority for the affairs of the Foundation will be
vested in its Board of Directors. The Board of
Directors will consist of persons who are existing
directors or officers of the Company and the
Association. All shares held by the Foundation are
expected to be voted on a pro rata basis in
accordance with all other shares of outstanding
common stock.
TERMS OF THE OFFERING..... The Company is offering shares of common stock at a
fixed price of $10.00 per share in the Subscription
Offering pursuant to subscription rights in the
following order of priority:
(1) Eligible Account Holders in the Association as
of June 30, 1997;
(2) the South Jersey Savings and Loan Association
Employee Stock Ownership Plan (the "ESOP");
(3) Supplemental Eligible Account Holders in the
Association as of ____ who are not entitled to
a first priority subscription right; and
(4) Other Members in the Association as of ______
who are not entitled to a higher priority
subscription right. See "The Conversion --
Subscription Offering and Subscription Rights"
for the complete qualifications of each of the
subscription priorities.
Shares of common stock not subscribed for in the
Subscription Offering will be offered to certain
members of the general public in a Community
Offering and, if necessary, a Syndicated Community
Offering or other offering.
EXPIRATION DATE OF
SUBSCRIPTION OFFERING... Subscription rights will expire if not exercised.
All orders to purchase common stock in the
Subscription Offering must be received by 12:00
noon, Eastern time, on ________, 1999, unless
extended, which is the "Expiration Date."
NONTRANSFERABILITY OF
SUBSCRIPTION RIGHTS..... Subscription rights are not transferable.
Certificates representing shares of common stock
purchased in the Subscription Offering must be
registered in the name of the Eligible Account
Holder, the Supplemental Eligible Account Holder or
the Other Member, as the case may be. Joint stock
registration will be allowed only if the qualifying
deposit account is in the name of both parties.
NUMBER OF SHARES OFFERED.. The Company is offering between a minimum of
2,796,500 shares and a maximum of 3,783,500 shares
of common stock, or up to an adjusted maximum of
4,351,025 shares if the maximum number of shares is
increased.
The number of shares offered is based upon an
independent appraisal prepared by FinPro, Inc.
("FinPro") dated as of October 7, 1998, which
estimates that the aggregate pro forma market value
of the common stock to be sold in the Conversion
ranges from $28.0 million to $37.8 million. (This
range is referred to as the "Estimated Price
Range".) FinPro is an independent appraisal firm
experienced in appraisals of savings institutions.
Establishing the Foundation in connection with the
Conversion results in a lower aggregate estimated
pro
4
<PAGE>
forma market value than if the Conversion were
completed without the Foundation.
FinPro will update the appraisal before the
completion of the Conversion. The final aggregate
estimated pro forma market value of the common stock
to be sold in the Conversion will be determined at
the close of the Subscription Offering, or if all
shares are not sold in the Subscription Offering,
the close of the Community Offering or other
subsequent offering. The estimated aggregate pro
forma market value may change due to changes in
market and general financial and economic
conditions. For its services, FinPro will receive a
fee of $31,000.
If the aggregate estimated pro forma market value of
the common stock to be sold in the Conversion is
increased, then the maximum number of shares to be
sold may also be increased up to the adjusted
maximum.
HOW DO I ORDER STOCK?..... If you are entitled to a subscription right, you may
order shares in the Subscription Offering by
delivering to us a properly executed stock order and
certification form along with full payment for the
shares ordered. Your stock order and certification
form must be received by us on or before the
Expiration Date, which is _________, 1999. ONCE WE
RECEIVE YOUR SUBSCRIPTION ORDER, IT CANNOT BE
REVOKED OR MODIFIED WITHOUT OUR CONSENT. Please make
sure that you review the Prospectus carefully prior
to submitting an order. All stock order and
certification forms must be accompanied or preceded
by a Prospectus. To ensure that each purchaser
receives a Prospectus at least 48 hours prior to the
Expiration Date, in accordance with the rules and
regulations of the Securities and Exchange
Commission ("SEC"), we will not mail a Prospectus
any later than five days before the Expiration Date
or hand deliver a Prospectus any later than two days
before the Expiration Date. We are not obligated to
accept subscription orders submitted without an
original stock order and certification form.
If you want to order shares offered in the Community
Offering, you must submit a properly executed stock
order and certification form before the expiration
date to be set for the Community Offering.
FORM OF PAYMENT FOR
SHARES.................. Payment for subscriptions may be made:
(1) in cash (if delivered in person at any branch
office of the Association);
(2) by check, bank draft or money order; or
(3) by authorization of withdrawal from deposit
accounts maintained at the Association.
NUMBER OF SHARES THAT MAY
BE ORDERED.............. Minimum: 25 shares ($250).
Maximum:
. No Eligible Account Holder, Supplemental Eligible
Account Holder or Other Member may purchase in
the Subscription Offering more than $200,000 of
common stock.
5
<PAGE>
. No person, together with associates or persons
acting in concert with such person, may purchase
in the Community Offering more than $200,000 of
common stock.
. No person, together with associates or persons
acting in concert with such person, may purchase
in the aggregate more than 1% of the common stock
sold in the Conversion, exclusive of any increase
in the maximum of the Estimated Price Range.
However, a 10% limit is applicable to purchases
in the Conversion by tax-qualified employee
benefit plans, such as the ESOP.
USE OF PROCEEDS........... The Company will use 50% of the net proceeds from
the sale of the common stock to purchase all of the
Association's common stock issued in the Conversion.
The Company will use the rest of the net proceeds
for general business activities, including lending
money to the ESOP (to the extent that such loan is
not made by a third party) to enable the ESOP to
purchase up to 8% of the common stock sold in the
Conversion and issued to the Foundation. The Company
will initially invest the remaining net proceeds in
federal funds and securities, primarily mortgage-
backed securities and U.S. government and agency
obligations. The Association will use the net
proceeds that it receives from the sale of its
common stock to the Company for general business
purposes, including investment in loans and
mortgage-backed and investment securities, and a
planned expansion of its operations facilities. The
Association may also use such funds to expand its
facilities or operations.
DIVIDEND POLICY........... While the Company has not made any decision
concerning the payment of dividends, it intends to
consider whether to pay cash or stock dividends on
the common stock. Additionally, the Company has
committed to the OTS that during the one-year period
following the Conversion, the Company will not make,
without the approval of the OTS, any distribution to
stockholders that, for federal tax purposes, would
be treated as a return of capital.
BENEFITS OF THE
CONVERSION TO
MANAGEMENT.............. One of the advantages anticipated from the
Conversion will be the ability to attract and retain
quality personnel through the use of stock related
benefit programs. We intend to establish the ESOP,
which it is contemplated would purchase common stock
equal to 8% of the shares sold in the Conversion and
issued to the Foundation. The ESOP will be a tax
qualified retirement benefit for all eligible
employees. It is anticipated that the common stock
purchased by the ESOP in the Conversion will be
allocated as required under Internal Revenue Code
standards to eligible employees over an approximate
15 year period.
Second, after the Conversion, the Company intends to
adopt a stock-based incentive plan for the benefit
of directors, officers and employees. If the stock-
based incentive plan is adopted within one year
after the Conversion, it will be required to be
approved by stockholders at a meeting which may not
be held earlier than six months after the
Conversion, and any awards or options granted under
the plan would have to vest at least on a pro rata
basis over a five year period.
The following table presents information regarding
the aggregate of the shares of common stock, at the
maximum of the Estimated Price Range, which would be
acquired by the ESOP and allocated over an
anticipated 15 year period to all eligible employees
and the aggregate of all shares available for award
and issuance upon the exercise of options granted
under the stock-based incentive plan:
6
<PAGE>
<TABLE>
<CAPTION>
Percentage of Shares
Estimated Sold in Conversion and
Value of Shares(1) Issued to the Foundation
------------------ ------------------------
<S> <C> <C>
Employee Stock Ownership Plan $3,268,940 8.0%
Stock-Based Incentive Plan:
Stock Awards(2) 1,634,470 4.0
Stock Options(3) -- 10.0
---------- ----
Total $4,903,410 22.0%
========== ====
</TABLE>
___________________
(1) Assumes that shares are valued at $10.00 per share.
(2) Common stock awarded under the stock-based incentive plan will be awarded
at no cost to the recipients.
(3) Stock options will be granted with an exercise price equal to the fair
market value of the common stock on the day of grant. Recipients of stock
options realize value only in the event of an increase in the price of the
common stock following the date of grant of the stock options.
Additionally, some of our employees will receive
employment agreements or change in control
agreements which could provide those employees with
cash payments upon their termination of employment
following a change in control of the Company or the
Association. The stock-based incentive plan may also
provide participants with benefits upon a change in
control.
VOTING CONTROL OF
OFFICERS AND DIRECTORS.. Our directors and executive officers intend to
purchase an aggregate of approximately 2.7% of the
shares of common stock sold in the Conversion
assuming that shares are sold at the maximum of the
Estimated Price Range. If the ESOP is implemented
and the stock-based incentive plan and all stock
awards and stock options available under the stock-
based incentive plan are granted and all such
options are exercised, then the Company's directors,
officers and employees, in the aggregate, could vote
shares of common stock equal to 23.6% of the shares
sold in the Conversion and issued to the Foundation.
NO BOARD RECOMMENDATIONS.. Our Boards of Directors make no recommendation to
you regarding whether you should purchase the common
stock. An investment in the common stock must be
made pursuant to an evaluation of your best
interests and financial capabilities.
CONVERSION CENTER......... If you have any questions regarding the Conversion,
please call the Conversion Center at (609) ___-____.
7
<PAGE>
SELECTED FINANCIAL AND OTHER DATA OF THE ASSOCIATION
The selected financial and other data of the Association set forth below is
derived in part from, and should be read in conjunction with, the Financial
Statements of the Association and Notes thereto presented elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AT
JULY 31, AT DECEMBER 31,
--------- ------------------------------------------------
1998(1) 1997 1996 1995 1994 1993
--------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Total assets........................ $259,709 $249,805 $241,212 $234,374 $222,775 $220,744
Cash and cash equivalents........... 17,210 19,200 10,894 17,842 9,097 11,136
Loans, net (2)...................... 99,563 98,966 104,263 105,352 110,618 108,213
Securities held-to-maturity (3):
Mortgage-backed securities, net.. 48,352 45,231 41,398 31,672 29,923 29,340
Investment securities, net....... 87,056 79,034 77,110 72,180 65,904 64,648
FHLB stock.......................... 1,249 1,233 1,150 1,182 1,150 1,239
Deposits............................ 231,156 223,206 216,834 211,120 201,509 201,838
FHLB advances....................... 176 176 176 176 176 176
Total equity........................ 26,026 24,689 22,424 21,267 19,244 17,055
Real estate owned................... 50 -- -- 23 -- 143
Nonperforming assets and
troubled debt restructurings...... 465 631 999 665 3,795 4,757
</TABLE>
<TABLE>
<CAPTION>
FOR THE SEVEN
MONTHS ENDED
JULY 31, FOR THE YEAR 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:
Total interest income................. $10,593 $10,175 $17,606 $16,956 $16,172 $15,367 $15,615
Interest expense...................... 5,672 5,375 9,330 9,130 8,591 7,425 7,576
------- ------- ------- ------- ------- ------- -------
Net interest income................ 4,921 4,800 8,276 7,826 7,581 7,942 8,039
Provision for loan losses............. 175 233 400 180 180 300 400
------- ------- ------- ------- ------- ------- -------
Net interest income after provision
for loan losses................. 4,746 4,567 7,876 7,646 7,401 7,642 7,639
Noninterest income.................... 355 364 623 682 653 680 744
Noninterest expense(4)................ 3,012 2,902 4,960 6,518 4,910 4,876 4,506
------- ------- ------- ------- ------- ------- -------
Income before income taxes............ 2,089 2,029 3,539 1,810 3,144 3,446 3,877
Income taxes.......................... 752 730 1,273 654 1,120 1,257 1,572
------- ------- ------- ------- ------- ------- -------
Net income......................... $ 1,337 $ 1,299 $ 2,266 $ 1,156 $ 2,024 $ 2,189 $ 2,305
======= ======= ======= ======= ======= ======= =======
</TABLE>
(See footnotes on next page)
8
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE SEVEN
MONTHS ENDED
JULY 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------------ ------------------------------------------------
1998(1) 1997(1) 1997 1996 1995 1994 1993
----------- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING RATIOS AND
OTHER DATA (5):
PERFORMANCE RATIOS:
Average yield on
interest-earning assets.......... 7.36% 7.42% 7.43% 7.33% 7.35% 7.11% 7.42%
Average rate paid on
interest-bearing liabilities..... 4.30 4.26 4.27 4.27 4.20 3.66 3.85
Average interest rate
spread (6)....................... 3.06 3.16 3.16 3.06 3.15 3.45 3.57
Net interest margin (7)........... 3.40 3.48 3.49 3.38 3.45 3.68 3.88
Ratio of average
interest-earning assets to
average interest-bearing
liabilities...................... 108.72 108.25 108.37 108.11 107.58 106.65 105.68
Net interest income after
provision for loan losses
to noninterest expense........... 157.57 157.37 158.79 117.31 150.73 156.73 169.53
Efficiency ratio (8).............. 57.09 56.20 55.74 76.61 59.63 56.55 51.30
Noninterest expense as a
percent of average assets........ 2.03 2.05 2.04 2.74 2.17 2.19 2.10
Return on average assets.......... 0.90 0.92 0.93 0.49 0.89 0.98 1.08
Return on average equity.......... 9.03 9.65 9.62 5.26 9.98 12.07 14.47
Ratio of average equity to
average assets................... 9.98 9.53 9.65 9.23 8.95 8.14 7.43
REGULATORY CAPITAL RATIOS: (9)
Tangible capital ratio............ 10.02 9.70 9.88 9.30 9.07 8.64 7.73
Core capital ratio................ 10.02 9.70 9.88 9.30 9.07 8.64 7.73
Risk-based capital ratio.......... 28.16 26.43 27.27 24.90 24.50 22.48 20.04
ASSET QUALITY RATIOS:
Nonperforming loans and
troubled debt restructurings
as a percent of total
loans (10)....................... 0.41 1.02 0.63 0.94 0.60 3.38 4.20
Nonperforming assets and
troubled debt restructurings
as a percent of total
assets (11)...................... 0.18 0.43 0.25 0.41 0.28 1.70 2.15
Allowance for loan losses as
a percent of total loans, net.... 0.82 1.38 0.67 1.14 1.01 0.88 0.81
Allowance for loan losses as
a percent of nonperforming
loans and troubled debt
restructurings (2)(10)........... 197.35 131.79 105.71 118.72 166.36 25.51 18.94
Net loans charged-off to
average interest-
earning loans.................... 0.02 0.03 0.89 0.06 0.07 0.18 0.09
FULL SERVICE OFFICES AT END
OF PERIOD........................... 3 3 3 3 3 3 3
</TABLE>
____________________________
(1) The data presented for the seven months ended July 31, 1998 and 1997 were
derived from unaudited financial statements and reflect, in the opinion of
management, all adjustments (consisting only of normal recurring
adjustments) which are necessary to present fairly the results for such
interim periods. Interim results at and for the seven months ended July 31,
1998, are not necessarily indicative of the results that may be expected
for the fiscal year ending December 31, 1998. All operating results
presented for selected financial ratios and other data for the seven month
periods ended July 31, 1998 and 1997 are presented on an annualized basis.
(2) Loans, net, represent gross loans receivable net of the allowance for loan
losses, loans in process and deferred loan origination fees. The allowance
for loan losses at July 31, 1998 and 1997 and December 31, 1997, 1996,
1995, 1994 and 1993 was $819,000, $1.4 million, $667,000, $1.2 million,
$1.1 million, $968,000 and $874,000, respectively.
(3) The Association adopted Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," during fiscal 1994.
(4) Includes a one-time special assessment of $1.3 million in order to
recapitalize the Savings Association Insurance Fund (the "SAIF") in 1996.
(5) Asset Quality Ratios and Regulatory Capital Ratios are end of period
ratios. With the exception of end of period ratios, all ratios are based on
average monthly balances during the indicated periods.
(6) The average 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.
(7) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(8) The efficiency ratio represents the ratio of noninterest expenses divided
by the sum of the net interest income and noninterest income.
(9) For definitions and further information relating to the Association's
regulatory capital requirements, see "Regulation -- Federal Regulation of
Savings Banks -- Capital Requirements." See "Regulatory Capital Compliance"
for the Association's pro forma capital levels as a result of the
offerings.
(10) Non-performing loans consist of all non-accrual loans. It is the policy of
the Association to cease accruing interest on loans 60 days or more past
due, in the case of consumer loans, and 90 days or more past due in the
case of all other loans (unless the loan principal and interest are
determined by management to be fully secured and in the process of
collection), and to charge off all accrued interest. See "Business of the
Association--Delinquent Loans, Classified Assets, and Real Estate Owned."
(11) Non-performing assets consist of non-performing loans, other repossessed
assets and real estate owned ("REO").
9
<PAGE>
RISK FACTORS
The following risk factors, in addition to the other information discussed
elsewhere in this Prospectus, should be considered by you in deciding whether to
purchase our common stock.
SENSITIVITY TO CHANGES IN INTEREST RATES
Our profitability, like that of most financial institutions, is dependent
to a large extent upon our net interest income. Net interest income is the
difference between interest income on interest-earning assets, such as loans and
investments, and interest expense on interest-bearing liabilities, such as
deposits and borrowings. Accordingly, our results of operations and financial
condition are largely dependent on movements in market interest rates and our
ability to manage our assets in response to such movements.
At July 31, 1998, substantially all of our one- to four-family mortgage
loans, or 71.9% of total loans and 28.9% of total interest-earning assets, had
rates of interest which were fixed for the term of the loan. These loans were
originated with terms of up to 30 years. However, deposit accounts (which are
interest-bearing liabilities) have significantly shorter terms to maturity. The
Association primarily monitors its interest rate sensitivity through the use of
a model prepared by the OTS which estimates the change in the Association's net
portfolio value ("NPV") over a range of interest rate scenarios. NPV is the
present value of expected cash flows from assets, liabilities and off-balance
sheet contracts. As of July 31, 1998, based on assumptions utilized by the
model, it is estimated that a 200 basis point increase in market interest rates
would result in a 3% decrease in NPV, compared to a 1% estimated increase in NPV
as a result of a 200 basis point decrease in market interest rates. NPV
estimated changes do not provide a precise forecast of the effect of changes in
market interest rates on the Association's net interest income. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Management of Interest Rate Risk and Market Risk Analysis." Because
a substantial portion of our interest-earning assets generally have fixed rates
of interest and have longer effective maturities than our interest-bearing
liabilities, the yield on our interest-earning assets generally will adjust more
slowly to changes in interest rates than the cost of our interest-bearing
liabilities. As a result, material and prolonged increases in interest rates
likely would have a material adverse effect on our net interest income.
POTENTIAL LOW RETURN ON EQUITY FOLLOWING THE CONVERSION WHICH MAY NEGATIVELY
INFLUENCE MARKET PRICE AND LIQUIDITY
At July 31, 1998, our ratio of equity to total assets was 10.02%. Our
equity position will be significantly increased as a result of the Conversion.
On a pro forma basis as of July 31, 1998, assuming the sale of common stock at
the midpoint of the Estimated Price Range of $28.0 million to $37.8 million,
our consolidated ratio of equity to assets would approximate 18.88%. Our
ability to invest this new capital in interest-earning assets, such as loans and
securities, which bear rates of return comparable to our current loans and
securities investments, will be significantly affected by available market rates
of interest, loan demand and industry competition. We currently anticipate that
it will take time to prudently deploy such capital. As a result, our return on
equity initially is expected to be below our historical return on equity and may
be below peer group institutions after the Conversion. No assurances can be
made as to when or if we will achieve returns on equity that are comparable to
industry peers or our historical levels. Additionally, the implementation of
stock-based benefit plans will increase our future compensation expense, which
will adversely affect our net income and return on equity.
HIGHLY COMPETITIVE INDUSTRY
Our primary market area, which includes Gloucester and Camden Counties, New
Jersey, is a highly competitive market area for financial services. We face
significant competition in both attracting deposits and in originating loans. We
face direct competition from a significant number of financial service providers
operating in our market area, many with a state-wide or regional presence, and,
in some cases, a national presence. This competition arises from commercial
banks, savings banks, mortgage brokers, mortgage banking companies, and other
providers of financial services. Many of these entities are significantly
larger than us and, therefore, have greater financial and marketing
10
<PAGE>
resources than ours. The competitive environment raises the possibility of
increasing our cost of funds and lowering the yields that we may achieve on our
loans. See "Business of the Association-- Market Area" and "--Competition."
LOW DEMAND FOR MORTGAGE LOANS AND DIMINISHED LOAN GROWTH
Certain demographics of our primary market area have continued to adversely
affect our ability to generate loans. In particular, two of our three branch
offices are located in Camden County, New Jersey. Camden County generally
consists of mature, fully-developed and densely populated communities. The
population of Camden County has remained stable in recent years and new housing
starts in the county are generally lower than those in other parts of New
Jersey. These factors, along with the highly competitive industry in which we
operate, have resulted in a reduction in the demand for mortgage loans in our
primary market area which meet our underwriting criteria.
In addition, historically lower interest rates in recent years have caused
us to experience a significant amount of repayments and prepayments of our
existing loan portfolio as borrowers have refinanced their mortgages in order to
reduce their borrowing cost. Such repayments and prepayments have outpaced our
loan originations. For example, repayments and prepayments were $12.3 million,
$22.0 million, $17.2 million and $16.5 million for the seven months ended July
31, 1998 and the years ended December 31, 1997, 1996, and 1995, respectively.
Meanwhile, due to a low demand for loans in our primary market area which meet
our general underwriting criteria, total loan originations by us during these
same periods were $13.1 million, $16.0 million, $16.2 million and $12.5 million,
respectively. This has resulted in a decline in our total loans, net, from a
year-end high of $110.6 million at December 31, 1994, representing 49.7% of
total assets, to a year-end low of $99.0 million at December 31, 1997,
representing 39.6% of total assets. This has also made us susceptible to
reinvestment risk to the extent that we are unable to reinvest such prepayments
at rates which are comparable to the rates on the prepaid loans.
YEAR 2000 COMPLIANCE
As the year 2000 approaches, an important business issue has emerged
regarding how existing computer application software programs and operating
systems can accommodate this date value. Many existing application software
products are designed to accommodate only two digits. If not corrected, many
computer applications and systems could fail or create erroneous results by or
at the Year 2000. While we maintain an internal computer system for certain
operating functions, the substantial majority of our data processing is out-
sourced to a third party vendor. We have implemented a plan designated to ensure
that all software used in connection with our 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. However, we recognize that our ability to be Year 2000 compliant is
dependent upon the cooperation of our outside vendors. There can be no
assurances that our plan or the performances by any of our suppliers and vendors
will be effective to remedy all potential problems.
We have budgeted approximately $150,000 in connection with the costs
associated with achieving Year 2000 compliance and the related technology
systems upgrade. As of September 30, 1998, we had expended approximately $6,000
of the budgeted amount. Material costs, if any, that may arise from the failure
to achieve Year 2000 compliance by either our third party data processing vendor
or our significant suppliers and other vendors is not currently determinable.
To the extent that our systems are not fully Year 2000 compliant, any potential
systems interruptions or the cost necessary to remedy such problems could have a
materially adverse effect on our business, financial condition, results of
operations, cash flows or business prospects. If our progress towards becoming
Year 2000 complaint is inadequate, then regulatory action may be undertaken.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations-Year 2000 Compliance."
ESTABLISHMENT OF THE CHARITABLE FOUNDATION
The Company intends to contribute to the Foundation shares of common stock
equal to 8% of the shares sold in the Conversion. Such contribution to the
Foundation is subject to the approval of our members at a special meeting of
members. If approved by members, the contribution to the Foundation will dilute
the voting and ownership interests
11
<PAGE>
of stockholders and will have an adverse impact on our operating results for the
year ending December 31, 1999, possibly resulting in an operating loss for that
year.
DILUTION OF STOCKHOLDERS' INTERESTS. At the maximum of the Estimated Price
Range, the contribution to the Foundation would be 302,680 shares, with a value
of $3.0 million based on the public offering price of $10.00 per share (the
"Purchase Price"). Upon completion of the Conversion, based on the maximum of
the Estimated Price Range and issuance of shares to the Foundation, we will have
4,086,180 shares issued and outstanding, of which the Foundation will own
302,680 shares, or 7.4%. AS A RESULT, IF YOU PURCHASE SHARES IN THE CONVERSION,
THEN YOU WILL HAVE YOUR OWNERSHIP AND VOTING INTERESTS IN THE COMPANY DILUTED BY
7.4%.
NEGATIVE IMPACT ON EARNINGS. The Company will recognize an expense in the
amount of the contribution to the Foundation in the quarter in which it occurs,
which we expect to be the first quarter of 1999. Such expense will reduce
earnings and have a material adverse impact on our earnings for the year. The
amount of the contribution will range from $2.2 million to $3.5 million,
depending on the amount of common stock sold in the Conversion. The
contribution expense will be partially offset by a tax deduction for the
contribution. We have been advised by our independent accountants that the
contribution to the Foundation will be deductible for federal income tax
purposes, subject to a limitation based on 10% of our annual taxable income.
Assuming a contribution of $3.0 million in common stock, based on the maximum of
the Estimated Price Range, we estimate a net tax effected expense of $1.9
million. If the Foundation had been established at December 31, 1997, we would
have reported net income of $366,000 for 1997 rather than reporting net income
of $2.3 million. In addition to the contribution to the Foundation, we may in
the future continue to make ordinary charitable contributions within our
community.
POSSIBLE NONDEDUCTIBILITY OF THE CONTRIBUTION. While we have been advised
that the contribution will be deductible as a charitable contribution, there is
no assurance or guarantee that this will be the case. Assuming the contribution
is tax deductible, we estimate that substantially all of the contribution to the
Foundation should be deductible for federal tax purposes over the permissible
six-year period. However, no assurance can be made that we 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. Furthermore, although we have received an opinion of our
independent accountants that we more likely than not will be entitled to the
deduction for the contribution to the Foundation, there can be no assurance that
the IRS will recognize the Foundation as a tax exempt organization or that the
deduction will be permitted. In such event, there would be no tax benefit
related to the Foundation.
POTENTIAL ANTI-TAKEOVER EFFECT. If approved by our members, upon
completion of the Conversion, the Foundation will own 7.4% of the total shares
of common stock outstanding. However, pursuant to the terms of the contribution
as mandated by the OTS, the shares of common stock held by the Foundation must
be voted in the same ratio as all other shares of our common stock on all
proposals considered by our stockholders. In the event, however, that the OTS
were to waive this voting restriction and not impose other restrictions and
requirements with respect to the Foundation, the Foundation's board of directors
would exercise sole voting power over such shares. See "The Conversion--
Establishment of the Charitable Foundation--Regulatory Conditions Imposed on the
Foundation." If the Foundation's shares are combined with shares purchased
directly by our officers and directors, shares held by proposed stock-based
benefit plans, if approved by stockholders, and shares held in the ESOP, the
total of such shares could exceed 20% of outstanding common stock. This could
allow management to defeat stockholder proposals requiring an 80% approval.
Consequently, if the voting restriction were waived, this potential voting
control might preclude takeover attempts that some stockholders may deem to be
in their best interest, and might tend to perpetuate existing management.
We will not have any agreements or understandings with the Foundation
regarding the exercise of either direct or indirect control over our management
or policies. Any such agreements or understandings could discourage takeover
attempts, especially if they relate to the voting, acquisition or disposition of
our common stock. Nevertheless, as the Foundation sells its shares of common
stock over time, its ownership interest and voting power in the Company are
expected to decrease.
12
<PAGE>
POTENTIAL CHALLENGES. Establishment and funding a charitable foundation as
part of a conversion is innovative and has been done in only a limited number of
instances. Therefore, the Foundation may be subject to potential challenges
even though our Boards of Directors have carefully considered the various
factors involved in establishing the Foundation. See "The Conversion--
Establishment of the Charitable Foundation--Purpose of the Foundation." If
anyone were to institute an action seeking to prevent us from establishing the
Foundation, such action could result in a delay of the Conversion. In addition,
such objecting persons could also ultimately be successful in obtaining the
elimination of the Foundation or other equitable relief or money damages against
us. If we are forced to eliminate the Foundation, we 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 our members eligible to
be cast at a special meeting. The Foundation will be considered separately from
approval of the Plan of Conversion. If our members approve the Plan of
Conversion, but not the establishment of the Foundation, we intend to complete
the Conversion without establishing the Foundation. Failure to approve the
Foundation may materially increase the aggregate pro forma market value of the
common stock to be sold in the Conversion since the estimate of such amount
takes into account the dilutive impact of the issuance of shares to the
Foundation. If the aggregate pro forma market value of the common stock without
the Foundation is either greater than $43.5 million or less than $28.0 million,
we will have to establish a new Estimated Price Range and commence a
resolicitation of subscribers. Subscribers would then 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 else
their subscription orders will be cancelled and their money promptly returned to
them with interest at our passbook rate of interest. If a resolicitation
occurs, subscribers will also be permitted to increase, decrease, or cancel
their subscriptions. Any change in the Estimated Price Range must be approved by
the OTS. See "The Conversion--Stock Pricing." 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.
Such extensions may not go beyond ________, 2001.
FINANCIAL INSTITUTION REGULATION AND POSSIBLE LEGISLATION
As a state savings and loan association, the Association is subject to
extensive federal and state regulation and supervision. In addition, the
Company, as a savings and loan holding company, is subject to extensive
regulation and supervision. Such regulations, which affect the Association and
the Company 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 examining
authorities who interpret those laws and regulations. Any change in the
regulatory structure or the applicable statutes or regulations, whether by the
Department or its Commissioner (the "Commissioner"), the OTS, the Federal
Deposit Insurance Corporation (the "FDIC") or the Congress, could have a
material impact on us, our operations or the Conversion.
THRIFT RECHARTERING
The Deposit Insurance Funds Act of 1996 (the "Funds Act"), which was
enacted in September 1996, provides that the Bank Insurance Fund ("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 were introduced in 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. State savings associations would
have become subject to the same federal regulations that are applicable to state
commercial banks. The bill as passed by the House of Representatives, however,
did not provide for the elimination of the federal thrift charter or OTS, or
changes in the federal regulation of state associations, 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 such date 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 Banking Committee recently reported a bill that
13
<PAGE>
would limit the activities of unitary savings and loan holding companies that
were not in existence or applied for by September 3, 1998 to those permitted for
financial holding companies under the bill. The Company would not be
grandfathered under either bill. We are unable to predict whether any
legislation will be enacted or, given such uncertainty, determine the extent to
which the legislation, if enacted, would affect our business. We are also
unable to predict whether the SAIF and BIF will eventually be merged or the
federal thrift charter eliminated, or changes made to the federal regulation of
state associations, and what effect, if any, such legislation would have on us.
STOCK-BASED BENEFITS TO MANAGEMENT AND DIRECTORS, EMPLOYMENT CONTRACTS AND
CHANGE IN CONTROL PAYMENTS
STOCK-BASED INCENTIVE PLAN. We intend to adopt a stock-based incentive
plan which will provide for the granting of options to purchase common stock
("Stock Options"), awards of common stock ("Stock Awards"), and other related
rights to our eligible officers, employees and directors. While we currently
anticipate granting Stock Options and Stock Awards under a single plan, we may
establish separate plans to provide for such awards. In the event that the plan
is adopted within one year after Conversion, OTS regulations require the plan to
be approved by stockholders at a meeting of stockholders which may not be held
earlier than six months after completion of the Conversion. It is anticipated
that 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 sold
in the Conversion and issued to the Foundation (408,618 shares based on the
maximum of the Estimated Price Range) and the granting of Stock Awards in an
amount equal to 4% of the shares of common stock sold in the Conversion and
issued to the Foundation (163,447 shares based on the maximum of the Estimated
Price Range).
The stock-based incentive plan will acquire an amount of shares equal to 4%
of the shares of common stock sold in the Conversion and issued to the
Foundation, either through open market purchases or the issuance of authorized
but unissued shares of common stock. If the Stock Awards are funded by the
issuance of authorized but unissued shares, the voting interests of existing
stockholders at that time will be diluted by 3.8%. The exercise of the Stock
Options may also be satisfied by the issuance of authorized but unissued shares.
If all of the Stock Options were 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 by 12.3%.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL PROVISIONS. Upon Conversion, we
intend to enter into employment and change in control agreements with certain
employees and adopt an employee severance compensation plan. The agreements and
plan are expected to provide benefits and cash payments to employees if there is
a change in control and a subsequent termination of their employment. The
provisions in such agreements and plan would provide the recipient with a cash
payment in the event of the recipient's involuntary or, in certain
circumstances, voluntary termination of employment after a change in control.
In addition to any payments which may be made under the stock-based incentive
plan upon a change in control, these agreements and plan may have the effect of
increasing the cost of acquiring the Company. This could discourage future
attempts to take us over. Based on current salaries, cash payments to be paid
pursuant to the agreements and plan in the event of a change in control and
termination of employment would be approximately $3.0 million. However, the
actual amount to be paid in the event of a change in control cannot be estimated
at this time because the actual amount is based on the average compensation of
the employee and other factors existing at the time of the change in control.
See "Restrictions on Acquisition of the Company and the Association--
Restrictions in the Company's Certificate of Incorporation and Bylaws,"
"Management of the Association--Employment Agreements," "-- Change in Control
Agreements," "-- Employee Severance Compensation Plan" and "-- Other Benefit
Plans."
ANTI-TAKEOVER PROVISIONS WHICH MAY DISCOURAGE TAKEOVER ATTEMPTS
PROVISIONS IN THE COMPANY'S AND THE ASSOCIATION'S GOVERNING INSTRUMENTS.
Certain provisions of the Company's Certificate of Incorporation and Bylaws,
particularly a provision limiting voting rights, and the Association's Stock
Certificate of Incorporation and Bylaws, as well as certain federal regulations,
assist us in maintaining our status as an independent publicly owned
corporation. These provisions provide for, among other things, supermajority
voting on certain matters, staggered boards of directors, non-cumulative voting
for directors, limits on the calling of special
14
<PAGE>
meetings, limits on voting shares in excess of 10% of outstanding shares, and
certain uniform price provisions for certain business combinations. The
Association's Stock Certificate of Incorporation also prohibits, for five years,
the acquisition or offer to acquire, directly or indirectly, the beneficial
ownership of more than 10% of its equity securities. Any person violating this
restriction may not vote the securities in excess of 10%. These provisions in
the governing instruments may discourage potential proxy contests and other
potential takeover attempts, particularly those which have not been negotiated
with the Board of Directors and, thus, generally may serve to perpetuate
existing management. For a more detailed discussion of these provisions, see
"Restrictions on Acquisitions of the Company and the Association."
VOTING CONTROL OF OFFICERS AND DIRECTORS. Our directors and officers
expect to purchase an aggregate of approximately 2.7% of the shares of common
stock sold in the Conversion, assuming that shares are sold at the maximum of
the Estimated Price Range. If the ESOP is implemented and the stock-based
incentive plan and all Stock Awards and Stock Options available under the stock-
based incentive plan are granted and all such options are exercised, then the
Company's directors, officers and employees, in the aggregate, could vote shares
of common stock equal to 23.6% of the shares sold in the Conversion and issued
to the Foundation. In addition, the Foundation will be funded with a
contribution equal to 8% of the common stock sold in the Conversion. If a
waiver of the voting restriction imposed on such common stock is obtained from
the OTS, and the OTS does not impose other restrictions, the Foundation shares
may be voted as determined by the directors of the Foundation who also will
initially be directors or officers of the Company or the Association.
Management's potential voting control could, together with additional
stockholder support, defeat stockholder proposals requiring 80% approval of
stockholders. As a result, this potential voting control may preclude takeover
attempts that some stockholders determine to be in their best interest and may
tend to perpetuate existing management. See "Restrictions on Acquisition of the
Company and the Association--Restrictions in the Company's Certificate of
Incorporation and Bylaws."
ABSENCE OF MARKET FOR COMMON STOCK
The Company has never issued capital stock. The Company has received
conditional approval to have the common stock quoted on the Nasdaq National
Market (the "Nasdaq") under the symbol "___" upon completion of the Conversion.
However, we cannot assure that an active and liquid trading market for the
common stock will develop or, once developed, will continue. Also, we cannot
assure that purchasers of the common stock will be able to sell their shares at
a profit. 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."
POSSIBLE INCREASE IN ESTIMATED PRICE RANGE AND NUMBER OF SHARES SOLD
The number of shares to be sold in the Conversion may be increased as a
result of an increase in the Estimated Price Range of up to 15% to reflect
changes in market and financial conditions following the commencement of the
Subscription and Community Offerings. In the event that the Estimated Price
Range is increased, it is expected that the Company will sell up to 4,351,025
shares of common stock at the Purchase Price for an aggregate purchase price of
up to $43.5 million. An increase in the number of shares sold will decrease a
stockholder's pro forma net earnings per share and stockholders' equity per
share and will increase our pro forma consolidated stockholders' equity and net
earnings. Such an increase will also increase the offering 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
We have 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 a 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, we could recognize
15
<PAGE>
a gain for tax purposes on such distribution. Whether subscription rights are
considered to have ascertainable value is an inherently factual determination.
See "The Conversion--Effects of Conversion" and "-- Tax Aspects."
SOUTH JERSEY FINANCIAL CORPORATION, INC.
The Company was recently organized in Delaware at the direction of the
Board of Directors of the Association (the "Board of Directors") for the purpose
of acquiring all of the capital stock to be issued by the Association in the
Conversion. The Company has applied to the OTS for approval to become a savings
and loan holding company. The Company will acquire the common stock of the
Association and sell its common stock in the Conversion only if such approval is
received. As a savings and loan holding company, the Company will be subject to
regulation by the OTS. See "The Conversion--General." Upon consummation of the
Conversion, the Company will conduct business initially as a unitary savings and
loan holding company. See "Regulation--Holding Company Regulation." After
completion of the Conversion, the Company's assets will consist of all of the
outstanding shares of our capital stock issued to the Company in the Conversion
and 50% of the net proceeds of the Offerings to be retained by the Company. The
Company intends to use part of such net proceeds to loan funds to the ESOP to
enable the ESOP to purchase 8% of the common stock sold in the Conversion and
issued to the Foundation. The Company and Association may, however,
alternatively choose to fund the ESOP through a loan to the ESOP trust by a
third-party financial institution. The Company intends initially to utilize the
remaining proceeds for investments in federal funds and securities, primarily
mortgage-backed securities and U.S. government and agency obligations. See
"Use of Proceeds." Immediately after the Conversion, the Company will have no
significant liabilities. The management of the Company is set forth under
"Management of the Company." Initially, the Company will neither own nor lease
any property, but will instead use the premises, equipment and furniture of the
Association. At the present time, the Company does not intend to employ any
persons other than officers of the Company who are also officers of the
Association, but will utilize the support staff of the Association from time to
time. Additional employees will be hired as appropriate to the extent the
Company expands its business in the future.
Management believes that the holding company structure will provide the
Company with additional flexibility to diversify, should it decide to do so, its
business activities through existing or newly-formed subsidiaries, or through
acquisitions of other financial institutions and financial services related
companies. In addition, management believes that the Company will be in a
position after the Conversion, subject to regulatory limitations and the
Company's financial position, to take advantage of any acquisition and expansion
opportunities that may arise. There are no current arrangements, understandings
or agreements, written or oral, regarding any such opportunities or
transactions. The initial activities of the Company are anticipated to be
funded by the net proceeds retained by the Company and earnings thereon or,
alternatively, through dividends from the Association.
The Company's executive offices are located at 4651 Route 42, Turnersville,
New Jersey, 08012 and its telephone number is (609) 629-6000.
SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION
The Association was originally organized in 1921 and operated as Knight
Park Building and Loan Association of Collingswood, New Jersey. In 1950, the
Association merged with Vineyard Building and Loan Association and changed its
name to South Jersey Savings and Loan Association. The Association conducts
business from its home office and operation centers located in Turnersville, New
Jersey and its two full service branch offices located in Collingswood and
Glendora, New Jersey.
The Association operates as a community savings association and its
corporate philosophy has traditionally been focused on providing a competitive
array of financial products and services to consumers within its market area.
The Association's business primarily consists of accepting deposits from
customers and investing those funds primarily in mortgage loans secured by one-
to four-family residences, consumer loans and mortgage-backed and investment
securities. At July 31, 1998, the Association had $100.8 million, or 38.8% of
total assets, invested in loans, consisting of: $80.2 million, or 30.9% of total
assets, of one- to four-family mortgage loans; $17.6 million, or 6.8% of total
assets,
16
<PAGE>
of consumer loans (consisting primarily of home equity loans, home equity lines
of credit and education loans); and $3.0 million, or 1.2% of total assets, of
multi-family and commercial real estate loans. Securities at July 31, 1998
totalled $136.7 million, or 52.6% of total assets, primarily consisting of
$87.1 million, or 33.5% of total assets, of investment securities (consisting
primarily of U.S. Government and agency obligations) and $48.4 million, or 18.6%
of total assets, of mortgage-backed securities (consisting primarily of
securities issued by Fannie Mae ("FNMA"), Freddie Mac ("FHLMC"), and Ginnie Mae
("GNMA")). At July 31, 1998, the Association's deposit accounts totalled
$231.2 million, or 98.9% of total liabilities, of which $107.7 million, or
46.6%, were comprised of core deposits (savings, NOW, money market and club
accounts). In addition to core deposits, the Association had $118.4 million of
certificate accounts, or 50.7% of total liabilities, of which $54.7 million were
certificates of deposit with maturities of one year or less and $9.7 million
were certificates of deposit having balances of $100,000 or more. The
Association also borrows from the FHLB of New York as a source of funds. At
July 31, 1998, such advances totalled $176,000, or 0.08% of total liabilities.
The Association is subject to extensive regulation, supervision and
examination by the Commissioner and the OTS, its primary regulators, and the
FDIC, which insures its deposits. As of July 31, 1998, the Association exceeded
all regulatory capital requirements with tangible, core and risk-based capital
of $26.0 million, $26.0 million and $26.8 million, respectively. Additionally,
the Association's regulatory capital was in excess of the amount necessary for
it to be deemed "well capitalized" under the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"). See "Regulatory Capital
Compliance" and "Regulation." The Association is a member of the FHLB of New
York which is one of the twelve regional banks which comprise the FHLB system.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business of the Association."
The Association's executive offices are located at 4651 Route 42,
Turnersville, New Jersey, 08012 and its telephone number is (609) 629-6000.
17
<PAGE>
REGULATORY CAPITAL COMPLIANCE
At July 31, 1998, the Association exceeded all regulatory capital
requirements. See "Regulation--Federal Regulation of Savings Institutions--
Capital Requirements." Set forth below is a summary of the Association's
compliance with the regulatory capital standards as of July 31, 1998, on a
historical and pro forma basis assuming that the indicated number of shares were
sold as of such date and receipt by the Association of 50% of the net proceeds.
<TABLE>
<CAPTION>
SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION
PRO FORMA AT JULY 31, 1998 BASED UPON THE SALE AT $10.00 PER SHARE
----------------------------------------------------------------------------------
2,796,500 SHARES 3,290,000 SHARES 3,783,500 SHARES 4,351,025 SHARES
(MINIMUM (MIDPOINT (MAXIMUM (15% ABOVE
OF OF OF MAXIMUM OF
HISTORICAL AT ESTIMATED ESTIMATED ESTIMATED ESTIMATED
JULY 31, 1998 PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE)(1)
------------------- ------------------- ------------------- ------------------- -------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
AMOUNT ASSETS (2) AMOUNT ASSETS (2) AMOUNT ASSETS (2) AMOUNT ASSETS (2) AMOUNT ASSETS (2)
------- ---------- ------- ---------- ------- ---------- ------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP CAPITAL.............. $26,026 10.02% $35,806 13.29% $37,606 13.86% $39,406 14.43% $41,475 15.07%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
TANGIBLE CAPITAL:
Capital Level........... $26,026 10.02% $35,806 13.29% $37,606 13.86% $39,406 14.43% $41,475 15.07%
Requirement............. 3,896 1.50 4,042 1.50 4,069 1.50 4,096 1.50 4,127 1.50
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess.................. $22,130 8.52% $31,764 11.79% $33,537 12.36% $35,310 12.93% $37,348 13.57%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
CORE CAPITAL:
Capital Level........... $26,026 10.02% $35,806 13.29% $37,606 13.86% $39,406 14.43% $41,475 15.07%
Requirement (3)......... 7,791 3.00 8,085 3.00 8,139 3.00 8,193 3.00 8,255 3.00
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess.................. $18,235 7.02% $27,721 10.29% $29,467 10.86% $31,213 11.43% $33,220 12.07%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
RISK-BASED CAPITAL:
Capital Level (4)(5).... $26,834 28.16% $36,614 36.54% $38,414 38.00% $40,214 39.43% $42,283 41.04%
Requirement............. 7,624 8.00 8,016 8.00 8,088 8.00 8,160 8.00 8,242 8.00
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess.................. $19,210 20.16% $28,598 28.54% $30,326 30.00% $32,054 31.43% $34,041 33.04%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
____________________
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
(2) Tangible capital levels are shown as a percentage of 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-weighed assets.
(3) The current OTS core capital requirement for savings associations is a
minimum of 3% of total adjusted assets. The OTS has proposed core capital
requirements which would require a core capital ratio of a minimum of 3% of
total adjusted assets for thrifts that receive the highest supervisory
rating for safety and soundness and a minimum of 4% to 5% core capital
ratio requirement for all other thrifts. See "Regulation--Federal
Regulation of Savings Institutions--Capital Requirements."
(4) Assumes net proceeds are invested in assets that carry a 50% risk-
weighting.
(5) The difference between equity under generally accepted accounting
principles ("GAAP") and regulatory risk-based capital is attributable to
the addition of the general valuation allowance of $808,000 at July 31,
1998.
18
<PAGE>
USE OF PROCEEDS
Although the actual net proceeds from the sale of common stock by the
Company cannot be determined until the Conversion is completed, it is presently
anticipated that such net proceeds will be between $26.8 million and $36.6
million (or $42.2 million if the Estimated Price Range is increased by 15%).
See "Pro Forma Data" and "The Conversion-- Stock Pricing" as to the assumptions
used to arrive at such amounts.
The Company will purchase all of the outstanding capital stock of the
Association to be issued in the Conversion in exchange for 50% of the net
proceeds and will retain the remaining net proceeds. Based on the midpoint of
the Estimated Price Range, the Company expects to use $15.8 million of net
proceeds to purchase the common stock of the Association. Such portion of net
proceeds will be added to the Association's general funds which the Association
intends to use for general business purposes, including investments in loans and
mortgage-backed and investment securities, and the planned expansion of its
operations facilities. The Association may also use such funds to expand
operations through acquisitions of other financial institutions, branch offices
or other financial services companies. The Association has not yet determined
the approximate amount of net proceeds to be used for any of the purposes
mentioned above. Neither the Association nor the Company has any current
arrangements, understandings or agreements regarding any such opportunities or
transactions.
The Company intends to use a portion of the net proceeds retained by it to
make a loan directly to the ESOP to enable the ESOP to purchase 8% of the Common
Stock sold in the Conversion and issued to the Foundation. The Company and
Association 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 the Company will initially be invested in federal funds and
securities, primarily mortgage-backed securities and U.S. government and agency
obligations. Based upon the combined sale of common stock and issuance of
shares to the Foundation of 3,020,220 shares, 3,553,200 shares or 4,086,180
shares at the minimum, midpoint and maximum of the Estimated Price Range,
respectively (or 4,699,107 shares if the Estimated Price Range is increased by
15%), the amount of the loan to the ESOP would be $2.4 million, $2.8 million or
$3.3 million, respectively (or $3.8 million if the Estimated Price Range is
increased by 15%) to be repaid over a 15-year period at the prevailing prime
rate of interest, which currently is 8.5%. See "Management of the
Association -- Other Benefit Plans--Employee Stock Ownership Plan and Trust."
The Company, upon the Conversion, will be a unitary savings and loan
holding company, which under existing laws would generally not be restricted as
to the types of business activities in which it may engage, provided that the
Association continues to be a qualified thrift lender ("QTL"). See
"Regulation--Holding Company Regulation" for a description of certain
regulations applicable to the Company.
Upon completion of the Conversion, the Board of Directors of the Company
will have the authority to adopt stock repurchase plans, subject to statutory
and regulatory requirements. Current OTS regulations generally prohibit the
Company from repurchasing any shares of common stock for three years except
(i) for an offer to all stockholders on a pro rata basis, or (ii) for the
repurchase of qualifying shares of a director. Notwithstanding the foregoing and
except as provided below, beginning one year following completion of the
Conversion, the OTS regulations permit the Company to repurchase its common
stock so long as: (i) the repurchases within the following two years are part of
an open-market program not involving greater than 5% of its outstanding capital
stock during a 12-month period; (ii) the repurchases do not cause the
Association to become "undercapitalized" within the meaning of the OTS prompt
corrective action regulation; and (iii) the Company provides to the Regional
Director of the OTS no later than 10 days prior to the commencement of a
repurchase program written notice containing a full description of the program
to be undertaken and such program is not disapproved by the Regional Director.
See "Regulation--Prompt Corrective Regulatory Action." Under current OTS
policies, repurchases may be allowed in the first year following Conversion and
in amounts greater than 5% in the second and third years following Conversion
provided there are valid and compelling business reasons for such repurchases
and the OTS does not object to such repurchases.
Based upon facts and circumstances following Conversion 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 common stock is trading in the market,
19
<PAGE>
the volume of trading, the attractiveness of other investment alternatives in
terms of the rate of return and risk involved in the investment, the ability to
increase the book value and/or earnings per share of the remaining outstanding
shares, and the opportunity to improve the Company's return on equity; (ii) the
avoidance of dilution to stockholders by not having to issue additional shares
to cover the exercise of stock options or to fund employee stock benefit plans;
and (iii) any other circumstances in which repurchases would be in the best
interests of the Company and its stockholders. Although the Company has no
current plans to repurchase its stock, in the event the Company does determine
to repurchase stock, such repurchases may be made at market prices which may be
in excess of the Purchase Price in the Conversion.
Any stock repurchases will be subject to the determination of the Board of
Directors that both the Company and the Association 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, the Company's and the
Association's current and projected results of operations and asset/liability
structure, the economic environment, tax and other considerations. See "The
Conversion-- Certain Restrictions on Purchase or Transfer of Shares After
Conversion."
Additionally, in connection with the Conversion, the Company and
Association have committed to the OTS that during the one-year period following
the completion of the Conversion, the Company will not make any distribution to
stockholders that, for federal tax purposes, would be treated as a return of
capital without prior approval of the OTS.
DIVIDEND POLICY
Upon Conversion, the Board of Directors of the Company 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 the Company
in the Conversion, investment opportunities available to the Company or the
Association, capital requirements, regulatory limitations, the Company's and the
Association'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 Association will not be permitted to pay dividends to the Company on
its capital stock if its stockholders' equity would be reduced below the amount
required for the liquidation account. See "The Conversion-- Liquidation
Rights." New Jersey law provides that dividends may be paid by the Association
only out of net income, earned surplus or undivided profits. For information
concerning federal regulations which apply to the Association in determining the
amount of proceeds which may be retained by the Company and regarding a savings
institution's ability to make capital distributions, including payment of
dividends to its holding company, see "Federal and State Taxation--Federal
Taxation" and "Regulation--Federal Regulation of Savings Institutions--
Limitation on Capital Distributions."
Unlike the Association, the Company is not subject to OTS regulatory
restrictions on the payment of dividends to its stockholders, although the
source of such dividends will be dependent on the net proceeds retained by the
Company and earnings thereon and may be dependent, in part, upon dividends from
the Association. The Company is subject, however, to the requirements of
Delaware law, which generally limits dividends to an amount equal to the excess
of the net assets of the Company (the amount by which total assets exceed total
liabilities) over its statutory capital (generally defined as the aggregate par
value of the outstanding shares of the Company's capital stock having a par
value plus the amount of the consideration paid for shares of the Company's
capital stock without par value) or, if there is no such excess, to its net
profits for the current and/or immediately preceding fiscal year.
Additionally, in connection with the Conversion, the Company and
Association have committed to the OTS that during the one-year period following
the consummation of the Conversion, the Company will not make any distribution
to stockholders that, for federal tax purposes, would be treated as a return of
capital without prior approval of the OTS.
20
<PAGE>
MARKET FOR THE COMMON STOCK
The Company and Association have not previously issued capital stock and,
consequently, there is no established market for the Common Stock. The Company
has received conditional approval to have its Common Stock quoted on the Nasdaq
under the symbol "___" upon completion of the Conversion. Such approval is
subject to various conditions, including completion of the Conversion and the
presence of at least two registered and active market makers. The Company will
seek to encourage and assist at least two market makers to make a market in its
Common Stock. Making a market involves maintaining bid and ask quotations and
being able, as principal, to effect transactions in reasonable quantities to
those quoted prices, subject to various securities laws and other regulatory
requirements. There can be no assurance that the Common Stock will be able to
meet the applicable listing criteria in order to maintain its quotation 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 the Company. 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 Conversion. See "Risk
Factors - Absence of Market for Common Stock."
21
<PAGE>
CAPITALIZATION
The following table presents the unaudited historical capitalization of the
Association at July 31, 1998, and the pro forma consolidated capitalization of
the Company after giving effect to the Conversion, 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>
COMPANY PRO FORMA BASED UPON SALE AT $10.00 PER SHARE
------------------------------------------------------------------------
2,796,500 3,290,000 3,783,500 4,351,025
SHARES SHARES SHARES SHARES
(MINIMUM (MIDPOINT (MAXIMUM (15% ABOVE
OF OF OF MAXIMUM
ASSOCIATION ESTIMATED ESTIMATED ESTIMATED OF ESTIMATED
HISTORICAL PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE) (1)
----------- ------------ ------------ ------------ ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Borrowings:
Deposits (2)..................................... $ 231,156 $ 231,156 $ 231,156 $ 231,156 $ 231,156
FHLB advances.................................... 176 176 176 176 176
--------- --------- --------- --------- ---------
Total.......................................... $ 231,332 $ 231,332 $ 231,332 $ 231,332 $ 231,332
========= ========= ========= ========= =========
Stockholders' equity:
Preferred Stock, $.01 par value, 1,000,000
shares authorized; none to be issued........... $ -- $ -- $ -- $ -- $ --
Common Stock, $.01 par value, 14,000,000
shares authorized; shares to be issued
as reflected................................... -- 30 36 41 47
Additional paid-in capital(3).................... -- 26,778 31,651 36,525 42,129
Retained earnings(4)............................. 26,026 26,026 26,026 26,026 26,026
Less: Expense of contribution to the
Foundation, net of taxes(5)............. -- (1,432) (1,684) (1,937) (2,228)
Plus: Shares issued to the Foundation........... -- 2,237 2,632 3,027 3,481
Less: Common Stock acquired by the ESOP(6)...... -- (2,416) (2,843) (3,269) (3,759)
Less: Common Stock acquired by
the Stock-Based Incentive Plan (7)...... -- (1,208) (1,421) (1,634) (1,880)
--------- --------- --------- --------- ---------
Total stockholders' equity................... $ 26,026 $ 50,015 $ 54,397 $ 58,779 $ 63,816
========= ========= ========= ========= =========
</TABLE>
___________________________________
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Common Stock in the Conversion. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) 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 the Stock-Based Incentive Plan
intended to be adopted by the Company. An amount equal to 10% of the shares
of Common Stock sold in the Conversion and issued to the Foundation, will
be reserved for issuance upon the exercise of options to be granted under
the Stock-Based Incentive Plan. See "Risk Factors--Stock-Based Benefits to
Management and Directors, Employment Contracts and Change in Control
Payments--Stock-Based Incentive Plan," Footnote 6 to the tables under "Pro
Forma Data" and "Management of the Association--Other Benefit Plans."
(4) The retained earnings of the Association will be substantially restricted
after the Conversion. See "The Conversion--Liquidation Rights" and
"Regulation--Federal Regulation of Savings Institutions--Limitations on
Capital Distributions."
(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 $805,000,
$948,000, $1.1 million and $1.3 million 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 the Company's annual
taxable income, subject to the ability of the Company 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, the Company 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 the Company for New
Jersey income tax purposes can be utilized only if the Company generates
sufficient state taxable income on an unconsolidated basis, and also are
subject to the limitation of 10% of unconsolidated income of the Company.
(6) Assumes that 8% of the shares sold in connection with the Conversion and
issued to the Foundation, will be purchased by the ESOP and that the funds
used to acquire such shares will be borrowed from the Company. The Common
Stock acquired by the ESOP is reflected as a reduction of stockholders'
equity. See "Management of the Association--Other Benefit Plans--Employee
Stock Ownership Plan and Trust."
(7) Assumes an amount equal to 4% of the shares of Common Stock sold in the
Conversion and issued to the Foundation, is purchased by the Stock-Based
Incentive Plan through open market purchases at the Purchase 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
--Stock-Based Benefits to Management and Directors, Employment Contracts
and Change in Control Payments--Stock-Based Incentive Plan," Footnote 3 to
the tables under "Pro Forma Data" and "Management of the Association--Other
Benefit Plans."
22
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be
determined until the Conversion is completed. However, net proceeds are
currently estimated to be between $26.8 million and $36.6 million (or
$42.1 million in the event the Estimated Price Range is increased by 15%) based
upon the following assumptions: (i) 100% of the shares of Common Stock 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 Association and members of their immediate families (collectively,
"Insiders") will purchase an aggregate of $1.0 million of Common Stock and the
ESOP will purchase 8% of the Common Stock sold in connection with the Conversion
and issued to the Foundation; (iii) Sandler O'Neill & Partners, L.P. ("Sandler
O'Neill") will receive a fee equal to 1.25% 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 for which Sandler O'Neill will not receive a fee; and
(iv) Conversion expenses, excluding the marketing fees paid to Sandler O'Neill,
will be approximately $850,000. Actual Conversion expenses may vary from those
estimated.
Pro forma consolidated net income of the Company for the seven months ended
July 31, 1998 and for the year ended December 31, 1997, has 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 5.37% (the one year U.S. Treasury bill
rate as of July 31, 1998). The calculations have been based on the one year
Treasury rate, as opposed to the Association's yield on average assets, because
the Association will initially invest the proceeds in shorter term assets at a
lower yield and will more efficiently invest the proceeds over time. 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 Conversion
proceeds. The pro forma after-tax yields for the Company and the Association
are assumed to be 3.44% for both the seven months ended July 31, 1998 and 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 the
Company. 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 Association and pro
forma data of the Company at or for the seven months ended July 31, 1998 and at
or for the year ended December 31, 1997, 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 Conversion. The tables below
give effect to Stock Awards reserved for grant under the Stock-Based Incentive
Plan, which is expected to be adopted by the Company following the Conversion.
See Footnote 3 to the tables and "Management of the Association-- Other Benefit
Plans." 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 Association, to the tax effect of the bad debt reserve and
other factors. See Footnote 6 to the tables below, "The Conversion--
Liquidation Rights" and "Management of the Association-- Other Benefit Plans."
THE FOLLOWING TABLES ASSUME THAT THE FOUNDATION IS APPROVED AS PART OF THE
CONVERSION AND THEREFORE GIVE EFFECT TO THE ISSUANCE OF AUTHORIZED BUT UNISSUED
SHARES OF THE COMPANY'S COMMON STOCK TO THE FOUNDATION CONCURRENTLY WITH THE
COMPLETION OF THE CONVERSION. THE VALUATION RANGE (THE AGGREGATE ESTIMATED PRO
FORMA MARKET VALUE OF THE COMMON STOCK BEING OFFERED FOR SALE, WHICH RANGES FROM
$28.0 MILLION TO $37.8 MILLION, WITH A MIDPOINT OF $32.9 MILLION), AS SET FORTH
HEREIN AND IN THE TABLES BELOW, TAKES INTO ACCOUNT THE DILUTIVE IMPACT OF THE
ISSUANCE OF SHARES TO THE FOUNDATION.
23
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE SEVEN MONTHS ENDED JULY 31, 1998
--------------------------------------------------------------------
4,351,025
2,796,500 3,290,000 3,783,500 SHARES SOLD AT
SHARES SHARES SOLD AT SHARES SOLD AT $10.00
SOLD AT $10.00 $10.00 $10.00 PER SHARE (15%
PER SHARE PER SHARE PER SHARE ABOVE
(MINIMUM (MIDPOINT (MAXIMUM MAXIMUM
OF ESTIMATED OF ESTIMATED OF ESTIMATED OF ESTIMATED
PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE) (8)
-------------- --------------- -------------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross Proceeds...................................... $ 27,965 $ 32,900 $ 37,835 $ 43,510
Plus: Shares issued to Foundation (equal to
8% of the stock sold in the Conversion..... 2,237 2,632 3,027 3,481
---------- ---------- ---------- ----------
Pro forma market capitalization..................... $ 30,202 $ 35,532 $ 40,862 $ 46,991
========== ========== ========== ==========
Gross proceeds...................................... $ 27,965 $ 32,900 $ 37,835 $ 43,510
Less: Offering expenses and commissions............ (1,157) (1,213) (1,269) (1,334)
---------- ---------- ---------- ----------
Estimated net proceeds.............................. 26,808 31,687 36,556 42,176
Less: Common Stock purchased by ESOP............... (2,416) (2,843) (3,269) (3,759)
Common Stock purchased by Stock-Based
Incentive Plan............................... (1,218) (1,421) (1,634) (1,880)
---------- ---------- ---------- ----------
Estimated net proceeds, as adjusted................ $ 23,184 $ 27,423 $ 31,663 $ 36,537
========== ========== ========== ==========
Consolidated net earnings (1):
Historical......................................... $ 1,337 $ 1,337 $ 1,337 $ 1,337
Pro forma earnings on net proceeds................. 465 550 635 733
Less: Pro forma ESOP adjustment (2)............... (60) (71) (81) (94)
Pro forma Stock-Based Incentive Plan
adjustment (3)............................. (90) (106) (122) (140)
---------- ---------- ---------- ----------
Pro forma net earnings...................... $ 1,652 $ 1,710 $ 1,769 $ 1,836
========== ========== ========== ==========
Per share net earnings (1):
Historical......................................... $ 0.48 $ 0.41 $ 0.35 $ 0.31
Pro forma earnings on net proceeds................. 0.17 0.17 0.17 0.17
Less: Pro forma ESOP adjustment (2)............... (0.02) (0.02) (0.02) (0.02)
Pro forma Stock-Based Incentive Plan
adjustment (3)............................. (0.03) (0.03) (0.03) (0.03)
---------- ---------- ---------- ----------
Pro forma net earnings per share(4)......... $ 0.60 $ 0.53 $ 0.47 $ 0.43
========== ========== ========== ==========
Stockholders' equity:
Historical......................................... $ 26,026 $ 26,026 $ 26,026 $ 26,026
Estimated net proceeds............................. 26,808 31,687 36,566 42,176
Plus: Shares issued to Foundation................. 2,237 2,632 3,027 3,481
Less: After tax cost of Foundation (5).......... (1,432) (1,684) (1,937) (2,228)
Common Stock acquired by ESOP (2)......... (2,416) (2,843) (3,269) (3,759)
Common Stock acquired by Stock-Based
Incentive Plan (3)....................... (1,208) (1,421) (1,634) (1,880)
---------- ---------- ---------- ----------
Pro forma stockholders' equity (3)(5)(6)(7).... $ 50,015 $ 54,397 $ 58,779 $ 63,816
========== ========== ========== ==========
Stockholders' equity per share:
Historical......................................... $ 8.62 $ 7.32 $ 6.37 $ 5.54
Estimated net proceeds............................. 8.88 8.92 8.95 8.98
Plus: Shares issued to the Foundation............. 0.74 0.74 0.74 0.74
Less: After tax cost of Foundation (5)............ (0.47) (0.47) (0.47) (0.47)
Common Stock acquired by ESOP (2)........... (0.80) (0.80) (0.80) (0.80)
Common Stock acquired by Stock-Based
Incentive Plan (3)......................... (0.40) (0.40) (0.40) (0.40)
---------- ---------- ---------- ----------
Pro forma stockholders' equity
per share (3)(5)(6)(7).......................... $ 16.57 $ 15.31 $ 14.39 $ 13.59
========== ========== ========== ==========
Offering price as a percentage of pro forma
stockholders' equity per share.................... 60.35% 65.32% 69.49% 73.58%
Offering price to pro forma net earnings per share
(annualized)...................................... 9.72x 11.01x 12.41x 13.57x
</TABLE>
(footnotes on next page)
24
<PAGE>
___________________________
(1) Does not give effect to the non-recurring expense that is expected to be
recognized in 1999 if the establishment of the Foundation is approved. In
that event, the Company will recognize an after-tax expense for the amount
of the contribution to the Foundation which is expected to be $1.4 million,
$1.7 million, $1.9 million, and $2.2 million at the minimum, midpoint,
maximum, and 15% above the maximum of the Estimated Price Range,
respectively.
(2) It is assumed that 8% of the shares of Common Stock sold in the Conversion
and 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 the Company. The amount to be borrowed is
reflected as a reduction of stockholders' equity. The Association intends
to make annual contributions to the ESOP in an amount at least equal to the
principal and interest requirement of the debt. The Association's total
annual payment of the ESOP debt is based upon 15 equal annual installments
of principal, with an assumed interest rate at 8.5%. The pro forma net
earnings assume: (i) that the Association's contribution to the ESOP is
equivalent to the debt service requirement for the seven months ended July
31, 1998, and was made at the end of the period; (ii) that 9,397, 11,055,
12,713 and 14,620 shares at the minimum, midpoint, maximum and 15% above
the maximum of the range, respectively, were committed to be released
during the seven months ended July 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 Association-- Other Benefit Plans--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 the Company following the
Conversion 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 Conversion and issued
to the Foundation, or 120,808, 142,128, 163,447 and 187,964 shares of
Common Stock at the minimum, midpoint, maximum and 15% above the maximum of
the Estimated Price Range, respectively, either through open market
purchases, if permissible, or from authorized but unissued shares of Common
Stock or treasury stock of the Company, if any. Funds used by the Stock-
Based Incentive Plan to purchase the shares will be contributed to the
Stock-Based Incentive Plan by the Company. 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 the Company's Common
Stock to the Stock-Based Incentive Plan instead of open market purchases
would dilute the voting interests of existing stockholders by approximately
3.8% and pro forma net earnings per share would be $0.58, $0.57, $0.46 and
$0.41 at the minimum, midpoint, maximum, and 15% above the maximum of the
range, respectively, and pro forma stockholders' equity per share would be
$15.92, $14.72, $13.83 and $13.06 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 Association--Other Benefit
Plans."
(4) Pro forma net earnings per share is the same for both the basic and diluted
presentations.
(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 sold in the
Conversion and issued to the Foundation, or 302,022, 355,320, 408,618 and
469,910 shares at the minimum, midpoint, maximum and 15% above the maximum
of the Estimated Price Range, respectively, will be reserved for future
issuance upon the exercise of options to be granted under the Stock-Based
Incentive Plan. The issuance of Common Stock pursuant to the exercise of
options under the Stock-Based Incentive Plan will result in the dilution of
existing stockholders' interests. Assuming all options were exercised at
the end of the period at an exercise price of $10.00 per share, the pro
forma net earnings per share would be $0.53, $0.47, $0.42 and $0.38,
respectively, and the pro forma stockholders' equity per share would be
$15.96, $14.83, $13.99 and $13.26, respectively. See "Management of the
Association--Other Benefit Plans."
(7) The retained earnings of the Association will continue to be substantially
restricted after the Conversion. See "Dividend Policy," "The Conversion--
Liquidation Rights" and "Regulation--Federal Regulation of Savings
Institutions--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 Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
25
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------------
4,351,025
2,796,500 3,290,000 3,783,500 SHARES SOLD AT
SHARES SHARES SOLD AT SHARES SOLD AT $10.00
SOLD AT $10.00 $10.00 $10.00 PER SHARE (15%
PER SHARE PER SHARE PER SHARE ABOVE
(MINIMUM (MIDPOINT (MAXIMUM MAXIMUM
OF ESTIMATED OF ESTIMATED OF ESTIMATED OF ESTIMATED
PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE) (8)
-------------- --------------- -------------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross Proceeds....................................... $ 27,965 $ 32,900 $ 37,835 $ 43,510
Plus: Shares issued to Foundation (equal to
8% of the stock sold in the Conversion..... 2,237 2,632 3,027 3,481
---------- ---------- ---------- ----------
Pro forma market capitalization...................... $ 30,202 $ 35,532 $ 40,862 $ 46,991
========== ========== ========== ==========
Gross proceeds....................................... $ 27,965 $ 32,900 $ 37,835 $ 43,510
Less: Offering expenses and commissions............. (1,157) (1,213) (1,269) (1,334)
---------- ---------- ---------- ----------
Estimated net proceeds............................... 26,808 31,687 36,556 42,176
Less: Common Stock purchased by ESOP................ (2,416) (2,843) (3,269) (3,759)
Common Stock purchased by Stock-Based
Incentive Plan.............................. (1,218) (1,421) (1,634) (1,880)
---------- ---------- ---------- ----------
Estimated net proceeds, as adjusted................. $ 23,184 $ 27,423 $ 31,663 $ 36,537
========== ========== ========== ==========
Consolidated net earnings (1):
Historical.......................................... $ 2,266 $ 2,266 $ 2,266 $ 2,266
Pro forma earnings on net proceeds.................. 798 943 1,089 1,257
Less: Pro forma ESOP adjustment (2)................ (103) (121) (139) (160)
Pro forma Stock-Based Incentive Plan
adjustment (3)............................. (155) (182) (209) (241)
---------- ---------- ---------- ----------
Pro forma net earnings............................ $ 2,806 $ 2,906 $ 3,007 $ 3,122
========== ========== ========== ==========
Per share net earnings (1):
Historical.......................................... $ 0.81 $ 0.69 $ 0.60 $ 0.52
Pro forma earnings on net proceeds.................. 0.29 0.29 0.29 0.29
Less: Pro forma ESOP adjustment (2)................ (0.04) (0.04) (0.04) (0.04)
Pro forma Stock-Based Incentive Plan
adjustment (3)............................. (0.06) (0.06) (0.06) (0.06)
---------- ---------- ---------- ----------
Pro forma net earnings per share (4).............. $ 1.00 $ 0.88 $ 0.79 $ 0.71
========== ========== ========== ==========
Stockholders' equity:
Historical.......................................... $ 24,689 $ 24,689 $ 24,689 $ 24,689
Estimated net proceeds.............................. 26,808 31,687 36,566 42,176
Plus: Shares issued to Foundation.................. 2,237 2,632 3,027 3,481
Less: After tax cost of Foundation (5)........... (1,432) (1,684) (1,937) (2,228)
Common Stock acquired by ESOP (2).......... (2,416) (2,843) (3,269) (3,759)
Common Stock acquired by Stock-Based
Incentive Plan (3)....................... (1,208) (1,421) (1,634) (1,880)
---------- ---------- ---------- ----------
Pro forma stockholders' equity (3)(5)(6)(7)..... $ 48,678 $ 53,060 $ 57,442 $ 62,479
========== ========== ========== ==========
Stockholders' equity per share:
Historical.......................................... $ 8.17 $ 6.95 $ 6.04 $ 5.25
Estimated net proceeds.............................. 8.88 8.92 8.95 8.98
Plus: Shares issued to the Foundation.............. 0.74 0.74 0.74 0.74
Less: After tax cost of Foundation (5)............. (0.47) (0.47) (0.47) (0.47)
Common Stock acquired by ESOP (2)............ (0.80) (0.80) (0.80) (0.80)
Common Stock acquired by Stock-Based
Incentive Plan (3)......................... (0.40) (0.40) (0.40) (0.40)
---------- ---------- ---------- ----------
Pro forma stockholders' equity
per share (3)(5)(6)(7)........................... $ 16.12 $ 14.94 $ 14.06 $ 13.30
========== ========== ========== ==========
Offering price as a percentage of pro forma
stockholders' equity per share..................... 62.03% 66.93% 71.12% 75.19%
Offering price to pro forma net earnings per share... 10.00x 11.36x 12.66x 14.08x
</TABLE>
(footnotes on next page)
26
<PAGE>
(1) Does not give effect to the non-recurring expense that is expected to be
recognized in 1999 if the establishment of the Foundation is approved. In
that event, the Company will recognize an after-tax expense for the amount
of the contribution to the Foundation which is expected to be $1.4 million,
$1.7 million, $1.9 million, and $2.2 million at the minimum, midpoint,
maximum, and 15% above the maximum of the Estimated Price Range,
respectively.
(2) It is assumed that 8% of the shares of Common Stock sold in the Conversion
and 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 the Company. The amount to be borrowed is
reflected as a reduction of stockholders' equity. The Association intends
to make annual contributions to the ESOP in an amount at least equal to the
principal and interest requirement of the debt. The Association's total
annual payment of the ESOP debt is based upon 15 equal annual installments
of principal, with an assumed interest rate at 8.5%. The pro forma net
earnings assume: (i) that the Association'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 16,109, 18,951,
21,794 and 25,063 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 Association-- Other Benefit Plans--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 the Company following the
Conversion 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 Conversion and issued
to the Foundation, or 120,808, 142,128, 163,447 and 187,964 shares of
Common Stock at the minimum, midpoint, maximum and 15% above the maximum of
the Estimated Price Range, respectively, either through open market
purchases, if permissible, or from authorized but unissued shares of Common
Stock or treasury stock of the Company, if any. Funds used by the Stock-
Based Incentive Plan to purchase the shares will be contributed to the
Stock-Based Incentive Plan by the Company. 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 the Company's Common
Stock to the Stock-Based Incentive Plan instead of open market purchases
would dilute the voting interests of existing stockholders by approximately
3.8% and pro forma net earnings per share would be $0.98, $0.86, $0.78 and
$0.70 at the minimum, midpoint, maximum, and 15% above the maximum of the
range, respectively, and pro forma stockholders' equity per share would be
$15.50, $14.36, $13.52 and $12.78 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 Association--Other Benefit
Plans."
(4) Pro forma net earnings per share is the same for both the basic and diluted
presentations.
(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 sold in the
Conversion and issued to the Foundation, or 302,022, 355,320, 408,618, and
469,910 shares at the minimum, midpoint, maximum and 15% above the maximum
of the Estimated Price Range, respectively, will be reserved for future
issuance upon the exercise of options to be granted under the Stock-Based
Incentive Plan. The issuance of Common Stock pursuant to the exercise of
options under the Stock-Based Incentive Plan will result in the dilution of
existing stockholders' interests. Assuming all options were exercised at
the end of the period at an exercise price of $10.00 per share, the pro
forma net earnings per share would be $0.91, $0.80, $0.72 and $0.85,
respectively, and the pro forma stockholders' equity per share would be
$15.56, $14.48, $13.69 and $13.00, respectively. See "Management of the
Association--Other Benefit Plans."
(7) The retained earnings of the Association will continue to be substantially
restricted after the Conversion. See "Dividend Policy," "The Conversion--
Liquidation Rights" and "Regulation--Federal Regulation of Savings
Institutions--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 Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
27
<PAGE>
COMPARISON OF VALUATION AND
PRO FORMA INFORMATION WITH NO FOUNDATION
In the event that the Foundation was not being established as part of the
Conversion, FinPro has estimated that the pro forma market capitalization of the
Association would be approximately $38.0 million, at the midpoint, which is
approximately $2.5 million greater than the pro forma market capitalization of
the Association if the Foundation is approved by members of the Association and
would result in approximately a $5.1 million increase, or 15.5%, in the amount
of Common Stock offered for sale in the Conversion. The pro forma price to book
ratio and pro forma price to earnings ratio would be approximately the same
under both the current appraisal and the estimate of the value of the Company
without the Foundation. Further, assuming the midpoint of the Estimated Price
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 per share and pro forma net
income per share would be $15.31 and $0.51, respectively, at the midpoint of the
estimate, assuming no Foundation, and $15.31 and $0.53, respectively, with the
Foundation. The pro forma price to book ratio and the pro forma price to
earnings ratio are 65.32% and 11.44x, respectively, at the midpoint of the
estimate, assuming no Foundation and are 65.32% and 11.01x, 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 the Company 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 Estimated Price Range, assuming the Conversion was completed at
July 31, 1998, using the assumptions set forth in "Pro Forma Data."
<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....... $ 27,965 $ 32,300 $ 32,900 $ 38,000 $ 37,835 $ 43,700 $ 43,510 $ 50,255
Pro forma market
capitalization................. 30,202 32,300 35,532 38,000 40,862 43,700 46,991 50,255
Pro forma total assets.......... 283,698 286,924 288,080 291,875 292,462 296,825 297,499 302,519
Pro forma total liabilities..... 233,683 233,683 233,683 233,683 233,683 233,683 233,683 233,683
Pro forma stockholders'
equity......................... 50,015 53,241 54,397 58,192 58,779 63,142 63,816 68,836
Pro forma consolidated net
earnings...................... 1,652 1,723 1,710 1,793 1,769 1,864 1,836 1,946
Pro forma stockholders'
equity per share............... 16.57 16.49 15.31 15.31 14.39 14.45 13.59 13.70
Pro forma consolidated net
earnings per share............ 0.60 0.58 0.53 0.51 0.47 0.46 0.43 0.43
Pro Forma Pricing Ratios:
Offering Price as a
percentage of pro forma
stockholders' equity
per share..................... 60.35% 60.64% 65.32% 65.32% 69.49% 69.20% 73.58% 72.99%
Offering price to pro
forma net earnings
per share (annualized)........ 9.72x 10.06x 11.01x 11.44x 12.41x 12.68x 13.57x 13.57x
Offering price to assets....... 10.65% 11.26% 12.33% 13.02% 13.97% 14.72% 15.80% 16.61%
Pro Forma Financial Ratios:
Return on Assets............... 1.00% 1.03% 1.02% 1.05% 1.04% 1.08% 1.06% 1.10%
Return on stockholders'
equity........................ 5.66% 5.55% 5.39% 5.28% 5.16% 5.06% 4.93% 4.85%
Stockholders' equity to
assets........................ 17.63% 18.56% 18.88% 19.94% 20.10% 21.27% 21.45% 22.75%
</TABLE>
28
<PAGE>
SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF INCOME
The following Statements of Income of the Association for the years ended
December 31, 1997, 1996 and 1995 have been audited by Deloitte & Touche, LLP,
independent auditors, whose report thereon is included elsewhere in this
Prospectus. With respect to the information for the seven months ended July 31,
1998 and 1997, which is unaudited, in the opinion of management, all adjustments
for a fair presentation of such interim periods have been included and are of a
normal recurring nature. Results for the seven months ended July 31, 1998, are
not necessarily indicative of the results that may be expected for the year
ending 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 Prospectus.
<TABLE>
<CAPTION>
FOR THE SEVEN
MONTHS ENDED
JULY 31, FOR THE YEAR ENDED DECEMBER 31,
----------------- -----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans.............................. $ 4,681 $ 4,882 $ 8,323 $ 8,550 $ 8,918 $ 9,077 $ 9,277
Mortgage-backed securities......... 2,018 1,986 3,434 2,960 2,529 2,303 3,046
Investment securities:
Taxable......................... 3,894 3,307 5,849 5,446 4,709 3,966 3,267
Non-taxable..................... -- -- -- -- 16 21 25
------- ------- ------- ------- ------- ------- -------
Total interest income........ 10,593 10,175 17,606 16,956 16,172 15,367 15,615
Interest expense:
Deposits........................... 5,665 5,368 9,318 9,118 8,579 7,413 7,564
FHLB advances and other............ 7 7 12 12 12 12 12
------- ------- ------- ------- ------- ------- -------
Total interest expense....... 5,672 5,375 9,330 9,130 8,591 7,425 7,576
------- ------- ------- ------- ------- ------- -------
Net interest income................... 4,921 4,800 8,276 7,826 7,581 7,942 8,039
Provision for loan losses............. 175 233 400 180 180 300 400
------- ------- ------- ------- ------- ------- -------
Net interest income after provision
for loan losses.................... 4,746 4,567 7,876 7,646 7,401 7,642 7,639
Noninterest Income:
Service charges and other fees..... 350 356 623 669 605 639 724
Gain (loss) on sale of:
Real estate owned............... -- -- (14) -- 16 12 6
Loans........................... -- -- -- -- 9 12 --
Other........................... 5 8 14 13 23 17 14
------- ------- ------- ------- ------- ------- -------
Total noninterest income..... 355 364 623 682 653 680 744
Noninterest expense:
Personnel.......................... 1,845 1,736 2,977 2,920 2,717 2,711 2,481
Fixed asset........................ 425 413 723 669 600 623 530
Federal deposit insurance.......... 80 81 138 456 463 461 407
SAIF assessment.................... -- -- -- 1,314 -- -- --
Service bureau..................... 206 194 327 326 316 305 300
Advertising........................ 40 33 55 76 72 52 52
Other.............................. 416 445 740 757 742 724 736
------- ------- ------- ------- ------- ------- -------
Total noninterest expense.... 3,012 2,902 4,960 6,518 4,910 4,876 4,506
------- ------- ------- ------- ------- ------- -------
Income before income taxes............ 2,089 2,029 3,539 1,810 3,144 3,446 3,877
Income taxes.......................... 752 730 1,273 654 1,120 1,257 1,572
------- ------- ------- ------- ------- ------- -------
Net income............................ $ 1,337 $ 1,299 $ 2,266 $ 1,156 $ 2,024 $ 2,189 $ 2,305
======= ======= ======= ======= ======= ======= =======
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company has only recently been formed and, accordingly, has no results
of operations. The Association's results of operations are dependent primarily
on net interest income, which is the difference between the income earned on its
loan and investment portfolios and its cost of funds, consisting of the interest
paid on deposits and borrowings. Results of operations are also affected by the
Association's provision for loan losses, security sales activities, service
charges and other fee income, and noninterest expense. The Association's
noninterest expense principally consists of compensation and employee benefits,
office occupancy and equipment expense, federal deposit insurance premiums, data
processing, advertising and business promotion 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.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements which are based
on certain assumptions and describe future plans, strategies and expectations of
the Company. These forward-looking statements are generally identified by use
of the words "believe," "expect," "intend," "anticipate," "estimate," "project,"
or similar expressions. The Company's ability to predict results or the actual
effect of future plans or strategies is inherently uncertain. Factors which
could have a material adverse effect on the operations of the Company and the
subsidiaries include, but are not limited to, changes in interest rates, general
economic conditions, legislative/regulatory changes, monetary and fiscal
policies of the U.S. Government, including policies of the U.S. Treasury and the
Federal Reserve Board, the quality or composition of the loan or investment
portfolios, demand for loan products, deposit flows, competition, demand for
financial services in the Company's market area and accounting principles and
guidelines. These risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be placed on such
statements. The Company does not undertake -- and specifically disclaims any
obligation -- to publicly release the result of any revisions which may be made
to any forward-looking statements to reflect events or circumstances after the
date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
MANAGEMENT STRATEGY
The Association operates as a family, consumer-oriented savings and loan
association, offering traditional savings deposit and loan products to its local
community. In recent years, the Association's strategy has been to maintain
profitability while managing its equity position and limiting its credit and
interest rate risk exposure. To accomplish these objectives, the Association
has sought to:
. Control credit risk by emphasizing the origination of single-family,
owner-occupied residential mortgage loans and consumer loans, consisting
primarily of home equity loans and lines of credit and education loans
. Offer superior service and competitive rates to increase its core
deposit base
. Invest funds in excess of loan demand in mortgage-backed and
investment securities
. Control operating expenses
In recent years, most locally headquartered competitors in the
Association's primary market area have been acquired by larger, regional
financial institutions, resulting in a reduced presence of local, community-
based institutions. The Association believes that this reduction of community-
based institutions has created opportunities for the Association, as one of the
few remaining locally headquartered financial institutions in its primary market
area, to achieve controlled asset growth and moderate geographic expansion. To
take advantage of this perceived opportunity, the Association intends to
continue its current operating strategy in an effort to enhance its long-term
profitability while maintaining a reasonable level of interest rate risk. The
Association also intends to enhance its current operating strategy
30
<PAGE>
by expanding the products and services it offers, as necessary, in order to
improve its market share in its primary market area. In this regard, the
Association has begun to offer new IRA deposit products and has recently
introduced 24 hour banking by telephone with voice response capabilities. The
Association may also seek to expand its lending activities into areas outside of
its primary market area. See "Risk Factors -- Low Demand for Mortgage Loans and
Diminished Loan Growth."
MANAGEMENT OF INTEREST RATE RISK AND MARKET RISK ANALYSIS
The principal objective of the Association's interest rate risk management
is to evaluate the interest rate risk included in certain balance sheet
accounts, determine the level of risk appropriate given the Association's
business strategy, operating environment, capital and liquidity requirements and
performance objectives, and manage the risk consistent with the Association's
Interest Rate Risk Management Policy. Through such management, the Association
seeks to reduce the vulnerability of its operations to changes in interest
rates. The Board of Directors is responsible for reviewing asset/liability
policies and interest rate risk position. The Board of Directors reviews the
Association's interest rate risk position on a quarterly basis. In connection
with such review, the Board evaluates the Association's business activities and
strategies, the effect of those strategies on the Association's net interest
margin, the market value of the portfolio, and the effect the changes in
interest rates will have on the Association's portfolio and exposure limits.
The extent of the movement of interest rates is an uncertainty that could have a
negative impact on the earnings of the Association. See "Risk Factors--
Sensitivity to Changes in Interest Rates."
In recent years, the Association has utilized the following strategies to
manage interest rate risk: (1) emphasizing and competitively pricing its
adjustable-rate and shorter-term (up to 15 years) fixed-rate loan products in an
effort to make those products more attractive to potential borrowers; and (2)
investing in shorter-term securities which generally bear lower yields, compared
to longer-term investments, but which better position the Association for
increases in market interest rates.
NET PORTFOLIO VALUE. The Association's interest rate sensitivity is
primarily monitored by management through the use of a model which internally
generates estimates of the change in the Association'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 model is based upon data
submitted on the Association's quarterly Thrift Financial Reports. See
"Regulation--Federal Regulation of Savings Institutions." The following table
sets forth the Association's NPV as of June 30, 1998 (the latest NPV analysis
prepared by the OTS), as calculated by the OTS.
<TABLE>
<CAPTION>
NPV AS % OF PRESENT
CHANGE IN VALUE OF ASSETS
INTEREST RATES NET PORTFOLIO VALUE -------------------
IN BASIS POINTS --------------------------------- NPV
(RATE SHOCK) AMOUNT $ CHANGE % CHANGE RATIO CHANGE (1)
- --------------- ------- --------- -------- ------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
400 $29,269 $(3,700) (11)% 11.57% (84)
300 30,737 (2,232) (7) 11.98 (43)
200 32,092 (877) (3) 12.34 (7)
100 33,026 57 -- 12.54 13
Static 32,969 -- -- 12.41 --
(100) 33,107 138 -- 12.33 (8)
(200) 32,681 (288) (1) 12.07 (34)
(300) 32,974 5 -- 12.04 (37)
(400) 33,519 550 2 12.09 (32)
</TABLE>
___________________________
(1) Expressed in basis points.
31
<PAGE>
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 Association'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 table provides an indication of the
Association'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 Association'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 rate earned or paid on them.
32
<PAGE>
AVERAGE BALANCE SHEETS. The following tables set forth certain information
relating to the Association at and for the seven months ended July 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 monthly
balances. The yields and costs include fees which are considered adjustments to
yields.
<TABLE>
<CAPTION>
FOR THE SEVEN MONTHS ENDED JULY 31,
------------------------------------------------------------------
AT JULY 31, 1998 1998 1997
------------------ -------------------------------- -------------------------------
AVERAGE AVERAGE
YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
--------- ------ --------- -------- ------- --------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans (1):
Real estate................. $ 82,105 7.89% $ 82,006 $ 3,782 7.91% $ 85,343 $ 3,944 7.92%
Consumer.................... 17,458 8.55 17,930 899 8.63 18,632 938 8.67
-------- -------- ------- -------- -------
Total loans............... 99,563 8.01 99,936 4,681 8.06 103,975 4,882 8.06
Mortgage-backed securities.... 48,352 7.35 46,516 2,018 7.44 43,972 1,986 7.74
Investment securities (2):
Taxable..................... 88,305 6.74 84,226 3,371 6.86 77,478 2,996 6.63
Non-taxable (3)............. -- -- -- -- -- -- -- --
Interest-bearing deposits..... 14,796 6.42 16,208 523 5.55 9,880 311 5.41
-------- -------- ------- -------- -------
Total interest-earning
assets.................. 251,016 7.34 246,886 10,593 7.36 235,305 10,175 7.42
Noninterest-earning assets...... 8,693 7,372 6,831
-------- -------- --------
Total assets.............. $259,709 $254,258 $242,136
======== ======== ========
INTEREST-BEARING LIABILITIES:
Deposits...................... $231,156 4.30 $226,907 5,665 4.30 $217,188 5,368 4.26
FHLB advances................. 176 6.62 176 7 6.61 176 7 6.65
-------- -------- ------- -------- -------
Total interest-bearing
liabilities............. 231,332 4.30% 227,083 5,672 4.30 217,364 5,375 4.26
Noninterest-bearing
liabilities................. 2,351 1,804 1,697
-------- -------- --------
Total liabilities......... 233,683 228,887 219,061
Equity........................ 26,026 25,371 23,075
-------- -------- --------
Total liabilities
and equity.............. $259,709 $254,258 $242,136
======== ======== ========
Net interest-earning assets... $ 19,803 $ 17,941
======== ========
Net interest income/interest
rate spread (4)............. 3.04% $ 4,921 3.06% $ 4,800 3.16%
==== ======= ==== ======= ====
Net interest margin as a
percentage of interest-
earning assets (5).......... 3.40% 3.48%
======= =======
Ratio of interest-earning
assets to interest-
bearing liabilities......... 108.51% 108.72% 108.25%
======== ======== ========
</TABLE>
_________________________________
(1) Balances are net of deferred loan origination costs, undisbursed proceeds
of construction loans in process, and include nonperforming loans.
(2) Includes investment securities held-to-maturity and stock in the FHLB New
York.
(3) Interest and Yield/Rate are presented on a taxable equivalent basis using
the combined Federal and state income tax marginal rate of 36% for 1995.
(4) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(5) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
33
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------ ------------------------------ ------------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
--------- -------- ------- --------- -------- ------- --------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans (1):
Real estate.................. $ 84,564 $ 6,705 7.93% $ 88,209 $ 7,007 7.94% $ 91,259 $ 7,360 8.06%
Consumer..................... 18,691 1,618 8.66 17,559 1,543 8.79 17,235 1,558 9.04
-------- ------- -------- ------- -------- -------
Total loans................ 103,255 8,323 8.06 105,768 8,550 8.08 108,494 8,918 8.22
Mortgage-backed securities..... 44,506 3,434 7.72 37,609 2,960 7.87 31,152 2,529 8.12
Investment securities (2):
Taxable...................... 78,114 5,244 6.71 77,974 4,941 6.34 69,371 4,122 5.94
Non-taxable (3).............. -- -- -- -- -- -- 190 25 13.16
Interest-bearing deposits..... 11,152 605 5.42 9,892 505 5.10 10,689 587 5.49
-------- ------- -------- ------- -------- -------
Total interest-earning
assets................... 237,027 17,606 7.43 231,243 16,956 7.33 219,896 16,181 7.35
Noninterest-earning assets....... 7,037 6,794 6,798
-------- -------- --------
Total assets............... $244,064 $238,037 $226,694
======== ======== ========
INTEREST-BEARING LIABILITIES:
Deposits....................... $218,553 9,318 4.26 $213,715 9,118 4.27 $204,220 8,579 4.20
FHLB advances.................. 176 12 6.82 176 12 6.82 176 12 6.82
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities.............. 218,729 9,330 4.27 213,891 9,130 4.27 204,396 8,591 4.20
Noninterest-bearing
liabilities.................. 1,787 2,171 2,014
-------- -------- --------
Total liabilities.......... 220,516 216,062 206,410
Equity......................... 23,548 21,975 20,284
-------- -------- --------
Total liabilities
and equity.............. $244,064 $238,037 $226,694
======== ======== ========
Net interest-earning assets.... $ 18,298 $ 17,352 $ 15,500
======== ======== ========
Net interest income/
interest rate spread (4)..... $ 8,276 3.16% $ 7,826 3.06% $ 7,590 3.15%
======= ==== ======= ==== ======= =====
Net interest margin as a
percentage of interest-
earning assets (5)........... 3.49% 3.38% 3.45%
======= ======= =======
Ratio of interest-earning
assets to interest-
bearing liabilities.......... 108.37% 108.11% 107.58%
======== ======== ========
</TABLE>
_________________________________
(1) Balances are net of deferred loan origination costs, undisbursed proceeds
of construction loans in process, and include nonperforming loans.
(2) Includes investment securities held-to-maturity and stock in the FHLB New
York.
(3) Interest and Yield/Rate are presented on a taxable equivalent basis using
the combined Federal and state income tax marginal rate of 36% for 1995.
(4) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(5) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
34
<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 Association'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>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
SEVEN MONTHS ENDED JULY 31, COMPARED TO COMPARED TO
1998 COMPARED TO SEVEN YEAR ENDED YEAR ENDED
MONTHS ENDED JULY 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------------- ---------------------------- ----------------------------
INCREASE (DECREASE) INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO DUE TO
------------------- ------------------- -------------------
RATE VOLUME NET RATE VOLUME NET RATE VOLUME NET
-------- -------- ------ -------- -------- ------ -------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans:
Real estate........................ $ (6) $(156) $(162) $(11) $(291) $(302) $(110) $(243) $(353)
Consumer........................... (4) (35) (39) (24) 99 75 (44) 29 (15)
---- ----- ----- ---- ----- ----- ----- ----- -----
Total loans...................... (10) (191) (201) (35) (192) (227) (154) (214) (368)
Mortgage-backed securities........... (80) 112 32 (62) 536 474 (85) 516 431
Investment securities (taxable)...... 109 266 375 294 9 303 292 527 819
Investment securities
(non taxable)....................... -- -- -- -- -- -- (25) -- (25)
Interest-earning deposits............ 8 204 212 34 66 100 (40) (42) (82)
---- ----- ----- ---- ----- ----- ----- ----- -----
Total interest-earning assets.... 27 391 418 231 419 650 (12) 787 775
---- ----- ----- ---- ----- ----- ----- ----- -----
INTEREST-BEARING LIABILITIES:
Deposits............................. 53 244 297 (14) 214 200 141 398 539
---- ----- ----- ---- ----- ----- ----- ----- -----
Increase(decrease) in net
interest income....................... $(26) $ 147 $ 121 $245 $ 205 $ 450 $(153) $ 389 $ 236
==== ===== ===== ==== ===== ===== ===== ===== =====
</TABLE>
35
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT JULY 31, 1998 AND DECEMBER 31, 1997
Total assets increased by $9.9 million, or 4.0%, to $259.7 million at July
31, 1998 from $249.8 million at December 31, 1997. The growth in assets was
primarily due to an increase in investment securities which was funded primarily
through deposit inflows and retained earnings.
Cash and cash equivalents decreased $2.0 million, or 10.4%, to $17.2
million at July 31, 1998 from $19.2 million at December 31, 1997. The decrease
in cash and cash equivalents was primarily due to a decrease in federal funds
sold. The Association's portfolio of securities held-to-maturity increased by
$11.2 million, or 8.9%, to $136.7 million at July 31, 1998 from $125.5 million
at December 31, 1997. The increase was primarily due to growth in the U.S.
agency callable security portfolio and the mortgage-backed security portfolio.
The Association's outstanding loans, net, increased $596,000, or 0.6%, to
$99.6 million at July 31, 1998 from $99.0 million at December 31, 1997. Real
estate loans increased by $1.5 million, or 1.9%, to $83.2 million at July 31,
1998, from $81.7 million at December 31, 1997. One- to four-family loans
increased by $1.7 million, or 2.2%, and multi-family and commercial real estate
loans decreased by $167,000, or 5.3%. Consumer loans decreased by $841,000, or
4.6%, to $17.6 million at July 31, 1998 from $18.4 million at December 31, 1997.
Nonperforming loans decreased to $415,000 at July 31, 1998 from $631,000 at
December 31, 1997, representing 0.41% and 0.63%, respectively, of total loans at
such dates. Nonperforming assets and troubled debt restructurings also decreased
to 0.18% at July 31, 1998, from 0.25% at December 31, 1997 of total assets at
such dates.
Total deposits increased by $8.0 million, or 3.6%, to $231.2 million at
July 31, 1998, from $223.2 million at December 31, 1997. The increase was
primarily due to an increase of $7.1 million, or 6.4%, in certificates of
deposit to $118.4 million at July 31, 1998 from $111.3 million at December 31,
1997. The increase in certificates of deposit was primarily due to the
Association's strategy of offering more competitive rates on such deposits.
Noninterest-bearing demand accounts increased by $726,000, or 17.0%, due
primarily to the Association's active solicitation of such accounts. FHLB
advances remained constant at $176,000 during this period.
Total equity increased by $1.3 million, or 5.4%, to $26.0 million at July
31, 1998 from $24.7 million at December 31, 1997. The increase in equity was a
result of net income of $1.3 million.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1997 AND DECEMBER 31, 1996
Total assets increased by $8.6 million, or 3.6%, to $249.8 million at
December 31, 1997 from $241.2 million at December 31, 1996. The growth in assets
was primarily due to an increase in federal funds sold and the mortgage-backed
security portfolio which was funded primarily through deposit inflows and
retained earnings.
Cash and cash equivalents increased $8.3 million, or 76.2%, to $19.2
million at December 31, 1997 from $10.9 million at December 31, 1996. The growth
in cash and cash equivalents was primarily due to an increase in federal funds
sold. The Association's portfolio of securities held-to-maturity increased by
$5.8 million, or 4.9%, to $125.5 million at December 31, 1997 from $119.7
million at December 31, 1996. The increase was primarily due to growth in the
mortgage-backed security portfolio and the U.S. agency callable security
portfolio.
The Association's outstanding loans, net, decreased $5.3 million, or 5.1%,
to $99.0 million at December 31, 1997 from $104.3 million at December 31, 1996.
Real estate loans decreased by $5.7 million, or 6.5%, to $81.7 million at
December 31, 1997, from $87.4 million at December 31, 1996. One- to four-family
loans decreased by $2.2 million, or 2.7%, and multi-family and commercial real
estate loans decreased by $3.5 million, or 52.6%. The decrease in multi-family
and commercial real estate loans was primarily due to a payoff, in the amount of
$2.6 million, of the Association's largest commercial real estate loan. Consumer
loans decreased by $293,000, or 1.6%, to $18.4 million at December 31, 1997 from
$18.7 million at December 31, 1996.
Nonperforming loans decreased to $631,000 at December 31, 1997 from
$844,000 at December 31, 1996, representing 0.63% and 0.80%, respectively, of
total loans at such dates. Nonperforming assets and troubled debt restructurings
also decreased to 0.25% at December 31, 1997, from 0.41% at December 31, 1996 of
total assets at such dates.
36
<PAGE>
Total deposits increased by $6.4 million, or 2.9%, to $223.2 million at
December 31, 1997, from $216.8 million at December 31, 1996. The increase was
primarily due to an increase of $4.0 million, or 3.7%, in certificates of
deposit to $111.3 million at December 31, 1997 from $107.3 million at
December 31, 1996. The increase in certificates of deposit was primarily due to
the Association's strategy of offering more competitive rates on such deposits
in an effort to attract longer-term deposits. The increase in certificate
accounts was augmented by an increase in core deposits (savings, money market
and NOW accounts) which increased to $107.7 million at December 31, 1997 from
$105.3 million at December 31, 1996. Non-interest-bearing demand accounts
remained constant at $4.2 million. FHLB advances remained constant at $176,000
during this period.
Total equity increased by $2.3 million, or 10.1%, to $24.7 million at
December 31, 1997 from $22.4 million at December 31, 1996. The increase in
equity was a result of net income of $2.3 million.
COMPARISON OF OPERATING RESULTS FOR THE SEVEN MONTHS ENDED JULY 31, 1998 AND
JULY 31, 1997
GENERAL. Net income for the seven months ended July 31, 1998 totalled
$1,337,000 which was an increase of $38,000, or 2.9%, from $1,299,000 for the
seven months ended July 31, 1997. The increase was due to an increase in net
interest income and a decrease in the provision for loan loss allowance. These
items were mostly offset by an increase in non-interest expense.
INTEREST INCOME. Total interest income increased by $418,000, or 4.1%, to
$10.6 million for the seven months ended July 31, 1998, from $10.2 million for
the seven months ended July 31, 1997, primarily due to a $11.6 million, or 4.9%,
increase in the average balance of interest earning assets, offset by a slight
decrease in the weighted average yield on interest earning assets, which
decreased to 7.36% for the seven months ended July 31, 1998 from 7.42% for the
seven months ended July 31, 1997. Interest income on real estate loans decreased
$161,000, or 4.1%, to $3.8 million for the seven months ended July 31, 1998 from
$3.9 million for the seven months ended July 31, 1997, primarily due to a
$3.3 million decrease in the average balance of real estate loans and a 1 basis
point decrease in the weighted average yield to 7.91% for the seven months ended
July 31, 1998, from 7.92% for the seven months ended July 31, 1997. The decrease
in the average balance of real estate loans was primarily due to a decrease in
the average balance of multi-family and commercial real estate loans of
$3.5 million. Interest income on consumer loans decreased $39,000 to $899,000
for the seven months ended July 31, 1998 from $938,000 for the seven months
ended July 31, 1997. This was principally due to a decrease in the average
balance of consumer loans of $702,000, or 3.8%, to $17.9 million for the seven
months ended July 31, 1998 from $18.6 million for the seven months ended
July 31, 1997, and a 4 basis point decrease in the yield on such loans. Interest
income on securities increased by $618,000, or 11.7%, to $5.9 million for the
seven months ended July 31, 1998, from $5.3 million for the seven months ended
July 31, 1997. This increase was primarily a result of a $586,000 increase in
interest income on investment securities, attributable to a $13.1 million
increase in the average balance of such securities to $100.4 million, and an
increase in the weighted average yield of 14 basis points. Interest income on
mortgage-backed securities remained stable at $2.0 million due to a higher
average balance of such securities, offset by a decrease in the weighted average
yield of such portfolio to 7.44% for the seven months ended July 31, 1998 from
7.74% for the seven months ended July 31, 1997.
INTEREST EXPENSE. Interest expense increased by $297,000, or 5.5%, to
$5.7 million for the seven months ended July 31, 1998 from $5.4 million for the
seven months ended July 31, 1997. The increase in interest expense resulted from
increased interest expense on certificates of deposit, which was a result of a
$7.2 million, or 6.7%, increase in the average balance of such accounts to
$114.8 million for the seven months ended July 31, 1998, from $107.6 million for
the seven months ended July 31, 1997, and by a 9 basis point increase in the
weighted average rate paid on such accounts for the seven months ended July 31,
1998 when compared to the same period in 1997. The increase in the average
balance of certificates of deposit was due primarily to the Association's
efforts to solicit certificate accounts by more competitively pricing such
accounts in an effort to attract longer-term deposits.
PROVISION FOR LOAN LOSSES. The Association's provision for loan losses for
the seven months ended July 31, 1998 was $175,000 compared with $233,000 for the
seven months ended July 31, 1997. The $58,000, or 24.9%, decrease in the
provisions for loan losses in 1998 was primarily due to the payoff in 1997 of
the Association's largest commercial real estate loan, on which provisions had
been made for a potential loss. The allowance for loan losses at July 31, 1998
was 0.81% of total loans, compared to 1.35% at July 31, 1997. At July 31, 1998
and 1997, the ratio of the allowance for loan losses to non-performing loans was
197.4% and 154.4%, respectively. Management periodically analyzes the
sufficiency of its allowance based upon portfolio composition, asset
classifications, loan-to-value ratios,
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potential impairments in the loan portfolio, and other factors. Management plans
to continue its emphasis on one-to four-family mortgage loans and consumer
loans, and therefore believes that the provision for loan losses and the
allowance for loan losses are currently reasonable and adequate to cover any
potential losses reasonably expected in the existing loan portfolio. While
management estimates loan losses using the best available information, no
assurance can be given that future additions to the allowance will not be
necessary based on changes in economic and real estate market conditions,
further information obtained regarding problem loans, identification of
additional problem loans and other factors, both within and outside of
management's control.
NONINTEREST INCOME. In the seven months ended July 31, 1998, the
Association experienced a decrease of $9,000, or 2.8%, in noninterest income to
$355,000 from $364,000 for the seven months ended July 31, 1997. The decrease
was primarily due to a decrease in checking account fees and consumer insurance
fees, because the product was not offered for the full year due to a change in
insurance carriers.
NONINTEREST EXPENSE. Total noninterest expense increased $109,000, or
3.8%, to $3.0 million for the seven months ended July 31, 1998, from $2.9
million for the seven months ended July 31, 1997. Compensation and employee
benefits increased $109,000, or 6.3% to $1.8 million for the seven months ended
July 31, 1998, from $1.7 million for the seven months ended July 31, 1997,
primarily due to normal increases in salaries as well as increases in benefits
costs. Other noninterest expense remained stable during the two periods. The
Company expects increased expenses in the future as a result of the
establishment of the ESOP, Stock-Based Incentive Plan and Supplemental Executive
Retirement Program and the need to satisfy reporting and the obligations of a
publicly owned company.
INCOME TAXES. Income tax expense totalled $752,000 for the seven months
ended July 31, 1998 compared to $730,000 for the seven months ended July 31,
1997, resulting in effective tax rates of 36.0% for both the seven months ended
July 31, 1998 and 1997, respectively. The increase in income tax expense for the
seven months ended July 31, 1998 was attributable to an increase in pre-tax
income, which increased to $2.1 million for the seven months ended July 31, 1998
from $2.0 million for the seven months ended July 31, 1997.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND
DECEMBER 31, 1996
GENERAL. Net income for the year ended December 31, 1997 totalled $2.3
million which was an increase of $l.1 million, or 95.9%, from $1.2 million for
the year ended December 31, 1996. The increase was primarily due to a decrease
in noninterest expense and, in particular, insurance premiums, resulting from
the absence of the one time special assessment of $1.3 million to recapitalize
the SAIF which occurred in the fourth quarter of 1996. Net income also increased
due to an increase in net interest income and a decrease in noninterest expense.
These items were partially offset by an increase in the provision for loan
losses, and a decrease in noninterest income.
INTEREST INCOME. Total interest income increased by $650,000, or 3.8%, to
$17.6 million for the year ended December 31, 1997 from $17.0 million in 1996,
primarily due to a $5.8 million, or 2.5%, increase in the average balance of
interest earning assets and an increase in the weighted average yield on
interest earning assets, which increased to 7.43% for the year ended December
31, 1997 from 7.33% for the year ended December 31, 1996. Interest income on
real estate loans decreased $302,000, or 4.3%, to $6.7 million for the year
ended December 31, 1997 from $7.0 million for the year ended December 31, 1996,
primarily due to a $3.6 million decrease in the average balance of real estate
loans and a 1 basis point decrease in the weighted average yield to 7.93% for
the year ended December 31, 1997, from 7.94% for the year ended December 31,
1996. Interest income on consumer loans increased $74,000, or 4.8%, to $1.6
million for the year ended December 31, 1997 from $1.5 million for the year
ended December 31, 1996. This was principally due to an increase of $1.1 million
in the average balance of consumer loans, to $18.7 million for the year ended
December 31, 1997 from $17.6 million for the year ended December 31, 1996, and
was partially offset by a 13 basis point decrease in the yield on such loans.
Interest income on securities increased by $878,000, or 10.4% to $9.3 million
for the year ended December 31, 1997, from $8.4 million for the year ended
December 31, 1996. This increase was primarily a result of a $403,000 increase
in interest income on investment securities, attributable to a $1.4 million
increase in the average balance of such securities to $89.3 million, and an
increase in the weighted average yield of 35 basis points. Interest income on
mortgage-related securities increased $474,000, or 16.0%, to $3.4 million for
the year ended December 31, 1997 from $3.0 million for the year ended December
31, 1996 due to a higher average balance of such securities and partially offset
by a decrease in the weighted average yield of such portfolio to 7.72% for the
year ended December 31, 1997, from 7.87% for the year ended December 31, 1996.
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INTEREST EXPENSE. Interest expense increased by $201,000, or 2.2%, to $9.3
million for the year ended December 31, 1997, from $9.1 million for the year
ended December 31, 1996. The increase in interest expense resulted from
increased interest expense on certificates of deposit, which was a result of a
$1.8 million, or 1.7%, increase in the average balance of such accounts to
$108.5 million for the year ended December 31, 1997, from $106.7 for the year
ended December 31, 1996, offset by a 2 basis point decrease in the weighted
average rate paid on such accounts for the year ended December 31, 1997. The
increase was also due to an increase in interest expense on savings accounts
which was a result of a $2.7 million increase in the average balance of such
accounts, which increased to an average of $104.8 million for the year ended
December 31, 1997 from $102.1 million for the year ended December 31, 1996, and
a 3 basis point increase in the weighted average rate paid on such accounts to
2.98% for the year ended December 31, 1997, from 2.95% for the year ended
December 31, 1996. The increase in the average balance of certificates of
deposit and the increase in the average balance of savings accounts were due
primarily to the Association's efforts to solicit certificate accounts by more
competitively pricing such accounts in order to attract longer-term fixed-rate
funds, and by marketing efforts to increase core deposits such as checking
accounts.
PROVISION FOR LOAN LOSSES. During 1997, the provision for loan losses was
increased to $400,000 from the prior year's level of $180,000. The higher
provision was based on management's evaluation of non-performing loans, as well
as an evaluation of the general economic conditions in the Association's market
areas. In particular, the Association experienced increased net charge-offs,
which increased to $919,000 for the year ended December 31, 1997 compared to
$62,000 for the year ended December 31, 1996. The increased charge-offs in 1997
were primarily due to a loss on a large commercial real estate loan and losses
on single family investment property loans. At December 31, 1997, the
Association's allowance for loan losses to total non-performing loans and to
total loans were 105.7% and 0.67%, compared to 140.5% and 1.12% at December 31,
1996.
NONINTEREST INCOME. In the year ended December 31, 1997, the Association
experienced a decrease of $45,000 in non-interest income to $637,000 from
$682,000 for the year ended December 31, 1996. The decrease was primarily due to
a decrease in consumer insurance fees because the product was not offered for
the full year due to a change in insurance carriers.
NONINTEREST EXPENSE. Noninterest expense decreased $1.5 million, or 23.7%,
for the year ended December 31, 1997, to $5.0 million compared to $6.5 million
for the year ended December 31, 1996. The decrease was primarily due to the
absence of the special assessment by the FDIC for SAIF recapitalization of $1.3
million in 1996, and a decrease in the regular SAIF premium.
INCOME TAXES. Income tax expense totalled $1.3 million for the year ended
December 31, 1997 compared to $654,000 for the year ended December 31, 1996,
resulting in effective tax rates of 36.0% and 36.2% for 1997 and 1996,
respectively. The increase in income tax expense for the year ended December 31,
1997 was attributable to higher pre-tax income, which increased to $3.5 million
for the year ended December 31, 1997 from $1.8 million for the year ended
December 31, 1996.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND
DECEMBER 31, 1995
GENERAL. Net income for the year ended December 31, 1996 totalled $1.2
million which was a decrease of $867,000, or 42.9%, from $2.0 million for the
year ended December 31, 1995. The decrease was primarily due to an increase in
noninterest expense resulting from the one time special assessment of $1.3
million to recapitalize the SAIF which occurred in 1996. This was partially
offset by an increase in net interest income.
INTEREST INCOME. Total interest income increased by $784,000, or 4.8%, to
$17.0 million for the year ended December 31, 1996, from $16.2 million for the
year ended December 31, 1995, primarily due to a $11.3 million, or 5.2%,
increase in the average balance of interest earning assets, partially offset by
a slight decrease in the weighted average yield on interest earning assets,
which decreased to 7.33% for the year ended December 31, 1996 from 7.35% for the
year ended December 31, 1995. Interest income on real estate loans decreased
$353,000 or 4.8%, to $7.0 million for the year ended December 31, 1996 from $7.4
million for the year ended December 31, 1995, primarily due to a $3.1 million
decrease in the average balance of real estate loans and a 12 basis point
decrease in the weighted average yield to 7.94% for the year ended December 31,
1996, from 8.06% for the year ended December 31, 1995. Interest income on
consumer loans decreased $15,000 to $1,543,000 for the year ended December 31,
1996 from $1,558,000 for the year ended December 31, 1995. This was principally
due to a 25 basis point decrease in the yield. Interest income on
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securities increased by $1.1 million, or 15.9%, to $8.4 million for the year
ended December 31, 1996, from $7.3 million for the year ended December 31, 1995.
This increase was primarily a result of a $721,000 increase in interest income
on investment securities, attributable to a $7.6 million increase in the average
balance of such securities to $87.9 million, and an increase in weighted average
yield of 30 basis points. Interest income on mortgage-related securities
increased by $431,000, or 17.0%, to $3.0 million for the year ended December 31,
1996 from $2.5 million for the year ended December 31, 1995. This increase was
attributable to an increase in the average daily balance of $6.4 million offset
by a decrease in the weighted average yield of 25 basis points to 7.87%, for the
year ended December 31, 1996, from 8.12% for the year ended December 31, 1995.
INTEREST EXPENSE. Interest expense increased by $538,000, or 6.3%, to $9.1
million for the year ended December 31, 1996, from $8.6 million for the year
ended December 31, 1995. The increase in interest expense resulted from
increased interest expense on certificates of deposit, which was a result of a
$7.8 million, or 7.9%, increase in the average balance of such accounts to
$106.7 million for the year ended December 31, 1996, from $98.9 million for the
year ended December 31, 1995, and a 3 basis point increase in the weighted
average rate paid on such accounts for the year ended December 31, 1996. The
increase was also due to an increase in interest expense of $64,000 on core
accounts due to an increase in the average balance of such accounts, which
increased to an average of $102.1 million for the year ended December 31, 1996
from $100.9 million for the year ended December 31, 1995, and a 3 basis point
increase in the weighted average rate paid on such accounts to 2.95% for the
year ended December 31, 1996, from 2.92% for the year ended December 31, 1995.
The increase in the average balance of certificates of deposit and the increase
in the average balance of core accounts were due primarily to the Association's
efforts to solicit certificate accounts by more competitively pricing such
accounts, and by marketing efforts to increase core deposits such as checking
accounts.
PROVISION FOR LOAN LOSSES. In both 1996 and 1995, the provision for loan
losses remained constant at $180,000. The ratio of the allowance for loan losses
to non-performing loans was 140% and 203% at December 31, 1996 and 1995,
respectively. The ratio of the allowance for loan losses to total loans was
1.12% and 1.00% at December 31, 1996 and 1995, respectively.
NONINTEREST INCOME. In the year ended December 31, 1996, the Association
experienced an increase of $29,000 in non-interest income to $682,000 from
$653,000 for the year ended December 31, 1995. The increase was due to an
increase in checking account activity and safe deposit rental fees.
NONINTEREST EXPENSE. Noninterest expense increased $1.6 million, or 32.8%,
for the year ended December 31, 1996, to $6.5 million compared to $4.9 million
for the year ended December 31, 1995. The increase was primarily due to the
special assessment by the FDIC for SAIF recapitalization of $1.3 million in
1996.
INCOME TAXES. Income tax expense totalled $654,000 for the year ended
December 31, 1996 compared to $1.1 million for the year ended December 31, 1995,
resulting in effective tax rates of 36.2% and 35.6% for 1996 and 1995,
respectively. The decrease in income tax expense for the year ended December 31,
1996 was attributable to a decrease in pre-tax income, which decreased to $1.8
million for the year ended December 31, 1996 from $3.1 million for the year
ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Association's primary sources of funds are deposits, principal and
interest payments on loans, mortgage-backed and investment securities and
borrowings from the FHLB-New York. The Association 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 Association 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 Association's currently required
liquidity ratio is 4.0%. At July 31, 1998 and December 31, 1997, the
Association's liquidity ratios were 46.68% and 43.39%, respectively.
At July 31, 1998, the Association exceeded all of its regulatory capital
requirements with a tangible capital level of $26.0 million, or 10.02%, of total
adjusted assets, which is above the required level of $3.9 million, or 1.5%;
core
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capital of $26.0 million, or 10.02%, of total adjusted assets, which is above
the required level of $7.8 million, or 3.0% and risk-based capital of $26.8
million, or 28.16%, of risk-weighted assets, which is above the required level
of $7.6 million, or 8.0%. See "Regulatory Capital Compliance."
The Association's most liquid assets are cash and cash equivalents. The
levels of these assets are dependent on the Association's operating, financing,
lending and investing activities during any given period. At July 31, 1998,
cash and cash equivalents totalled $17.2 million, or 6.6% of total assets.
The Association has other sources of liquidity if a need for additional
funds arises, including FHLB advances. At July 31, 1998, the Association had
$176,000 in advances outstanding from the FHLB, and at July 31, 1998, had an
additional overall borrowing capacity from the FHLB of $64.9 million. Depending
on market conditions, the pricing of deposit products and FHLB advances, the
Association may rely on FHLB borrowing to fund asset growth.
Outstanding commitments to originate first mortgage loans totalled $2.0
million at July 31, 1998. Management of the Association anticipates that it
will have sufficient funds available to meet its current loan commitments.
Certificates of deposit which are scheduled to mature in one year or less from
July 31, 1998 totalled $54.7 million. From July 31, 1997 to July 31, 1998, the
Association experienced a 60% retention rate on funds maturing from certificates
of deposit. It has been and will continue to be a priority of management to
retain time deposits. The Association relies primarily on competitive rates,
customer service, and long-standing relationships with customers to retain
deposits. From time to time, the Association will also offer competitive
special products to its customers to increase retention. Based upon the
Association's experience with deposit retention and current retention
strategies, management believes that, although it is not possible to predict
future terms and conditions upon renewal, a significant portion of such deposits
will remain with the Association.
The initial impact of the Conversion on the liquidity and capital resources
of the Company will be significant as it will substantially increase the liquid
assets of the Company and the capital base on which the Company operates.
Additionally, the Company expects the substantial majority of conversion
proceeds will initially be invested in readily marketable investment grade
securities which, if liquidity needs developed, could be sold by the Company to
provide additional liquidity. Further, the additional capital resulting from
the offerings is expected to increase the capital base of the Company. At July
31, 1998, the Association had total equity, determined in accordance with GAAP,
of $26.0 million, or 10.02% of total assets, which equalled the Association's
regulatory tangible capital at that date. An institution with a ratio of
tangible capital to total assets of greater than or equal to 5% is considered to
be "well-capitalized" pursuant to OTS regulations. Assuming that the Company
uses 50% of the net proceeds at the maximum of the Estimated Price Range to
purchase the stock of the Association, the Association's GAAP capital will
increase to $39.4 million or a ratio of GAAP capital to adjusted assets, on a
pro forma basis, of 14.43% after the Conversion. The investment of the net
proceeds from the sale of the Common Stock is expected to provide the
Association with additional income to increase further its capital position.
The additional capital may also assist the Association 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 computer application software programs and operating
systems can accommodate this date value. Many existing application software
products are designed to accommodate only two digits. If not corrected, many
computer applications and systems could fail or create erroneous results by or
at the Year 2000. While the Association maintains an internal computer system
for certain operating functions, the substantial majority of the Association's
data processing is out-sourced to a third party vendor. The Association has
formed a Year 2000 Committee (the "Y2K Committee") and has adopted a Year 2000
Policy. The Y2K Committee 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 the Association'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 Association has prepared a critical issues schedule with a timeline
and assigned responsibilities. In addition, the Association recognizes that its
ability to be Year 2000 compliant is dependent upon the cooperation of its
vendors. The Association 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 Association has received
representations from its primary third party data processing vendor that it has
resolved any Year 2000 problems in its software and is Year 2000 compliant. The
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Association anticipates that all of its vendors also will have resolved any Year
2000 problems in their software by December 31, 1998. All Year 2000 issues for
the Association, including testing, are expected to be addressed and any
problems remedied by March 31, 1999. The Association has also provided
brochures to its customers to make them aware of the Year 2000 issue.
The Association's operations may also be affected by the Year 2000
compliance of its significant suppliers and other vendors, including those
vendors that provide non-information and technology systems. The Association
has begun the process of requesting information related to the Year 2000
compliance of its significant suppliers and other vendors. However, the
Association does not currently have complete information concerning the
compliance status of its significant suppliers and other vendors. In the event
that any of the Association's significant suppliers or other vendors do not
successfully achieve Year 2000 compliance in a timely manner, the Association's
business or operations could be adversely affected. The Association has
prepared a contingency plan in the event that there are any system
interruptions. As part of the contingency plan, the Association intends to
engage alternative suppliers or other vendors if its current significant
suppliers or vendors fail to meet Year 2000 operating requirements. There can
be no assurances, however, that such plan or the performances by any of the
Association's suppliers and vendors will be effective to remedy all potential
problems.
The Association is currently engaging in an upgrade of its technology
systems in addition to implementing its Year 2000 policy. The Association has
budgeted approximately $150,000 in connection with the costs associated with
achieving Year 2000 compliance and its related technology systems upgrade and,
as of September 30, 1998, had expended approximately $6,000. Material costs, if
any, that may arise from the failure to achieve Year 2000 compliance by either
the Association's third party data processing vendor or its significant
suppliers and other vendors is not currently determinable. To the extent that
the Association'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 the Association's
business, financial condition, results of operations, cash flows or business
prospects. In the event that the Association's progress towards becoming Year
2000 compliant is deemed inadequate, regulatory action may be undertaken.
IMPACT OF INFLATION AND CHANGING PRICES
The 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 Association's operations. Unlike industrial companies, nearly all
of the assets and liabilities of the Association are monetary in nature. As a
result, interest rates have a greater impact on the Association'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 Accounting
Principles Board ("APB") Opinion No. 15, "Earnings per Share," and makes them
comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. 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 of publicly held companies issued for periods ending after
December 15, 1997, including interim periods; earlier application is not
permitted.
REPORTING COMPREHENSIVE INCOME. In June 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 is effective for
fiscal years beginning after December 15, 1997. The Company and the Association
will make the appropriate disclosures in the applicable consolidated financial
statements, as required.
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ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. In June 1998
the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting and reporting
for derivative instruments, including certain instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Management has not yet determined the impact, if any, of this statement on the
Company's and the Association's consolidated financial statements.
BUSINESS OF THE ASSOCIATION
GENERAL
The Association was originally organized in 1921 and operated as Knight
Park Building and Loan Association of Collingswood, New Jersey. In 1950, the
Association merged with Vineyard Building and Loan Association and changed its
name to South Jersey Savings and Loan Association. The Association conducts
business from its home office and operation centers located in Turnersville, New
Jersey and its two full service branch offices located in Collingswood and
Glendora, New Jersey. The Association's principal business has been and
continues to be attracting retail deposits from the general public in the areas
surrounding its three banking offices and investing those deposits, together
with funds generated from operations and borrowings, primarily in one- to four-
family mortgage loans and consumer loans, including home equity loans, home
equity lines of credit and education loans. To a lesser extent, the Association
also originates multi-family and commercial real estate loans. The Association
currently originates all of its loans for investment. The Association also
invests in mortgage-backed securities and investment securities, primarily U.S.
government and agency obligations, and other permissible investments. The
Association's revenues are derived principally from interest on its loans, and
to a lesser extent, interest and dividends on its investment and mortgage-backed
securities and other noninterest income. The Association's primary sources of
funds are deposits, principal and interest payments on loans and mortgage-backed
securities and FHLB advances.
MARKET AREA
The Association is a community-oriented banking institution offering a
variety of financial products and services to meet the needs of the communities
it serves. The Association's lending and deposit gathering is concentrated in
its primary market area consisting of Gloucester and Camden Counties, New
Jersey. All of the Association's offices are located within 20 miles of
Philadelphia, Pennsylvania. The Association invests primarily in loans secured
by first or second mortgages on properties located in areas surrounding its
offices.
Turnersville is located in largely suburban Gloucester County, New Jersey
on State Highway 42 approximately 50 miles northwest of Atlantic City, New
Jersey and 20 miles southeast of Philadelphia. Collingswood and Glendora are
located in Camden County, New Jersey, which county primarily consists of mature
fully developed communities. Heavily traveled U.S. Interstates 95, 295, 676 and
76 run through the Association's primary market area. These highways provide
easy access to the cities of Philadelphia, New York and Newark, New Jersey,
which are major international centers for business, commerce and trade. In
recent years, Gloucester County has experienced an influx of new residents and
employers as the Philadelphia suburbs have expanded into the Association's
primary market area.
The economy in the Association'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, universities and utilities. This area is also home to commuters
working in Philadelphia and, to a lesser extent, New York. In the late 1980's
and early 1990's, due in part to the effects of a prolonged decline in the
national and regional economy, layoffs in the financial services industry and
corporate relocations, New Jersey experienced reduced levels of employment.
These events, in conjunction with a surplus of available commercial and
residential properties, resulted in an overall decline during this period in the
underlying values of properties located in New Jersey. However, New Jersey's
real estate market has recovered in recent periods. Whether improvement will
continue is dependent, in large part, upon the general economic health of the
United States and New Jersey, and other factors beyond the Association's control
and, therefore, cannot be estimated.
43
<PAGE>
COMPETITION
The Association faces significant competition both in generating loans and
in attracting deposits. The Association's primary market area is highly
competitive and the Association faces direct competition from a significant
number of financial institutions, many with a state wide or regional presence
and, in some cases, a national presence. Many of these financial institutions
are significantly larger and have greater financial resources than the
Association. The Association's competition for loans comes principally from
commercial banks, savings banks, mortgage brokers, mortgage banking companies
and insurance companies. Its most direct competition for deposits has
historically come from savings banks and associations, commercial banks and
credit unions. In addition, the Association faces increasing competition for
deposits from non-bank institutions such as brokerage firms and insurance
companies in such instruments as short-term money market funds, corporate and
government securities funds, mutual funds and annuities. Competition may also
increase as a result of the lifting of restrictions on the interstate operations
of financial institutions. See "Risk Factors--Highly Competitive Industry."
In addition, the Association recognizes that its customer base increasingly
focuses on convenience and access to services. The Association has addressed
these customer desires recently through the implementation of 24 hour banking by
telephone with voice response capabilities. The Association intends to continue
to evaluate and enhance its service delivery system.
LENDING ACTIVITIES
LOAN PORTFOLIO COMPOSITION. The Association's loan portfolio consists
primarily of first mortgage loans secured by one- to four-family residential
real estate. At July 31, 1998, the Association's loans totalled $100.8 million,
of which $80.2 million, or 79.6%, were one- to four-family residential first
mortgage loans. Such residential mortgage loans consisted of 90.4% of fixed-
rate loans and 9.6% of adjustable-rate loans, most of which were indexed to the
one or three year Constant Maturity Treasury ("CMT") Index. At July 31, 1998,
the Association also had $3.0 million, or 3.0% of total loans, in multi-family
and commercial real estate loans.
The Association's consumer loans at July 31, 1998 aggregated $17.6 million,
or 17.4% of total loans. Such consumer loans included $13.4 million of home
equity loans, $1.2 million of home equity lines of credit, $2.3 million of
education loans and $665,000 of other consumer loans. The Association's home
equity loans and lines of credit and education loans constituted 83.2% and 13.0%
of consumer loans, respectively, and 14.5% and 2.3% of total loans,
respectively, at July 31, 1998.
The Association generally has not sold loans in recent years and had no
mortgage loans held for sale at July 31, 1998 and at each of the five years
ended December 31, 1997. The types of loans that the Association may originate
are subject to federal and state laws and regulations. Interest rates charged
by the Association 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 ("FRB"), and legislative tax policies.
44
<PAGE>
The following table sets forth the composition of the Association's loan
portfolio in dollar amounts and as a percentage of the portfolio at the dates
indicated.
<TABLE>
<CAPTION>
AT JULY 31, AT DECEMBER 31,
------------------ --------------------------------------
1998 1997 1996
------------------ ------------------ ------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family................ $ 80,188 79.57% $ 78,488 78.42% $ 80,681 76.05%
Multi-family and commercial........ 3,012 2.99 3,179 3.18 6,707 6.32
-------- ------ -------- ------ -------- ------
Total real estate loans......... 83,200 82.56 81,667 81.60 87,388 82.37
Consumer loans:
Home equity loans and lines
of credit......................... 14,615 14.50 15,254 15.24 15,313 14.43
Education.......................... 2,292 2.27 2,427 2.43 2,514 2.37
Other.............................. 665 0.66 732 0.73 879 0.83
-------- ------ -------- ------ -------- ------
Total consumer loans............ 17,572 17.44 18,413 18.40 18,706 17.63
-------- ------ -------- ------ -------- ------
Total loans..................... 100,772 100.00% 100,080 100.00% 106,094 100.00%
====== ====== ======
Less:
Deferred loan origination
fees and discounts................ 390 447 645
Allowance for loan losses.......... 819 667 1,186
-------- -------- --------
Total loans, net................ $ 99,563 $ 98,966 $104,263
======== ======== ========
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------
1995 1994 1993
------------------ ------------------ ------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family................ $ 82,935 77.45% $ 88,033 78.37% $ 84,628 77.04%
Multi-family and commercial........ 7,007 6.54 7,303 6.50 8,430 7.67
-------- ------ -------- ------ -------- ------
Total real estate loans......... 89,942 83.99 95,336 84.87 93,058 84.71
Consumer loans:
Home equity loans and lines
of credit......................... 14,301 13.35 14,154 12.60 13,029 11.86
Education.......................... 1,912 1.79 1,829 1.63 2,691 2.45
Other.............................. 935 0.87 1,008 0.90 1,074 0.98
-------- ------ -------- ------ -------- ------
Total consumer loans............ 17,148 16.01 16,991 15.13 16,794 15.29
-------- ------ -------- ------ -------- ------
Total loans..................... 107,090 100.00% 112,327 100.00% 109,852 100.00%
====== ====== ======
Less:
Deferred loan origination
fees and discounts................ 670 741 765
Allowance for loan losses.......... 1,068 968 874
-------- -------- --------
Total loans, net................ $105,352 $110,618 $108,213
======== ======== ========
</TABLE>
45
<PAGE>
LOAN MATURITY. The following table shows the remaining contractual
maturity of the Association's total loans at July 31, 1998. The table does not
include the effect of future principal prepayments.
<TABLE>
<CAPTION>
AT JULY 31, 1998
----------------------------------------
MULTI-
ONE-TO FAMILY AND
FOUR- COMMERCIAL TOTAL
FAMILY REAL ESTATE CONSUMER LOANS
--------- ----------- --------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Amounts due in:
One year or less.......................$ 74 $ 950 $ 879 $ 1,903
After one year:
More than one year to three years...... 492 76 2,155 2,723
More than three years to five years.... 1,627 167 2,804 4,598
More than five years to 10 years....... 18,493 486 5,824 24,803
More than 10 years to 15 year.......... 16,151 367 5,910 22,428
More than 15 years..................... 43,351 966 -- 44,317
------- ------ ------- --------
Total amount due $80,188 $3,012 $17,572 $100,772
======= ====== ======= ========
</TABLE>
The following table sets forth, at July 31, 1998, the dollar amount of
loans contractually due after July 31, 1999, and whether such loans have fixed
interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
DUE AFTER JULY 31, 1999
-------------------------------
FIXED ADJUSTABLE TOTAL
-------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Real estate loans:
One- to four-family..................... $72,380 $ 7,734 $80,114
Multi-family and commercial............. 1,133 929 2,062
Total real estate loans.............. 73,513 8,663 82,176
Consumer loans............................. 13,900 2,793 16,693
------- ------- -------
Total loans.......................... $87,413 $11,456 $98,869
======= ======= =======
</TABLE>
ORIGINATION AND SERVICING OF LOANS. The Association's mortgage lending
activities are conducted primarily by its loan personnel operating at its
banking offices. All loans originated by the Association are underwritten
pursuant to the Association's policies and procedures. The Association
originates both adjustable-rate and fixed-rate loans, the substantial majority
of which are fixed-rate loans. The Association's ability to originate fixed- or
adjustable-rate loans is dependent upon the relative customer demand for such
loans, which is affected by the current and expected future level of interest
rates. It is the general policy of the Association to retain all loans
originated in its portfolio.
In recent periods, loan repayments and prepayments have exceeded loan
originations. This has resulted in a decrease in the Association's total loans,
net, over the past three fiscal periods from a year-end high of $110.6 million
at December 31, 1994, representing 49.6% of total assets, to a year-end low of
$99.0 million at December 31, 1997, representing 39.6% of total assets.
However, for the seven months ended July 31, 1998, the Association has increased
loan originations, primarily of one- to four-family real estate loans. Such
increase was attributable in significant part to refinancings due to a favorable
interest rate environment and a greater acceptability by the Association to
refinancing its own loans.
In an effort to address the diminished loan growth in recent years, the
Association is focusing its lending activities on the communities surrounding
its Turnersville, New Jersey office which is located in more suburban Gloucester
County. The Association may also seek to expand its primary market area and its
lending activities to areas outside of Gloucester and Camden Counties. However,
there can be no assurances that such geographic expansion activities will take
place or, if they do take place, that they will be successful. See "Risk
Factors -- Low Demand for Mortgage Loans and Diminished Loan Growth."
The following table sets forth the Association's loan originations, sales
and principal repayments for the periods indicated:
46
<PAGE>
<TABLE>
<CAPTION>
FOR THE SEVEN MONTHS
ENDED JULY 31, FOR THE YEAR ENDED DECEMBER 31,
------------------------ -----------------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ------------ ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans at beginning of period...................... $100,080 $106,094 $106,094 $107,090 $112,327
Originations:
Real estate:
One- to four-family...................... 8,837 3,767 8,580 8,149 4,986
Multi-family and commercial.............. 217 106 205 197 214
-------- -------- -------- -------- --------
Total real estate loan originations... 9,054 3,873 8,785 8,346 5,200
Consumer:
Home equity loans and lines of credit.... 3,566 3,376 6,343 6,244 5,262
Education................................ 160 146 290 846 1,222
Other.................................... 306 319 606 786 769
-------- -------- -------- -------- --------
Total consumer loan originations...... 4,032 3,841 7,239 7,876 7,253
-------- -------- -------- -------- --------
Total loans originated................ 13,086 7,714 16,024 16,222 12,453
Deduct:
Principal loan repayments and prepayments...... 12,254 10,549 22,011 17,218 16,488
Loan sales.................................. 90 (1) -- -- -- 932 (2)
Transfers to REO............................ 50 -- 27 -- 270
-------- -------- -------- -------- --------
Total deductions...................... 12,394 10,549 22,038 17,218 17,690
-------- -------- -------- -------- --------
Net loan activity................................. 692 (2,835) (6,014) (996) (5,237)
-------- -------- -------- -------- --------
Loans at end of period...................... $100,772 $103,259 $100,080 $106,094 $107,090
======== ======== ======== ======== ========
</TABLE>
_________________________
(1) In 1998, the Association sold its FHLMC servicing portfolio and its related
participatory interest of $90,000 in such loan portfolio.
(2) Consists of education loans which were sold to the New England Education
Loan Marketing Corporation.
ONE- TO FOUR-FAMILY MORTGAGE LENDING. The Association currently offers
both fixed-rate and adjustable-rate mortgage ("ARM") loans with maturities of up
to 30 years secured by one- to four-family residences. Most of such loans are
located in the Association's primary market area. One- to four-family mortgage
loan originations are generally obtained from the Association's in-house loan
representatives, from existing or past customers and through advertising and
referrals from members of the Association's local communities. At July 31,
1998, the Association's one- to four-family mortgage loans totalled $80.2
million, or 79.6% of total loans. Of the one- to four-family mortgage loans
outstanding at that date, 90.4% were fixed-rate loans and 9.6% were ARM loans.
The Association currently offers fixed-rate mortgage loans with terms of up
to 30 years. The Association also currently offers a number of ARM loans with
terms of up to 30 years and interest rates which adjust every one or three years
from the outset of the loan. The interest rates for the Association's ARM loans
are indexed to either the one or three year CMT Index. The Association's ARM
loans generally provide for periodic (not more than 2%) and overall (not more
than 6%) caps on the increase or decrease in the interest rate at any adjustment
date and over the life of the loan.
The origination of adjustable-rate residential mortgage loans, as opposed
to fixed-rate residential mortgage loans, helps reduce the Association'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 risks associated with adjustable-rate loans
but also limit the interest rate sensitivity of such loans.
All one- to four-family mortgage loans are underwritten according to the
Association's policies and guidelines. Generally, the Association originates
one- to four-family residential mortgage loans in amounts of up to 80% of the
lower of the appraised value or selling price of the property securing the loan
and up to 95% of the appraised value or selling price if private mortgage
insurance ("PMI") is obtained. Mortgage loans originated by the Association
generally include due-on-sale clauses which provide the Association with the
contractual right to deem the loan immediately due and payable in the event the
borrower transfers ownership of the property without the Association's consent.
Due-on-
47
<PAGE>
sale clauses are an important means of adjusting the yields on the Association's
fixed-rate mortgage loan portfolio and the Association has generally exercised
its rights under these clauses. The Association requires fire, casualty, title
and, in certain cases, flood insurance on all properties securing real estate
loans made by the Association.
The Association offers employees of the Association, other than executive
officers and directors, who satisfy certain criteria and the general
underwriting standards of the Association fixed and adjustable-rate mortgage
loans with reduced loan origination fees and/or interest rates which are
currently 100 basis points below the rates offered to the Association's other
customers, the Employee Mortgage Rate ("EMR"). The EMR is limited to the
purchase, construction or refinancing of an employee's owner-occupied primary
residence. The EMR normally ceases upon termination of employment or if the
property no longer is the employee's primary residence. Upon termination of the
EMR, the interest rate reverts to the contract rate in effect at the time that
the loan was extended. All other terms and conditions contained in the original
mortgage and note continue to remain in effect. As of July 31, 1998, the
Association had $1.6 million of EMR loans, or 1.8% of total loans.
MULTI-FAMILY AND COMMERCIAL REAL ESTATE LENDING. The Association
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 office buildings or retail facilities located in
the Association's primary market area. The Association's multi-family and
commercial real estate underwriting policies provide that such real estate loans
may be made in amounts of up to 70% of the appraised value of the property,
subject to the Association's current loans-to-one-borrower policy limit, which
at July 31, 1998 was $2.6 million. The Association's multi-family and
commercial real estate loans may be made with terms of up to 20 years and are
offered with interest rates that adjust periodically. In reaching its decision
on whether to make a multi-family or commercial real estate loan, the
Association considers the net operating income of the property, the borrower's
expertise, credit history and profitability and the value of the underlying
property. Environmental risk evaluations are generally required for all multi-
family and commercial real estate loans. Generally, all 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 Association 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 Association's multi-family
and commercial real estate loan portfolio at July 31, 1998 was $3.0 million, or
3.0% of total loans. The largest multi-family or commercial real estate loan in
the Association's portfolio at July 31, 1998 was a performing $256,000 loan
secured by a 26-unit apartment building located in Salem, New Jersey.
Loans secured by multi-family and commercial real estate properties
generally involve larger principal amounts and 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 the successful operation or management of the properties, repayment
of such loans may be subject to adverse conditions in the real estate market or
the economy. The Association seeks to minimize these risks through its
underwriting standards.
CONSUMER LENDING. Consumer loans at July 31, 1998 amounted to $17.6
million, or 17.4% of the Association's total loans, and consisted primarily of
home equity loans, home equity lines of credit, education loans and, to a
significantly lesser extent, secured and unsecured personal loans and new and
used automobile loans. Such loans are generally originated in the Association's
primary market area and generally are secured by real estate, deposit accounts
and automobiles. These loans are typically shorter term and generally have
higher interest rates than one- to four-family mortgage loans.
The Association offers home equity loans ("HELs") and home equity lines of
credit ("HELOCs") (collectively, "equity loans"). Most of the Association's
equity loans are secured by second mortgages on one- to four-family residences
located in the Association's primary market area. At July 31, 1998, these loans
totalled $14.6 million, or 14.5% of the Association's total loans and 83.0% of
consumer loans. HELs are generally offered with terms of up to 15 years and
only with fixed-rates of interest which rates will vary depending on the
amortization period chosen by the borrower. At July 31, 1998, HELs totalled
$13.4 million, or 13.3% of the Association's total loans and 76.1% of consumer
loans. HELOCs generally 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 reported in The Wall Street Journal. Adjustable-rate
HELOCs generally provide for overall caps (not more than 6% above the initial
interest rate) on the increase or decrease in the interest rate over the life of
the loan. At July 31, 1998, the Association had $3.1 million of HELOCs of which
$1.2 million, or 1.2% of total loans, was drawn down at such date. The
underwriting standards employed by the Association for equity loans 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. Generally, the maximum
combined loan-to-value ratio ("LTV") on equity loans is 80% on owner-occupied
properties
48
<PAGE>
and 70% on non-owner -occupied properties. 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.
With respect to education lending, the Association participates in the
United States Department of Education (the "DOE") Title IV loan programs
commonly referred to as the Federal Family of Education Loan Programs ("FFELP").
The loans in this program that the Association participates in include the
Federal Subsidized Stafford Loan and the Federal Parent Loan to Undergraduate
Students (PLUS) Loan. All FFELP loans that were disbursed prior to October 1,
1993 are 100% guaranteed as to principal and interest by the full faith of the
United States Government if serviced properly. Loans disbursed after October 1,
1993 are guaranteed to at least 98% of principal plus eligible interest by the
full faith of the United States Government if serviced properly. Under certain
circumstances loans guaranteed at the 98% level will be insured to the 100%
level. Education loans held by the Association are administrated and guaranteed
by the New Jersey Higher Education Assistance Authority ("NJHEAA"). The
Association underwrites, operates and administrates participation in the FFELP
under the policies and procedures outlined in the NJHEAA guidelines for Loan
Guaranty Programs. At July 31, 1998, education loans totalled $2.3 million, or
13.0% of consumer loans and 2.3% of the Association's total loans.
The Association also originates other types of consumer loans primarily
consisting of secured and unsecured personal loans and new and used automobile
loans. At July 31, 1998, these consumer loans totalled $665,000, or 0.66% of
the Association's total loans and 3.8% of consumer loans. Secured personal
loans are generally secured by deposit accounts. Unsecured personal loans
generally have a maximum borrowing limitation of $7,500 and generally require a
debt ratio (the ratio of debt service to net earnings) of 36%. Automobile loans
have a maximum borrowing limitation of 80% of the sale price of a new automobile
or 80% of the fair market value of a used automobile. At July 31, 1998 personal
loans totalled $581,000, or 3.3% of consumer loans; and automobile loans
totalled $84,000, or 0.5% of consumer 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.
LOAN APPROVAL PROCEDURES AND AUTHORITY. The Board of Directors establishes
the lending policies of the Association and oversees the Association's lending
activity. The Board of Directors has established a Loan Committee comprised of
four members of the Association's Board of Directors. In addition, the
Association maintains an "In House" Loan Committee comprised of the
Association's President, Executive Vice President, Senior Lending Officer and
Vice President of Lending.
The Board of Directors has authorized the following persons and groups of
persons to approve loans up to the amounts indicated: one- to four-family
mortgage loans in amounts up to $150,000 may be approved by the Association's In
House Loan Committee; and all such loans in excess of $150,000 require the
approval of the Boards' Loan Committee. All multi-family and commercial real
estate loans require the approval of the Board's Loan Committee.
With respect to consumer loans, home equity loans and equity lines of
credit in amounts up to $25,000 and automobile loans in amounts up to $10,000
may be approved by the Association's Vice President of Lending; home equity
loans and equity lines of credit in excess of $25,000 and up to $50,000 and
automobile loans in excess of $10,000 and up to $15,000 require the approval of
the Association's Senior Lending Officer; home equity loans and equity lines of
credit in excess of $50,000 and up to $100,000 and automobile loans in excess of
$15,000 and up to $25,000 require the approval of the Association's In House
Loan Committee; and home equity loans and equity lines of credit in excess of
$100,000 and automobile loans in excess of $25,000 require the approval of the
Board's Loan Committee.
Certain education loans (PLUS loans) may be approved by the Association's
Vice President of Lending or Senior Lending Officer. Other education loans
(Federal Subsidized Stafford Loans) are reviewed by the Association but are
actually approved by the NJHEAA. All education loans are made in amounts up to
that which is guaranteed by the NJHEAA. Loans on savings accounts may be
approved by any branch manager or assistant branch manager. Such loans are
fully secured by the savings account or certificate of deposit utilized as
collateral for the loan.
49
<PAGE>
DELINQUENT LOANS, CLASSIFIED ASSETS AND REAL ESTATE OWNED
DELINQUENCIES AND CLASSIFIED ASSETS. Reports listing all delinquent
accounts are generated and reviewed by management on a monthly basis and the
Board of Directors performs a quarterly review of all loans or lending
relationships delinquent 30 days or more and all REO. The procedures taken by
the Association with respect to delinquencies vary depending on the nature of
the loan, period and cause of delinquency and whether the borrower has been
habitually delinquent. When a borrower fails to make a required payment on a
loan, the Association may take a number of steps to have the borrower cure the
delinquency and restore the loan to current status. The Association generally
sends the borrower a written notice of non-payment after the loan is first past
due. The Association'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 Association will attempt
to obtain full payment, 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 Association to
take legal action, which typically occurs after a loan is 90 days or more
delinquent, the Association will commence foreclosure proceedings against any
real or personal 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 Association, becomes real estate owned.
Federal regulations and the Association's Asset Classification Policy
require that the Association utilize an internal asset classification system as
a means of reporting problem and potential problem assets. The Association has
incorporated the OTS internal asset classifications as a part of its credit
monitoring system. The Association 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. Assets which do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are required to be designated "Special Mention."
When the Association classifies one or more assets, or portions thereof, as
Substandard, it establishes a general valuation allowance for loan losses in an
amount deemed prudent by management. General valuation allowances represent
loss allowances which have been established to recognize the inherent risk
associated with lending activities, but which, unlike specific allowances, have
not been allocated to particular problem assets. When the Association
classifies one or more assets, or portions thereof, as Doubtful, it establishes
a specific allowance for losses equal to 50% of the amount of the asset so
classified, with respect to uncollateralized assets, and the difference between
the loan amount and the collateral value with respect to collateralized assets.
Assets, or portions thereof, classified as Loss are charged off.
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. In addition, the OTS or other
federal banking agencies may require the Association to recognize additions to
the allowance, based on their judgments about information available to them at
the time of their examination.
50
<PAGE>
The Association's Loan Committee reviews and classifies the Association's
assets on a quarterly basis and the Board of Directors reviews the results of
the reports on a quarterly basis. The Association classifies assets in
accordance with the management guidelines described above. At July 31, 1998,
the Association had $578,000 of assets designated as Substandard which consisted
of 12 one- to four-family mortgage loans, six consumer loans and a single parcel
of REO. At that same date the Association had $81,000 of assets classified as
Doubtful consisting of three one- to four-family mortgage loans and three
unsecured personal consumer loans. At July 31, 1998, the Association had no
loans classified as Loss. As of July 31, 1998, the Association also had a total
of three loans, totalling $116,000, designated as Special Mention. At July 31,
1998, the largest adversely (other than Special Mention) classified loan was a
second mortgage loan with an aggregate carrying balance of $72,000 and was
secured by a commercial real estate property. The following table sets forth the
delinquencies in the Association's loan portfolio as of the dates indicated.
51
<PAGE>
<TABLE>
<CAPTION>
JULY 31, 1998 DECEMBER 31, 1997
--------------------------------------------- ---------------------------------------------------
60-89 DAYS 90 DAYS OR MORE 60-89 DAYS 90 DAYS OR MORE
-------------------- ------------------------ ---------------------------------------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL
OF BALANCE OF OF BALANCE OF OF BALANCE OF OF BALANCE OF
LOANS LOANS LOANS LOANS LOANS LOANS LOANS LOANS
-------- ------------ -------- ------------- --------- ------------ ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family.... -- $ -- 8 $ 279 3 $ 162 11 $ 328
Multi-family and
commercial........... 1 57 -- -- -- -- 1 57
Consumer Loans:
Home equity loans and
lines of credit...... -- -- 3 126 4 133 2 100
Education.............. 27 64 21 41 16 31 46 110
Other.................. -- -- 5 10 2 6 2 7
-------- ------------ -------- ------------- --------- ------------ ---------- -----------
Total............... 28 $ 121 37 $ 456 25 $ 332 62 $ 602
======== ============ ======== ============= ========= ============ ========== ===========
Delinquent loans to
total loans, net....... 0.12% 0.46% 0.34% 0.61%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------------------------------- ---------------------------------------------------
60-89 DAYS 90 DAYS OR MORE 60-89 DAYS 90 DAYS OR MORE
-------------------- ------------------------ ---------------------------------------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL
OF BALANCE OF OF BALANCE OF OF BALANCE OF OF BALANCE OF
LOANS LOANS LOANS LOANS LOANS LOANS LOANS LOANS
-------- ------------ -------- ------------- --------- ------------ ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family.... -- $ -- 19 $ 783 2 $ 64 7 $ 292
Multi-family and
commercial........... -- -- -- -- -- -- 1 142
Consumer Loans:
Home equity loans and
lines of credit...... 1 30 1 23 1 52 2 37
Education.............. 20 46 54 109 2 2 4 5
Other.................. 1 7 1 1 1 1 2 2
-------- ------------ -------- ------------- --------- ------------ ---------- -----------
Total............... 22 $ 83 75 $ 916 6 $ 119 16 $ 478
======== ============ ======== ============= ========= ============ ========== ===========
Delinquent loans to
total loans, net....... 0.08% 0.88% 0.11% 0.43%
</TABLE>
NON-PERFORMING ASSETS AND IMPAIRED LOANS. The following table sets forth
information regarding non-accrual loans and REO. At July 31, 1998, non-accrual
loans totalled $415,000 consisting of 16 loans, and REO totalled $50,000
consisting of a one-to four-family loan. At July 31, 1998, the Association had
$41,000 of education loans which were 90 days or more delinquent, but for which
it continued to accrue interest because of government guarantees. It is the
policy of the Association to cease accruing interest on mortgage loans 90 days
or more past due and to cease accruing interest on consumer loans 60 days or
more past due (unless the loan principal and interest are determined by
management to be fully secured and in the process of collection) and to charge
off most of the accrued interest. For the seven months ended July 31, 1998 and
the years ended December 31, 1997 and 1996, 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 $21,000,
$54,000 and $50,000, respectively. On January 1, 1994, the Association adopted
SFAS No. 114 "Accounting by Creditors for Impairment of a Loan," as amended by
SFAS No. 118. At July 31, 1998 and December 31, 1997 and 1996, the Association
had recorded investments of $81,000, $77,000 and $553,000, respectively, in
impaired loans which had specific allowances of $12,000, $10,000 and $160,000,
respectively.
52
<PAGE>
<TABLE>
<CAPTION>
AT JULY 31, AT DECEMBER 31,
1998 1997 1996 1995 1994 1993
------------- -------- ------- ------ ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-accruing loans:
One- to four-family real estate...... $ 279 $ 328 $ 783 $ 292 $ 519 $ 538
Multi-family and commercial
real estate........................ -- 57 -- 142 -- --
Consumer............................. 136 246 61 92 32 52
----- ----- ----- ----- ------ ------
Total(1).......................... 415 631 844 526 551 590
Real estate owned (REO)(2).............. 50 -- -- 23 -- 143
----- ----- ----- ----- ------ ------
Total nonperforming assets(3)..... 465 631 844 549 551 733
Troubled debt restructurings............ -- -- 155 116 3,244 4,024
----- ----- ----- ----- ------ ------
Troubled debt restructurings and
total nonperforming assets............ $ 465 $ 631 $ 999 $ 665 $3,795 $4,757
===== ===== ===== ===== ====== ======
Total nonperforming loans and
troubled debt restructurings as a
percentage of total loans............. 0.41 % 0.63% 0.94% 0.60% 3.38% 4.20%
Total nonperforming assets and
troubled debt restructurings as a
percentage of total assets............ 0.18 % 0.25% 0.41% 0.28% 1.70% 2.15%
</TABLE>
- --------------
(1) Total non-accruing loans equals total nonperforming loans.
(2) Real estate owned balances are shown net of related specific loss
allowances.
(3) Nonperforming assets consist of nonperforming loans (and impaired loans),
other repossessed assets and REO.
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
Association's allowance for loan losses. Such agencies may require the
Association to make additional provisions for estimated loan losses based upon
their judgments about information available to them at the time of their
examination. As of July 31, 1998, the Association's allowance for loan losses
was 0.82% of total loans compared to 0.67% as of December 31, 1997. The
Association had non-accrual loans of $415,000 and $631,000 at July 31, 1998 and
December 31, 1997, respectively. The Association will continue to monitor and
modify its allowance for loan losses as conditions dictate. While management
believes the Association'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 Association's level of allowance for loan losses will be sufficient to
cover future loan losses incurred by the Association 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.
53
<PAGE>
The following table sets forth activity in the Association's allowance for
loan losses for the periods indicated.
<TABLE>
<CAPTION>
AT OR FOR THE SEVEN
MONTHS ENDED
JULY 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
----------------------- ---------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ---------- ---------- ---------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance for loan losses, beginning
of period........................... $ 667 $ 1,186 $ 1,186 $ 1,068 $ 968 $ 874 $ 575
Charged-off loans:
One- to four-family real estate... 12 17 370 4 35 6 --
Multi-family and commercial
real estate.................... -- -- 516 20 -- 157 --
Consumer.......................... 14 11 37 41 45 48 101
----------- ---------- ---------- ---------- --------- -------- ---------
Total charged-off loans........ 26 28 923 65 80 211 101
----------- ---------- ---------- ---------- --------- -------- ---------
Recoveries on loans previously
charged off:
One- to four-family real estate... 2 -- -- -- -- -- --
Consumer.......................... 1 2 4 3 -- 5 --
----------- ---------- ---------- ---------- --------- -------- ---------
Total recoveries............... 3 2 4 3 -- 5 --
----------- ---------- ---------- ---------- --------- -------- ---------
Net loans charged-off................. (23) (26) (919) (62) (80) (206) (101)
Provision for loan losses............. 175 233 400 180 180 300 400
Allowance for loan losses, end
of period........................... $ 819 $ 1,393 $ 667 $ 1,186 $ 1,068 $ 968 $ 874
=========== ========== ========== ========== ========= ======== =========
Net loans charged-off to average
interest-earning loans.............. 0.02% 0.03% 0.89% 0.06% 0.07% 0.18% 0.09%
Allowance for loan losses to total
loans, net........................ 0.82% 1.38% 0.67% 1.14% 1.01% 0.88% 0.81%
Allowance for loan losses to
nonperforming loans and
troubled debt restructuring......... 197.35% 131.79% 105.71% 118.72% 166.36% 25.51% 18.94%
Net loans charged-off to
allowance for loan losses........... 2.81% 1.87% 137.78% 5.23% 7.49% 21.28% 11.56%
Recoveries to charge-offs............. 11.54% 7.14% 0.43% 4.62% --% 2.37% --%
</TABLE>
54
<PAGE>
The following table sets forth the Association's allowance for loan losses
in each of the categories listed at the dates indicated and the percentage of
such amounts to the total allowance and the percentage of loans in each category
to total loans.
<TABLE>
<CAPTION>
AT JULY 31,
-----------------------------------------------------------------------------------
1998 1997
---------------------------------------- ---------------------------------------
% OF PERCENT % OF PERCENT
ALLOWANCE OF LOANS ALLOWANCE OF LOANS
IN EACH IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS
--------- ------------- ----------- ---------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate..................................... $308 37.61% 82.56% $ 904 64.90% 81.93%
Consumer........................................ 114 13.92 17.44 105 7.54 18.07
Unallocated..................................... 397 48.47 -- 384 27.56 --
--------- ------------- ----------- ---------- ------------- -----------
Total allowance for loan losses.............. $819 100.00% 100.00% $1,393 100.00% 100.00%
========= ============= =========== ========== ============= ===========
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------------------------------------------------
1997 1996 1995
--------------------------------- --------------------------------- ------------------------------------
% OF PERCENT % OF PERCENT % OF PERCENT
ALLOWANCE OF LOANS ALLOWANCE OF LOANS ALLOWANCE OF LOANS
IN EACH IN EACH IN EACH IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY 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>
Real estate........... $313 46.93% 81.60% $ 915 77.15% 82.37% $ 766 71.72% 83.99%
Consumer.............. 129 19.34 18.40 105 8.85 17.63 102 9.55 16.01
Unallocated........... 225 33.73 -- 166 14.00 -- 200 18.73 --
-------- --------- -------- -------- --------- -------- -------- --------- --------
Total allowance
for loan losses.... $667 100.00% 100.00% $1,186 100.00% 100.00% $1,068 100.00% 100.00%
======== ========= ======== ======== ========= ======== ======== ========== ========
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------------
1997 1996
--------------------------------- ---------------------------------
% OF PERCENT % OF PERCENT
ALLOWANCE OF LOANS ALLOWANCE OF LOANS
IN EACH IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS
-------- --------- -------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate........... $625 64.57% 84.87% $471 53.89% 84.71%
Consumer.............. 52 5.37 15.13 49 5.61 15.29
Unallocated........... 291 30.06 -- 354 40.50 --
-------- --------- -------- -------- --------- --------
Total allowance
for loan losses.... $968 100.00% 100.00% $874 100.00% 100.00%
======== ========= ======== ======== ========= ========
</TABLE>
56
<PAGE>
REAL ESTATE OWNED. At July 31, 1998 and December 31, 1997, the Association
had $50,000 and $0 of real estate owned, respectively. When the Association
acquires property through foreclosure or deed in lieu of foreclosure, it is
initially recorded at the lesser of the carrying value of the loan or fair value
of the property at the date of acquisition less costs to sell. Thereafter, if
there is a further deterioration in value, the Association provides for a
specific valuation allowance and charges operations for the diminution in value.
It is the policy of the Association to have obtained an appraisal or broker's
price opinion on all real estate subject to foreclosure proceedings prior to the
time of foreclosure. It is the Association's policy to require appraisals on a
periodic basis on foreclosed properties and conduct inspections on foreclosed
properties.
INVESTMENT ACTIVITIES
New Jersey chartered savings institutions have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies and certificates of deposit of insured
banks and savings institutions. Subject to various restrictions, New Jersey
chartered savings institutions may also invest their assets in investment-grade
corporate debt securities and mutual funds whose assets conform to the
investments that a state-chartered savings institution is otherwise authorized
to make directly. Additionally, the Association must maintain minimum levels of
investments that qualify as liquid assets under OTS regulations. See
"Regulation-- Federal Regulation of Savings Institutions-- Liquidity."
Historically, the Association has maintained liquid assets above the minimum OTS
requirements and at a level considered to be adequate to meet its normal daily
activities.
The investment policy of the Association, as approved by the Board of
Directors, requires management to maintain adequate liquidity, generate a
favorable return on investments without incurring undue interest rate and credit
risk and to complement the Association's lending activities. The Association
primarily utilizes investments in securities for liquidity management and as a
method of deploying excess funding not utilized for investment in loans.
Generally, the Association's investment policy is more restrictive than the OTS
regulations allow and, accordingly, the Association has invested primarily in
U.S. government and agency securities, which qualify as liquid assets under the
OTS regulations, federal funds and U.S. government sponsored agency issued
mortgage-backed securities. As required by SFAS No. 115, the Association has
established an investment portfolio of securities that are categorized as held-
to-maturity, available-for-sale or held for trading. The Association generally
invests in securities as a method of utilizing funds not utilized for loan
origination activity and as a method of maintaining liquidity at levels deemed
appropriate by management. The Association does not currently maintain a
portfolio of securities categorized as held for trading. At July 31, 1998, the
Association's securities portfolio totalled $136.7 million, or 52.6% of assets,
all of which was categorized as held-to-maturity.
At July 31, 1998, the Association had invested $48.4 million in FNMA, FHLMC
and GNMA mortgage-backed securities, or 18.6% of total assets, all of which
were classified as held-to-maturity. In addition, $46.1 million, or 17.7%, of
total assets, were debt obligations issued by federal agencies which generally
have stated maturities from one month to four years. Also, $41.0 million, or
15.8% of total assets were debt obligations issued by federal agencies which
have stated maturities from 30 months to 20 years, but which also have call
features. Such callable securities allow the issuer, after a certain time
period, to repay the security prior to its stated maturity. Based on interest
rate ranges anticipated by the Association, the Association estimates that the
substantial majority of such securities will be called prior to their stated
maturities. The Association is subject to additional interest rate risk and
reinvestment risk compared to its evaluation of that risk if changes in interest
rates exceed ranges anticipated by the Association in estimating the anticipated
life of such callable investment securities. Investments in mortgage-backed
securities involve a risk that actual prepayments will be greater than estimated
prepayments over the life of the security, 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 or 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.
57
<PAGE>
The following table sets forth certain information regarding the amortized
cost and fair value of the Association's securities at the dates indicated.
<TABLE>
<CAPTION>
AT JULY 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:
Debt securities
held-to-maturity:
Obligations of U.S.
government agencies................... $ 86,956 $ 87,293 $ 78,934 $ 79,502 $ 77,010 $ 77,028 $ 71,580 $ 72,285
Other securities....................... 100 100 100 100 100 100 600 598
-------- -------- -------- -------- -------- -------- -------- --------
Total investment securities.......... 87,056 87,393 79,034 79,602 77,110 77,128 72,180 72,883
-------- -------- -------- -------- -------- -------- -------- --------
FHLB stock............................... 1,249 1,249 1,233 1,233 1,150 1,150 1,182 1,182
-------- -------- -------- -------- -------- -------- -------- --------
Mortgage-backed securities:
Mortgage-backed securities held
to maturity:
FHLMC.................................. 21,901 22,522 26,679 27,013 23,529 23,526 15,150 15,511
FNMA................................... 25,681 26,035 17,627 17,673 16,752 16,496 15,112 15,337
GNMA................................... 770 839 925 977 1,117 1,152 1,410 1,486
-------- -------- -------- -------- -------- -------- -------- --------
Total mortgage-backed securities..... 48,352 49,396 45,231 45,663 41,398 41,174 31,672 32,334
-------- -------- -------- -------- -------- -------- -------- --------
Total securities..................... $136,657 $138,038 $125,498 $126,498 $119,658 $119,452 $105,034 $106,399
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
58
<PAGE>
The following table sets forth the Association's securities activities for
the periods indicated.
<TABLE>
<CAPTION>
FOR THE
SEVEN MONTHS
ENDED JULY 31, FOR THE YEAR ENDED DECEMBER 31,
-------------- --------------------------------
1998 1997 1996 1995
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES (HELD TO MATURITY):
Mortgage-backed securities, beginning of period...... $45,231 $41,398 $31,672 $29,923
Purchases: mortgage-backed securities............... 10,994 10,030 16,029 6,023
Repayments and prepayments:
Mortgage-backed securities.......................... 7,862 6,167 6,217 4,252
Decrease in premium.................................. (11) (30) (86) (22)
------- ------- ------- -------
Mortgage-backed securities, end of period............ $48,352 $45,231 $41,398 $31,672
======= ======= ======= =======
INVESTMENT SECURITIES (HELD TO MATURITY):
Investment securities, beginning of period........... $79,034 $77,110 $72,180 $65,904
Purchases: investment securities.................... 29,611 36,215 30,549 26,827
Calls: investment securities........................ 14,000 17,000 6,000 4,000
Maturities: investment securities................... 7,500 17,000 19,000 15,745
Decrease in premium.................................. (89) (291) (619) (806)
------- ------- ------- -------
Investment securities, end of period................. $87,056 $79,034 $77,110 $72,180
======= ======= ======= =======
FHLB STOCK:
FHLB stock, beginning of period...................... $ 1,233 $ 1,150 $ 1,182 $ 1,150
Purchases............................................ 16 83 -- 32
Redemptions.......................................... -- -- 32 --
------- ------- ------- -------
FHLB stock, end of period............................ $ 1,249 $ 1,233 $ 1,150 $ 1,182
======= ======= ======= =======
</TABLE>
The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the Association's
investment securities and mortgage-backed securities as of July 31, 1998.
<TABLE>
<CAPTION>
AT JULY 31, 1998
-----------------------------------------------------------------------------------------------------
MORE THAN ONE YEAR MORE THAN FIVE YEARS
ONE YEAR OR LESS TO FIVE YEARS TO TEN YEAR MORE THAN TEN YEARS TOTAL
------------------ ------------------ ------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
-------- -------- ------- -------- -------- -------- ------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held-to-maturity
securities:
Investment securities:
Obligations of U.S.
Government agencies... $12,591 6.89% $34,256 6.14% $3,997 7.38% $36,112 7.17% $ 86,956 6.73%
Other investments....... -- -- 100 3.50 -- -- -- -- 100 3.50
Mortgage-backed
securities............... -- -- 933 9.03 4,908 7.71 42,511 7.27 48,352 7.35
FHLB stock.................. 1,249 7.45 -- -- -- -- -- -- 1,249 7.45
------- ---- ------- ---- ------ ---- ------- ---- -------- ----
Total securities
at amortized cost.... $13,840 6.94% $35,289 6.21% $8,905 7.56% $78,623 7.22% $136,657 6.95%
======= ==== ======= ==== ====== ==== ======= ==== ======== ====
</TABLE>
SOURCES OF FUNDS
GENERAL. Deposits, loan repayments and prepayments, cash flows generated
from operations and FHLB advances are the primary sources of the Association's
funds for use in lending, investing and for other general purposes.
59
<PAGE>
DEPOSITS. The Association offers a variety of deposit accounts with a
range of interest rates and terms. The Association's deposits consist of
checking, money market, savings, NOW, certificate accounts and Individual
Retirement Accounts. More than 50% of the funds deposited in the Association
are in certificate of deposit accounts. At July 31, 1998, core deposits
(savings, NOW, money market and club accounts) represented 46.6% of total
deposits. The flow of deposits is influenced significantly by general economic
conditions, changes in money market rates, prevailing interest rates and
competition. The Association's deposits are obtained predominantly from the
areas in which its branch offices are located. The Association 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
Association's ability to attract and retain deposits. The Association uses
traditional means of advertising its deposit products, including print media and
generally does not solicit deposits from outside its market area. The
Association does not actively solicit certificate accounts in excess of $100,000
or use brokers to obtain deposits. At July 31, 1998, $54.7 million, or 46.2% of
the Association's certificate of deposit accounts were to mature within one
year.
The following table presents the deposit activity of the Association for
the periods indicated.
<TABLE>
<CAPTION>
FOR THE SEVEN MONTHS
ENDED JULY 31, FOR THE YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Increase (decrease) before interest credited.......... $3,149 $(2,238) $(2,336) $(2,725) $1,699
Interest credited..................................... 4,801 4,595 8,708 8,439 7,912
------ ------- ------- ------- ------
Net increase.......................................... $7,950 $ 2,357 $ 6,372 $ 5,714 $9,611
====== ======= ======= ======= ======
</TABLE>
At July 31, 1998, the Association had $9.7 million in certificate accounts
in amounts of $100,000 or more maturing as follows:
<TABLE>
<CAPTION>
WEIGHED
AVERAGE
MATURITY PERIOD AMOUNT RATE
==================================== =========== =========
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Three months or less................ $1,205 5.11%
Over 3 through 6 months............. 858 5.30%
Over 6 through 12 months............ 1,205 5.36%
Over 12 months...................... 6,394 6.18%
------
Total............................ $9,662 5.87%
======
</TABLE>
60
<PAGE>
The following table sets forth the distribution of the Association's
average deposit accounts for the periods indicated and the weighted average
interest rates on each category of deposits presented and such information at
July 31, 1998. Averages for the periods presented utilize month-end balances.
<TABLE>
<CAPTION>
FOR THE SEVEN MONTHS ENDED
AT JULY 31, 1998 JULY 31, 1998
---------------------------- -----------------------------------
PERCENT OF
PERCENT TOTAL AVERAGE
OF TOTAL RATE AVERAGE AVERAGE RATE
BALANCE DEPOSITS PAID BALANCE DEPOSITS PAID
-------- -------- ------ --------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Savings accounts.................. $ 34,572 15.0% 2.75% $ 34,353 15.1% 2.73%
Money market accounts............. 43,447 18.8 3.44 43,759 19.3 3.47
NOW accounts...................... 27,989 12.1 2.25 28,275 12.5 2.26
Club accounts..................... 1,720 0.7 2.59 1,102 0.5 2.78
Certificates of deposit........... 118,443 51.2 5.80 114,818 50.6 5.77
Noninterest-bearing deposits:
Demand deposits................. 4,985 2.2 -- 4,600 2.0 --
-------- -------- ------ --------- ---------- ---------
Total average deposits........ $231,156 100.0% 4.32% $226,907 100.0% 4.30%
======== ======== ========= ==========
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------
1997 1996 1995
--------------------------------- ------------------------------- -------------------------------
PERCENT OF PERCENT OF PERCENT OF
TOTAL AVERAGE TOTAL AVERAGE TOTAL AVERAGE
AVERAGE AVERAGE RATE AVERAGE AVERAGE RATE AVERAGE AVERAGE RATE
BALANCE DEPOSITS PAID BALANCE DEPOSITS PAID BALANCE DEPOSITS PAID
--------- ---------- --------- --------- ---------- --------- --------- ---------- -------
(DOLLARS IN THOUSANDS)
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Savings accounts............... $ 35,599 16.3% 2.68% $ 38,738 18.1% 2.75% $ 44,109 21.6% 2.73%
Money market accounts.......... 41,597 19.0 3.67 37,495 17.6 3.64 31,328 15.3 3.80
NOW accounts................... 27,598 12.6 2.34 25,882 12.1 2.24 25,447 12.5 2.16
Club accounts.................. 1,009 0.5 2.52 1,013 0.5 2.53 999 0.5 2.63
Certificates of deposit........ 108,506 49.7 5.68 106,665 49.9 5.70 98,898 48.4 5.67
Noninterest-bearing deposits:
Demand deposits.............. 4,244 1.9 -- 3,922 1.8 -- 3,439 1.7 --
--------- ---------- --------- --------- ---------- --------- --------- ---------- ------
Total average deposits..... $218,553 100.0% 4.26% $213,715 100.0% 4.27% $204,220 100.0% 4.20%
========= ========== ========= ========== ========= ==========
</TABLE>
<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 July 31, 1998.
<TABLE>
<CAPTION>
PERIOD TO MATURITY FROM JULY 31, 1998 AT DECEMBER 31,
----------------------------------------------- ----------------------------
LESS ONE TWO TO OVER
THAN ONE TO TWO THREE THREE
YEAR YEARS YEARS YEARS TOTAL 1997 1996 1995
-------- ------ ------ ----- ----- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CERTIFICATE ACCOUNTS:
0 to 4.00%................ $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 3,266
4.01 to 5.00%................ 10,279 25 -- 4,495 14,799 5,052 33,291 18,476
5.01 to 6.00%................ 40,884 16,986 10,111 29,166 97,147 71,398 35,266 40,620
6.01 to 7.00%................ 3,259 2,648 305 -- 6,212 33,474 35,708 35,340
7.01 to 8.00%................ 254 -- 26 -- 280 1,357 1,804 1,998
8.01 to 9.00%................ 5 -- -- -- 5 5 1,259 5,042
Over 9.00%.................... -- -- -- -- -- -- -- 18
-------- ------- ------- ------- -------- -------- -------- --------
Total certificate accounts... $54,681 $19,659 $10,442 $33,661 $118,443 $111,286 $107,328 $104,760
======= ======= ======= ======= ======== ======== ======== ========
</TABLE>
BORROWINGS. The Association utilizes advances from the FHLB of New York as
an alternative to retail deposits to fund its operations as part of its
operating strategy. These FHLB advances are collateralized primarily by certain
of the Association's mortgage loans and mortgage-backed securities and
secondarily by the Association's investment in capital stock of the FHLB of New
York. FHLB advances 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 of New York will advance to member institutions, including
the Association, fluctuates from time to time in accordance with the policies of
the FHLB of New York. See "Regulation--Federal Home Loan Bank System." At
July 31, 1998 and December 31, 1997, the Association had $176,000 in outstanding
FHLB advances.
The following table sets forth certain information regarding the
Association's borrowed funds at or for the periods ended on the dates indicated:
<TABLE>
<CAPTION>
AT OR FOR THE SEVEN MONTHS AT OR FOR THE YEAR ENDED
ENDED JULY 31, DECEMBER 31,
-------------------------- -----------------------------------
1998 1997 1997 1996 1995
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FHLB advances:
Average balance outstanding............. $ 176 $ 176 $ 176 $ 176 $ 176
===== ===== ===== ===== =====
Maximum amount outstanding at any
month-end during the period............ $ 176 $ 176 $ 176 $ 176 $ 176
===== ===== ===== ===== =====
Balance outstanding at end of period.... $ 176 $ 176 $ 176 $ 176 $ 176
===== ===== ===== ===== =====
Weighted average interest rate during
the period............................. 6.62% 6.62% 6.62% 6.62% 6.62%
===== ===== ===== ===== =====
Weighted average interest rate at end
of period.............................. 6.62% 6.62% 6.62% 6.62% 6.62%
===== ===== ===== ===== =====
</TABLE>
62
<PAGE>
PROPERTIES
The Association currently conducts its business through three full service
banking offices and two operations centers located in Gloucester and Camden
Counties, New Jersey. Consistent with its business planning strategy, the
Association is planning to expand and remodel its administrative and home office
in order to move the functions of its two operation centers to that single
location. The Association expects to incur capital expenditures of up to $2.5
million in connection with such expansion. Once the expansion is complete, in
or about the first quarter of 2000, the Company believes that the Association's
facilities will be adequate to meet the then-present and immediately foreseeable
needs of the Association and the Company. The following table sets forth the
Association's offices as of July 31, 1998.
<TABLE>
<CAPTION>
NET BOOK VALUE
OF PROPERTY OR
ORIGINAL LEASEHOLD TOTAL
YEAR DATE OF IMPROVEMENTS DEPOSITS AT
LEASED OR LEASED OR LEASE AT JULY 31,
LOCATION OWNED ACQUIRED EXPIRATION JULY 31, 1998 1998
- -------- --------- ----------- ------------ ------------------ ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ADMINISTRATIVE/HOME OFFICE:
4651 Route 42
Turnersville, NJ 08012 Owned 1979 -- $1,012 $ 48,217
BRANCH OFFICES:
627 Haddon Avenue
Collingswood, NJ 08108 Owned 1957 -- 1,291 108,776
10 E. Evesham Road
Glendora, NJ 08029 Owned 1967 -- 94 74,163
OPERATIONS CENTERS:
4641 Route 42
Turnersville, NJ 08012 Leased July 1996 June 1999/(1)/ 5 --
251 Johnson Road January
Turnersville, NJ 08012 Leased 1988 December 1998/(2)/ -- --
------ --------
Total $2,402 $231,156
====== ========
</TABLE>
- ---------------------
(1) The Association is currently in the first of two one-year renewal options.
(2) Since the expiration of the lease's original three-year term, the
Association has continuously renewed the lease for one-year periods.
LEGAL PROCEEDINGS
The Association is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business. Such
routine legal proceedings, in the aggregate, are believed by management to be
immaterial to the Company's financial condition, results of operations or cash
flows.
PERSONNEL
As of July 31, 1998, the Association had 65 authorized full-time employee
positions and 22 authorized part-time employee positions. The employees are not
represented by a collective bargaining unit and the Association considers its
relationship with its employees to be good. See "Management of the Association-
- -Other Benefit Plans" for a description of certain compensation and benefit
programs offered to the Association's employees.
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<PAGE>
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
GENERAL. The Company and the Association will report their income on a
December 31 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 Association's reserve for bad
debts discussed below. The following discussion of tax matters material to the
operations of the Company and the Association is intended only as a summary and
does not purport to be a comprehensive description of the tax rules applicable
to the Association or the Company. The Association was last audited by the
Internal Revenue Service ("IRS") in 1991 and has not been audited by the New
Jersey Department of Revenue ("DOR") in the past five years.
BAD DEBT RESERVE. For taxable years beginning after December 31, 1995,
although the 1996 Tax Act generally repealed the bad debt method of accounting
for thrift institutions, thrift institutions such as the Association that are
treated as small banks under the Code (those with assets under $500 million) are
allowed to utilize the experience method or the specific charge-off method to
account for bad debt losses. Thus, the Association will take a bad debt
deduction for federal income tax purposes which is based on its current or
historic net charge-offs. For tax years beginning prior to December 31, 1995,
the Association as a qualifying thrift had been permitted to establish a reserve
for bad debts and to make annual additions to such reserve, which were
deductible for federal income tax purposes. Under such prior tax law, generally
the Association recognized a bad debt deduction equal to 8% of taxable income.
Under the 1996 Tax Act, the Association is required to recapture all or a
portion of the additions to its bad debt reserve made subsequent to the base
year (which is the Association's last taxable year beginning before January 1,
1988). The Association began to recapture such bad debt reserves ratably over a
six-year period commencing in the Association's calendar 1996 tax year. In
fiscal 1997, the Association recorded a deferred tax liability for this bad debt
recapture. As a result, the recapture is not anticipated to have an effect on
the Association's future net income or federal income tax expense for financial
reporting purposes.
POTENTIAL RECAPTURE OF BASE YEAR BAD DEBT REVENUE. The Association's bad
debt reserve as of the base year is not subject to automatic recapture as long
as the Association continues to carry on the business of banking. If the
Association no longer qualifies as a bank, the balance of the pre-1988 reserves
(and the supplemental reserves) is restored to income ratably over a six-year
period beginning in the tax year the Association no longer qualifies as a bank.
The base year bad debt reserve is also subject to recapture to the extent that
the Association makes "non-dividend distributions" that are considered as made
from the pre-1988 bad debt reserves. To the extent that such reserves exceed
the amount that would have been allowed under the experience method ("Excess
Distributions"), then an amount based on the amount distributed will be included
in the Association's taxable income. "Non-dividend distributions" include
distributions in excess of the Association'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 Association'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
Association's bad debt reserve. The amount of additional taxable income
created from an Excess Distribution is the amount that, when reduced by the tax
attributable to the income, is equal to the amount of the distribution. Thus,
if after the Conversion, the Association makes a "non-dividend distribution,"
then approximately one and one-half times the amount so distributed would be
includable in gross income for federal income tax purposes, assuming a 34%
corporate income tax rate (exclusive of state and local taxes). See
"Regulation" and "Dividend Policy" for limits on the payment of dividends of the
Association. The Association does not intend to pay dividends that would result
in a recapture of any portion of its bad debt reserve.
CORPORATE ALTERNATIVE MINIMUM TAX. The Code imposes a tax on alternative
minimum taxable income ("AMTI") at a rate of 20%. The excess of the bad debt
reserve deduction claimed by the Association over the deduction that would have
been allowable under the experience method is treated as a preference item for
purposes of computing the AMTI. Generally, only 90% of AMTI can be offset by
net operating loss carryovers of which the Association currently has none.
AMTI is increased by an amount equal to 75% of the amount by which the
Association's adjusted current earnings exceeds its AMTI (determined without
regard to this preference and prior to reduction for net operating losses). In
addition, for taxable years beginning after June 30, 1986 and before January 1,
1996, an environmental tax of 0.12% of the excess of AMTI (with certain
modifications) over $2 million was imposed on corporations, including
64
<PAGE>
the Association, whether or not an Alternative Minimum Tax ("AMT") is paid. The
Association does not expect to be subject to the AMT.
DIVIDENDS RECEIVED DEDUCTION AND OTHER MATTERS. For federal purposes, the
Company may exclude from its income 100% of dividends received from the
Association as a member of the same affiliated group of corporations. This
corporate dividends received deduction is generally 70% in the case of dividends
received from unaffiliated corporations with which the Company and the
Association will not file a consolidated tax return, except that if the Company
or the Association own more than 20% of the stock of a corporation distributing
a dividend then, generally, 80% of any dividends received may be deducted.
STATE AND LOCAL TAXATION
The Association is subject to New Jersey's Savings Institution Tax at the
rate of 3% on its taxable income, before net operating loss deductions and
special deductions for federal income tax purposes. The Company will be
required to file a New Jersey income tax return because it will be doing
business in New Jersey. For New Jersey tax purposes, regular corporations are
presently taxed at a rate equal to 9% of taxable income. For this purpose,
"taxable income" generally means Federal taxable income subject to certain
adjustments (including addition of interest income on state and municipal
obligations).
DELAWARE TAXATION
As a Delaware holding company not earning income in Delaware, the Company
is exempt from Delaware corporate income tax but is required to file an annual
report with and pay an annual franchise tax to the State of Delaware. However,
to the extent that the Company conducts business outside of Delaware, the
Company may be considered doing business and subject to additional taxing
jurisdictions outside of Delaware.
REGULATION
GENERAL
The Association is subject to extensive regulation, examination and
supervision by the Department, as its chartering agency, the OTS, as its primary
federal regulator, and the FDIC, as the deposit insurer. The Association is a
member of the FHLB System. The Association's deposit accounts are insured up to
applicable limits by the SAIF managed by the FDIC. The Association must file
reports with the Commissioner, the OTS and the FDIC concerning its activities
and financial condition in addition to obtaining regulatory approvals prior to
entering into certain transactions such as mergers with, or acquisitions of,
other financial institutions. There are periodic examinations by the
Department, the OTS and the FDIC to test the Association's compliance with
various regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such policies, whether by the Department, the OTS, the FDIC or the
Congress, could have a material adverse impact on the Company, the Association
and their operations. Assuming that the holding company form of organization is
utilized, the Company, as a savings and loan holding company, will also be
required to file certain reports with, and otherwise comply with the rules and
regulations of the OTS and of the Securities and Exchange Commission (the "SEC")
under the federal securities laws.
Any change in the regulatory structure or the applicable statutes or
regulations, whether by the Department, the OTS, the FDIC or the Congress, could
have a material impact on the Company, the Association, their operations or the
Association's Conversion. Congress currently has under consideration various
proposals to eliminate the federal thrift charter, abolish the OTS and restrict
the activities of savings and loan holding companies. The results of such
consideration, including possible enactment of legislation is uncertain.
Therefore, the Association is unable to determine the extent to which the
results of consideration or possible legislation, if enacted, would affect its
business. See "Risk Factors--Financial Institution Regulation and Possible
Legislation."
65
<PAGE>
Certain of the regulatory requirements applicable to the Association and to
the Company are referred to below or elsewhere herein. The description of
statutory provisions and regulations applicable to savings associations set
forth in this Prospectus do not purport to be complete descriptions of such
statutes and regulations and their effects on the Association and the Company
and is qualified in its entirety by reference to such statutes and regulations.
FEDERAL REGULATION OF SAVINGS INSTITUTIONS
BUSINESS ACTIVITIES. The activities of New Jersey chartered, FDIC insured
savings institutions are governed by the New Jersey Savings and Loan Act (1963),
as amended ("NJSLA"), the Home Owners' Loan Act, as amended ("HOLA") and, in
certain respects, the Federal Deposit Insurance Act ("FDI Act") and the
regulations issued by the agencies to implement these statutes. These laws and
regulations delineate the nature and extent of the activities in which savings
associations may engage.
ACTIVITIES AND INVESTMENT. The FDI Act imposes certain restrictions on the
activities and investments of state savings associations such as the
Association. No state savings association may engage as principal in any
activity that is not permissible for federally chartered savings associations
unless the association is in compliance with federal regulatory capital
requirements and the FDIC has determined that the activity does not pose a
significant risk to the deposit insurance fund. A state savings association may
engage in an activity that is permissible for a federal savings association, but
in a greater amount, only if the institution is in capital compliance and the
FDIC has not determined that engaging in that amount of activity poses a risk to
the affected deposit insurance fund. Also, a state savings association may not
acquire directly an equity investment of a type or in an amount that is not
permissible for federal associations. However, state savings associations may
acquire shares of service corporations so long as the institution is in capital
compliance, and the FDIC determines that no significant risk to the deposit
insurance fund is posed by the amount that the institution seeks to acquire on
the activities of the savings association.
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 Association'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 July 31, 1998, the Association's regulatory limit
on loans-to-one borrower was $6.5 million. At July 31, 1998, the Association's
largest aggregate amount of loans-to-one borrower consisted of $1.1 million in
real estate mortgage loans all of which were secured by one- to four-family
properties.
QTL TEST. The HOLA requires savings institutions to meet a QTL test.
Under the QTL test, a savings association is required to maintain at least 65%
of its "portfolio assets" (total assets less: (i) specified liquid assets up to
20% of total assets; (ii) intangibles, including goodwill; and (iii) the value
of property used to conduct business) in certain "qualified thrift investments"
(primarily residential mortgages and related investments, including certain
mortgage-backed and related securities) in at least 9 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 July 31, 1998,
the Association maintained 72% 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 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 Association's capital fell below its capital
requirements or the OTS notified it that it was in need of more than normal
supervision, the Association's ability to make capital distributions could be
restricted. In addition, the OTS could
66
<PAGE>
prohibit a proposed capital distribution by any institution, which would
otherwise be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice.
LIQUIDITY. The Association 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 Association's average liquidity ratio
for the seven months ended July 31, 1998 was 45.75%, which exceeded the
applicable requirements. The Association has never been subject to monetary
penalties for failure to meet its liquidity requirements. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
ASSESSMENTS. Savings institutions are required by regulation to pay
assessments to the OTS and to the New Jersey Department of Banking and Insurance
(the "Department") to fund the agencies' operations. The assessments paid by
the Association to these agencies for the year ended December 31, 1997 totalled
$78,000.
TRANSACTIONS WITH RELATED PARTIES. The Association's authority to engage
in transactions with related parties or "affiliates" (i.e., any company that
controls or is under common control with an institution, including the Company
and any non-savings institution subsidiaries that the Company may establish) is
limited by Sections 23A and 23B of the Federal Reserve Act ("FRA"). Section 23A
restricts the aggregate amount of covered transactions with any individual
affiliate to 10% of the capital and surplus of the savings institution and also
limits the aggregate amount of transactions with all affiliates to 20% of the
savings institution's capital and surplus. Certain transactions with affiliates
are required to be secured by collateral in an amount and of a type described in
Section 23A and the purchase of low quality assets from affiliates 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.
ENFORCEMENT. Under the FDI Act, the OTS has primary federal enforcement
responsibility over federally insured savings institutions and has the authority
to bring action against all "institution-affiliated parties," including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers or directors,
receivership, conservatorship or termination of deposit insurance. Civil
penalties cover a wide range of violations and can amount to $25,000 per day, or
$1 million per day in especially egregious cases. Under the FDI Act, the FDIC
has the authority to recommend to the Director of the OTS that enforcement
action be taken with respect to a particular savings institution. If action is
not taken by the Director, the FDIC has authority to take such action under
certain circumstances. Federal and state law also establishes criminal
penalties for certain violations.
STANDARDS FOR SAFETY AND SOUNDNESS. The FDI Act requires each federal
banking agency to prescribe for all insured depository institutions standards
relating to, among other things, internal controls, information systems and
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, and compensation, fees and benefits and such other
operational and managerial standards as the agency deems appropriate. The
federal banking agencies have adopted final regulations and Interagency
Guidelines Establishing Standards for Safety and Soundness ("Guidelines") to
implement these safety and soundness standards. The Guidelines set forth the
safety and soundness standards that the federal banking agencies use to identify
and address problems at insured depository institutions before capital becomes
impaired. The Guidelines address internal controls and information systems;
internal audit system; credit underwriting; loan documentation; interest rate
risk exposure; asset growth; asset quality; earnings; and compensation, fees and
benefits. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the Guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard, as required by the FDI Act. The final
regulations establish deadlines for the submission and review of such safety and
soundness compliance plans.
CAPITAL REQUIREMENTS. The OTS capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital standard,
a 3.0% leverage ("core" or "Tier 1" capital) ratio and an 8.0% risk based
capital standard. Core (Tier 1) capital is defined as common stockholders'
equity (including retained earnings), certain non-cumulative perpetual preferred
stock and related surplus, minority interests in equity accounts of consolidated
67
<PAGE>
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 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 8.0%. In determining the amount of risk-
weighted assets, all assets, including certain off-balance sheet assets, are
multiplied by a risk-weight of 0% to 100%, as assigned by the OTS capital
regulation based on the risks OTS believes are inherent in the type of asset.
The components of core capital are equivalent to those discussed earlier under
the 3% leverage standard. The components of supplementary capital currently
include cumulative preferred stock, long-term perpetual preferred stock,
mandatory convertible securities, subordinated debt and intermediate preferred
stock and, within specified limits, the allowance for loan and lease losses.
Overall, the amount of supplementary capital included as part of total capital
cannot exceed 100% of core capital. Effective October 1998, institutions may
also include in supplementary capital up to 45% of the pretax unrealized holding
gains on available-for-sale equity securities with readily determinable fair
values.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. The final interest rate risk rule adjusts the risk-
weighting for certain mortgage derivative securities. Under the rule as
written, 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 would be 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% would be
required to deduct an interest rate component in calculating its total risk-
based capital. The interest rate risk component would be 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 would be deducted from an association's total capital in
calculating compliance with its risk-based capital requirement. Under the rule
as written, 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% would be not subject
to the interest rate risk component, unless the OTS determined 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 the date that the component will first be deducted from an
institution's total capital to provide it with an opportunity to review the
interest rate risk approaches taken by other federal banking agencies.
At July 31, 1998, the Association 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 Association's historical
amounts and percentages at July 31, 1998, and pro forma amounts and percentages
based upon the issuance of the shares within the Estimated Price Range and
assuming that a portion of the net proceeds are retained by the 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 8.0% or a leverage ratio or a Tier 1 capital or risk-based assets ratio
that is less than 4.0% is considered to be undercapitalized. A savings
institution that has a total risk-based capital less than 6.0%, a Tier 1 risk-
based capital ratio of less than 3.0% or a leverage ratio that is less than 3.0%
is considered to be "significantly undercapitalized" and a savings institution
that has a tangible capital to assets ratio equal to or less than 2.0% is deemed
to be "critically undercapitalized." Subject to a narrow exception, the banking
regulator is required to appoint a receiver or conservator for an institution
that is critically undercapitalized. The regulation also provides that a
capital restoration plan must be filed with the OTS within 45 days of the date
an association receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized."
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<PAGE>
Compliance with the plan must be guaranteed by any parent holding company. In
addition, numerous mandatory supervisory actions may become immediately
applicable to the institution depending upon its category, including, but not
limited to, increased monitoring by regulators, restrictions on growth, and
capital distributions and limitations on expansion. The OTS could also take any
one of a number of discretionary supervisory actions, including the issuance of
a capital directive and the replacement of senior executive officers and
directors.
INSURANCE OF DEPOSIT ACCOUNTS
The FDIC has adopted a risk-based insurance assessment system. The FDIC
assigns an institution to one of three capital categories based on the
institution's financial information, as of the reporting period ending seven
months before the assessment period. The capital categories are (1) well
capitalized, (2) adequately capitalized or (3) undercapitalized. An institution
is also placed in one of three supervisory subcategories within each capital
group. The supervisory subgroup to which an institution is assigned is based on
a supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and information that the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds. An institution's assessment rate depends on the capital category and
supervisory category to which it is assigned with the most well capitalized,
healthy institutions receiving the lowest rates.
Deposits of the Association are presently insured by the SAIF. Both the
SAIF and the BIF are statutorily required to be recapitalized to a 1.25% of
insured reserve deposits ratio. Until recently, members of the SAIF and BIF were
paying average deposit insurance assessments of between 24 and 25 basis points.
The BIF met the required reserve in 1995, whereas the SAIF was not expected to
meet or exceed the required level until 2002 at the earliest. This situation was
primarily due to the statutory requirement that SAIF members make payments on
bonds issued in the late 1980s by the Financing Corporation ("FICO") to
recapitalize the predecessor to the SAIF.
In view of the BIF's achieving the 1.25% ratio, the FDIC ultimately adopted
a new assessment rate schedule of from 0 to 27 basis points under which 92% of
BIF members paid an annual premium of only $2,000. With respect to SAIF member
institutions, the FDIC adopted a final rule retaining the previously existing
assessment rate schedule applicable to SAIF member institutions of 23 to 31
basis points. As long as the premium differential continued, it may have had
adverse consequences for SAIF members, including reduced earnings and an
impaired ability to raise funds in the capital markets. In addition, SAIF
members, such as the Association could have been placed at a substantial
competitive disadvantage to BIF members with respect to pricing of loans and
deposits and the ability to achieve lower operating costs.
On September 30, 1996, the President of the United States signed into law
the Funds Act which, among other things, imposed a special one-time assessment
on SAIF member institutions, including the Association, 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 Association as an expense in the quarter ended September
30, 1996 and is generally tax deductible. The SAIF Special Assessment recorded
by the Association amounted to $1.3 million on a pre-tax basis and $841,000 on
an after-tax basis.
The Funds Act also spread the obligations for payment of the FICO bonds
across all SAIF and BIF members. Beginning on January 1, 1997, BIF deposits were
assessed for a FICO payment of 1.3 basis points, while SAIF deposits pay 6.48
basis points. Full pro rata sharing of the FICO payments between BIF and SAIF
members will occur on the earlier of January 1, 2000 or the date the BIF and
SAIF are merged.
As a result of the Funds Act, the FDIC voted to effectively lower SAIF
assessments to 0 to 27 basis points as of January 1, 1997, a range comparable to
that of BIF members. The FDIC recently adopted the 0 to 27 basis point
assessment schedule for the second half of 1998. SAIF members will also
continue to make the FICO payments described above. Management cannot predict
the level of FDIC insurance assessments on an on-going basis, or whether the BIF
and SAIF will eventually be merged.
The Association's assessment rate for 1997 was 6.5 basis points and the
regular premium expense for this period was $138,000.
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The FDIC is authorized to raise the assessment rates in certain
circumstances. The FDIC has exercised this authority several times in the past
and may raise insurance premiums in the future. If such action is taken by the
FDIC, it could have an adverse effect on the earnings of the Association.
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 Association does not know of any practice, condition
or violation that might lead to termination of deposit insurance.
FEDERAL HOME LOAN BANK SYSTEM
The Association 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 Association, as a member of the FHLB, is required to
acquire and hold shares of capital stock in the FHLB in an amount at least equal
to 1.0% 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 Association was
in compliance with this requirement with an investment in FHLB stock at July 31,
1998 of $1.2 million. FHLB advances must be secured by specified types of
collateral and all long-term advances may only be obtained for the purpose of
providing funds for residential housing finance. At July 31, 1998, the
Association had $176,000 in FHLB advances.
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 Association amounted to approximately
$81,000, $76,000 and $91,000, respectively. If dividends were reduced, the
Association's net interest income would likely also be reduced. Further, there
can be no assurance that the impact of recent or future legislation on the FHLBs
will not also cause a decrease in the value of the FHLB stock held by the
Association.
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 3.0% and for accounts greater than $47.8 million, the
reserve requirement is $1.43 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 Association 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 Association's
interest-earning assets. FHLB System members are also authorized to borrow from
the Federal Reserve "discount window," but Federal Reserve Board regulations
require institutions to exhaust all FHLB sources before borrowing from a Federal
Reserve Bank.
NEW JERSEY LAW
GENERAL. The Commissioner regulates, among other things, the Association's
internal business procedures as well as its deposits, lending and investment
activities, and its ability to declare and pay dividends. The Commissioner must
approve changes to the Association's Certificate of Incorporation, establishment
or relocation of branch offices, mergers and the issuance of additional stock.
In addition, the Commissioner conducts periodic examinations of the Association.
Certain of the areas regulated by the Commissioner are not subject to similar
regulation by the FDIC.
Recent federal and state legislative developments have reduced distinctions
between commercial banks and SAIF-insured savings institutions in New Jersey
with respect to lending and investment authority, as well as interest rate
limitations. As federal law has expanded the authority of federally chartered
savings institutions to engage in activities previously reserved for commercial
banks, New Jersey legislation and regulations ("parity legislation") have given
New
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Jersey chartered savings institutions, such as the Association, certain of the
powers of federally chartered savings institutions.
New Jersey law provides that, upon satisfaction of certain triggering
conditions, as determined by the Commissioner, insured institutions or savings
and loan holding companies located in a state which has reciprocal legislation
in effect on substantially the same terms and conditions as stated under New
Jersey law may acquire, or be acquired by, New Jersey insured institutions or
holding companies on either a regional or national basis. New Jersey law
permits interstate branching to the same extent OTS permits interstate branching
in federal savings and loans.
ENFORCEMENT. Under the NJSLA, the Commissioner has extensive enforcement
authority over New Jersey savings and loan institutions and, under certain
circumstances, affiliated parties, insiders, and agents. The Commissioner's
enforcement authority includes: cease and desist orders, receivership,
conservatorship, restraining orders, removal of officers and directors,
emergency closures, dissolution, and liquidation. Fines for violations range
from $100 per day to $5,000.
HOLDING COMPANY REGULATION
The Company, if utilized, will be a non-diversified unitary savings and
loan holding company within the meaning of the HOLA. As such, the Company will
be required to register with the OTS and will be subject to OTS regulations,
examinations, supervision and reporting requirements. In addition, the OTS has
enforcement authority over the Company and its non-savings institution
subsidiaries. Among other things, this authority permits the OTS to restrict or
prohibit activities that are determined to be a serious risk to the subsidiary
savings institution. The Association must notify the OTS 30 days before
declaring any dividend to the Company.
As a unitary savings and loan holding company, the Company generally will
not be restricted under existing laws as to the types of business activities in
which it may engage, provided that the Association continues to be a QTL. See
"--Federal Regulation of Savings Institutions--QTL Test" for a discussion of the
QTL requirements. Upon any non-supervisory acquisition by the Company of another
savings association, the Company would become a multiple savings and loan
holding company (if the acquired institution is held as a separate subsidiary)
and would be subject to extensive limitations on the types of business
activities in which it could engage. The HOLA limits the activities of a
multiple savings and loan holding company and its non-insured institution
subsidiaries primarily to activities permissible for bank holding companies
under Section 4(c)(8) of the Bank Holding Company Act, as amended (the "BHC
Act"), subject to the prior approval of the OTS, and to other activities
authorized by OTS regulation. Previously proposed legislation would have treated
all savings and loan holding companies as bank holding companies and limit the
activities of such companies to those permissible for multiple savings and loan
holding companies. See "Risk Factors--Financial Institution Regulation and
Possible Legislation."
The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5% of
the voting stock of another savings institution, or holding company thereof,
without prior written approval of the OTS; from acquiring or retaining, with
certain exceptions, more than 5% of a non-subsidiary holding company or savings
association. The HOLA also prohibits a savings and loan holding company from
acquiring more than 5% of a company engaged in activities other than those
authorized for savings and loan holding companies by the HOLA; or acquiring or
retaining control of a depository institution that is not insured by the FDIC.
In evaluating applications by holding companies to acquire savings institutions,
the OTS must consider the financial and managerial resources and future
prospects of the company and institution involved, the effect of the acquisition
on the risk to the insurance funds, the convenience and needs of the community
and competitive factors.
The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, except: (i) the approval of interstate supervisory
acquisitions by savings and loan holding companies, and (ii) the acquisition of
a savings institution in another state if the laws of the state of the target
savings institution specifically permit such acquisitions. The states vary in
the extent to which they permit interstate savings and loan holding company
acquisitions.
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FEDERAL SECURITIES LAWS
The Company has filed with the SEC a registration statement under the
Securities Act of 1933 (the "Securities Act") for the registration of the Common
Stock to be issued pursuant to the Conversion. Upon completion of the
Conversion, the Company's Common Stock will be registered with the SEC under the
Securities Exchange Act of 1934 (the "Exchange Act"). The Company will then be
subject to the information, proxy solicitation, insider trading restrictions and
other requirements under the Exchange Act.
The registration under the Securities Act of shares of the Common Stock to
be issued in the Conversion does not cover the resale of such shares. Shares of
the Common Stock purchased by persons who are not affiliates of the Company may
be resold without registration. Shares purchased by an affiliate of the Company
will be subject to the resale restrictions of Rule 144 under the Securities Act.
If the Company meets the current public information requirements of Rule 144
under the Securities Act, each affiliate of the Company who complies with the
other conditions of Rule 144 (including those that require the affiliate's sale
to be aggregated with those of certain other persons) would be able to sell in
the public market, without registration, a number of shares not to exceed, in
any three-month period, the greater of (i) 1% of the outstanding shares of the
Company or (ii) the average weekly volume of trading in such shares during the
preceding four calendar weeks. Provision may be made in the future by the
Company to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.
MANAGEMENT OF THE COMPANY
The Board of Directors of the Company is divided into three classes, each
of which contains approximately one-third of the Board. The directors shall be
elected by the stockholders of the Company for staggered three year terms, or
until their successors are elected and qualified. One class of directors,
consisting of Arthur E. Armitage, Jr., Gregory M. DiPaolo and John V. Field, has
a term of office expiring at the first annual meeting of stockholders, a second
class, consisting of Robert J. Colacicco, Richard G. Mohrfeld and Martin Rosner,
has a term of office expiring at the second annual meeting of stockholders, and
a third class, consisting of Richard W. Culbertson, Jr. and Ronald L. Woods, has
a term of office expiring at the third annual meeting of stockholders.
Information concerning the principal occupations, employment and other
information concerning the directors and officers of the Company during the past
five years is set forth under "Management of the Association--Biographical
Information."
The Company has established an Audit Committee of the Board of Directors,
consisting of the following members: Messrs. Armitage, Culbertson, Field,
Mohrfeld, Rosner and Woods. The Company has also established a Compensation
Committee consisting of the full Board of Directors.
The following individuals are the executive officers of the Company and
hold the offices set forth below opposite their names.
<TABLE>
<CAPTION>
EXECUTIVE POSITION(S) HELD WITH COMPANY
- --------- -----------------------------
<S> <C>
Robert J. Colacicco President and Chief Executive Officer
Gregory M. DiPaolo Executive Vice President, Treasurer and Chief Operating Officer
Joseph M. Sidebotham Corporate Secretary and Chief Accounting Officer
</TABLE>
The executive officers of the Company are elected annually and hold office
until their respective successors have been elected and qualified or until
death, resignation or removal at the discretion of the Board of Directors.
DIRECTOR COMPENSATION
Since the formation of the Company, none of the executive officers,
directors or other personnel has received remuneration from the Company.
Outside directors of the Company will receive an annual retainer of $3,500 but
will not receive additional fees for meetings of the Board of Directors of the
Company. For information regarding fees paid to the Association's Board of
Directors see "Management of the Association--Director Compensation."
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MANAGEMENT OF THE ASSOCIATION
DIRECTORS
The following table sets forth certain information regarding the Board of
Directors of the Association.
<TABLE>
<CAPTION>
DIRECTOR TERM
NAME AGE(1) POSITION(S) HELD WITH THE ASSOCIATION SINCE EXPIRES
- ---- ------ --------------------------------------- -------- --------
<S> <C> <C> <C> <C>
Arthur E. Armitage, Jr. 77 Director 1969 1999
Robert J. Colacicco 63 Director, President and Chief Executive Officer 1976 2000
Richard W. Culbertson, Jr. 53 Director and Chairman of the Board 1992 2001
Gregory M. DiPaolo 49 Director, Executive Vice President, Treasurer and 1982 1999
Chief Operating Officer
John V. Field 54 Director 1998 1999/(2)/
Richard G. Mohrfeld 52 Director 1983 2000
Martin Rosner 91 Director 1943 2000
Ronald L. Woods 39 Director 1998 1999/(3)/
</TABLE>
(1) As of July 31, 1998.
(2) In May, 1998, the Association's Board of Directors elected Mr. Field to fill
a newly created position on the Board until the Association's next annual
meeting.
(3) In May, 1998, the Association's Board of Directors elected Mr. Woods to fill
a vacant board position until the Association's next annual meeting, at
which time he may stand for election to fill the expired two year term of a
director who resigned.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The following table sets forth certain information regarding the executive
officers of the Association who are not also directors.
<TABLE>
<CAPTION>
NAME AGE (1) POSITION(S) HELD WITH ASSOCIATION
- ---- ------ -----------------------------------
<S> <C> <C>
Jane E. Brode 49 Senior Vice President - Savings
Joseph M. Sidebotham 43 Senior Vice President and Controller
Paul D. Wampler 38 Senior Vice President - Lending
</TABLE>
- --------------------
(1) As of July 31, 1998.
Each of the executive officers of the Association will retain his/her
office in the converted Association until their re-election at the annual
meeting of the Board of Directors of the Association, held immediately after the
first annual meeting of stockholders subsequent to the Conversion, and until
their successors are elected and qualified or until they are removed or
replaced. Officers are subject to re-election by the Board of Directors
annually.
BIOGRAPHICAL INFORMATION
DIRECTORS
Arthur E. Armitage, Jr. is the former President and owner of Arthur E.
Armitage Agency, Inc., a general insurance firm. He has been a member of the
Association's Board of Directors since 1969 and served as Chairman of the Board
from 1995 to July, 1998.
Robert J. Colacicco has been employed with the Association since 1967 and
has served as President and Chief Executive Officer of the Association since
1971. Mr. Colacicco has been a member of the Board of Directors since 1976.
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Richard W. Culbertson, Jr. is a certified public accountant and a partner
in the firm of Bowman & Company LLP, Voorhees, New Jersey. Mr. Culbertson has
been a member of the Board of Directors since 1992 and has served a Chairman of
the Board since July, 1998.
Gregory M. DiPaolo is Executive Vice President, Treasurer and Chief
Operating Officer of the Association. Mr. DiPaolo has been employed by the
Association since 1973 and has been a member of the Board of Directors since
1982.
John V. Field has been a practicing attorney for the past 29 years. He is
sole shareholder in the firm of John V. Field, PA. In 1977, Mr. Field became
General Counsel of the Association. Mr. Field has been a director of the
Association since May, 1998.
Richard G. Mohrfeld is President of Mohrfeld, Inc., a heating oil
distributor located in Collingswood, New Jersey. Mr. Mohrfeld has been a member
of the Board of Directors since 1983.
Martin Rosner has served on the Association's Board of Directors since
1943. Mr. Rosner is a former retailer in Collingswood, New Jersey. Mr. Rosner
is now retired.
Ronald L. Woods is a representative of Lenny, Vermaat and Leonard, a real
estate brokerage firm located in Haddonfield, New Jersey. Mr. Woods has been a
member of the Board of Directors since May, 1998.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Jane E. Brode joined the Association in 1972 and has served in various
positions since that time. In 1992, Ms. Brode became Senior Vice President.
Ms. Brode is responsible for the Association's retail savings department.
Joseph M. Sidebotham joined the Association in 1979 and has been Controller
since 1980. In 1992, Mr. Sidebotham was promoted to Senior Vice President. Mr.
Sidebotham is responsible for regulatory reporting, monitoring investments, MIS
and the accounting and internal auditing functions of the Association.
Paul D. Wampler joined the Association in 1997 and is Senior Vice
President. Mr. Wampler is the Association's Chief Lending Officer and oversees
all mortgage and consumer lending activities.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS OF THE ASSOCIATION
The Association's Board of Directors meets 16 times per year and may have
additional special meetings called in the manner specified in the Bylaws.
The Board of Directors of the Association has established the following
committees:
The full Board of Directors serves as the Association's Audit Committee.
The purpose of this committee is to oversee both internal and external audit
activities. Meetings of the Audit Committee generally take place with regularly
scheduled Board of Directors meetings. The Association's Board met 16 times
during the year ended December 31, 1997.
The Financial Planning Committee consists of Messrs. Armitage, Colacicco,
Culbertson, DiPaolo and Rosner. The Financial Planning Committee generally meets
on a quarterly basis, and is responsible for financial planning and budgeting
for the Association and asset/liability management. The committee met 4 times
during the year ended December 31, 1997.
The Loan Committee, on a rotational basis, consists of any four members of
the Association's Board of Directors, except that Mr. Field does not serve on
this committee. The Loan Committee is responsible for reviewing certain large
loan applications that are within its delegated approval authority. The
committee generally meets on an as-needed basis, and met 12 times during the
year ended December 31, 1997.
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The Compensation Committee consists of Messrs. Armitage, Culbertson,
Mohrfeld and Rosner. This committee is responsible for all matters regarding
compensation and fringe benefits. The Compensation Committee meets on an as-
needed basis and met 2 times during the year ended December 31, 1997.
DIRECTOR COMPENSATION
All non-employee directors of the Association receive an annual retainer of
$7,000 a year, except that the Chairman of the Board receives an annual retainer
of $8,000. All non-employee directors of the Association also receive $450 for
each Board meeting attended and $200 for each Committee meeting attended.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the cash
compensation paid by the Association for services rendered in all capacities
during the year ended December 31, 1997, to the Chief Executive Officer and to
executive officers of the Association who received salary and bonus in excess of
$100,000 ("Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION/(2)/
ANNUAL ----------------------------------
COMPENSATION/(1)/ AWARDS PAYOUTS
-------------------------------------- ------------------------- --------
OHER RESTRICTED SECURITIES
NAME AND FISCAL ANNUAL STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL POSITIONS YEAR SALARY BONUS COMPENSATION/(2)/ AWARDS OPTIONS/SARS PAYOUTS COMPENSATION/(3)/
- ------------------- ------- ---------- -------- ------------------- ----------- ------------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert J. Colacicco
President and Chief
Executive Officer 1997 $141,107 $29,529 -- -- -- -- $38,275
Gregory M. DiPaolo
Executive Vice President,
Treasurer and
Chief Operating Officer 1997 $118,102 $24,733 -- -- -- -- $24,937
</TABLE>
- ------------------
(1) Under Annual Compensation, the column titled "Bonus" consists of Board
approved discretionary bonus.
(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. For 1997, the Association had no restricted stock or stock related
plans in existence.
(3) Other compensation consists of employer contributions of $25,226 and
$24,283, to the Association's money purchase pension plan on behalf of
Messrs. Colacicco and DiPaolo, respectively, and $10,943 credited by the
Association on behalf of Mr. Colacicco to the Association's non-qualified
deferred compensation plan. See "--Other Benefit Plans - Pension Plan" and
"--Supplemental Executive Retirement Plan." Also includes the value of life
insurance premiums of $2,106 and $654 paid by the Association on behalf of
Messrs. Colacicco and DiPaolo, respectively.
EMPLOYMENT AGREEMENTS
Upon consummation of the Conversion, the Association intends to enter into
employment agreements (collectively, the "Association Employment Agreements")
with Messrs. Colacicco, DiPaolo, Sidebotham and Wampler and Ms. Brode, and the
Company intends to enter into employment agreements with Messrs. Colacicco,
DiPaolo and Sidebotham (collectively, the "Company Employment Agreements")
(individually, the "Executive" and, collectively, the "Executives"). The
employment agreements are subject to the review and approval of the OTS and may
be amended as a result of such OTS review. Review of compensation arrangements
by the OTS does not indicate, and should not be construed to indicate, that the
OTS has passed upon the merits of such arrangements. The employment agreements
are intended to ensure that the Association and the Company will be able to
maintain a stable and competent management base after the Conversion. The
continued success of the Association and the Company depends to a significant
degree on the skills and competence of the Executives.
The Association Employment Agreements provide for a three-year term for
Messrs. Colacicco and DiPaolo and a two-year term for Messrs. Sidebotham and
Wampler and Ms. Brode. The Association Employment Agreements provide that
commencing on the first anniversary date and continuing each anniversary date
thereafter the Board of Directors may extend the agreement for an additional
year so that the remaining term shall be three years, in the case of Messrs.
Colacicco and DiPaolo, and two years, in the case of Messrs. Sidebotham and
Wampler and Ms. Brode, unless written notice of non-renewal is given by the
Board of Directors after conducting a performance evaluation of the Executive.
The Company Employment Agreements provide for a three-year term for Messrs.
Colacicco and DiPaolo and a two-year term for Mr. Sidebotham. The terms of the
Company Employment Agreements shall be extended on
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a daily basis, unless written notice of non-renewal is given by the Board of the
Company. The Association and Company Employment Agreements provide that the
Executive's base salary will be reviewed annually. The base salaries which will
be effective for such employment agreements for Messrs. Colacicco, DiPaolo,
Sidebotham and Wampler and Ms. Brode will be $170,430, $142,731, $87,403,
$86,256 and $94,316, respectively. In addition to the base salary, the
employment agreements provide for, among other things, participation in various
employee benefit plans and stock-based compensation programs, as well as
furnishing certain fringe benefits available to similarly situated executive
personnel. The employment agreements provide for termination by the Association
or the Company for cause (as defined in the agreements) at any time. In the
event the Association or the Company chooses to terminate the Executive's
employment for reasons other than for cause or, in the event of the Executive's
resignation from the Association and the Company upon: (i) failure to re-elect
the Executive to his current offices; (ii) a material change in the Executive's
functions, duties or responsibilities; (iii) a relocation of the Executive's
principal place of employment by more than 25 miles; (iv) liquidation or
dissolution of the Association or the Company; or (v) a breach of the Employment
Agreements by the Association or the Company, the Executive or, in the event of
death, the Executive's beneficiary would be entitled to receive an amount
generally equal to the remaining base salary and bonus payments that would have
been paid to the Executive during the remaining term of the employment
agreements. In addition, the Executive would receive a payment attributable to
the contribution that would have been made on the Executive's behalf to any
employee benefit plans of the Association or the Company during the remaining
term of the employment agreements, together with the value of certain stock-
based incentives previously awarded to the Executive. The Association and the
Company 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 Company or the Association for one year.
Under the agreements, if involuntary termination or voluntary termination
follows a change in control of the Association or the Company, the Executive or,
in the event of the Executive's death, the Executive's beneficiary, would
receive a severance payment generally equal to the greater of: (i) the payments
due for the remaining terms of the agreement, including the value of certain
stock-based incentives previously awarded to the Executive; or (ii) three times
the average of the five preceding taxable years' annual compensation. The
Association and the Company would also continue the Executive's life, health,
and disability coverage for thirty-six months, in the case of Messrs. Colacicco
and DiPaolo, and twenty-four months in the case of Messrs. Sidebotham and
Wampler and Ms. Brode. Notwithstanding that both agreements provide for a
severance payment in the event of a change in control, the Executive may receive
a severance payment under only one agreement. In the event of a change in
control of the Association or Company, the total amount of payments due under
the Employment Agreements, based solely on the base salaries paid to the
Executives, and excluding any benefits under any employee benefit plan which may
otherwise become payable, would equal approximately $1.7 million.
Payments to the Executive under the Association Employment Agreements will
be guaranteed by the Company in the event that payments or benefits are not paid
by the Association. Payment under the Company Employment Agreements would be
made by the Company. All reasonable costs and legal fees paid or incurred by
the Executive pursuant to any dispute or question of interpretation relating to
the employment agreements will be paid by the Company, if the Executive is
successful on the merits pursuant to a legal judgment, arbitration or
settlement. The employment agreements also provide that the Association and
Company shall indemnify the Executive to the fullest extent allowable under
federal, New Jersey and Delaware law, respectively.
CHANGE IN CONTROL AGREEMENTS
Upon Conversion, the Association intends to enter into one-year Change in
Control Agreements (the "CIC Agreements") with seven employees, none of whom
will be covered by an employment agreement. Commencing on the first anniversary
date and continuing on each anniversary thereafter, the CIC Agreements may be
renewed by the Board of Directors of the Association for an additional year.
The CIC Agreements will provide that in the event involuntary termination or,
under certain circumstances, voluntary termination follows a change in control
of the Association or the Company, the covered employee would be entitled to
receive a severance payment equal to either one or two times the covered
employee's average annual compensation for the five most recent taxable years
preceding termination, depending on the particular agreement. The Association
would also continue and pay for the covered employee's life, health and
disability coverage for 12 months following termination. Payments to the
covered employee under the CIC Agreements will be guaranteed by the Company in
the event that payments or benefits are not paid by the Association. In the
event of a change in control of the Association or Company, the total payments
that would be
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due under the CIC Agreements, based solely on the current annual compensation
paid to the seven employees covered by the CIC Agreements and excluding any
benefits under any employee benefit plan which may be payable, would be
approximately $542,000.
EMPLOYEE SEVERANCE COMPENSATION PLAN
Upon consummation of the Conversion, the Association's Board of Directors
intends to establish the South Jersey Savings and Loan Association Employee
Severance Compensation Plan (the ''Severance Plan'') which will provide eligible
employees with severance pay benefits in the event of a change in control of the
Association or the Company. Management personnel with employment agreements or
change in control agreements will not participate in the Severance Plan.
Generally, all full-time employees are eligible to participate in the Severance
Plan if they have completed at least one year of service with the Association.
Under the Severance Plan, in the event of a change in control of the Association
or the Company, eligible employees who terminate employment within one year of
the change in control (for reasons specified under the Severance Plan), will
receive a severance payment equal to one-twelfth of their current annual
compensation for each year of service completed with the Association, up to a
maximum of 199% of their current annual compensation. In the event the
provisions of the Severance Plan were triggered, the total amount of payments
that would be due thereunder, based solely upon current salary levels, would
equal approximately $696,000.
INSURANCE PLANS
The Association makes available to all full-time employees medical plan
benefits, life and accidental death insurance, long term disability insurance
and travel insurance.
OTHER BENEFIT PLANS
PENSION PLAN. The Association sponsors the South Jersey Savings and Loan
Association Money Purchase Pension Plan (the "Pension Plan"). Generally,
employees of the Association become members of the Pension Plan upon the
completion of two years of service with the Association (as described in the
plan document) and the attainment of age twenty-one. The Association makes
annual contributions to the Association sufficient to fund retirement benefits
for participant's employees, as determined in accordance with a formula set
forth in the plan document. Specifically, the Pension Plan currently provides
that, subject to applicable limitations, the Association will make annual
contributions to the plan on behalf of each participant equal to 5.7% of the
participant's compensation in excess of the social security taxable wage base
(as described in the plan documents) and 13.5% of the participant's compensation
without regard to the social security taxable wage base. Participants are
always fully vested in benefits allocated to their accounts under the Pension
Plan. In general, benefits allocated to participant's accounts under the
Pension Plan, plus earnings thereon become distributable in the event of the
death, attainment of normal retirement age (as described in the plan document),
or termination of employment.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST. The Association intends to
establish a tax-qualified employee stock ownership plan (the "ESOP") in
connection with the Conversion. Generally, employees will become participants
in the ESOP upon the completion of two years of service with the Association
(with credit given for service with the Association prior to adoption of the
plan) and attainment of age 21. With the consent of the Association, an
affiliate of the Association may also adopt the ESOP for the benefit of its
employees.
The Association expects a committee of the Board of Directors to serve as
the administrative committee of the ESOP (the ''ESOP Committee''). The ESOP
Committee will appoint an unrelated corporate trustee for the ESOP prior to the
Conversion. Among other matters, the ESOP Committee may generally instruct the
trustee regarding the investment of funds contributed to the ESOP, subject to
the terms of the plan document and the trust agreement. The Association expects
the ESOP to purchase 8% of the Common Stock sold in the Conversion and issued to
the Foundation. As part of the Conversion, and in order to fund the ESOP's
purchase of the Common Stock issued in the Conversion, the ESOP will borrow 100%
of the aggregate purchase price of the Common Stock from either the Company or a
third-party lender.
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The trustee of the ESOP will repay the loan principally from the
Association's annual contributions to the ESOP over an expected period of 15
years. Subject to receipt of any necessary regulatory approvals or opinions,
the Association may make contributions to the ESOP for repayment of the loan
since participants in the ESOP will be employees of the Association or,
alternatively, the Association may reimburse the Company for contributions made
by the Company with respect to employees of the Association. The Association
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 Conversion.
The trustee of the ESOP will pledge the shares of Common Stock purchased by
the ESOP in connection with the Conversion as collateral for the loan and will
hold the shares in a suspense account under the plan. As the trustee repays the
loan, the trustee will release a portion of the shares from the suspense account
and allocate them to the accounts of active participants in the ESOP based on
each participant's compensation (as determined under the terms of the plan)
relative to all participants' compensation for the plan year. In the event of a
change in control of the Association or the Company prior to complete repayment
of the loan, the ESOP trustee, in accordance with the terms of the plan
document, will sell enough shares of Common Stock held in the suspense account
to repay the loan in full. Upon repayment of the loan, the ESOP trustee will
then allocate all remaining shares of Common Stock held in the suspense account
to the accounts of active participants based on each participant's account
balance as of a specific date or based on some other method set forth in the
plan document.
Participants will always be fully vested in amounts allocated to their
accounts under the ESOP. Benefits will generally become distributable under the
ESOP, and potentially become subject to income tax, upon a participant's death
or other separation from service.
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 or her account for voting purposes.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Code limits the amount of
compensation the Association may consider in providing benefits under its tax-
qualified retirement plans, such as the Pension Plan and the ESOP. The Code
further limits the amount of contributions and benefit accruals under such plans
on behalf of any employee. To provide benefits to make up for the reduction in
benefits flowing from these limits in connection with the Pension Plan, the
Association has adopted a non-qualified deferred compensation arrangement,
sometimes referred to as a "Supplemental Executive Retirement Plan" ("SERP").
In connection with the Conversion, the Association intends to amend the deferral
compensation plan to provide for benefits related to the ESOP. The SERP will
generally provide benefits to eligible individuals (designated by the Board of
Directors of the Association or its affiliates) that cannot be provided under
the Pension Plan and/or ESOP as a result of the limitations imposed by the Code,
but that would have been provided under the Pension Plan and/or ESOP but for
such limitations. In addition to providing for benefits lost under tax-
qualified plans as a result of limitations imposed by the Code, the SERP will
also make up lost ESOP benefits to designated individuals who retire, who
terminate employment in connection with a change in control, or whose
participation in the ESOP ends due to termination of the ESOP in connection with
a change in control (regardless of whether the individual terminates employment)
prior to the complete scheduled repayment of the ESOP loan. Generally, upon the
retirement of an eligible individual or upon a change in control of the
Association or the Company prior to complete repayment of the ESOP Loan, the
SERP will provide the individual with a benefit equal to what the individual
would have received under the ESOP had he remained employed throughout the term
of the ESOP or had the ESOP not been terminated prior to the scheduled repayment
of the ESOP loan. An individual's benefits under the SERP will become payable
upon the participant's retirement (in accordance with the standard retirement
policies of the Association), upon the change in control of the Association or
the Company, or as determined under the ESOP and Pension Plan.
The Association may establish a grantor trust in connection with the SERP
to satisfy the obligations of the Association with respect to the SERP. The
assets of the grantor trust would remain subject to the claims of the
Association's general creditors in the event of the Association's insolvency
until paid to the individual pursuant to the terms of the SERP.
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STOCK-BASED INCENTIVE PLAN. Following the Conversion, the Board of
Directors of the Company intends to adopt the Stock-Based Incentive Plan which
will provide for the granting of options to purchase Common Stock ("Stock
Options") and the award of restricted shares of Common Stock ("Stock Awards") to
eligible officers, employees, and directors of the Company and Association. The
plan may also provide for certain rights related to the grant of Stock Options
and Stock Awards. The Company may provide such stock-based benefits under the
Stock-Based Incentive Plan or may establish one or more separate plans to
provide for the benefits described in the following paragraphs.
In the event the Company adopts the Stock-Based Incentive Plan (or any
separate plan(s)) within one year after the Conversion, OTS regulations require
a majority of the Company's stockholders to approve the plan at a meeting of
stockholders held no earlier than six months after the completion of the
Conversion. Under the Stock-Based Incentive Plan, the Company intends to grant
Stock Options in an amount up to 10% of the shares of Common Stock sold in the
Conversion and issued to the Foundation (302,022, 355,320, 408,618 and 469,910
shares based upon the minimum, midpoint, maximum and 15% above the maximum,
respectively, of the Estimated Price Range) and intends to grant Stock Awards in
an amount up to 4% of the shares of Common Stock sold in the Conversion and
issued to the Foundation (120,808, 142,128, 163,447 and 187,964 shares based
upon the minimum, midpoint, maximum and 15% above the maximum, respectively, of
the Estimated Price Range). Any Common Stock awarded under the Stock-Based
Incentive Plan (Stock Awards) will be awarded at no cost to the recipients. The
Company may fund the plan 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 of Directors of the
Company intends to appoint an independent fiduciary to serve as trustee of any
trust 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 or its participants after the Conversion, 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 the Company as an incentive to contribute
to the success of the Company, and reward employees for outstanding performance.
All employees of the Company and its subsidiaries, including the Association,
will be eligible to participate in the Stock-Based Incentive Plan. 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 qualify as Incentive Stock Options or Non-Statutory Stock Options, as
described below, the number of shares subject to each Stock Option and Stock
Award, the exercise price of each Stock Option, the method of exercising Stock
Options, and the time 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, outside directors may receive only grants
of Non-Statutory Stock Options. If the Company adopts the Stock-Based Incentive
Plan within one year after conversion, OTS regulations provide that no
individual officer or employee of the Association 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 Association 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 outside
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") and (ii) Stock Options that do not so qualify
("Non-Statutory Stock Options"). The plan may also provide for certain limited
rights that become exercisable only upon a change in control of the Association
or the Company ("limited rights"). Unless sooner terminated, the Stock-Based
Incentive Plan will remain in effect for a period of ten years from the earlier
of adoption by the Board of Directors of the Company or approval by the
Company's stockholders. Subject to stockholder approval, the Company
anticipates granting Stock Options 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 generally will not recognize taxable income upon the grant of
a Non-Statutory Stock Option or Incentive Stock Option or upon the exercise of
an Incentive Stock Option, provided the individual does not dispose of the
shares received through the exercise of the Incentive Stock Option for at least
one year after the date the individual receives the shares in connection with
the option exercise and two years after the date of grant of the Stock Option (a
"disqualifying disposition"). No compensation deduction will generally be
available to the Company as a result of the
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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 shares received in connection with the exercise of
an Incentive Stock Option, an individual will recognize ordinary income upon
exercise of the Stock Option (or upon the disqualifying disposition) in an
amount equal to the amount by which the fair market value of the Common Stock
exceeds the exercise price of the Stock Option. The amount of any ordinary
income recognized by an optionee upon the exercise of a Non-Statutory Stock
Option or due to a disqualifying disposition will be a deductible expense to the
Company for tax purposes. In the case of limited rights, the holder will
recognize any amount paid to him or her upon exercise in the year in which the
payment is made and the Company will be entitled to a deduction for federal
income tax purposes of the amount paid.
The Stock-Based Incentive Plan will provide for the granting of Stock
Awards and, possibly, related limited rights. Limited rights would be
exercisable only in connection with a change in control of the Company or
Association. Subject to OTS regulations, upon the exercise of a limited right,
the recipient would receive a cash payment equal to the fair market value of
Stock Awards in exchange for any rights to such Stock Awards. Grants of Stock
Awards 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 Company, actual
performance of the Company as compared to targeted goals such as the ratio of
the Association's net worth to total assets, the Company's return on average
assets, or such other performance standards as determined by the committee with
the approval of the Board of Directors of the Company.
When a participant becomes vested with respect to Stock Award, the
participant will recognize 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
participant will be a deductible expense for tax purposes for the Company. When
restricted Stock Awards become vested and shares of Common Stock are actually
distributed to participants, the participants receive amounts equal to any
accrued dividends with respect thereto, if not earlier received. 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 Company adopts the
Stock-Based Incentive Plan (or any separate plans for employees and directors)
within one year after conversion, 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 a period of time (likely three months)
following the date on which the employee or director ceases to perform services
for the Association or the Company, except that in the event of death or
disability, options accelerate and become fully vested and could be exercisable
for up to one year thereafter or such other period of time as determined by the
Company. In the case of death or disability, Stock Options may be exercised for
a period of 12 months or such other period of time as determined by the
committee. 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 essentially as a Non-Statutory Stock Option. In the event of
retirement, if the optionee continues to perform services as a director or
consultant on behalf of the Association, the Company or an affiliate, unvested
options and awards would continue to vest in accordance with their original
vesting schedule until the optionee ceases to serve as a consultant or director.
In the event of death, disability or normal retirement, the Company, if
requested by the optionee, or the optionee's beneficiary, could elect, in
exchange for vested options, to pay the optionee, or the optionee's beneficiary
in the event of death, the amount by which the fair market value of the Common
Stock exceeds the exercise price of the options on the date of the employee's
termination of employment.
Subject to any applicable regulatory requirements, the Stock-Based
Incentive Plan (or any separate plans for employees and outside 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 the Company or the Association. A change in
control would generally be considered to occur when a person or group of persons
acting in concert acquires beneficial ownership of 20% or more of any class of
equity security of the Company
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or the Association or in the event of a tender or exchange offer, merger or
other form of business combination, sale of all or substantially all of the
assets of the Company or the Association 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 Association'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 Association currently makes loans to its executive officers and
directors on the same terms and conditions offered to the general public. The
Association's policy provides that all loans made by the Association to its
executive officers and directors be made in the ordinary course of business, on
substantially the same terms, including collateral, as those prevailing at the
time for comparable transactions with other persons and may not involve more
than the normal risk of collectibility or present other unfavorable features.
As of July 31, 1998, one of the Association's directors had a loan with the
Association which had an outstanding balance totaling $212,000. Such loan was
made by the Association in the ordinary course of business, with no favorable
terms and such loan does not involve more than the normal risk of collectibility
or present unfavorable features.
The Company intends that all transactions in the future between the Company
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 the Company than could have been obtained by it in arm's length
negotiations with unaffiliated persons and will be approved by a majority of
independent outside directors of the Company not having any interest in the
transaction.
OTHER TRANSACTIONS WITH AFFILIATES
The Association utilizes the services of the law offices of John V. Field,
PA, of which Mr. Field, a director of the Association, is the sole shareholder,
for a variety of legal work relating to the ordinary course of the Association's
business.
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SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the number of shares of Common Stock that
the Association's officers and directors and their associates propose to
purchase, assuming shares of Common Stock are sold at the minimum and maximum of
the Estimated Price 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 officers as a
group.
<TABLE>
<CAPTION>
AT THE MINIMUM OF THE AT THE MAXIMUM OF THE
ESTIMATED PRICE RANGE ESTIMATED PRICE RANGE
-------------------------------- -------------------------------
AS A AS A PERCENT
NUMBER OF PERCENT OF NUMBER OF OF SHARES
NAME AMOUNT/(1)/ SHARES SHARES SOLD SHARES SOLD
- ---- -------------- ------------- -------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Arthur E. Armitage, Jr. $ 100,000 10,000 0.36% 10,000 0.26%
Robert J. Colacicco 100,000 10,000 0.36 10,000 0.26
Richard W. Culbertson, Jr. 50,000 5,000 0.18 5,000 0.13
Gregory M. DiPaolo 200,000/(2)/ 20,000 0.72 20,000 0.53
John V. Field 150,000 15,000 0.54 15,000 0.40
Richard G. Mohrfeld 50,000 5,000 0.18 5,000 0.13
Martin Rosner 40,000 4,000 0.14 4,000 0.11
Ronald L. Woods 200,000/(2)/ 20,000 0.72 20,000 0.53
Jane E. Brode 65,000 6,500 0.23 6,500 0.17
Joseph M. Sidebotham 40,000 4,000 0.14 4,000 0.11
Paul D. Wampler 25,000 2,500 0.09 2,500 0.07
------------- ------- ---- ------- ----
All Directors and Executive
Officers as a Group (11 persons)/(3)/ $ 1,020,000 102,000 3.65% 102,000 2.70%
============= ======= ==== ======= ====
</TABLE>
- ------------
(1) Includes proposed subscriptions, if any, by associates. Does not include
subscription orders by the ESOP. Intended purchases by the ESOP are
expected to be 8% of the shares sold in the Conversion and issued to the
Foundation.
(2) Such amount represents the maximum allowable purchase for such individual.
(3) Including the effect of shares issued to the Foundation, the aggregate
beneficial ownership of all directors and officers as a group would be 3.38%
and 2.50% at the minimum and maximum of the Estimated Price Range,
respectively.
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THE CONVERSION
THE BOARD OF DIRECTORS OF THE ASSOCIATION AND THE OTS HAVE APPROVED AND THE
COMMISSIONER HAS ISSUED AN INTENT TO APPROVE THE PLAN OF CONVERSION, SUBJECT TO
APPROVAL BY THE MEMBERS OF THE ASSOCIATION ENTITLED TO VOTE ON THE MATTER AND
THE SATISFACTION OF CERTAIN OTHER CONDITIONS. SUCH OTS APPROVAL AND THE
COMMISSIONER'S INTENT TO APPROVE, HOWEVER, DO NOT CONSTITUTE A RECOMMENDATION OR
ENDORSEMENT OF THE PLAN BY SUCH AGENCIES. THE OTS AND THE COMMISSIONER NEITHER
APPROVED NOR DISAPPROVED THE ESTABLISHMENT OF THE FOUNDATION.
GENERAL
On July 28, 1998, the Association's Board of Directors unanimously adopted
the Plan, and subsequently amended it on September 30, 1998, pursuant to which
the Association will be converted from a New Jersey chartered mutual savings and
loan association to a New Jersey chartered capital stock savings association.
It is currently intended that all of the outstanding capital stock of the
Association will be held by the Company, which is incorporated under Delaware
law. The Plan was approved by the OTS and the Association has received from the
Commissioner a notice of intent to approve the Plan, subject to, among other
things, approval of the Plan by the Association's members. A special meeting of
members has been called for this purpose to be held on ______________ (the
"Special Meeting").
The Company has received the approval of the OTS to become a savings and
loan holding company and to acquire all of the Common Stock of the Association
to be issued in the Conversion. The Company plans to purchase the shares of
issued and outstanding capital stock of the Association in exchange for 50% of
the net proceeds and retain the remaining net proceeds. The Conversion will be
effected only upon completion of the sale of all of the shares of Common Stock
of the Company or the Association, if the holding company form of organization
is not utilized, to be issued pursuant to the Plan.
The Plan provides that the Board of Directors of the Association may, at
any time prior to the issuance of the Common Stock and for any reason, decide
not to use a holding company form. Such reasons may include possible delays
resulting from overlapping regulatory processing or policies which could
adversely affect the Association's or the Company's ability to consummate the
Conversion and transact its business as contemplated herein and in accordance
with the Association's operating policies. In the event such a decision is
made, the Association will withdraw the Company's registration statement from
the SEC and take steps necessary to complete the Conversion without the Company,
including filing any necessary documents with the Commissioner and the OTS. In
such event, and provided there is no regulatory action, directive or other
consideration upon which basis the Association determines not to complete the
Conversion, if permitted by the Commissioner and the OTS, the Association will
issue and sell the Common Stock of the Association and subscribers will be
notified of the elimination of a holding company and resolicited (i.e., be
permitted to affirm their orders, in which case they will need to affirmatively
reconfirm their subscriptions prior to the expiration of the resolicitation
offering or their funds will be promptly refunded with interest at the
Association's passbook rate of interest; or be permitted to modify or rescind
their subscriptions), and notified of the time period within which the
subscriber must affirmatively notify the Association of his intention to affirm,
modify or rescind his subscription. The following description of the Plan
assumes that a holding company form of organization will be used in the
Conversion. In the event that a holding company form of organization is not
used, all other pertinent terms of the Plan as described below will apply to the
conversion of the Association from the mutual to stock form of organization and
the sale of the Association's common stock.
The Plan provides generally that the Association will convert from a mutual
savings and loan association to a capital stock savings association and that
non-transferable rights to subscribe for the Common Stock in a subscription
offering (the "Subscription Offering") will be granted in the following order of
priority: (1) holders of deposit accounts of the Association which totalled
$50.00 or more on June 30, 1997 ("Eligible Account Holders"); (2) the Employee
Plans, consisting of the ESOP which intends to subscribe for up to 8% of the
Common Stock issued in connection with the Conversion, including shares issued
to the Foundation; (3) holders of deposit accounts in the Association which
totalled $50.00 or more on ___________, 1998 ("Supplemental Eligible Account
Holders"); and (4) holders of deposit accounts and borrowers of the Association
as of _________, the voting record date ("Voting Record Date") for the Special
Meeting, who do not otherwise qualify as Eligible Account Holders or
Supplemental Eligible Account Holders ("Other Members"). Subsequent to the
Subscription Offering, and subject to the prior rights of holders of
subscription
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rights, the Company will offer any 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 the New
Jersey counties of Gloucester and Camden (the Association's "Local Community")
(the "Community Offering") (such natural persons herein referred to as
"Preferred Subscribers"). The Community Offering may be commenced prior to
completion of the Subscription Offering. Shares not subscribed for in the
Subscription and Community offerings will be offered to certain members of the
general public in a syndicated community offering (the "Syndicated Community
Offering") (the Subscription Offering, Community Offering and the Syndicated
Community Offering are referred to collectively as the "Offerings"). The
Association has the right to accept or reject, in whole or in part, any orders
to purchase shares of the Common Stock received in the Community Offering or in
the Syndicated Community Offering. See "--Community Offering" and "--Syndicated
Community Offering."
The aggregate price of the shares of Common Stock to be sold in the
Conversion within the Estimated Price Range, currently estimated to be between
$28.0 million and $37.8 million, will be determined based upon an independent
appraisal, prepared by FinPro of the estimated pro forma market value of the
Common Stock of the Company. All shares of Common Stock to be issued and sold
in the Conversion, will be sold at the same price. The independent appraisal
will be affirmed or, if necessary, updated at the completion of the Subscription
and Community Offerings, if all shares are subscribed for, or at the completion
of the Syndicated Community Offering. The appraisal has been performed by
FinPro, a consulting firm experienced in the valuation and appraisal of savings
institutions. See "--Stock Pricing" for additional information as to the
determination of the estimated pro forma market value of the Common Stock.
THE FOLLOWING IS A BRIEF SUMMARY OF THE MATERIAL ASPECTS OF THE CONVERSION.
THE SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PROVISIONS OF THE
PLAN. A COPY OF THE PLAN IS AVAILABLE FOR INSPECTION AT EACH BRANCH OF THE
ASSOCIATION AND AT THE NORTHEAST REGION AND WASHINGTON, D.C. OFFICES OF THE OTS.
THE PLAN IS ALSO FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THIS
PROSPECTUS IS A PART, COPIES OF WHICH MAY BE OBTAINED FROM THE SEC. SEE
"ADDITIONAL INFORMATION."
ESTABLISHMENT OF THE CHARITABLE FOUNDATION
GENERAL. In furtherance of the Association's long-standing commitment to
its local community, the Association's Plan of Conversion provides for the
establishment of a charitable foundation in connection with the Association's
Conversion. The Plan provides that the Association and the 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 the
Company, as further described below. The Company and the Association believe
that the funding of the Foundation with Common Stock of the Company is a means
of establishing a common bond between the Association and the communities in
which the Association operates and thereby enables such communities to share in
the potential growth and success of the Company and the Association over the
long term. By further enhancing the Association's visibility and reputation in
the communities in which it operates, the Association believes that the
Foundation will enhance the long-term value of the Association's community
banking franchise.
The Foundation would be dedicated to the promotion of charitable purposes
within the communities in which the Association 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 Association's members eligible to
be cast at the Special Meeting. The Foundation will be considered as a separate
matter from approval of the Plan of Conversion. If the Association's members
approve the Plan of Conversion, but not the Foundation, the Association intends
to complete the Conversion 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 Association 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."
PURPOSE OF THE FOUNDATION. The purpose of the Foundation is to provide
funding to support charitable purposes within the communities in which the
Association operates. The Association has long emphasized community lending and
community development activities and currently has a "satisfactory" Community
Reinvestment Act ("CRA") rating. The Foundation is being formed as a complement
to the Association's existing community activities, not as a
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replacement for such activities. Indeed, the Association intends to continue to
emphasize community lending and community development activities following the
Conversion. However, such activities are not the Association'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 Association.
Since the Association already engages in community development activities, the
Association believes that the Foundation will enable the Company and the
Association 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 Association's
commitment to community service. The Boards of Directors of the Association and
Company also believe that the funding of the Foundation with Common Stock of the
Company is a means of enabling the communities in which the Association operates
to share in the potential growth and success of the Company long after
completion of the Conversion. The Foundation accomplishes that goal by providing
for continued ties between the Foundation and Association, thereby forming a
partnership with the Association's community. The establishment of the
Foundation would also enable the Company and the Association to develop a
unified charitable donation strategy and would centralize the responsibility for
administration and allocation of corporate charitable funds. The Association,
however, does not expect the contribution to the Foundation to take the place of
the Association's traditional community lending and charitable activities. The
Association 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 three members, all of whom
will be individuals elected from existing directors and officers of the
Association. As a result, it is expected that less than a majority of the
Association's directors will also serve as directors of the Foundation. The
directors and officers of the Association and Company that are expected to serve
on the Board of Directors of the Foundation consist of Messrs. Armitage,
Colacicco and Woods, who intend to purchase 10,000, 10,000 and 20,000 shares of
Common Stock in the Conversion, respectively. At the maximum of the Estimated
Price Range, such purchases equal 0.24%, 0.24%, and 0.49%, respectively, or
0.98% in the aggregate of the total number of shares to be sold in the
Conversion and issued to the Foundation. 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 who is a director, officer or employee of the Association, or has the
power to direct its management or policies, or otherwise owes a fiduciary duty
to the Association, 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
the Company's Common Stock on all proposals considered by stockholders of the
Company; 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, the Company'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 the Company 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
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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
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 Company
or the Association, including agreements related to voting, acquisition or
disposition of the Company'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 Company 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. It is anticipated that
initially such officers will be selected from the board of directors of the
Foundation. Any transaction between the Association and the Foundation will
comply with the affiliate transaction restrictions set forth in Sections 23A and
23B of the Federal Reserve Act, as amended.
The Company proposes to capitalize the Foundation with Company Common Stock
in an amount equal to 8% of the total amount of Common Stock to be sold in
connection with the Conversion. At the minimum, midpoint, maximum and 15% above
the maximum of the Estimated Price Range, the contribution to the Foundation
would equal 223,720, 263,200, 302,680 and 348,082 shares, respectively, which
would have a market value of $2.2 million, $2.6 million, $3.0 million and 3.5
million, respectively, based on the Purchase Price of $10.00 per share. Such
contribution, once made, will not be recoverable by the Company or the
Association. The Company and the Association determined to fund the Foundation
with Common Stock rather than cash because it desired to form a bond with its
community in a manner that would allow the community to share in the potential
growth and success of the Company and the Association over the long term. The
funding of the Foundation with stock also provides the Foundation with a
potentially larger endowment than if the Company contributed cash to the
Foundation since, as a shareholder, the Foundation will share in the potential
growth and success of the Company. As such, the contribution of stock to the
Foundation has the potential to provide a self-sustaining funding mechanism
which reduces the amount of cash that the Company, if it were not making the
stock contribution, 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 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 the Company 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, the Company 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 Conversion and the contribution of shares
to the Foundation immediately following the Conversion, the Company would have
3,020,220, 3,553,200, 4,086,180 and 4,699,107 shares issued and outstanding at
the minimum, midpoint, maximum and 15% above the maximum of the Estimated Price
Range. Because the Company will have an increased number of shares outstanding,
the voting and ownership interests of shareholders in the Company's common stock
would be diluted by 7.4%, as compared to their interests in the Company 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. The Company proposes to capitalize the
Foundation with Common Stock in an amount equal to 8% of the total amount of
Common Stock sold in connection with the Conversion. At the minimum, midpoint,
maximum and
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15% above the maximum of the Estimated Price Range, the contribution to the
Foundation would equal 223,720, 263,200, 302,680 and 348,082 shares,
respectively, which would have a market value of $2.2 million, $2.6 million,
$3.0 million and $3.5 million, respectively, based on the Purchase Price of
$10.00 per share. Such contribution, once made, will not be recoverable by the
Company or the Association. As a result of the establishment of the Foundation,
the Estimated Price 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 433,500, 510,000, 586,500 and 674,500 shares, or
$4.3 million, $5.1 million, $5.9 million and $6.7 million at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Price Range,
respectively. See "Pro Forma Data" and "Comparison of Valuation and Pro Forma
Data Information with No Foundation."
TAX CONSIDERATIONS. The Foundation has been organized to 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. The Foundation will submit
a request to the IRS to be recognized as an exempt organization after approval
of the Foundation by the Association's members at the Special Meeting being held
to consider the Conversion. 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.
The Company's independent accountants have not rendered any advice on the
condition of the gift which requires that all shares of Common Stock of the
Company held by the Foundation must be voted in the same ratio as all other
shares of the Company's Common Stock, on all proposals considered by
stockholders of the Company. In the event that the Company 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 the Company or
the Foundation. See "--Regulatory Conditions Imposed on the Foundation."
Under Delaware law, the Company is authorized by statute to make charitable
contributions and case law has recognized the benefits of such contributions to
a Delaware corporation. In this regard, Delaware case law provides that a
charitable gift must merely be within reasonable limits as to amount and purpose
to be valid. Under the Code, the Company may deduct up to 10% of its taxable
income in any one year and any contributions made by the Company in excess of
the deductible amount will be deductible for federal tax purposes over each of
the five succeeding taxable years. The Association has the authority under New
Jersey law to make charitable contributions. The Company and the Association
believe that the Conversion presents a unique opportunity to establish and fund
a charitable foundation given the substantial amount of additional capital being
raised in the Conversion. In making such a determination, the Company and the
Association considered the dilutive impact of the Foundation on the amount of
Common Stock available to be offered for sale in the Conversion. See
"Comparison of Valuation and Pro Forma Information with No Foundation." Based
on such consideration, the Company and Association believe that the contribution
to the Foundation in excess of the 10% annual limitation is justified given the
Association's capital position and its earnings, the substantial additional
capital being raised in the Conversion and the potential benefits of the
Foundation to the Association's community. In this regard, assuming the sale of
the Common Stock at the midpoint of the Estimated Price Range, the Company would
have pro forma consolidated capital of $54.4 million, or 18.88% of consolidated
assets and the Association's pro forma tangible, core and risk-based capital
ratios would be 13.86%, 13.86% and 38.00%, respectively. See "Regulatory Capital
Compliance," "Capitalization," and "Comparison of Valuation and Pro Forma
Information with No Foundation." Thus, the amount of the contribution will not
adversely impact the financial condition of the Company and the Association and
the Company and the Association therefore believe that the amount of the
charitable contribution is reasonable given the Company and the Association's
pro forma capital positions. As such, the Company and the Association believe
that the contribution does not raise safety and soundness concerns.
The Company and the Association have received an opinion of their
independent accountants that the Company's contribution of its own stock to the
Foundation will not constitute an act of self-dealing, and that, it is more
likely than not, the Company 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 the Company for such
stock, subject to a limitation based on 10% of the Company's annual taxable
income. The Company, 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
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for federal tax purposes. Thus, while the Company expects, based on the maximum
of the Estimated Price Range, to be able to utilize for federal income tax
purposes a charitable contribution deduction of approximately $460,000 in 1999,
the Company is permitted under the Code to carryover the excess of the total
contribution over such 1999 deduction over a five-year period for federal income
tax purposes. For State of New Jersey state income tax purposes, the Company
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 the Company's unconsolidated annual taxable income, and provided
the Company generates sufficient state taxable income on an unconsolidated
basis. Assuming the close of the Offerings at the midpoint of the Estimated
Price Range, the Company estimates that substantially all of the federal tax
deduction should be deductible over the six-year period. However, no assurances
can be made that the Company 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 Company
nor the Association expects to make any further contributions to the Foundation
within the first five years following the initial contribution. After that time,
the Company and the Association 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 Company and the Association at that
time, the interests of shareholders and depositors of the Company and the
Association, and the financial condition and operations of the Foundation.
Although the Company and the Association have received an opinion of their
independent accountants that the Company will be 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, the Company'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. 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.
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 Conversion will be
subject to OTS regulations on stock repurchases; and (vii) any shares of Common
Stock of the Company held by the Foundation must be voted in the same ratio as
all other shares of the Company's Common Stock on all proposals considered by
stockholders of the Company; 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, the Company's or the Foundation's legal counsel must render
an opinion satisfactory to OTS that
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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 the
Company 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 Association's members eligible
to be cast at the special meeting being held to consider the Conversion. The
Foundation will be considered as a separate matter from approval of the Plan of
Conversion. If the Association's members approve the Plan of Conversion, but
not the Foundation, the Association intends to complete the Conversion 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 since the Valuation Range, as set forth herein, takes
into account the dilutive impact of the issuance of shares to the Foundation.
See "Comparison of Valuation and Pro Forma Information With No Foundation."
PURPOSES OF CONVERSION
The Association, as a New Jersey chartered mutual savings and loan
association, does not have shareholders and has no authority to issue capital
stock. By converting to the capital stock form of organization, the Association
will be structured in the form used by commercial banks, other business entities
and a growing number of savings institutions. The Conversion will enhance the
Association's ability to access capital markets, expand its current operations,
acquire other financial institutions or branch offices, provide affordable home
financing opportunities to the communities it serves or diversify into other
financial services to the extent allowable by applicable law and regulation. The
Conversion would also position the Association for a conversion to a commercial
bank charter if the Board of the Association chooses to do so in the future.
The holding company form of organization, if used, would provide additional
flexibility to diversify the Association's business activities through existing
or newly formed subsidiaries, or through acquisitions of or mergers with both
mutual and stock institutions, as well as other companies. Although there are
no current arrangements, understandings or agreements regarding any such
opportunities, the Company will be in a position after the Conversion, subject
to regulatory limitations and the Company's financial position, to take
advantage of any such opportunities that may arise.
The potential impact of the Conversion upon the Association's capital base
is significant. The Conversion will significantly increase the Association's
capital position to a level whereby the Association will be better positioned to
take advantage of business opportunities and engage in activities which, prior
to Conversion, would have been more difficult for the Association to engage in
and still continue to meet its status as a "well capitalized" institution. At
July 31, 1998, the Association had total equity, determined in accordance with
GAAP, of $26.0 million, or 10.02% of total assets, which equalled the
Association's regulatory tangible capital at that date. 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
the Company uses 50% of the net proceeds at the maximum of the Estimated Price
Range to purchase the stock of the Association, the Association's GAAP capital
will increase to $39.4 million or a ratio of GAAP capital to adjusted assets, on
a pro forma basis, of 14.43% after the Conversion. In the event that the
holding company form of organization is not utilized and all of the net
Conversion proceeds, at the midpoint of the Estimated Price Range, are retained
by the Association, the Association's ratios of tangible and core capital to
adjusted assets, on a pro forma basis, will both increase to 20.1% after
Conversion. The investment of the net proceeds from the sale of the Common
Stock is expected to provide the Association with additional income to increase
further its capital position. The additional capital may also assist the
Association in offering new programs and expanded services to its customers.
See "Use of Proceeds."
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After completion of the Conversion, the unissued common and preferred stock
authorized by the Company's Certificate of Incorporation will permit the
Company, subject to market conditions and any required regulatory approval of an
offering, to raise additional equity capital through further sales of
securities, and to issue securities in connection with possible acquisitions.
At the present time, the Company has no plans with respect to additional
offerings of securities, other than the possible issuance of additional shares
upon exercise of Stock Options under the Stock-Based Incentive Plan or the
possible issuance of authorized but unissued shares to the Stock-Based Incentive
Plan for Stock Awards. Following the Conversion, the Company will also be able
to use stock-related incentive plans to attract and retain executive and other
personnel for itself and its subsidiaries. See "Management of the Association--
Executive Compensation."
EFFECTS OF CONVERSION
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 regulations of the OTS. 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.
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 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.
When a mutual savings institution converts to stock form, permanent
nonwithdrawable capital stock is created to represent the ownership of the
institution's net worth. THE COMMON STOCK IS SEPARATE AND APART FROM DEPOSIT
ACCOUNTS AND CANNOT BE AND IS NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENTAL
AGENCY. Certificates are issued to evidence ownership of the capital stock.
The stock certificates are transferable and, therefore, the stock may be sold or
traded if a purchaser is available with no effect on any account the seller may
hold in the institution.
CONTINUITY. While the Conversion is being accomplished, the normal
business of the Association of accepting deposits and making loans will continue
without interruption. The Association will continue to be subject to regulation
by the Department, the OTS and the FDIC. After the Conversion, the Association
will continue to provide services for depositors and borrowers under current
policies by its present management and staff.
The Directors serving the Association at the time of Conversion will serve
initially as Directors of the Association after the Conversion. The Directors
of the Company will consist initially of individuals currently serving on the
Board of Directors of the Association. All officers of the Association at the
time of Conversion will retain their positions immediately after Conversion.
EFFECT ON DEPOSIT ACCOUNTS. Under the Plan, each depositor in the
Association at the time of Conversion will automatically continue as a depositor
after the Conversion, and each such deposit account will remain the same with
respect to deposit balance, interest rate and other terms. Each such account
will be insured by the FDIC to the same extent as before the Conversion (i.e.,
up to $100,000 per depositor). Depositors will continue to hold their existing
certificates, passbooks and other evidences of their accounts.
EFFECT ON LOANS. No loan outstanding from the Association will be affected
by the Conversion, and the amount, interest rate, maturity and security for each
loan will remain as they were contractually fixed prior to the Conversion.
EFFECT ON VOTING RIGHTS OF MEMBERS. At present, all depositors and certain
borrowers of the Association are members of, and have voting rights in, the
Association as to all matters requiring membership action. Upon Conversion,
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depositors and borrowers will cease to be members and will no longer be entitled
to vote at meetings of the Association. Upon Conversion, all voting rights in
the Association will be vested in the Company as the sole stockholder of the
Association. Exclusive voting rights with respect to the Company will be vested
in the holders of Common Stock. Depositors and borrowers of the Association will
not have voting rights after the Conversion except to the extent that they
become stockholders of the Company through the purchase of Common Stock.
TAX EFFECTS. The Association has received an opinion from Muldoon, Murphy
& Faucette with regard to federal income taxation and an opinion from Deloitte &
Touche, LLP with regard to New Jersey income taxation which provide that the
adoption and implementation of the Plan of Conversion set forth herein will not
be taxable for federal or New Jersey income tax purposes to the Association, its
Eligible Account Holders, or its Supplemental Eligible Account Holders or the
Company, except as discussed below. See "--Tax Aspects."
EFFECT ON LIQUIDATION RIGHTS. If a mutual savings institution were to
liquidate, all claims of creditors (including those of depositors, to the extent
of deposit balances) would be paid first. Thereafter, if there were any assets
remaining, depositors would be entitled to such remaining assets, pro rata,
based upon the deposit balances in their deposit accounts immediately prior to
liquidation. In the unlikely event that the Association were to liquidate after
Conversion, all claims of creditors (including those of depositors, to the
extent of their deposit balances) would also be paid first, followed by
distribution of the "liquidation account" to certain depositors (see "--
Liquidation Rights"), with any assets remaining thereafter distributed to the
Company as the holder of the Association's capital stock. Pursuant to the rules
and regulations of the OTS, a post-Conversion merger, consolidation, sale of
bulk assets or similar combination or transaction with another insured savings
institution would not be considered a liquidation and, in such a transaction,
the liquidation account would be assumed by the surviving institution.
STOCK PRICING
The Plan of Conversion requires that the aggregate purchase price of the
Common Stock must be based on the appraised pro forma market value of the Common
Stock, as determined on the basis of an independent valuation. The Association
and the Company have retained FinPro to make such valuation. For its services
in making such appraisal, FinPro will receive a fee of $31,000 plus reasonable
expenses not to exceed $1,500. The Association and the Company have agreed to
indemnify FinPro and its employees and affiliates against certain losses
(including any losses in connection with claims under the federal securities
laws) arising out of its services as appraiser, except where FinPro's liability
results from its negligence or willful misconduct.
An appraisal has been made by FinPro in reliance upon the information
contained in this Prospectus, including the Financial Statements. FinPro also
considered the following factors, among others: the present and projected
operating results and financial condition of the Company and the Association and
the economic and demographic conditions in the Association's existing marketing
area; certain historical, financial and other information relating to the
Association; a comparative evaluation of the operating and financial statistics
of the Association with those of other similarly situated publicly-traded
savings banks and savings institutions located in the Association's market area
and the Midatlantic, Southeast and New England areas of the United States; the
aggregate size of the offering of the Common Stock; the impact of Conversion on
the Association's net worth and earnings potential; the proposed dividend policy
of the Company and the Association; 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 has advised the Company and the
Association that, in its opinion, dated October 7, 1998, the estimated pro forma
market value of the Common Stock, being offered for sale ranged from a minimum
of $28.0 million to a maximum of $37.8 million with a midpoint of $32.9 million.
Based upon the Valuation Range and the Purchase Price of $10.00 per share for
the Common Stock established by the Board of Directors, the Board of Directors
has established the Estimated Price Range of $28.0 million to $37.8 million,
with a midpoint of $32.9 million, and the Company expects to issue between
3,020,220 and 4,086,180 shares of Common Stock, including shares issued to the
Foundation. The Board of Directors of the Company and the Association have
reviewed the appraisal of FinPro and in determining the reasonableness and
adequacy of such appraisal consistent with OTS regulations and policies, have
reviewed the methodology and reasonableness of the assumptions utilized by
FinPro in the preparation of such appraisal. The Estimated Price Range may be
amended with the approval of the OTS (if required), if necessitated by
subsequent developments in the financial condition of the Company or the
Association or market conditions generally. The $10.00 per share price for the
Common Stock was based on the consideration of a
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number of factors, including the potential after market liquidity of the stock,
Nasdaq listing requirements and other marketing conditions.
SUCH APPRAISAL, HOWEVER, IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING COMMON STOCK IN
THE OFFERINGS. FINPRO DID NOT INDEPENDENTLY VERIFY THE FINANCIAL STATEMENTS AND
OTHER INFORMATION PROVIDED BY THE ASSOCIATION, NOR DID FINPRO VALUE
INDEPENDENTLY THE ASSETS OR LIABILITIES OF THE ASSOCIATION. THE APPRAISAL
CONSIDERS THE ASSOCIATION AS A GOING CONCERN AND SHOULD NOT BE CONSIDERED AS AN
INDICATION OF THE LIQUIDATION VALUE OF THE ASSOCIATION. MOREOVER, BECAUSE SUCH
APPRAISAL IS NECESSARILY BASED UPON ESTIMATES AND PROJECTIONS OF A NUMBER OF
MATTERS, ALL OF WHICH ARE SUBJECT TO CHANGE FROM TIME TO TIME, NO ASSURANCE CAN
BE GIVEN THAT PERSONS PURCHASING COMMON STOCK IN THE CONVERSION WILL THEREAFTER
BE ABLE TO SELL COMMON STOCK AT PRICES AT OR ABOVE THE PURCHASE PRICE OR IN THE
RANGE OF THE FOREGOING VALUATION OF THE PRO FORMA MARKET VALUE THEREOF. SEE
"RISK FACTORS--ABSENCE OF MARKET FOR COMMON STOCK."
Following commencement of the Subscription Offering, the maximum of the
Estimated Price Range may be increased up to 15% and the number of shares of
Common Stock to be issued in the Conversion may be increased to 4,699,107
shares, including shares issued to the Foundation, due to regulatory
considerations, changes in the market and general financial and economic
conditions, without the resolicitation of subscribers. See "--Limitations on
Common Stock Purchases" as to the method of distribution and allocation of
additional shares that may be issued in the event of an increase in the
Estimated Price Range to fill unfilled orders in the Subscription Offering.
No sale of shares of Common Stock may be consummated unless, prior to such
consummation, FinPro confirms to the Association 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
Subscription Offering.
If the pro forma market value of the Common Stock is either more than 15%
above the maximum of the Estimated Price Range or less than the minimum of the
Estimated Price Range, the Association and the Company, after consulting with
the OTS, may terminate the Plan and return all funds promptly with interest at
the Association's passbook rate of 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 Estimated Price Range, commence a
resolicitation of subscribers or take such other actions as permitted by the OTS
in order to complete the Conversion. In the event that a resolicitation is
commenced, unless an affirmative response is received within a reasonable period
of time, all funds will be promptly returned to investors as described above. A
resolicitation, if any, following the conclusion of the Subscription Offering
would not exceed 45 days unless further extended by the OTS for periods of up to
90 days not to extend beyond _____________, 2001.
If all shares of Common Stock are not sold through the Subscription
Offering or Community Offering, then the Association and the Company expect to
offer the remaining shares in a Syndicated Community Offering which would occur
as soon as practicable following the close of the Subscription Offering but may
commence during the Subscription Offering subject to prior rights of
subscribers. All shares of Common Stock will be sold at the same price per
share in the Syndicated Community Offering as in the Subscription Offering and
Community Offering. See "--Syndicated Community Offering."
No sale of shares of Common Stock may be consummated unless, prior to such
consummation, FinPro confirms to the Association, the Company and the OTS that,
to the best of its knowledge, nothing of a material nature has occurred which,
taking into account all relevant factors, including those which would be
involved in a cancellation of the Syndicated Community Offering, would cause
FinPro to conclude that the aggregate value of the Common Stock at the Purchase
Price is incompatible with its estimate of the pro forma market value of the
Common Stock of the Company at the time of the Syndicated Community Offering.
Any change which would result in an aggregate purchase price which is below or
more than 15% above the Estimated Price Range would be subject to OTS approval.
If such confirmation is not received, the Association may extend the Conversion,
extend, reopen or commence a new Subscription Offering, Community Offering or
Syndicated Community Offering, establish a new Estimated Price Range and
commence a resolicitation of all subscribers with the approval of the OTS or
take such other actions as permitted by the OTS in order to complete the
Conversion, or terminate the Plan and cancel the Subscription and Community
Offerings and/or the Syndicated Community Offering. In the event market or
financial conditions change so as to cause
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the aggregate purchase price of the shares to be below the minimum of the
Estimated Price Range or more than 15% above the maximum of such range, and the
Company and the Association determine to continue the Conversion, subscribers
will be resolicited (i.e., be permitted to continue their orders, in which case
they will need to affirmatively reconfirm their subscriptions prior to the
expiration of the resolicitation offering or their subscription funds will be
promptly refunded with interest at the Association's passbook rate of interest,
or be permitted to decrease or cancel their subscriptions). Any change in the
Estimated Price Range must be approved by the OTS. A resolicitation, if any,
following the conclusion of the Subscription Offering would not exceed 45 days
unless further extended by the OTS for periods up to 90 days not to extend
beyond _______________, 2001. If such resolicitation is not effected, the
Association will return all funds promptly with interest at the Association's
passbook rate of interest on payments made by check, bank draft or money order.
Copies of the appraisal report of FinPro, including any amendments thereto,
and the detailed memorandum of the appraiser setting forth the method and
assumptions for such appraisal are available for inspection at the main office
of the Association and the other locations specified under "Additional
Information."
NUMBER OF SHARES TO BE ISSUED
Depending upon market or financial conditions following the commencement of
the Subscription Offering, the total number of shares to be issued in the
Conversion may be increased or decreased without a resolicitation of
subscribers, provided that the product of the total number of shares times the
price per share is not below the minimum of the Estimated Price Range or more
than 15% above the maximum of the Estimated Price Range. Based on a fixed
purchase price of $10.00 per share and FinPro's estimate of the pro forma market
value of the Common Stock ranging from a minimum of $28.0 million to a maximum,
as increased by 15%, of $43.5 million, the number of shares of Common Stock
expected to be sold in the Conversion is between a minimum of 2,796,500 shares
and a maximum, as adjusted by 15%, of 4,351,025 shares. The actual number of
shares sold between this range will depend on a number of factors and shall be
determined by the Association and Company subject to OTS approval, if necessary.
In the event market or financial conditions change so as to cause the
aggregate purchase price of the shares to be below the minimum of the Estimated
Price Range or more than 15% above the maximum of the Estimated Price Range, if
the Plan is not terminated by the Company and the Association after consultation
with the OTS, purchasers will be resolicited (i.e., permitted to continue their
orders, in which case they will need to affirmatively reconfirm their
subscriptions prior to the expiration of the resolicitation offering or their
subscription funds will be promptly refunded, or be permitted to modify or
rescind their subscriptions). Any change in the Estimated Price Range must be
approved by the OTS. If the number of shares issued in the Conversion is
increased due to an increase of up to 15% in the Estimated Price Range to
reflect changes in market or financial condition, persons who subscribed for the
maximum number of shares will not be given the opportunity to subscribe for an
adjusted maximum number of shares, except for the ESOP which will be able to
subscribe for such adjusted amount. See "--Limitations on Common Stock
Purchases."
In the event the members of the Association approve the establishment of
the Foundation, the number of shares to be issued and outstanding following the
Conversion will be increased by a number of shares equal to 8% of the Common
Stock sold in the Conversion. Assuming the sale of shares in the Offerings at
the minimum, midpoint, maximum, or 15% above the maximum of the Estimated Price
Range, the Company will issue 223,720, 263,200, 302,680 or 348,082 shares of its
Common Stock from authorized but unissued shares to the Foundation immediately
following the completion of the Conversion. In that event, the Company will
have total shares of Common Stock outstanding of 3,020,220, 3,553,200, 4,086,180
or 4,699,107 shares, respectively. Of that amount, the Foundation will own
7.4%. Funding the Foundation with authorized but unissued shares will have the
effect of diluting the ownership and voting interests of persons purchasing
shares in the Conversion by 7.4% since a greater number of shares will be
outstanding upon completion of the Conversion than would be if the Foundation
were not established. See "Pro Forma Data."
An increase in the number of shares to be issued in the Conversion as a
result of an increase in the estimated pro forma market value would decrease
both a subscriber's ownership interest and the Company's pro forma net earnings
and stockholders' equity on a per share basis while increasing pro forma net
earnings and stockholders' equity on an aggregate basis. A decrease in the
number of shares to be issued in the Conversion would increase both a
subscriber's ownership interest and the Company's pro forma net earnings and
stockholders' equity on a per share basis while
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decreasing pro forma net earnings and stockholder's equity on an aggregate
basis. For a presentation of the effects of such changes, see "Pro Forma Data."
SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS
In accordance with the Plan of Conversion, rights to subscribe for the
purchase of Common Stock have been granted under the Plan of Conversion to the
following persons in the following order of descending priority: (1) holders of
deposit accounts with a balance of $50 or more as of June 30, 1997 ("Eligible
Account Holders"); (2) the ESOP; (3) holders of deposit accounts with a balance
of $50 or more as of _________________ ("Supplemental Eligible Account
Holders"); and (4) members of the Association, consisting of depositors and
borrowers of the Association as of ________________, (the "Voting Record Date"),
who do not otherwise qualify as Eligible Account Holders or Supplemental
Eligible Account Holders ("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 of
Conversion and as described below under "--Limitations on Common Stock
Purchases." Accounts which will provide subscription rights to holders thereof
consist of any withdrawable deposit account at the Association.
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
$200,000 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 Association with a balance of $50.00 or more as of
_________________) and the denominator is the total amount of Qualifying
Deposits of all Eligible Account Holders ($__________), in each case on the
Eligibility Record Date, subject to the overall purchase limitation and
exclusive of an increase in the shares issued pursuant to an increase in the
Estimated Price Range of up to 15%. See "--Limitations on Common Stock
Purchases."
In the event that Eligible Account Holders exercise subscription rights for
a number of shares of Conversion Stock in excess of the total number of such
shares eligible for subscription, the shares of Conversion Stock shall be
allocated among the subscribing Eligible Account Holders so as to permit each
subscribing Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his or her total allocation of Conversion
Stock equal to the lesser of 100 shares or the number of shares subscribed for
by the Eligible Account 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 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.
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 Association
or their associates will be subordinated to the subscription rights of other
Eligible Account Holders to the extent attributable to increased deposits in the
12 months preceding June 30, 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 Conversion, including shares issued to the
Foundation, and any increase in the number of shares of Common Stock to be
issued in the Conversion after the date hereof as a result of an increase of up
to 15% in the maximum of the Estimated Price Range. The ESOP intends to
purchase 8% of the shares to be sold in the Conversion and issued to the
Foundation, or 241,617, 284,256, 326,894 and 375,928 shares, based on the
minimum, midpoint, maximum and 15% above the maximum of the Estimated Price
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
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Offering, including subscriptions of any of the Association's directors,
officers, employees or associates thereof. See "Management of the Association--
Other Benefit Plans--Employee Stock Ownership Plan and Trust."
PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. Each Supplemental
Eligible Account Holder will receive, without payment therefor, third priority,
nontransferable subscription rights to subscribe for in the Subscription
Offering up to the greater of the amount permitted to be purchased in the
Community Offering, currently $200,000 of Common Stock, 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 Supplemental Eligible Account Holder's Qualifying
Deposit and the denominator is the total amount of Qualifying Deposits of all
Supplemental Eligible Account Holders, in each case on the Supplemental
Eligibility Record Date, subject to the overall purchase limitation and
exclusive of an increase in the shares issued pursuant to an increase in the
Estimated Price Range of up to 15%. See "--Limitations on Common Stock
Purchases."
In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Conversion Stock in excess of the
total number of such shares eligible for subscription, the shares of Conversion
Stock shall be allocated among the subscribing Supplemental Eligible Account
Holders so as to permit each subscribing Supplemental Eligible Account Holder,
to the extent possible, to purchase a number of shares sufficient to make his or
her total allocation of Conversion Stock equal to the lesser of 100 shares or
the number of shares subscribed for by the Supplemental Eligible Account Holder.
Any shares remaining after that allocation will be allocated among the
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 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.
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 $200,000 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
Conversion Stock which, when added to the shares of Conversion Stock subscribed
for by the Eligible Account Holders, the Employee Plans and the Supplemental
Eligible Account Holders is in excess of the total number of shares of
Conversion 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 Conversion Stock equal to the lesser of
100 shares or the number of shares subscribed for by the Other Member. Any
shares remaining after that allocation will be allocated among the subscribing
Other Members whose subscriptions remain unsatisfied pro rata in the same
proportion that the number of votes of a subscribing Other Member on the Voting
Record Date bears to the total votes on the Voting Record Date of all
subscribing Other Members 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.
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EXPIRATION DATE FOR THE SUBSCRIPTION OFFERING. The Subscription Offering
will expire at 12:00 noon, Eastern time on _________, 1999 (the "Expiration
Date"), unless extended for up to 45 days by the Association 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 Association 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
Association pursuant to the Subscription Offering will be returned promptly to
the subscribers with interest and all withdrawal authorizations will be
canceled. If an extension beyond the 45 day period following the Expiration Date
is granted, the Association will notify subscribers of the extension of time and
of any rights of subscribers to modify or rescind their subscriptions and have
their funds returned promptly with interest, and of the time period within which
subscribers must affirmatively notify the Association of their intention to
confirm, modify, or rescind their subscription. If an affirmative response to
any resolicitation is not received by the Company from a subscriber, such order
will be rescinded and all subscription funds will be promptly returned with
interest. Such extensions may not go beyond _____________, 2001.
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 Association intends to offer
shares pursuant to the Plan to certain members of the general public in a
Community Offering. The Community Offering may be commenced prior to the
expiration of the Subscription Offering. In the event a Community Offering is
held, a preference will be given to Preferred Subscribers, subject to the right
of the Company 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 $200,000 of Common Stock subject to the maximum purchase
limitation and exclusive of shares issued pursuant to an increase in the
Estimated Price 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 $200,000 at the sole discretion of the Company and the Association.
THE OPPORTUNITY TO SUBSCRIBE FOR SHARES OF COMMON STOCK IN THE COMMUNITY
OFFERING CATEGORY IS SUBJECT TO THE RIGHT OF THE ASSOCIATION AND THE COMPANY, 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 Association, 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. If there are any shares
remaining, shares will be allocated to other persons of the general public who
purchase in the Community Offering applying the same allocation described above
for Preferred Subscribers.
PERSONS IN NONQUALIFIED STATES OR FOREIGN COUNTRIES
The Company and the Association 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 Association and the Company are not required to offer stock in the
Subscription Offering to any person who resides in a foreign country or resides
in a state of the United States with respect to which both of the following
apply: (i) a small number of persons otherwise eligible to subscribe for shares
of Common Stock reside in such state; and (ii) the Company or the Association
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 Company and the Association or their officers, directors or
trustees register as a broker, dealer, salesman or selling agent, under the
securities laws of such state, or a request to register or otherwise qualify the
subscription rights or 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 Association and the Company will base their
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 holders in the
state, the cost of registering or qualifying the shares or the need to register
the Company, its officers, directors or employees as brokers, dealers or
salesmen.
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MARKETING AND UNDERWRITING ARRANGEMENTS
The Association and the Company have 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 Offerings.
Based upon negotiations between the Association and the Company concerning fee
structure, Sandler O'Neill will receive a fee equal to 1.25% 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 the Company or
Association, 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 Association 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 7.0% for
shares sold by a National Association of Securities Dealers, Inc. 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 1.25% 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% 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 Company and the
Association have 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 totaling $50,000. Total marketing fees to Sandler O'Neill are
expected to be $307,000 and $419,000 at the minimum and the maximum of the
Estimated Price Range, respectively. See "Pro Forma Data" for the assumptions
used to arrive at these estimates.
Sandler O'Neill will perform proxy solicitation services, conversion agent
services and records management services for the Association in the Conversion
and will receive a fee for these services of $25,000. Finally, Sandler O'Neill
shall be reimbursed for reasonable out-of-pocket expenses not to exceed $65,000.
Directors and executive officers of the Company and Association 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 Association 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 Company will rely on Rule 3a4-1 under the Exchange Act, and
sales of Common Stock will be conducted within the requirements of Rule 3a4-1,
so as to permit officers, directors and employees to participate in the sale of
Common Stock. No officer, director or employee of the Company or the
Association 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 SUBSCRIPTION AND COMMUNITY OFFERINGS
To ensure that each purchaser receives a prospectus at least 48 hours
before the Expiration Date, in the case of the Subscription Offering or the
termination of the Community Offering, in accordance with Rule 15c2-8 of the
Exchange Act, no prospectus will be mailed any later than five days prior to
such date or hand delivered any later than two days prior to such date.
Execution of the stock order form and certification form will confirm receipt or
delivery in accordance with Rule 15c2-8. Stock order and certification forms
will only be distributed with a prospectus.
To purchase shares in the 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 Association's deposit
account (which may be given by completing the appropriate blanks in the stock
order form), must be received by the Association at any of its offices by 12:00
noon, Eastern time, on the Expiration Date, in the case of the Subscription
Offering or the termination of the Community Offering. 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 Association and Company are not obligated to
accept orders submitted on photocopied or facsimilied stock order forms and will
not accept stock order forms unaccompanied by an executed certification form.
Notwithstanding the foregoing, the Company shall have the right, in its sole
discretion, to permit institutional investors to submit irrevocable orders
together with a legally binding commitment for payment and to thereafter pay for
the shares of Common Stock for which they subscribe in the Community Offering at
any time prior to 48 hours before the
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completion of the Conversion. The Company and the Association have the right to
waive or permit the correction of incomplete or improperly executed forms, but
do not represent that they will do so. Once received, an executed stock order
form may not be modified, amended or rescinded without the consent of the
Association unless the Conversion has not been completed within 45 days after
the end of the Subscription Offering, 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 (June 30,
1997) and/or the Supplemental Eligibility Record Date (_______________) 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 Association, (ii) by check, bank draft or money order,
or (iii) by authorization of withdrawal from deposit accounts maintained with
the Association. No wire transfers will be accepted. Interest will be paid on
payments made by cash, check, bank draft or money order at the Association's
passbook rate of interest from the date payment is received until the completion
or termination of the Conversion. If payment is made by authorization of
withdrawal from deposit accounts, the funds authorized to be withdrawn from a
deposit account will continue to accrue interest at the contractual rates until
completion or termination of the Conversion, but a hold will be placed on such
funds, thereby making them unavailable to the depositor until completion or
termination of the Conversion.
If a subscriber authorizes the Association to withdraw the amount of the
purchase price from his deposit account, the Association will do so as of the
effective date of the Conversion. The Association will waive any applicable
penalties for early withdrawal from certificate accounts. If the remaining
balance in a certificate account is reduced below the applicable minimum balance
requirement at the time that the funds actually are transferred under the
authorization, the certificate will be canceled at the time of the withdrawal,
without penalty, and the remaining balance will earn interest at the
Association'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 Offering, if all
shares are sold, or upon consummation of the Community Offering or Syndicated
Community Offering if shares remain to be sold in such offerings; provided, that
there is in force from the time of its subscription until such time, a loan
commitment from an unrelated financial institution or the Company to lend to the
ESOP, at such time, the aggregate Purchase Price of the shares for which it
subscribed.
Owners of self-directed Individual Retirement Accounts ("IRAs") and
Qualified Plans may use the assets of such IRAs and Qualified Plans to purchase
shares of Common Stock in the Subscription Offering and/or Community Offering,
provided that such IRAs are not maintained at the Association. Persons with
self-directed IRAs and Qualified Plans maintained at the Association must have
their accounts transferred to an unaffiliated institution or broker to purchase
shares of Common Stock in the Subscription Offering and/or Community Offering.
In addition, the provisions of ERISA and IRS regulations require that officers,
directors and ten percent shareholders who use self-directed IRA funds and
Qualified Plans to purchase shares of Common Stock in the Subscription Offering
and/or Community Offering, 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.
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES
Prior to the completion of the Conversion, the OTS conversion regulations
prohibit any person with subscription rights, including the Eligible Account
Holders, the ESOP, the Supplemental Eligible Account Holders and Other Members
of the Association, from transferring or entering into any agreement or
understanding to transfer the legal or beneficial ownership of the subscription
rights issued under the Plan or the shares of Common Stock to be issued upon
their exercise. Such rights may be exercised only by the person to whom they
are granted and only for his account.
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Stock purchased in the Subscription Offering must be registered in the name(s)
of the registered account holder(s) and failure to do so will result in the
rejection of the order. Each person exercising such subscription rights will be
required to certify that he is purchasing shares solely for his own account and
that he has no agreement or understanding regarding the sale or transfer of such
shares. The regulations also prohibit any person from offering or making an
announcement of an offer or intent to make an offer to purchase such
subscription rights or shares of Common Stock prior to the completion of the
Conversion.
THE ASSOCIATION AND THE COMPANY WILL PURSUE ANY AND ALL LEGAL AND EQUITABLE
REMEDIES (INCLUDING FORFEITURE) IN THE EVENT THEY BECOME AWARE OF THE TRANSFER
OF SUBSCRIPTION RIGHTS AND WILL NOT HONOR ORDERS KNOWN BY THEM TO INVOLVE THE
TRANSFER OF SUCH RIGHTS.
SYNDICATED COMMUNITY OFFERING
As a final step in the Conversion, 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 the Company to
assist the Company and the Association in the sale of the Common Stock. The
Company and the Association have the right to reject orders in whole or in part
in their sole discretion in the Syndicated Community Offering. Neither Sandler
O'Neill nor any registered broker-dealer shall have any obligation to take or
purchase any shares of the 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." 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 $200,000 of the Common Stock, exclusive of an
increase in shares issued pursuant to an increase in the Estimated Price Range
of up to 15%; provided, however, that shares of 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 the greater of (i) $200,000 or (ii) 1.0% of the shares offered,
exclusive of an increase in shares issued pursuant to an increase in the
Estimated Price Range by up to 15%.
Payments made in the form of a check, bank draft, money order or in cash
will earn interest at the Association's passbook rate of interest from the date
such payment is actually received by the Association until completion or
termination of the Conversion.
In addition to the foregoing, if a syndicate of broker-dealers ("selected
dealers") is formed to assist in the Syndicated Community Offering, a purchaser
may pay for his shares with funds held by or deposited with a selected dealer.
If an order form is executed and forwarded to the selected dealer or if the
selected dealer is authorized to execute the order form on behalf of a
purchaser, the selected dealer is required to forward the order form and funds
to the Association 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 Association 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.
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The Syndicated Community Offering will terminate no more than 45 days
following the Subscription Expiration Date, unless extended by the Company with
the approval of the OTS. Such extensions may not be beyond
____________________. See "--Stock Pricing" above for a discussion of rights of
subscribers, if any, in the event an extension is granted.
LIMITATIONS ON COMMON STOCK PURCHASES
The Plan includes the following limitations on the number of shares of
Common Stock which may be purchased during the Conversion:
(1) No less than 25 shares;
(2) Each Eligible Account Holder may subscribe for and purchase in the
Subscription Offering up to the greater of: 1) the amount permitted to
be purchased in the Community Offering, currently $200,000 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 (8) below and exclusive of an increase in the total
number of shares issued due to an increase in the Estimated Price
Range of up to 15%;
(3) The ESOP is permitted to purchase in the aggregate up to 10% of the
shares of Common Stock issued in the Conversion, including shares
issued to the Foundation, including shares issued in the event of an
increase in the Estimated Price Range of 15%, and intends to purchase
8% of the shares of Common Stock issued in the Conversion, including
shares issued to the Foundation;
(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
$200,000 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 (8) below and exclusive of an increase in the
total number of shares issued due to an increase in the Estimated
Price Range of up to 15%;
(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 $200,000 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 (8) below and exclusive of an increase in the total
number of shares issued due to an increase in the Estimated Price
Range of up to 15%;
(6) Persons purchasing shares of 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 up to
$200,000 of Common Stock, subject to the overall maximum purchase
limitation in (8) below and exclusive of an increase in the total
number of shares issued due to an increase in the Estimated Price
Range of up to 15%;
(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
$200,000 of Common Stock, subject to the overall maximum purchase
limitation in (8) below and exclusive of an increase in the total
number of shares issued due to an increase in the
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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 $200,000 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 Conversion
by any person, together with associates of or persons acting in
concert with such persons, shall not exceed 1.0% of the shares of
Common Stock offered in the Conversion and exclusive of an increase in
the total number of shares issued due to an increase in the Estimated
Price Range of up to 15%; and
(9) No more than 30% of the total number of shares offered for sale in the
Conversion may be purchased by directors and officers of the
Association and their associates in the aggregate, excluding purchases
by the ESOP.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the members of
the Association, both the individual amount permitted to be subscribed for and
the overall maximum purchase limitation may be increased to up to a maximum of
5% at the sole discretion of the Company and the Association. If such amount is
increased, subscribers for the maximum amount will be, and certain other large
subscribers in the sole discretion of the Association may be, given the
opportunity to increase their subscriptions up to the then applicable limit. In
addition, the Boards of Directors of the Company and the Association 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 offering in the Subscription and Community Offerings shall not exceed, in
the aggregate, 10% of the shares being offered in the Subscription and Community
Offerings. Requests 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
Association to less than $200,000 subject to paragraphs (2), (4) and (5) 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 1.0% of the shares offered, but may make such
purchase, together with associates of and persons acting in concert with such
person, by also purchasing in other available categories of the Conversion,
subject to availability of shares and the overall maximum purchase limit for
purchases in the Conversion.
In the event of an increase in the total number of shares offered in the
Conversion due to an increase in the Estimated Price Range of up to 15% (the
"Adjusted Maximum"), the additional shares will be allocated in the following
order or priority in accordance with the Plan: (i) to fill the ESOP's
subscription of 8% of the amount of Common Stock issued in the Conversion,
including shares issued to the Foundation, at the Adjusted Maximum number of
shares; (ii) in the event that there is an oversubscription by Eligible Account
Holders, to fill unsatisfied subscriptions of Eligible Account Holders,
exclusive of the Adjusted Maximum; (iii) in the event that there is an
oversubscription by Supplemental Eligible Account Holders, to fill unsatisfied
subscriptions of Supplemental Eligible Account Holders, exclusive of the
Adjusted Maximum; (iv) in the event that there is an oversubscription by Other
Members, to fill unsatisfied subscriptions of Other Members exclusive of the
Adjusted Maximum; and (v) to fill unsatisfied subscriptions in the Community
Offering to the extent possible, exclusive of the Adjusted Maximum, with
preference to institutional investors.
The term "associate" of a person is defined to mean: (i) any corporation,
partnership (other than the Association or a majority-owned subsidiary of the
Association) of which such person is an officer, partner or 10% stockholder;
(ii) any trust or other estate in which such person has a substantial beneficial
interest or serves as a trustee or in a similar fiduciary capacity; provided,
however, such term shall not include any employee stock benefit plan of the
Association in which such person has a substantial beneficial interest or serves
as a trustee or in a similar fiduciary capacity; and (iii) any relative or
spouse of such person, or any relative of such spouse, who either has the same
home as such person or who is a director or officer of the Association.
Directors are not treated as associates of each other solely because of their
Board membership. For a further discussion of limitations on purchases of a
converting institution's stock at the time of Conversion and subsequent to
Conversion, see "Management of the
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Association--Subscriptions by Executive Officers and Directors," "--Certain
Restrictions on Purchase or Transfer of Shares After Conversion" and
"Restrictions on Acquisition of the Company and the Association."
LIQUIDATION RIGHTS
In the unlikely event of a complete liquidation of the Association in its
present mutual form, each depositor would receive his pro rata share of any
assets of the Association remaining after payment of claims of all creditors
(including the claims of all depositors to the withdrawal value of their
accounts). Each depositor's pro rata share of such remaining assets would be in
the same proportion as the value of his deposit account was to the total value
of all deposit accounts in the Association at the time of liquidation. After
the Conversion, each depositor, in the event of a complete liquidation, would
have a claim as a creditor of the same general priority as the claims of all
other general creditors of the Association. However, except as described below,
his claim would be solely in the amount of the balance in his deposit account
plus accrued interest. He would not have an interest in the value or assets of
the Association above that amount.
The Plan provides for the establishment, upon the completion of the
Conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in an amount equal to
the surplus and reserves of the Association as of the date of its latest balance
sheet contained in the final Prospectus used in connection with the Conversion.
Each Eligible Account Holder and Supplemental Eligible Account Holder, if he
were to continue to maintain his deposit account at the Association, would be
entitled, on a complete liquidation of the Association after the Conversion, to
an interest in the liquidation account prior to any payment to the stockholders
of the Association. Each Eligible Account Holder and Supplemental Eligible
Account Holder would have an initial interest in such liquidation account for
each deposit account, including regular accounts, transaction accounts such as
NOW accounts, money market deposit accounts, and certificates of deposit, with a
balance of $50.00 or more held in the Association on June 30, 1997 and
_________________, respectively. Each Eligible Account Holder and Supplemental
Eligible Account Holder will have a pro rata interest in the total liquidation
account based on the proportion that the balance of his Qualifying Deposits on
the Eligibility Record Date or Supplemental Eligibility Record Date,
respectively, bore to the total amount of all Qualifying Deposits of all
Eligible Account Holders and Supplemental Eligible Account Holders in the
Association. For deposit accounts in existence at both dates separate
subaccounts shall be determined on the basis of the Qualifying Deposits in such
deposit accounts on such respective record dates.
If, however, on any annual closing date subsequent to the Eligibility
Record Date or Supplemental Eligibility Record Date, the amount of the
Qualifying Deposit of an Eligible Account Holder or Supplemental Eligible
Account Holder is less than the amount of the Qualifying Deposit of such
Eligible Account Holder or Supplemental Eligible Account Holder as of the
Eligibility Record Date or Supplemental Eligibility Record Date, respectively,
or less than the amount of the Qualifying Deposits as of the previous annual
closing date, then the interest in the liquidation account relating to such
Qualifying Deposit would be reduced from time to time by the proportion of any
such reduction, and such interest will cease to exist if such Qualifying Deposit
accounts are closed. In addition, no interest in the liquidation account would
ever be increased despite any subsequent increase in the related Qualifying
Deposit. Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders are satisfied would be
distributed to the Company as the sole stockholder of the Association.
TAX ASPECTS
Consummation of the Conversion is expressly conditioned upon the receipt by
the Association of either a favorable ruling from the IRS or an opinion with
respect to federal income taxation, and an opinion with respect to New Jersey
income taxation, to the effect that the Conversion will not be a taxable
transaction to the Company, the Association, Eligible Account Holders, or
Supplemental Eligible Account Holders except as noted below. The federal and
New Jersey income tax consequences will remain unchanged in the event that a
holding company form of organization is not utilized.
No private ruling will be received from the IRS with respect to the
proposed Conversion. Instead, the Association has received an opinion of its
counsel, Muldoon, Murphy & Faucette, to the effect that for federal income tax
purposes, among other matters: (i) the Association's change in form from mutual
to stock ownership will constitute a reorganization under section 368(a)(1)(F)
of the Code and neither the Association nor the Company will recognize any gain
or loss as a result of the Conversion; (ii) no gain or loss will be recognized
to the Association or the Company
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upon the purchase of the Association's capital stock by the Company or to the
Company upon the purchase of its Common Stock in the Conversion; (iii) no gain
or loss will be recognized by Eligible Account Holders or Supplemental Eligible
Account Holders upon the issuance to them of Deposit Accounts in the Association
in its stock form plus their interests in the liquidation account in exchange
for their deposit accounts in the Association; (iv) the tax basis of the
depositors' accounts in the Association immediately after the Conversion will be
the same as the basis of their deposit accounts immediately prior to the
Conversion; (v) the tax basis of each Eligible Account Holder's and Supplemental
Eligible Account Holder's interest in the liquidation account will be zero; (vi)
no gain or loss will be recognized by Eligible Account Holders or Supplemental
Eligible Account Holders upon the distribution to them of nontransferable
subscription rights to purchase shares of the Common Stock, provided that the
amount to be paid for the Common Stock is equal to the fair market value of such
stock; and (vii) the tax basis to the stockholders of the Common Stock of the
Company purchased in the Conversion will be the amount paid therefor and the
holding period for the shares of Common Stock purchased by such persons will
begin on the date on which their subscription rights are exercised. Deloitte &
Touche, LLP has opined that the Conversion will not be a taxable transaction to
the Company, the Association, 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 Conversion will have no value.
Unlike private rulings, an opinion of counsel or an opinion of an
independent accountant 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 Association has agreed to a limitation on the liability of
Deloitte & Touche, LLP to it solely as a result of, and to indemnify Deloitte &
Touche, LLP 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 intentional or deliberate misconduct.
FinPro has issued an opinion stating that, pursuant to its 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 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 Association 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.
INTERPRETATION AND AMENDMENT OF THE PLAN OF CONVERSION
To the extent permitted by law, all interpretations of the Plan by the
Board of Directors of the Association will be final. The Plan provides that the
Association'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 Association's Board of Directors. After submission of the proxy materials
to the members, the Plan may be amended by a two-thirds vote of the
Association's 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 Association'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 of Conversion. If the Association's members approve
the Plan of Conversion, but not the creation of the Foundation, the Association
intends to complete the Conversion without the Foundation. Failure to approve
the establishment of the
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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 Association 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."
CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF SHARES AFTER CONVERSION
All shares of Common Stock purchased in connection with the Conversion by a
director or an officer of the Association will be subject to a restriction that
the shares not be sold for a period of one year following the Conversion, except
in the event of the death of such director or 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 officers of the Association 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 Company by
directors, officers (or any person who was an officer or director of the
Association after adoption of the Plan of Conversion) and their associates
during the three-year period following Conversion may be made only through a
broker or dealer registered with the SEC, except with the prior written approval
of the OTS. This restriction does not apply, however, to negotiated
transactions involving more than 1.0% of the Company's outstanding Common Stock
or to the purchase of stock pursuant to any stock option plan to be established
after the Conversion.
Unless approved by the OTS, the Company, pursuant to OTS regulations, will
be prohibited from repurchasing any shares of the Common Stock for three years
after the Conversion except: (i) for an offer to all stockholders on a pro rata
basis; or (ii) for the repurchase of qualifying shares of a director.
Notwithstanding the foregoing, beginning one year following completion of the
Conversion the Company may repurchase its Common Stock so long as: (i) the
repurchases within the following two years are part of an open-market program
not involving greater than 5% of its outstanding capital stock during a twelve-
month period; (ii) the repurchases do not cause the Company to become
undercapitalized; and (iii) the Company provides to the Regional Director of the
OTS no later than 10 days prior to the commencement of a repurchase program
written notice containing a full description of the program to be undertaken and
such program is not disapproved by the Regional Director. In addition, under
current OTS policies, repurchases may be allowed in the first year following
Conversion and in amounts greater than 5% in the second and third years
following Conversion, provided there are valid and compelling business reasons
for such repurchases and the OTS approves such repurchases.
RESTRICTIONS ON ACQUISITION OF THE COMPANY
AND THE ASSOCIATION
GENERAL
The Association's Plan of Conversion provides for the Conversion of the
Association from the mutual to the stock form of organization and, in connection
therewith, a new Stock Certificate of Incorporation and Bylaws to be adopted by
members of the Association. The Plan also provides for the concurrent formation
of a holding company, which form of organization may or may not be utilized at
the option of the Board of Directors of the Association. See "The Conversion--
General." In the event that the holding company form of organization is
utilized, as described below, certain provisions in the Company's Certificate of
Incorporation and Bylaws and in its management remuneration entered into in
connection with the Conversion, together with provisions of Delaware corporate
law, may have anti-takeover effects. In the event that the holding company form
of organization is not utilized, the Association's Stock Certificate of
Incorporation and Bylaws and management remuneration entered into in connection
with the Conversion may have anti-takeover effects as described below. In
addition, regulatory restrictions may make it difficult for persons or companies
to acquire control of either the Company or the Association.
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RESTRICTIONS IN THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
A number of provisions of the Company's Certificate of Incorporation and
Bylaws deal with matters of corporate governance and certain rights of
stockholders. The following discussion is a general summary of the material
provisions of the Company's Certificate of Incorporation and Bylaws and certain
other statutory and regulatory provisions relating to stock ownership and
transfers, the Board of Directors and business combinations, which might be
deemed to have a potential "anti-takeover" effect. These provisions may have
the effect of discouraging a future takeover attempt which is not approved by
the Board of Directors but which individual Company stockholders may deem to be
in their best interests or in which shareholders may receive a substantial
premium for their shares over then current market prices. As a result,
stockholders who might desire to participate in such a transaction may not have
an opportunity to do so. Such provisions will also render the removal of the
current Board of Directors or management of the Company more difficult. The
following description of certain of the provisions of the Certificate of
Incorporation and Bylaws of the Company is necessarily general and reference
should be made in each case to such Certificate of Incorporation and Bylaws,
which are incorporated herein by reference. See "Additional Information" as to
how to obtain a copy of these documents.
LIMITATION ON VOTING RIGHTS. The Certificate of Incorporation of the
Company provides that in no event shall any record owner of any outstanding
Common Stock which is beneficially owned, directly or indirectly, by a person
who beneficially owns in excess of 10% of the then outstanding shares of Common
Stock (the "Limit") be entitled or permitted to any vote in respect of the
shares held in excess of the Limit. Beneficial ownership is determined pursuant
to Rule 13d-3 of the General Rules and Regulations promulgated pursuant to the
Exchange Act, and includes shares beneficially owned by such person or any of
his affiliates (as defined in the Certificate of Incorporation), shares which
such person or his affiliates have the right to acquire upon the exercise of
conversion rights or options and shares as to which such person and his
affiliates have or share investment or voting power, but shall not include
shares beneficially owned by the ESOP or directors, officers and employees of
the Association or Company or shares that are subject to a revocable proxy and
that are not otherwise beneficially owned, or deemed by the Company to be
beneficially owned, by such person and his affiliates. The Certificate of
Incorporation of the Company further provides that this provision limiting
voting rights may only be amended upon the vote of 80% of the outstanding shares
of voting stock (after giving effect to the limitation on voting rights).
BOARD OF DIRECTORS. The Board of Directors of the Company is divided into
three classes, each of which shall contain approximately one-third of the whole
number of members of the Board. Each class shall serve a staggered term, with
approximately one-third of the total number of directors being elected each
year. The Company's Certificate of Incorporation and Bylaws provide that the
size of the Board shall be determined by a majority of the directors. The
Certificate of Incorporation and the Bylaws provide that any vacancy occurring
in the Board, including a vacancy created by an increase in the number of
directors or resulting from death, resignation, retirement, disqualification,
removal from office or other cause, shall be filled for the remainder of the
unexpired term exclusively by a majority vote of the directors then in office.
The classified Board is intended to provide for continuity of the Board of
Directors and to make it more difficult and time consuming for a stockholder
group to fully use its voting power to gain control of the Board of Directors
without the consent of the incumbent Board of Directors of the Company. The
Certificate of Incorporation of the Company provides that a director may be
removed from the Board of Directors prior to the expiration of his term only for
cause, upon the vote of 80% of the outstanding shares of voting stock.
In the absence of these provisions, the vote of the holders of a majority
of the shares could remove the entire Board, with or without cause, and replace
it with persons of such holders' choice.
CUMULATIVE VOTING, SPECIAL MEETINGS AND ACTION BY WRITTEN CONSENT. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, special meetings of stockholders of the Company may be
called only by the Board of Directors of the Company. The Certificate of
Incorporation also provides that any action required or permitted to be taken by
the stockholders of the Company may be taken only at an annual or special
meeting and prohibits stockholder action by written consent in lieu of a
meeting.
AUTHORIZED SHARES. The Certificate of Incorporation authorizes the
issuance of 14,000,000 shares of Common Stock and 1,000,000 shares of Preferred
Stock. The shares of Common Stock and Preferred Stock were authorized in an
amount greater than that to be issued in the Conversion to provide the Company's
Board of Directors with as much flexibility as possible to effect, among other
transactions, financings, acquisitions, stock dividends, stock splits and
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employee Stock Options. However, these additional authorized shares may also be
used by the Board of Directors consistent with its fiduciary duty to deter
future attempts to gain control of the Company. The Board of Directors also has
sole authority to determine the terms of any one or more series of Preferred
Stock, including voting rights, conversion rates, and liquidation preferences.
As a result of the ability to fix voting rights for a series of Preferred Stock,
the Board has the power, to the extent consistent with its fiduciary duty, to
issue a series of Preferred Stock to persons friendly to management in order to
attempt to block a post-tender offer merger or other transaction by which a
third party seeks control, and thereby assist management to retain its position.
The Company's Board of Directors currently has no plans for the issuance of
additional shares, other than the issuance of additional shares pursuant to the
terms of the Stock-Based Incentive Plan, which is to be established and
presented to stockholders at the first annual meeting after the Conversion.
STOCKHOLDER VOTE REQUIRED TO APPROVE BUSINESS COMBINATIONS WITH PRINCIPAL
STOCKHOLDERS. The Certificate of Incorporation requires the approval of the
holders of at least 80% of the Company's outstanding shares of voting stock to
approve certain "Business Combinations," as defined therein, and related
transactions. Under Delaware law, absent this provision, Business Combinations,
including mergers, consolidations and sales of all or substantially all of the
assets of a corporation must, subject to certain exceptions, be approved by the
vote of the holders of only a majority of the outstanding shares of Common Stock
of the Company and any other affected class of stock. Under the Certificate of
Incorporation, at least 80% approval of shareholders is required in connection
with any transaction involving an Interested Stockholder (as defined below)
except (i) in cases where the proposed transaction has been approved in advance
by a majority of those members of the Company's Board of Directors who are
unaffiliated with the Interested Stockholder and were directors prior to the
time when the Interested Stockholder became an Interested Stockholder or (ii) if
the proposed transaction meets certain conditions set forth therein which are
designed to afford the shareholders a fair price in consideration for their
shares in which case, if a stockholder vote is required, approval of only a
majority of the outstanding shares of voting stock would be sufficient. The
term "Interested Stockholder" is defined to include any individual, corporation,
partnership or other entity (other than the Company or its subsidiary) which
owns beneficially or controls, directly or indirectly, 10% or more of the
outstanding shares of voting stock of the Company. This provision of the
Certificate of Incorporation applies to any "Business Combination," which is
defined to include (i) any merger or consolidation of the Company or any of its
subsidiaries with or into any Interested Stockholder or Affiliate (as defined in
the Certificate of Incorporation) of an Interested Stockholder; (ii) any sale,
lease, exchange, mortgage, pledge, transfer, or other disposition to or with any
Interested Stockholder or Affiliate of 25% or more of the assets of the Company
or combined assets of the Company and its subsidiary; (iii) the issuance or
transfer to any Interested Stockholder or its Affiliate by the Company (or any
subsidiary) of any securities of the Company in exchange for any assets, cash or
securities the value of which equals or exceeds 25% of the fair market value of
the Common Stock of the Company; (iv) the adoption of any plan for the
liquidation or dissolution of the Company proposed by or on behalf of any
Interested Stockholder or Affiliate thereof; and (v) any reclassification of
securities, recapitalization, merger or consolidation of the Company which has
the effect of increasing the proportionate share of Common Stock or any class of
equity or convertible securities of the Company owned directly or indirectly by
an Interested Stockholder or Affiliate thereof. The directors and executive
officers of the Association are purchasing in the aggregate approximately 3.4%,
2.9%, 2.5% or 2.2% of the shares of the Common Stock to be sold in the
Conversion and issued to the Foundation, based on the estimated minimum,
midpoint, maximum and 15% above the maximum of the Estimated Price Range,
respectively. In addition, the ESOP intends to purchase 8% of the Common Stock
sold in the Conversion and issued to the Foundation. Additionally, if at a
meeting of stockholders following the Conversion stockholder approval of the
proposed Stock-Based Incentive Plan is received, the Company expects to acquire
4% of the Common Stock sold in the Conversion and issued to the Foundation, on
behalf of the Stock-Based Incentive Plan and expects to issue options to
purchase up to 10% of the Common Stock sold in connection with the Conversion
and issued to the Foundation, under the Stock-Based Incentive Plan to directors
and executive officers. As a result, at the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Price Range, assuming the Stock-Based
Incentive Plan is approved by Stockholders, directors, executive officers and
employees have the potential to control the voting of approximately 24.4%,
23.9%, 23.6% or 23.2% of the Company's Common Stock, respectively, if the shares
held by the Foundation and the ESOP are aggregated with the shares purchased in
the Conversion by management and acquired for award under the Stock-Based
Incentive Plan (without giving effect to any exercise of options granted under
the Stock-Based Incentive Plan), thereby enabling them to prevent the approval
of the transactions requiring the approval of at least 80% of the Company's
outstanding shares of voting stock described hereinabove.
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EVALUATION OF OFFERS. The Certificate of Incorporation of the Company
further provides that the Board of Directors of the Company, when evaluating any
offer of another "Person" (as defined therein) to (i) make a tender or exchange
offer for any equity security of the Company, (ii) merge or consolidate the
Company with another corporation or entity, or (iii) purchase or otherwise
acquire all or substantially all of the properties and assets of the Company,
may, in connection with the exercise of its judgment in determining what is in
the best interest of the Company, the Association and the stockholders of the
Company, give due consideration to all relevant factors, including, without
limitation, the social and economic effects of acceptance of such offer on the
Company's customers and the Association's present and future account holders,
borrowers and employees; on the communities in which the Company and the
Association operate or are located; and on the ability of the Company to fulfill
its corporate objectives as a savings and loan holding company and on the
ability of the Association to fulfill the objectives of a state-chartered stock
savings association under applicable statutes and regulations. By having these
standards in the Certificate of Incorporation of the Company, the Board of
Directors may be in a stronger position to oppose such a transaction if the
Board concludes that the transaction would not be in the best interest of the
Company, even if the price offered is significantly greater than the then market
price of any equity security of the Company.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS. Amendments to the
Company's Certificate of Incorporation must be approved by a majority vote of
its Board of Directors and also by a majority of the outstanding shares of its
voting stock; provided, however, that an affirmative vote of at least 80% of the
outstanding voting stock entitled to vote (after giving effect to the provision
limiting voting rights) is required to amend or repeal certain provisions of the
Certificate of Incorporation, including the provision limiting voting rights,
the provisions relating to approval of certain business combinations, calling
special meetings, the number and classification of directors, director and
officer indemnification by the Company and amendment of the Company's Bylaws and
Certificate of Incorporation. The Company's Bylaws may be amended by its Board
of Directors, or by a vote of 80% of the total votes eligible to be voted at a
duly constituted meeting of stockholders.
CERTAIN BYLAW PROVISIONS. The Bylaws of the Company also require a
stockholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at a stockholder meeting to give at least 90
days advance notice to the Secretary of the Company. The notice provision
requires a stockholder who desires to raise new business to provide certain
information to the Company concerning the nature of the new business, the
stockholder and the stockholder's interest in the business matter. Similarly, a
stockholder wishing to nominate any person for election as a director must
provide the Company with certain information concerning the nominee and the
proposing stockholder.
ANTI-TAKEOVER EFFECTS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
AND MANAGEMENT REMUNERATION ADOPTED IN CONVERSION
The provisions described above are intended to reduce the Company's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by members of its Board of Directors. The
provisions of the Employment Agreements, CIC Agreements, Employee Severance
Compensation Plan or Stock-Based Incentive Plan to be established may also
discourage takeover attempts by increasing the costs to be incurred by the
Association and the Company in the event of a takeover. See "Management of the
Association."
The Company's Board of Directors believes that the provisions of the
Certificate of Incorporation, Bylaws and management remuneration plans to be
established are in the best interest of the Company and its stockholders. An
unsolicited non-negotiated proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Accordingly, the Board
of Directors believes it is in the best interests of the Company and its
stockholders to encourage potential acquirors to negotiate directly with
management and that these provisions will encourage such negotiations and
discourage non-negotiated takeover attempts. It is also the Board of Directors'
view that these provisions should not discourage persons from proposing a merger
or other transaction at a price that reflects the true value of the Company and
that otherwise is in the best interest of all stockholders.
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DELAWARE CORPORATE LAW
The state of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The takeover
statute, which is codified in Section 203 of the Delaware General Corporate Law
("Section 203"), is intended to discourage certain takeover practices by
impeding the ability of a hostile acquiror to engage in certain transactions
with the target company.
In general, Section 203 provides that a "Person" (as defined therein) who
owns 15% or more of the outstanding voting stock of a Delaware corporation (an
"Interested Stockholder") may not consummate a merger or other business
combination transaction with such corporation at any time during the three-year
period following the date such "Person" became an Interested Stockholder. The
term "business combination" is defined broadly to cover a wide range of
corporate transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person became
an Interested Stockholder, the Board of Directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
Interested Stockholder; (ii) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he became an Interested Stockholder, with the number of shares outstanding
calculated without regard to those shares owned by the corporation's directors
who are also officers and by certain employee stock plans; (iii) any business
combination with an Interested Stockholder that is approved by the Board of
Directors and by a two-thirds vote of the outstanding voting stock not owned by
the Interested Stockholder; and (iv) certain business combinations that are
proposed after the corporation had received other acquisition proposals and
which are approved or not opposed by a majority of certain continuing members of
the Board of Directors. A corporation may exempt itself from the requirements
of the statute by adopting an amendment to its Certificate of Incorporation or
Bylaws electing not to be governed by Section 203. At the present time, the
Board of Directors does not intend to propose any such amendment.
RESTRICTIONS IN THE ASSOCIATION'S NEW STOCK CERTIFICATE OF INCORPORATION AND
BYLAWS
Although the Board of Directors of the Association is not aware of any
effort that might be made to obtain control of the Association after the
Conversion, the Board of Directors believes that it is appropriate to adopt
certain provisions permitted by applicable regulations to protect the interests
of the converted Association and its stockholders from any hostile takeover.
Such provisions may, indirectly, inhibit a change in control of the Company, as
the Association's sole stockholder. See "Risk Factors--Anti-Takeover Provisions
Which May Discourage Takeover Attempts."
The Association's Stock Certificate of Incorporation will contain a
provision whereby the acquisition of or offer to acquire beneficial ownership of
more than 10% of the issued and outstanding shares of any class of equity
securities of the Association by any person (i.e., any individual, corporation,
group acting in concert, trust, partnership, joint stock company or similar
organization), either directly or through an affiliate thereof, will be
prohibited for a period of five years following the date of completion of the
Conversion. Any stock in excess of 10% acquired in violation of the Stock
Certificate of Incorporation provision will not be counted as outstanding for
voting purposes. This limitation shall not apply to any transaction in which
the Association forms a holding company without a change in the respective
beneficial ownership interests of its stockholders other than pursuant to the
exercise of any dissenter or appraisal rights. In the event that holders of
revocable proxies for more than 10% of the shares of the Common Stock of the
Company seek, among other things, to elect one-third or more of the Company's
Board of Directors, to cause the Company's stockholders to approve the
acquisition or corporate reorganization of the Company or to exert a continuing
influence on a material aspect of the business operations of the Company, which
actions could indirectly result in a change in control of the Association, the
Board of Directors of the Association will be able to assert this provision of
the Association's Stock Certificate of Incorporation against such holders.
Although the Board of Directors of the Association is not currently able to
determine when and if it would assert this provision of the Association's Stock
Certificate of Incorporation, the Board of Directors, in exercising its
fiduciary duty, may assert this provision if it were deemed to be in the best
interests of the Association, the Company and its stockholders. It is unclear,
however, whether this provision, if asserted, would be successful against such
persons in a proxy contest which could result in a change in control of the
Association indirectly through a change in control of the Company. For five
years, stockholders will not be permitted to call a special meeting of
stockholders relating to a change of control of the Association or a charter
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amendment. Finally, stockholders will not be permitted to cumulate their votes
in the election of directors. The staggered terms of the Board of Directors
could have an anti-takeover effect by making it more difficult for a majority of
shares to force an immediate change in the Board of Directors since only one-
third of the Board is elected each year. The purpose of these provisions is to
assure stability and continuity of management of the Association in the years
immediately following the Conversion.
Although the Association has no arrangements, understandings or plans at
the present time, except as described in "Description of Capital Stock of the
Company--Preferred Stock," for the issuance or use of the shares of undesignated
Preferred Stock proposed to be authorized, the Board of Directors believes that
the availability of such shares will provide the Association with increased
flexibility in structuring possible future financings and acquisitions and in
meeting other corporate needs which may arise. In the event of a proposed
merger, tender offer or other attempt to gain control of the Association of
which management does not approve, the Board of Directors can authorize the
issuance of one or more series of Preferred Stock with rights and preferences
which could impede the completion of such a transaction. An effect of the
possible issuance of such Preferred Stock, therefore, may be to deter a future
takeover attempt. The Board of Directors does not intend to issue any Preferred
Stock except on terms which the Board deems to be in the best interest of the
Association and its then existing stockholders.
REGULATORY RESTRICTIONS
The Plan of Conversion prohibits any person, prior to the completion of the
Conversion, from transferring, or from entering into any agreement or
understanding to transfer, to the account of another, legal or beneficial
ownership of the subscription rights issued under the Plan or the Common Stock
to be issued upon their exercise. The Plan also prohibits any person, prior to
the completion of the Conversion, from offering, or making an announcement of an
offer or intent to make an offer, to purchase such subscription rights or Common
Stock.
For three years following the Conversion, OTS regulations prohibit any
person from acquiring or making an offer to acquire more than 10% of the stock
of any converted savings institution, except for: (i) offers that, if
consummated, would not result in the acquisition by such person during the
preceding 12-month period of more than 1% of such stock; (ii) offers for up to
25% in the aggregate by the ESOP or other tax qualified plans of the Association
or the Company; or (iii) offers which are not opposed by the Board of Directors
of the Association and which receive the prior approval of the OTS. Such
prohibition is also applicable to the acquisition of the stock of the Company.
Such acquisition may be disapproved by the OTS if it is found, among other
things, that the proposed acquisition (a) would frustrate the purposes of the
provisions of the regulations regarding conversions; (b) would be manipulative
or deceptive; (c) would subvert the fairness of the conversion; (d) would be
likely to result in injury to the savings institution; (e) would not be
consistent with economical home financing; (f) would otherwise violate law or
regulation; or (g) would not contribute to the prudent deployment of the savings
institution's conversion proceeds. In the event that any person, directly or
indirectly, violates this regulation, the securities beneficially owned by such
person in excess of 10% shall not be counted as shares entitled to vote and
shall not be voted by any person or counted as voting shares in connection with
any matters submitted to a vote of stockholders. The definition of beneficial
ownership for this regulation extends to persons holding revocable or
irrevocable proxies for the Company's stock under circumstances that give rise
to a conclusive or rebuttable determination of control under the OTS
regulations.
In addition, any proposal to acquire 10% of any class of equity security of
the Company generally would be subject to approval by the OTS under the Change
in Bank Control Act. The 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 and loan holding company unless the
OTS has been given 60 days' prior written notice and has not objected to the
transaction. The HOLA provides that no company may acquire "control of a
savings and loan holding company 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 a savings and loan holding company is
conclusively deemed to have been acquired by, among other things, the
acquisition of more than 25% of any class of voting stock of the company or
irrevocable proxies representing more than 25% of any class of voting stock of
the company or the ability to control the election of a majority of the
directors. The regulations also establish a rebuttable presumption of "control"
upon the acquisition of more than 10% of any class of voting stock, or of more
than 25% of any class of stock, of a savings and loan holding company, where
certain enumerated "control factors" are also present in the acquisition. The
OTS may prohibit an acquisition by a person of "control" if (i) it would result
in a monopoly or substantially lessen competition, (ii) the financial condition
of the
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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 the public to permit
the acquisition of control by such person or (iv) the proposed acquisition would
have an adverse effect on the deposit insurance funds. Applications by a company
to acquire "control" of a savings and loan holding company are evaluated by OTS
based upon factors such as the financial and managerial resources and future
prospects of the acquirer and the institution involved, competitive factors and
the convenience and needs of the community involved. The foregoing restrictions
do not apply to the acquisition of the Company's capital stock by one or more
tax-qualified employee stock benefit plans, provided that the plan or plans do
not have beneficial ownership in the aggregate of more than 25% of any class of
equity security of the Company.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
GENERAL
The Company is authorized to issue 14,000,000 shares of Common Stock having
a par value of $0.01 per share and 1,000,000 shares of preferred stock having a
par value of $0.01 per share (the "Preferred Stock"). Based on the sale of
Common Stock in connection with the Conversion and issuance of authorized but
unissued Common Stock in an amount equal to 8.0% of the Common stock sold in the
Conversion, the Company currently expects to issue up to 4,086,180 shares of
Common Stock (or 4,699,107 in the event of an increase of 15% in the Estimated
Price Range) and no shares of Preferred Stock in the Conversion. Except as
discussed above in "Restriction on Acquisition of the Company and the
Association," each share of the Company's Common Stock will have the same
relative rights as, and will be identical in all respects with, each other share
of Common Stock. Upon payment of the Purchase Price for the Common Stock, in
accordance with the Plan, all such stock will be duly authorized, fully paid and
non-assessable.
THE COMMON STOCK OF THE COMPANY WILL REPRESENT NON-WITHDRAWABLE CAPITAL,
WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED BY THE
FDIC.
COMMON STOCK
DIVIDENDS. The Company can pay dividends out of statutory surplus or from
certain net profits if, as and when declared by its Board of Directors. The
payment of dividends by the Company is subject to limitations which are imposed
by law and applicable regulation. See "Dividend Policy" and "Regulation." The
holders of Common Stock of the Company will be entitled to receive and share
equally in such dividends as may be declared by the Board of Directors of the
Company out of funds legally available therefor. If the Company issues
Preferred Stock, the holders thereof may have a priority over the holders of the
Common Stock with respect to dividends.
VOTING RIGHTS. Upon Conversion, the holders of Common Stock of the Company
will possess exclusive voting rights in the Company. They will elect the
Company's Board of Directors and act on such other matters as are required to be
presented to them under Delaware law or the Company's Certificate of
Incorporation or as are otherwise presented to them by the Board of Directors.
Except as discussed in "Restrictions on Acquisition of the Company and the
Association," each holder of Common Stock will be entitled to one vote per share
and will not have any right to cumulate votes in the election of directors. If
the Company issues Preferred Stock, holders of the Preferred Stock may also
possess voting rights. Certain matters require an 80% shareholder vote. See
"Restrictions on Acquisition of the Company and the Association."
As a mutual savings and loan association, corporate powers and control of
the Association are vested in its Board of Directors, who elect the officers of
the Association and who fill any vacancies on the Board of Directors as it
exists upon Conversion. Subsequent to Conversion, voting rights will be vested
exclusively in the owners of the shares of capital stock of the Association,
which will be the Company, and voted at the direction of the Company's Board of
Directors. Consequently, the holders of the Common Stock will not have direct
control of the Association.
LIQUIDATION. In the event of any liquidation, dissolution or winding up of
the Association, the Company, as holder of the Association's capital stock,
would be entitled to receive, after payment or provision for payment of all
debts and liabilities of the Association (including all deposit accounts and
accrued interest thereon) and after distribution of the balance in the special
liquidation account to Eligible Account Holders and Supplemental Eligible
Account Holders
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(see "The Conversion--Liquidation Rights"), all assets of the Association
available for distribution. In the event of liquidation, dissolution or winding
up of the Company, the holders of its Common Stock would be entitled to receive,
after payment or provision for payment of all its debts and liabilities, all of
the assets of the Company available for distribution. If Preferred Stock is
issued, the holders thereof may have a priority over the holders of the Common
Stock in the event of liquidation or dissolution.
PREEMPTIVE RIGHTS. Holders of the Common Stock of the Company will not be
entitled to preemptive rights with respect to any shares which may be issued.
The Common Stock is not subject to redemption.
PREFERRED STOCK
None of the shares of the Company's authorized Preferred Stock will be
issued in the Conversion. Such stock may be issued with such preferences and
designations as the Board of Directors may from time to time determine. The
Board of Directors can, without stockholder approval, issue preferred stock with
voting, dividend, liquidation and conversion rights which could dilute the
voting strength of the holders of the Common Stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
DESCRIPTION OF CAPITAL STOCK OF THE ASSOCIATION
GENERAL
The Stock Certificate of Incorporation of the Association, to be effective
upon the Conversion, authorizes the issuance of capital stock consisting of
14,000,000 shares of common stock, par value $1.00 per share, and 1,000,000
shares of preferred stock, par value $1.00 per share, which preferred stock may
be issued in series and classes having such rights, preferences, privileges and
restrictions as the Board of Directors may determine. Each share of Common
Stock of the Association will have the same relative rights as, and will be
identical in all respects with, each other share of common stock. After the
Conversion, the Board of Directors will be authorized to approve the issuance of
Common Stock up to the amount authorized by the Stock Certificate of
Incorporation without the approval of the Association's stockholders. Assuming
that the holding company form of organization is utilized, all of the issued and
outstanding common stock of the Association will be held by the Company as the
Association's sole stockholder. THE CAPITAL STOCK OF THE ASSOCIATION WILL
REPRESENT NON-WITHDRAWABLE CAPITAL, WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE,
AND WILL NOT BE INSURED BY THE FDIC.
COMMON STOCK
DIVIDENDS. The holders of the Association's common stock will be entitled
to receive and to share equally in such dividends as may be declared by the
Board of Directors of the Association out of funds legally available therefor.
See "Dividend Policy" for certain restrictions on the payment of dividends and
"Federal and State Taxation--Federal Taxation" for a discussion of the
consequences of the payment of cash dividends from income appropriated to bad
debt reserves.
VOTING RIGHTS. Immediately after the Conversion, the holders of the
Association's common stock will possess exclusive voting rights in the
Association. Each holder of shares of common stock will be entitled to one vote
for each share held, subject to the right of shareholders to cumulate their
votes for the election of directors. During the five-year period after the
effective date of the Conversion, cumulation of votes will not be permitted.
See "Restrictions on Acquisition of the Company and the Association--Anti-
Takeover Effects of the Company's Certificate of Incorporation and Bylaws and
Management Remuneration Adopted in Conversion."
LIQUIDATION. In the event of any liquidation, dissolution, or winding up
of the Association, the holders of common stock will be entitled to receive,
after payment of all debts and liabilities of the Association (including all
deposit accounts and accrued interest thereon), and distribution of the balance
in the special liquidation account to Eligible Account Holders and Supplemental
Eligible Account Holders, all assets of the Association available for
distribution in cash or in kind. If preferred stock is issued subsequent to the
Conversion, the holders thereof may also have priority over the holders of
common stock in the event of liquidation or dissolution.
111
<PAGE>
PREEMPTIVE RIGHTS; REDEMPTION. Holders of the common stock of the
Association will not be entitled to preemptive rights with respect to any shares
of the Association which may be issued. The common stock will not be subject to
redemption. Upon receipt by the Association of the full specified purchase
price therefor, the common stock will be fully paid and non-assessable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ________________.
EXPERTS
The financial statements of the Association as of December 31, 1997 and
1996 and for each of the three years in the period ended December 31, 1997
included in this Prospectus have been audited by Deloitte & Touche, LLP,
independent auditors, as stated in their report, appearing elsewhere herein, and
have been so included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
FinPro has consented to the publication herein of the summary of its report
to the Association and Company setting forth its opinion as to the estimated pro
forma market value of the Common Stock upon Conversion and its valuation with
respect to subscription rights.
LEGAL AND TAX OPINIONS
The legality of the Common Stock and the federal income tax consequences of
the Conversion will be passed upon for the Association and the Company by
Muldoon, Murphy & Faucette, Washington, D.C., special counsel to the Association
and the Company. Muldoon, Murphy & Faucette will rely as to certain matters of
Delaware law on the opinion of Morris, Nichols, Arsht & Tunnel. The State of
New Jersey income tax consequences of the Conversion and certain matters related
to the Foundation will be passed upon for the Association and the Company by
Deloitte & Touche, LLP. Certain legal matters will be passed upon for Sandler
O'Neill by Malizia, Spidi, Sloane & Fisch, P.C.
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information can be
examined without charge at the public reference facilities of the SEC located at
450 Fifth Street, N.W., Washington, D.C. 20549, and copies of such material can
be obtained from the SEC at prescribed rates. Information on the operation of
the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
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 the Company. This
Prospectus contains a description of the material terms and features of all
material contracts, reports or exhibits to the Registration Statement required
to be described. 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 Association has filed an application for conversion with the OTS and
the Commissioner with respect to the Conversion. Pursuant to the rules and
regulations of the OTS, this Prospectus omits certain information contained in
that application. The application may be examined at the principal office of
the OTS, 1700 G Street, N.W., Washington, D.C. 20552 and at the Office of the
Regional Director of the OTS located at 10 Exchange Place, 18th Floor, Jersey
City, New Jersey 07302 and at the office of the Commissioner at 20 West State
Street, Trenton, New Jersey 07625.
In connection with the Conversion, the Company will register its Common
Stock with the SEC under Section 12(g) of the Exchange Act and, upon such
registration, the Company and the holders of its stock will become subject to
the proxy solicitation rules, reporting requirements and restrictions on stock
purchases and sales by directors, officers and greater than 10% stockholders,
the annual and periodic reporting and certain other requirements of the Exchange
Act. Under the Plan, the Company has undertaken that it will not terminate such
registration for a period of at least three
112
<PAGE>
years following the Conversion. In the event that the Association amends the
Plan to eliminate the concurrent formation of the Company as part of the
Conversion, the Association will register its stock with the OTS under Section
12(g) of the Exchange Act and, upon such registration, the Association and the
holders of its stock will become subject to the same obligations and
restrictions.
A copy of the Certificate of Incorporation and the Bylaws of the Company
and the Stock Certificate of Incorporation and Bylaws of the Association and the
Certificate of Incorporation and Bylaws of the Foundation are available without
charge from the Association.
113
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Independent Auditors' Report F-2
Statements of Financial Condition as of July 31, 1998 (unaudited)
and December 31, 1997 and 1996................................... F-3
Statements of Income for the Seven Months Ended
July 31, 1998 and 1997 (unaudited) and for the Years Ended
December 31, 1997, 1996 and 1995................................. 29
Statements of Changes in Retained Earnings for the
Seven Months Ended July 31, 1998 (unaudited) and for the
Years Ended December 31, 1997, 1996 and 1995..................... F-4
Statements of Cash Flows for the Seven Months Ended
July 31, 1998 and 1997 (unaudited) and for the Years Ended
December 31, 1997, 1996 and 1995................................. F-5
Notes to Financial Statements...................................... F-6 to F-19
</TABLE>
All schedules are omitted because they are not required or applicable, or
the required information is shown in the financial statements or notes thereto.
The financial statements of South Jersey Financial Corporation, Inc. have
been omitted because South Jersey Financial Corporation, Inc. has not yet issued
any stock, has no assets and no liabilities, and has not conducted any business
other than of an organizational nature.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors of
South Jersey Savings and Loan Association:
We have audited the accompanying statements of financial condition of South
Jersey Savings and Loan Association (the "Association") as of December 31, 1997
and 1996, and the related statements of income, retained earnings, and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Association's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of South Jersey Savings and Loan Association as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
March 20, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF FINANCIAL CONDITION
- -----------------------------------------------------------------------------------------------------------------
JULY 31, DECEMBER 31,
1998 -------------------------------
ASSETS (UNAUDITED) 1997 1996
<S> <C> <C> <C>
Cash and amounts due from depository institutions $ 4,413,973 $ 3,704,631 $ 4,099,515
Interest-bearing deposits with banks 396,000 495,000 594,000
Federal funds sold 12,400,000 15,000,000 6,200,000
------------ ------------ ------------
Cash and cash equivalents 17,209,973 19,199,631 10,893,515
Investment securities held to maturity (approximate
fair values -1998, $87,393,400 (unaudited)
1997, $79,601,903; 1996, $77,128,001) 87,055,568 79,034,160 77,109,792
Mortgage-backed securities held to maturity
(approximate fair values - 1998, $49,395,739 (unaudited);
1997, $45,662,774; 1996, $41,174,237) 48,352,110 45,231,329 41,398,301
Loans receivable, net 99,562,554 98,966,195 104,262,855
Accrued interest receivable 2,498,431 2,258,869 2,450,067
Federal Home Loan Bank stock - at cost 1,249,100 1,232,700 1,150,300
Real estate owned 49,937
Office properties and equipment, net 3,247,736 3,323,854 3,427,084
Deferred income taxes 70,673 16,470 144,943
Prepaid income taxes 21,078 252,394 111,507
Prepaid expenses and other assets 391,902 289,426 263,559
------------ ------------ ------------
TOTAL ASSETS $259,709,062 $249,805,028 $241,211,923
============ ============ ============
LIABILITIES AND RETAINED EARNINGS
Liabilities:
Deposits $231,155,709 $223,205,518 $216,834,216
Advances from Federal Home Loan Bank 176,000 176,000 176,000
Advances from borrowers for taxes and insurance 1,087,255 729,410 787,788
Accounts payable and accrued expenses 1,221,556 960,091 990,109
Income taxes payable 42,380 44,694
------------ ------------ ------------
Total liabilities 233,682,900 225,115,713 218,788,113
Commitments (Note 5)
Retained earnings 26,026,162 24,689,315 22,423,810
------------ ------------ ------------
TOTAL LIABILITIES AND RETAINED EARNINGS $259,709,062 $249,805,028 $241,211,923
============ ============ ============
</TABLE>
See notes to financial statements.
F-3
<PAGE>
SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF RETAINED EARNINGS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
BALANCE, JANUARY 1, 1995 $19,143,728
Net income 2,123,672
-----------
BALANCE, DECEMBER 31, 1995 21,267,400
Net income 1,156,410
-----------
BALANCE, DECEMBER 31, 1996 22,423,810
Net income 2,265,505
-----------
BALANCE, DECEMBER 31, 1997 24,689,315
Net income for the seven-month period ended July 31, 1998 (unaudited) 1,336,847
-----------
BALANCE, JULY 31, 1998 (unaudited) $26,026,162
===========
See notes to financial statements.
</TABLE>
F-4
<PAGE>
SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SEVEN-MONTH PERIOD ENDED YEAR ENDED
JULY 31, DECEMBER 31,
-------------------------- ----------------------------------------
1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
OPERATING ACTIVITIES:
Net income $ 1,336,847 $ 1,299,115 $ 2,265,505 $ 1,156,410 $ 2,023,672
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for:
Loan losses 175,000 233,333 400,000 180,000 180,000
Depreciation 172,771 168,238 296,823 252,324 220,985
Amortization of:
Premiums, discounts on mortgage-backed securities, net 10,499 32,250 29,574 85,964 22,440
Premiums, discounts on investments, net 89,674 212,346 290,333 619,601 805,965
Deferred and prepaid loan fees (68,848) (40,421) (80,608) (85,669) (77,521)
Changes in assets and liabilities which provided (used)
cash:
Real estate acquired through foreclosure (49,937) 23,342 (23,342)
Accrued interest receivable (239,562) (2,953) 191,198 (7,140) (96,157)
Prepaid expenses and other assets (102,476) (122,920) (25,867) 23,315 28,427
Prepaid income taxes 231,316 36,564 (140,887) (111,507)
Deferred income taxes (54,203) 74,943 128,473 (74,287) 37,251
Deferred and prepaid loan fees 11,753 41,990 (117,251) 60,858 5,261
Accounts payable and accrued expenses 261,465 147,899 (30,018) 4,846 (7,078)
Income taxes payable (2,314) 23,593 44,694 (19,989) (54,610)
------------ ------------ ------------ ------------ ------------
Net cash provided by operating activities 1,771,985 2,103,977 3,251,969 2,108,068 3,065,293
------------ ------------ ------------ ------------ ------------
INVESTING ACTIVITIES:
Purchases of:
Mortgage-backed securities (10,993,716) (8,030,001) (10,030,001) (16,029,193) (6,023,302)
Investment securities (29,611,082) (17,044,768) (36,214,701) (30,549,223) (26,827,597)
Federal Home Loan Bank stock (16,400) (82,400) (82,400) (31,600)
Office properties and equipment (96,653) (86,414) (193,593) (357,161) (229,791)
Proceeds from:
Maturing investment securities 21,500,000 18,500,000 34,000,000 25,000,000 19,745,000
Maturing mortgage-backed securities 7,862,436 3,380,882 6,167,399 6,216,799 4,252,274
Sale of Federal Home Loan Bank stock 90,379 31,700
Principal collected on long-term loans 12,280,927 10,522,759 21,119,160 17,155,774 16,678,723
Long-term loans originated or acquired (13,085,570) (7,714,494) (16,024,641) (16,221,483) (12,453,390)
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities (12,069,679) (554,436) (1,258,777) (14,752,787) (3,957,144)
------------ ------------ ------------ ------------ ------------
FINANCING ACTIVITIES:
Net increase in deposits 7,950,191 2,356,413 6,371,302 5,714,418 9,610,348
Increase (decrease) in advances from borrowers for
taxes and insurance 357,845 (452,937) 58,378 (17,807) 26,595
------------ ------------ ------------ ------------ ------------
Net cash provided by financing activities 8,308,036 1,903,476 6,312,924 5,696,611 9,636,943
------------ ------------ ------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (1,989,658) 3,453,017 8,306,116 (6,948,108) 8,745,092
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 19,199,631 10,893,515 10,893,515 17,841,623 9,096,531
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 17,209,973 $ 14,346,532 $ 19,199,631 $ 10,893,515 $ 17,841,623
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during period for:
Interest $ 5,172,523 $ 4,950,767 $ 9,342,618 $ 9,113,654 $ 8,557,720
============ ============ ============ ============ ============
Income taxes $ 577,000 $ 595,000 $ 1,245,000 $ 870,000 $ 1,141,991
============ ============ ============ ============ ============
See notes to financial statements.
</TABLE>
F-5
<PAGE>
SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND (UNAUDITED) FOR THE
SEVEN-MONTH PERIODS ENDED JULY 31, 1998 AND 1997
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
South Jersey Savings and Loan Association (the "Association") is a state-
chartered mutual savings and loan established in 1950 which is principally in
the business of attracting customer deposits to provide mortgage and consumer
loan funds to the community. The main branch is located in Turnersville, New
Jersey, with other branches in Collingswood and Glendora, New Jersey.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
INTERIM UNAUDITED FINANCIAL STATEMENTS - The financial statements as of
July 31, 1998 and for the seven-month periods ended July 31, 1998 and 1997
are unaudited, but in management's option, reflect only normal and recurring
adjustments necessary for a fair presentation. Results at and for the seven-
months ended July 31, 1998 are not indicative of the results that may be
expected for the fiscal year ending December 31, 1998.
ACCOUNTING FOR CERTAIN DEBT AND EQUITY SECURITIES - The Association
classifies investments as follows:
Securities that the Association has the positive intent and ability to hold
to maturity are classified as "held-to-maturity" and reported at amortized
cost.
Securities not classified as held-to-maturity are classified as "available-
for-sale" and reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of retained
earnings, net of applicable income taxes. The Association did not classify
any security as available for sale at July 31, 1998, December 31, 1997 and
1996.
PROVISION FOR LOAN LOSSES - Provision for loan losses includes charges to
reduce the recorded balances of loans receivable and real estate acquired by
foreclosure to their estimated net realizable value or fair value, as
applicable. Such provisions are based on management's estimate of net
realizable value or fair value of the collateral, as applicable, considering
the current and currently anticipated future operating or sales conditions,
thereby causing these estimates to be particularly susceptible to changes
that could result in a material adjustment to results of operations in the
near term. Recovery of the carrying value of such loans and real estate
acquired by foreclosure is dependent to a great extent on economic, operating
and other conditions that may be beyond the Association's control.
REAL ESTATE ACQUIRED THROUGH FORECLOSURE - Real estate acquired through
foreclosure is carried at the lower of fair value less estimated cost to sell
or balance of the loan on the property at date of acquisition.
F-6
<PAGE>
Costs relating to the development and improvement of property are
capitalized, and those relating to holding the property are charged to
expense.
ACCRUED INTEREST RECEIVABLE - Interest income is recognized as earned.
Accrual of loan interest is discontinued and a reserve established on
existing accruals if management believes, that after considering economic and
business conditions and collection efforts, that the borrowers' financial
condition is such that collection of interest is doubtful.
OFFICE PROPERTIES AND EQUIPMENT - Office properties and equipment are
recorded at cost. Depreciation is computed using the straight-line method
over the expected useful lives of the assets. The costs of maintenance and
repairs are expensed as they are incurred and renewals and betterments are
capitalized.
DEFERRED LOAN FEES - The Association defers all loan fees, net of certain
direct loan origination costs. The balance is accreted into income as a
yield adjustment over the life of the loan using the interest method.
CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, cash and
cash equivalents include cash, interest-bearing deposits (with original
maturities of 90 days or less), and federal funds sold. Generally, federal
funds sold are repurchased the following day.
INCOME TAXES - Deferred income taxes are recognized for the tax consequences
of "temporary differences" by applying enacted statutory tax rates applicable
to future years to differences between the financial statement carrying
amounts and the tax bases of existing assets and liabilities. The effect on
deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date.
INTEREST RATE RISK - The Association is principally engaged in the business
of attracting deposits from the general public and using these deposits,
together with borrowings and other funds, to make loans secured by real
estate and other consumer loans and to purchase certain investments. The
potential for interest rate risk exists as a result of the shorter repricing
period of the Association's interest-sensitive liabilities compared to the
generally longer repricing period of interest-sensitive assets. In a rising
rate environment liabilities will reprice faster than assets, thereby
reducing the market value of long-term assets and net interest income. For
this reason, management regularly monitors the maturity structure of the
Association's assets and liabilities in order to measure this risk and enacts
measures to manage volatility of future interest rate movements.
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities and in December 1996, SFAS No. 127, Deferral of the Effective
Date of Certain Provisions of FASB Statement No. 125. SFAS No. 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. Those standards are 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 financial assets when control has
been surrendered, and derecognizes liabilities when extinguished.
F-7
<PAGE>
These statements were effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996,
with certain provisions deferred until January 1, 1998. The Association has
determined that the adoption of these standards did not have a significant
effect on its financial position or results of operations
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general-purpose financial statements. This
statement is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for the seven-month periods ended
July 31, 1998 and 1997, and for the years ended December 31, 1997, 1996 and
1995, the Association was not required to recognize any item as "other
comprehensive income", therefore comprehensive income equals net income for
each period.
RECLASSIFICATIONS - Certain amounts in the 1997, 1996 and 1995 financial
statements have been reclassified to conform with the 1998 financial
statement presentation.
3. INVESTMENT SECURITIES HELD TO MATURITY
Investment securities held to maturity are summarized as follows:
<TABLE>
<CAPTION>
JULY 31, 1998
-----------------------------------------------------------------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Treasury and government
agencies $40,654,771 $388,667 $ 29,834 $41,013,604
FHLB notes 46,300,797 163,159 184,160 46,279,796
State and municipal issues 100,000 100,000
----------- -------- -------- -----------
Total $87,055,568 $551,826 $213,994 $87,393,400
=========== ======== ======== ===========
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------------------------------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Treasury and government
agencies $42,111,414 $413,458 $ 21,377 $45,503,495
FHLB notes 36,822,746 205,492 29,830 36,998,408
State and municipal issues 100,000 100,000
----------- -------- -------- -----------
Total $79,034,160 $618,950 $ 51,207 $79,601,903
=========== ======== ======== ===========
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------------------------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Treasury and government
agencies $48,162,908 $278,985 $174,749 $48,267,144
FHLB notes 28,846,884 112,354 198,381 28,760,857
State and municipal issues 100,000 100,000
----------- -------- -------- -----------
Total $77,109,792 $391,339 $373,130 $77,128,001
=========== ======== ======== ===========
</TABLE>
F-8
<PAGE>
At December 31, 1996, investment securities included structured notes with
the Federal Home Loan Bank of New York. Par value of these structured notes
is $1,000,000. These securities are designated as held to maturity. At
July 31, 1998 and December 31, 1997, the Association did not have structured
notes.
The amortized cost and approximate fair value of debt securities at July 31,
1998 by contractual maturity are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or repay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED APPROXIMATE
COST FAIR VALUE
<S> <C> <C>
Due in one year or less $12,590,911 $12,686,497
Due after one year through five years 34,355,578 34,630,928
Due after five years 40,109,079 40,075,975
----------- -----------
Total $87,055,568 $87,393,400
=========== ===========
</TABLE>
4. MORTGAGE-BACKED SECURITIES HELD TO MATURITY
Mortgage-backed securities held to maturity are summarized as follows:
<TABLE>
<CAPTION>
JULY 31, 1998
--------------------------------------------------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
GNMA pass-through certificates $ 769,902 $ 68,911 $ 838,813
FNMA pass-through certificates 25,680,798 370,282 $ 15,958 26,035,122
FHLMC pass-through certificates 21,901,410 620,394 22,521,804
----------- ---------- -------- -----------
Total $48,352,110 $1,059,587 $ 15,958 $49,395,739
=========== ========== ======== ===========
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
GNMA pass-through certificates $ 924,818 $ 52,694 $ 433 $ 977,079
FNMA pass-through certificates 17,627,059 160,544 114,882 17,672,721
FHLMC pass-through certificates 26,679,452 385,449 51,927 27,012,974
----------- ---------- -------- -----------
Total $45,231,329 $ 598,687 $167,242 $45,662,774
=========== ========== ======== ===========
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
GNMA pass-through certificates $ 1,116,727 $ 36,662 $ 1,175 $ 1,152,214
FNMA pass-through certificates 16,752,026 61,334 317,320 16,496,040
FHLMC pass-through certificates 23,529,548 260,551 264,116 23,525,983
----------- ---------- -------- -----------
Total $41,398,301 $ 358,547 $582,611 $41,174,237
=========== ========== ======== ===========
</TABLE>
At July 31, 1998 mortgage-backed securities pledged for public deposits were
$1,007,170.
F-9
<PAGE>
5. LOANS RECEIVABLE
Loans receivable at July 31, 1998, December 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
JULY 31, ---------------------------------
1998 1997 1996
<S> <C> <C> <C>
Residential mortgage loans (primarily single-family) $ 81,156,011 $ 79,562,947 $ 81,782,438
Nonresidential mortgage loans 2,043,787 2,104,430 5,605,752
Education loans 2,291,720 2,426,467 2,513,753
Loans on savings accounts 180,077 147,743 182,880
Consumer loans 15,091,467 15,805,447 15,884,941
Commercial loans 8,792 33,000 124,500
------------ ------------ ------------
Total 100,771,854 100,080,034 106,094,264
Less:
Allowance for loan losses (819,080) (666,524) (1,186,235)
Deferred fees and other credits (390,220) (447,315) (645,174)
------------ ------------ ------------
Net $ 99,562,554 $ 98,966,195 $104,262,855
============ ============ ============
</TABLE>
The Association lends to borrowers primarily in its local market area. The
ultimate repayment of these loans is dependent to a certain degree on the
local economy and real estate market.
Nonaccrual loans amounted to $414,769, $901,128, and $631,469, $842,959,
$588,842 at July 31, 1998 and 1997, and December 31, 1997, 1996 and 1995,
respectively. Interest income which should have been earned on these loans
during the seven-month periods ended July 31, 1998 and 1997 and the three
years ended December 31, 1997, 1996 and 1995, was $20,519, $47,242 and
$54,087, $50,301, 64,602, respectively. Interest income recognized on these
loans during the seven-month periods ended July 31, 1998 and 1997 and the
three years ended December 31, 1997, 1996 and 1995, was $20,078, $5,301 and
$26,376, $28,231, $62,010, respectively.
The Association originates and purchases both adjustable and fixed interest
rate loans and mortgage-backed securities. At July 31, 1998, the composition
of these loans and mortgage-backed securities was as follows:
<TABLE>
<CAPTION>
FIXED-RATE ADJUSTABLE-RATE
-------------------------------------- ----------------------------------
TERM TO RATE
TERM TO MATURITY BOOK VALUE ADJUSTMENT BOOK VALUE
<S> <C> <C> <C>
1 month to 1 year $ 4,639,000 1 month to 1 year $5,716,000
1 year to 3 years 2,873,000 1 year to 3 years 3,649,000
3 years to 5 years 4,786,000
5 years to 10 years 28,513,000
10 years to 20 years 53,055,000
Over 20 years 46,018,000
------------ ----------
$139,884,000 $9,365,000
============ ==========
</TABLE>
F-10
<PAGE>
The adjustable-rate loans have interest rate adjustment limitations and are
generally indexed to prime rate or U.S. Treasury rates. Future market
factors may affect the correlation of the interest rate adjustment with the
rates the Association pays on the short-term deposits that have been
primarily utilized to fund these loans.
At July 31, 1998, December 31, 1997 and 1996, the Association had mortgage
loan commitments outstanding totaling $1,998,467, $442,400 and $1,017,350,
respectively. These loans are expected to be funded within three months. At
July 31, 1998, the Association had approximately $1,884,000 and $31,000 in
unfunded consumer and commercial lines of credit, respectively.
The total amount of loans being serviced for the benefit of others was
approximately $1,629,000, $3,116,600, $2,947,000, $3,478,000 and $4,009,000
at July 31, 1998 and 1997, December 31, 1997, 1996 and 1995, respectively.
An analysis of activity in allowance for loan losses at July 31, 1998 and
1997, December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
SEVEN-MONTH PERIOD ENDED YEAR ENDED
JULY 31, DECEMBER 31,
------------------------ -----------------------------------------
1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $666,524 $1,186,235 $1,186,235 $1,068,271 $ 967,629
Provision for loan losses 175,000 233,333 400,000 180,000 180,000
Charge-offs (25,633) (28,066) (923,642) (64,934) (79,871)
Recoveries 3,189 1,169 3,931 2,898 513
-------- ---------- ---------- ---------- ----------
Balance, end of year $819,080 $1,392,671 $ 666,524 $1,186,235 $1,068,271
======== ========== ========== ========== ==========
</TABLE>
The provision for loan losses charged to expense is based upon past loan and
loss experiences and an evaluation of estimated losses in the current loan
portfolio, including the evaluation of impaired loans under SFAS Nos. 114 and
118. A loan is considered to be impaired when, based upon current
information and events, it is probable that the Association will be unable to
collect all amounts due according to the contractual terms of the loan. An
insignificant delay or insignificant shortfall in amount of payments does not
necessarily result in the loan being identified as impaired. For this
purpose, delays less than 90 days are considered to be insignificant. As of
July 31, 1998, 100% of the impaired loan balance was measured for impairment
based on the fair value of the loans' collateral. Impairment losses are
included in the provision for loan losses. SFAS Nos. 114 and 118 do not
apply to large groups of smaller balance homogeneous loans that are
collectively evaluated for impairment, except for those loans restructured
under a troubled debt restructuring.
F-11
<PAGE>
The following table summarizes impaired loan information:
<TABLE>
<CAPTION>
SEVEN-MONTH
PERIOD ENDED YEAR ENDED
JULY 31, DECEMBER 31,
------------ -------------------
1998 1997 1996
<S> <C> <C> <C>
Total recorded investment in impaired loans
with allowance for loan losses
in accordance with SFAS No. 114 $ 81,079 $ 76,740 $411,413
Total recorded investment in impaired loans
without related allowance for
loan losses in accordance with SFAS No. 114 142,000
-------- -------- --------
Total recorded investment in impaired loans $ 81,079 $ 76,740 $553,413
======== ======== ========
Total allowance related to impaired loans
in accordance with SFAS No. 114 $ 11,545 $ 9,540 $160,000
======== ======== ========
<CAPTION>
SEVEN-MONTH
PERIOD ENDED YEAR ENDED
JULY 31, DECEMBER 31,
---------------------- -------------------
1998 1997 1997 1996
<S> <C> <C> <C> <C>
Average investment in impaired loans $76,574 $469,376 $362,430 $530,590
========== ======== ======== ========
Interest income recognized on impaired loans $ 2,144 $ 1,824 $ 4,375 $ 11,188
========== ======== ======== ========
Cash basis interest income recognized on impaired loans $ 2,144 $ 1,824 $ 4,375 $ 11,188
========== ======== ======== ========
</TABLE>
Interest payments on impaired loans are typically applied to principal unless
collectibility of the principal amount is fully assured, in which case
interest is recognized on the cash basis.
At December 31, 1995, all of the Association's loans were within large groups
of smaller balance homogeneous loans and did not represent troubled debt
restructurings.
Commercial loans are placed on nonaccrual at the time the loan is 60 days
delinquent unless the credit is well secured and in the process of
collection. Generally, commercial loans are charged off no later than after
they become 120 days delinquent unless the loan is well secured and in the
process of collection, or other extenuating circumstances support collection.
Real estate loans are typically placed on nonaccrual at the time the loan is
90 days delinquent. Other consumer loans are typically charged off at 120
days delinquent. In all cases, loans must be placed on nonaccrual or charged
off at an earlier date if collection of principal or interest is considered
doubtful.
F-12
<PAGE>
6. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at July 31, 1998, December 31, 1997 and 1996
consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
JULY 31, ------------------------
1998 1997 1996
<S> <C> <C> <C>
Investments and interest-bearing deposits $1,600,304 $1,339,058 $1,307,557
Mortgage-backed securities 324,575 322,874 317,088
Loans receivable 573,552 596,937 825,422
---------- ---------- ----------
Total $2,498,431 $2,258,869 $2,450,067
========== ========== ==========
</TABLE>
7. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment at July 31, 1998, December 31, 1997 and 1996
are summarized by major classifications as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JULY 31, --------------------------
1998 1997 1996
<S> <C> <C> <C>
Land and buildings $ 3,354,188 $ 3,330,992 $ 3,316,760
Furniture and equipment 2,289,902 2,237,654 2,364,895
----------- ----------- -----------
Total 5,644,090 5,568,646 5,681,655
Accumulated depreciation (2,396,354) (2,244,792) (2,254,571)
----------- ----------- -----------
Net $ 3,247,736 $ 3,323,854 $ 3,427,084
=========== =========== ===========
</TABLE>
8. DEPOSITS
Deposits consist of the following major classifications:
<TABLE>
<CAPTION>
DECEMBER 31,
JULY 31, -----------------------------------------------
1998 1997 1996
------------------------ -----------------------------------------------
AMOUNT PERCENT Amount PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C> <C> <C>
Passbook and clubs $ 36,291,584 15.7% $ 34,492,761 15.4% $ 37,675,443 17.4%
Checking accounts 32,973,007 14.3 33,771,748 15.1 31,147,153 14.4
Money market demand 43,446,763 18.8 43,656,674 19.6 40,684,107 18.7
------------ ------ ------------ ------ ------------ ------
Subtotal 112,711,354 48.8 111,921,183 50.1 109,506,703 50.5
Certificates:
Less than $100,000 108,782,308 47.1 102,514,226 46.0 99,391,004 45.8
$100,000 or more 9,662,047 4.1 8,770,109 3.9 7,936,509 3.7
------------ ------ ------------ ------ ------------ ------
Subtotal 118,444,355 51.2 111,284,335 49.9 107,327,513 49.5
------------ ------ ------------ ------ ------------ ------
Total $231,155,709 100.0% $223,205,518 100.0% $216,834,216 100.0%
============ ====== ============ ====== ============ ======
</TABLE>
F-13
<PAGE>
The weighted average cost of funds was 4.3% at July 31, 1998, December 31,
1997 and 1996. The Association had no broken deposits at July 31, 1998,
December 31, 1997 and 1996.
A summary of certificates by maturities is as follows:
<TABLE>
<CAPTION>
JULY 31, 1998 DECEMBER 31, 1997
----------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C>
One year or less $ 54,681,145 46.2% $ 49,928,359 44.9%
One through three years 30,100,636 25.4 30,979,921 27.8
Three through five years 22,849,147 19.3 20,635,169 18.5
Over five years 10,813,427 9.1 9,740,886 8.8
------------ ------- ------------ -------
Total $118,444,355 100.00 % $111,284,335 100.00 %
============ ======= ============ =======
</TABLE>
Interest expense on deposits consists of the following:
<TABLE>
<CAPTION>
SEVEN-MONTH PERIOD ENDED YEAR ENDED
JULY 31, DECEMBER 31,
------------------------- ----------------------------------------
1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Passbook and clubs $ 562,601 $ 570,925 $ 978,191 $1,091,380 $1,232,440
Checking accounts 371,010 377,106 645,550 580,675 549,020
Money market demand 881,369 877,125 1,527,429 1,363,913 1,191,128
Certificates 3,869,538 3,560,663 6,202,950 6,110,038 5,630,799
Early withdrawal penalties (19,170) (17,695) (35,447) (28,453) (23,607)
---------- ---------- ---------- ---------- ----------
Total $5,665,348 $5,368,124 $9,318,673 $9,117,553 $8,579,780
========== ========== ========== ========== ==========
</TABLE>
9. ADVANCES FROM FEDERAL HOME LOAN BANK
At July 31, 1998, December 31, 1997 and 1996, the Association had outstanding
advances from the Federal Home Loan Bank of $176,000 at a rate of 6.615%.
The advances are collateralized by Federal Home Loan Bank stock and
substantially all first mortgage loans.
<TABLE>
<CAPTION>
INTEREST RATE AMOUNT MATURITY
<S> <C> <C>
6.615% $ 44,000 February 2001
6.615 44,000 April 2001
6.615 44,000 June 2001
6.615 44,000 October 2002
--------
$176,000
========
</TABLE>
F-14
<PAGE>
10. INCOME TAXES
Income taxes consists of the following:
<TABLE>
<CAPTION>
SEVEN-MONTH PERIOD ENDED
JULY 31, YEAR ENDED DECEMBER 31,
------------------------ -------------------------------------
1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Current:
Federal $743,303 $594,257 $1,038,627 $673,487 $ 990,200
State 62,700 60,900 106,200 54,600 92,949
-------- -------- ---------- -------- ----------
Total current 806,003 655,157 1,144,827 728,087 1,083,149
Deferred federal income
taxes (benefit) (54,203) 74,943 128,473 (74,287) 37,251
-------- -------- ---------- -------- ----------
Total income taxes $751,800 $730,100 $1,273,300 $653,800 $1,120,400
======== ======== ========== ======== ==========
</TABLE>
The Association's provision for income taxes differs from the amounts
determined by applying the statutory federal income tax rate to income taxes
for the following reasons:
<TABLE>
<CAPTION>
SEVEN-MONTH PERIOD ENDED JULY 31,
-------------------------------------------------
1998 1997
-------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C>
At statutory rate $731,026 35.0 % $710,225 35.0 %
Surtax exemption (20,886) (1.0) (20,292) (1.0)
Adjustments resulting in:
State tax - net of federal tax 41,382 2.0 40,194 2.0
provision
Other, net 278 (27)
-------- ----- -------- -----
Total $751,800 36.0 % $730,100 36.0 %
======== ===== ======== =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995
---------------------- -------------------- ---------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C> <C> <C>
At statutory rate $1,238,582 35.0 % $633,574 35.0 % $1,100,425 35.0 %
Surtax exemption (35,388) (1.0) (18,102) (1.0) (31,441) (1.0)
Adjustments resulting in:
State tax - net of federal
tax provision 69,030 2.0 35,490 2.0 57,505 1.8
Tax exempt interest (5,593) (0.2)
Other, net 1,076 2,838 0.2 (496)
---------- ----- -------- ----- ---------- -----
Total $1,273,300 36.0 % $653,800 36.2 % $1,120,400 35.6 %
========== ===== ======== ===== ========== =====
</TABLE>
F-15
<PAGE>
Items that gave rise to significant portions of the deferred tax accounts at
July 31, 1998, December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JULY 31, ----------------------
1998 1997 1996
<S> <C> <C> <C>
Deferred tax assets:
Deferred loan costs $ 56,794 $ 58,289 $ 69,068
Deferred loan fees 100,581 121,020 127,248
Other 7,976
Allowance for loan loss 22,186 26,459
--------- --------- --------
Total 179,561 179,309 230,751
--------- --------- --------
Deferred tax liabilities:
Property (108,888) (83,608) (85,808)
Allowance for loan loss (79,231)
--------- --------- --------
Total (108,888) (162,839) (85,808)
--------- --------- --------
Total $ 70,673 $ 16,470 $144,943
========= ========= ========
</TABLE>
The Association is permitted under the Internal Revenue Code (the "Code") to
deduct an annual addition to the reserve for bad debts in determining
taxable income, subject to certain limitations. The Association's deduction
is based upon the percentage of taxable income method as defined by the
Code. The bad debt deduction allowable under this method equals 8% of
taxable income determined without regard to that deduction and with certain
adjustments. This addition differs from the bad debt experience used for
financing accounting purposes.
In August 1996, the Small Business Job Protection Act (the "Act") was signed
into law. The Act repealed the percentage of taxable income method of
accounting for bad debts for thrift institutions effective for years
beginning after December 31, 1995. The Act required the Association as of
January 1, 1996 to change its method of computing reserves for bad debts to
the experience method. The bad debt deduction allowable under this method is
available to small banks with assets less than $500 million. Generally, this
method allows the Association to deduct an annual addition to the reserve
for bad debts equal to the increase in the balance of the Association's
reserve for bad debts at the end of the year to an amount equal to the
percentage of total loans at the end of the year, computed using the ratio
of the previous six years' net charge-offs divided by the sum of the
previous six years' total outstanding loans at year-end.
F-16
<PAGE>
A thrift institution required to change its method of computing reserves for
bad debts will treat such change as a change in a method of accounting
determined solely with respect to the "applicable excess reserves" of the
institution. The amount of the applicable excess reserves will be taken into
account ratably over a six-taxable year period, beginning with the first
taxable year beginning after December 31, 1995. The timing of this recapture
may be delayed for a two-year period provided certain residential loan
requirements are met. For financial reporting purposes, the Association has
not incurred any additional tax expense. Amounts which had previously been
deferred will be reversed for financial reporting purposes and will be
included in the income tax return of the Association, increasing income tax
payable. At July 31, 1998, under SFAS No. 109, deferred taxes were provided
on the difference between the book reserve at July 31, 1998 and the
applicable excess reserve in the amount equal to the Association's increase
in the tax reserve from December 31, 1988 to July 31, 1998. Retained
earnings at July 31, 1998, December 31, 1997, 1996 and 1995 include
approximately $3,100,000 representing bad debt deductions for which no
deferred income taxes need to be provided.
11. DEFINED CONTRIBUTION PLAN
The Association has a noncontributory, defined contribution plan for all
regular full-time employees meeting certain eligibility requirements.
Expense related to the plan, which is based on a percentage of the
participants' salaries as provided by the plan, was $164,500, $157,500, and
$266,234, $280,350, $241,759 for the seven-month periods ended July 31, 1998
and 1997 and the three years ended December 31, 1997, 1996 and 1995,
respectively.
12. REGULATORY CAPITAL REQUIREMENTS
The Association 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 Association's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Association must meet specific capital guidelines
that involve quantitative measures of the Association's assets, liabilities
and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Association'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 Association to maintain minimum amounts and ratios (set forth in
the table below) of tangible and core capital (as defined in the
regulations) to total adjusted assets (as defined), and tier 1 risk-based
and risk-based capital (as defined) to risk-weighted assets (as defined).
Management believes, as of July 31, 1998, that the Association meets all
capital adequacy requirements to which it is subject.
As of June 30, 1998, the most recent notification from the Office of Thrift
Supervision (OTS) categorized the Association as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Association must maintain minimum core and risk-based
ratios as set forth in the table. There are no conditions or events since
that notification that management believes have changed the Association's
category.
F-17
<PAGE>
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
REQUIRED FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
-------------------- --------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
As of July 31, 1998:
Tangible Capital $26,026,162 10.02% $3,896,000 1.50% N/A N/A
Core Capital 26,026,162 10.02 7,791,000 3.00 $12,985,000 5.00%
Tier 1 Risk-Based Capital 26,026,162 26.56 N/A N/A 15,583,000 6.00
Risk-Based Capital 26,833,697 28.16 7,624,000 8.00 9,530,000 10.00
As of December 31, 1997:
Tangible Capital $24,689,315 9.88% $3,747,067 1.50% N/A N/A
Core Capital 24,689,315 9.88 7,494,135 3.00 $12,490,224 5.00%
Tier 1 Risk-Based Capital 24,689,315 26.56 N/A N/A 5,576,940 6.00
Risk-Based Capital 25,342,593 27.27 7,435,920 8.00 9,294,900 10.00
As of December 31, 1996:
Tangible Capital $22,423,810 9.30% $3,618,179 1.50% N/A N/A
Core Capital 22,423,810 9.30 7,236,358 3.00 $12,060,596 5.00%
Tier 1 Risk-Based Capital 22,423,810 23.81 N/A N/A 5,649,900 6.00
Risk-Based Capital 23,450,045 24.90 7,533,200 8.00 9,416,500 10.00
</TABLE>
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
Disclosures about Fair Value of Financial Instruments. The estimated fair
value amounts have been determined by the Association using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Association could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.
<TABLE>
<CAPTION>
JULY 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
--------------------- --------------------- --------------------
ESTIMATED ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 17,210 $ 17,210 $ 19,200 $ 19,200 $ 10,894 $ 10,894
Investment securities 87,056 87,393 79,034 79,602 77,110 77,128
Mortgage-backed securities 48,352 49,396 45,231 45,663 41,398 41,174
Loans receivable, net 99,563 101,013 98,966 100,694 104,263 105,521
Liabilities:
Deposits 231,155 232,666 223,206 224,372 216,834 217,551
Advances from Federal Home
Loan Bank 176 176 176 176 176 176
</TABLE>
F-18
<PAGE>
The estimated fair value of marketable securities is based on quoted market
prices, dealer quotes and prices obtained from independent pricing services.
For July 31, 1998, the fair value of mortgage-backed securities is based on
dealer quotes and for December 31, 1997 and 1996 the fair value of mortgage-
backed securities is estimated based on the pricing tables published by the
OTS. For July 31, 1998 and December 31, 1997 and 1996, the fair value of
loans is based on the pricing tables published by the OTS.
The fair value of demand deposits, savings accounts and advances is the
amount reported in the financial statements. The fair value of time deposits
is based on the pricing tables published by the OTS as of July 31, 1998
December 31, 1997 and 1996.
The fair value of commitments to extend credit 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. The deferred income amounts of approximately $3,800, $1,300
and $2,300 at July 31, 1998, December 31, 1997 and 1996, respectively, on
such off-balance sheet financial instruments approximate their fair values.
The fair value estimates presented herein are based on pertinent information
available to management as of July 31, 1998, December 31, 1997 and 1996.
Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since
July 31, 1998, December 31, 1997 and 1996 and, therefore, current estimates
of fair value may differ significantly from the amounts presented herein.
14. SAVINGS ASSOCIATION INSURANCE FUND
On September 30, 1996, an omnibus appropriations bill was enacted which
included the recapitalization of the Savings Association Insurance Fund
(SAIF). Accordingly, all SAIF insured depository institutions were charged a
one-time special assessment on the SAIF-assessable deposits as of March 31,
1995 at a rate of 65.7 basis points. As such, the Association incurred a
pre-tax expense of $1,313,798 in 1996.
15. CONVERSION TO CAPITAL STOCK FORM OF OWNERSHIP (UNAUDITED)
On July 28, 1998, the Board of Directors of the Association adopted a Plan
of Conversion (the "Plan") to convert from a state chartered mutual savings
and loan association to a state chartered capital stock savings and loan
association with the concurrent formation of a holding company, subject to
approval by regulatory authorities and members of the Association. A
subscription offering of the shares of common stock will be offered
initially to eligible account holders, employee benefit plans of the
Association, supplemental eligible account holders, other members,
directors, officers and employees of the Association. Any shares of common
stock not sold in the subscription offering are expected to be sold by the
underwriters to the general public.
Subsequent to the conversion, the Association may not declare or pay cash
dividends on, or repurchase any, of its shares of common stock if the effect
thereof would cause equity to be reduced below applicable regulatory capital
maintenance requirements or if such declaration and payment would otherwise
violate regulatory requirements.
As of July 31, 1998, no conversion costs have been incurred or capitalized.
******
F-19
<PAGE>
<TABLE>
- ------------------------------------------------------------------ ------------------------------------------------------------
<S> <C>
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 SOUTH JERSEY
FINANCIAL CORPORATION, INC., THE ASSOCIATION OR SANDLER O'NEILL 4,351,025 Shares
& PARTNERS, L.P. 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 SOUTH JERSEY FINANCIAL
PROSPECTUS NOR ANY SALE HEREUNDER SHALL UNDER ANY CORPORATION, INC.
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO (Proposed Holding Company for
CHANGE IN THE AFFAIRS OF SOUTH JERSEY FINANCIAL CORPORATION, South Jersey Savings and
INC. OR THE ASSOCIATION SINCE ANY OF THE DATES AS OF WHICH Loan Association)
INFORMATION IS FURNISHED HEREIN OR SINCE THE DATE HEREOF.
--------------------------
TABLE OF CONTENTS
Page COMMON STOCK
----
Summary
Recent Developments
Selected Financial and Other Data of the Association
Risk Factors
South Jersey Financial Corporation, Inc. --------------
South Jersey Savings and Loan Association PROSPECTUS
Regulatory Capital Compliance --------------
Use of Proceeds
Dividend Policy
Market for the Common Stock
Capitalization
Pro Forma Data
Comparison of Valuation and Pro Forma Information With No
Foundation
South Jersey Savings and Loan Association
Statements of Income --------------
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Business of the Association
Federal and State Taxation
Regulation
Management of the Company
Management of the Association
The Conversion
Restrictions on Acquisition of the Company
and the Association
Description of Capital Stock of the Company
Description of Capital Stock of the Association
Transfer Agent and Registrar
Experts
Legal and Tax Opinions
Additional Information
Index of Financial Statements
--------------------------
UNTIL __________, 1999 OR 25 DAYS AFTER COMMENCEMENT OF THE
COMMUNITY OFFERING AND/OR SYNDICATED COMMUNITY OFFERING,
IF ANY, WHICHEVER IS LATER, ALL DEALERS EFFECTING TRANSACTIONS IN Sandler O'Neill & Partners, L.P.
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.
- ------------------------------------------------------------------ ------------------------------------------------------------
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with the General Corporation Law of the State of Delaware (being
Chapter 1 of Title 8 of the Delaware Code), Articles 10 and 11 of the
Registrant's Certificate of Incorporation provide as follows:
TENTH:
A. Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent, or in any other capacity while serving as a Director,
Officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment), against all expense, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered by
such indemnitee in connection therewith; provided, however, that, except as
provided in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
B. The right to indemnification conferred in Section A of this Article TENTH
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a Director or Officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, services to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article TENTH shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
Director, Officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid in full by
the Corporation within sixty days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an
<PAGE>
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses under this Article TENTH, or otherwise shall be on the
Corporation.
D. The rights to indemnification and to the advancement of expenses conferred
in this Article TENTH shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, the Corporation's Certificate
of Incorporation, Bylaws, agreement, vote of stockholders or Disinterested
Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect itself
and any Director, Officer, employee or agent of the Corporation or subsidiary or
Affiliate or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
ELEVENTH:
A Director of this Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
Director, except for liability: (i) for any breach of the Director's duty of
loyalty to the Corporation or its stockholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law; (iii) under Section 174 of the Delaware General Corporation Law; or (iv)
for any transaction from which the Director derived an improper personal
benefit. If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
Directors, then the liability of a Director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of the
Corporation shall not adversely affect any right or protection of a Director of
the Corporation existing at the time of such repeal or modification.
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC filing(1)...................................................... $ 13,863
OTS filing fee..................................................... 14,400
New Jersey Department of Banking filing fees....................... 3,500
NASD filing fee(1)................................................. 5,200
Stock Market listing fee(1)........................................ 25,000
Printing, postage and mailing...................................... 250,000
Legal fees and expenses............................................ 200,000
Accounting fees and expenses....................................... 125,000
Appraisers' fees and expenses (including
business plan)................................................. 32,500
Marketing fees and selling commissions............................. 484,000
Underwriter's expenses (including underwriter's counsel fees)...... 65,000
Conversion agent fees.............................................. 25,000
Transfer agent fees and expenses................................... 10,000
Certificate printing............................................... 4,000
Telephone, temporary help and other equipment...................... 15,000
Blue Sky fees and expenses......................................... 10,000
Electronic Data Gathering, Analysis and Retrieval (EDGAR) filings.. 25,000
Miscellaneous...................................................... 26,537
----------
TOTAL.............................................................. $1,334,000
==========
</TABLE>
______________________
(1) Unless otherwise noted, based upon the registration and issuance of
4,699,107 shares at $10.00 per share.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
None.
<PAGE>
ITEM 27. EXHIBITS.
The exhibits filed as a part of this Registration Statement are as follows:
(a) List of Exhibits (filed herewith unless otherwise noted)
1.1 Engagement Letter between South Jersey Savings and Loan Association
and Sandler O'Neill & Partners, L.P.
1.2 Draft Form of Agency Agreement*
2.1 Amended Plan of Conversion (including the Stock Certificate of
Incorporation and Bylaws of South Jersey Savings and Loan Association)
3.1 Certificate of Incorporation of South Jersey Financial Corporation,
Inc.
3.2 Bylaws of South Jersey Financial Corporation, Inc.
3.3 Stock Certificate of Incorporation and Bylaws of South Jersey Savings
and Loan Association
(See Exhibit 2.1 hereto)
4.0 Draft Stock Certificate of South Jersey Financial Corporation, Inc.
5.0 Draft Opinion of Muldoon, Murphy & Faucette re: legality
5.1 Draft Opinion of Morris, Nichols, Arsht & Tunnell re: legality
8.0 Opinion of Muldoon, Murphy & Faucette re: Federal Tax Matters
8.1 Draft Opinion of Deloitte & Touche, LLP re: State Tax Matters
10.1 Form of South Jersey Savings and Loan Association Employee Stock
Ownership Plan Trust
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
10.3 Form of South Jersey Savings and Loan Association Employment Agreement
10.4 Form of South Jersey Financial Corporation, Inc. Employment Agreement
10.5 Form of South Jersey Savings and Loan Association Change in Control
Agreement
10.6 Form of South Jersey Savings and Loan Association Supplemental
Executive Retirement Plan
10.7 Form of South Jersey Savings and Loan Association Employee Severance
Compensation Plan
23.1 Consent of Deloitte & Touche, LLP
23.2 Consent of Muldoon, Murphy & Faucette
23.3 Consent of Morris, Nichols, Arsht & Tunnell
23.4 Consent and Subscription Rights Opinion of FinPro, Inc.
24.1 Powers of Attorney
27.0 Financial Data Schedule
99.1 Appraisal Report of FinPro, Inc.(P)
99.2 Form of South Jersey Savings Charitable Foundation Gift Instrument
- --------------------------------------
*To be filed by amendment
(P) Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
ITEM 28. UNDERTAKINGS.
The small business issuer will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time
to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
The small business issuer will provide to the underwriter at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer 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 small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer 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 small business issuer 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
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Turnersville, State of New Jersey, on October 9, 1998.
South Jersey Financial Corporation, Inc.
By: /s/ Robert J. Colacicco
-----------------------
Robert J. Colacicco
President, Chief Executive Officer and Director
In accordance with the requirements of the Securities Act of 1933,
this Registration Statement was signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Robert J. Colacicco President, Chief Executive October 9, 1998
- ----------------------- Officer and Director
Robert J. Colacicco (principal executive
officer)
/s/ Gregory M. DiPaolo Executive Vice President, October 9, 1998
- ---------------------- Treasurer, Chief Operating
Gregory M. DiPaolo Officer and Director
(principal financial officer)
/s/ Joseph M. Sidebotham Corporate Secretary and October 9, 1998
- ------------------------ Chief Accounting Officer
Joseph M. Sidebotham (principal accounting officer)
/s/ Richard W. Culbertson, Jr. Director and Chairman of October 9, 1998
- ------------------------------ the Board
Richard W. Culbertson, Jr.
/s/ Arthur E. Armitage, Jr. Director October 9, 1998
- ---------------------------
Arthur E. Armitage, Jr.
/s/ John V. Field Director October 9, 1998
- -----------------
John V. Field
/s/ Richard G. Mohrfeld Director October 9, 1998
- -----------------------
Richard G. Mohrfeld
/s/ Martin Rosner Director October 9, 1998
- -----------------
Martin Rosner
/s/ Ronald L. Woods Director October 9, 1998
- -------------------
Ronald L. Woods
</TABLE>
<PAGE>
As filed with the Securities and Exchange Commission on October 9, 1998
Registration No. 333-_______________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
EXHIBITS
TO THE
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
--------------------
SOUTH JERSEY FINANCIAL CORPORATION, INC.
(Exact name of registrant as specified in its certificate of incorporation)
================================================================================
<PAGE>
TABLE OF CONTENTS
LIST OF EXHIBITS (FILED HEREWITH UNLESS OTHERWISE NOTED)
(a) List of Exhibits (filed herewith unless otherwise noted)
1.1 Engagement Letter between South Jersey Savings and Loan Association and
Sandler O'Neill & Partners, L.P .
1.2 Draft Form of Agency Agreement*
2.1 Amended Plan of Conversion (including the Stock Certificate of
Incorporation and Bylaws of South Jersey Savings and Loan Association)
3.1 Certificate of Incorporation of South Jersey Financial Corporation, Inc.
3.2 Bylaws of South Jersey Financial Corporation, Inc.
3.3 Stock Certificate of Incorporation and Bylaws of South Jersey Savings and
Loan Association (See Exhibit 2.1 hereto)
4.0 Draft Stock Certificate of South Jersey Financial Corporation, Inc.
5.0 Draft Opinion of Muldoon, Murphy & Faucette re: legality
5.1 Draft Opinion of Morris, Nichols, Arsht & Tunnell re: legality
8.0 Opinion of Muldoon, Murphy & Faucette re: Federal Tax Matters
8.1 Draft Opinion of Deloitte & Touche, LLP re: State Tax Matters
10.1 Form of South Jersey Savings and Loan Association Employee Stock Ownership
Plan Trust
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
10.3 Form of South Jersey Savings and Loan Association Employment Agreement
10.4 Form of South Jersey Financial Corporation, Inc. Employment Agreement
10.5 Form of South Jersey Savings and Loan Association Change in Control
Agreement
10.6 Form of South Jersey Savings and Loan Association Supplemental Executive
Retirement Plan
10.7 Form of South Jersey Savings and Loan Association Employee Severance
Compensation Plan
23.1 Consent of Deloitte & Touche, LLP
23.2 Consent of Muldoon, Murphy & Faucette
23.3 Consent of Morris, Nichols, Arsht & Tunnell
23.4 Consent and Subscription Rights Opinion of FinPro, Inc.
24.1 Powers of Attorney
27.0 Financial Data Schedule
99.1 Appraisal Report of FinPro, Inc.(P)
99.2 Form of South Jersey Savings Charitable Foundation Gift Instrument
- --------------------------------------
*To be filed by amendment
(P) Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
EXHIBIT 1.1
[LETTERHEAD OF SANDLER O'NEILL & PARTNERS, L.P. APPEARS HERE]
SANDLER O'NEILL
July 29, 1998
Mr. Robert J. Colacicco
President and Chief Executive Officer
South Jersey Savings & Loan Association
4651 Route 42
Turnersville, New Jersey 08012
Dear Mr. Colacicco:
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill"), is pleased to act as
conversion agent to South Jersey Savings & Loan Association (the "Association")
in connection with the Association's proposed conversion from mutual to stock
form (the "Conversion"). This letter is to confirm the terms and conditions of
our engagement.
SERVICES AND FEES
- -----------------
In our role as Conversion Agent, we anticipate that our services will
include the services outlined below, each as may be necessary and as the
Association 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 Association agrees to pay Sandler O'Neill a
fee of $25,000. This fee is based upon a total number of unconsolidated accounts
of approximately 45,000. 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. Robert J. Colacicco
June 29, 1998
Page 2 SANDLER O'NEILL
The fee set forth above is based upon the requirements of current
regulations and the Plan of Conversion as currently contemplated. Any unusual
or additional items or duplication of service required as a result of a material
change in the regulations or the Plan of Conversion or a material delay or other
similar events may result in extra charges which will be covered in a separate
agreement if and when they occur.
All fees under this agreement shall be payable in cash, as follows: (a)
$5,000 payable upon execution of this agreement by the Association, which shall
be non-refundable; and (b) the balance upon the completion of the Conversion.
COSTS AND EXPENSES
- ------------------
In addition to any fees that may be payable to Sandler O'Neill hereunder,
the Association 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 Conversion is consummated,
including, without limitation, travel, lodging, food, telephone, postage,
listings, forms and other similar expenses, up to an aggregate maximum of
$65,000 (inclusive of those expenses reimbursed to Sandler O'Neill pursuant to
the terms of the separate engagement letter of even date between Sandler O'Neill
and the Association regarding Sandler O'Neill's services as financial advisor
for the Company in connection with the Conversion); provided, however, that
-------- -------
Sandler O'Neill shall document such expenses to the reasonable satisfaction of
the Association. The provisions of this paragraph are not intended to apply to
or in any way impair the indemnification provisions of this agreement.
In addition, all taxes however designated, arising from or based upon this
agreement or the payments made to Sandler O'Neill pursuant hereto, including,
but not limited to, any applicable sales, use, excise and similar taxes, shall
be paid by the Association as the same become due, and the Association shall,
upon request by Sandler O'Neill, pay the same either to Sandler O'Neill or to
the appropriate taxing authority at any time during, or after the termination
of, this Agreement; provided, however, that the Association shall not be
responsible for the payment of any state, federal, or local franchise or income
taxes based upon the net income of Sandler O'Neill.
RELIANCE ON INFORMATION PROVIDED
- --------------------------------
The Association will provide Sandler O'Neill with such information as
Sandler O'Neill may reasonably require to carry out its duties. The Association
recognizes and confirms that Sandler O'Neill
<PAGE>
Mr. Robert J. Colacicco
June 29, 1998
Page 3 SANDLER O'NEILL
(a) will use and rely on such information in performing the services
contemplated by this agreement without having independently verified the same,
and (b) does not assume responsibility for the accuracy or completeness of the
information. The Association or its counsel 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 Association 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 agreement and the performance
hereof unless caused by or arising out of its own bad faith or gross 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 Association agrees to indemnify and hold Sandler O'Neill and its
affiliates and their respective partners, directors, officers, employees, agents
and controlling persons (Sandler O'Neill and each such person being an
"Indemnified Party") harmless from and against any and all losses, claims,
damages and liabilities, joint or several, to which such Indemnified Party may
become subject under applicable federal or state law, or otherwise, related to
or arising out of the engagement of Sandler O'Neill pursuant to, and the
performance by Sandler O'Neill of the services contemplated by this letter, and
will reimburse any Indemnified Party for all expenses (including reasonable
counsel fees and expenses) as they are incurred, including expenses incurred in
connection with the investigation of, preparation for or defense of any pending
or threatened claim or any action or proceeding arising therefrom, whether or
not such Indemnified Party is a party. The Association will not be liable under
the foregoing indemnification provision to the extent that any loss, claim,
<PAGE>
Mr. Robert J. Colacicco
June 29, 1998
Page 4 SANDLER O'NEILL
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 gross negligence.
MISCELLANEOUS
- -------------
The following addresses shall be sufficient for written notices to each
other:
If to you: South Jersey Savings & Loan Association
4651 Route 42
Turnersville, New Jersey 08012
Attention: Mr. Robert J. Colacicco
If to us: Sandler O'Neill & Partners, L.P.
Two World Trade Center - 104th Floor
New York, New York 10048
Attention: Catherine A. Lawton
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. Robert J. Colacicco
June 29, 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:
South Jersey Savings & Loan Association
By: /s/ Robert J. Colacicco
-------------------------------------
Mr. Robert J. Colacicco
President and Chief Executive Officer
cc: Joseph Muldoon, 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 subscription offering.
III. Organization and Supervision of Conversion Center
1. Advising on and supervising the physical organization of the Conversion
Center, including materials requirements.
2. Assist in the training of all Association 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.
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. Acknowledgement letter to confirm receipt of stock order.
5. Daily reports and analysis.
6. Proration calculation and share allocation in the event of an
oversubscription.
7. Produce charter shareholder list.
8. Interface with Transfer Agent for Stock Certificate issuance.
9. Refund and interest calculations.
10. Confirmation letter to confirm purchase of stock.
11. Notification of full/partial rejection of orders.
12. Production of 1099/Debit tape.
A-2
<PAGE>
[LETTERHEAD OF SANDLER O'NEILL & PARTNERS, L.P. APPEARS HERE]
SANDLER O'NEILL
July 29, 1998
Board of Directors
South Jersey Savings & Loan Association
4651 Route 42
Turnersville, New Jersey 08012
Attention: Mr. Robert J. Colacicco
President and Chief Executive Officer
-------------------------------------
Ladies and Gentlemen:
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") is pleased to act as
an independent financial advisor to South Jersey Savings & Loan Association (the
"Association") in connection with the Association's proposed conversion from
mutual to stock form (the "Conversion"), including the offer and sale of certain
shares of the common stock of the proposed new holding company for the
Association (the "Holding Company") to the Association's eligible account
holders in a Subscription Offering, to members of the Association's community in
a Direct Community Offering and, under certain circumstances, to the general
public in a Syndicated Community Offering (collectively, the "Offerings"). For
purposes of this letter, the term "Actual Purchase Price" shall mean the price
at which the shares of the Holding Company's common stock are sold in the
Conversion. This letter is to confirm the terms and conditions of our
engagement.
ADVISORY SERVICES
- -----------------
Sandler O'Neill will act as a consultant and advisor to the Association and
the Holding Company and will work with the Association's management, counsel,
accountants and other advisors in connection with the Conversion and the
Offerings. We anticipate that our services will include the following, each as
may be necessary and as the Association may reasonably request:
1. Consulting as to the securities marketing implications of any aspect
of the Plan of Conversion or related corporate documents;
2. Reviewing with the Board of Directors the independent appraiser's
appraisal of the common stock;
<PAGE>
South Jersey Savings & Loan Association
July 29, 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 Association and the Holding Company and their 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 Association management in scheduling and preparing for
meetings with potential investors and broker-dealers; and
7. Providing such other general advice and assistance as may be requested
to promote the successful completion of the Conversion.
SYNDICATED COMMUNITY OFFERING
- -----------------------------
If any shares of the Holding Company's common stock remain available after
the expiration of the Subscription Offering and the Direct Community Offering,
at the request of the Association 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 Association 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 Association and the
requirements of the Plan of Conversion, which may result in limiting the
allocation of stock to certain selected dealers. It is understood that in no
event shall Sandler O'Neill be obligated to act as a selected dealer or to take
or purchase any shares of the Holding Company's common stock.
FEES
- ----
If the Conversion is consummated, the Association agrees to pay Sandler
O'Neill for its services hereunder the fees set forth below:
<PAGE>
South Jersey Savings & Loan Association
July 29, 1998
Page 3 SANDLER O'NEILL
1. a fee of one and one-quarter percent (1.25%) of the aggregate Actual
Purchase Price of the shares of common stock sold in the Subscription
Offering and Direct Community Offering, excluding in each case shares
purchased by (i) any employee benefit plan of the Holding Company or
the Association established for the benefit of their respective
directors, officers and employees, and (ii) any director, officer or
employee of the Holding Company or the Association or members of their
immediate families; and
2. with respect to any shares of the Holding Company's 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-quarter percent (1.25%). 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-quarter
percent (1.25%) of the Actual Purchase Price of such shares.
If (i) Sandler O'Neill's engagement hereunder is terminated for any of the
reasons provided for under the second paragraph of the section of this letter
captioned "Definitive Agreement," or (ii) the Conversion is terminated by the
Association, no fees shall be payable by the Association to Sandler O'Neill
hereunder; however, the Association shall reimburse Sandler O'Neill for its
reasonable out-of-pocket expenses incurred in connection with its engagement
hereunder.
All fees payable to Sandler O'Neill hereunder shall be payable in cash at
the time of the closing of the Conversion. In recognition of the long lead
times involved in the conversion process, the Association agrees to make an
advance payment to Sandler O'Neill in the amount of $50,000, which shall be
payable upon execution of this letter and which shall be credited against any
fees or reimbursement of expenses payable hereunder.
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 Association pursuant to the following
paragraph, the Association 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 Conversion
is consummated, including, without limitation, legal fees, advertising,
promotional, syndication, and travel expenses, up to an aggregate maximum amount
of $65,000 (inclusive of those expenses reimbursed to Sandler O'Neill pursuant
to the terms of the separate engagement letter of even date between Sandler
O'Neill and the Association regarding Sandler O'Neill's services as
<PAGE>
South Jersey Savings & Loan Association
July 29, 1998
Page 4 SANDLER O'NEILL
Conversion Agent for the Company); provided, however, that Sandler O'Neill shall
-------- -------
document such expenses to the reasonable satisfaction of the Association. 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 Association will bear all other expenses incurred in
connection with the Conversion and the Offerings, including, without limitation,
(i) the cost of obtaining all securities and bank regulatory approvals,
including any required NASD filing fees; (ii) the cost of printing and
distributing the offering materials; (iii) the costs of blue sky qualification
(including fees and expenses of blue sky counsel) of the shares in the various
states; (iv) listing fees; and (v) all fees and disbursements of the
Association's and the Holding Company's counsel, accountants, conversion agent
and other advisors. In the event Sandler O'Neill incurs any such fees and
expenses on behalf of the Association or the Holding Company, the Association
will reimburse Sandler O'Neill for such fees and expenses whether or not the
Conversion is consummated; provided, however, that Sandler O'Neill shall not
-------- -------
incur any substantial expenses on behalf of the Association or the Holding
Company pursuant to this paragraph without the prior written approval of the
Association.
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 Association and the Holding Company, and their
respective directors, officers, agents and employees, as Sandler O'Neill and its
counsel in their sole discretion may deem appropriate under the circumstances.
In this regard, the Association 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 Association's and
the Holding Company's management the financial condition, business and
operations of the Association and the Holding Company. The Association and the
Holding Company acknowledge that Sandler O'Neill will rely upon the accuracy and
completeness of all information received from the Association and the Holding
Company and their directors, trustees, officers, employees, agents, independent
accountants and counsel.
BLUE SKY MATTERS
- ----------------
The Association 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
Association will cause the counsel performing such services to prepare a Blue
Sky Memorandum related to the Offerings including Sandler O'Neill's
participation therein and shall furnish Sandler O'Neill a copy thereof addressed
to Sandler O'Neill or upon which such counsel shall state Sandler O'Neill may
rely.
<PAGE>
South Jersey Savings & Loan Association
July 29, 1998
Page 5 SANDLER O'NEILL
CONFIDENTIALITY
- ---------------
Other than disclosure to other firms made part of any syndicate of selected
dealers or as required by law or regulation, Sandler O'Neill agrees that it will
not disclose any Confidential Information relating to the Association obtained
in connection with its engagement hereunder (whether or not the Conversion is
consummated). As used in this paragraph, the term "Confidential Information"
shall not include information which (i) is or becomes generally available to the
public other than as a result of a disclosure by Sandler O'Neill, (ii) was
available to Sandler O'Neill on a non-confidential basis prior to its disclosure
to Sandler O'Neill by the Association, or (iii) becomes available to Sandler
O'Neill on a non-confidential basis from a person other than the Association who
is not otherwise known to Sandler O'Neill to be bound not to disclose such
information pursuant to a contractual, legal or fiduciary obligation.
INDEMNIFICATION
- ---------------
Since Sandler O'Neill will be acting on behalf of the Association and the
Holding Company in connection with the Conversion, the Holding Company and the
Association agree to indemnify and hold Sandler O'Neill and its affiliates and
their respective partners, directors, officers, employees, agents and
controlling persons within the meaning of Section 15 of the Securities Act of
1933 or Section 20 of the Securities Exchange Act of 1934 (Sandler O'Neill and
each such person being an "Indemnified Party") harmless from and against any and
all losses, claims, damages and liabilities, joint or several, to which such
Indemnified Party may become subject under applicable federal or state law, or
otherwise, related to or arising out of the Conversion or the engagement of
Sandler O'Neill pursuant to, or the performance by Sandler O'Neill of the
services contemplated by, this letter, and will reimburse any Indemnified Party
for all expenses (including reasonable legal fees and expenses upon presentation
by counsel of invoices to the Association) as they are incurred, including
expenses incurred in connection with the investigation of, preparation for or
defense of any pending or threatened claim or any action or proceeding arising
therefrom, whether or not such Indemnified Party is a party; provided, however,
-------- -------
that the Association and the Holding Company will not be liable in any such case
to the extent that any such loss, claim, damage, liability or expense (i) arises
out of or is based upon any untrue statement of a material fact or the omission
of a material fact required to be stated therein or necessary to make not
misleading any statements contained in any final proxy statement or prospectus,
or any amendment or supplement thereto, or any of the applications, notices,
filings or documents related thereto made in reliance on and in conformity with
written information furnished to the Association 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 Association and the Holding
Company agree to contribute to such losses, claims, damages, liabilities and
expenses in the proportion that its financial interest in the Conversion bears
to that of Sandler O'Neill.
<PAGE>
South Jersey Savings & Loan Association
July 29, 1998
Page 6 SANDLER O'NEILL
DEFINITIVE AGREEMENT
- --------------------
Sandler O'Neill and the Association agree that (a) except as set forth in
clause (b), the foregoing represents the general intention of the Association
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 Association, the Holding Company and Sandler O'Neill with
respect to the subject matter hereof shall be (1) the Association'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
satisfactory to Sandler O'Neill, the Association and the Holding Company 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
Association's business, financial condition and results of operations, (ii)
preparation of offering materials that are satisfactory to Sandler O'Neill and
its counsel, (iii) compliance with all relevant legal and regulatory
requirements to the reasonable satisfaction of Sandler O'Neill'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 June 30. 1999.
ELIMINATION OF HOLDING COMPANY
- ------------------------------
If the Board of Directors of the Association, for any reason, elects not to
proceed with the formation of the Holding Company but determines to proceed with
the Conversion and substitute the common stock of the Association for the common
stock of the Holding Company, all of the provisions of this letter relating to
the common stock of the Holding Company will be deemed to pertain to the common
stock of the Association on the same terms and conditions that such provisions
pertain to the common stock of the Holding Company and all of the references in
this letter to the Holding Company shall be deemed to refer to the Association
or shall have no effect, as the context of the reference requires.
<PAGE>
South Jersey Savings & Loan Association
July 29, 1998
Page 7 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:
South Jersey Savings & Loan Association
By: /s/ Robert J. Colacicco
-----------------------------
Mr. Robert J. Colacicco
President and Chief Executive Officer
cc: Joseph Muldoon, Esq.
Muldoon, Murphy & Faucette
<PAGE>
EXHIBIT 2.1
AMENDED
PLAN OF CONVERSION
FOR
SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION
<PAGE>
AMENDED
PLAN OF CONVERSION
FOR
SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION
1. INTRODUCTION
This Plan of Conversion, as amended ("Plan") provides for the conversion
(the "Conversion") of South Jersey Savings and Loan Association ("ASSOCIATION")
from a state-chartered mutual savings and loan association to a state-chartered
capital stock savings association. The Board of Directors of the ASSOCIATION
currently contemplates that all of the stock of the ASSOCIATION will be held by
a Delaware corporation (the "Holding Company"). The Board of Directors has
carefully considered the alternatives available to the ASSOCIATION with respect
to its corporate structure and has determined that a mutual to stock conversion
as described in this Plan is in the best interests of the ASSOCIATION, its
depositors and the community served by the ASSOCIATION. The Board of Directors
believes that the decline in mutuality is placing mutual savings associations,
such as the ASSOCIATION, at a disadvantage to the increasing base of stock
thrift and commercial bank institutions. The restructuring of the ASSOCIATION
into the capital stock form of organization will enable the ASSOCIATION to
compete more effectively with commercial banks and other financial institutions
for new business opportunities, and as a stock institution, to increase its
equity capital base and access the capital markets when needed and to enhance
the ASSOCIATION'S ability to expand its franchise and the products it offers.
The use of the Holding Company, if so utilized, would also provide greater
organizational and operating flexibility. Shares of capital stock of the
ASSOCIATION will be sold
<PAGE>
to the Holding Company and the Holding Company will offer the Conversion Stock
upon the terms and conditions set forth herein to the Eligible Account Holders,
the Employee Plans established by the ASSOCIATION or Holding Company,
Supplemental Eligible Account Holders and Other Members in the respective
priorities set forth in this Plan. Any shares of Conversion Stock not subscribed
for by the foregoing classes of persons will be offered for sale to certain
members of the public either directly by the ASSOCIATION and the Holding Company
through a Community Offering or a Syndicated Community Offering or through an
underwritten firm commitment public offering or through a combination thereof.
In the event that the ASSOCIATION decides not to utilize the Holding Company in
the Conversion, Conversion Stock of the ASSOCIATION, in lieu of the Holding
Company, will be sold as set forth above and in the respective priorities set
forth in this Plan. In addition to the foregoing, the ASSOCIATION and the
Holding Company, as part of this Plan, intend to implement stock option plans
and other stock benefit plans and will provide employment or severance
agreements to certain management employees and certain other compensation to the
directors, officers and employees of the ASSOCIATION as described in the
prospectus for the Conversion Stock.
In furtherance of the ASSOCIATION's long term commitment to its community,
this Plan provides for the establishment of a foundation (the "Foundation") as
part of the Conversion. The Foundation is intended to complement the
ASSOCIATION's existing community reinvestment activities in a manner that will
allow the communities in which the ASSOCIATION operates to share in the
potential growth and profitability of the Holding Company and the ASSOCIATION
over the long term. Consistent with the ASSOCIATION's goals, the Holding
Company intends to donate to the Foundation from its authorized but unissued
common stock up to 8% of the
2
<PAGE>
number of shares sold in the Conversion. The establishment of the Foundation is
subject to the approval of the Voting Members of the ASSOCIATION. In the event
the Foundation is not approved, the ASSOCIATION may determine to complete the
Conversion without the Foundation.
This Plan, which has been unanimously approved by the Board of Directors of
the ASSOCIATION, must also be approved by the affirmative vote of a majority of
the total number of outstanding votes entitled to be cast by Voting Members of
the ASSOCIATION at a special meeting to be called for that purpose. Prior to
the submission of this Plan to the Voting Members for consideration, the Plan
must be approved by the Office of Thrift Supervision (the "OTS") and the New
Jersey Department of Banking (the "Department").
2. DEFINITIONS
For the purposes of this Plan, the following terms have the following
meanings:
Account Holder - The term Account Holder means any Person holding a Savings
--------------
Account in the ASSOCIATION.
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; or (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. In
addition, 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
3
<PAGE>
acting in concert with its trustee or a person who serves in a similar capacity
solely for the purpose of determining whether stock held by the trustee and
stock held by the plan will be aggregated.
Actual Purchase Price - The term Actual Purchase Price means the per share
---------------------
price at which the Conversion Stock is ultimately sold in accordance with the
terms hereof.
Associate - The term Associate when used to indicate a relationship with
---------
any person, means (i) any corporation or organization (other than the
ASSOCIATION or a majority-owned subsidiary of the ASSOCIATION) of which such
person is an officer or partner or is, directly or indirectly, the beneficial
owner of 10 percent or more of any class of equity securities, (ii) any trust or
other estate in which such person has a substantial beneficial interest or as to
which such person serves as trustee or in a similar fiduciary capacity except
that for the purposes of Sections 9 and 14 hereof, the term "Associate" does not
include any Non-Tax-Qualified Employee Stock Benefit Plan or any Tax-Qualified
Employee Stock Benefit Plan in which a person has a substantial 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 ASSOCIATION or the Holding Company, if utilized, or any of its
parents or subsidiaries.
Association - The term ASSOCIATION means South Jersey Savings and Loan
-----------
Association, Turnersville, New Jersey.
4
<PAGE>
Community Offering - The term Community Offering means the offering for
------------------
sale to certain members of the general public directly by the ASSOCIATION or the
Holding Company, if utilized, of any shares of Conversion Stock not subscribed
for in the Subscription Offering.
Conversion - The term Conversion means the conversion of the Association
----------
from the mutual to the stock form of organization in accordance with the Plan,
and as the context requires, includes the other transactions contemplated by the
Plan.
Conversion Stock - The term Conversion Stock means the $.01 par value
----------------
common stock offered and issued by the Holding Company or the $1.00 par value
common stock offered and issued by the ASSOCIATION, if the Holding Company form
of organization is not utilized, in connection with the Conversion.
Department - The term Department means the New Jersey Department of
----------
Banking.
Director - The term Director means a member of the Board of Directors of
--------
the ASSOCIATION and, where applicable, a member of the Board of Directors of the
Holding Company.
Eligible Account Holder - The term Eligible Account Holder means any person
-----------------------
holding a Qualifying Deposit on the Eligibility Record Date.
Eligibility Record Date - The term Eligibility Record Date means the date
-----------------------
for determining Eligible Account Holders in the ASSOCIATION and is June 30,
1997.
Employees - The term Employees means all Persons who are employed by the
---------
ASSOCIATION but does not include an Officer or Director.
Employee Plans - The term Employee Plans means the Tax Qualified Employee
--------------
Stock Benefit Plans approved by the Board of Directors of the ASSOCIATION.
5
<PAGE>
Estimated Price Range - The term Estimated Price Range means the range of
---------------------
minimum and maximum aggregate proposed sales prices for the Conversion Stock,
determined by the Board of Directors of the ASSOCIATION and within which range
the aggregate sales price of the Conversion Stock will fall. The Estimated
Price Range will be within the estimated pro forma market value of the
Conversion Stock as determined by the Independent Appraiser prior to the
Subscription Offering and as it may be amended from time to time thereafter.
FDIC - The term FDIC means the Federal Deposit Insurance Corporation.
----
Holding Company - The term Holding Company means the Delaware corporation
---------------
formed for the purpose of acquiring all of the shares of capital stock of the
ASSOCIATION to be issued upon its Conversion unless the Holding Company form of
organization is not utilized. Shares of common stock of the Holding Company
will be issued in the Conversion to Participants and others in a Subscription
and Community, Syndicated Community, or underwritten firm commitment public
offerings, or through a combination thereof.
Independent Appraiser - The term Independent Appraiser means an appraiser
---------------------
retained by the ASSOCIATION to prepare an appraisal of the pro forma market
value of the Conversion Stock.
Local Community - The term Local Community means all counties in which the
---------------
Bank maintains a banking office.
Member - The term Member means any Person or entity who qualifies as a
------
member of the ASSOCIATION pursuant to its certificate of incorporation and
bylaws.
OTS - The term OTS means Office of Thrift Supervision of the Department of
---
the Treasury and its successors.
6
<PAGE>
Officer - The term Officer means an executive officer of the ASSOCIATION,
-------
which includes the Chief Executive Officer, President, Executive Vice President,
Senior Vice Presidents, Vice Presidents in charge of principal business
functions, Secretary, Treasurer and Controller and any person performing
functions similar to those performed by the foregoing persons.
Order Form - The term Order Form means any form together with attached
----------
cover letter, sent by the ASSOCIATION to any Participant or Person containing
among other things a description of the alternatives available to such Person
under the Plan and by which any such Person may make elections regarding
subscriptions for Conversion Stock in the Subscription and Community Offerings.
Other Member - The term Other Member means any person who is a Member of
------------
the ASSOCIATION (other than an Eligible Account Holder or Supplemental Eligible
Account Holder) at the close of business on the Voting Record Date.
Participants - The term Participants means the Eligible Account Holders,
------------
Employee Plans, Supplemental Eligible Account Holders and Other Members.
Person - The term Person means an individual, a corporation, a partnership,
------
an association, a joint-stock company, a trust (including Individual Retirement
Accounts and KEOGH Accounts), any unincorporated organization, a government or
political subdivision thereof or any other entity.
Plan - The term Plan means this Plan of Conversion, as amended, of the
----
ASSOCIATION as it exists on the date hereof and as it may hereafter be amended
in accordance with its terms.
Preferred Subscribers - The term Preferred Subscribers means those members
---------------------
of the general public which are natural persons residing in the Bank's Local
Community.
7
<PAGE>
Qualifying Deposit - The term Qualifying Deposit means the balance of each
------------------
Savings Account of $50 or more in the ASSOCIATION at the close of business on
the Eligibility Record Date or the Supplemental Eligibility Record Date,
whichever may be the case. Savings Accounts with total deposit balances of less
than $50 shall not constitute a Qualifying Deposit.
SEC - The term SEC refers to the United States Securities and Exchange
---
Commission.
Savings Account - The term Savings Account includes savings accounts, as
---------------
the term is defined in Section 561.42 of the Rules and Regulations of the OTS,
withdrawable accounts, including certificates of deposit, and demand accounts
which are defined in Section 561.16 of the Rules and Regulations of the OTS.
Special Meeting of Members - The term Special Meeting of Members means the
--------------------------
special meeting and any adjournments thereof held to consider and vote upon this
Plan.
Subscription Offering - The term Subscription Offering means the offering
---------------------
of Conversion Stock for purchase through Order Forms to Participants.
Subscription Price - The term Subscription Price means the amount per share
------------------
of Conversion Stock to be paid initially by Participants in the Subscription
Offering and persons in the Community Offering.
Supplemental Eligibility Record Date - The term Supplemental Eligibility
------------------------------------
Record Date means the supplemental record date for determining Supplemental
Eligible Account Holders of the ASSOCIATION. The Supplemental Eligibility
Record Date shall be the last day of the calendar quarter preceding the OTS'
approval of the application for Conversion.
8
<PAGE>
Supplemental Eligible Account Holder - The term Supplemental Eligible
------------------------------------
Account Holder means any person (other than an Eligible Account Holder) holding
a Qualifying Deposit, except Officers, Directors and their associates, as of the
Supplemental Eligibility Record Date.
Syndicated Community Offering - The term Syndicated Community Offering
-----------------------------
means the offering of Conversion Stock following the Subscription and Community
Offerings through a syndicate of broker-dealers.
Tax-Qualified Employee Stock Benefit Plan - The term Tax-Qualified Employee
-----------------------------------------
Stock Benefit Plan means any defined benefit plan or defined contribution plan,
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 - The term Voting Members means those persons qualifying as
--------------
voting members of the ASSOCIATION pursuant to its Certificate of Incorporation
and bylaws.
Voting Record Date - The term Voting Record Date means the date fixed by
------------------
the Directors in accordance with OTS regulations for determining eligibility to
vote at the Special Meeting of Members.
3. PROCEDURE FOR CONVERSION
After approval of the Plan by a vote of not less than two-thirds (2/3) of
the Board of Directors of the ASSOCIATION, the Plan, together with all other
requisite material, shall be submitted to the OTS and the Department for
approval. Notice of the adoption of the Plan by the Board of Directors of the
ASSOCIATION and the submission of the Plan to the OTS and the
9
<PAGE>
Department for approval will be published in a newspaper having general
circulation in each community in which an office of the ASSOCIATION is located
and copies of the Plan will be made available at each office of the ASSOCIATION
for inspection by the Members. Upon receipt of notice from the OTS to do so, the
ASSOCIATION also will cause to be published a notice of the filing with the OTS
of an application to convert in accordance with the provisions of the Plan.
Following approval by the OTS and the Department, the Plan will be submitted to
a vote of the Voting Members at the Special Meeting of Members called for that
purpose. Upon approval of the Plan by a majority of the total outstanding votes
of the Voting Members, the ASSOCIATION will take all other necessary steps
pursuant to applicable laws and regulations to convert the ASSOCIATION to stock
form. The Conversion must be completed within 24 months of the approval of the
Plan by the Voting Members, unless a longer time period is permitted by
governing laws and regulations.
The Board of Directors of the ASSOCIATION intends to take all necessary
steps to form the Holding Company, including the filing of an Application on
Form H-(e)1 or H-(e)1-S, if available to the Holding Company, with the OTS. In
the event that the Holding Company is utilized, upon Conversion the ASSOCIATION
will issue capital stock to the Holding Company and the Holding Company will
issue and sell the Conversion Stock in accordance with this Plan.
The Board of Directors of the ASSOCIATION may determine for any reason at
any time prior to the issuance of the Conversion Stock not to utilize a holding
company form of organization in the Conversion, in which case, the Holding
Company's registration statement on Form S-1 will be withdrawn from the SEC, the
ASSOCIATION will take all steps necessary to complete the Conversion, including
filing any necessary documents with the OTS, and will issue
10
<PAGE>
and sell the Conversion Stock in accordance with this Plan. In such event, any
subscriptions or orders received for Conversion Stock of the Holding Company
shall be deemed to be subscriptions or orders for Conversion Stock of the
ASSOCIATION without any further action by the ASSOCIATION or the subscribers for
the Conversion Stock, unless any such further action is required by the SEC, the
OTS or the Department, in which case the ASSOCIATION shall take such necessary
action to complete the Conversion. Any references to the Holding Company in this
Plan shall mean the ASSOCIATION in the event the Holding Company is eliminated
in the Conversion.
The Board of Directors of the ASSOCIATION also intend to take all necessary
steps to establish the Foundation, and to fund such Foundation in the manner set
forth in Section 7A hereof, subject to the approval of the Voting Members.
The Conversion Stock will not be insured by the FDIC. The ASSOCIATION will
not knowingly lend funds or otherwise extend credit to any Person to purchase
shares of the Conversion Stock.
4. HOLDING COMPANY APPLICATIONS AND APPROVALS
The Holding Company shall make timely applications for any requisite
regulatory approvals, including an Application on Form H-(e)1 or an H-(e)1-S, if
available to the Holding Company, to be filed with the OTS and, to the extent
applicable, the Department, and a Registration Statement on Form S-1 to be filed
with the SEC. The ASSOCIATION shall be a wholly-owned subsidiary of the Holding
Company unless the Holding Company is eliminated in the Conversion.
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5. SALE OF CONVERSION STOCK
The Conversion Stock will be offered simultaneously in the Subscription
Offering to the Eligible Account Holders, Employee Plans, Supplemental Eligible
Account Holders and Other Members in the respective priorities set forth in
Sections 8 through 11 of this Plan. The Subscription Offering may be commenced
as early as the mailing of the Proxy Statement for the Special Meeting of
Members and must be commenced in time to complete the Conversion within the time
period specified in Section 3.
Any shares of Conversion Stock not subscribed for in the Subscription
Offering will be offered for sale in the Community Offering as provided in
Section 12 of this Plan. The Subscription Offering may be commenced prior to
the Special Meeting of Members and, in that event, the Community Offering may
also be commenced prior to the Special Meeting of Members. The offer and sale
of Conversion Stock prior to the Special Meeting of Members shall, however, be
conditioned upon approval of the Plan by the Voting Members.
If feasible, any shares of Conversion Stock remaining after the
Subscription and Community Offerings may be sold in a Syndicated Community
Offering or such other offering as provided in Section 13 of this Plan in a
manner that will achieve the widest distribution of the Conversion Stock as
determined by the ASSOCIATION. The sale of all Conversion Stock subscribed for
in the Subscription and Community Offerings will be consummated simultaneously
on the date the sale of Conversion Stock in the Syndicated Community Offering or
such other offering is consummated and only if all unsubscribed for Conversion
Stock is sold.
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The ASSOCIATION may elect to offer to pay fees on a per share basis to
brokers who assist Persons in determining to purchase shares in the Subscription
and Community Offerings.
6. NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK
The total number of shares (or a range thereof) of Conversion Stock to be
issued and offered for sale will be determined jointly by the Board of Directors
of the ASSOCIATION and the Board of Directors of the Holding Company, if the
holding company form of organization is utilized, 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 and the Department, if necessary. In particular, the total number of
shares may be increased by up to 15% of the number of shares offered in the
Subscription and Community Offering if the Estimated Price Range is increased
subsequent to the commencement of the Subscription and Community Offering to
reflect changes in market and financial conditions.
All shares sold in the Conversion will be sold at a uniform price per share
referred to in this Plan as the Actual Purchase Price. The aggregate purchase
price for all shares of Conversion Stock will not be inconsistent with the
estimated consolidated pro forma market value of the ASSOCIATION or the Holding
Company, if utilized. The estimated consolidated pro forma market value of the
ASSOCIATION or the Holding Company, if utilized, will be determined for such
purpose by the Independent Appraiser. Prior to the commencement of the
Subscription and Community Offerings, an Estimated Price Range will be
established, which range will vary within 15% above to 15% below the midpoint of
such range. The number of shares of Conversion Stock to be issued and the
purchase price per share may be increased or decreased by the ASSOCIATION. In
the event that the aggregate purchase price of the Conversion Stock is below
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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. 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 ASSOCIATION or the Holding
Company, if utilized, will not be deemed to be material so as to require a
resolicitation of subscriptions. In the event that the aggregate purchase price
of the Conversion Stock is below the minimum of the Estimated Price Range or in
excess of 15% above the maximum of the Estimated Price Range, and a
resolicitation is required, such resolicitation shall be effected in such manner
and within such time as the ASSOCIATION shall establish, with the approval of
the OTS and the Department, if required.
Based upon the independent valuation as updated prior to the commencement
of the Subscription and Community Offerings, the Board of Directors of the
Holding Company, (if a holding company form of organization is utilized) and the
Board of Directors of the ASSOCIATION will fix the Subscription Price and the
range of the number of shares to be offered. If upon completion of the
Subscription and Community Offerings all of the Conversion Stock is subscribed
for, or if because of a limited number of unsubscribed shares or otherwise a
Syndicated Community Offering cannot be effected, the total number of shares of
Conversion Stock to be issued and sold will be jointly determined by the
ASSOCIATION and Holding Company (if a holding company form of organization is
utilized) as follows: (a) the estimated aggregate pro forma market value of the
ASSOCIATION or the Holding Company, as the case may be, immediately after
Conversion as determined by the Independent Appraiser, expressed in
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terms of a specific aggregate dollar amount rather than as a range, upon
completion of the Subscription and Community Offerings or other sale of all of
the Conversion Stock shall be divided by (b) the Actual Purchase Price.
If there is a Syndicated Community Offering or other offering of shares of
Conversion Stock not subscribed for in the Subscription and Community Offerings,
the price per share at which the Conversion Stock is sold in such Syndicated
Community Offering or other offering shall be the Subscription Price.
Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the ASSOCIATION and Holding Company, if utilized, 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 Conversion
Stock at the Actual Purchase Price is incompatible with its estimate of the
aggregate consolidated pro forma market value of the Holding Company or the
ASSOCIATION if no Holding Company is utilized. If such confirmation is not
received, the ASSOCIATION may cancel the Subscription and Community Offerings
and/or the Syndicated Community Offering, extend the Conversion, establish a new
Subscription Price Range and/or Estimated Price Range, extend, reopen or hold
new Subscription and Community Offerings and/or Syndicated Community Offering or
take such other action as the OTS and the Department may permit.
The Conversion Stock to be issued in the Conversion shall be fully paid and
nonassessable.
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7. PURCHASE BY THE HOLDING COMPANY OF THE STOCK OF THE ASSOCIATION
Upon the consummation of the sale of all of the Conversion Stock, and in
the event that a holding company form of organization is utilized, the Holding
Company will purchase from the ASSOCIATION all of the capital stock of the
ASSOCIATION to be issued by the ASSOCIATION in the Conversion in exchange for
the Conversion proceeds that are not permitted to be retained by the Holding
Company.
The Holding Company will apply to the OTS to retain up to 50% of the
proceeds of the Conversion. Assuming the Holding Company is not eliminated, a
lesser percentage may be acceptable. The ASSOCIATION believes that the
Conversion proceeds will provide economic strength to the Holding Company and
the ASSOCIATION 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 Conversion Stock as permitted by
the OTS. If during the Conversion process the Board of Directors of the
ASSOCIATION determines not to complete the Conversion utilizing a holding
company form of organization, capital stock of the ASSOCIATION will be issued
and sold in accordance with the Plan. The above activities may also be engaged
in by the ASSOCIATION if the Holding Company is eliminated.
7A. ESTABLISHMENT AND FUNDING OF FOUNDATION
As part of the Conversion, the Holding Company and the ASSOCIATION intend
to establish a Foundation that will qualify as an exempt organization under
Section 501(c)(3) of the Internal Revenue Code and to donate to the Foundation
up to 8% of the number of shares of
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Common Stock sold in the Conversion. The Foundation is being formed in
connection with the Conversion in order to complement the ASSOCIATION's existing
community reinvestment activities and to share with the communities in which the
ASSOCIATION operates a part of the ASSOCIATION's financial success as a
community-minded, financial services institution. The funding of the Foundation
with Common Stock of the Holding Company accomplishes this goal as it enables
such communities to share in the potential growth and profitability of the
Holding Company and the ASSOCIATION over the long-term.
The Foundation will be dedicated to the promotion of charitable purposes
within the communities in which the ASSOCIATION operates, 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 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 Holding Company.
The establishment and funding of the Foundation as part of the Conversion
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 ASSOCIATION's Members
approve this Plan, but not the Foundation, the ASSOCIATION may
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determine to complete the Conversion without the establishment of the Foundation
and may do so without amending this Plan or obtaining any further vote of the
ASSOCIATION's Members. Failure of the Voting Members to approve the Foundation
may materially affect the pro forma market value of the ASSOCIATION. In such an
event, the ASSOCIATION may establish a new Estimated Price Range and commence a
resolicitation of subscribers. For comparison purposes, Voting Members will be
provided with a projection of the pro forma market value of the Conversion
Stock, an Estimated Price Range and certain selected pro forma financial data
that would result if the Conversion were consummated without establishment of
the Foundation.
8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, as first priority and
without payment, nontransferable subscription rights to subscribe for shares of
Conversion Stock equal to an amount up to the greater of: the amount permitted
to be subscribed for in the Community Offering which amount, pursuant to Section
12, currently is $200,000 of the Conversion Stock offered, but which may be
increased to 5% or decreased to less than $200,000 without the further approval
of members or resolicitation of subscribers; one-tenth of one percent (.10%) of
the total offering of shares of Conversion Stock; or fifteen times the product
(rounded down to the next whole number) obtained by multiplying the total number
of shares of Conversion Stock to be issued by a fraction of which the numerator
is the amount of the Qualifying Deposit of the Eligible Account Holder and the
denominator is the total amount of Qualifying Deposits of all Eligible Account
Holders, in each case on the Eligibility Record Date, subject to the maximum
purchase limitation specified in Section 14A and the minimum purchase limitation
specified in Section 14C and exclusive of an
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increase in the total number of shares issued due to an increase in the
Estimated Price Range of up to 15%.
B. In the event that Eligible Account Holders exercise subscription
rights for a number of shares of Conversion Stock in excess of the total number
of shares eligible for subscription, the shares of Conversion Stock shall be
allocated among the subscribing Eligible Account Holders so as to permit each
subscribing Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his or her total allocation of Conversion
Stock equal to the lesser of 100 shares or the number of shares subscribed for
by the Eligible Account Holders. Any shares remaining after that allocation
will be allocated among the 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 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.
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9. SUBSCRIPTION RIGHTS OF THE EMPLOYEE PLANS (SECOND PRIORITY)
The Employee Plans shall receive, without payment, as a second priority
after the filling of subscriptions of Eligible Account Holders, nontransferable
subscription rights to purchase in the Subscription Offering the number of
shares of Conversion Stock requested by such Employee Plans. If, after the
filling of subscriptions of Eligible Account Holders, a sufficient number of
shares are not available to fill the subscriptions by such Employee Plans, the
subscription by such Employee 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 may be sold to the Employee Plans subject to the
provisions of Section 14.
The Employee Plans shall not be deemed to be an associate or affiliate of
or Person Acting in Concert with any Director or Officer of the Holding Company
or the ASSOCIATION.
10. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS
(THIRD PRIORITY)
A. Each Supplemental Eligible Account Holder shall receive, as third
priority and without payment, nontransferable subscription rights to subscribe
for shares of Conversion Stock equal to an amount up to the greater of: the
amount permitted to be subscribed for in the Community Offering which amount,
pursuant to Section 12, currently is $200,000 of the Conversion Stock offered,
but which may be increased to 5% or decreased to less than $200,000 without the
further approval of members or resolicitation of subscribers; one-tenth of one
percent (.10%) of the total offering of Conversion Stock; or fifteen times the
product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Conversion Stock
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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 ASSOCIATION on the Supplemental Eligibility
Record Date, subject to the maximum purchase limitation specified in Section 14A
and the minimum purchase limitation specified in Section 14C and exclusive of an
increase in the total number of shares issued due to an increase in the
Estimated Price Range of up to 15%.
B. In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Conversion Stock in excess of the
total number of shares eligible for subscription, the remaining shares of
Conversion Stock shall be allocated among the subscribing Supplemental Eligible
Account Holders so as to permit each subscribing Supplemental Eligible Account
Holder, to the extent possible, to purchase a number of shares sufficient to
make his or her total allocation of Conversion Stock equal to the lesser of 100
shares or the number of shares subscribed for by the Supplemental Eligible
Account Holder. Any shares remaining after that allocation will be allocated
among the 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
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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C. Subscription rights received by an Eligible Account Holder pursuant to
Section 8 shall be applied in partial satisfaction of the subscription rights to
be received as a Supplemental Eligible Account Holder pursuant to this Section
10.
11. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)
A. Each Other Member shall receive, without payment, as a fourth priority
after the filling of subscriptions of the Eligible Account Holders, the Employee
Plans, and the Supplemental Eligible Account Holders, nontransferable
subscription rights to subscribe for shares of Conversion Stock equal to an
amount up to the greater of: the amount permitted to be subscribed for in the
Community Offering which amount, pursuant to Section 12, currently is $200,000
of the Conversion Stock offered, but which may be increased to 5% or decreased
to less than $200,000 without the further approval of members or resolicitation
of subscribers; or one-tenth of one percent (.10%) of the total offering of
shares of Conversion Stock, subject to the maximum purchase limitation specified
in Section 14A and the minimum purchase limitation specified in Section 14C and
exclusive of an increase in the total number of shares issued due to an increase
in the Estimated Price Range of up to 15%.
B. In the event that Other Members exercise subscription rights for a
number of shares of Conversion Stock in excess of the total number of shares
eligible for subscription, the remaining shares of Conversion Stock shall 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 Conversion Stock equal to the lesser of
100 shares or the number of shares subscribed for by the Other Member. Any
shares remaining after that allocation will be allocated among the subscribing
Other Members whose subscriptions remain
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unsatisfied pro rata in the same proportion that the number of votes of a
subscribing Other Member on the Voting Record Date bears to the total votes on
the Voting Record Date of all subscribing Other Members. If the amount so
allocated exceeds the amount subscribed for by any one or more remaining Other
Members, the excess shall be reallocated (one or more times as necessary) among
those remaining Other Members whose subscriptions are still not fully satisfied
on the same principle until all available shares have been allocated or all
subscriptions satisfied.
12. COMMUNITY OFFERING (FIFTH PRIORITY)
If less than the total number of shares of Conversion Stock to be
subscribed for in the Conversion are sold in the Subscription Offering, it is
expected that shares remaining unsubscribed for will be made available for
purchase in the Community Offering to certain members of the general public,
which may subscribe together with any Associate or group of persons Acting in
Concert for up to $200,000 of the shares of Conversion Stock offered subject to
the Maximum Overall Purchase Limitation as specified in Section 14A and the
minimum purchase limitation specified in Section 14C and exclusive of an
increase in the total number of shares issued due to an increase in the
Estimated Price Range of up to 15%; provided, however, that the amount permitted
to be purchased in the Community Offering may be increased to 5% of the
Conversion Stock; or decreased to less than $200,000 without the further
approval of members or resolicitation of subscribers. The shares may be made
available in the Community Offering through a direct community marketing program
which may provide for utilization of a broker, dealer, consultant or investment
banking firm, experienced and expert in the sale of savings institution
securities. Such entities may be compensated on a fixed fee basis or on a
commission basis, or a combination thereof. Preference shall be given to
Preferred Subscribers in the
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Community Offering. The ASSOCIATION shall make distribution of the Conversion
Stock to be sold in the Community Offering in such a manner as to promote the
widest distribution of Conversion Stock. The ASSOCIATION reserves the right to
reject any or all orders, in whole or in part, which are received in the
Community Offering.
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 total allocation of
Conversion 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 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 ASSOCIATION 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.
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13. SYNDICATED COMMUNITY OFFERING
If feasible, all shares of Conversion Stock not subscribed for in the
Subscription and Community Offerings may be sold in a Syndicated Community
Offering, subject to such terms, conditions and procedures as may be determined
by the ASSOCIATION, in a manner that will achieve the widest distribution of the
Conversion Stock subject to the right of the ASSOCIATION 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 $200,000 of the total number of
shares of Conversion Stock offered subject to the maximum purchase limitation
specified in Section 14A and the minimum purchase limitation specified in
Section 14C and exclusive of an increase in the total number of shares issued
due to an increase in the Estimated Price Range of up to 15%; provided, however,
that this amount may be increased to 5% or decreased to less than $200,000
without the further approval of members or resolicitation of subscribers. The
shares purchased by any Person together with any Associate or group of persons
Acting in Concert pursuant to Section 12 shall be counted toward meeting the
maximum percentage of shares permitted to be purchased pursuant to this Section.
Provided that the Subscription Offering has commenced, the ASSOCIATION may
commence the Syndicated Community Offering at any time after the mailing to the
Members of the Proxy Statement to be used in connection with the Special Meeting
of Members, provided that the completion of the offer and sale of the Conversion
Stock shall be conditioned upon the approval of this Plan by the Voting Members.
If the Syndicated Community Offering is not sooner commenced pursuant to the
provisions of the preceding sentence, the Syndicated
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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
ASSOCIATION shall have the right to sell any shares of Conversion Stock
remaining following the Subscription and Community Offerings in an underwritten
firm commitment public offering. The provisions of Section 14 hereof shall not
be applicable to sales to underwriters for purposes of such an offering but
shall be applicable to the sales by the underwriters to the public. The price
to be paid by the underwriters in such an offering shall be equal to the Actual
Purchase Price less an underwriting discount to be negotiated among such
underwriters and the ASSOCIATION, which will in no event exceed an amount deemed
to be acceptable by the OTS.
If for any reason a Syndicated Community Offering or an underwritten firm
commitment public offering of shares of Conversion Stock not sold in the
Subscription and Community Offerings can not be effected, or in the event that
any insignificant residue of shares of Conversion Stock is not sold in the
Subscription and Community Offerings or in the Syndicated Community Offering or
an underwritten firm commitment public offering, other purchase arrangements
will be made for the sale of unsubscribed shares by the ASSOCIATION, if
possible. Such other purchase arrangements will be subject to the approval of
the OTS.
14. LIMITATION ON PURCHASES
In addition to the maximum amount of Conversion Stock that may be
subscribed for as set forth in Sections 8, 10, 11, 12 and 13, the following
limitations shall apply to all purchases of shares of Conversion Stock:
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A. The maximum number of shares of Conversion Stock which may be
subscribed for or purchased in all categories in the Conversion by any Person or
Participant together with any Associate or group or persons Acting in Concert
shall not exceed 1.0% of the Conversion Stock offered (the "Maximum Overall
Purchase Limitation"), except for the Employee Plans which may subscribe for up
to 10% of the Conversion Stock issued and except for certain Eligible Account
Holders and Supplemental Eligible Account Holders which may subscribe for or
purchase shares in accordance with Sections 8 and 10 herein, respectively;
provided, however, in the event that the Maximum Overall Purchase Limitation is
increased to more than 2.0% of the shares of Conversion Stock offered, orders
for Conversion 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 ASSOCIATION, first be filled to a maximum of
2.0% of the total number of shares of Conversion Stock offered and thereafter
remaining shares shall be allocated on an equal number of shares basis per order
until all orders have been filled.
B. The maximum number of shares of Conversion Stock which may be
purchased in all categories in the Conversion by Officers and Directors of the
ASSOCIATION and their Associates in the aggregate shall not exceed 30% of the
total number of shares of Conversion Stock issued.
C. A minimum of 25 shares of Conversion Stock must be purchased by each
Person purchasing shares in the Conversion to the extent those shares are
available; provided, however, that in the event the minimum number of shares of
Conversion Stock purchased times the price per share exceeds $500, then such
minimum purchase requirement shall be reduced to such
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number of shares of Conversion Stock which when multiplied by the price per
share shall not exceed $500, as determined by the Board.
If the number of shares of Conversion Stock otherwise allocable pursuant to
Sections 8, 10, 11, 12 and 13, to any Person or that Person's Associates would
be in excess of the maximum number of shares permitted as set forth above, the
number of shares of Conversion Stock allocated to each such person shall be
reduced to the lowest limitation applicable to that 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 ASSOCIATION and the Holding Company, without further approval of the
Members, may decrease or increase the purchase limitations in this Plan,
provided that the maximum purchase limitations may not be increased to a
percentage in excess of 5%. Notwithstanding the foregoing, the Maximum Overall
Purchase Limitation may be increased up to 9.99% provided that orders for
Conversion Stock exceeding 5% of the shares being offered shall not exceed, in
the aggregate, 10% of the total offering. If the ASSOCIATION or the Holding
Company, as the case may be, increases the maximum purchase limitations, the
ASSOCIATION or the Holding Company, as the case may be, is only required to
resolicit Persons who subscribed for the maximum purchase
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amount and may, in the sole discretion of the ASSOCIATION or the Holding
Company, as the case may be, resolicit certain other large subscribers.
In the event shares of Conversion Stock are sold in excess of the maximum
of the Estimated Price Range, (the "Adjusted Maximum") such 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 over
subscription at the Eligible Account Holder level, to fill unfulfilled
subscriptions of Eligible Account Holders exclusive of the Adjusted Maximum in
accordance with Section 8; (iii) in the event there is an over subscription at
the Supplemental Eligible Account Holder level, to fill unfulfilled
subscriptions of Supplemental Eligible Account Holders exclusive of the Adjusted
Maximum in accordance with Section 10; (iv) in the event that there is an over
subscription at the Other Member level, to fill unfulfilled subscriptions of
Other Members exclusive of the Adjusted Maximum in accordance with Section 11;
and (v) to fill unfulfilled Subscriptions in the Community Offering exclusive of
the Adjusted Maximum in accordance with Section 12.
For purposes of this Section 14, the Directors and Officers of the
ASSOCIATION and the Holding Company 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 or Officers of the ASSOCIATION or the Holding
Company.
Each Person purchasing Conversion Stock in the Conversion shall be deemed
to confirm that such purchase does not conflict with the above purchase
limitations contained in this Plan.
For a period of three years following the Conversion, no Officer, Director
or their Associates shall purchase, without the prior written approval of the
OTS, any outstanding shares
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of common stock of the ASSOCIATION or the Holding Company, as the case may be,
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 ASSOCIATION or the Holding Company, as
the case may be, the exercise of any options pursuant to a stock option plan or
purchases of common stock of the ASSOCIATION or the 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 ASSOCIATION or the Holding
Company (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.
15. PAYMENT FOR CONVERSION STOCK
All payments for Conversion Stock subscribed for in the Subscription,
Community and Syndicated Community Offerings must be delivered in full to the
ASSOCIATION, 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 ASSOCIATION; 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
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such shares of Conversion Stock subscribed for by such plans at the Actual
Purchase Price upon consummation of the Conversion, provided that, in the case
of the employee stock ownership plan ("ESOP") there is in force from the time of
its subscription until the consummation of the Conversion, a loan commitment
from the Holding Company or an unrelated financial institution to lend to the
ESOP, at such time, the aggregate Subscription Price of the shares for which it
subscribed. The ASSOCIATION may make scheduled discretionary contributions to an
Employee Plan provided such contributions do not cause the ASSOCIATION to fail
to meet its regulatory capital requirement.
Notwithstanding the foregoing, the ASSOCIATION and the Holding Company, if
utilized, shall have the right, in their sole discretion, to permit
institutional investors to submit contractually irrevocable orders in the
Community Offering and to thereafter submit payment for the Conversion Stock for
which they are subscribing in the Community Offering at any time prior to 48
hours before the completion of the Conversion, unless such 48 hour period is
waived by the ASSOCIATION and the Holding Company, in their sole discretion.
Payment for Conversion Stock subscribed for shall be made either in cash
(if delivered in person), check or money order. Alternatively, subscribers in
the Subscription and Community Offerings may pay for the shares subscribed for
by authorizing the ASSOCIATION on the Order Form to make a withdrawal from the
subscriber's Savings Account at the ASSOCIATION in an amount equal to the
purchase price of such shares. Such authorized withdrawal, whether from a
savings passbook or certificate account, shall be without penalty as to
premature withdrawal. If the authorized withdrawal is from a certificate
account, and the remaining balance does not meet the applicable minimum balance
requirement, the certificate shall be cancelled at the time of
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withdrawal, without penalty, and the remaining balance will earn interest at the
passbook rate. Funds for which a withdrawal is authorized will remain in the
subscriber's Savings Account but may not be used by the subscriber until the
Conversion Stock has been sold or the 45-day period (or such longer period as
may be approved by the OTS) following the Subscription and Community Offering
has expired, whichever occurs first. Thereafter, the withdrawal will be given
effect only to the extent necessary to satisfy the subscription (to the extent
it can be filled) at the purchase price per share. Interest will continue to be
earned on any amounts authorized for withdrawal until such withdrawal is given
effect. Interest will be paid by the ASSOCIATION at not less than the passbook
annual rate on payments for Conversion Stock received in cash or by check or
money order. Such interest will be paid from the date payment is received by the
ASSOCIATION until consummation or termination of the Conversion. If for any
reason the Conversion is not consummated, all payments made by subscribers in
the Subscription, Community and Syndicated Community Offerings will be refunded
to them with interest. In case of amounts authorized for withdrawal from Savings
Accounts, refunds will be made by cancelling the authorization for withdrawal.
The ASSOCIATION is prohibited by regulation from knowingly making any loans or
granting any lines of credit for the purchase of stock in the Conversion, and
therefore, will not do so.
16. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
As soon as practicable after the Prospectus prepared by the Holding Company
and ASSOCIATION has been declared effective by the OTS and the SEC, if the
holding company form of organization is utilized, Order Forms will be
distributed to all Eligible Account Holders,
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the Employee Plans, the Supplemental Eligible Account Holders and Other Members
at their last known addresses appearing on the records of the ASSOCIATION for
the purpose of subscribing to shares of Conversion Stock in the Subscription
Offering and will be made available for use by those Persons entitled to
purchase in the Community Offering. Notwithstanding the foregoing, the
ASSOCIATION 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
Conversion and the Special Meeting of Members sent to all Eligible Account
Holders and Supplemental Eligible Account Holders in accordance with regulations
of the OTS.
Each Order Form will be preceded or accompanied by the Prospectus (if a
holding company form of organization is utilized) or the Offering Circular (if
the holding company form of organization is not utilized) describing the Holding
Company, if utilized, the ASSOCIATION, the Conversion Stock and the Subscription
and Community Offerings. Each Order Form will contain, among other things, the
following:
A. A specified date by which all Order Forms must be received by the
ASSOCIATION, which date for Subscription Offering Order Forms 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 ASSOCIATION, and which date will
constitute the termination of the Subscription Offering;
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B. The Subscription Price per share for shares of Conversion Stock to be
sold in the Subscription and Community Offerings;
C. A description of the minimum and maximum number of shares of
Conversion Stock which may be subscribed for pursuant to the exercise of
subscription rights or otherwise subscribed for in the Community Offering;
D. Instructions as to how the recipient of the Order Form is to indicate
thereon the number of shares of Conversion Stock for which such person elects to
subscribe and the available alternative methods of payment therefor;
E. An acknowledgment that the recipient of the Order Form has received a
final copy of the Prospectus or Offering Circular, as the case may be, prior to
execution of the Order Form;
F. A statement to the effect that all subscription rights are
nontransferable, will be void at the end of the Subscription Offering, and can
only be exercised by delivering within the subscription period such properly
completed and executed Order Form, together with cash (if delivered in person),
check or money order in the full amount of the purchase price as specified in
the Order Form for the shares of Conversion Stock for which the recipient elects
to subscribe in the Subscription Offering (or by authorizing on the Order Form
that the ASSOCIATION withdraw said amount from the subscriber's Savings Account
at the ASSOCIATION) to the ASSOCIATION;
G. A statement to the effect that the executed Order Form, once received
by the ASSOCIATION, may not be modified or amended by the subscriber without the
consent of the ASSOCIATION; and
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H. A statement with respect to the residence of the subscriber.
Notwithstanding the above, the ASSOCIATION and the Holding Company will not
accept orders received on photocopied or facsimilied order forms.
17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORMS: INSUFFICIENT PAYMENT
In the event Order Forms (a) are not delivered and are returned to the
ASSOCIATION by the United States Postal Service or the ASSOCIATION is unable to
locate the addressee, (b) are not received back by the ASSOCIATION or are
received by the ASSOCIATION after the expiration date specified thereon, (c) are
defectively filled out or executed, (d) are not accompanied by the full required
payment, except in the case of institutional investors in the Community
Offering, by delivering irrevocable orders together with a legally binding
commitment to pay in cash, check, money order or wire transfer the full amount
of the purchase price prior to 48 hours before the completion of the Conversion
for the shares of Conversion Stock subscribed for (including cases in which
savings accounts from which withdrawals are 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 ASSOCIATION 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 ASSOCIATION may specify. The
interpretation of the ASSOCIATION of
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terms and conditions of the Plan and of the Order Forms will be final, subject
to the authority of the OTS.
18. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION
A. All shares of Conversion Stock purchased by Directors or Officers of
the ASSOCIATION or the Holding Company in the Conversion shall be subject to the
restriction that, except as provided in Section 18B, below, or as may be
approved by the OTS, no interest in such shares may be sold or otherwise
disposed of for value for a period of one (l) year following the date of
purchase.
B. The restriction on disposition of shares of Conversion Stock set forth
in Section 18A above shall not apply to the following:
(i) Any exchange of such shares in connection with a merger or
acquisition involving the ASSOCIATION or the Holding Company, as the case may
be, which has been approved by the OTS; and
(ii) Any disposition of such shares following the death of the person
to whom such shares were initially sold under the terms of the Plan.
C. With respect to all shares of Conversion Stock subject to restrictions
on resale or subsequent disposition, each of the following provisions shall
apply:
(i) Each certificate representing shares restricted within the meaning
of Section 18A, above, shall bear a legend prominently stamped on its face
giving notice of the restriction;
(ii) Instructions shall be issued to the stock transfer agent for the
ASSOCIATION or the Holding Company, as the case may be, not to recognize or
effect any
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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 ASSOCIATION or the Holding
Company, as the case may be, issued with respect to a stock dividend, stock
split, or otherwise with respect to ownership of outstanding shares of
Conversion Stock subject to the restriction on transfer hereunder shall be
subject to the same restriction as is applicable to such Conversion Stock.
19. VOTING RIGHTS OF STOCKHOLDERS
Upon Conversion, the holders of the capital stock of the ASSOCIATION shall
have the exclusive voting rights with respect to the ASSOCIATION as specified in
its Certificate of Incorporation. The holders of the common stock of the
Holding Company (if a holding company form of organization is utilized) shall
have the exclusive voting rights with respect to the Holding Company.
20. ESTABLISHMENT OF LIQUIDATION ACCOUNT
The ASSOCIATION shall establish at the time of Conversion a liquidation
account in an amount equal to its net worth as of the latest practicable date
prior to Conversion ("Liquidation Account"). The Liquidation Account will be
maintained by the ASSOCIATION for the benefit of the Eligible Account Holders
and Supplemental Eligible Account Holders who continue to maintain their Savings
Accounts at the ASSOCIATION. Each Eligible Account Holder and Supplemental
Eligible Account Holder shall, with respect to his Savings Account, hold a
related inchoate interest in a portion of the Liquidation Account balance, in
relation to his Savings Account balance at the Eligibility Record Date and/or
Supplemental Eligibility Record Date or to such balance as it may be
subsequently reduced, as hereinafter provided.
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In the unlikely event of a complete liquidation of the ASSOCIATION (and
only in such event), following all liquidation payments to creditors (including
those to Account Holders to the extent of their Savings Accounts) each Eligible
Account Holder and Supplemental Eligible Account Holder shall be entitled to
receive a liquidating distribution from the Liquidation Account, in the amount
of the then adjusted subaccount balance for his Savings Account then held,
before any liquidation distribution may be made to any holders of the
ASSOCIATION's capital stock. No merger, consolidation, bulk purchase of assets
with assumption of Savings Accounts and other liabilities, or similar
transactions with an FDIC-insured institution, in which the ASSOCIATION is not
the surviving institution, shall be deemed to be a complete liquidation for this
purpose. In such transactions, the Liquidation Account shall be assumed by the
surviving institution.
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder and Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the Liquidation Account by a fraction, the
numerator of which is the amount of such Eligible Account Holder's and/or
Supplemental Eligible Account Holder's Qualifying Deposit and the denominator of
which is the total amount of all Qualifying Deposits of all Eligible Account
Holders and Supplemental Eligible Account Holders in the ASSOCIATION. Such
initial subaccount balance shall not be increased, but shall be subject to
downward adjustment as described below. For Savings Accounts in existence at
both dates, separate subaccounts shall be determined on the basis of the
Qualifying Deposits in such Savings Account on such record dates. Such initial
subaccount balances shall not be increased but shall be subject to downward
adjustment as described below.
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If, at the close of business on any annual closing date, commencing on or
after the effective date of Conversion, the deposit balance in the Savings
Account of an Eligible Account Holder or Supplemental Eligible Account Holder is
less than the lesser of (i) the balance in the Savings Account at the close of
business on any other annual closing date subsequent to the Eligibility Record
Date or Supplemental Eligibility Record Date, or (ii) the amount of the
Qualifying Deposit in such Savings Account, the subaccount balance for such
Savings Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of
such downward adjustment, the subaccount balance shall not be subsequently
increased, notwithstanding any subsequent increase in the deposit balance of the
related Savings Account. If any such Savings Account is closed, the related
subaccount shall be reduced to zero.
The creation and maintenance of the Liquidation Account shall not operate
to restrict the use or application of any of the net worth accounts of the
ASSOCIATION.
21. TRANSFER OF SAVINGS ACCOUNTS AND CONTINUITY OF THE ASSOCIATION
Upon Conversion, each Savings Account Holder having a Savings Account at
the ASSOCIATION prior to the Conversion will continue to have a Savings Account,
without payment therefor, in the same amount and subject to the same terms and
conditions (except for voting and liquidation rights) as in effect prior to the
Conversion.
After the Conversion, the ASSOCIATION will succeed to all the rights,
interests, duties and obligations of the ASSOCIATION before the Conversion,
including but not limited to all rights and interests of the ASSOCIATION in and
to its assets and properties, whether real,
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personal or mixed. The ASSOCIATION 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.
22. RESTRICTIONS ON ACQUISITION OF THE ASSOCIATION AND HOLDING COMPANY
A. In accordance with OTS regulations, for a period of three years from
the date of consummation of the Conversion, no Person, other than the Holding
Company (if a holding company form of organization is 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 ASSOCIATION without the prior
written consent of the OTS.
B. 1. The Certificate of Incorporation of the ASSOCIATION contains a
provision stipulating that no person, except the Holding Company (if a holding
company form of organization is utilized), for a period of five years following
the date of the Conversion 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 ASSOCIATION, without the prior written approval of the OTS. In
addition, such Certificate of Incorporation may also provide that for a period
of five years following the Conversion, shares beneficially owned in violation
of the above-described Certificate of Incorporation 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 Certificate of Incorporation may only be called by the Board of
Directors, and shareholders shall not be permitted to cumulate their votes for
the election of directors.
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2. The Certificate of Incorporation of the Holding Company, if a
holding company form of organization is utilized, will contain a provision
stipulating that in no event shall any record owner of any outstanding shares of
the Holding Company's common stock hold such shares on behalf of a person who
beneficially owns in excess of 10% of such outstanding shares be entitled or
permitted to any vote to the extent that any shares held in excess of 10% of the
outstanding shares would be voted on behalf of the beneficial owner. In
addition, the Certificate of Incorporation and Bylaws of the Holding Company
will provide for staggered terms of the directors, noncumulative voting for
directors, limitations on the calling of special meetings, a fair price
provision for certain business combinations and certain notice requirements.
C. For the purposes of this Section 22:
(i) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock company, a
trust, an unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of
securities of an insured institution;
(ii) The term "offer" includes every offer to buy or acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value;
(iii) The term "acquire" includes every type of acquisition,
whether effected by purchase, exchange, operation of law or otherwise; and
(iv) The term "security" includes non-transferable subscription rights
issued pursuant to a plan of conversion as well as a "security" as defined in 15
U.S.C. (S)78c(a)(10).
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23. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK
The ASSOCIATION 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 in Section 567.2 of the Rules
and Regulations of the OTS or applicable rules or regulations of the Department.
Otherwise, the ASSOCIATION may declare dividends, make capital distributions or
repurchase its capital stock in accordance with applicable law and regulations.
24. AMENDMENT OF PLAN
If deemed necessary or desirable, the Plan may be substantively amended at
any time prior to solicitation of proxies from Members to vote on the Plan by a
two-thirds vote of the ASSOCIATION's Board of Directors, and at any time
thereafter by such vote of such Board of Directors with the concurrence of the
OTS and, if applicable, the Department. Any amendment to the Plan made after
approval by the Members with the approval of the OTS and, if applicable, the
Department, shall not necessitate further approval by the Members unless
otherwise required by the OTS and, if applicable, the Department. The Plan may
be terminated by majority vote of the ASSOCIATION's Board of Directors at any
time prior to the Special Meeting of Members to vote on the Plan, and at any
time thereafter with the concurrence of the OTS and, if applicable, the
Department.
By adoption of the Plan, the Members of the ASSOCIATION authorize the Board
of Directors to amend or terminate the Plan under the circumstances set forth in
this Section.
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25. CERTIFICATE OF INCORPORATION AND BYLAWS
By voting to adopt the Plan, members of the ASSOCIATION will be voting to
adopt the proposed Certificate of Incorporation and Bylaws for the Association
as a New Jersey Stock Savings Association attached as Exhibits I and II to this
Plan. The effective date of the ASSOCIATION's Certificate of Incorporation and
bylaws shall be the date of issuance and sale of the Conversion Stock as
specified by the OTS and the Department.
26. CONSUMMATION OF CONVERSION
The Conversion of the ASSOCIATION shall be deemed to take place and be
effective upon the completion of all requisite organizational procedures for
obtaining the Certificate of Incorporation for the ASSOCIATION from the State of
New Jersey and the sale of all Conversion Stock.
27. REGISTRATION AND MARKETING
Within the time period required by applicable laws and regulations, the
ASSOCIATION or the Holding Company, as the case may be, will register the
securities issued in connection with the Conversion pursuant to the Securities
Exchange Act of 1934 and will not deregister such securities for a period of at
least three years thereafter, except that the maintenance of registration for
three years requirement may be fulfilled by any successor to the ASSOCIATION or
any holding company of the ASSOCIATION. In addition, the ASSOCIATION or Holding
Company, as the case may be, will use its best efforts to encourage and assist a
market-maker to establish and maintain a market for the Conversion Stock and to
list those securities on a national or regional securities exchange or the
NASDAQ system.
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28. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES
The ASSOCIATION will make reasonable efforts to comply with the securities
laws of all States in the United States in which Persons entitled to subscribe
for shares of Conversion Stock pursuant to the Plan reside. However, no such
Person will be issued subscription rights or be permitted to purchase shares of
Conversion Stock in the Subscription Offering if such Person resides in a
foreign country or in a state of the United States with respect to which both of
the following apply: A. a small number of Persons otherwise eligible to
subscribe for shares under the Plan reside in such state and; B. the issuance of
subscription rights or the offer or sale of shares of Conversion Stock to such
Persons would require the ASSOCIATION or the Holding Company, as the case may
be, under the securities laws of such state, to register as a broker, dealer,
salesman or agent or to register or otherwise qualify its securities for sale in
such state and such registration or qualification would be impracticable for
reasons of cost or otherwise.
29. EXPENSES OF CONVERSION
The ASSOCIATION shall use its best efforts to assure that expenses incurred
by it in connection with the Conversion shall be reasonable.
30. CONDITIONS TO CONVERSION
The Conversion of the ASSOCIATION pursuant to this Plan is expressly
conditioned upon the following:
(a) Prior receipt by the ASSOCIATION of rulings of the United States
Internal Revenue Service and any applicable state taxing authority, or opinions
of counsel, or other tax advisor acceptable to the Association, substantially to
the effect that the Conversion will not result
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in any adverse federal or state tax consequences to Eligible Account Holders or
to the ASSOCIATION and the Holding Company before or after the Conversion;
(b) The sale of all of the Conversion Stock offered in the Conversion; and
(c) The completion of the Conversion within the time period specified in
Section 3 of this Plan.
31. INTERPRETATION
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Directors of the
ASSOCIATION shall be final, subject to the authority of the OTS and the
Department.
32. OTHER INFORMATION
(a) The interests of Directors, Officers, employees and associates shall be
disclosed in the application for Conversion filed with the Department and in the
notice to Members of the meeting called to adopt the Plan of Conversion.
(b) Each Member as of the Record Date shall receive such rights with
respect to the capital stock of the ASSOCIATION as shall be set forth in
regulations promulgated by the Department.
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EXHIBIT I
CERTIFICATE OF INCORPORATION
OF
SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION
SECTION 1. Corporate Title. The name of the savings association is South
----------------
Jersey Savings and Loan Association (the "Association").
SECTION 2. Office. The principal place of business of the Association
-------
shall be located at 4651 Route 42, Turnersville, New Jersey.
SECTION 3. Purpose and Powers. The Association is incorporated to operate
-------------------
as a capital stock savings association pursuant to the New Jersey Savings and
Loan Act of 1963, as amended (N.J.S.A. 7:12B-l et seq.), for the purposes stated
in such Act. The Association has and may exercise all express, implied and
incidental powers conferred thereby and by all acts amendatory thereof and
supplemental thereto, subject to the Constitutions and laws of the United States
and the State of New Jersey as they are now in effect, or as they may hereafter
be amended.
SECTION 4. Capital Stock. The total number of shares of all classes of
-------------
capital stock which the Association has authority to issue is fifteen million
(15,000,000), of which fourteen million (14,000,000) shall be common stock, par
value $1.00 per share, and of which one million (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 stockholders,
except as otherwise provided in this Section 4 or to the extent that such
approval is required by governing law, rule, or regulation. The consideration
for the issuance of the shares shall be paid in full before their issuance and
shall not be less than the par value. Neither promissory notes nor future
services shall constitute payment or part payment for the issuance of shares of
the Association. The consideration for the shares shall be cash, tangible or
intangible property (to the extent direct investment in such property would be
permitted), labor or services actually performed for the Association, or any
combination of the foregoing. In the absence of actual fraud in the transaction,
the value of such property, labor, or services, as determined by the Board of
Directors of the Association, shall be conclusive. Upon payment of such
consideration, such shares shall be deemed to be fully paid and nonassessable.
In the case of a stock dividend, that part of the surplus of the Association
which is transferred to stated capital upon the issuance of shares as a share
dividend shall be deemed to be the consideration for their issuance.
Nothing contained in this Section 4 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share.
Provided, that this restriction on voting separately by class or series shall
not apply:
(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;
<PAGE>
(ii) To any provision which would require the holders of preferred
stock, voting as a class or series, to approve the merger or consolidation
of the Association with another corporation, 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 Association if the
preferred stock is exchanged for securities of such other corporation:
Provided, that no provision may require such approval for transactions
undertaken with the assistance or pursuant to the direction of the New
Jersey Department of Banking or the Office of Thrift Supervision;
(iii) To any amendment which would adversely change the specific
terms of any class or series of capital stock as set forth in this Section
4 (or in any supplementary sections hereto), including any amendment which
would create or enlarge any class or series ranking prior thereto in rights
and preferences. An amendment which increases the number of authorized
shares of any class or series of capital stock, or substitutes the
surviving Association in a merger or consolidation for the Association,
shall not be considered to be such an adverse change.
A description of the different classes and series (if any) of the
Association's capital stock and a statement of the designations, and the
relative rights, preferences, and limitations of the shares of each class of and
series (if any) of capital stock and a statement of the authority of the Board
of Directors to divide the preferred stock into classes or series or both and to
determine or change for any such class or series its designation, number of
shares, relative rights, preferences and limitations are as follows:
A. Common Stock. Except as provided in this Section 4 the holders of the
------------
common stock shall exclusively possess all voting power. Each holder of shares
of common stock shall be entitled to one vote for each share held by such
holder.
Whenever there shall have been paid, or declared and set aside for payment,
to the holders of the outstanding shares of any class of stock having preference
over the common stock as to the payment of dividends, the full amount of
dividends and of sinking fund, or retirement fund, or other retirement payments,
if any, to which such holders are respectively entitled in preference to the
common stock, then dividends may be paid on the common stock and on any class or
series of stock entitled to participate therewith as to dividends out of any
assets legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
Association, the holders of the common stock (and the holders of any class or
series of stock entitled to participate with the common stock in the
distribution of assets) shall be entitled to receive, in cash or in kind, the
assets of the Association available for distribution remaining after: (i)
payment or provision for payment of the Association's debts and liabilities,
including the withdrawal of all accounts and deposits; (ii) distributions or
provision for distributions in settlement of its liquidation account; and (iii)
distributions or provision for distributions to holders of any class or series
of stock having preference over the common stock in the liquidation,
dissolution, or winding up of the Association. Each share of common stock shall
have the same relative rights as and be identical in all respects with all the
other shares of common stock in the event of such liquidation, dissolution or
winding up of the Association.
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B. Preferred Stock. The Association may provide for one or more classes
---------------
of preferred stock, which shall be separately identified. The shares of any
class may be divided into and issue in series, with each series separately
designated so as to distinguish the shares thereof from the shares of all other
series and classes. All shares of the same class shall be identical except as
to the following relative rights and preferences, as to which there may be
variations between different series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and,
if so, from which date(s), the payment date(s) for dividends, and
the participating or other special rights, if any, with respect to
dividends;
(c) The voting powers, full or limited, if any, of the shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price(s) at which, and the terms and conditions on which, such
shares may be redeemed;
(e) The amount(s) payable upon the shares of such series in the event
of voluntary or involuntary liquidation, dissolution, or winding
up of the Association;
(f) Whether the shares of such series shall be entitled to the benefit
of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such
fund and the manner of its application, including the price(s) at
which such shares may be redeemed or purchased through the
application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock of
the Association and, if so, the conversion price(s) or the rate(s)
of exchange, and the adjustments thereof, if any, at which such
conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial
preferred stock and whether such shares may be reissued as shares
of the same or any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The Board of Directors shall have authority to divide any authorized class
of preferred stock into classes, or into classes or series, within the
limitations set forth in this section, and to determine
-3-
<PAGE>
or change for any class or series its designation, number of shares, relative
rights, preferences and limitations.
SECTION 5. Incorporation. The name, residence, post office address and
-------------
occupation of each incorporator of the Association are as follows:
<TABLE>
<CAPTION>
NAME RESIDENCE AND ADDRESS OCCUPATION
- ----------------------- ---------------------- -------------------------------------------
<S> <C> <C>
Arthur E. Armitage, Jr. 1125 Lake Shore Drive Insurance Broker
Collingswood, NJ 08108
Robert J. Colacicco 24 Regency Court President, South Jersey Savings and Loan
Marlton, NJ 08053 Association
Richard W. Culbertson, Jr. 107 Uxbridge Partner/Accountant
Cherry Hill, NJ 08034
Gregory M. DiPaolo 351 Ganttown Road Executive Vice President/Treasurer, South
Charles Carrol #8 Jersey Savings and Loan Association
Turnersville, NJ 08012
John V. Field 422 Kings Highway East Attorney
Haddonfield, NJ 08033
Richard G. Mohrfeld 47 Treaty Elms Lane President/Fuel Oil Company
Haddonfield, NJ 08033
Martin Rosner Apt. D282 Retired
1 Brendenwood Drive
Voorhees, NJ 08043
Ronald L. Woods 204 Breslin Avenue Realtor
Haddonfield, NJ 08033
Joseph M. Sidebotham 51 West Elm Avenue Senior Vice President, South Jersey
Mantua, NJ 08051 Savings and Loan Association
</TABLE>
SECTION 6. Preemptive Rights. Holders of the capital stock of the
-----------------
Association shall not be entitled to preemptive rights with respect to any
shares of the Association which may be issued.
SECTION 7. Certain Provisions Applicable for Five Years.
--------------------------------------------
Notwithstanding anything contained in the Association's Certificate of
Incorporation or bylaws to the contrary, for a period of five years from the
date of consummation of the conversion of the Association from mutual to stock
form, the following provisions shall apply:
A. Beneficial Ownership Limitation. No person shall directly or
-------------------------------
indirectly offer to acquire or acquire the beneficial ownership of more than 10%
of any class of any equity security of the Association unless such offer to
acquire or acquisition is approved by a majority of the Board of Directors.
This limitation shall not apply to a transaction in which the Association forms
a holding company in conjunction with conversion, or thereafter, if such
formation is without change in the respective beneficial ownership interest of
the Association's stockholders other than pursuant to the exercise of any
dissenter and appraisal rights, the purchase of shares by
-4-
<PAGE>
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
requirement under 12 CFR (S)574.3(c)(1)(vi).
In the event shares are acquired in violation of this Section 7, all shares
beneficially owned by person in excess of 10% shall be considered "excess
shares" and shall not be counted as shares entitled to vote and shall not be
voted by any person or counted as voting shares in connection with any matters
submitted to the stockholders for a vote.
For purposes of this Section 7, the following definitions apply:
(1) The term "person" includes an individual, a group acting in concert, a
corporation, a partnership, a bank, a joint stock company, a trust, an
unincorporated organization or similar company, a syndicate or any other group
formed for the purpose of acquiring, holding or disposing of the equity
securities of the Association.
(2) The term "offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value.
(3) The term "acquire" includes every type of acquisition, whether effected
by purchase, exchange, operation of law or otherwise.
(4) The term "acting in concert" means (a) knowing participation in a joint
activity or conscious parallel action towards a common goal whether or not
pursuant to an express agreement, or (b) a combination or pooling of voting or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangements,
whether written or otherwise.
B. Call for Special Meetings. Special meetings of stockholders relating
--------------------------
to changes in control of the Association or amendments to its Certificate of
Incorporation shall be called only upon direction of the Board of Directors.
SECTION 8. Directors. The Association shall be under the direction of
---------
a Board of Directors. The authorized number of directors, as stated in the
Association's bylaws, shall not be less than five or more than fifteen except
when a greater number is approved by the Board.
-5-
<PAGE>
The number of directors constituting the initial Board of Directors upon
organization of the Association is eight. The first Board of Directors, to
serve until the first annual meeting of the Association, is comprised of the
following individuals:
<TABLE>
<CAPTION>
NAME RESIDENCE AND ADDRESS
- ----------------------- -----------------------
<S> <C>
Arthur E. Armitage, Jr. 1125 Lake Shore Drive
Collingswood, NJ 08108
Robert J. Colacicco 24 Regency Court
Marlton, NJ 08053
Richard W. Culbertson, Jr. 107 Uxbridge
Cherry Hill, NJ 08034
Gregory M. DiPaolo 351 Ganttown Road
Charles Carrol #8
Turnersville, NJ 08012
John V. Field 422 Kings Highway East
Haddonfield, NJ 08033
Richard G. Mohrfeld 47 Treaty Elms Lane
Haddonfield, NJ 08033
Martin Rosner Apt. D282
1 Brendenwood Drive
Voorhees, NJ 08043
Ronald L. Woods 204 Breslin Avenue
Haddonfield, NJ 08033
</TABLE>
SECTION 9. Liability of Directors. No director or officer of the
----------------------
Association shall be personally liable to the Association or its stockholders
for damages for breach of any duty owed to the Association or its stockholders
except that this Section 9 shall not relieve any director from liability for any
breach of duty based upon an act or omission (a) in breach of such person's duty
of loyalty to the Association or its stockholders, (b) not in good faith or
involving a knowing violation of law, or (c) resulting in receipt by such person
of an improper personal benefit. As used in this Section 9, an act or omission
in breach of a person's duty of loyalty means an act or omission which that
person knows or believes to be contrary to the best interests of the
-6-
<PAGE>
Association or its stockholders in connection with a matter in which he has a
material conflict of interest.
If the Savings and Loan Act of New Jersey (1963) as presently enacted is
amended after the date hereof to authorize further eliminating or limiting the
personal liability of directors or officers, then the liability of a director or
officer of the Association shall be eliminated or limited to the fullest extent
permitted by the Savings and Loan Act of New Jersey (1963), as so amended. Any
repeal or modification of this Section 9 by the stockholders of the Association
shall be prospective only and shall not adversely affect any right or protection
of a director or officer existing at the time of such repeal or modification.
SECTION 10. Indemnification of Officers, Directors and Employees. Any
----------------------------------------------------
person shall be indemnified or reimbursed by the Association for reasonable
expenses, including, but not limited to, attorney fees, actually incurred by him
in connection with any action, suit or proceeding, instituted or threatened,
judicial or administrative, civil or criminal, to which he is made a party by
reason of his being or having been a director, officer or employee of the
Association; provided, however, that no person be so indemnified or reimbursed,
nor shall he retain any advancement or allowance for indemnification which may
have been made by the Association in advance of final disposition in relation to
such action, suit or proceeding in which, and to the extent that, he finally
shall be adjudicated to have been guilty of a breach of good faith, to have been
negligent in the performance of his duties or to have committed an action or
failed to perform a duty for which there is a common law or statutory liability;
and, provided further, that a person may, with the approval of the Commissioner
of Banking of the State of New Jersey be so indemnified or reimbursed for:
(1) Amounts paid in compromise or settlement of any action, suit or
proceeding, including reasonable expenses incurred in connection therewith; or
(2) Reasonable expenses, including fines and penalties, incurred in
connection with a criminal civil action, suit or proceeding in which such person
has been adjudicated guilty, negligent or liable, if it shall be determined by
the Board of Directors and by the Commissioner that such person was acting in
good faith and in what he believed to be the best interest of the Association
and without knowledge that the action was illegal, and if such indemnification
or reimbursement is approved at an annual or special meeting of the members or
stockholders by a majority of the votes eligible to be cast. Amounts paid to
the Association, whether pursuant to judgment or settlement, by any person
within the meaning of this section shall not be indemnified or reimbursed in any
case.
SECTION 11. Liquidation Account. Pursuant to the requirements of 12 CFR
-------------------
563b.3, the Association shall establish and maintain a liquidation account for
the benefit of its savings account holders as of June 30, 1997 and
[_______________] ("eligible savers"). In the event of a complete liquidation
of the Association, it shall comply with such regulations with respect to the
amount and the priorities on liquidation of each of the Association's eligible
saver's inchoate interest in the liquidation account, to the extent it is still
in existence; provided, that an eligible saver's inchoate
-7-
<PAGE>
interest in the liquidation account shall not entitle such eligible saver to any
voting rights at meetings of the Association's stockholders.
SECTION 12. Perpetual Existence. The Association shall have a perpetual
-------------------
existence, subject to liquidation and dissolution as provided by law.
SECTION 13. Amendment of Certificate. Except as provided in Section 4, no
-------------------------
amendment, addition, alteration, change, or repeal of this Certificate of
Incorporation shall be made, unless such is first proposed by the Board of
Directors of the Association, approved by the stockholders by a majority of the
total votes eligible to be cast and submitted to the Commissioner of Banking of
the State of New Jersey for action as specified by law or regulation.
SECTION 14. Subscribed Shares. The total amount of capital stock
-----------------
subscribed for as of the date of this Certificate of Incorporation is one
thousand (1,000). The undersigned incorporators are of the age of eighteen
years or over.
-8-
<PAGE>
IN WITNESS WHEREOF, this Certificate has been executed this ___ day of
_______, 199__.
Signature:
---------------------------------------
Arthur E. Armitage, Jr.
---------------------------------------
Robert J. Colacicco
---------------------------------------
Richard W. Culbertson, Jr.
---------------------------------------
Gregory M. DiPaolo
---------------------------------------
John V. Field
---------------------------------------
Richard G. Mohrfeld
---------------------------------------
Martin Rosner
---------------------------------------
Ronald L. Woods
---------------------------------------
Joseph M. Sidebotham
-9-
<PAGE>
STATE OF NEW JERSEY )
) ss:
COUNTY OF GLOUCESTER )
BE IT REMEMBERED, that on this _____ of _________________, 199__, before
me, the subscriber, ____________________, personally appeared
____________________ who, I am satisfied, is the person named in and who
executed the foregoing certificate, and I having made known to him the contents
thereof, he did acknowledge that he signed, sealed and delivered the same as his
voluntary act and deed, for the purposes and uses therein expressed.
---------------------------------------
Notary
-10-
<PAGE>
EXHIBIT II
BYLAWS OF
SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION
ARTICLE I. HOME OFFICE
The home office of South Jersey Savings and Loan Association
(the"Association") is 4651 Route 42, Turnersville, New Jersey 08012.
ARTICLE II. SHAREHOLDERS
Section l. Place of Meetings. All annual and special meetings of
-----------------------------
shareholders shall be held at the home office of the Association or at such
other place in the State as the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the
--------------------------
Association for the election of directors and for the transaction of any other
business of the Association shall be held annually within 120 days after the end
of the Association's fiscal year and at such time as the board of directors may
determine.
Section 3. Special Meetings. For a period of five years from the date of
----------------------------
the completion of the organization of the Association, special meetings of the
shareholders relating to a change in control of the Association or to an
amendment of the Certificate of Incorporation of the Association may be called
only by the board of directors. Thereafter, special meetings of the
shareholders for any purpose or purposes may be called at any time by the
chairman of the board, the president, or a majority of the board of directors,
and shall be called by the chairman of the board, the president or the secretary
upon the written request of the holders of not less than ten percent of all the
outstanding capital stock of the Association entitled to vote at the meeting.
Such written request shall state the purpose or purposes of the meeting and
shall be delivered at the home office of the Association addressed to the
chairman of the board, the president or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
-------------------------------
conducted in accordance with the rules and procedures adopted by the board of
directors unless otherwise prescribed by these bylaws. The board of directors
shall designate, when present, either the chairman of the board or president to
preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, day and
------------------------------
hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 10 nor more than 60 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, the secretary, or the directors calling the meeting,
to each shareholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the mail, to the
address as it appears on the
<PAGE>
stock transfer books or records of the Association as of the record date
prescribed in Section 6 of this Article II, with postage prepaid. When any
shareholders' meeting, either annual or special, is adjourned for 30 days or
more, notice of the adjourned meeting shall be given as in the case of an
original meeting. It shall not be necessary to give any notice of the time and
place of any meeting adjourned for less than 30 days or of the business to be
transacted at the meeting, other than an announcement at the meeting at which
such adjournment is taken.
Section 6. Fixing of Record Date. For the purpose of determining
---------------------------------
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to, or dissent from, any proposal
without a meeting, or for the purposes of determining shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the board of directors shall fix in
advance a date as the record date for any such determination of shareholders.
Such date in any case shall be not more than 60 days and, in case of a meeting
of shareholders, not fewer than 10 days prior to the date on which the
particular action, requiring such determination of shareholders, is to be taken.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment.
Section 7. Voting Lists. At least 10 days before each meeting of the
------------------------
shareholders, the officer or agent having charge of the stock transfer books for
shares of the Association shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment, arranged in alphabetical
order, with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the home office of the Association and
shall be subject to inspection by any shareholder at any time during usual
business hours, for a period of 10 days prior to such meeting. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to the inspection by any shareholder during the entire time of the
meeting. The original stock transfer book shall constitute prima facie evidence
of the shareholders entitled to examine such list or transfer books or to vote
at any meeting of shareholders.
Section 8. Quorum. A majority of the outstanding shares of the
------------------
Association entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of
the outstanding shares is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice.
At such adjourned 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.
Section 9. Proxies. At all meetings of shareholders, a shareholder may
-------------------
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by the shareholder or, in the
II-2
<PAGE>
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 Association to the contrary, at any meeting of the
shareholders of the Association any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such and present in person or by proxy at such meeting, but no
votes shall be cast for such stock if a majority cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing in the
------------------------------------------------
name of another corporation may be voted by any officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a 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 into his name
if authority to do so is contained in an appropriate order of the court or other
public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee and
thereafter the pledgee, shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Association, nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the
Association, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
Section 12. Cumulative Voting. Shareholders shall not be entitled to
------------------------------
cumulate their votes for election of directors.
Section 13. Inspectors of Election. In advance of any meeting of
-----------------------------------
shareholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails
II-3
<PAGE>
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.
The duties of such inspectors shall include: determining the number of
shares and the voting power of each share, the shares represented at the
meeting, the existence of a quorum, and the authenticity, validity and effect of
proxies; receiving votes, ballots, or consents; hearing and determining all
challenges and questions in any way arising in connection with the rights to
vote; counting and tabulating all votes or consents; determining the result; and
such acts as may be proper to conduct the election or vote with fairness to all
shareholders.
Section 14. Nominating Committee. The board of directors shall act as a
---------------------------------
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 15 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in the principal place of business of the Association. No
nominations for directors except those made by the nominating committee shall be
voted upon at the annual meeting unless other nominations by shareholders are
made in writing and delivered to the secretary of the Association at least 60
days prior to the date of the annual meeting. Upon delivery, such nominations
shall be posted in a conspicuous place in the principal place of business of the
Association. Ballots bearing the names of all persons nominated by the
nominating committee and by shareholders shall be provided for use at the annual
meeting. However, if the nominating committee shall fail or refuse to act at
least 15 days prior to the annual meeting, nominations for directors may be made
at the annual meeting by any shareholder entitled to vote and shall be voted
upon.
Section 15. New Business. Any new business to be taken up at the annual
-------------------------
meeting shall be stated in writing and filed with the secretary of the
Association at least 15 days before the date of the annual meeting, and all
business so stated, proposed, and filed shall be considered at the annual
meeting, but no other proposal shall be acted upon at the annual meeting. Any
shareholder may make any other proposal at the annual meeting and the same may
be discussed and considered, but unless stated in writing and filed with the
secretary at least 60 days before the meeting, such proposal shall be laid over
for action at an adjourned, special, or annual meeting of the shareholders
taking place at least 60 days thereafter. This provision shall not prevent the
consideration and approval or disapproval at the annual meeting of reports of
officers, directors and committees; but in connection with such reports no new
business shall be acted upon at such annual meeting unless stated and filed as
herein provided.
Section 16. Action by Consent of Shareholders. Any action required to be
----------------------------------------------
taken at a meeting of shareholders, or any other action which may be taken at a
meeting of the shareholders must be effected at an annual or special meeting of
shareholders of the Association and may not be affected by any consent in
writing by such shareholders.
II-4
<PAGE>
ARTICLE III. BOARD OF DIRECTORS
Section l. General Powers. The business and affairs of the Association
--------------------------
shall be under the direction of its board of directors. The board of directors
shall annually elect a chairman of the board and a president from among its
members and shall designate, when present, either the chairman of the board or
the president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of eight
---------------------------
(8) members and shall be divided into three classes as nearly equal in number as
possible. The members of each class shall be elected for a term of three years
and until their successors are elected and qualified. One class shall be
elected by ballot annually.
Section 3. Regular Meetings. A regular meeting of the board of directors
----------------------------
shall be held without other notice than this bylaw immediately after, and at the
same place as, the annual meeting of shareholders. The board of directors may
provide, by resolution, the time and place, for the holding of additional
regular meetings without other notice than such resolution.
Section 4. Qualification. Each director shall at all times be the
-------------------------
beneficial owner of not less than 100 shares of capital stock of the Association
unless the Association is 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 one-third of the directors. The persons authorized to call special meetings
of the board of directors may fix any place as the place for holding any special
meeting of the board of directors called by such persons.
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 each other. Such
participation shall constitute attendance for the purpose of compensation
pursuant to Section 12 of this Article.
Section 6. Notice. Written notice of any special meeting shall be given
------------------
to each director at least 24 hours prior thereto when delivered personally or by
telegram, or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall
be deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed, or when delivered to the telegraph company if sent by
telegram. Any director may waive notice of any meeting by a writing filed with
the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by Section
------------------
2 of this Article III shall constitute a quorum for the transaction of business
at any meeting of the board of
II-5
<PAGE>
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 applicable regulation 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 Association
addressed to the chairman of the board or president. Unless otherwise specified
such resignation shall take effect upon receipt by the chairman of the board or
president. The Board may, in its discretion by a majority vote, remove any
director who has absented without authority of the board from three consecutive
meetings of the board.
Section 11. Vacancies. Any vacancy occurring in the board of directors
----------------------
may be filled by the affirmative vote of a majority of the remaining directors,
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve until the next election of directors by
the shareholders. Any directorship to be filled by reason of an increase in the
number of directors may be filled by 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
-------------------------
compensation for their services. By resolution of the board of directors, a
reasonable fixed sum or such other compensation, including reasonable expenses
of attendance, if any, may be allowed for actual attendance at each regular or
special meeting of the board of directors. Members of either standing or
special committees may be allowed such compensation for actual attendance at
committee meetings as the board of directors may determine.
Section 13. Presumption of Assent. A director of the Association who is
----------------------------------
present at a meeting of the board of directors at which action on any
Association matter is taken shall be presumed to have assented to the action
taken unless his dissent or abstention shall be entered in the minutes of the
meeting or unless he shall file a written dissent to such action with the person
acting as the secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the secretary of the Association
within five days after the date a copy of the minutes of the meeting is
received. Such right to dissent shall not apply to a director who voted in
favor of such action.
Section 14. Removal of Directors. Any director may be removed for cause
---------------------------------
by a two-thirds vote of the board. In addition to the foregoing, any director,
or the entire board of directors, may be removed from office at any time, but
only for cause and upon the affirmative
II-6
<PAGE>
vote of the holders of at least eighty percent (80%) of the voting power of all
the then outstanding shares of capital stock of the Association entitled to vote
generally in the election of Directors.
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 chairman of the board and two or
more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
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
Certificate of Incorporation or bylaws of the Association, or recommending to
the shareholders a plan of merger, consolidation, or conversion; the sale, lease
or other disposition of all or substantially all of the property and assets of
the Association otherwise than in the usual and regular course of its business;
a voluntary dissolution of the Association; a revocation of any of the
foregoing; or the approval of a transaction in which any member of the executive
committee, directly or indirectly, has any material beneficial interest.
Section 3. Tenure. Subject to the provisions of Section 8 of this Article
------------------
IV, each member of the executive committee shall hold office until the next
regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
Section 4. Meetings. Regular meetings of the executive committee may be
--------------------
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee
may be called by any member thereof upon not less than 24 hours 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,
II-7
<PAGE>
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 Association. Unless otherwise
specified, such resignation shall take effect upon its receipt; the acceptance
of such resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
---------------------
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the 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
Association and may prescribe the duties, constitution and procedures thereof.
ARTICLE V. OFFICERS
Section l. Positions. The officers of the Association shall be a
---------------------
president, one or more vice presidents, a secretary and a treasurer, each of
whom shall be elected by the board of directors. The board of directors may
also designate the chairman of the board as an officer. The president shall 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 Association. The offices of the secretary and treasurer may be
held by the same person and a vice president may also be either the secretary or
the treasurer. The board of directors may designate one or more vice presidents
as executive vice president or senior vice president. The board of directors
may also elect or authorize the appointment of such other officers as the
business of the Association may require. The officers shall have such authority
and perform such duties as the board of directors may from 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 Association
---------------------------------------
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
II-8
<PAGE>
contractual rights. The board of directors may authorize the Association to
enter into an employment contract with any officer in accordance with
regulations; 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 Association will be served
thereby, but such removal, other than for cause, shall be without prejudice to
the contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
---------------------
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be fixed
------------------------
from time to time by the board of directors.
Section 6. Prohibited Affiliation. No person may be an Officer or
----------------------------------
Director of the Association if such person is related to any two Directors,
Officers, or Employees, or any combination thereof, of the Association in the
following degrees: such person's spouse, father, mother, children, brothers,
sisters and grandchildren; the father, mother, brothers, sisters of the such
person's spouse; and the spouse of a child, brother or sister, whether by full,
half blood or adoption.
Section 7. Limitation of Director or Officer Liability. No Director or
-------------------------------------------------------
Officer of the Association shall be personally liable to the Association or its
members for damages for breach of any duty owed to the Association or its
members except as set forth in N.J.S.A. 17:12B-38.1.
ARTICLE VI. CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section l. Contracts. Except as otherwise prescribed by these bylaws with
---------------------
respect to certificates for shares, the board of directors may authorize any
officer, employee, or agent of the Association to enter into any contract or
execute and deliver any instrument in the name of and on behalf of the
Association. Such authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
-----------------
Association and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or confined
to specific instances.
Section 3. Checks, Drafts, Etc. All checks, drafts or other orders for
--------------------------------
the payment of money, notes or other evidences of indebtedness issued in the
name of the Association shall be signed by one or more officers, employees or
agents of the Association in such manner as shall from time to time be
determined by the board of directors.
II-9
<PAGE>
Section 4. Deposits. All funds of the Association not otherwise employed
--------------------
shall be deposited from time to time to the credit of the Association in any
duly authorized depositories as the board of directors may select.
ARTICLE VII. CERTIFICATES FOR SHARES
AND THEIR TRANSFER
Section l. Certificates for Shares. Certificates representing shares of
-----------------------------------
capital stock of the Association shall be in such form as shall be determined by
the board of directors. Such certificates shall be signed by the chief
executive officer or by any other officer of the Association authorized by the
board of directors, attested by the secretary or an assistant secretary, and
sealed with the corporate seal or a facsimile thereof. The 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 Association
itself or one of its employees. Each certificate for shares of capital stock
shall be consecutively numbered or otherwise identified. The name and address
of the person to whom the shares are issued, with the number of shares and date
of issue, shall be entered on the stock transfer books of the Association.
All certificates surrendered to the Association 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 Association as the board of directors may
prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of the
------------------------------
Association shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney authorized by a duly executed power of attorney and filed with the
Association. Such transfer shall be made only on surrender for cancellation of
the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the Association shall be deemed by the Association
to be the owner for all purposes.
ARTICLE VIII. FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Association shall end on December 31 of each year.
The Association shall be subject to an annual audit as of the end of its fiscal
year by independent public accountants appointed by and responsible to the board
of directors. The appointment of such accountants shall be subject to annual
ratification by the shareholders.
ARTICLE IX. DIVIDENDS
Subject to the terms of the Association's Certificate of Incorporation, the
board of directors may, from time to time, declare, and the Association may pay,
dividends on its outstanding shares of capital stock.
II-10
<PAGE>
ARTICLE X. CORPORATE SEAL
The board of directors shall provide an Association seal, which shall be
two concentric circles between which shall be the name of the Association. The
year of incorporation or an emblem may appear in the center.
ARTICLE XI. AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of the
New Jersey Department of Banking and at any time by a majority vote of the full
board of directors, or by a majority vote of the votes cast by the shareholders
of the Association at any legal meeting.
ARTICLE XII. NEW JERSEY LAW
Any provision required by New Jersey law to be included in these bylaws
shall be deemed to be included herein and to the extent any other provision of
these bylaws is inconsistent with any such required provisions, the required
provisions shall govern.
II-11
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
SOUTH JERSEY FINANCIAL CORPORATION, INC.
FIRST: The name of the Corporation is South Jersey Financial Corporation,
-----
Inc. (hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
------
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
-----
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
FOURTH:
------
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is fifteen million (15,000,000)
consisting of:
1. one million (1,000,000) shares of Preferred Stock, par value
one cent ($.01) per share (the "Preferred Stock"); and
2. fourteen million (14,000,000) shares of Common Stock, par
value one cent ($.01) per share (the "Common Stock").
B. The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred
Stock in series, and by filing a certificate pursuant to the applicable law
of the State of Delaware (such certificate being hereinafter referred to as
a "Preferred Stock Designation"), to establish from time to time the number
of shares to be included in each such series, and to fix the designation,
powers, preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of
authorized shares of Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the Common Stock, without a vote of
the holders of the Preferred Stock, or of any series thereof, unless a vote
of any such holders is required pursuant to the terms of any Preferred
Stock Designation.
C. 1. Notwithstanding any other provision of this Certificate of
Incorporation, in no event shall any record owner of any
outstanding Common Stock which is beneficially owned, directly
or indirectly, by a person who, as of any record date for the
determination of stockholders entitled to vote on any matter,
beneficially owns in excess of 10% of the then-outstanding
shares of Common Stock (the
<PAGE>
"Limit"), be entitled, or permitted to any vote in respect
of the shares held in excess of the Limit. The number of
votes which may be cast by any record owner by virtue of the
provisions hereof in respect of Common Stock beneficially
owned by such person beneficially owning shares in excess of
the Limit shall be a number equal to the total number of
votes which a single record owner of all Common Stock
beneficially owned by such person would be entitled to cast,
(subject to the provisions of this Article FOURTH)
multiplied by a fraction, the numerator of which is the
number of shares of such class or series which are both
beneficially owned by such person and owned of record by
such record owner and the denominator of which is the total
number of shares of Common Stock beneficially owned by such
person owning shares in excess of the Limit.
2. The following definitions shall apply to this Section C of
this Article FOURTH:
a. "Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended, as in effect
on the date of filing of this Certificate of
Incorporation.
b. "Beneficial ownership" shall be determined pursuant to
Rule 13d-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended, (or any
successor rule or statutory provision), or, if said Rule
13d-3 shall be rescinded and there shall be no successor
rule or provision thereto, pursuant to said Rule 13d-3 as
in effect on the date of filing of this Certificate of
Incorporation; provided, however, that a person shall, in
any event, also be deemed the "beneficial owner" of any
Common Stock:
(1) which such person or any of its affiliates
beneficially owns, directly or indirectly; or
(2) which such person or any of its affiliates has: (i)
the right to acquire (whether such right is
exercisable immediately or only after the passage of
time), pursuant to any agreement, arrangement or
understanding (but shall not be deemed to be the
beneficial owner of any voting shares solely by
reason of an agreement, contract, or other
arrangement with this Corporation to effect any
transaction which is described in any one or more of
clauses 1 through 5 of
2
<PAGE>
Section A of Article EIGHTH of this Certificate of
Incorporation ("Article EIGHTH")), 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 shall
not be deemed to be the beneficial owner of any
voting shares solely by reason of a revocable proxy
granted for a particular meeting of stockholders,
pursuant to a public solicitation of proxies for such
meeting, with respect to shares of which neither such
person nor any such Affiliate is otherwise deemed the
beneficial owner); or
(3) which are beneficially owned, directly or
indirectly, by any other person with which such first
mentioned person or any of its Affiliates acts as a
partnership, limited partnership, syndicate or other
group pursuant to any agreement, arrangement or
understanding for the purpose of acquiring, holding,
voting or disposing of any shares of capital stock of
this Corporation; and provided further, however,
that: (1) no Director or Officer of this Corporation
(or any Affiliate of any such Director or Officer)
shall, solely by reason of any or all of such
Directors or Officers acting in their capacities as
such, be deemed, for any purposes hereof, to
beneficially own any Common Stock beneficially owned
by any other such Director or Officer (or any
Affiliate thereof); and (2) neither any employee
stock ownership or similar plan of this Corporation
or any subsidiary of this Corporation, nor any
trustee with respect thereto or any Affiliate of such
trustee (solely by reason of such capacity of such
trustee), shall be deemed, for any purposes hereof,
to beneficially own any Common Stock held under any
such plan. For purposes only of computing the
percentage of beneficial ownership of Common Stock of
a person, the outstanding Common Stock shall include
shares deemed owned by such person through
application of this subsection but shall not include
any other Common Stock which may be issuable by this
Corporation pursuant to any agreement, or upon
exercise of conversion rights, warrants or options,
or
3
<PAGE>
otherwise. For all other purposes, the outstanding
Common Stock shall include only Common Stock then
outstanding and shall not include any Common Stock
which may be issuable by this Corporation pursuant to
any agreement, or upon the exercise of conversion
rights, warrants or options, or otherwise.
c. The "Limit" shall mean 10% of the then-outstanding shares
of Common Stock.
d. A "person" shall include an individual, a firm, a group
acting in concert, a corporation, a partnership, an
association, a joint venture, a pool, a joint stock
company, a trust, an unincorporated organization or
similar company, a syndicate or any other group formed
for the purpose of acquiring, holding or disposing of
securities or any other entity.
3. The Board of Directors shall have the power to construe and
apply the provisions of this section and to make all
determinations necessary or desirable to implement such
provisions, including but not limited to matters with
respect to: (i) the number of shares of Common Stock
beneficially owned by any person; (ii) whether a person is
an affiliate of another; (iii) whether a person has an
agreement, arrangement, or understanding with another as to
the matters referred to in the definition of beneficial
ownership; (iv) the application of any other definition or
operative provision of the section to the given facts; or
(v) any other matter relating to the applicability or effect
of this section.
4. The Board of Directors shall have the right to demand that
any person who is reasonably believed to beneficially own
Common Stock in excess of the Limit (or holds of record
Common Stock beneficially owned by any person in excess of
the Limit) supply the Corporation with complete information
as to: (i) the record owner(s) of all shares beneficially
owned by such person who is reasonably believed to own
shares in excess of the Limit; and (ii) any other factual
matter relating to the applicability or effect of this
section as may reasonably be requested of such person.
5. Except as otherwise provided by law or expressly provided in
this Section C, the presence, in person or by proxy, of the
holders of record of shares of capital stock of the
Corporation entitling the holders thereof to cast a majority
of the votes (after giving effect, if required, to the
provisions of this Section C) entitled to be cast by the
4
<PAGE>
holders of shares of capital stock of the Corporation
entitled to vote shall constitute a quorum at all meetings
of the stockholders, and every reference in this Certificate
of Incorporation to a majority or other proportion of
capital stock (or the holders thereof) for purposes of
determining any quorum requirement or any requirement for
stockholder consent or approval shall be deemed to refer to
such majority or other proportion of the votes (or the
holders thereof) then entitled to be cast in respect of such
capital stock.
6. Any constructions, applications, or determinations made by
the Board of Directors pursuant to this section in good
faith and on the basis of such information and assistance as
was then reasonably available for such purpose shall be
conclusive and binding upon the Corporation and its
stockholders.
7. In the event any provision (or portion thereof) of this
Section C shall be found to be invalid, prohibited or
unenforceable for any reason, the remaining provisions (or
portions thereof) of this Section shall remain in full force
and effect, and shall be construed as if such invalid,
prohibited or unenforceable provision had been stricken
herefrom or otherwise rendered inapplicable, it being the
intent of this Corporation and its stockholders that each
such remaining provision (or portion thereof) of this
Section C remain, to the fullest extent permitted by law,
applicable and enforceable as to all stockholders, including
stockholders owning an amount of stock over the Limit,
notwithstanding any such finding.
FIFTH: The following provisions are inserted for the management of the
-----
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers
and authority expressly conferred upon them by statute or by this
Certificate of Incorporation or the Bylaws of the Corporation, the
Directors are hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation.
B. The Directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
C. Any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special
meeting of stockholders of the Corporation and may not be effected by any
consent in writing by such stockholders.
5
<PAGE>
D. Special meetings of stockholders of the Corporation may be called
only by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board or as otherwise provided in the Bylaws. The
term "Whole Board" shall mean the total number of authorized directorships
(whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board for
adoption).
SIXTH:
-----
A. The number of Directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board. The Directors shall be divided into three
classes, as nearly equal in number as reasonably possible, with the term of
office of the first class to expire at the first annual meeting of
stockholders, the term of office of the second class to expire at the
annual meeting of stockholders one year thereafter and the term of office
of the third class to expire at the annual meeting of stockholders two
years thereafter with each Director to hold office until his or her
successor shall have been duly elected and qualified. At each annual
meeting of stockholders following such initial classification and election,
Directors elected to succeed those Directors whose terms expire shall be
elected for a term of office to expire at the third succeeding annual
meeting of stockholders after their election with each Director to hold
office until his or her successor shall have been duly elected and
qualified.
B. Subject to the rights of holders of any series of Preferred Stock
outstanding, the newly created directorships resulting from any increase in
the authorized number of Directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled only by a majority vote of
the Directors then in office, though less than a quorum, and Directors so
chosen shall hold office for a term expiring at the annual meeting of
stockholders at which the term of office of the class to which they have
been chosen expires. No decrease in the number of Directors constituting
the Board of Directors shall shorten the term of any incumbent Director.
C. Advance notice of stockholder nominations for the election of
Directors and of business to be brought by stockholders before any meeting
of the stockholders of the Corporation shall be given in the manner
provided in the Bylaws of the Corporation.
D. Subject to the rights of holders of any series of Preferred Stock
then outstanding, any Director, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least 80 percent of the voting power
of all of the then-outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving
effect to the provisions of Article FOURTH of this Certificate of
Incorporation ("Article FOURTH")), voting together as a single class.
6
<PAGE>
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
-------
repeal Bylaws of the Corporation. Any adoption, amendment or repeal of the
Bylaws of the Corporation by the Board of Directors shall require the approval
of a majority of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the Bylaws of the Corporation; provided, however, that,
in addition to any vote of the holders of any class or series of stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to adopt, amend or repeal any provisions of the Bylaws of the
Corporation.
EIGHTH:
------
A. In addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly provided in
this Article EIGHTH:
1. any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with: (i) any Interested
Stockholder (as hereinafter defined); or (ii) any other
corporation (whether or not itself an Interested Stockholder)
which is, or after such merger or consolidation would be, an
Affiliate (as hereinafter defined) of an Interested
Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions)
to or with any Interested Stockholder, or any Affiliate of any
Interested Stockholder, of any assets of the Corporation or
any Subsidiary having an aggregate Fair Market Value (as
hereinafter defined) equaling or exceeding 25% or more of the
combined assets of the Corporation and its Subsidiaries; or
3. the issuance or transfer by the Corporation or any Subsidiary
(in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any
Interested Stockholder or any Affiliate of any Interested
Stockholder in exchange for cash, securities or other property
(or a combination thereof) having an aggregate Fair Market
Value (as hereinafter defined) equaling or exceeding 25% of
the combined Fair Market Value of the outstanding common stock
of the Corporation and its Subsidiaries, except for any
issuance or transfer pursuant to an employee benefit plan of
the Corporation or any Subsidiary thereof; or
7
<PAGE>
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Stockholder or any Affiliate of any Interested
Stockholder; or
5. any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any
merger or consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with or
into or otherwise involving an Interested Stockholder) which
has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of
equity or convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any
Interested Stockholder or any Affiliate of any Interested
Stockholder;
shall require the affirmative vote of the holders of at least 80% of the
voting power of the then-outstanding shares of stock of the Corporation
entitled to vote in the election of Directors (the "Voting Stock") (after
giving effect to the provisions of Article FOURTH), voting together as a
single class. Such affirmative vote shall be required notwithstanding the
fact that no vote may be required, or that a lesser percentage may be
specified, by law or by any other provisions of this Certificate of
Incorporation or any Preferred Stock Designation in any agreement with any
national securities exchange or otherwise.
The term "Business Combination" as used in this Article EIGHTH shall
mean any transaction which is referred to in any one or more of paragraphs
1 through 5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only the affirmative vote of the majority of the
outstanding shares of capital stock entitled to vote after giving effect to
the provisions of Article FOURTH, or such vote (if any), as is required by
law or by this Certificate of Incorporation, if, in the case of any
Business Combination that does not involve any cash or other consideration
being received by the stockholders of the Corporation solely in their
capacity as stockholders of the Corporation, the condition specified in the
following paragraph 1 is met or, in the case of any other Business
Combination, all of the conditions specified in either of the following
paragraphs 1 or 2 are met:
1. The Business Combination shall have been approved by a
majority of the Disinterested Directors (as hereinafter
defined).
2. All of the following conditions shall have been met:
a. The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business
8
<PAGE>
Combination of consideration other than cash to be
received per share by the holders of Common Stock in such
Business Combination shall at least be equal to the
higher of the following:
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting dealers'
fees, paid by the Interested Stockholder or any of
its Affiliates for any shares of Common Stock
acquired by it: (i) within the two-year period
immediately prior to the first public announcement of
the proposal of the Business Combination (the
"Announcement Date"); or (ii) in the transaction in
which it became an Interested Stockholder, whichever
is higher; or
(2) the Fair Market Value per share of Common Stock on
the Announcement Date or on the date on which the
Interested Stockholder became an Interested
Stockholder (such latter date is referred to in this
Article EIGHTH as the "Determination Date"),
whichever is higher.
b. The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business
Combination of consideration other than cash to be
received per share by holders of shares of any class of
outstanding Voting Stock other than Common Stock shall be
at least equal to the highest of the following (it being
intended that the requirements of this subparagraph (b)
shall be required to be met with respect to every such
class of outstanding Voting Stock, whether or not the
Interested Stockholder has previously acquired any shares
of a particular class of Voting Stock)
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting dealers'
fees, paid by the Interested Stockholder for any
shares of such class of Voting Stock acquired by it:
(i) within the two-year period immediately prior to
the Announcement Date; or (ii) in the transaction in
which it became an Interested Stockholder, whichever
is higher; or
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(2) (if applicable) the highest preferential amount per
share to which the holders of shares of such class of
Voting Stock are entitled in the event of any
voluntary or involuntary liquidation, dissolution or
winding up of the Corporation; or
(3) the Fair Market Value per share of such class of
Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher.
c. The consideration to be received by holders of a
particular class of outstanding Voting Stock (including
Common Stock) shall be in cash or in the same form as the
Interested Stockholder has previously paid for shares of
such class of Voting Stock. If the Interested Stockholder
has paid for shares of any class of Voting Stock with
varying forms of consideration, the form of consideration
to be received per share by holders of shares of such
class of Voting Stock shall be either cash or the form
used to acquire the largest number of shares of such
class of Voting Stock previously acquired by the
Interested Stockholder. The price determined in
accordance with subparagraph B.2 of this Article EIGHTH
shall be subject to appropriate adjustment in the event
of any stock dividend, stock split, combination of shares
or similar event.
d. After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of
such Business Combination: (1) except as approved by a
majority of the Disinterested Directors (as hereinafter
defined), there shall have been no failure to declare and
pay at the regular date therefor any full quarterly
dividends (whether or not cumulative) on any outstanding
stock having preference over the Common Stock as to
dividends or liquidation; (2) there shall have been: (i)
no reduction in the annual rate of dividends paid on the
Common Stock (except as necessary to reflect any
subdivision of the Common Stock), except as approved by a
majority of the Disinterested Directors; and (ii) an
increase in such annual rate of dividends as necessary to
reflect any reclassification (including any reverse stock
split), recapitalization, reorganization or any similar
transaction which has the effect of reducing the number
of outstanding shares of the Common Stock, unless the
failure to so increase such annual rate is approved by a
majority of the
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Disinterested Directors, and (3) neither such Interested
Stockholder or any of its Affiliates shall have become
the beneficial owner of any additional shares of Voting
Stock except as part of the transaction which results in
such Interested Stockholder becoming an Interested
Stockholder.
e. After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall
not have received the benefit, directly or indirectly
(except proportionately as a stockholder), of any loans,
advances, guarantees, pledges or other financial
assistance or any tax credits or other tax advantages
provided, directly or indirectly, by the Corporation,
whether in anticipation of or in connection with such
Business Combination or otherwise.
f. A proxy or information statement describing the proposed
Business Combination and complying with the requirements
of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder (or any subsequent
provisions replacing such Act, and the rules or
regulations thereunder) shall be mailed to stockholders
of the Corporation at least 30 days prior to the
consummation of such Business Combination (whether or not
such proxy or information statement is required to be
mailed pursuant to such Act or subsequent provisions).
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a firm, a group
acting in concert, a corporation, a partnership, an
association, a joint venture, a pool, a joint stock company,
a trust, an unincorporated organization or similar company,
a syndicate or any other group formed for the purpose of
acquiring, holding or disposing of securities or any other
entity.
2. "Interested Stockholder" shall mean any person (other than
the Corporation or any Holding Company or Subsidiary
thereof) who or which:
a. is the beneficial owner, directly or indirectly, of more
than 10% of the voting power of the outstanding Voting
Stock; or
b. is an Affiliate of the Corporation and at any time within
the two-year period immediately prior to the date in
question was
11
<PAGE>
the beneficial owner, directly or indirectly, of 10% or
more of the voting power of the then outstanding Voting
Stock; or
c. is an assignee of or has otherwise succeeded to any
shares of Voting Stock which were at any time within the
two-year period immediately prior to the date in question
beneficially owned by any Interested Stockholder, if such
assignment or succession shall have occurred in the
course of a transaction or series of transactions not
involving a public offering within the meaning of the
Securities Act of 1933, as amended.
3. For purposes of this Article EIGHTH, "beneficial ownership"
shall be determined in the manner provided in Section C of
Article FOURTH hereof.
4. "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of
1934, as in effect on the date of filing of this Certificate
of Incorporation.
5. "Subsidiary" means any corporation of which a majority of
any class of equity security is owned, directly or
indirectly, by the Corporation; provided, however, that for
the purposes of the definition of Interested Stockholder set
forth in Paragraph 2 of this Section C, the term
"Subsidiary" shall mean only a corporation of which a
majority of each class of equity security is owned, directly
or indirectly, by the Corporation.
6. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested
Stockholder and was a member of the Board of Directors prior
to the time that the Interested Stockholder became an
Interested Stockholder, and any Director who is thereafter
chosen to fill any vacancy of the Board of Directors or who
is elected and who, in either event, is unaffiliated with
the Interested Stockholder and in connection with his or her
initial assumption of office is recommended for appointment
or election by a majority of Disinterested Directors then on
the Board of Directors.
7. "Fair Market Value" means:
a. in the case of stock, the highest closing sales price
of the stock during the 30-day period immediately
preceding the date in question of a share of such stock
on the National Association of Securities Dealers
Automated Quotation
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<PAGE>
System or any system then in use, or, if such stock is
admitted to trading on a principal United States
securities exchange registered under the Securities
Exchange Act of 1934, as amended, Fair Market Value
shall be the highest sale price reported during the 30-
day period preceding the date in question, or, if no
such quotations are available, the Fair Market Value on
the date in question of a share of such stock as
determined by the Board of Directors in good faith, in
each case with respect to any class of stock,
appropriately adjusted for any dividend or distribution
in shares of such stock or any stock split or
reclassification of outstanding shares of such stock
into a greater number of shares of such stock or any
combination or reclassification of outstanding shares
of such stock into a smaller number of shares of such
stock; and
b. in the case of property other than cash or stock, the
Fair Market Value of such property on the date in
question as determined by the Board of Directors in
good faith.
8. Reference to "Highest Per Share Price" shall in each case
with respect to any class of stock reflect an appropriate
adjustment for any dividend or distribution in shares of
such stock or any stock split or reclassification of
outstanding shares of such stock into a greater number of
shares of such stock or any combination or reclassification
of outstanding shares of such stock into a smaller number of
shares of such stock.
9. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than
cash to be received" as used in Subparagraphs (a) and (b) of
Paragraph 2 of Section B of this Article EIGHTH shall
include the shares of Common Stock and/or the shares of any
other class of outstanding Voting Stock retained by the
holders of such shares.
D. A majority of the Disinterested Directors of the Corporation shall
have the power and duty to determine for the purposes of this Article
EIGHTH, on the basis of information known to them after reasonable inquiry:
(a) whether a person is an Interested Stockholder; (b) the number of shares
of Voting Stock beneficially owned by any person; (c) whether a person is
an Affiliate or Associate of another; and (d) whether the assets which are
the subject of any Business Combination have, or the consideration to be
received for the issuance or transfer of securities by the Corporation or
any Subsidiary in any Business Combination has an aggregate Fair Market
Value equaling or exceeding 25% of the combined Fair Market Value of the
Common Stock of the Corporation and its Subsidiaries.
13
<PAGE>
A majority of the Disinterested Directors shall have the further power to
interpret all of the terms and provisions of this Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of
any particular class or series of the Voting Stock required by law, this
Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least 80 percent of the voting power
of all of the then-outstanding shares of the Voting Stock (after giving
effect to the provisions of Article FOURTH), voting together as a single
class, shall be required to alter, amend or repeal this Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any
-----
offer of another Person (as defined in Article EIGHTH hereof) to: (A) make a
tender or exchange offer for any equity security of the Corporation; (B) merge
or consolidate the Corporation with another corporation or entity; or (C)
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, may, in connection with the exercise of its judgment
in determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, those factors that Directors of any subsidiary of the Corporation
may consider in evaluating any action that may result in a change or potential
change in the control of the subsidiary, and the social and economic effect of
acceptance of such offer: on the Corporation's present and future customers and
employees and those of its Subsidiaries (as defined in Article EIGHTH hereof);
on the communities in which the Corporation and its Subsidiaries operate or are
located; on the ability of the Corporation to fulfill its corporate objective as
a savings and loan holding company under applicable laws and regulations; and on
the ability of its subsidiary savings and loan association to fulfill the
objectives of a stock form savings and loan association under applicable
statutes and regulations.
TENTH:
-----
A. Each person who was or is made a party or is threatened to be made
a party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent or in any other capacity while serving as a Director, Officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case
14
<PAGE>
of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid in settlement) reasonably
incurred or suffered by such indemnitee in connection therewith; provided,
however, that, except as provided in Section C hereof with respect to
proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this
Article TENTH shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition (hereinafter an "advancement of expenses"); provided, however,
that, if the Delaware General Corporation Law requires, an advancement of
expenses incurred by an indemnitee in his or her capacity as a Director or
Officer (and not in any other capacity in which service was or is rendered
by such indemnitee, including, without limitation, services to an employee
benefit plan) shall be made only upon delivery to the Corporation of an
undertaking (hereinafter an "undertaking"), by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right
to appeal (hereinafter a "final adjudication") that such indemnitee is not
entitled to be indemnified for such expenses under this Section or
otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article TENTH shall be
contract rights and such rights shall continue as to an indemnitee who has
ceased to be a Director, Officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid
in full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be
twenty days, the indemnitee may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim. If successful
in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. In (i) any suit brought by
the indemnitee to enforce a right to indemnification hereunder (but not in
a suit brought by the indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking the Corporation shall be entitled to recover such expenses
upon a final adjudication that, the indemnitee has not met any applicable
standard for indemnification set forth in the Delaware General Corporation
Law. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification
of the indemnitee is proper in the circumstances because the indemnitee has
met the applicable
15
<PAGE>
standard of conduct set forth in the Delaware General Corporation Law, nor
an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the
indemnitee has not met such applicable standard of conduct, shall create a
presumption that the indemnitee has not met the applicable standard of
conduct or, in the case of such a suit brought by the indemnitee, be a
defense to such suit. In any suit brought by the indemnitee to enforce a
right to indemnification or to an advancement of expenses hereunder, or by
the Corporation to recover an advancement of expenses pursuant to the terms
of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article TENTH or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Corporation's Certificate of Incorporation, Bylaws, agreement, vote of
stockholders or Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any Director, Officer, employee or agent of the Corporation or
subsidiary or Affiliate or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether
or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware General
Corporation Law.
F. The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article TENTH with respect to the
indemnification and advancement of expenses of Directors and Officers of
the Corporation.
ELEVENTH: A Director of this Corporation shall not be personally liable to
--------
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability: (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) under Section 174 of the Delaware General Corporation
Law; or (iv) for any transaction from which the Director derived an improper
personal benefit. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of Directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
Director of the Corporation existing at the time of such repeal or modification.
TWELFTH: The Corporation reserves the right to amend or repeal any
-------
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and
16
<PAGE>
all rights conferred upon stockholders are granted subject to this reservation;
provided, however, that, notwithstanding any other provision of this Certificate
of Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any vote of the holders of any class or
series of the stock of this Corporation required by law or by this Certificate
of Incorporation, the affirmative vote of the holders of at least 80 percent of
the voting power of all of the then-outstanding shares of the capital stock of
the Corporation entitled to vote generally in the election of Directors (after
giving effect to the provisions of Article FOURTH), voting together as a single
class, shall be required to amend or repeal this Article TWELFTH, Section C of
Article FOURTH, Sections C or D of Article FIFTH, Article SIXTH, Article
SEVENTH, Article EIGHTH or Article TENTH.
THIRTEENTH: The name and mailing address of the sole incorporator are as
----------
follows:
Name Mailing Address
-------------- --------------------------------
Karen Gimbutas Morris, Nichols, Arsht & Tunnell
1201 North Market Street
P.O. Box 1347
Wilmington, Delaware 19899-1347
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I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation and do certify that the facts herein stated
are true, and accordingly, have hereto set my hand this 28th day of September,
1998.
/s/ Karen Gimbutas
------------------
Karen Gimbutas
Incorporator
18
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EXHIBIT 3.2
SOUTH JERSEY FINANCIAL CORPORATION, INC.
BYLAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
--------- --------------
An annual meeting of the stockholders, for the election of Directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix, which date
shall be within thirteen (13) months subsequent to the later of the date of
incorporation or the last annual meeting of stockholders.
Section 2. Special Meetings.
--------- ----------------
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution adopted by
a majority of the total number of Directors which the Corporation would have if
there were no vacancies on the Board of Directors (hereinafter the "Whole
Board").
Section 3. Notice of Meetings.
--------- ------------------
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
--------- ------
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy (after giving effect to the provisions of Article FOURTH of the
Corporation's Certificate of Incorporation), shall constitute a quorum for
<PAGE>
all purposes, unless or except to the extent that the presence of a larger
number may be required by law. Where a separate vote by a class or classes is
required, a majority of the shares of such class or classes present in person or
represented by proxy (after giving effect to the provisions of Article FOURTH of
the Corporation's Certificate of Incorporation) shall constitute a quorum
entitled to take action with respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present in person or by proxy constituting a quorum, then except as otherwise
required by law, those present in person or by proxy at such adjourned meeting
shall constitute a quorum, and all matters shall be determined by a majority of
the votes cast at such meeting.
Section 5. Organization.
--------- ------------
Such person as the Board of Directors may have designated or, in the
absence of such a person, the Chairman of the Board of the Corporation or, in
his or her absence, such person as may be chosen by the holders of a majority of
the shares entitled to vote who are present, in person or by proxy, shall call
to order any meeting of the stockholders and act as chairman of the meeting. In
the absence of the Secretary of the Corporation, the secretary of the meeting
shall be such person as the chairman appoints.
Section 6. Conduct of Business.
--------- -------------------
(a) The chairman of any meeting of stockholders shall determine the
order of business and the procedures at the meeting, including such regulation
of the manner of voting and the conduct of discussion as seem to him or her in
order. The date and time of the opening and closing of the polls for each
matter upon which the stockholders will vote at the meeting shall be announced
at the meeting.
(b) At any annual meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting: (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or mailed
to and received at the principal executive offices of the Corporation not less
than ninety (90) days prior to the date of the annual meeting; provided,
however, that in the event that less than one hundred (100) days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be received not later
than the close of
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<PAGE>
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 Corporation's books, of the stockholder proposing such
business; (iii) the class and number of shares of the Corporation's capital
stock that are beneficially owned by such stockholder; and (iv) any material
interest of such stockholder in such business. Notwithstanding anything in these
Bylaws to the contrary, no business shall be brought before or conducted at an
annual meeting except in accordance with the provisions of this Section 6(b).
The Officer of the Corporation or other person presiding over the annual meeting
shall, if the facts so warrant, determine and declare to the meeting that
business was not properly brought before the meeting in accordance with the
provisions of this Section 6(b) and, if he 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 stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(c) Only persons who are nominated in accordance with the procedures
set forth in these Bylaws shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders at which directors are to be elected
only: (i) by or at the direction of the Board of Directors; or (ii) by any
stockholder of the Corporation entitled to vote for the election of Directors at
the meeting who complies with the notice procedures set forth in this Section
6(c). Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made by timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered or
mailed to and received at the principal executive offices of the Corporation not
less than ninety (90) days prior to the date of the meeting; provided, however,
that in the event that less than one hundred (100) days' notice or prior
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth: (i) as to each person whom such stockholder proposes to
nominate for election or re-election as a Director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); and (ii) as to the stockholder giving
the notice (x) the name and address, as they appear on the Corporation's books,
of such stockholder and (y) the class and number of shares of the Corporation's
capital stock that are beneficially owned by such stockholder. At the request
of the Board of Directors, any person nominated by the Board of Directors for
election as a Director shall furnish to the Secretary of the Corporation that
information required to be set forth in a stockholder's notice of nomination
which pertains to the nominee. No person shall be eligible for election as a
Director of the Corporation unless nominated in accordance with the provisions
of this Section 6(c). The Officer of the Corporation or other person presiding
at the meeting shall, if
3
<PAGE>
the facts so warrant, determine that a nomination was not made in accordance
with such provisions and, if he or she shall so determine, he or she shall so
declare to the meeting and the defective nomination shall be disregarded.
Section 7. Proxies and Voting.
--------- ------------------
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting. Any facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including on the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation, may
be made by a voice vote; provided, however, that upon demand therefor by a
stockholder entitled to vote or his or her proxy, a stock vote shall be taken.
Every stock vote shall be taken by ballot, each of which shall state the name of
the stockholder or proxy voting and such other information as may be required
under the procedures established for the meeting. The Corporation shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
the meeting and make a written report thereof. The Corporation may designate
one or more persons as alternate inspectors to replace any inspector who fails
to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the votes cast.
Section 8. Stock List.
--------- ----------
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall
4
<PAGE>
presumptively determine the identity of the stockholders entitled to vote at the
meeting and the number of shares held by each of them.
Section 9. Consent of Stockholders in Lieu of Meeting.
--------- ------------------------------------------
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers, Number, Term of Office and Limitations.
--------- ------------------------------------------------------
The business and affairs of the Corporation shall be under the direction of
its Board of Directors. The number of Directors who shall constitute the Whole
Board shall be such number as the Board of Directors shall from time to time
have designated, except that in the absence of such designation shall be eight.
The Board of Directors shall annually elect a Chairman of the Board from among
its members who shall, when present, preside at its meetings.
The Directors, other than those who may be elected by the holders of any
class or series of Preferred Stock, shall be divided, with respect to the time
for which they severally hold office, into three classes, with the term of
office of the first class to expire at the first annual meeting of stockholders,
the term of office of the second class to expire at the annual meeting of
stockholders one year thereafter and the term of office of the third class to
expire at the annual meeting of stockholders two years thereafter, with each
Director to hold office until his or her successor shall have been duly elected
and qualified. At each annual meeting of stockholders, Directors elected to
succeed those Directors whose terms then expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders after
their election, with each Director to hold office until his or her successor
shall have been duly elected and qualified.
Section 2. Vacancies and Newly Created Directorships.
--------- -----------------------------------------
Subject to the rights of the holders of any class or series of Preferred
Stock, and unless the Board of Directors otherwise determines, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
only by a majority vote of the Directors then in office, though less than a
quorum, and Directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires and until such Director's successor shall have
been duly elected and qualified. No decrease in the number of authorized
directors constituting the Board shall shorten the term of any incumbent
Director.
5
<PAGE>
Section 3. Regular Meetings.
--------- ----------------
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all Directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
--------- ----------------
Special meetings of the Board of Directors may be called by one-third (1/3)
of the Directors then in office (rounded up to the nearest whole number), by the
Chairman of the Board or the President or, in the event that the Chairman of the
Board or President are incapacitated or otherwise unable to call such meeting,
by the Secretary, and shall be held at such place, on such date, and at such
time as they, or he or she, shall fix. Notice of the place, date, and time of
each such special meeting shall be given each Director by whom it is not waived
by mailing written notice not less than five (5) days before the meeting or by
telegraphing or telexing or by facsimile transmission of the same not less than
twenty-four (24) hours before the meeting. Unless otherwise indicated in the
notice thereof, any and all business may be transacted at a special meeting.
Section 5. Quorum.
--------- ------
At any meeting of the Board of Directors, a majority of the Whole Board
shall constitute a quorum for all purposes. If a quorum shall fail to attend
any meeting, a majority of those present may adjourn the meeting to another
place, date, or time, without further notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
--------- -------------------------------------------------
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
-------------------
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the Directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
6
<PAGE>
Section 8. Powers.
--------- ------
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, including, without limiting the generality of the foregoing,
the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as it
may determine, of written obligations of every kind, negotiable or non-
negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any Officer of the Corporation with or without cause,
and from time to time to devolve the powers and duties of any Officer upon
any other person for the time being;
(5) To confer upon any Officer of the Corporation the power to
appoint, remove and suspend subordinate Officers, employees and agents;
(6) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for Directors, Officers, employees and
agents of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for Directors, Officers, employees and agents of the
Corporation and its subsidiaries as it may determine;
(8) To adopt from time to time regulations, not inconsistent with
these Bylaws, for the management of the Corporation's business and affairs;
and
(9) To fix the Compensation of officers and employees of the
Corporation and its subsidiaries as it may determine.
Section 9. Compensation of Directors.
--------- -------------------------
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as Directors,
including, without limitation, their services as members of committees of the
Board of Directors.
7
<PAGE>
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
--------- ------------------------------------
The Board of Directors, by a vote of a majority of the Board of Directors,
may from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the Board and shall, for these committees and any others provided for herein,
elect a Director or Directors to serve as the member or members, designating, if
it desires, other Directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. Any committee so
designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
Section 2. Conduct of Business.
--------- -------------------
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings. The quorum requirements for each such
committee shall be a majority of the members of such committee unless otherwise
determined by the Board of Directors by a majority vote of the Board of
Directors which such quorum determined by a majority of the Board may be one-
third of such members and all matters considered by such committees shall be
determined by a majority vote of the members present. Action may be taken by any
committee without a meeting if all members thereof consent thereto in writing,
and the writing or writings are filed with the minutes of the proceedings of
such committee.
Section 3. Nominating Committee.
---------- --------------------
The Board of Directors shall appoint a Nominating Committee of the Board,
consisting of not less than three (3) members. The Nominating Committee shall
have authority: (a) to review any nominations for election to the Board of
Directors made by a stockholder of the Corporation pursuant to Section 6(c)(ii)
of Article I of these Bylaws in order to determine compliance with such Bylaw;
and (b) to recommend to the Whole Board nominees for election to the Board of
Directors to replace those Directors whose terms expire at the annual meeting of
stockholders next ensuing.
8
<PAGE>
ARTICLE IV - OFFICERS
Section 1. Generally.
--------- ---------
(a) The Board of Directors as soon as may be practicable after the
annual meeting of stockholders shall choose a Chairman of the Board, Chief
Executive Officer, a President, one or more Vice Presidents, a Secretary and a
Treasurer and from time to time may choose such other officers as it may deem
proper. The Chairman of the Board shall be chosen from among the Directors.
Any number of offices may be held by the same person.
(b) The term of office of all Officers shall be until the next annual
election of Officers and until their respective successors are chosen but any
Officer may be removed from office at any time by the affirmative vote of a
majority of the authorized number of Directors then constituting the Board of
Directors.
(c) All Officers chosen by the Board of Directors shall have such
powers and duties as generally pertain to their respective Offices, subject to
the specific provisions of this ARTICLE IV. Such officers shall also have such
powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof.
Section 2. Chairman of the Board of Directors.
--------- ----------------------------------
The Chairman of the Board, subject to the provisions of these Bylaws and to
the direction of the Board of Directors, when present shall preside at all
meetings of the stockholders of the Corporation. The Chairman of the Board
shall perform such duties designated to him by the Board of Directors and which
are delegated to him or her by the Board of Directors by resolution of the Board
of Directors.
Section 3. President and Chief Executive Officer.
--------- -------------------------------------
The President and Chief Executive Officer shall have general responsibility
for the management and control of the business and affairs of the Corporation
and shall perform all duties and have all powers which are commonly incident to
the office of President and Chief Executive Officer or which are delegated to
him or her by the Board of Directors. Subject to the direction of the Board of
Directors, the President and Chief Executive Officer shall have power to sign
all stock certificates, contracts and other instruments of the Corporation which
are authorized and shall have general supervision of all of the other Officers
(other than the Chairman of the Board), employees and agents of the Corporation.
Section 4. Vice President.
---------- --------------
The Vice President or Vice Presidents shall perform the duties of the
President in his absence or during his inability to act. In addition, the Vice
Presidents shall perform the duties and exercise the powers usually incident to
their respective offices and/or such other duties and powers as may
9
<PAGE>
be properly assigned to them by the Board of Directors, the Chairman of the
Board or the President. A Vice President or Vice Presidents may be designated as
Executive Vice President or Senior Vice President.
Section 5. Secretary.
--------- ---------
The Secretary or Assistant Secretary shall issue notices of meetings, shall
keep their minutes, shall have charge of the seal and the corporate books, shall
perform such other duties and exercise such other powers as are usually incident
to such office and/or such other duties and powers as are properly assigned
thereto by the Board of Directors, the Chairman of the Board or the President.
Subject to the direction of the Board of Directors, the Secretary shall have the
power to sign all stock certificates.
Section 6. Treasurer.
---------- ----------
The Treasurer shall be the Comptroller of the Corporation and shall have
the responsibility for maintaining the financial records of the Corporation. He
or she shall make such disbursements of the funds of the Corporation as are
authorized and shall render from time to time an account of all such
transactions and of the financial condition of the Corporation. The Treasurer
shall also perform such other duties as the Board of Directors may from time to
time prescribe. Subject to the direction of the Board of Directors, the
Treasurer shall have the power to sign all stock certificates.
Section 7. Assistant Secretaries and Other Officers.
--------- -----------------------------------------
The Board of Directors may appoint one or more Assistant Secretaries and
such other Officers who shall have such powers and shall perform such duties as
are provided in these Bylaws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
Section 8. Action with Respect to Securities of Other Corporations.
---------- --------------------------------------------------------
Unless otherwise directed by the Board of Directors, the President or any
Officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
ARTICLE V - STOCK
Section 1. Certificates of Stock.
--------- ---------------------
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the Chairman of the Board or the President, and by
the Secretary or an Assistant Secretary, or
10
<PAGE>
any Treasurer or Assistant Treasurer, certifying the number of shares owned by
him or her. Any or all of the signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
--------- ------------------
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these Bylaws,
an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
--------- -----------
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the next day preceding the day
on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment or rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
--------- --------------------------------------
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations.
--------- -----------
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
11
<PAGE>
ARTICLE VI - NOTICES
Section 1. Notices.
--------- -------
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, Director, Officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, or by sending such notice by prepaid telegram or mailgram or other
courier. Any such notice shall be addressed to such stockholder, Director,
Officer, employee or agent at his or her last known address as the same appears
on the books of the Corporation. The time when such notice is received, if hand
delivered, or dispatched, if delivered through the mails or by telegram or
mailgram or other courier, shall be the time of the giving of the notice.
Section 2. Waivers.
--------- -------
A written waiver of any notice, signed by a stockholder, Director, Officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, Director, Officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
ARTICLE VII - MISCELLANEOUS
Section 1. Facsimile Signatures.
--------- --------------------
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
--------- --------------
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Treasurer or by an Assistant Secretary or
an assistant to the Treasurer.
Section 3. Reliance Upon Books, Reports and Records.
--------- ----------------------------------------
Each Director, each member of any committee designated by the Board of
Directors, and each Officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its Officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such Director or committee member reasonably
believes are within such other
12
<PAGE>
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
--------- -----------
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
--------- ------------
In applying any provision of these Bylaws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
ARTICLE VIII - AMENDMENTS
The Board of Directors may amend, alter or repeal these Bylaws at any
meeting of the Board, provided notice of the proposed change was given not less
than two (2) days prior to the meeting. The stockholders shall also have power
to amend, alter or repeal these Bylaws at any meeting of stockholders provided
notice of the proposed change was given in the notice of the meeting; provided,
however, that, notwithstanding any other provisions of the Bylaws or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the voting stock required by law, the Certificate of Incorporation,
any Preferred Stock Designation or these Bylaws, the affirmative votes of the
holders of at least 80% of the voting power of all the then-outstanding shares
of the Voting Stock, voting together as a single class, shall be required to
alter, amend or repeal any provisions of these Bylaws.
The above Bylaws are effective as of September 28, 1998, the date of
incorporation of South Jersey Financial Corporation, Inc.
13
<PAGE>
Exhibit 4.0
COMMON STOCK COMMON STOCK
PAR VALUE $.01 SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP
[THIS CERTIFICATE IS TRANSFERABLE
IN BOTH CRANFORD, NEW JERSEY AND
NEW YORK, NEW YORK]
SOUTH JERSEY FINANCIAL CORPORATION, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
S P E C I M E N
is the owner of:
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK $.01 PAR VALUE PER SHARE OF
SOUTH JERSEY FINANCIAL CORPORATION, INC.
The shares represented by this certificate are transferable only on the
stock transfer books of the Corporation 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
Certificate of Incorporation of the Corporation and any amendments thereto
(copies of which are on file with the Transfer Agent), to all of which
provisions the holder by acceptance hereof, assents.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar. The shares represented by this Certificate are
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
IN WITNESS WHEREOF, South Jersey Financial Corporation, Inc. has caused this
certificate to be executed by the facsimile signatures of its duly authorized
officers and has caused a facsimile of its corporate seal to be hereunto
affixed.
Dated: [SEAL]
President and Secretary
Chief Executive Officer
[COUNTERSIGNED AND REGISTERED:
[REGISTRAR AND TRANSFER AGENT]
<PAGE>
SOUTH JERSEY FINANCIAL CORPORATION, INC.
The shares represented by this certificate are subject to a limitation
contained in the Certificate of Incorporation to the effect that in no event
shall any record owner of any outstanding common stock which is beneficially
owned, directly or indirectly, by a person who beneficially owns in excess of
10% of the outstanding shares of common stock (the "Limit") be entitled or
permitted to any vote in respect of shares held in excess of the Limit.
The Board of Directors of the Corporation is authorized by resolution(s),
from time to time adopted, to provide for the issuance of serial preferred stock
in series and to fix and state the voting powers, designations, preferences and
relative, participating, optional, or other special rights of the shares of each
such series and the qualifications, limitations and restrictions thereof. The
Corporation will furnish to any shareholder upon request and without charge a
full description of each class of stock and any series thereof.
The shares represented by this certificate may not be cumulatively voted on
any matter. Pursuant to the Certificate of Incorporation, the affirmative vote
of the holders of at least 80% of the voting stock of the Corporation, voting
together as a single class, shall be required to approve certain business
combinations and other transactions or to amend certain provisions of the
Certificate of Incorporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<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 the within Certificate, and do hereby irrevocably constitute and
appoint _______________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
DATED ________________________ _________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED: ________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15
<PAGE>
Exhibit 5.0
___________, 1998
Board of Directors
South Jersey Financial Corporation, Inc.
4651 Route 42
Turnersville, New Jersey 08012
Re: The issuance of up to 4,699,107 shares of
South Jersey Financial Corporation, Inc. Common Stock
Gentlemen:
You have requested our opinion concerning certain matters of Delaware law
in connection with the conversion of South Jersey Savings and Loan Association
(the "Association"), a New Jersey-chartered savings association, from the mutual
to the stock form of ownership (the "Conversion"), and the related subscription
offering, community offering and syndicated community offering (the "Offerings")
by South Jersey Financial Corporation, Inc., (the "Company"), a Delaware
corporation and the proposed holding company for the Association, of up to
3,783,500 shares of its common stock, par value $.01 per share ("Common Stock")
(4,351,025 shares if the estimated valuation range is increased up to 15% to
reflect changes in market and financial conditions following commencement of the
Offerings) and the issuance of up to 302,680 shares to South Jersey Savings
Charitable Foundation, (the "Foundation") a privately-owned charitable
foundation formed by the Company, (348,082 shares if the estimated valuation
range is increased up to 15% to reflect changes in market and financial
conditions following commencement of the Offerings).
We understand that the Company will loan to the trust for the Association's
Employee Stock Ownership Plan (the "ESOP") the funds the ESOP trust will use to
purchase shares of Common Stock for which the ESOP trust subscribes pursuant to
the Offerings and for purposes of rendering the opinion set forth in paragraph 2
below, we assume that: (a) the Board of Directors of the Company (the "Board")
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
<PAGE>
Board of Directors
South Jersey Financial Corporation, Inc.
__________, 1998
Page 2
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.
In connection with your request for our opinion, you have provided to us
and we have reviewed the Company's certificate of incorporation filed with the
Delaware Secretary of State on September 28, 1998 (the "Certificate of
Incorporation"); the Company's Bylaws; the Company's Registration Statement on
Form SB-2, as initially filed with the Securities and Exchange Commission on
October __, 1998 and as amended on November __, 1998 (the "Registration
Statement"); a consent of the sole incorporator of the Company; the plan of
Conversion; the form of gift instrument (the "Gift Instrument") whereby, and in
accordance with the terms of which, shares will be granted to the Foundation;
the ESOP trust agreement and the ESOP Loan agreement; resolutions of the Board
concerning the organization of the Company, the Offerings and designation of a
pricing committee of the Board (the "Pricing Committee"); and the form of stock
certificate approved by the Board to represent shares of Common Stock. We have
also been furnished a certificate of the Delaware Secretary of State certifying
the Company's good standing as a Delaware corporation. Capitalized terms used
but not defined herein shall have the meaning given them in the Certificate of
Incorporation.
In rendering this opinion, we have relied upon the opinion of Morris,
Nichols, Arsht & Tunnell as to matters of Delaware law, upon which opinion we
believe we are justified in relying. We have examined the opinion of Morris,
Nichols, Arsht & Tunnell which opinion is in form satisfactory to us.
Based upon and subject to the foregoing, and limited in all respects to
matters of Delaware law, it is our opinion that:
1. The Company has been duly organized and is validly existing in good
standing as a corporation under the laws of the State of Delaware.
2. Upon the due adoption by the Pricing Committee of a resolution fixing
the number of shares of Common Stock to be sold in the Offerings, the Common
Stock to be issued in the Offerings (including the shares to be issued to the
ESOP trust) will be duly authorized and, when such shares are sold and paid for
in accordance with the terms set forth in the prospectus which is included in
the Registration Statement 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.
<PAGE>
Board of Directors
South Jersey Financial Corporation, Inc.
__________, 1998
Page 3
3. The Foundation Shares have been duly and validly authorized for
issuance and sale, and when granted, issued and delivered by the Company as
provided in the Gift Instrument against payment therefor, and a certificate
representing such shares in a form provided to us is duly and properly issued,
such shares will be duly issued, fully paid and nonassessable.
The following provisions of the Certificate of Incorporation may not be
given effect by a court applying Delaware law, but in our opinion the failure to
give effect to such provisions will not affect the duly authorized, validly
issued, fully paid and nonassessable status of the Common Stock:
1. (a) Subsections C.3 and C.6 of Article FOURTH and Section D of
Article EIGHTH, which grant the Board the authority to construe
and apply the provisions of those Articles, subsection C.4 of
Article FOURTH, to the extent that subsection obligates any
person to provide to the Board the information such subsection
authorizes the Board to demand, and the provision of Subsection
C.7 of Article EIGHTH empowering the Board to determine the Fair
Market Value of property offered or paid for the Company's stock
by an Interested Stockholder, in each case to the extent, if any,
that a court applying Delaware law were to impose equitable
limitations upon such authority; and
(b) Article NINTH, which authorizes the Board to consider the effect
of any offer to acquire the Company on constituencies other than
stockholders in evaluating any such offer.
We assume no obligation to advise you of any events that occur subsequent
to the date of this opinion. This opinion is being furnished to you solely in
response to the requirements contained in the Form SB-2 and the Form AC to be
filed with the Securities and Exchange Commission and the Office of Thrift
Supervision, respectively, for your benefit and may not be relied upon by any
other person or for any other purpose and it should not be quoted in whole or in
part or otherwise referred to or furnished to any other person or entity without
the prior written consent of this firm.
Very truly yours,
MULDOON, MURPHY & FAUCETTE
<PAGE>
EXHIBIT 5.1
10/7/98 Draft
-------------
[Morris, Nichols, Arsht & Tunnell Letterhead]
[Date]
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, DC 20016
Ladies and Gentlemen:
You have requested our opinion concerning certain matters of Delaware
law in connection with (i) the conversion of South Jersey Savings and Loan
Association, a New Jersey chartered savings and loan association (the
"Association"), from the mutual form of ownership to stock form of ownership
(the "Conversion"), (ii) the subscription and community offering (the
"Offering"), in connection with the Conversion, by South Jersey Financial
Corporation, Inc., a Delaware corporation (the "Company"), of up to 4,351,025
shares of its common stock, par value $.01 per share (the "Common Stock"), and
(iii) the sale of up to 302,680 shares of Common Stock (the "Foundation Shares")
to South Jersey Savings Charitable Foundation, a Delaware non-stock corporation
(the "Foundation"), pursuant to the Charitable Gift to South Jersey Savings
Charitable Foundation dated as of ________________ ___, 19___ by the Company
(the "Gift Instrument").
In connection with your request for our opinion, you have provided to
us, and we have reviewed, the Company's certificate of incorporation (the
"Certificate of Incorporation"), its bylaws, the Registration Statement filed
with the Securities and Exchange Commission in connection with the Offering (the
"Registration Statement"), including the prospectus constituting a part thereof
(the "Prospectus"), a consent of the sole incorporator of the Company,
resolutions of
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 2
the Board of Directors of the Company (the "Board") concerning, inter alia, the
----- ----
organization of the Company, the Offering and the designation of a Pricing
Committee of the Board (the "Pricing Committee"), the form of stock certificate
approved by the Board to represent shares of Common Stock, the Foundation's
certificate of incorporation (the "Foundation Certificate of Incorporation"),
its bylaws, a consent of the sole incorporator of the Foundation, and the Gift
Instrument. We have also obtained a certificate of the Delaware Secretary of
State as to the Company's and the Foundation's good standing as Delaware
corporations. Capitalized terms used but not defined herein shall have the
meanings given them in the Certificate of Incorporation.
We understand that the Company will loan to the Association's Employee
Stock Ownership Plan (the "ESOP") the funds the ESOP will use to purchase the
shares of Common Stock for which the ESOP has subscribed as part of the
Offering. In this regard, we have assumed, for purposes of rendering the
opinion set forth in paragraph 2 below, that: (a) the Board has duly authorized
the loan to the ESOP (the "Loan"); (b) the Loan serves a valid corporate
purpose; (c) the Loan will be made at an interest rate and on other terms that
are fair to the Company; (d) the terms of the Loan will be set forth in
customary and appropriate documents including, without limitation, a promissory
note representing the indebtedness of the ESOP to the Company as a result of the
Loan; and (e) the closing for the Loan and for the sale of Common Stock to the
ESOP will be held after the closing for the sale of the other shares of Common
Stock sold in the Offering and the receipt by the Company of the proceeds
thereof.
We call your attention to the fact that the opinions expressed herein
are limited in all respects to matters of Delaware corporate law. We express no
opinion concerning the requirements of any other law, rule or regulation, state
or federal, applicable to the Association, the
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 3
Company, the Offering, the Conversion, or the Foundation, including, without
limitation, those applicable to federally insured savings and loan associations
or their holding companies.
Based upon and subject to the foregoing, it is our opinion that:
1. The Company has been duly organized and is validly existing in
good standing as a corporation under the laws of the State of Delaware, with the
corporate power and authority to own its property and conduct its business as
now conducted as described in the Prospectus.
2. Upon the due adoption by the Pricing Committee of a resolution
fixing the number of shares of Common Stock to be sold in the Offering, the
Common Stock to be issued in the Offering (including the shares to be issued to
the ESOP) will be duly authorized and, when such shares are sold and paid for in
accordance with the terms set forth in the Prospectus and such resolution of the
Pricing Committee, and certificates representing such shares in the form
provided to us are duly and properly issued, will be validly issued, fully paid
and non-assessable, with no personal liability for the payment of the Company's
debts arising solely by virtue of the ownership thereof; such issuance and sale
will not be in violation of or subject to any preemptive rights provided for by
Delaware law or by the Certificate of Incorporation.
3. The Foundation has been duly organized and is validly existing as
a non-stock corporation in good standing under the laws of the State of Delaware
with corporate power and authority to own, lease, and operate its properties and
to conduct its business as described in the Prospectus.
4. No approvals of any Delaware governmental agency, bureau,
commission, department or other organization is required to establish the
Foundation and to issue and sell the Foundation Shares to the Foundation as
described in the Prospectus pursuant to the Gift
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 4
Instrument; provided, however, that we express no opinion with respect to the
Delaware Securities Act (6 Del. C. (S) 7301 et seq.).
---- -- -------
5. The Foundation Shares have been duly and validly authorized for
issuance and sale, and when issued and delivered by the Company as provided in
the Gift Instrument against payment therefor, and a certificate representing
such shares in the form provided to us is duly and properly issued, such shares
will be duly and validly issued, fully paid and non-assessable, with no personal
liability for the payment of the Company's debts arising solely by virtue of the
ownership thereof; such issuance and sale will not be in violation of or subject
to any preemptive rights provided for by Delaware law or the Certificate of
Incorporation.
The following provisions of the Certificate of Incorporation may not
be given effect by a court applying Delaware law, but in our opinion the failure
to give effect to such provisions will not affect the duly authorized, validly
issued, fully paid and non-assessable status of the Common Stock:
(a) Subsections C.3 and C.6 of Article FOURTH and Section D of Article
EIGHTH, which grant the Board the authority to construe and apply the provisions
of those Articles, subsection C.4 of Article FOURTH, to the extent that
provision obligates any person to provide to the Board the information such
subsection authorizes the Board to demand, and the provision of Section C.7 of
Article EIGHTH empowering the Board to determine the Fair Market Value of
property offered or paid for the Company's stock by an Interested Stockholder,
to the extent, if any, that a court applying Delaware law were to impose
equitable limitations upon the authority of the Board under such provisions.
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 5
(b) Article NINTH of the Certificate of Incorporation, which purports
to permit the Board to consider the effect of any offer to acquire the Company
on constituencies other than stockholders in evaluating any such offer.
Very truly yours,
<PAGE>
Exhibit 8.0
[LETTERHEAD OF MULDOON, MURPHY & FAUCETTE APPEARS HERE]
October 9, 1998
Board of Directors
South Jersey Financial Corporation, Inc.
4651 Route 42
Turnersville, New Jersey 08012
Board of Directors
South Jersey Savings and Loan Association
4651 Route 42
Turnersville, New Jersey 08012
Re: Certain Federal Tax Consequences of the Conversion of South Jersey
Savings and Loan Association from a New Jersey-chartered Mutual
Savings and Loan Association to a New Jersey-chartered Capital Stock
Savings Association and the Offer and Sale of Common Stock of Security
of New Jersey Financial Corp. (the "Conversion")
Ladies and Gentlemen:
You have requested an opinion on certain federal income tax consequences of
the proposed conversion of South Jersey Savings and Loan Association (the
"Association") from a New Jersey-chartered mutual savings and loan association
to a New Jersey-chartered capital stock savings association and the acquisition
of the Association's capital stock by South Jersey Financial Corporation, Inc.,
a Delaware corporation (the "Holding Company"), pursuant to the plan of
conversion adopted by the Board of Directors on July 28, 1998, and as amended on
September 30, 1998 (the "Plan of Conversion").
The proposed transaction is described in the Prospectus and the Plan of
Conversion, and the tax consequences of the proposed transaction will be as set
forth in the section of this letter entitled "FEDERAL TAX OPINION."
<PAGE>
Board of Directors
October 9, 1998
Page 2
We have made such inquiries and have examined such documents and records as
we have deemed appropriate for the purpose of this opinion. In rendering this
opinion, we have received certain standard representations of the Holding
Company and the Association concerning the Holding Company and the Association
as well as the transaction ("Representations"). These Representations are
required to be furnished prior to the execution of this letter and again prior
to the closing of the Conversion. We will rely upon the accuracy of the
Representations of the Holding Company and the Association and the statements of
facts contained in the examined documents, particularly the Plan of Conversion.
We have also assumed the authenticity of all signatures, the legal capacity of
all natural persons and the conformity to the originals of all documents
submitted to us as copies. Each capitalized term used herein, unless otherwise
defined, has the meaning set forth in the Plan of Conversion. We have assumed
that the Conversion will be consummated strictly in accordance with the terms of
the Plan of Conversion.
The Plan of Conversion and the Prospectus contain a detailed description of
the Conversion. These documents as well as the Representations to be provided
by the Holding Company and the Association are incorporated in this letter as
part of the statement of the facts.
South Jersey Savings and Loan Association, with its headquarters office in
Turnersville, New Jersey, is a New Jersey-chartered mutual savings and loan
association. As a mutual savings and loan association, the Association has
never been authorized to issue stock. Instead, the proprietary interest in the
reserves and undivided profits of the Association belong to the deposit account
holders of the Association, hereinafter sometimes referred to as "depositors."
A depositor of the Association has a right to share, pro rata, with respect to
the withdrawal value of his respective deposit account in any liquidation
proceeds distributed in the event the Association is ever liquidated. In
addition, a depositor of the Association is entitled to interest on his account
balance as fixed and paid by the Association.
In order to provide organizational and economic strength to the
Association, the Board of Directors has adopted the Plan of Conversion whereby
the Association will convert itself into a New Jersey-chartered capital stock
savings association (the "Converted Association"), the stock of which will be
held entirely by the Holding Company. Assuming that the Holding Company form of
organization is utilized, the Holding Company will acquire the stock of the
Association by purchase, in exchange for the Conversion proceeds that are not
permitted to be retained by the Holding Company. The Holding Company will apply
to the Office of Thrift Supervision ("OTS") to retain up to 50% of the proceeds
received from the Conversion. The aggregate sales price of the Common Stock
issued in the Conversion will be based on an independent appraiser's valuation
of the estimated pro forma market value of the Common Stock of the Converted
Association. The Conversion and sale of the Common Stock will be subject to
approval by the OTS, the New Jersey Department of Banking and the approval of
the Voting Members.
<PAGE>
Board of Directors
October 9, 1998
Page 3
ESTABLISHMENT OF LIQUIDATION ACCOUNT. The Association shall establish at
the time of Conversion a liquidation account in an amount equal to its net worth
as of the latest practicable date prior to Conversion. The liquidation account
will be maintained by the Association for the benefit of the Eligible Account
Holders and Supplemental Eligible Account Holders who continue to maintain their
Savings Accounts at the Association. Each Eligible Account Holder and
Supplemental Eligible Account Holder shall, with respect to his Savings Account,
hold a related inchoate interest in a portion of the liquidation account
balance, in relation to his Savings Account balance on the Eligibility Record
Date and/or Supplemental Eligibility Record Date or to such balance as it may be
subsequently reduced, as provided in the Plan of Conversion.
In the unlikely event of a complete liquidation of the Association (and
only in such event), following all liquidation payments to creditors (including
those to Account Holders to the extent of their Savings Accounts) each Eligible
Account Holder and Supplemental Eligible Account Holder shall be entitled to
receive a liquidating distribution from the liquidation account, in the amount
of the then adjusted subaccount balance for his Savings Account then held,
before any liquidation distribution may be made to any holders of the
Association's capital stock. No merger, consolidation, purchase of bulk assets
with assumption of Savings Accounts and other liabilities, or similar
transaction with an FDIC institution, in which the Association is not the
surviving institution, shall be deemed to be a complete liquidation for this
purpose. In such transactions, the liquidation account shall be assumed by the
surviving institution.
ESTABLISHMENT OF FOUNDATION. As part of the Conversion, the Company and
the Association intend to establish a charitable foundation (the "Foundation")
that will qualify as an exempt organization under Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended (the "Code") and to donate to the
Foundation up to 8.0% of the number of shares of Common Stock sold in the
Conversion. The establishment and funding of the Foundation as part of the
Conversion is subject to the approval of the Voting Members of the Association
at the Special Meeting of Members. In the event that the Foundation does not
receive the prerequisite approval, the Association may determine to complete the
Conversion without the Foundation.
The Plan of Conversion provides that the Foundation is being formed to
further the Converted Association's long term commitment to its community. The
Plan of Conversion states that the Foundation is intended to complement the
Association's existing community reinvestment activities so as to allow the
local community to share in the growth and profitability of the Holding Company
and the Converted Association over the long term.
The Foundation will be dedicated to the promotion of charitable and
educational purposes within the Association's Local Community, including, but
not limited to, grants or donations to support housing assistance, scholarships,
local education, not-for-profit medical facilities, not-
<PAGE>
Board of Directors
October 9, 1998
Page 4
for-profit community groups and other types of organizations or civic minded
projects. The Foundation will annually distribute total grants and donations to
assist charitable organizations or to fund projects within its local community
of not less than 5% of the average fair value of the Foundation assets each
year.
* * *
You have provided the following Representations concerning this
transaction:
(a) The fair market value of the withdrawable deposit accounts plus
interests in the liquidation account of the Converted Association to
be constructively received under the Plan of Conversion will, in each
instance, be equal to the fair market value of the withdrawable
deposit accounts (plus the related interest in the residual equity of
the Association) deemed to be surrendered in exchange therefor.
(b) If an individual's total deposits in the Association equal or exceed
$50 as of the Eligibility Record Date or the Supplemental Eligibility
Record Date, then no amount of that individual's total deposits will
be excluded from participating in the liquidation account. The fair
market value of the deposit accounts of the Association which have a
balance of less than $50 on the Eligibility Record Date or the
Supplemental Eligibility Record Date will be less than 1% of the total
fair market value of all deposit accounts of the Association.
(c) Immediately following the Conversion, the Eligible Account Holders and
the Supplemental Eligible Account Holders of the Association will own
all of the outstanding interests in the liquidation account and will
own such interest solely by reason of their ownership of deposits in
the Association immediately before the Conversion.
<PAGE>
Board of Directors
October 9, 1998
Page 5
(d) After the Conversion, the Converted Association will continue the
business of the Association in the same manner as prior to the
Conversion. The Converted Association has no plan or intention and
the Holding Company has no plan or intention to cause the Converted
Association to sell its assets other than in the ordinary course of
business.
(e) The Holding Company has no plan or intention to sell, liquidate or
otherwise dispose of the stock of the Converted Association other than
in the ordinary course of business.
(f) The Holding Company and the Converted Association have no current plan
or intention to redeem or otherwise acquire any of the Common Stock
issued in the Conversion transaction.
(g) Immediately after the Conversion, the assets and liabilities of the
Converted Association will be identical to the assets and liabilities
of the Association immediately prior to the Conversion, plus the net
proceeds from the sale of the Converted Association's common stock to
the Holding Company and any liability associated with indebtedness
incurred by the Employee Plans in the acquisition of Common Stock by
the Employee Plans.
(h) The Association, the Converted Association and the Holding Company are
corporations within the meaning of section 7701(a)(3) of the Internal
Revenue Code of 1986, as amended.
(i) None of the shares of the Common Stock to be purchased by the
depositor-employees of the Association in the Conversion will be
issued or acquired at a discount. However, shares may be given to
certain Directors and employees as compensation by means of the
Employee Plans. Compensation to be paid to such Directors and
depositor-employees will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
(j) The fair market value of the assets of the Association, which will be
transferred to the Converted Association in the Conversion, will equal
or exceed the sum of the liabilities of the Association which will be
assumed by the Converted Association and any liabilities to which the
transferred assets are subject.
<PAGE>
Board of Directors
October 9, 1998
Page 6
(k) The Association is not under the jurisdiction of a bankruptcy or
similar court in any Title 11 or similar case within the meaning of
section 368(a)(3)(A) of the Code.
(l) Upon the completion of the Conversion, the Holding Company will own
and hold 100% of the issued and outstanding capital stock of the
Converted Association and no other shares of capital stock of the
Converted Association will be issued and/or outstanding. At the time
of the Conversion, the Converted Association does not have any plan or
intention to issue additional shares of its stock following the
transaction. Further, no shares of preferred stock of the Converted
Association will be issued and/or outstanding.
(m) Upon the completion of the Conversion, there will be no rights,
warrants, contracts, agreements, commitments or understandings with
respect to the capital stock of the Converted Association, nor will
there be any securities outstanding which are convertible into the
capital stock of the Converted Association.
(n) No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders, or others in lieu of (a)
nontransferable subscription rights, or (b) an interest in the
liquidation account of the Converted Association.
(o) The Association has utilized a reserve for bad debts in accordance
with section 593 and, following the Conversion, to the extent allowed
under the Code, the Converted Association shall maintain a reserve for
bad debts in accordance with the applicable provisions of the Code.
(p) The Association currently satisfies the 60% "qualified assets" test of
section 7701(a)(19) of the Code. Management expects the Converted
Association to be able to continue to satisfy the test in the future.
The Converted Association will also satisfy the "qualified thrift
lender" tests set out in sections 301 and 303 of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989.
(q) Depositors will pay the expenses of the Conversion solely applicable
to them, if any. The Holding Company and the Association will each
pay expenses of the transaction attributable to them and will not pay
any expenses solely attributable to the depositors or to the Holding
Company shareholders.
(r) The exercise price of the subscription rights received by the
Association's Eligible Account Holders, Supplemental Eligible Account
Holders, and other holders of
<PAGE>
Board of Directors
October 9, 1998
Page 7
subscription rights to purchase Holding Company Common Stock will be
equal to the fair market value of the stock of the Holding Company at
the time of the completion of the Conversion as determined by an
independent appraisal.
(s) The proprietary interests of the Eligible Account Holders and the
Supplemental Eligible Account Holders in the Association arise solely
by virtue of the fact that they are account holders in the
Association.
(t) There is no plan or intention for the Converted Association to be
liquidated or merged with another corporation following this proposed
transaction.
(u) The liabilities of the Association assumed by the Converted
Association plus the liabilities, if any, to which the transferred
assets are subject were incurred by the Association in the ordinary
course of its business and are associated with the assets transferred.
(v) The Association currently has no net operating losses for federal tax
purposes, and has no such losses available for carryover to future tax
years. The Association has neither generated nor carried forward a
net operating loss for federal tax purposes in the past ten tax years.
LIMITATIONS ON OPINION
----------------------
Our opinions expressed herein are based solely upon current provisions of
the Internal Revenue Code of 1986, as amended, including applicable regulations
thereunder and current judicial and administrative authority. Any future
amendments to the Code or applicable regulations, or new judicial decisions or
administrative interpretations, any of which could be retroactive in effect,
could cause us to modify our opinion. No opinion is expressed herein with
regard to the federal, state, or city tax consequences of the Conversion under
any section of the Code except if and to the extent specifically addressed.
FEDERAL TAX OPINION
-------------------
Based solely upon the foregoing Representations and information and
assuming the transaction occurs in accordance with the Plan of Conversion, and
taking into consideration the limitations noted throughout this opinion, it is
our opinion that under current federal income tax law:
<PAGE>
Board of Directors
October 9, 1998
Page 8
(1) Pursuant to the Conversion, the changes at the corporate level other
than changes in the form of organization will be insubstantial. Based upon
that fact and the fact that the equity interest of a depositor in a mutual
savings and loan association is more nominal than real, unlike that of a
shareholder of a corporation, the Conversion of the Association from a
mutual savings and loan association to a stock savings Association is a
tax-free reorganization since it is a mere change in identity, form or
place of organization within the meaning of section 368(a)(1)(F) of the
Code (see Rev. Rul. 80-105, 1980-1 C.B. 78). Neither the Association nor
the Converted Association shall recognize gain or loss as a result of the
Conversion. The Association and the Converted Association shall each be "a
party to a reorganization" within the meaning of section 368(b) of the
Code.
(2) No gain or loss shall be recognized by the Converted Association or
the Holding Company on the receipt by the Converted Association of money
from the Holding Company in exchange for shares of the Converted
Association's capital stock or by the Holding Company upon the receipt of
money from the sale of its Common Stock (Section 1032(a) of the Code).
(3) The basis of the assets of the Association in the hands of the
Converted Association shall be the same as the basis of such assets in the
hands of the Association immediately prior to the Conversion (Section
362(b) of the Code).
(4) The holding period of the assets of the Association in the hands of
the Converted Association shall include the period during which the
Association held the assets (Section 1223(2) of the Code).
(5) No gain or loss shall be recognized by the Eligible Account Holders
and the Supplemental Eligible Account Holders of the Association on the
issuance to them of withdrawable deposit accounts in the Converted
Association plus interests in the liquidation account of the Converted
Association in exchange for their deposit accounts in the Association or to
the other depositors on the issuance to them of withdrawable deposit
accounts (Section 354(a) of the Code).
(6) Provided that the amount to be paid for such stock pursuant to the
subscription rights is equal to the fair market value of the stock, no gain
or loss will be recognized by Eligible Account Holders and Supplemental
Eligible Account Holders upon the distribution to them of the
nontransferable subscription rights to purchase shares of stock in the
Holding Company (Section 356(a)). Gain realized, if any, by the Eligible
Account Holders and Supplemental Eligible Account
<PAGE>
Board of Directors
October 9, 1998
Page 9
Holders on the distribution to them of nontransferable subscription rights
to purchase shares of Common Stock will be recognized but only in an amount
not in excess of the fair market value of such subscription rights (Section
356(a)). Eligible Account Holders and Supplemental Eligible Account Holders
will not realize any taxable income as a result of the exercise by them of
the nontransferable subscription rights (Rev. Rul. 56-572, 1956-2 C.B.
182).
(7) The basis of the deposit accounts in the Converted Association to be
received by the Eligible Account Holders, Supplemental Eligible Account
Holders and other depositors of the Association will be the same as the
basis of their deposit accounts in the Association surrendered in exchange
therefor (Section 358(a)(1) of the Code). The basis of the interests in
the liquidation account of the Converted Association to be received by the
Eligible Account Holders of the Association shall be zero (Rev. Rul. 71-
233, 1971-1 C.B. 113). The basis of the Holding Company Common Stock to
its stockholders will be the purchase price thereof plus the basis, if any,
of nontransferable subscription rights (Section 1012 of the Code).
Accordingly, assuming the nontransferable subscription rights have no
value, the basis of the Common Stock to the Eligible Account Holders and
Supplemental Eligible Account Holders will be the amount paid therefor.
The holding period of the Common Stock purchased pursuant to the exercise
of subscription rights shall commence on the date on which the right to
acquire such stock was exercised (Section 1223(6) of the Code).
Our opinion under paragraph (6) above is predicated on the Representation
that no person shall receive any payment, whether in money or property, in lieu
of the issuance of subscription rights. Our opinion under paragraphs (6) and
(7) above assumes that the subscription rights to purchase shares of Common
Stock received by Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members have a fair market value of zero. We understand that
you have received a letter from FinPro, Inc. that the subscription rights do not
have any value. We express no view regarding the valuation of the subscription
rights.
If the subscription rights are subsequently found to have a fair market
value, income may be recognized by various recipients of the subscription rights
(in certain cases, whether or not the rights are exercised) and Holding Company
and/or the Converted Association may be taxable on the distribution of the
subscription rights.
<PAGE>
Board of Directors
October 9, 1998
Page 10
* * *
Since this letter is rendered in advance of the closing of this
transaction, we have assumed that the transaction will be consummated in
accordance with the Plan of Conversion as well as all the information and
Representations referred to herein. Any change in the transaction could cause
us to modify our opinion.
We consent to the inclusion of this opinion as an exhibit to the Form AC
and Form SB-2 Registration Statement of South Jersey Financial Corporation, Inc.
and the references to and summary of this opinion in such Form AC and Form SB-2
Registration Statement.
Sincerely,
/s/ Muldoon, Murphy & Faucette
MULDOON, MURPHY & FAUCETTE
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF DELOITTE & TOUCHE LLP APPEARS HERE]
October 9, 1998
Private and Confidential
- ------------------------
Board of Directors
South Jersey Savings and Loan Association
4651 Route 42
Turnersville, NJ 08012
Dear Board Members:
You have requested an opinion from Deloitte & Touche LLP ("D&T") regarding
certain state tax consequences to South Jersey Savings and Loan Association
("the Association") and its depositors regarding the proposed conversion of the
Association from a New Jersey chartered mutual savings and loan association into
a New Jersey chartered stock savings and loan association and the acquisition of
the Association's stock by South Jersey Financial Corporation, Inc. (the
"Holding Company"), a newly formed Delaware corporation, pursuant to the plan of
conversion ("the Conversion") adopted by the Board of Directors on July 28, 1998
and as amended on September 30, 1998. The Conversion and its components and
related transactions are described in the plan of conversion filed with the
Office of Thrift Supervision ("OTS") in connection with the Conversion.
You have provided us with an opinion of tax counsel, Muldoon, Murphy & Faucette
("Federal Tax Opinion"), stating the federal income tax consequences that should
result from the (1) conversion, (2) exchange, and (3) the transfer of 100% of
the stock of the Association to the Holding Company in a capital contribution.
In rendering the opinion set forth below, we have relied upon, without
independent verification or investigation, that the facts and circumstances
attendant to the Conversion as described in the Federal Tax Opinion are true and
complete. We have, based on your specific instructions, specifically relied
upon the conclusions of law stated in the Federal Tax Opinion as to the
treatment of the Conversion for federal income tax purposes, and our opinion as
set forth herein assumes the accuracy of such conclusions of law.
NEW JERSEY SAVINGS INSTITUTION TAX
- ----------------------------------
Based upon the Federal Tax Opinion, and all underlying contingencies expressed
in that document, it is our opinion that the laws of the State of New Jersey
will, under N.J. Rev. Stat. (S)54:10D-2 (1937), for Savings Institution Tax
(SIT) purposes, treat the conversion and subsequent acquisition transaction as
detailed in the plan of conversion in an identical manner as it is treated by
the Internal Revenue Service for federal
<PAGE>
Board of Directors
South Jersey Savings and Loan Association
October 9, 1998
Page 2
income tax purposes. Consequently, no adverse SIT consequences will be incurred
by either the Association or its stockholders as a result of the Conversion.
NEW JERSEY PERSONAL INCOME TAX
- ------------------------------
Consistent with federal income tax treatment, N.J. Rev. Stat. (S)54A:5-1 (1937)
affords the depositors similar tax-free treatment with respect to the Conversion
and to the distribution of subscription rights.
CONVERSION
The Association has received the Federal Tax Opinion from tax counsel stating
that for federal income tax purposes no gain or loss will be recognized by
Eligible Account Holders and Supplemental Eligible Account Holders of the
Association upon the issuance to them of withdrawable deposit accounts in the
Association plus interests in the liquidation account of the converted
Association in exchange for their deposit accounts in the Association and their
related interest in the residual equity of the Association or to the other
depositors on the issuance to them of withdrawable deposit accounts.
DISTRIBUTION OF SUBSCRIPTION RIGHTS
Tax counsel has also opined that for federal income tax purposes, no gain or
loss will be recognized by Eligible Account Holders and Supplemental Eligible
Account Holders of the Association upon the distribution to them of the
nontransferable subscription rights to purchase shares of stock in the Holding
Company, provided that the amount paid for the Holding Company stock is equal to
the fair value of such stock. Gain realized, if any, by the Eligible Account
Holders and Supplemental Eligible Account Holders of the Association on the
distribution to them of nontransferable subscription rights to purchase the
Holding Company stock will be recognized but only in an amount not in excess of
the fair market value of such subscription rights. Eligible Account Holders and
Supplemental Eligible Account Holders of the Association will not realize any
taxable income for federal income tax purposes as a result of the exercise by
them of the nontransferable subscription rights.
DELAWARE CORPORATE INCOME TAX
- -----------------------------
Del. Code Rev. (S)1902(b)(6) exempts an entity from Delaware corporation income
tax if the corporation maintains a statutory corporate office in Delaware but is
not doing business in Delaware. The Holding Company is a domestic Delaware
corporation, organized at the direction of the Association to become a savings
and loan holding
<PAGE>
Board of Directors
South Jersey Savings and Loan Association
October 9, 1998
Page 3
company and own all of the Association's capital stock to be issued upon its
conversion from mutual form to stock form. The Holding Company does not
maintain any physical presence in nor conduct any business in the State of
Delaware. Thus, it should be exempt from Delaware corporate income tax.
* * * * * * *
The opinion expressed is limited to the specific matters discussed herein and
does not address any federal tax considerations or any other state tax or local
tax considerations. If any of the information upon which we have relied is
incorrect, or if changes in the relevant facts occur after the date hereof, our
opinion could be affected thereby.
Moreover, this opinion is based on New Jersey and Delaware law as it now exists.
Any such change in New Jersey or Delaware law would have a material impact on
the advice rendered in this opinion. Deloitte & Touche LLP assumes no
responsibility to update this opinion in the event of any such changes.
This opinion is given solely for the benefit of the parties to the Conversion
and the shareholders of the Association, and may not be relied upon by any other
party or entity or referred to in any document without our express written
consent. This opinion is not binding on any tax authority (including the New
Jersey or Delaware Department of Revenue) or any court. No assurance can be
given that a tax authority will not take a different view of these transactions
and that such view may be ultimately sustained by a court.
We hereby consent to the filing of this opinion as an exhibit to the
Association's application to be filed with the Office of Thrift Supervision and
as an exhibit to the Holding Company's Registration Statement to be filed with
the Securities and Exchange Commission.
If you have any questions concerning this matter, please contact Mr. Melvin S.
Toren at (215) 246-2337 or Ms. Joyce M. Klinewski at (215) 299-4566.
Yours very truly,
DRAFT
cc: Muldoon, Murphy & Faucette
<PAGE>
EXHIBIT 10.1
FORM OF
TRUST AGREEMENT
BETWEEN
SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION
AND
----------------------------------
FOR THE
SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
<PAGE>
CONTENTS
Page No.
<TABLE>
<CAPTION>
<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 9
Section 5 Instructions from Committee 10
Section 6 Change of Trustees 11
Section 7 Miscellaneous 11
</TABLE>
2
<PAGE>
This TRUST AGREEMENT dated __________, 1998, BETWEEN SOUTH JERSEY SAVINGS
AND LOAN ASSOCIATION, a New Jersey-chartered savings association with its
principal office at 4651 Route 42, Turnersville, New Jersey 08012-1708
(hereinafter called the "Company"), AND _______________, with offices at
__________________________ (hereinafter called the "Trustee"),
W I T N E S S E T H T H A T:
WHEREAS, the Company has approved and adopted an employee stock ownership
plan for the benefit of its employees, the South Jersey Savings and Loan
Association Employee Stock Ownership Plan, (hereinafter called the "Plan"); and
WHEREAS, the Company 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 Company and the Trustee agree as follows:
Section 1. Creation of Trust.
------------------
1.1 Trustee. __________________ shall be trustee of the Trust Fund created
-------
in accordance 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
-----------
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 "South Jersey Savings
----------------------
and Loan Association 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.
1.4 Name. The name of this trust shall be "South Jersey Savings and Loan
-----
Association Employee Stock Ownership Plan Trust."
1.5 Nondiversion of Assets. In no event shall any part of the corpus or
-----------------------
income of the Trust Fund be used for, or diverted to, purposes other than for
the exclusive benefit of the Participants and their Beneficiaries prior to the
satisfaction of all liabilities under the Plan, except
<PAGE>
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.
Section 2. Investment of Trust Fund and Administrative Powers of the
---------------------------------------------------------
Trustee.
--------
2.1 Stock and Other Investments. The basic investment policy of the Plan
----------------------------
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
----------------------------------------
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
2
<PAGE>
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.
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
---------------
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,
3
<PAGE>
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;
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
4
<PAGE>
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 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 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
5
<PAGE>
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 Section 4.2 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;
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;
6
<PAGE>
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 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
----------
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
----------------------------------------------------------
Expenses and Taxes.
-------------------
3.1 Fees and Expenses from Fund. Compensation of Trustee. In
---------------------------
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
7
<PAGE>
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
----------------
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 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,
---------
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
------
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.
8
<PAGE>
Section 4. Records and Valuation.
----------------------
4.1 Records. The Trustee, and any investment manager appointed pursuant
--------
to Section 2.2, shall maintain accurate and detailed records and accounts of all
investments, receipts, disbursements and other transactions made by it with
respect to the Trust Fund, and all accounts, books and records relating thereto
shall be open at all reasonable 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
----------
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
---------------------
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 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
-----------------------------
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.
9
<PAGE>
Section 5. Instructions from Committee.
----------------------------
5.1 Certification of Members of the Committee. From time to time the
------------------------------------------
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.
------------------------
(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. 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.
10
<PAGE>
5.3 Plan Change. In the event of an amendment, merger, division, or
------------
termination of the Plan, the Trustee shall continue to disburse funds and to
take other proper actions in accordance with the instructions of the Committee.
Section 6. Change of Trustees.
-------------------
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.
Section 7. Miscellaneous.
--------------
7.1 Right to Amend. This Trust Agreement may be amended from time to time
---------------
by an instrument executed by the Company; provided, however, that any amendment
affecting the powers, 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
----------------------
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
------------------------------
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.
11
<PAGE>
7.4 Reports. The Trustee shall file any report which it is required by
--------
law to file with any governmental authority with respect to this Trust, and the
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
----------------------
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
---------------------------------
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.
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 willful 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.
12
<PAGE>
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,
if it shall have reasonable grounds for believing that repayment of such funds
or adequate indemnity against such risk or liability is not reasonably assured
to it.
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.
7.11 Governing State Law. This Trust Agreement shall be interpreted in
--------------------
accordance with the laws of the State of New Jersey to the extent those laws may
be applicable under the provisions of ERISA.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
<TABLE>
<CAPTION>
<S> <C>
ATTEST: SOUTH JERSEY SAVINGS AND LOAN
ASSOCIATION
By
- ------------------- ----------------------------
Corporate Secretary Chief Executive Officer
ATTEST: ----------------------------
as TRUSTEE
By
- ------------------- ----------------------------
</TABLE>
14
<PAGE>
Exhibit 10.2
[SOUTH JERSEY FINANCIAL CORPORATION, INC. LETTERHEAD]
Robert J. Colacicco
President and Chief Executive Officer
South Jersey Financial Corporation, Inc.
4651 Route 42
Turnersville, NJ 08012-1708
Dear Mr. Colacicco:
This letter confirms South Jersey Financial Corporation, Inc.'s commitment
to fund a leveraged ESOP in an amount up to $_________________. The commitment
is subject to the following terms and conditions:
1. Lender: South Jersey Financial Corporation, Inc. (the "Company").
------
2. Borrower: South Jersey Savings and Loan Association Employee Stock
--------
Ownership Plan.
3. Trustee: to be determined
-------
4. Security: Unallocated shares of stock of the Company held in the
--------
South Jersey Savings and Loan Association Employee Stock Ownership
Plan.
5. Maturity: Up to 15 years
--------
6. Amortization: Equal annual principal and interest payments
------------
7. Pricing: The Prime Rate as published in the Wall Street Journal on
-------
the date of the loan transaction.
8. Interest Payments: 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
<PAGE>
material adverse change occurring in the condition of South Jersey
Savings and Loan Association 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,
Accepted on Behalf of
South Jersey Savings and Loan Association
Employee Stock Ownership Plan
By: _________________________________ Date: _____________________
Robert J. Colacicco
President and Chief Executive Officer
<PAGE>
FORM OF
SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
LOAN AND SECURITY AGREEMENT
_____________, 199__
South Jersey Financial Corporation, Inc.
4651 Route 42
Turnersville, New Jersey 08012-1708
Gentlemen:
The undersigned Trustee,____________________ ("Borrower"), not individually
but solely as Trustee under the South Jersey Savings and Loan Association
Employee Stock Ownership Plan Trust (the "Trust") effective____________________,
199__, applies to you, South Jersey Financial Corporation, Inc. (hereinafter
referred to as the "Lender"), for your commitment, subject to all of the 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 "Association" as used herein refers to South Jersey Savings and Loan
Association, the sponsoring employer of the South Jersey Savings and Loan
Association 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____________, 20__ 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
________________, a Delaware corporation, and the Holding Company of the
Association, equal to 8% of the Shares issued in connection with the conversion
of the Association from the mutual to stock form, including the shares issued to
the South Jersey Savings Charitable Foundation, a charitable foundation being
established in connection with the conversion (the "Conversion").
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 fifteen (15) equal annual installments
consisting of both principal and interest amortized over a fifteen (15) year
period in an amount sufficient to repay all borrowed amounts plus interest,
commencing on____________, 199__ 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_____________, 20__, 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 Conversion.
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 ___________, 199__) 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 Nine
------
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______________ in each year (the period commencing the date hereof and
ending________________ and each subsequent 12-month period ending
on________________ 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 4651 Route
42, Turnersville, New Jersey 08012-1708, 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 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.
4
<PAGE>
5.5 The ESOP and Trust have no material liabilities, whether absolute or
contingent, except for those heretofore disclosed to the Lender.
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 Association 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 Association, threatened against or affecting the ESOP
before any court or governmental department, agency or instrumentality.
5
<PAGE>
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 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 Association 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 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 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
7
<PAGE>
"disqualified person" within 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.
8
<PAGE>
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.
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 ____________________, Attention: ____________, Trust Officer; if to
the Lender at 4651 Route 42
Turnersville, New Jersey 08012-1708, with a copy to Kent M. Krudys, Muldoon,
Murphy & Faucette, 5101 Wisconsin Avenue, N.W., Washington, D.C. 20016, 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.
9
<PAGE>
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 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 of New Jersey
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
South Jersey Savings and Loan Association Employee Stock Ownership Plan Trust
effective _____________, 199___, by and between the undersigned and South Jersey
Savings and Loan Association 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 hereunder 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
<PAGE>
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]
11
<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 ___________, 199__
________________, and its successors in trust, as
Trustee under that certain South Jersey Savings and
Loan Association Employee Stock Ownership Plan Trust
effective __________, 199__ by and between the
undersigned and South Jersey Savings and Loan
Association.
By___________________________________
Accepted and agreed to at Turnersville, New Jersey, as of the date last
above written.
SOUTH JERSEY FINANCIAL CORPORATION, INC.
By___________________________________
12
<PAGE>
EXHIBIT A
PROMISSORY NOTE
Amount sufficient to satisfy the Loan Amount ___________, 199__
Turnersville, New Jersey
For VALUE RECEIVED, the undersigned, ______________, not individually but
solely as Trustee under that certain South Jersey Savings and Loan Association
Employee Stock Ownership Plan Trust effective ___________, 199___, by and
between the undersigned ("Borrower") and South Jersey Savings and Loan
Association promises to pay to the order of South Jersey Financial Corporation,
Inc. (the "Lender") at its office at South Jersey Savings and Loan Association,
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 fifteen (15) consecutive annual equal installments,
consisting of both principal and interest, amortized over a fifteen (15) year
period in an amount sufficient to repay all borrowed amounts plus interest,
payable annually on the last business day of_____________, 199__ and continuing
on the last business day of each and every_______________ thereafter, except
that the final installment in the amount of all principal and interest not
sooner paid shall be due on ______________, 20__, the final maturity hereof.
The Borrower promises to pay interest (computed on the basis of a year of
360 days) 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______________,
199__, 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 South
Jersey Savings and Loan Association Employee Stock Ownership Plan 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. This Note shall be governed by and construed in accordance with the
laws of New Jersey without regard to
<PAGE>
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 any payment hereunder may be extended from
time to time without in any way affecting the liability of the Borrower,
guarantors and endorsers.
_______________ and its successors in trust,
as Trustee under that certain South Jersey
Savings and Loan Association Employee Stock
Ownership Trust effective ____________,
199__ by and between the undersigned and
South Jersey Savings and Loan Association
By:________________________________
<PAGE>
EXHIBIT B
SECURITY AGREEMENT
INSTRUMENTS OR NEGOTIABLE DOCUMENTS TO BE DEPOSITED
For new value contemporaneously given by ___________________ ("Lender") to
the undersigned ("Borrower"), the receipt whereof is hereby acknowledged, 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 of the security
interest hereby made:
All Shares of the common stock, par value $.01 per share, of
________________, a _____________corporation, acquired with the proceeds of
the Loan Amount.
Borrower agrees to deliver said collateral to said Lender as soon as
practicable after the Borrower's receipt of one or more Certificates
theretofore.
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 New Jersey,
particularly the Uniform Commercial Code, except where preempted by federal law.
Dated at Turnersville, New Jersey, the ____ day of __________, 199__.
_______________, and its successors in trust, as Trustee under that
certain South Jersey Savings and Loan Association Employee Stock
Ownership Plan Trust effective ___________, 199__ by and between the
undersigned and South Jersey Savings and Loan Association.
By:_________________________________
<PAGE>
Exhibit 10.3
FORM OF
SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of __________, 199__, by
and among South Jersey Savings and Loan Association (the "Association"), a New
Jersey State-chartered savings and loan association, with its principal
administrative office at 4651 Route 42, Turnersville, New Jersey 08012-1708,
South Jersey Financial Corporation, Inc. a corporation organized under the laws
of the State of Delaware, the holding company for the Association (the "Holding
Company"), and_____________________ ("Executive").
WHEREAS, the Association wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Association on
a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve
as_______________ and ______________ of the Association. Executive shall render
administrative and management services to the Association 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 the Holding Company or any subsidiary of the Association.
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 on each
anniversary thereafter, the disinterested members of the board of directors of
the Association ("Board") may extend the Agreement an additional year such that
the remaining term of the Agreement shall be__________ (____) months unless the
Executive elects not to extend the term of this Agreement by giving written
notice in accordance with Section 8 of this Agreement. The Board will review
the Agreement and Executive's performance annually for purposes of determining
whether to extend the Agreement and the rationale and results thereof shall be
included in the minutes of the Board's meeting. The Board
<PAGE>
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 Association and participation in community and
civic organizations; provided, however, that, with the approval of the Board, as
-------- -------
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in such Board's judgment,
will not present any conflict of interest with the Association, or materially
affect the performance of Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, Executive's employment
with the Association may be terminated by the Association or the Executive
during the term of this Agreement, subject to the terms and conditions of this
Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Association shall pay Executive as compensation a salary of
$___________ 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
Association. Such Base Salary shall be payable bi-weekly. During the period of
this Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by the Board or by a Committee of the
Board, delegated such responsibility by the Board. The Committee or the Board
may increase Executive's Base Salary. Any increase in Base Salary shall become
the "Base Salary" for purposes of this Agreement. In addition to the Base
Salary provided in this Section 3(a), the Association shall also provide
Executive, at no premium cost to Executive, with all such other benefits as are
provided uniformly to permanent full-time employees of the Association. In
addition, Executive shall be entitled to incentive compensation and bonuses as
provided in any plan or arrangement of the Association in which Executive is
eligible to participate.
(b) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Association will not,
without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would materially adversely affect Executive's
rights or benefits thereunder; except to the extent such changes are made
applicable to all Association employees on a non-discriminatory basis. Without
limiting the generality of the foregoing provisions of this Subsection (b),
Executive shall be entitled to participate in or receive benefits under all
plans relating to stock options, restricted stock awards, stock purchases,
-2-
<PAGE>
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
Association 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) The Association 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 Association of Executive's full-time employment hereunder for
any reason other than a termination governed by Section 5(a) hereof, or
Termination for Cause, as defined in Section 7 hereof; (ii) Executive's
resignation from the Association's employ upon any (A) failure to elect or
reelect or to appoint or reappoint Executive as ________________________, unless
consented to by the Executive, (B) a material change in Executive's function,
duties, or responsibilities, which change would cause Executive's position to
become one of lesser responsibility, importance, or scope from the position and
attributes thereof described in Section 1, above, unless consented to by
Executive, (C) a relocation of Executive's principal place of employment by more
than ____ miles from its location at the effective date of this Agreement,
unless consented to by the Executive, (D) a material reduction in the benefits
and perquisites to the Executive from those being provided as of the effective
date of this Agreement, unless consented to by the Executive, (E) a liquidation
or dissolution of the Association or Holding Company, or (F) breach of this
Agreement by the Association. Upon the occurrence of any event described in
clauses (A), (B), (C), (D), (E) or (F), above, Executive shall have the right to
elect to terminate his employment under this Agreement by resignation upon not
less than sixty (60) days prior written notice given within six full months
after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Association shall be obligated to pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be a sum equal to the sum of:
(i) the 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; and (ii) all benefits,
including health insurance in accordance with Section 3(b) that would have been
provided to Executive for the remaining term of the this Agreement had an Event
of Termination not occurred; provided, however, that any payments
-------- -------
-3-
<PAGE>
pursuant to this subsection and subsection 4(c) below 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
Association or such lesser number of years in the event that Executive shall
have been employed by the Association for less than five years. In the event the
Association is not in compliance with its minimum capital requirements or if
such payments pursuant to this subsection (b) would cause the Association's
capital to be reduced below its minimum regulatory capital requirements, such
payments shall be deferred until such time as the Association or successor
thereto is in capital compliance. At the election of the Executive, which
election is to be made prior to an Event of Termination, such payments shall be
made in a lump sum as of the Executive's Date of Termination. In the event that
no election is made, payment to Executive will be made on a monthly basis in
approximately equal installments during the remaining term of the Agreement.
Such payments shall not be reduced in the event the Executive obtains other
employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Association will
cause to be continued life, medical, dental and disability coverage
substantially identical to the coverage maintained by the Association or the
Holding Company for Executive prior to his termination at no premium cost to the
Executive, except to the extent such coverage may be changed in its application
to all Association or Holding Company employees. Such coverage shall cease upon
the expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Association 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, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Association 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 ("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 Association or the Holding
Company representing 25% or more of the Association's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Association purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Association 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
-4-
<PAGE>
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 Association or the Holding Company or similar transaction occurs
in which the Association 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 waiting periods.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c), and (d) of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to: (1) Executive's dismissal or (2) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, material reduction in annual compensation or
benefits or relocation of his principal place of employment by more than ___
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death, disability, retirement or termination for
Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Association shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to
the greater of: (1) the 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 described in Subsection (b) of this Section 5
not occurred; or 2)_____________(___) times Executive's Average Annual
Compensation (as defined herein) for the five (5) most recent taxable years that
Executive has been employed by the Association or such lesser number of years in
the event that Executive shall have been employed by the Association for less
than five (5) years. Such "Average Annual Compensation" shall include all
taxable income paid by the Association, including but not limited to, 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 and 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 Association; provided, however, that any payment under
-------- -------
this provision and subsection 5(d) below shall not exceed three (3) times the
Executive's average annual compensation. In the event the Association is not in
compliance with its minimum capital requirements or if such payments would cause
the Association's capital to be reduced below its minimum regulatory capital
requirements, such payments shall be deferred until such time as the Association
or successor thereto is in capital compliance. At the election of the
Executive, which election is to be made prior to a Change in Control, such
payment shall be made in a lump sum as of the Executive's Date of Termination.
In the event that no election is made, payment to the Executive will be made in
approximately equal installments on a monthly basis over a period of
_____________(____) months following the Executive's termination. Such payments
shall not
-5-
<PAGE>
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 Association will cause to be continued life, medical, dental and disability
coverage substantially identical to the coverage maintained by the Association
for Executive prior to his severance at no premium cost to the Executive, except
to the extent that such coverage may be changed in its application for all
Association employees on a non-discriminatory basis. Such coverage and payments
shall cease upon the expiration of _________ (___) months following the Date of
Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Internal Revenue Code of 1986, as amended, or any
successor thereto, and in order to avoid such a result, Termination Benefits
will be reduced, if necessary, to an amount (the "Non-Triggering Amount"), the
value of which is one dollar ($1.00) less than an amount equal to three (3)
times Executive's "base amount," as determined in accordance with said Section
280G. The allocation of the reduction required hereby among the Termination
Benefits provided by Section 5 shall be determined by Executive.
7. TERMINATION FOR 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 members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after the Date of Termination for Cause. During the period beginning
on the date of the Notice of Termination for Cause pursuant to Section 8 hereof
through the Date of Termination for Cause, stock options granted to Executive
under any stock option plan shall not be exercisable nor shall any unvested
stock awards granted to Executive under any stock benefit plan of the
Association, the Holding Company or any subsidiary or affiliate thereof, vest.
At the Date of Termination for Cause, such stock options
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and any unvested stock 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.
8. NOTICE.
(a) Any purported termination by the Association or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and,
provided further, that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, in the event the Executive is
terminated for reasons other than Termination for Cause, the Association will
continue to pay Executive his Base Salary in effect when the notice giving rise
to the 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.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Association. Executive shall, upon reasonable
notice, furnish such information and assistance to the Association as may
reasonably be required by the Association 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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10. NON-COMPETITION AND NON-DISCLOSURE OF ASSOCIATION BUSINESS.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Association for a
period of one (1) year following such termination in any city, town or county in
which the Executive's normal business office is located and the Association has
an office or has filed an application for regulatory approval to establish an
office, determined as of the effective date of such termination, except as
agreed to pursuant to a resolution duly adopted by the Board. Executive agrees
that during such period and within said cities, towns and counties, Executive
shall not work for or advise, consult or otherwise serve with, directly or
indirectly, any entity whose business materially competes with the depository,
lending or other business activities of the Association. The parties hereto,
recognizing that irreparable injury will result to the Association, its business
and property in the event of Executive's breach of this Subsection 10(a) agree
that in the event of any such breach by Executive, the Association, will be
entitled, in addition to any other remedies and damages available, to an
injunction to restrain the violation hereof by Executive, Executive's partners,
agents, servants, employees and all persons acting for or under the direction of
Executive. Nothing herein will be construed as prohibiting the Association from
pursuing any other remedies available to the Association 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 Association and
affiliates thereof, as it may exist from time to time, is a valuable, special
and unique asset of the business of the Association. Executive will not, during
or after the term of his employment, disclose any knowledge of the past,
present, planned or considered business activities of the Association or
affiliates thereof to any person, firm, corporation, or other entity for any
reason or purpose whatsoever. Notwithstanding the foregoing, Executive may
disclose any knowledge of banking, financial and/or economic principles,
concepts or ideas which are not solely and exclusively derived from the business
plans and activities of the Association. Further, Executive may disclose
information regarding the business activities of the Association to the OTS and
the Federal Deposit Insurance Corporation ("FDIC") pursuant to a formal
regulatory request. In the event of a breach or threatened breach by Executive
of the provisions of this Section, the Association 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
Association 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 Association from pursuing any other remedies
available to the Association for such breach or threatened breach, including the
recovery of damages from Executive.
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11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Association. 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
Association are not timely paid or provided by the Association, 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 ___________, 199___,
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 by the Holding Company and the Association
on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Association or any
predecessor of the Association 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.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Association and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by
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written instrument of the party charged with such waiver or estoppel. No such
written waiver shall be deemed a continuing waiver unless specifically stated
therein, and each such waiver shall operate only as to the specific term or
condition waived and shall not constitute a waiver of such term or condition for
the future as to any act other than that specifically waived.
15. REQUIRED PROVISIONS.
(a) The Association may terminate Executive's employment at any time, but
any termination by the Association, 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 7
hereinabove.
(b) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Association's affairs by a notice
served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12
U.S.C. (S)1818(e)(3) or (g)(1); the Association'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
Association 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 Association's affairs by an order issued
under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(4) or (g)(1), all obligations of the Association 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 Association is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. (S)1813(x)(1) all obligations of the
Association 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 Association under this contract shall be
terminated, except to the extent determined that continuation of the contract is
necessary for the continued operation of the institution: (i) by the Director
of the OTS (or her 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 Association under the authority contained in Section 13(c) of the Federal
Deposit Insurance Act, 12 U.S.C. (S)1823(c); or (ii) by the Director of the OTS
(or her designee) at the time the Director (or her designee) approves a
supervisory merger to resolve problems related to the operations of the
Association or when the Association 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.
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(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), 12 C.F.R. Part 359 and 12 C.F.R. Section 545.121 and any rules and
regulations promulgated thereunder.
16. REINSTATEMENT OF BENEFITS UNDER SECTION 15(b).
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Association's affairs by a notice described
in Section 15(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Association 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
Association's receipt of a dismissal of charges in the Notice.
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.
The validity, interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of__________ without regards to
principles of conflicts of law of this state, 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 Executive within fifty
(50) miles from the location of the Association, 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
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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.
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In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of Executive, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of all
back-pay, including salary, bonuses and any other cash compensation, fringe
benefits and any compensation and benefits due Executive under this Agreement.
21. 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 Association if Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement.
22. INDEMNIFICATION.
(a) The Association 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) as permitted under federal 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 Association (whether or
not he continues to be a director or officer at the time of incurring such
expenses or liabilities), such expenses and liabilities to include, but not be
limited to, judgments, court costs and attorneys' fees and the cost of
reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are subject to
and conditioned upon compliance with 12 U.S.C. Section 1828(k), 12 C.F.R. Part
359 and 12 C.F.R. Section 545.121 and any rules or regulations promulgated
thereunder.
23. SUCCESSOR TO THE ASSOCIATION.
The Association 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 Association or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Association's obligations under this Agreement, in the same manner and to the
same extent that the Association would be required to perform if no such
succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF, South Jersey Savings and Loan Association and
_________________ have caused this Agreement to be executed and their seals to
be affixed hereunto by their duly authorized officers and directors, and
Executive has signed this Agreement, on the_____ day of _________________,
199___.
ATTEST: SOUTH JERSEY SAVINGS AND LOAN
ASSOCIATION
By:
------------------ ------------------
[SEAL]
ATTEST: SOUTH JERSEY FINANCIAL CORPORATION, INC.
(Guarantor)
By:
------------------ ------------------
[SEAL]
WITNESS: EXECUTIVE
------------------ ------------------
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EXHIBIT 10.4
FORM OF
SOUTH JERSEY FINANCIAL CORPORATION, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of ______________, 199__
by and between South Jersey Financial Corporation, Inc. (the "Holding Company"),
a corporation organized under the laws of Delaware with its principal offices at
4651 Route 42, Turnersville, New Jersey 08012-1708 and___________________
("Executive"). Any reference to "Institution" herein shall mean South Jersey
Savings and Loan Association or any successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Holding
Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive agrees to
serve as ___________ and ______________ of the Holding Company. The Executive
shall render administrative and management services to the Holding Company such
as are customarily performed by persons in a similar executive capacity. During
said period, Executive also agrees to serve, if elected, as an officer or
director of any subsidiary of the Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of ____________ (__) full calendar months thereafter. Commencing
on the date of the execution of this Agreement, the term of this Agreement shall
be extended for one day each day until such time as the board of directors of
the Holding Company (the "Board") or Executive elects not to extend the term of
the Agreement by giving written notice to the other party in accordance with
Section 8 of this Agreement, in which case the term of this Agreement shall be
fixed and shall end on the ________ anniversary of the date of such written
notice.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder, including activities and services related to the
<PAGE>
organization, operation and management of the Holding Company and its direct or
indirect subsidiaries ("Subsidiaries") and participation in community,
professional and civic organizations; provided, however, that, with the approval
of the Board, as evidenced by a resolution of such Board, from time to time,
Executive may serve, or continue to serve, on the boards of directors of, and
hold any other offices or positions in, companies or organizations, which, in
such Board's judgment, will not present any conflict of interest with the
Holding Company or its Subsidiaries, or materially affect the performance of
Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary, Executive's
employment with the Holding Company may be terminated by the Holding Company or
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement. However, Executive shall not perform, in any respect,
directly or indirectly, during the pendency of his temporary or permanent
suspension or termination from the Institution, duties and responsibilities
formerly performed at the Institution as part of his duties and responsibilities
as ____________ and _________________ of the Holding Company.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Executive shall be entitled to a salary from the Holding Company or
its Subsidiaries of $____________________ per year ("Base Salary"). Base Salary
shall include any amounts of compensation deferred by Executive under any tax-
qualified retirement or welfare benefit plan or any other deferred compensation
arrangement maintained by the Holding Company and its Subsidiaries. Such Base
Salary shall be payable bi-weekly. During the period of this Agreement,
Executive's Base Salary shall be reviewed at least annually; the first such
review will be made no later than one year from the date of this Agreement.
Such review shall be conducted by the Board or by a Committee of the Board
delegated such responsibility by the Board. The Committee or the Board may
increase Executive's Base Salary. Any increase in Base Salary shall become the
"Base Salary" for purposes of this Agreement. In addition to the Base Salary
provided in this Section 3(a), the Holding Company shall also provide Executive,
at no premium cost to Executive, with all such other benefits as provided
uniformly to permanent full-time employees of the Holding Company and its
Subsidiaries. In addition, Executive shall be entitled to incentive
compensation and bonuses as provided in any plan or arrangement of the Holding
Company or its Subsidiaries in which Executive is eligible to participate.
(b) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Holding Company and its
Subsidiaries will not, without Executive's prior written consent, make any
changes in such plans, arrangements or perquisites which would materially
adversely affect Executive's rights or benefits thereunder, except to the extent
that such changes are made applicable to all Holding Company and Institution
employees eligible to participate in such plans, arrangements and perquisites on
a non-discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive shall be
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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 Holding Company or its
Subsidiaries 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 Holding Company and its
Subsidiaries in which Executive is eligible to participate. Nothing paid to the
Executive under any such plan or arrangement will be deemed to be in lieu of
other compensation to which the Executive is entitled under this Agreement.
(c) The Holding Company shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred in the performance of Executive's
obligations under this Agreement and may provide such additional compensation in
such form and such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Holding Company of Executive's full-time employment hereunder
for any reason other than termination governed by Section 5(a) hereof, or for
Cause, as defined in Section 7 hereof; (ii) Executive's resignation from the
Holding Company's employ, upon, any (A) failure to elect or reelect or to
appoint or reappoint Executive as President and Chief Executive Officer, unless
consented to by the Executive, (B) a material change in Executive's function,
duties, or responsibilities with the Holding Company or its Subsidiaries, which
change would cause Executive's position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Section 1, above, unless consented to by the Executive, (C) a relocation of
Executive's principal place of employment by more than ___ miles from its
location at the effective date of this Agreement, unless consented to by the
Executive, (D) a material reduction in the benefits and perquisites to the
Executive from those being provided as of the effective date of this Agreement,
unless consented to by the Executive, (E) a liquidation or dissolution of the
Holding Company or the Institution, or (F) breach of this Agreement by the
Holding Company. Upon the occurrence of any event described in clauses (A),
(B), (C), (D), (E) or (F), above, Executive shall have the right to elect to
terminate his employment under this Agreement by resignation upon not less than
sixty (60) days prior written notice given within six full calendar months after
the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Holding Company shall be obligated to
pay Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, a sum equal to the sum of:
(i) the Base Salary and bonuses in accordance with Section 3(a) of this
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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; and (ii) 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 an Event of Termination not occurred. At
the election of the Executive, which election is to be made prior to an Event of
Termination, such payments shall be made in a lump sum. In the event that no
election is made, payment to the Executive will be made on a monthly basis in
approximately equal installments during the remaining term of the Agreement.
Such payments shall not be reduced in the event the Executive obtains other
employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Holding Company
will cause to be continued life, medical, dental and disability coverage
substantially equivalent to the coverage maintained by the Holding Company or
its Subsidiaries for Executive prior to his termination at no premium cost to
the Executive. Such coverage shall cease upon the expiration of the remaining
term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Institution shall mean an event of a nature that: (i) would be
required to be reported in response to Item 1(a) of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Institution or the Holding Company within the meaning
of the Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance
Act, and the Rules and Regulations promulgated by the Office of Thrift
Supervision (or its predecessor agency), as in effect on the date hereof
(provided, that in applying the definition of change in control as set forth
under the rules and regulations of the OTS, the Board shall substitute its
judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of voting securities of the Institution or the Holding
Company representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Holding Company
or its Subsidiaries, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Company's
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stockholders was approved by a Nominating Committee solely composed of members
which are Incumbent Board members, shall be, for purposes of this clause (B),
considered as though he were a member of the Incumbent Board, or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Institution or the Holding Company or similar transaction occurs
or is effectuated in which the Institution or Holding Company is not the
resulting entity; provided, however, that such an event listed above will be
deemed to have occurred or to have been effectuated upon the receipt of all
required federal regulatory approvals not including the lapse of any statutory
waiting periods, or (D) a proxy statement has been distributed soliciting
proxies from stockholders of the Holding Company, by someone other than the
current management of the Holding Company, seeking stockholder approval of a
plan of reorganization, merger or consolidation of the Holding Company or
Institution with one or more corporations as a result of which the outstanding
shares of the class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not issued by the
Institution or the Holding Company shall be distributed, or (E) a tender offer
is made for 20% or more of the voting securities of the Institution or Holding
Company then outstanding.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and (d), of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to (i) Executive's dismissal, or (ii) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, reduction in the annual compensation or reduction
in benefits or relocation of his principal place of employment by more than ___
miles from its location immediately prior to the change in control, unless such
termination is because of his death or termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Holding Company shall pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to the greater of:
(i) the 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 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)_________
(__) times Executive's "Average Annual Compensation" (as defined herein) for the
five (5) preceding taxable years that Executive has been employed by the Holding
Company or its Subsidiaries or such lesser number of years in the event
Executive shall have been employed with the Holding Company or its Subsidiaries
less than five (5) years. Such "Average
5
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Annual Compensation" shall include all taxable income paid by the Holding
Company or its Subsidiaries, 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, severance payments, directors or committee fees
and fringe benefits paid or to be paid to the Executive during such years. At
the election of the Executive, which election is to be made prior to a Change in
Control, such payment shall be made in a lump sum. In the event that no election
is made, payment to the Executive will be made on a monthly basis in
approximately equal installments during the remaining term of the Agreement.
Such payments shall not be reduced in the event Executive obtains other
employment following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Company will cause to be continued life, medical, dental and disability
coverage substantially equivalent to the coverage maintained by the Institution
for Executive at no premium cost to Executive prior to his severance. Such
coverage and payments shall cease upon the expiration of ______________(___)
months following the Change in Control.
6. CHANGE OF CONTROL RELATED PROVISIONS.
(a) Notwithstanding the provisions of Section 5, in the event that:
(i) the aggregate payments or benefits to be made or afforded to
Executive, which are deemed to be parachute payments as defined
in Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code") or any successor thereof, (the "Termination
Benefits") would be deemed to include an "excess parachute
payment" under Section 280G of the Code; and
(ii) if such Termination Benefits were reduced to an amount (the "Non-
Triggering Amount"), the value of which is one dollar ($1.00)
less than an amount equal to three (3) times Executive's "base
amount," as determined in accordance with said Section 280G and
the Non-Triggering Amount less the product of the marginal rate
of any applicable state and federal income tax and the Non-
Triggering Amount would be greater than the aggregate value of
the Termination Benefits (without such reduction) minus (i) the
amount of tax required to be paid by the Executive thereon by
Section 4999 of the Code and further minus (ii) the product of
the Termination Benefits and the marginal rate of any applicable
state and federal income tax,
then the Termination Benefits shall be reduced to the Non-Triggering Amount.
The allocation of the reduction required hereby among the Termination Benefits
shall be determined by the Executive.
6
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7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, willful misconduct, any 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), 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 three-fourths
of the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the
date of the Notice of Termination for Cause pursuant to Section 8 hereof through
the Date of Termination, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the
Institution, the Holding Company or any subsidiary or affiliate thereof, vest.
At the Date of Termination, such stock options and related limited rights and
any such unvested awards shall become null and void and shall not be exercisable
by or delivered to Executive at any time subsequent to such Termination for
Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive shall
be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be
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extended by a notice of dispute only if such notice is given in good faith and
the party giving such notice pursues the resolution of such dispute with
reasonable diligence. Notwithstanding the pendency of any such dispute, the
Holding Company will continue to pay Executive his full compensation in effect
when the notice giving rise to the dispute was given (including, but not limited
to, Base Salary) and continue him as a participant in all compensation, benefit
and insurance plans in which he was participating when the notice of dispute was
given, until the dispute is finally resolved in accordance with this Agreement.
Amounts paid under this Section are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which the Executive's normal business office is located
and the Holding Company or any of its Subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination, except as agreed to pursuant to a resolution
duly adopted by the Board. Executive agrees that during such period and within
said cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities of
the Holding Company or its Subsidiaries. The parties hereto, recognizing that
irreparable injury will result to the Holding Company or its Subsidiaries, its
business and property in the event of Executive's breach of this Subsection
10(a) agree that in the event of any such breach by Executive, the Holding
Company or its Subsidiaries, will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employees and all persons
acting for or under the direction of Executive. Executive represents and admits
that in the event of the termination of his employment pursuant to Section 7
hereof, Executive's experience and capabilities are such that Executive can
obtain employment in a business engaged in other lines and/or of a different
nature than the Holding Company or its Subsidiaries, and that the enforcement of
a remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Holding Company
or its Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries for such breach or threatened breach, including the
recovery of damages from Executive.
8
<PAGE>
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of banking, financial and/or economic
principles, concepts or ideas which are not solely and exclusively derived from
the business plans and activities of the Holding Company. In the event of a
breach or threatened breach by the Executive of the provisions of this Section,
the Holding Company will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Holding Company or its Subsidiaries or
from rendering any services to any person, firm, corporation, other entity to
whom such knowledge, in whole or in part, has been disclosed or is threatened to
be disclosed. Nothing herein will be construed as prohibiting the Holding
Company from pursuing any other remedies available to the Holding Company for
such breach or threatened breach, including the recovery of damages from
Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Holding Company subject to Section 11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated_______________,
199__, between Executive and the Institution, such compensation payments and
benefits paid by the Institution will be subtracted from any amount due
simultaneously to Executive under similar provisions of this Agreement.
Payments pursuant to this Agreement and the Institution Agreement shall be
allocated in proportion to the level of activity and the time expended on such
activities by the Executive as determined by the Holding Company and the
Institution on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Holding Company or any
predecessor of the Holding Company and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to the
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
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<PAGE>
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of ___________
without regards to principles of conflicts of law of this state.
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18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Institution, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
19. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company, if Executive is successful pursuant to a
legal judgment, arbitration or settlement.
20. INDEMNIFICATION.
(a) The Holding Company shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under_________ law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are subject to
and conditioned upon compliance with 12 U.S.C. Section 1828(k) and 12 C.F.R.
Part 359 and any rules or regulations promulgated thereunder.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to
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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, South Jersey Financial Corporation, Inc. has caused
this Agreement to be executed and its seal to be affixed hereunto by its duly
authorized officer and its directors, and Executive has signed this Agreement,
on the _______ day of _________, 199__.
ATTEST: SOUTH JERSEY FINANCIAL CORPORATION, INC.
By:
- ---------------------- ----------------------
[SEAL]
WITNESS:
By:
- ---------------------- -----------------------
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EXHIBIT 10.5
FORM OF SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION
___________YEAR CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of___________,199__, by and among South
Jersey Savings and Loan Association (the "Institution"), a New Jersey-chartered
savings and loan association, with its principal administrative office at 4651
Route 42, Turnersville, New Jersey 08012-1708, _________________ ("Executive"),
and South Jersey Financial Corporation, Inc. (the "Holding Company"), a
corporation organized under the laws of the State of Delaware which is the
holding company of the Institution.
WHEREAS, the Institution recognizes the substantial contribution Executive
has made to the Institution 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 Institution.
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 South Jersey Savings and Loan Association ________ Year
Change in Control Agreement (the "Agreement") shall be deemed to have commenced
as of the date first above written and shall continue for a period of___________
(____) 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 Institution ("Board") may extend the Agreement for an
additional year. The Board will review the Agreement and Executive's
performance annually for purposes of determining whether to extend the
Agreement, and the results thereof shall be included in the minutes of the
Board's meeting.
2. CHANGE IN CONTROL.
-----------------
(a) Upon the occurrence of a Change in Control of the Institution or the
Holding Company (as herein defined) followed at any time during the term of this
Agreement by the termination of Executive's employment, other than for Cause, as
defined in Section 2(c) hereof, the provisions of Section 3 shall apply. Upon
the occurrence of a Change in Control, Executive shall have the right to elect
to voluntarily terminate his employment at any time during the term of this
Agreement following any demotion, loss of title, office or significant
authority, reduction in his annual compensation or benefits, or relocation of
his principal place of employment by more than____ miles from its location
immediately prior to the Change in Control; provided, however, the Executive may
consent in writing to any such demotion, loss, reduction or
<PAGE>
relocation. The effect of any written consent of the Executive under this
Section 2 (a) shall be strictly limited to the terms specified in such written
consent.
(b) For purposes of this Agreement, a "Change in Control" of the
Institution 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, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Institution or the Holding Company within
the meaning of the Home Owners' Loan Act of 1933, as amended, the Federal
Deposit Insurance Act 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 Institution or the Holding
Company representing 25% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Institution 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 Institution or the Holding Company or similar transaction
occurs in which the Institution or Holding Company is not the resulting entity;
provided, however, that such an event listed above will be deemed to have
occurred or to have been effectuated upon the receipt of all required regulatory
approvals not including the lapse of any statutory waiting 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 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),
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finding that in the good faith opinion of the Board, Executive was guilty of
conduct justifying Termination for Cause and specifying the particulars thereof
in detail. Executive shall not have the right to receive compensation or other
benefits for any period after Termination for Cause. During the period
beginning on the date of the Notice of Termination for Cause pursuant to Section
4 hereof through the Date of Termination, stock options and related limited
rights granted to Executive under any stock option plan shall not be exercisable
nor shall any unvested awards granted to Executive under any stock benefit plan
of the Institution, the Holding Company or any subsidiary or affiliate thereof
vest. At the Date of Termination, such stock options and related limited rights
and such unvested awards shall become null and void and shall not be exercisable
by or delivered to Executive at any time subsequent to such Date of Termination
for Cause.
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
Institution 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
Institution or such lesser number of years in the event that Executive shall
have been employed by the Institution for less than five years. Such "Average
Annual Compensation" shall include base salary, commissions, bonuses, as well as
contributions on behalf of Executive to any pension and profit-sharing plan, and
fringe benefits paid or to be paid to the Executive during such years. At the
election of Executive, which election is to be made prior to a Change in
Control, such payment shall be made in a lump sum. In the event that no
election is made, payment to Executive will be made on a monthly basis in
approximately equal installments during the remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the Institution 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 Institution shall cause to be continued life, medical
and disability coverage substantially identical to the coverage maintained by
the Institution or Holding Company for Executive prior to his severance, except
to the extent such coverage may be changed in its application to all Institution
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 Internal Revenue Code of 1986, as
amended, or any successor thereto, and in order to avoid such a result
Termination Benefits will be reduced, if necessary, to an amount (the
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"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 Institution 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 that the Executive is terminated for reasons other than
Termination for Cause, the Institution 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
Institution. 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 Institution are not timely paid or provided by the
Institution, 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 Institution 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 Institution or shall impose on the Institution 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 Institution and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
-----------------------
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
9. REQUIRED REGULATORY PROVISIONS.
------------------------------
(a) The board of directors may terminate Executive's employment at any
time, but any termination by the board of directors, other than Termination for
Cause, shall not prejudice Executive's right to compensation or other benefits
under this Agreement. Executive shall not have the right to receive
compensation or other benefits for any period after Termination for Cause as
defined in Section 2 hereinabove.
5
<PAGE>
(b) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Institution's affairs by a notice
served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act (12
U.S.C. (S)1818(e)(3) or (g)(1)), the Institution'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
Institution 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 Institution's affairs by an order issued
under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act (12 U.S.C.
(S)1818(e)(4) or (g)(1)), all obligations of the Institution 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 Institution is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, all obligations of the Institution 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 her designee at the time the Federal Deposit Insurance
Corporation enters into an agreement to provide assistance to or on behalf of
the Institution 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 her designee at the time the Director or her designee approves a
supervisory merger to resolve problems related to operation of the Institution
or when the Institution is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested, however,
shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k), 12 C.F.R. Part 359 and 12 C.F.R. Section 545.121 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 Institution'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 Institution 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
Institution's receipt of a dismissal of charges in the Notice of Termination.
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_________ 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 Institution'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.
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 Institution (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 Association 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) as permitted under federal law against all
expenses and liabilities reasonably incurred by him in
7
<PAGE>
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
Association (whether or not he continues to be a director or officer at the time
of incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are subject to
and conditioned upon compliance with 12 U.S.C. Section 1828(k), 12 C.F.R. Part
359 and 12 C.F.R. Section 545.121 and any rules or regulations promulgated
thereunder.
17. SUCCESSOR TO THE INSTITUTION.
----------------------------
The Institution shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution, expressly and
unconditionally to assume and agree to perform the Institution's obligations
under this Agreement, in the same manner and to the same extent that the
Institution would be required to perform if no such succession or assignment had
taken place.
8
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, South Jersey Savings and Loan Association and South
Jersey Financial Corporation, Inc. have caused this Agreement to be executed by
their duly authorized officers, and Executive has signed this Agreement, on the
____ day of ___________, 199__.
<TABLE>
<CAPTION>
<S> <C>
ATTEST: SOUTH JERSEY SAVINGS AND LOAN
ASSOCIATION
By:
- -------------------------------------- ---------------------------------
[SEAL]
ATTEST: SOUTH JERSEY FINANCIAL CORPORATION, INC.
(Guarantor)
By:
- -------------------------------------- ----------------------------------
WITNESS: EXECUTIVE
- -------------------------------------- ----------------------------------
</TABLE>
9
<PAGE>
EXHIBIT 10.6
FORM OF
SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
FORM OF
SOUTH JERSEY SAVINGS AND LOAN
ASSOCIATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Article I - Introduction.............................................
Article II - Definitions.............................................
Article III - Eligibility and Participation..........................
Article IV - Benefits................................................
Article V - Accounts.................................................
Article VI - Supplemental Benefit Payments...........................
Article VII - Claims Procedures......................................
Article VIII - Amendment and Termination.............................
Article IX - General Provisions......................................
Article X - Required Regulatory Provisions...........................
</TABLE>
i
<PAGE>
ARTICLE I
INTRODUCTION
SECTION 1.01 PURPOSE, DESIGN AND INTENT.
--------------------------
(a) The purpose of the South Jersey Savings and Loan Association Supplemental
Executive Retirement Plan (the "Plan") is to assist South Jersey Savings
and Loan Association (the "Association") and its affiliates in retaining
the services of key employees until their retirement, to induce such
employees, to use their best efforts to enhance the business of the
Association and its affiliates, and to provide certain supplemental
retirement benefits to such employees.
(b) The Plan, in relevant part, is intended to constitute an unfunded "excess
benefit plan" as defined in Section 3(36) of the Employee Retirement Income
Security Act of 1974, as amended. The Plan is specifically designed to
provide certain key employees with retirement benefits that would have been
payable under the various tax-qualified retirement plans sponsored by the
Association but for the limitations placed on the benefits and contribution
under such plans by various provisions of the Internal Revenue Code of
1986, as amended.
i
<PAGE>
ARTICLE II
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) "AFFILIATE" means any "parent corporation" or any "subsidiary corporation"
of the Association, as such terms are defined in Sections 424(e) and 424(f),
respectively, of the Code.
(b) "APPLICABLE LIMITATIONS" means one of the following:
(i) the maximum limitation on annual benefits payable by a qualified
defined benefit plan under Section 415(b) of the Code;
(ii) the maximum limitations on annual additions to a qualified defined
contribution plan under Section 415(c) of the Code;
(iii) the maximum limitation on the aggregate projected annual benefits
payable by qualified defined benefit plans and the annual additions
to qualified defined contribution plans under Section 415(e) of the
Code; and
(iv) the maximum limitation on the annual amount of compensation that may,
under Section 401(a)(17) of the Code, be taken into account in
determining contributions to and benefits under qualified plans.
(c) "ASSOCIATION" means South Jersey Savings and Loan Association, and its
successors.
(d) "BOARD OF DIRECTORS" means the Board of Directors of the Association.
(e) "CHANGE IN CONTROL" means with respect to the Association or the Company,
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 Exchange Act; or (ii) results in a
"change in control" of the Association or the 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 Committee 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
ii
<PAGE>
indirectly, of securities of the Association or the Company representing 20% or
more of the Association's or the Company's outstanding securities except for any
securities of the Association purchased by the Company in connection with the
conversion of the Association to the stock form and any securities purchased by
any tax-qualified employee benefit plan of the Association; or (B) individuals
who constitute the Board of Directors of either the Association or the Company
on the date hereof (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the date hereof whose election was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board, or whose
nomination, in the case of the Company, 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
Association or the Company or similar transaction occurs in which the
Association or 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.
(f) "CODE" means the Internal Revenue Code of 1986, as amended.
(g) "COMMITTEE" means the person(s) designated by the Board of Directors,
pursuant to Section 9.02 of the Plan, to administer the Plan.
(h) "COMMON STOCK" means the common stock of the Company.
(i) "COMPANY" means South Jersey Financial Corporation, Inc., and its
successors.
(j) "ELIGIBLE INDIVIDUAL" means any Employee of the Association or an Affiliate
who participates in the ESOP or the Pension Plan, as the case may be, and whom
the Board of Directors determines is one of a "select group of management or
highly compensated employees," as such phrase is used for purposes of Sections
101, 201, and 301 of ERISA.
(k) "EMPLOYEE" means any person employed by the Association or an Affiliate.
(l) "EMPLOYER" means the Association or Affiliate that employs the Employee.
(m) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
(n) "ESOP" means the South Jersey Savings and Loan Association Employee Stock
Ownership Plan, as amended from time to time.
(o) "ESOP ACQUISITION LOAN" means a loan or other extension of credit incurred
by the trustee of the ESOP in connection with the purchase of Common Stock on
behalf of the ESOP.
iii
<PAGE>
(p) "ESOP VALUATION DATE" means any day as of which the investment experience of
the trust fund of the ESOP is determined and individuals' accounts under the
ESOP are adjusted accordingly.
(q) "EFFECTIVE DATE" means [_________, 199__].
(r) "PARTICIPANT" means an Eligible Employee who is entitled to benefits under
the Plan.
(s) "PENSION PLAN" means the South Jersey Savings and Loan Association Money
Purchase Pension Plan, as amended from time to time.
(t) "PLAN" means this South Jersey Savings and Loan Association Supplemental
Executive Retirement Plan.
(u) "RETIREMENT" means termination of employment at any time following the
satisfaction the requirements for early or normal retirement under either the
ESOP or the Pension Plan, as appropriate.
(v) "SUPPLEMENTAL ESOP ACCOUNT" means an account established by an Employer,
pursuant to Section 5.01 of the Plan, with respect to a Participant's
Supplemental ESOP Benefit.
(w) "SUPPLEMENTAL ESOP BENEFIT" means the benefit credited to a Participant
pursuant to Section 4.01 of the Plan.
(x) "SUPPLEMENTAL PENSION ACCOUNT" means an account established by an Employer,
pursuant to Section 5.03 of the Plan, with respect to a Participant's
Supplemental Pension Benefit.
(y) "SUPPLEMENTAL PENSION BENEFIT" means the benefit earned by a Participant
pursuant to Section 4.03 of the Plan.
(z) "SUPPLEMENTAL STOCK OWNERSHIP ACCOUNT" means an account established by an
Employer, pursuant to Section 5.02 of the Plan, with respect to a Participant's
Supplemental Stock Ownership Benefit.
(aa) "SUPPLEMENTAL STOCK OWNERSHIP BENEFIT" means the benefit credited to a
Participant pursuant to Section 4.02 of the Plan.
iv
<PAGE>
ARTICLE III
ELIGIBILITY AND PARTICIPATION
SECTION 3.01 ELIGIBILITY AND PARTICIPATION.
-----------------------------
(a) Each Eligible Employee may participate in the Plan. An Eligible Employee
shall become a Participant in the Plan upon designation as such by the
Board of Directors. An Eligible Employee whom the Board of Directors
designates as a Participant in the Plan shall commence participation as of
the date established by the Board of Directors. The Board of Directors
shall establish an Eligible Employee's date of participation at the same
time it designates the Eligible Employee as a Participant in the Plan.
(b) The Board of Directors may, at any time, designate an Eligible Employee as
a Participant for any or all supplemental benefits provided for under
Article IV of the Plan.
v
<PAGE>
ARTICLE IV
BENEFITS
SECTION 4.01 SUPPLEMENTAL ESOP BENEFIT.
-------------------------
As of the last day of each plan year of the ESOP, the Employer shall credit the
Participant's Supplemental ESOP Account with a Supplemental ESOP Benefit equal
to the excess of (a) over (b), where:
(a) Equals the annual contributions made by the Employer and/or the number of
shares of Common Stock released for allocation in connection with the
repayment of an ESOP Acquisition Loan that would otherwise be allocated to
the accounts of the Participant under the ESOP for the applicable plan year
if the provisions of the ESOP were administered without regard to and of the
Applicable Limitations; and
(b) Equals the annual contributions made by the Employer and for the number of
shares of common stock released for allocation in connection with the
repayment of an ESOP Acquisition Loan that are actually allocated to the
accounts of the Participant under the provisions of the ESOP for that
particular plan year after giving effect to any reduction of such allocation
required by the limitations imposed by any of the Applicable Limitations.
SECTION 4.02 SUPPLEMENTAL STOCK OWNERSHIP BENEFIT.
------------------------------------
(a) Upon a Participant's Retirement from the Employer, the Employer shall credit
to the Participant's Supplemental Stock Ownership Account a Supplemental
Stock Ownership Benefit equal to (i) less (ii), the result of which is
multiplied by (iii), where:
(i) Equals the total number of shares of Common Stock acquired with the
proceeds of all ESOP Acquisition Loans (together with any dividends,
cash proceeds, or other medium related to such ESOP Acquisition Loans)
that would have been allocated or credited for the benefit of the
Participant under the ESOP and/or this Plan, as the case may be, had
the Participant continued in the employ of the Employer through the
first ESOP Valuation Date following the last scheduled payment of
principal and interest on all ESOP Acquisition Loans outstanding at the
time of the Participant's Retirement; and
(ii) Equals the total number of shares of Common Stock acquired with the
proceeds of all ESOP Acquisition Loans (together with any dividends,
cash proceeds, or other medium related to such ESOP Acquisition Loans)
and allocated for the benefit of the Participant under the ESOP as of
the first ESOP Valuation Date following the Participant's Retirement;
and
(iii) Equals the higher of the closing price of the Common Stock as of:
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<PAGE>
(A) The first ESOP Valuation Date following the Participant's
Retirement, or
(B) The last day of the Participant's employment with the Employer.
(b) For purposes of clause
(i) of subsection (a) of this Section 4.02, the total number of shares of
Common Stock shall be determined by multiplying the sum of (i) and (ii)
by (iii), where (i) equals the average of the total shares of Common
Stock acquired with the proceeds of an ESOP Acquisition Loan and
allocated for the benefit of the Participant under the ESOP as of three
most recent ESOP Valuation Dates preceding the Participant's Retirement
(or lesser number if the Participant has not participated in the ESOP
for three full years),
(ii) equals the average number of shares of Common Stock credited to the
Participant's Supplemental ESOP Account for the three most recent plan
years of the ESOP (such that the three recent plan years coincide with
the three most recent ESOP Valuation Dates referred to in (i) above);
and
(iii) equals the total number of scheduled annual payments remaining on the
ESOP Acquisition Loans as of the Participant's Retirement.
(c) In the event of a Change in Control:
(i) A Participant's Retirement shall be deemed to have occurred as of the
effective date of the Change in Control, as determined by the Board of
Directors, regardless of whether the Participant continues in the
employ of the Employer following the Change in Control; and
(ii) The determination of fair market value of the Common Stock shall be
made as the effective date of the Change in Control.
SECTION 4.03 SUPPLEMENTAL PENSION BENEFIT.
----------------------------
As of the last day of each plan year of the Pension Plan, the Employer shall
credit the Participant's Supplemental Pension Account with a Supplemental
Pension Benefit equal to the excess of (a) over (b), where:
(a) Equals the annual contributions made by the Employer that would otherwise be
allocated to the accounts of the Participant under the Pension Plan for the
applicable plan year if the provisions of the Pension Plan were administered
without regard to the limitations imposed by any of the Applicable
Limitations; and
vii
<PAGE>
(b) Equals the annual contributions made by the Employer that are actually
allocated to the accounts of the Participant under the provisions of the
Pension Plan for that particular plan year after giving effect to any
reduction of such allocation required by the limitations imposed by any of
the Applicable Limitations.
viii
<PAGE>
ARTICLE V
ACCOUNTS
SECTION 5.01 SUPPLEMENTAL ESOP BENEFIT ACCOUNT.
---------------------------------
For each Participant who is credited with a benefit pursuant to Section 4.01 of
the Plan, the Employer shall establish, as a memorandum account on its books, a
Supplemental ESOP Account. Each year, the Committee shall credit to the
Participant's Supplemental ESOP Account the amount of benefits determined under
Section 4.01 of the Plan for that year. The Committee shall credit the account
with an amount equal to the appropriate number of shares of Common Stock or
other medium of contribution that would have otherwise been made to the
Participant's accounts under the ESOP but for the limitations imposed by the
Code. Shares of Common Stock shall be valued under this Plan in the same manner
as under the ESOP. Cash contributions credited to a Participant's Supplemental
ESOP Account shall be credited annually with interest at a rate equal to the
combined weighted return provided to the Participant's non-stock accounts under
the ESOP.
SECTION 5.02 SUPPLEMENTAL STOCK OWNERSHIP ACCOUNT.
------------------------------------
The Employer shall establish, as a memorandum account on its books, a
Supplemental Stock Ownership Account. Upon a Participant's Retirement or in the
event of a Change in Control, the Committee shall credit to the Participant's
Supplemental Stock Ownership Account the amount of benefits determined under
Section 4.02 of the Plan. The Committee shall credit the account with an amount
equal to the appropriate number of shares of Common Stock or other medium of
contribution that would have otherwise been made to the Participant's accounts
under the ESOP but for the Participant's Retirement. Shares of Common Stock
shall be valued under this Plan in the same manner as under the ESOP. Cash
contributions credited to a Participant's Supplemental ESOP Account shall be
credited annually with interest at a rate equal to the combined weighted return
provided to the Participant's non-stock accounts under the ESOP.
SECTION 5.03 SUPPLEMENTAL PENSION ACCOUNT.
----------------------------
For each Participant who is credited with a benefit pursuant to Section 4.03 of
the Plan, the Employer shall establish, as a memorandum account on its books, a
Supplemental Pension Account. Each year, the Committee shall credit to the
Participant's Supplemental Pension Account the amount of benefits determined
under Section 4.03 of the Plan for that year. The Committee shall credit the
account with an amount equal to the appropriate contribution that would have
otherwise been made to the Participant's accounts under the ESOP but for the
limitations imposed by the Code. Contributions credited to a Participant's
Supplemental Pension Account shall be credited annually with interest at a rate
equal to the combined weighted return provided to the Participant's accounts
under the Pension Plan.
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<PAGE>
ARTICLE VI
SUPPLEMENTAL BENEFIT PAYMENTS
SECTION 6.01 PAYMENT OF SUPPLEMENTAL ESOP BENEFIT.
------------------------------------
(a) A Participant's Supplemental ESOP Benefit shall be paid to the Participant
or in the event of the Participant's death, to his beneficiary in the same
form, time and medium (i.e., cash and/or shares of Common Stock) as his
benefits are paid under the ESOP.
(b) A Participant shall have a non-forfeitable right to the Supplemental ESOP
Benefit credited to him under this Plan in the same percentage as he has to
benefits allocated to him under the ESOP at the time the benefits become
distributable to him under the ESOP.
SECTION 6.02 PAYMENT OF SUPPLEMENTAL STOCK OWNERSHIP BENEFIT.
-----------------------------------------------
(a) A Participant's Supplemental Stock Ownership Benefit shall be paid to the
Participant or in the event of the Participant's death, to his beneficiary
in the same form, time and medium (i.e., cash and/or shares of Common Stock)
as his benefits are paid under the ESOP.
(b) A Participant shall always have a fully non-forfeitable right to the
Supplemental Stock Ownership Benefit credited to him under this Plan.
SECTION 6.03 PAYMENT OF SUPPLEMENTAL PENSION BENEFIT.
---------------------------------------
(a) A Participant's Supplemental Pension Benefit shall be paid to the
Participant or in the event of the Participant's death, to his beneficiary
in the same form, and at the same time as his benefits are paid under the
Pension Plan.
(b) A Participant shall have a non-forfeitable right to his Supplemental Pension
Benefit under this Plan in the same percentage as he has to his accrued
benefits under the Pension Plan at the time the benefits become
distributable to him under the Pension Plan.
SECTION 6.04 ALTERNATIVE PAYMENT OF BENEFITS
-------------------------------
Notwithstanding the other provisions of this Article VI, a Participant may, with
prior written consent of the Committee and upon such terms and conditions as the
Committee may impose, request that the Supplemental ESOP Benefit and/or the
Supplemental Stock Ownership Benefit and/or the Supplemental Pension Benefit to
which he is entitled, and the survivor benefit to which his beneficiary under
the Pension Plan may be entitled under Section 4.03 be paid commencing at a
different time, over a different period, in a different form, or to different
persons, than the benefit to which he or his beneficiary may be entitled under
the ESOP or the Pension Plan; provided, however, that in the event of any
difference with respect to his Supplemental Pension Benefit, the benefit
actually paid under this Section 6.04 shall be the actuarial equivalent (as
determined based applicable tables, factors, and assumption set forth in the
Pension Plan) of the benefit that would be paid in accordance with the
provisions of Section 6.03 of the Plan.
x
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ARTICLE VII
CLAIMS PROCEDURES
SECTION 7.01 CLAIMS REVIEWER.
---------------
For purposes of handling claims with respect to this Plan, the "Claims Reviewer"
shall be the Committee, unless the Committee designates another person or group
of persons as Claims Reviewer.
SECTION 7.02 CLAIMS PROCEDURE.
----------------
(a) An initial claim for benefits under the Plan must be made by the Participant
or his or her beneficiary or beneficiaries in accordance with the terms of
this Section 7.02.
(b) Not later than ninety (90) days after receipt of such a claim, the Claims
Reviewer will render a written decision on the claim to the claimant, unless
special circumstances require the extension of such 90-day period. If such
extension is necessary, the Claims Reviewer shall provide the Participant or
the Participant's beneficiary or beneficiaries with written notification of
such extension before the expiration of the initial 90-day period. Such
notice shall specify the reason or reasons for the extension and the date by
which a final decision can be expected. In no event shall such extension
exceed a period of ninety (90) days from the end of the initial 90-day
period.
(c) In the event the Claims Reviewer denies the claim of a Participant or any
beneficiary in whole or in part, the Claims Reviewer's written notification
shall specify, in a manner calculated to be understood by the claimant, the
reason for the denial; a reference to the Plan or other document or form
that is the basis for the denial; a description of any additional material
or information necessary for the claimant to perfect the claim; an
explanation as to why such information or material is necessary; and an
explanation of the applicable claims procedure.
(d) Should the claim be denied in whole or in part and should the claimant be
dissatisfied with the Claims Reviewer's disposition of the claimant's claim,
the claimant may have a full and fair review of the claim by the Committee
upon written request submitted by the claimant or the claimant's duly
authorized representative and received by the Committee within sixty (60)
days after the claimant receives written notification that the claimant's
claim has been denied. In connection with such review, the claimant or the
claimant's duly authorized representative shall be entitled to review
pertinent documents and submit the claimant's views as to the issues, in
writing. The Committee shall act to deny or accept the claim within sixty
(60) days after receipt of the claimant's written request for review unless
special circumstances require the extension of such 60-day period. If such
extension is necessary, the Committee shall provide the claimant with
written notification of such extension before the expiration of such initial
60-day period. In all events, the Committee shall act to deny or accept the
claim within 120 days of the receipt of the claimant's written request for
review. The action of the
xi
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Committee shall be in the form of a written notice to the claimant and its
contents shall include all of the requirements for action on the original
claim.
(e) In no event may a claimant commence legal action for benefits the claimant
believes are due the claimant until the claimant has exhausted all of the
remedies and procedures afforded the claimant by this Article VII.
xii
<PAGE>
ARTICLE VIII
AMENDMENT AND TERMINATION
SECTION 8.01 AMENDMENT OF THE PLAN.
---------------------
The Bank may from time to time and at any time amend the Plan; provided,
however, that such amendment may not adversely affect the rights of any
Participant or beneficiary with respect to any benefit under the Plan to which
the Participant or beneficiary may have previously become entitled prior to the
effective date of such amendment without the consent of the Participant or
beneficiary. The Committee shall be authorized to make minor or administrative
changes to the Plan, as well as amendments required by applicable federal or
state law (or authorized or made desirable by such statutes); provided, however,
that such amendments must subsequently be ratified by the Board of Directors.
SECTION 8.02 TERMINATION OF THE PLAN.
-----------------------
The Bank may at any time terminate the Plan; provided, however, that such
termination may not adversely affect the rights of any Participant or
beneficiary with respect to any benefit under the Plan to which the Participant
or beneficiary may have previously become entitled prior to the effective date
of such termination without the consent of the Participant or beneficiary. Any
amounts credited to the supplemental accounts of any Participant shall remain
subject to the provisions of the Plan and no distribution of benefits shall be
accelerated because of termination of the Plan.
xiii
<PAGE>
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01 UNFUNDED, UNSECURED PROMISE TO MAKE PAYMENTS IN THE FUTURE.
----------------------------------------------------------
The right of a Participant or any beneficiary to receive a distribution under
this Plan shall be an unsecured claim against the general assets of the Bank or
its Affiliates and neither a Participant nor his designated beneficiary or
beneficiaries shall have any rights in or against any amount credited to any
account under this Plan or any other assets of the Bank or an Affiliate. The
Plan at all times shall be considered entirely unfunded both for tax purposes
and for purposes of Title I of ERISA. Any funds invested hereunder shall
continue for all purposes to be part of the general assets of the Bank or an
Affiliate and available to its general creditors in the event of bankruptcy or
insolvency. Accounts under this Plan and any benefits which may be payable
pursuant to this Plan are not subject in any manner to anticipation, sale,
alienation, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors of a Participant or a Participant's beneficiary. The
Plan constitute a mere promise by the Bank or Affiliate to make benefit payments
in the future. No interest or right to receive a benefit may be taken, either
voluntarily or involuntarily, for the satisfaction of the debts of, or other
obligations or claims against, such Participant or beneficiary, including claims
for alimony, support, separate maintenance and claims in bankruptcy proceedings.
SECTION 9.02 COMMITTEE AS PLAN ADMINISTRATOR.
-------------------------------
(a) The Plan shall be administered by the Committee designated by the Board of
Directors.
(b) The Committee shall have the authority, duty and power to interpret and
construe the provisions of the Plan as it deems appropriate. The Committee
shall have the duty and responsibility of maintaining records, making the
requisite calculations and disbursing the payments hereunder. In addition,
the Committee shall have the authority and power to delegate any of its
administrative duties to employees of the Bank or Affiliate, as they may
deem appropriate. The Committee shall be entitled to rely on all tables,
valuations, certificates, opinions, data and reports furnished by any
actuary, accountant, controller, counsel or other person employed or
retained by the Bank with respect to the Plan. The interpretations,
determination, regulations and calculations of the Committee shall be final
and binding on all persons and parties concerned.
SECTION 9.03 EXPENSES.
--------
Expenses of administration of the Plan shall be paid by the Bank or an
Affiliate.
SECTION 9.04 STATEMENTS.
----------
The Committee shall furnish individual annual statements of accrued benefits to
each Participant, or current beneficiary, in such form as determined by the
Committee or as required by law.
xiv
<PAGE>
SECTION 9.05 RIGHTS OF PARTICIPANTS AND BENEFICIARIES.
----------------------------------------
(a) The sole rights of a Participant or beneficiary under this Plan shall be to
have this Plan administered according to its provisions, to receive whatever
benefits he or she may be entitled to hereunder.
(b) Nothing in the Plan shall be interpreted as a guaranty that any funds in any
trust which may be established in connection with the Plan or assets of the
Bank or an Affiliate will be sufficient to pay any benefit hereunder.
(c) The adoption and maintenance of this Plan shall not be construed as creating
any contract of employment or service between the Bank or an Affiliate and
any Participant or other individual. The Plan shall not affect the right of
the Bank or an Affiliate to deal with any Participants in employment or
service respects, including their hiring, discharge, compensation, and
conditions of employment or other service.
SECTION 9.06 INCOMPETENT INDIVIDUALS.
-----------------------
The Committee may from time to time establish rules and procedures which it
determines to be necessary for the proper administration of the Plan and the
benefits payable to a Participant or beneficiary in the event that such
Participant or beneficiary is declared incompetent and a conservator or other
person legally charged with that Participant's or beneficiary's care is
appointed. Except as otherwise provided herein, when the Committee determines
that such Participant or beneficiary is unable to manage his or her financial
affairs, the Committee may pay such Participant's or beneficiary's benefits to
such conservator, person legally charged with such Participant's or
beneficiary's care, or institution then contributing toward or providing for the
care and maintenance of such Participant or beneficiary. Any such payment shall
constitute a complete discharge of any liability of the Bank or an Affiliate and
the Plan for such Participant or beneficiary.
SECTION 9.07 SALE, MERGER, OR CONSOLIDATION OF THE BANK.
------------------------------------------
The Plan may be continued after a sale of assets of the Bank, or a merger or
consolidation of the Bank into or with another corporation or entity only if and
to the extent that the transferee, purchaser or successor entity agrees to
continue the Plan. Additionally, upon a merger, consolidation or other change
in control any amounts credited to Participant's deferral accounts shall be
placed in a grantor trust to the extent not already in such a trust. In the
event that the Plan is not continued by the transferee, purchaser or successor
entity, then the Plan shall be terminated subject to the provisions of Section
7.2 of the Plan. Any legal fees incurred by a Participant in determining
benefits to which such Participant is entitled under the Plan following a sale,
merger, or consolidation of the Bank or an Affiliate of which the Participant is
an Employee or, if applicable, a member of the Board of Directors, shall be paid
by the resulting or succeeding entity.
xv
<PAGE>
SECTION 9.08 LOCATION OF PARTICIPANTS.
------------------------
Each Participant shall keep the Bank informed of his or her current address and
the current address of his or her designated beneficiary or beneficiaries. The
Bank shall not be obligated to search for any person. If such person is not
located within three (3) years after the date on which payment of the
Participant's benefits payable under this Plan may first be made, payment may be
made as though the Participant or his or her beneficiary had died at the end of
such three-year period.
SECTION 9.09 LIABILITY OF THE BANK AND ITS AFFILIATES.
----------------------------------------
Notwithstanding any provision herein to the contrary, neither the Bank nor any
individual acting as an employee or agent of the Bank shall be liable to any
Participant, former Participant, beneficiary, or any other person for any claim,
loss, liability or expense incurred in connection with the Plan, unless
attributable to fraud or willful misconduct on the part of the Bank or any such
employee or agent of the Bank.
SECTION 9.10 GOVERNING LAW.
-------------
All questions pertaining to the construction, validity and effect of the Plan
shall be determined in accordance with the laws of the United States and to the
extent not preempted by such laws, by the laws of New Jersey.
ARTICLE X
REQUIRED REGULATORY PROVISIONS
SECTION 10.01 REQUIRED REGULATORY PROVISIONS.
------------------------------
(a) 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. An Employee shall not have the right to receive compensation or other
benefits for any period after a termination for cause as otherwise provided
hereunder.
(b) If the Employee is suspended and/or temporarily prohibited from
participating in the conduct of the Association's affairs by a notice served
under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(3) or (g)(1), the Association'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 Association 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.
(c) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order issued
under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(4) or (g)(1), all obligations of the Association under this Plan
shall terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
xvi
<PAGE>
(d) If the Association is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. (S)1813(x)(1) all obligations of the
Association under this Plan shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the Participants.
(e) All obligations of the Association 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. (S)1823(c); or (ii) by the Director of the OTS (or his designee)
at the time the Director (or his designee) approves a supervisory merger to
resolve problems related to the operations of the Association or when the
Association 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 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.
This Plan has been duly adopted this _________ day of
______________________________, 199____.
xvii
<PAGE>
Exhibit 10.7
FORM OF
SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of the South Jersey Savings and Loan Association Employee
Severance Compensation Plan (the "Plan") is to assure for South Jersey Savings
and Loan Association (the "Association") the services of Employees of the
Association in the event of a Change in Control (capitalized terms are defined
in Section 2.1) of South Jersey Financial Corporation, Inc. (the "Holding
Company") or the Association. The benefits contemplated by the Plan recognize
the value to the Association of the services and contributions of the Employees
of the Association and the effect upon the Association 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 Association or the Holding Company. The Association's and the Holding
Company's Boards of Directors believe that it is in the best interests of the
Association and the Holding Company to provide Employees of the Association who
have been with the Association for a minimum of ____________(months/years) with
such benefits in order to defray the costs and changes in employment status that
could follow a Change in Control. The Boards of Directors believe that the Plan
will also aid the Association in attracting and retaining highly-qualified
individuals who are essential to its success and the Plan's assurance of fair
treatment of the Association'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, the Association hereby establishes an employee
severance compensation plan to be known as the "South Jersey Savings and Loan
Association Employee Severance Compensation Plan."
1.2 Applicability of Plan
---------------------
The benefits provided by this Plan shall be available to all Employees of
the Association, 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 other cash compensation, if any, paid or accrued 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 is or
would be includable in the gross income of the Participant receiving the same
for federal income tax purposes.
(b) "Association" means South Jersey Savings and Loan Association or
any successor of South Jersey Savings and Loan Association 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 Association 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 Association or the Holding Company representing
20% or more of the Association's or the Holding Company's outstanding securities
except for any securities of the Association purchased by the Holding Company in
connection with the conversion of the Association to the stock form and any
securities purchased by any tax qualified employee benefit plan of the
Association; 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 Association or the Holding Company or
similar transaction occurs in which the Association 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 waiting
periods.
2
<PAGE>
(d) "Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of an employee to perform the work
customarily assigned to him. Additionally, a medical doctor selected or
approved by the Board of Directors must advise the Board that it is either not
possible to determine if or when such Disability will terminate or that it
appears probable that such Disability will be permanent during the remainder of
said employees lifetime.
(e) "Effective Date" means the date the Plan is approved by the Board
of Directors of the Association, or such other date as the Board of Directors of
the Association shall designate in its resolution approving the Plan.
(f) "Employee" means any employee of the Association or any subsidiary
of the Association or any parent of the Association who has completed at least
___________ (months/years) of service with the Association; provided, however,
that any employee who is covered or hereinafter becomes covered by an employment
contract or change in control agreement with the Employer shall not be
considered to be an "Employee" for purposes of this Plan.
(g) "Expiration Date" means the date ten (10) years from the Effective
Date, unless the Plan is earlier terminated pursuant to Section 8.2 of the Plan
or unless the Plan is extended pursuant to Section 8.1 of the Plan.
(h) "Employer" means the Association or a subsidiary of the
Association or a parent of the Association which has adopted the Plan pursuant
to Article VI hereof.
(i) "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.
(j) "Leave of Absence" and "LOA" mean the taking of an authorized or
approved leave of absence under the provisions of (i) 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 Association. "Leave of Absence" and "LOA" are defined in this paragraph
for the exclusive purposes of this Plan.
(k) "Payment" means the payment of severance compensation as provided
for in Article IV hereof.
(l) "Participant" means an Employee who meets the eligibility
requirements of Article III.
3
<PAGE>
(m) "Plan" means this South Jersey Savings and Loan Association
Employee Severance Compensation Plan.
(n) "___________ of Service" means a consecutive____________ 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____________(months/years) in such
period. The taking of a LOA shall not eliminate a period of time from the
calculation of _________ of Service if such period of time otherwise qualifies
as such. Further if a particular ________ period of time would not otherwise
qualify under the Plan as_____________ 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 ____________ 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 ______________(months/years) of Service with the Employer at the
time of any termination pursuant to Section 4.2 of the 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 Association or the Holding Company and if,
within one (1) year thereafter, the Participant's employment with an Employer
shall terminate for any reason specified in Section 4.2 of the Plan, whether the
termination is voluntary or involuntary. A Participant shall not be entitled to
a Payment if termination of employment 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 thirty (30) miles from the location of the Participant's job
or office immediately prior to the Change in Control, provided that such new
location is not closer to 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 Employer fails or refuses to assume the
Employer's obligations under this Plan, as required by Article VII.
(f) The Employer or any successor to the Employer 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 Association, a lump sum cash payment equal to__________ of his
Annual Compensation for each year of service up to a maximum of_________% of
such 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 a 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 Association, this
Plan may be adopted by any "Subsidiary" or "Parent" of the Association. 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
Association, 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 Association's outstanding
shares of capital stock.
ARTICLE VII
SUCCESSOR TO THE ASSOCIATION
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 Association.
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 a Payment 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 Association, 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
Association, 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 a Payment 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,
Employees and the Association 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, except as otherwise provided for hereunder. Employee shall not have the
right to receive compensation or other benefits for any period after termination
which constitutes a Termination for Cause.
10.2 If the Employee is suspended and/or temporarily prohibited from
participating in the conduct of the Association's affairs by a notice served
under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(3) or (g)(1), the Association'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 Association 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 Association's affairs by an order issued
under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(4) or (g)(1), all obligations of the Association 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 Association is in default as defined in Section 3(x)(1)
of the Federal Deposit Insurance Act, 12 U.S.C. (S)1813(x)(1), all obligations
of the Association 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 Association 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 her 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 Association under the authority contained in Section 13(c) of the Federal
Deposit Insurance Act, 12 U.S.C. (S)1823(c); or (ii) by the Director of the OTS
(or her designee) at the time the Director (or her designee) approves a
supervisory merger to resolve problems related to the operations of the
Association or when the Association 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 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.
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 Association or a
Committee appointed by the Board of Directors of the Association (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 a 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
9
<PAGE>
allocate and delegate its responsibilities under the Plan and to designate other
persons to carry out any of its responsibilities under the Plan, any such
allocation, delegation or designation to be by written instrument and in
accordance with Section 405 of ERISA 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 Association 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 Association) occasioned by any
act or omission to act in connection with the Plan, if such act or omission is
in good faith.
11.6 "Plan Year" means the period beginning on the Effective Date
-----------
and ending on December 31 and the 12 consecutive-month period ending each year
thereafter.
11.7 Benefits solely from general assets. The benefits provided
------------------------------------
hereunder will be paid solely from the general assets of the 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.
Having been adopted by its Board of Directors on September ___, 1998, and
ratified on __________, 199__ this Plan is executed by its duly authorized
officers this _____ day of _______, 199_.
Attest SOUTH JERSEY SAVINGS AND LOAN
ASSOCIATION
By:
- ----------------------------------- -----------------------------------
11
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in the Registration Statement of South Jersey Financial
Corporation, Inc. on Form SB-2 and on Form AC for South Jersey Savings and Loan
Association (the "Association") of our report for the Association dated March
20, 1998, appearing in the Prospectus, which is part of the Registration
Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
October 8, 1998
<PAGE>
INDEPENDENT ACCOUNTANTS' CONSENT
We consent to the use in the Registration Statement of South Jersey Financial
Corporation, Inc. on Form SB-2 and on Form AC for South Jersey Savings and Loan
Association (the "Association") of our state tax opinion for the Association
dated October 9, 1998, appearing as an exhibit to the Registration Statement.
We also consent to the reference to us under the headings "Negative Impact on
Earnings," "Tax Considerations," "Tax Effects," "Tax Aspects" and "Legal and Tax
Opinions" appearing in the Prospectus which is part of the Registration
Statement.
/s/ Deloitte & Touche, LLP
Philadelphia, Pennsylvania
October 9, 1998
<PAGE>
MULDOON, MURPHY & FAUCETTE Exhibit 23.2
CONSENT
We hereby consent to the references to this firm and our opinions in: the
Registration Statement on Form SB-2 filed by South Jersey Financial Corporation,
Inc., Turnersville, New Jersey, and all amendments thereto; in the Form H-(e)1
for South Jersey Financial Corporation, Inc., and all amendments thereto; and in
the Application for Conversion on Form AC filed by South Jersey Savings and Loan
Association (the "Association"), and all amendments thereto, relating to the
conversion of the Association from a New Jersey-chartered mutual savings
association to a New Jersey-chartered stock savings association, the concurrent
issuance of the Association's outstanding capital stock to South Jersey
Financial Corporation, Inc., a holding company formed for such purpose, and the
offering of South Jersey Financial Corporation, Inc.'s common stock.
MULDOON, MURPHY & FAUCETTE
/s/ MULDOON, MURPHY & FAUCETTE
Dated this 9th day of
October, 1998
<PAGE>
EXHIBIT 23.3
[LETTERHEAD OF MORRIS, NICHOLS, ARSHT & TUNNELL APPEARS HERE]
October 9, 1998
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, DC 20016
Ladies and Gentlemen:
We hereby consent to the filing of our opinion to you concerning certain
matters of Delaware law in connection with the subscription and community
offering (the "Offering") by South Jersey Financial Corporation, a Delaware
corporation (the "Company"), of shares of its common stock, par value $.01 per
share, in draft or final form, as an exhibit to (i) the Registration Statement
filed with the Securities and Exchange Commission by the Company in connection
with the Offering, and all amendments thereto, and (ii) the Application for
Conversion filed with the Office of Thrift Supervision and the New Jersey
Department of Banking and Insurance in connection with the conversion of South
Jersey Savings and Loan Association, a New Jersey chartered savings and loan
association, from the mutual form of ownership to stock form of ownership, and
all amendments thereto, and to the reference to this firm in the "Legal Matters"
section of the Prospectus relating to the Offering.
Very truly yours,
/s/ Morris, Nichols, Arsht & Tunnell
<PAGE>
EXHIBIT 23.4
[letterhead of FinPro appears here]
October 9, 1998
Board of Directors
South Jersey Financial Corporation, Inc.
South Jersey Savings and Loan Association
4651 Route 42
Turnersville, New Jersey 08012
Dear Board Members:
We hereby consent to the use of our firm's name, FinPro, Inc. ("FinPro") in the
Form AC Application for Conversion of South Jersey Savings and Loan Association,
Turnersville, New Jersey, and any amendments thereto, in the Form SB-2
Registration Statement of South Jersey Financial Corporation, Inc. and any
amendments thereto, and in the Application H-(e)l-S for South Jersey Financial
Corporation, Inc. We also hereby consent to the use of our firm's name and the
inclusion of, summary of, and references to our Appraisal Report and our opinion
concerning subscription rights in such filings including the Prospectus of South
Jersey Financial Corporation, Inc.
Very Truly Yours,
/s/ Donald J. Musso
Donald J. Musso
Liberty Corner, New Jersey
October 9, 1998
<PAGE>
[LETTERHEAD OF FINPRO APPEARS HERE]
October 9, 1998
Board of Directors
South Jersey Financial Corporation, Inc.
South Jersey Savings and Loan Association
4651 Route 42
Turnersville, New Jersey 08012
Dear Board Members:
All capitalized terms not otherwise defined in this letter have the meanings
given such terms in the Plan of Conversion adopted by the Board of Directors of
South Jersey Savings and Loan Association (the "Association"), whereby the
Association will convert from a state chartered mutual savings and loan to a
state chartered stock savings and loan and issue all of the Association's stock
to South Jersey Financial Corporation, Inc. (the "Holding Company").
Simultaneously, the Holding Company will issue shares of common stock.
We understand that in accordance with the Plan of Conversion, Subscription
Rights to purchase shares of the Association's Common Stock in the Holding
Company are to be issued to (i) Eligible Account Holders, (ii) the ESOP, (iii)
Supplemental Eligible Account Holders, and (iv) Other Members. 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 such parties 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
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 Association's value alone. Accordingly, no assurance
can be given that persons who subscribe to shares of Common 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
Managing Director
<PAGE>
EXHIBIT 24.1
CONFORMED
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Robert J. Colacicco and Gregory M. DiPaolo and
each of them, as the true and lawful attorneys-in-fact and agents with full
power of substitution and resubstitution, for them and in their name, place and
stead, in any and all capacities to sign any or all amendments to the
Application for Conversion on Form AC and the Registration Statement on Form SB-
2, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Office of Thrift Supervision of the Department of
the Treasury ("OTS") , the New Jersey Department of Banking or the U.S.
Securities and Exchange Commission, respectively, granting unto said attorneys-
in-fact and agents full power and authority to do and perform each and every act
and thing requisite and necessary to be done as fully to all intents and
purposes as they might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents ot their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of Part 563b of the OTS Rules and Regulations
and the Securities Act of 1933, as amended, and any rules and regulations
promulgated thereunder, the foregoing Powers of Attorney prepared in conjunction
with the Application for Conversion on Form AC and the Registration Statement on
Form SB-2 have been duly signed by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
NAME DATE
---- ----
/s/ Robert J. Colacicco October 9, 1998
- ----------------------------------------
Robert J. Colacicco
President, Chief Executive Officer
and Director
(principal executive officer)
South Jersey Financial Corporation, Inc.
President, Chief Executive Officer
and Director
(principal executive officer)
South Jersey Savings and Loan Association
/s/ Gregory M. DiPaolo October 9, 1998
- ----------------------------------------
Gregory M. DiPaolo
Executive Vice President, Treasurer,
Chief Operating Officer and Director
(principal financial officer)
South Jersey Financial Corporation, Inc.
Executive Vice President, Treasurer,
Chief Operating Officer and Director
(principal financial officer)
South Jersey Savings and Loan Association
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
/s/ Joseph M. Sidebotham October 9, 1998
- ---------------------------------------
Joseph M. Sidebotham
Corporate Secretary and Chief Accounting Officer
(principal accounting officer)
South Jersey Financial Corporation, Inc.
Senior Vice President and Controller
(principal accounting officer)
South Jersey Savings and Loan Association
/s/ Richard W. Culbertson, Jr. October 9, 1998
- ---------------------------------------
Richard W. Culberton, Jr.
Chairman of the Board and Director
South Jersey Financial Corporation, Inc.
Chairman of the Board and Director
South Jersey Savings and Loan Association
/s/ Arthur E. Armitage, Jr. October 9, 1998
- ---------------------------------------
Arthur E. Armitage, Jr.
Director
South Jersey Financial Corporation, Inc.
Director
South Jersey Savings and Loan Association
/s/ John V. Field October 9, 1998
- ---------------------------------------
John V. Field
Director
South Jersey Financial Corporation, Inc.
Director
South Jersey Savings and Loan Association
/s/ Richard G. Mohrfeld October 9, 1998
- ---------------------------------------
Richard G. Mohrfeld
Director
South Jersey Financial Corporation, Inc.
Director
South Jersey Savings and Loan Association
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
/s/ Martin Rosner October 9, 1998
- ---------------------------------------
Martin Rosner
Director
South Jersey Financial Corporation, Inc.
Director
South Jersey Savings and Loan Association
/s/ Ronald L. Woods October 9, 1998
- ---------------------------------------
Ronald L. Woods
Director
South Jersey Financial Corporation, Inc.
Director
South Jersey Savings and Loan Association
</TABLE>
<PAGE>
EXHIBIT 99.2
GIFT INSTRUMENT
CHARITABLE GIFT TO
SOUTH JERSEY SAVINGS CHARITABLE FOUNDATION
South Jersey Savings Charitable Foundation, Turnersville, New Jersey (the
"Company"), desires to make a gift of its common stock, par value $.01 per share
to South Jersey Savings Charitable Foundation (the "Foundation"), a nonprofit
corporation organized under the laws of the State of Delaware. The purpose of
the donation is to establish a bond between Security of South Jersey Financial
Corporation, Inc. and the community in which it and its affiliates operate to
enable the community to share in the potential growth and success of the Company
and its affiliates over the long term. To that end, South Jersey Financial
Corporation, Inc. now gives, transfers, and delivers to the Foundation
__________ shares of its common stock, par value $.01 per share, for
consideration of $.01 per share, or total consideration of $__________, subject
to the following conditions:
1. The Foundation shall use the donation solely for charitable purposes,
including community development, in the communities in which the Company and its
affiliates operate in accordance with the provisions of the Foundation's
Certificate of Incorporation; and
2. Consistent with the Company's intent to form a long-term bond between
the Company and the community, the amount of Common Stock that may be sold by
the Foundation in any one year shall not exceed 5% of the market value of the
assets held by the Foundation, except that this restriction shall not prohibit
the board of directors of the Foundation from selling a greater amount of Common
Stock in any one year if the board of directors of the Foundation determines
that the failure to sell a greater amount of the Common Stock held by the
Foundation would: (a) result in a long-term reduction of the value of the
Foundation's assets relative to their then current value that would jeopardize
the Foundation's capacity to carry out its charitable purposes; or (b) otherwise
jeopardize the Foundation's tax-exempt status or cause it to be subject to a
federal excise tax.
3. The Common Stock contributed to the Foundation by the Company shall,
for so long as such shares are held by the Foundation, be considered by the
Company to be voted in the same ratio as all other shares of Common Stock of the
Company which are voted on each and every proposal considered by stockholders of
the Company, provided, however, that if this Condition No. 3 is waived by the
Office of Thrift Supervision pursuant to Office of Thrift Supervision Order No.
______, dated _____________, 1998 (a copy of which is attached hereto), then
this Condition No. 3 shall become void and of no effect.
Dated: ___________, 1998 SOUTH JERSEY FINANCIAL
CORPORATION, INC.
By:________________________________
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM THE
FINANCIAL STATEMENTS OF SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION AT AND FOR THE
YEAR ENDED DECEMBER 31, 1997 AND AT AND FOR THE SEVEN MONTHS ENDED JULY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 7-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 JUL-31-1998
<CASH> 3,705 4,414
<INT-BEARING-DEPOSITS> 495 396
<FED-FUNDS-SOLD> 15,000 12,400
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 0 0
<INVESTMENTS-CARRYING> 125,498 136,657
<INVESTMENTS-MARKET> 126,498 138,038
<LOANS> 100,080 100,772
<ALLOWANCE> 667 819
<TOTAL-ASSETS> 249,805 259,709
<DEPOSITS> 223,206 231,156
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 1,734 2,351
<LONG-TERM> 176 176
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 24,689 26,026
<TOTAL-LIABILITIES-AND-EQUITY> 249,805 259,709
<INTEREST-LOAN> 8,323 4,681
<INTEREST-INVEST> 9,283 5,912
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 17,606 10,593
<INTEREST-DEPOSIT> 9,318 5,665
<INTEREST-EXPENSE> 9,330 5,672
<INTEREST-INCOME-NET> 8,276 4,921
<LOAN-LOSSES> 400 175
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 4,960 3,012
<INCOME-PRETAX> 3,539 2,089
<INCOME-PRE-EXTRAORDINARY> 3,539 2,089
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,266 1,337
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<YIELD-ACTUAL> 7.43 7.34
<LOANS-NON> 631 415
<LOANS-PAST> 110 41
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 175 116
<ALLOWANCE-OPEN> 1,186 667
<CHARGE-OFFS> 923 26
<RECOVERIES> 4 3
<ALLOWANCE-CLOSE> 667 819
<ALLOWANCE-DOMESTIC> 667 819
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 225 397
</TABLE>
