<PAGE> 1
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-SB
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GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(B)
OR 12(G) OF THE SECURITIES ACT OF 1934
SKYLANDS FINANCIAL CORPORATION
------------------------
(Name of Small Business Issuer in Its Charter)
NEW JERSEY 22-3644018
------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S.Employer
Incorporation or Organization) Identification No.)
24-26 Crossroads Center, Independence Township, NJ 07840
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(Address of Principal Executive Offices) (Zip Code)
908-850-9010
---------------------------
(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act: NONE
Securities to be registered under Section 12(g) of the Act:
Title of Each Class Name of Each Exchange on Which
To be so Registered Each Class Is to be Registered
-------------------------- ------------------------------
Common Stock, $2.50 par value NASDAQ
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<PAGE> 2
PART I
ITEM 1 -- BUSINESS
General
Skylands Financial Corporation (the "Company") is a New Jersey corporation
organized in February, 1999 at the direction of the Board of Directors of
Skylands Community Bank (the "Bank") for the purpose of acquiring all the
capital stock of the Bank (the "Acquisition"). As part of the Acquisition,
shareholders of the Bank will receive shares of the Company's common stock,
$2.50 par value per share (the "Common Stock"), in a ratio of one share of
Common Stock for each outstanding share of the common stock of the Bank, $2.50
par value per share (the "Bank Common Stock"). The Acquisition is subject to the
approval or non-objection of the New Jersey Department of Banking and Insurance
(the "Department") and the Board of Governors of the Federal Reserve System (the
"FRB"). Upon consummation of the Acquisition, the only significant asset of the
Company will be its investment in the Bank. The Company's main office is located
at 24-26 Crossroads Center, Independence Township, New Jersey 07840.
The Bank is a commercial bank formed under the laws of New Jersey on May 17,
1989. The Bank commenced operations on October 9, 1990.
As of December 31, 1998, the Bank Common Stock was held by approximately 731
holders of record. As described above, upon consummation of the Acquisition,
shareholders of the Bank will receive shares of the Common Stock in exchange for
their shares of Bank Common Stock. In addition, the Company will assume the
Bank's obligations under its outstanding options. See "COMPENSATION OF DIRECTORS
AND OFFICERS - Stock Option Plans" and "RECENT SALES OF SECURITIES."
The Bank operates from its main office at 24-26 Crossroads Center, Independence
Township, New Jersey and six branch offices located in Warren, Sussex and Morris
Counties, New Jersey. See "PROPERTIES."
The Bank engages in the general business of commercial banking and offers
traditional deposit services such as checking, savings and certificates of
deposit. For its commercial customers, the Bank offers loans for equipment,
working capital needs and commercial real estate as well as New Jersey Economic
Development Authority and Small Business Administration loans. The Bank also
bids for tax anticipation notes and bond anticipation notes. In consumer
lending, the Bank offers personal, automobile, credit card, home equity and home
improvement loans and makes one-to-four family residential real estate loans
available for its customers. The Bank believes it offers competitive rates for
its deposit and loan services, thereby enabling consumers and business entities
in its service areas to avail themselves of the Bank's credit and non-credit
<PAGE> 3
services. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Financial Condition -- Loan Portfolio."
The Bank structures its specific services and charges in a manner designed to
attract the business of small and medium-sized businesses and the professional
community, as well as that of individuals, in the Sussex County, Warren County
and Morris County, New Jersey area. As a general rule, specific banking services
are offered only on a basis believed to be profitable. Such services are charged
for fully unless other aspects of the account relationship provide sufficient
earnings to offset the cost of the services provided.
The Bank believes it offers competitive rates for its services, thereby enabling
consumers and business entities in its service area to avail themselves of the
Bank's credit and non-credit services. See "COMPETITION".
The Bank is fully computerized and uses the data processing services of The
National Bank of Sussex County. All Bank departments are automated, and the Bank
believes that the data processing services available to Bank customers compare
favorably with those of competing financial institutions. The Bank is also a
member of the MAC Money Access Service, a regional automated teller network
system.
As of March 9, 1999, the Bank had 58 full time employees and 15 part time
employees. The Bank's employees are not members of any collective bargaining
group.
Competition
The Bank competes with commercial banks, savings banks and savings and loan
associations, some of which have assets, capital and lending limits (ceilings on
the amount of credit a bank may provide a single customer that are linked to the
institution's capital) greater than the Bank. There are approximately eleven
such institutions in the Bank's services area. The Bank competes both in
attracting deposits and borrowers with these institutions, as well as with
regional and national insurance companies and non-bank banks, with regulated
small loan companies and local credit unions, and with regional and national
issuers of money market funds.
In addition to having established deposit bases and loan portfolios, some of
these institutions, particularly the large regional commercial and savings
banks, have the ability to finance extensive advertising campaigns and to
allocate considerable resources to locations and products perceived as
profitable. Significantly, these institutions have larger lending limits and, in
certain cases, lower funding costs (the price a bank must pay for deposits and
other borrowed monies used to make loans to customers). Many of these
institutions also offer certain services, such as trust services, which are not
currently offered by the Bank.
The Bank has sought to offer an alternative, community-oriented style of banking
in an area which at present is mainly dominated by these larger, statewide
institutions. The Bank has sought to be a positive force by assisting in the
development of the residential sector, by serving the needs of small and
medium-sized businesses and the local professional community, and by meeting the
<PAGE> 4
requirements of individuals residing, working and shopping in the Bank's service
areas by extending consumer loans and by offering depository services. The Bank
believes that the following attributes of the Bank have made the Bank attractive
to local business people and residents:
o Competitively priced services.
o Direct and easy access to the Bank's management by members of the
community, whether during or after business hours.
o Local conditions and needs are taken into account by the Bank when
reviewing loan applications and making other business decisions
affecting members of the community.
o Responsiveness of the Bank's personnel for requests for information
and services by depositors and others.
o Depositors' funds are invested in the community.
o Positive involvement of the Bank in the community affairs of Sussex,
Warren and Morris Counties.
Supervision and Regulation
As a New Jersey chartered commercial bank, the Bank is subject to the
regulation, supervision and control of the New Jersey Department of Banking and
Insurance. As an FDIC insured institution, the Bank is subject to regulation,
supervision and control of the FDIC, an agency of the federal government. The
regulations of the FDIC and the Department impact virtually all activities of
the Bank, including the minimum level of capital the Bank must maintain, the
ability of the Bank to pay dividends, the ability of the Bank to expand through
new branches or acquisitions and various other matters.
General -- Recent Regulatory Enactments
On September 30, 1996, the Deposit Insurance Funds Act of 1996 (the "Deposit
Act") became law. The primary purpose of the Deposit Act is to recapitalize the
Savings Association Insurance Fund of the FDIC (the "SAIF") by charging all SAIF
member institutions a one-time special assessment. The Deposit Act will lead to
equalization of the deposit insurance assessments between BIF and SAIF insured
institutions, and will also separate out from insurance assessments payments
required for debt service and principal repayment on bonds issued by the Federal
Finance Corporation ("FICO") in the mid-1980s to fund a portion of the thrift
bailout. Under the Deposit Act, BIF-insured institutions like the Bank will, for
the first time, be required to pay a portion of the obligations owed under the
FICO bonds. SAIF institutions will be required to pay 6.4 basis points on
assessed deposits while BIF institutions will only be required to pay 1.3 basis
points on assessed deposits. This disparity will stay in effect until such time
as the federal thrift and commercial bank
<PAGE> 5
charters are merged and the deposit insurance funds are thereafter merged. Under
the Deposit Act, this may occur by January 1, 1999. At that time, all federally
insured institutions should have the same total FDIC assessment.
On September 29, 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act (the "Interstate Act") was enacted. The Interstate Act generally
enhances the ability of bank holding companies to conduct their banking business
across state borders. The Interstate Act has two main provisions. The first
provision generally provides that, commencing on September 29, 1995, bank
holding companies may acquire banks located in any state regardless of the
provisions of state law. These acquisitions are subject to certain restrictions,
including caps on the total percentage of deposits that a bank holding company
may control both nationally and in any single state. New Jersey law currently
allows interstate acquisitions by bank holding companies whose home state has
"reciprocal" legislation which would allow acquisitions by New Jersey-based bank
holding companies.
The second major provision of the Interstate Act permits, beginning on June 1,
1996, banks located in different states to merge and continue to operate as a
single institution in more than one state. States may, by legislation passed
before June 1, 1996, opt out of the interstate bank merger provisions of the
Interstate Act. In addition, states may elect to opt in and allow interstate
bank mergers prior to June 1, 1996.
A final provision of the Interstate Act permits banks located in one state to
establish new branches in another state without obtaining a separate bank
charter in that state, but only if the state in which the branch is located has
adopted legislation specifically allowing interstate de novo branching.
In April, 1996, the New Jersey legislature passed legislation which would permit
interstate bank mergers prior to June 1, 1996, provided that the home state of
the institution acquiring the New Jersey institution permits interstate mergers
prior to June 1, 1997. In addition, the legislation permits an out-of-state
institution to acquire an existing branch of a New Jersey-based institution, and
thereby conduct a business in New Jersey. The legislation does not permit
interstate de novo branches. This legislation is likely to enhance competition
in the New Jersey marketplace as bank holding companies located outside of New
Jersey become freer to acquire institutions located within the state of New
Jersey.
The Bank's Common Stock is registered under the Securities Exchange Act of 1934.
As a result, the Bank is subject to the FDIC's rules regarding, among other
things, the filing of periodic public reports, the solicitation of proxies, and
the conduct of tender offers.
Bank Regulation
Insurance of Deposits
The Bank's deposits are insured up to a maximum of $100,000 per depositor under
the Bank Insurance Fund (BIF). The Federal Deposit Insurance Corporation
Improvements Act of 1991 ("FDICIA") is applicable to depository institutions and
deposit insurance. FDICIA requires the FDIC to establish a risk-based assessment
system for all insured depository institutions. Under this
<PAGE> 6
legislation, the FDIC is required to establish an insurance premium assessment
system based upon: (I) the probability that the insurance fund will incur a loss
with respect to the institution, (II) the likely amount of the loss, and (III)
the revenue needs of the insurance fund. In compliance with this mandate, the
FDIC has developed a matrix that sets the assessment premium for a particular
institution in accordance with its capital level and overall rating by the
primary regulator. Under the matrix as currently in effect, the assessment rate
ranges from 0 to 27 basis points of assessed deposits. The Bank is also subject
to a quarterly FICO assessment.
Capital Adequacy Guidelines
The Bank is subject to capital adequacy guidelines promulgated by the FDIC. The
FDIC has issued regulations to define the adequacy of capital based upon the
sensitivity of assets and off-balance sheet exposures to risk factors. Four
categories of risk weights (0%, 20%, 50% and 100%) were established to be
applied to different types of balance sheet assets and off-balance sheet
exposures. The aggregate of the risk weighted items (risk-based assets) is the
denominator of the ratio, the numerator of which is defined risk-based capital.
Under the regulations, risk-based capital has been classified into two
categories. Tier 1 capital includes common and qualifying perpetual preferred
stockholders' equity, less goodwill. Tier 2 capital includes mandatory
convertible debt, allowance for loan losses, subject to certain limitations, and
certain subordinated and term debt securities. Total qualifying capital consists
of Tier 1 capital and Tier 2 capital; however, the amount of Tier 2 capital may
not exceed the amount of Tier 1 capital in the computation of total qualifying
capital. The minimum capital ratio required under the above formula was 4% for
Tier 1 capital and 8% for total qualifying capital. The Bank at December 31,
1998 maintained a Tier 1 capital ratio of 10.84% and total qualifying capital
ratio of 12.10%.
The FDIC has also issued leverage capital adequacy standards. Under these
standards, in addition to the risk-based capital ratios, a bank must also
maintain a ratio of Tier 1 capital (using the risk-based capital definition) to
total assets of at least 3%. Institutions which are not "top-rated" will be
expected to maintain a ratio 100 to 200 basis points above this ratio. The
Bank's leverage ratio at December 31, 1998 was 6.84%.
Bank Holding Company Regulation
The Company will be a bank holding company within the meaning of the Bank
Holding Company Act of 1956, as amended (the "BHCA"). As a bank holding company,
the Company will be required to file with the Federal Reserve Board an annual
report and such additional information as the Board may require pursuant to the
BHCA. The Federal Reserve Board may also make examinations of the Company and
its subsidiaries.
A bank holding company is generally prohibited from engaging in, or acquiring
direct or indirect control of more than five percent of the outstanding voting
shares of any company engaged in, activities other than banking and those deemed
closely related to banking by the Federal Reserve Board. Notice to or review by
the Federal Reserve Board of such "closely related" activities is necessary
before the Company can engage in such activities.
<PAGE> 7
Federal Reserve Regulation "Y" sets out those activities which are regarded as
closely related to banking or managing or controlling banks and, thus, are
permissible activities that may be engaged in by bank holding companies subject
to approval by or notice to the Federal Reserve Board. These activities include,
among other things, operating savings associations, providing data processing
services, providing investment or financial advisory services, and, subject to
various restrictions, engaging in securities brokerage and underwriting
activities.
A holding company and its banking subsidiary are prohibited from engaging in
certain tie-in arrangements in connection with any extension of credit or lease
or sale of any property or the furnishing of services.
In addition to Federal bank holding company regulation, the Company will be
required to register as a bank holding company with the New Jersey Department of
Banking and Insurance. The Company will be required to file copies of the
reports it files with the Federal banking and securities regulators with the
Department.
Federal Securities Regulation
Upon effectiveness of this Registration Statement, the Company will become a
reporting company under the Securities and Exchange Act of 1934 (the "34 Act")
and will therefore be required to file quarterly and annual reports, as well as
certain other material, with the SEC.
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Business
Skylands Community Bank is a commercial bank formed under the laws of New Jersey
on May 17, 1989, and which commenced operations on October 9, 1990. The Bank's
main office and operations center is located at 24-26 Crossroads Center, Route
517, Independence Township, Warren County, New Jersey 07840. The Bank currently
has six branches. They are located at Netcong (the "Netcong Branch"), Succasunna
(the "Roxbury Branch"), Oxford (the "Oxford Branch"), Lake Hopatcong (the
"Jefferson Branch"), Stanhope (the "Byram Branch") and Rockaway (the "Rockaway
Branch"). As a full-service community bank, the Bank believes that the
establishment of these branch offices is an important steep in the continued
growth of the Bank. The Bank believes that these branches give the Bank access
to new markets, which allow it to expand its deposit base and present new
lending opportunities for the Bank.
The Bank engages in the general business of commercial banking and offers
traditional deposit services such as checking, savings and certificates of
deposit. For its commercial customers, the Bank offers loans for equipment,
working capital needs and commercial real estate as well as New Jersey Economic
Development Authority and Small Business Administration loans. The Bank also
bids for tax anticipation notes and bond anticipation notes. In consumer
lending, the Bank offers personal, automobile, credit card, home equity and home
improvement loans and makes one-to-four family residential real estate loans
available for its customers. The Bank believes it offers competitive rates for
its deposit and loan services, thereby enabling consumers
<PAGE> 8
and business entities in its service areas to avail themselves of the Bank's
credit and non-credit services
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Bank's financial statements
and the notes relating thereto included herein. When necessary,
reclassifications have been made to prior years' data throughout the following
discussion and analysis for purposes of compatibility with 1998 data.
The following table presents selected financial data as of December 31, 1998,
1997, 1996, 1995 and 1994, respectively, and for the years then ended. This
table should be read in conjunction with the Bank's financial statements and the
notes thereto included herein.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
STATEMENT OF OPERATIONS DATA 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Interest Income $ 7,367,000 $ 6,038,000 $ 4,525,000 $ 2,856,000 $ 2,233,000
Provision for Possible Loan and Lease 665,000 632,000 488,000 266,000 68,000
Losses
Net Interest Income after Provision for 6,702,000 5,406,000 4,037,000 2,590,000 2,165,000
Possible Loan and Lease Losses
Total Other Income 889,000 673,000 508,000 377,000 316,000
Total Other Expenses 4,727,000 3,838,000 3,325,000 2,533,000 1,870,000
Net Income $ 1,831,000 $ 1,424,000 $ 750,000 $ 270,000 $ 505,000
============ ============ ============ ============ ============
Basic Earnings per Common Share (1) $ 0.78 $ 0.61 $ 0.32 $ 0.15 $ 0.31
Diluted Earnings per Common Share (1)(3) $ 0.74 $ 0.59 $ 0.32 $ 0.15 $ 0.31
Net Interest Margin 4.76% 4.86% 4.42% 3.76% 4.33%
<CAPTION>
At At At At At
BALANCE SHEET DATA 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Assets $179,535,000 $147,088,000 $119,916,000 $ 99,587,000 $ 69,589,000
Total Loans 117,323,000 90,441,000 67,219,000 45,601,000 31,017,000
Allowance for Possible Loan and Lease (1,873,000) (1,374,000) (973,000) (600,000) (345,000)
Losses
Total Deposits 165,259,000 134,917,000 106,191,000 88,242,000 63,533,000
Total Shareholders' Equity $ 13,619,000 $ 11,694,000 $ 10,166,000 $ 9,557,000 $ 5,715,000
Book Value per Common Share (1) 5.74 4.98 4.35 4.09 3.59
Tangible Book Value per Common Share (1)(2) 5.06 4.23 3.61 3.23 4.16
Allowance for Possible Loan and Lease 1.60% 1.52% 1.45% 1.32% 1.11%
Losses as a % of Total Loans
Allowance for Possible Loan and Lease 195% 716% 388% 84% 184%
Losses as a % of Non-accrual Loans
Allowance for Possible Loan and Lease Losses 140% 221% 132% 84% 184%
as a % of Non-accrual and Impaired Loans
Leverage Ratio 6.84% 6.81% 7.02% 7.78% 9.50%
</TABLE>
(1) All per share data has been restated to reflect the five percent stock
dividends paid in the second quarter of fiscal year 1994 and the first
quarter of fiscal year 1998.
(2) Tangible book value per common share is adjusted for the impact of
intangible assets (primarily the core deposit Intangible) and the
accumulated comprehensive income (loss).
(3) In 1997 the Company adopted SFAS No. 128 "Earnings Per Share." All Prior
year end earnings per share data has been restated to conform to this new
pronouncement.
<PAGE> 9
Financial Overview
During 1998, the Bank continued to realize the benefits of having expanded
operations into new market areas. The expanded operations and market areas
reflect the branch openings in Jefferson, Byram and Rockaway in 1997 and 1998.
These additional office locations resulted in additional deposits to fund
increased loan demand. The increased loan demand enabled the Bank to increase
the percentage of loans to assets and loans to deposit at December 31, 1998 to
65.3% and 71.0%, respectively, from 61.5% and 67.0% respectively at December 31,
1997. The security portfolio in turn, declined to 28.1% of total assets at
December 31, 1998 versus 31.9% of total assets at December 31, 1997. These
changes in the composition of the Bank's balance sheet contributed to the
positive financial results that the Bank recorded in 1998. In 1998, the Bank
reported net income of $1,831,000 as compared to $1,424,000 in 1997 and $750,000
in 1996. This represents annual increases in net income of 28.6% and 89.9% for
1998 and 1997, respectively. Net interest income before the loan loss provision
increased by $1,328,000 or 22.0% to $7,366,000 at December 31, 1998. The
provision for possible loan losses was $665,000 in 1998 as compared to $632,000
in 1997 and $488,000 in 1996. These provisions increased the year end balance of
the allowance for possible loan and lease losses (ALLL) for each period. The
increase in the ALLL is primarily attributable to increases in total loans and
also from an increase in non-performing assets during the year. The Bank's ratio
of the allowance for possible loan and lease losses to total loans at December
31, 1998 was 1.60% compared to 1.52% in 1997 and 1.45% in 1996.
Total assets as of December 31, 1998 were $179,535,000, as compared to
$147,088,000 at year-end 1997 and $119,916,000 at year-end 1996, for increases
of 22.1% and 22.7%, respectively. Total loans as of December 31, 1998 were
$117,323,000, as compared to $90,441,000 in 1997 and $67,219,000 in 1996, for
increases of 29.7% and 34.5%, respectively. Total deposits as of December 31,
1998 were $165,259,000 as compared to $134,917,000 in 1997 and $106,191,000 in
1996, for increases of 22.5% and 27.1%, respectively. The increases in total
assets, loans and deposits were attributable in large part to the continued
growth of the main office in Independence and the existing branches at Netcong,
Roxbury, Oxford and Jefferson, together with the opening of the Byram branch in
June of 1998. The opening of the Rockaway branch in December of 1998 did not
have a material impact on the 1998 financial results. Although the percentage of
non-accrual loans to total loans increased to 0.8% at December 31, 1998, versus
0.2% in 1997, asset quality remained strong.
Results of Operations
The Bank's results of operations depend primarily on its net interest income,
which is the difference between the interest earned on interest-earning assets
and the interest paid on funds borrowed to support those assets, such as
deposits. Net interest income is a function of the difference between the
weighted average rate received on interest-earning assets and the weighted
average rate paid on interest-bearing liabilities, as well as the average level
of interest-bearing assets as compared with that of interest-bearing
liabilities. In 1998 the weighted average rate received on interest-earning
assets and the weighted average rate paid on interest-bearing liabilities
declined. Net interest income was favorably impacted by the increase noted in
the loan
<PAGE> 10
portfolio, which is the primary source of interest income to the Bank. Net
income is also affected by the amount of non-interest income and other expenses.
In 1998, the Bank's net interest income was $7,367,000, as compared to
$6,038,000 in 1997, an increase of 22.0%. Interest income increased $2,174,000,
or 21.0% in 1998, primarily due to the increase in the Bank's average earning
assets, principally the loan and the investment portfolios. The growth in total
loans was the result of an ongoing effort by the Bank to generate new loans. The
investment portfolio is used primarily to enhance the Bank's yield on funds that
are in excess of the Bank's loan demand and to provide liquidity for future loan
growth or decreases in deposits. Interest expense increased by $845,000 or 19.5%
in 1998 versus an increase in interest expense of $673,000, or 18.4%, in 1997.
The Bank's increase in net interest income during 1998 was partially offset by
an increase of $889,000, or 23.2%, in other expenses resulting primarily from
the expansion of the branch network, an increase of $33,000, or 5.2%, in the
provision for loan losses and augmented by an increase in other income of
$216,000 or 32.1%.
In 1997, the Bank's net interest income was $6,038,000 as compared to $4,525,000
in 1996, an increase of $1,513,000, or 33.4%. Interest income increased
$2,186,000, or 26.7%, in 1997, primarily due to the increases in the Bank's loan
portfolio, and secondarily by increases in the investment portfolio. Interest
expense rose $673,000, or 18.4%, in 1997 when compared to 1996. The Bank's
increase in net interest income during 1997 was partially offset by increases of
$513,000, or 15.4%, in other expenses, an increase of $144,000, or 29.5%, in the
provision for loan losses and augmented by an increase in other income of
$165,000, or 32.5%.
Net Interest Income Summary
The following table reflects the components of the Bank's net interest income
for 1998 and 1997, respectively. They are: (1) average assets, liabilities and
shareholders' equity, (2) interest income earned on interest-earning assets and
interest expense paid on interest-bearing liabilities, (3) average rates earned
on interest-earning assets and average rates paid on interest-bearing
liabilities, (4) the Bank's net interest differential (i.e., the difference
between the average rate earned on interest-earning assets and the average rate
paid on interest-bearing liabilities) and (5) the Bank's net interest margin on
interest-earning assets (i.e., net interest income divided by average
interest-earning assets). Loan balances include non-performing loans, which have
the effect of reducing the average rates earned on the Bank's loan portfolio.
All averages disclosed herein are daily averages.
<PAGE> 11
COMPARATIVE AVERAGE BALANCE SHEETS
<TABLE>
<CAPTION>
1998 1997
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
--------------------------------------------------------------------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Taxable Loans (net of unearned
Income) $102,399 $ 9,276 9.06% $ 78,595 $ 7,309 9.30%
Tax exempt loans 982 98 10.02% 930 72 7.72%
Taxable investment securities 48,201 3,029 6.28% 41,279 2,802 6.79%
Interest-bearing deposits at banks 893 41 4.59% 583 36 6.17%
Federal funds sold 2,375 130 5.47% 2,923 164 5.61%
-------- ------- ----- -------- ------- ----
Total interest earning assets 154,850 12,574 8.12% 124,310 10,383 8.35%
-------- ------- ----- -------- ------- ----
Non-interest earning assets 11,170 9,746
Allowance for possible loan and lease losses (1,558) (1,170)
Total Assets $164,462 $132,886
======== ========
LIABILITIES AND SHAREHOLDERS EQUITY
Interest -bearing liabilities
NOW deposits $ 19,336 $ 344 1.78% $ 13,815 $ 285 2.06%
Savings deposits 44,695 1,643 3.68% 30,874 1,037 3.36%
Time deposits 57,283 3,143 5.49% 51,538 2,862 5.55%
Borrowings 767 40 5.22% 2,422 141 5.82%
-------- ------- ----- -------- ------- ----
Total interest-bearing liabilities 122,081 5,170 4.23% 98,649 4,325 4.38%
-------- ------- ----- -------- ------- ----
Non-interest-bearing liabilities:
Demand Deposits 29,116 22,876
Other Liabilities 750 645
Total non-interest-bearing liabilities 29,866 23,521
-------- --------
Shareholders' Equity: 12,515 10,716
-------- --------
Total liabilities and shareholders' equity $164,462 $132,886
======== ========
Tax equivalent adjustment (37) (20)
------- -------
Net interest differential $ 7,367 3.89% $ 6,038 3.97%
======= =======
Net yield on interest-earning assets 4.76% 4.86%
</TABLE>
<PAGE> 12
Net interest income also may be analyzed by segregating the volume and rate
components of interest income and interest expense. The following table
demonstrates, for the years indicated the effect on interest income and interest
expense by changes in the average volume of interest-earning assets and
interest-bearing liabilities and by the changes in their corresponding yield and
costs.
<TABLE>
<CAPTION>
1998 versus 1997 1997 versus 1996
-----------------------------------------------------------------
Total Total
Average Average Increase Average Average Increase
Volume Rate (Decrease) Volume Rate (Decrease)
----------------------------------------------------------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-Income:
Taxable Loans (net of unearned
Income) $ 2,156 $ (189) $ 1,967 $ 1,964 $ 7 $ 1,971
Tax exempt loans 5 21 26 42 9 51
Taxable investment securities 435 (208) 227 24 137 161
Interest-bearing deposits at banks 14 (9) 5 6 7 13
Federal funds sold (30) (4) (34) (4) 9 5
------- ------- ------- ------- ------- -------
Total interest-income 2,581 (389) 2,191 2,032 169 2,201
------- ------- ------- ------- ------- -------
Interest Expense
NOW deposits 98 (39) 59 83 37 120
Savings deposits 508 98 606 175 (25) 150
Time deposits 315 (34) 281 290 (7) 283
Total borrowings (86) (15) (101) 120 0 120
------- ------- ------- ------- ------- -------
Total interest expense 835 10 845 668 5 673
------- ------- ------- ------- ------- -------
Net interest income $ 1,746 $ (399) $ 1,346 $ 1,364 $ 163 $ 1,528
======= ======= ======= ======= ======= =======
</TABLE>
In 1998, the Bank's growth in net interest income was significant. It increased
by $1,329,000, or 22.0%. The increase in the average volume of interest earning
assets and, in particular, the growth of the loan portfolio both in actual
volume and also as a percentage of total earning assets was the primary reason
for this growth. The Net Yield on Interest-Earning Assets declined for the year
as the yield on earning assets declined due to reductions in the interest rate
environment and also due to the competitive pressures experienced with loan
pricing. Given the decline of 10 basis points in the Net Yield on
Interest-Earning Assets, it remains at 4.76% for 1998.
Interest income from tax exempt loans in the foregoing tables is calculated on a
tax equivalent basis using a 38% marginal tax rate.
Interest-Earning Assets
Total average interest-earning assets in 1998 increased $30,540,000, or 24.6%,
to $154,850,000 as compared to $124,310,000 in 1997. In 1997, total average
interest earning assets had increased $22,037,000, or 21.5%, as compared to
$102,273,000 in 1996. Growth in earning assets was primarily attributable to
increases in average loan balances which grew $23,856,000 or 30.0% in 1998
versus 1997, and $21,659,000 or 37.4% in 1997 versus 1996. The other major
component contributing to the increase in interest earning assets was the growth
of the investment portfolio. The growth in average volume was $6,922,000 or
16.8% over 1997 versus growth of $354,000, or .09%, in average volume in 1997
over 1996. In 1998 the ratio of average earning assets to average total assets
increased to 94.2% versus 93.5% and 93.1% in 1997 and 1996 respectively.
The growth of the loan portfolio contributed significantly to growth to the
increase in interest income. Income derived from increases in average taxable
loan volume as displayed in the table above was
<PAGE> 13
$2,156,000. Income derived from increases in average volume of taxable
investment securities was $435,000. This was partially offset by declines in the
yields associated with these categories which amounted to $397,000. The net
effect, however, is a significant increase in the Bank's interest income, which
has a positive impact on the entire income statement.
Interest-Bearing Liabilities
Total average interest-bearing liabilities increased to $122,081,000 in 1998, a
23.8% increase over the $98,649,000 average balance in 1997. In 1997, average
interest-bearing liabilities increased 20.1% over the average balance of
$82,131,000 in 1996. Interest expense during these same periods was $5,170,000
in 1998, $4,325,000 in 1997 and $3,652,000 in 1996. Increases in interest
expense, when comparing 1998 to 1996 and 1997 to 1996, were primarily
attributable to increases in the average balances maintained on deposit.
In 1998, the Bank's cost of funds was 4.23 %, as compared to 4.38% in 1997 and
4.45% in 1996. The decline in the Bank's cost of funds in 1998 was attributable
to closely monitoring the interest rates paid on deposits both by the Bank and
the competition in the Bank's market area and interest rate changes in the
market. The Bank acted promptly to change interest rates as the local and
national market changed and as the Bank's earning assets also repriced. Of the
total increase in interest expense of $845,000, only $10,000 is attributable to
interest rate increases. The average cost of interest bearing liabilities
declined in all categories, with the exception of savings deposits. The
percentage of certificates of deposit, the most expensive category of deposits,
as compared to total interest bearing deposits declined in 1998 with a
corresponding increase in the less expensive deposits as a percentage of total
deposits.
Other Income
Although not as significant as the increase in net interest income in its impact
on the bank's results of operations, other income, which is primarily
attributable to service fees received from deposit accounts, grew to $889,000 in
1998, as compared to $673,000 in 1997. This represented a gain of $216,000, or
32.1%. In 1997, other income grew $165,000 over the total of $508,000 in 1996,
an increase of 32.5%. The 1998 increase over 1997 includes net securities gains
of $62,000, versus losses of $10,000 recorded in 1997. Excluding securities
transactions, other income increased by $144,000, or 21.1%. This increase
further reinforces the gains in other income recorded in 1998 and illustrates
the increased earnings generated from both services and fees related to deposit
accounts and other fee income activities resulting from the overall expansion of
the Bank's customer base. It is believed that other income will continue to grow
as the Bank expands into new market areas and current markets continue to grow.
Other Expenses
Due to significant increases in the Bank's asset size, customer base and
the increase in the number of branches, other expenses increased in 1998. In
1998, the Jefferson branch was open for the full year versus five weeks in 1997
and the Byram Branch opened in mid- June of 1998. The Rockaway Branch opened in
late December 1998 and did not impact the Bank's results significantly for 1998.
The increase in Total Other Expenses in 1998 was $889,000 or 23.2% versus an
increase of $513,000 or 15.4% in 1997. The staff required to service the branch
locations and provide support service to the customer base impacted the increase
in salaries and benefits, which at $2,283,000 in 1998 increased by $497,000 or
27.8% versus total expense of $1,786,000 and an increase of $220,000 or 18.9% in
1997. Full time equivalent employees increased from 47 at December 31, 1997 to
60.5 at December 31, 1998, primarily due to the additional staff required to
service the Jefferson, Byram and Rockaway branches and also by additions to
support staff required to continue to provide superior customer service.
Occupancy
<PAGE> 14
expense increased by $119,000 to $467,000 in 1998. Management believes that
future increases in occupancy expense are inevitable, particularly with the
continued expansion of the branch network. Data processing fees were $251,000
for the year, while the cost of FDIC insurance increased to $16,000 as a result
of growth in the deposit base. Examination, audit and legal fees increased by
$134,000 while consulting expenses increased by $35,000. Both of these increases
were due to certain non-recurring expenses. During 1998, the Bank incurred
$32,000 in expenses associated with the maintenance and disposition of Other
Real Estate Owned. This compares to expenses of $74,000 incurred in 1997 for a
decrease of $42,000 or 56.8% in this category.
Deposits
Deposits are the Bank's primary source of funds. The Bank offers a variety
of deposit accounts, and seeks to obtain its deposits primarily from the
communities it serves. In 1998, the Bank experienced growth in average deposit
balances of $31,329,000, or 26.3%, when compared to 1997. In 1997, the Bank
experienced growth in average deposits of $19,623,000, or 19.7%, when compared
to 1996. The growth in average deposits experienced in 1998 was accomplished
through deposits received at the Jefferson and Byram branches and increases in
deposits at the Bank's existing offices. The deposit increases are primarily the
result of the Bank's ongoing emphasis on customer service, extended hours of
operation, competitive rate structures and selective marketing. The Bank offered
an introductory interest rate on savings accounts at its Jefferson and Byram
branches that contributed to the growth of those branches and savings accounts
in general.
The components of the increase in average deposits when comparing 1998 to
1997, include average NOW deposits which grew $5,521,000, or 40.0%, average
savings deposits which grew $13,821,000, or 44.8%, average time deposits which
grew $5,745,000, or 11.1%. Average demand deposits, which are non-interest
bearing, grew $6,240,000, or 27.3%. During the period of 1997 to 1996, average
NOW deposits grew 41.3% or $4,035,000, average savings deposits grew 20.2%, or
$5,197,000, average time deposits grew 11.3%, or $5,226,000, and average demand
deposits grew 29.2%, or $5,165,000. Management believes its demand deposit
account has attracted depositors because it is offered free of monthly service
charges. Over the past three years, the aggregate amount of average
interest-bearing deposits has been approximately 81% of average total deposits.
Average municipal deposits in 1998, 1997 and 1996 were $16,571,000, $12,431,000
and $9,190,000, respectively. As of December 31, 1998, the Bank had no foreign
deposits.
The average amounts of deposits and average rates paid on deposits for
1998 and 1997, respectively, are summarized below:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------------
Average Average Average Average
Balance Rate Balance Rate
------------------------------------------------
(in thousands, except
percentages)
<S> <C> <C> <C> <C>
Demand deposits $ 29,116 -- $ 22,876 --
NOW deposits 19,336 1.78% 13,815 2.06%
Savings deposits 44,695 3.68% 30,874 3.36%
Time deposits 57,283 5.49% 51,538 5.55%
-------- --------
Total $150,430 $119,103
========= ========
</TABLE>
<PAGE> 15
The Bank does not actively solicit short-term deposits of $100,000 or more
because of the liquidity risks posed by such deposits. The following table
summarizes the maturity distribution of certificates of deposit of $100,000 or
more as of December 31, 1998:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Time deposits ($100,000 and over)
Three months or less $ 6,083
Over three months through twelve months 4,483
Over twelve months 1,282
-------
Total $11,848
=======
</TABLE>
Short Term Borrowings
At December 31, 1998, the Bank had no borrowed funds. Short-term borrowings are
used, when required, to meet daily liquidity needs for a specific period of
time.
Loan Portfolio
The Bank's loan portfolio at December 31, 1998 totaled $117,323,000, as compared
to $90,441,000 and $67,219,000 at December 31, 1997 and 1996, respectively.
Total loans at December 31,1998 represented an increase of $26,882,000, or
29.7%, when compared to year-end 1997. Total loans at year-end 1997 represented
an increase of $23,222,000, or 34.5%, when compared to year-end 1996.
The Bank's loan portfolio consists of commercial and industrial loans, real
estate loans and consumer loans. Commercial and industrial loans are made for
the purpose of providing working capital, financing the purchase of equipment or
inventory and for other business purposes. Real estate loans consist of loans
secured by commercial or residential real property and loans for the
construction of commercial and residential real property. Consumer loans are
made for the purpose of financing the purchase of consumer goods, home
improvements, and other personal needs, and are generally secured by the
personal property being purchased.
The Bank's loans are primarily to businesses and individuals located in
northwest New Jersey. The Bank has not made any loans to borrowers outside the
United States. Commercial lending activities are focused primarily on lending to
small and middle-sized corporate borrowers engaged in various businesses. The
Bank believes that certain of the same factors which have contributed to its
increase in deposits, i.e., customer service, competitive rate structures and
selective marketing, have enabled the Bank to gain market entry to local loans.
Bank mergers and lending curtailments at the larger banks have also contributed
to the Bank's efforts to attract borrowers.
The following table sets forth the classification of the Bank's loans by
major category as of December 31, 1998 and 1997, respectively:
<TABLE>
<CAPTION>
Loan Classifications
1998 1997
---------------------------
(in thousands)
<S> <C> <C>
Commercial and industrial $ 47,708 $ 34,204
Real Estate -
Nonresidential properties 22,860 25,660
Residential properties 40,117 24,606
Installment loans to individuals 6,638 5,971
-------- --------
Total Loans $117,323 $ 90,441
======== ========
</TABLE>
<PAGE> 16
The following table sets forth fixed and adjustable rate loans as of December
31, 1998 in terms of interest rate sensitivity:
<TABLE>
<CAPTION>
Fixed & Adjustable loans
(in thousands) 1 Year Years 5 Years Total
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans with fixed rate $ 3,571 $36,532 $29,067 $ 69,170
Loans with variable rate 39,634 8,519 0 48,153
------- ------- ------- --------
Total Loans $43,205 $45,051 $29,067 $117,323
======= ======= ======= ========
</TABLE>
Asset Quality
The Bank's principal earning assets are its loans. Inherent in the lending
function is the risk of deterioration in the borrowers' ability to repay their
loan under their existing loan agreement.
Non-performing assets include loans that are not accruing interest (non-accruing
loans) as a result of principal or interest being in default for a period of 90
days or more. When a loan is classified as non-accrual, interest accruals
discontinue and all past due interest, including interest applicable to prior
years, is reversed and charged against current income. Until the loan becomes
current, any payments received from the borrower are applied to outstanding
principal until such time as management determines that the financial condition
of the borrower and other factors merit recognition of such payments as
interest.
Non performing assets also include the Bank's holdings in other real estate
owned ("OREO"). At December 31, 1998 the Bank, through foreclosure, had
transferred one loan from non-accrual status to OREO with a balance of $105,000.
This property was commercial property. All amounts, when transferred to OREO,
are done at the lesser of the recorded loan balance or the fair value of the
property net of its related cost to sell. Any write-downs to the loan balance
required at the time the loan is transferred to OREO are recorded as a
charge-off against the allowance for possible loan and lease losses. Charge-offs
resulting from declines in the fair value of OREO properties subsequent to the
initial transfer from loans are expensed and included in other operating
expenses. In addition, costs associated with maintaining OREO properties
including utilities, taxes, and general repairs and maintenance are expensed as
incurred. It is the Bank's intent to dispose of OREO property as expeditiously
as possible at a value considered fair given current market conditions and
circumstances surrounding the sale. In 1998, the Bank incurred expenses related
to OREO properties of $32,000, inclusive of a loss of $6,000 on the sale of an
OREO property. The Bank had two OREO properties at December 31, 1997 totaling
$266,000, and three OREO properties at December 31, 1996, totaling $503,000.
Accounting standards require that a loan be recognized as impaired when it is
probable that all amounts will not be collected in accordance with the original
contracted terms of the loan agreement. At December 31, 1998 and 1997, impaired
loans consisted of non-accrual loans and one loan totaling $383,000 in 1998 and
$430,000 in 1997 that was previously on a non-performing status and which had
been renegotiated by the Bank in the fourth quarter 1996. At December 31, 1998
and 1997 the loan was performing in accordance with the agreed upon terms. The
loan has been returned to a performing status.
The Bank attempts to minimize overall credit risk through loan diversification
and its loan approval procedures. The Bank's due diligence begins at the time a
borrower and the Bank begin to discuss the origination of a loan. Documentation,
including a borrower's credit history, materials establishing the value and
liquidity of potential collateral, the purpose of the loan, the source and
timing of the repayment
<PAGE> 17
of the loan, and other factors are analyzed before a loan is submitted for
approval. Loans made are also subject to periodic review. See "Allowance for
loan and lease losses" below.
The following table sets forth the total of non-performing assets as of December
31, 1998 and 1997, respectively:
NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
December 31,
1998 1997
-------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Non-accrual loans $ 959 $ 192
Impaired loans - performing in
accordance with renegotiated terms 383 430
------ ------
Total non-accrual and impaired loans 1,342 622
Other real estate owned 105 266
------ ------
Total non-performing and
impaired assets $1,447 $ 888
====== ======
Allowance for possible
loan and lease losses
as a percentage of non-accrual loans 195% 716%
Allowance for possible loan and lease losses
as a percentage of non-accrual and
impaired loans 140% 221%
</TABLE>
The following sets forth the gross interest income that would have been
recorded during the 1998 fiscal year had non-accruing loans been current and the
amount of interest income actually recognized on these loans:
<TABLE>
<CAPTION>
1998
----
<S> <C>
Contractual interest due $ 80,000
Interest recognized 8,000
</TABLE>
Allowance for Loan and Lease Losses
The allowance for loan and lease losses is established to provide for
potential losses in the Bank's loan portfolio and off balance sheet risks, such
as unused lines of credit and letters of credit. As of December 31, 1998, the
Bank has established $1,873,000 as an allowance for possible loan and lease
losses, as compared to an allowance of $1,374,000 as of December 31, 1997 and an
allowance of $973,000 as of December 31, 1996. The increase in the allowance is
primarily due to an increase in the Bank's total loan portfolio. The Bank
maintains an allowance for possible loan and lease losses at a level considered
by management to be adequate to cover the inherent risks of loan loss associated
with its loan portfolio, although actual losses may vary from current estimates.
Risks within the loan portfolio are analyzed on a continuous basis by the
Bank's officers and the Bank's Audit Committee. A risk system, consisting of
multiple grading categories, is utilized as an analytical tool to assess risk
and appropriate reserves. Along with the risk system, management further
evaluates risk characteristics of the loan portfolio under current and
anticipated economic conditions and
<PAGE> 18
considers such factors as the financial condition of the borrower, past and
expected loss experience, and other factors management feels deserve recognition
in establishing an appropriate reserve. These estimates are reviewed at least
quarterly, and, as adjustments become necessary, they are realized in the
periods in which they become known. Additions to the allowance are made by
provisions charged to expense and the allowance is reduced by net charge-offs
(i.e., loans judged to be uncollectible and charged against the reserve, less
any recoveries on such loans).
The following is a summary of the reconciliation of the allowance for loan
and lease losses for fiscal years 1998 and 1997, respectively:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1998 1997
--------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Balance at beginning of year $ 1,374 $ 973
Recoveries:
Commercial 16 1
Installment 3 10
Charge-offs:
Commercial (163) (207)
Installment (22) (35)
Provision charged to expense 665 632
------- -------
Balance of allowance at end of year $ 1,873 $ 1,374
======= =======
Ratio of net charge-offs to average
loans outstanding 0.16% 0.29%
</TABLE>
The following table sets forth, for each of the Bank's major lending areas, the
amount and percentage of the Bank's allowance for loan and lease losses
attributable to such category, and the percentage of total loans represented by
such category, as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
12/31/98 12/31/97
- ----------------------------------------------------------------------------------------------
% of % of % of % of
Amount ALLL Total Loans Amount ALLL Total Loans
- ----------------------------------------------------------------------------------------------
(in thousands, except
percentages)
<S> <C> <C> <C> <C> <C> <C>
Balance applicable to:
Commercial and industrial $ 754 40.26% 40.77% $ 568 41.34% 37.82%
Real estate -
Non-residential properties 540 28.83% 15.44% 431 31.37% 22.93%
Residential properties 54 2.88% 34.19% 36 2.62% 27.21%
Construction 10 0.53% 4.05% 10 0.73% 5.45%
Consumer 67 3.58% 5.55% 45 3.28% 6.60%
------ ------ ------ ------ ------ ------
Subtotal 1,425 76.09% 100.00% 1,090 79.34% 100.00%
------ ------ ------ ------ ------ ------
Impaired loan valuation
Allowance in accordance
with SFAS 114 166 8.86% 0.00% 116 8.44% 0.00%
------ ------ ------ ------ ------ ------
Unallocated reserves 282 15.06% 0.00% 168 12.23% 0.00%
------ ------ ------ ------ ------ ------
Total $1,873 100.00% 100.00% $1,374 100.00% 100.00%
====== ====== ====== ====== ====== ======
</TABLE>
<PAGE> 19
Securities
The Bank maintains a securities portfolio to fund increases in loans or
decreases in deposits and to meet other liquidity needs. The portfolio is
composed of U.S. Treasury Securities, obligations of U.S. Government Agencies
and equity securities. The Bank does not engage in trading activities.
The following table sets forth the carrying value of the Bank's
securities portfolio as of the dates indicated. In accordance with SFAS 115,
securities held to maturity are stated at amortized cost and securities
available for sale are stated at their fair value.
<TABLE>
<CAPTION>
At December At December
31, 1998 31, 1997
-----------------------------------
(in thousands)
<S> <C> <C>
US Treasury securities $ 3,025 $ 4,714
Mortgage backed securities 46,193 39,683
US Agency securities 500 1,997
Other securities (1) 664 528
------- -------
Total $50,382 $46,922
======= =======
</TABLE>
(1) Represents equity investments in the Federal Home Loan Bank and
Atlantic Central Bankers Bank.
In accordance with SFAS 115, securities available for sale at December 31, 1998
have been recorded at their fair value with the gross unrealized gain of
$130,000 ($80,000 net income tax effect) reflected as an increase to
shareholders' equity.
The following table sets forth as of December 31, 1998 the maturity distribution
and weighted average yields of the Bank's securities portfolio (calculated on
the basis of the stated yields to maturity, considering applicable premium or
discount). U.S. Government Agency securities are stated based on stated
maturities, however actual maturities may differ based on speed of prepayment.
<TABLE>
<CAPTION>
Within 1 - 5 5 - 15 Over 15
1 Year Years Years Total
- ------------------------------------------------------------------------------------------------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C>
US Treasury Securities:
Amortized cost $1,008 $2,017 $0 $0 $ 3,025
Yield 5.69% 5.56% 5.60%
US Government mortgage backed:
Amortized cost 0 202 37,778 8,213 $46,193
Yield 6.40% 6.47% 6.34% 6.44%
US Government Agency securities:
Amortized cost 0 500 0 0 $ 500
Yield 6.01% 6.01%
Other Securities
Amortized cost 0 0 0 664 $ 664
Yield 6.93% 6.93%
</TABLE>
<PAGE> 20
Liquidity
The Bank's liquidity is a measure of its ability to fund loans, withdrawals or
maturities of deposits and other cash outflows in a cost-effective manner. The
Bank's principal sources of funds are deposits, scheduled amortization and
prepayments of loan principal, sales, maturities and paydowns of investment
securities and funds provided by operations. Additionally, in May 1996 the Bank
was accepted as a member of the Federal Home Loan Bank of New York ("FHLB"). As
a member of the FHLB, the Bank obtained a line of credit which provides the Bank
with a source of additional liquidity. Advances under the credit agreement with
the FHLB are available on an overnight basis or for extended terms. Interest
rates on any advance activated by the Bank are determined at the time of the
advance. While scheduled loan payments and maturing investments are relatively
predictable sources of funds, deposit flows and loan prepayments are greatly
influenced by general interest rates, economic conditions and competition. The
additional liquidity made available by the FHLB adds another source that can be
relied on to meet daily balance requirements and future loan demand.
Through the Bank's investment portfolio, the Bank has generally sought to obtain
a safe yet slightly higher yield than would have been available to the Bank as a
net seller of overnight Federal Funds. Through the investment portfolio, the
Bank attempts to manage, in part through principal paydowns of mortgage backed
securities and through the sale of available for sale securities when necessary,
the Bank's liquidity needs to meet anticipated loan demand and maturities of
deposits.
Interest Rate Risk
The Bank's Investment and Liquidity and Funds Management Committee (the
"Committee') manages the Bank's interest rate sensitivity, the repricing
characteristics of assets and liabilities and the risks associated with the
volatility of interest rates. The principal objective of asset/liability
management is to maximize net interest income within acceptable levels of risk.
The management of interest rate risk is accomplished by analyzing the maturity
and repricing relationships between interest earning assets and interest bearing
liabilities at specifics points in time (Gap) and income simulation analysis
which analyzes the effects of interest rate changes on net interest income over
specific periods of time and captures the dynamic impact of interest rate
changes on the mix of assets and liabilities.
To mitigate the impact of changes in interest rates, the balance sheet is
structured so that repricing opportunities exist for both assets and liabilities
at approximately the same time intervals. An imbalance in repricing
opportunities constitutes an interest sensitivity gap which is the difference
between rate sensitive assets and rate sensitive liabilities. This gap is
measured through the Rate Sensitive Balance Sheet, which calculates the periodic
gaps and a cumulative gap over the various time frames. The Bank pays particular
attention to the cumulative gap at the one-year time frame. An asset sensitive
gap indicates that assets reprice faster than liabilities and a liability
sensitive gap indicates that liabilities reprice faster than assets. The
Committee has established a guideline of 15% plus or minus as the maximum
cumulative gap as a percentage of average earning assets for the month at the
one year time frame. The one-year cumulative gap is -1.51% which falls within
the established guideline.
<PAGE> 21
<TABLE>
<CAPTION>
Rate Sensitive Balance Sheet
December 31, 1998
(thousands of dollars)
Less than 3 to 12 1 to 3 3 to 5 Over 5 All
Repricing Frequency 3 Months Months Years Years Years Others Total
------------------- -------- ------ ----- ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Earning Assets:
Federal funds sold $ 2,500 $ 0 $ 0 $ 0 $ 0 $ 0 $ 2,500
Total investments 4,184 8,488 21,970 16,102 0 20 50,764
Loans 46,983 22,561 12,190 17,515 17,115 959 117,323
Non-interest-bearing assets 0 0 0 0 0 8,948 8,948
------- -------- -------- ------- ------- -------- --------
Total Assets $53,667 $ 31,048 $ 34,160 $33,617 $17,115 $ 9,927 $179,535
======= ======== ======== ======= ======= ======== ========
0
Source of Funds:
Interest-bearing deposits $13,507 $ 73,758 $ 47,324 $ 333 $ 103 $ 0 $135,025
Non interest-bearing deposits 0 0 0 0 0 30,234 30,234
Other Liabilities 0 0 0 0 0 657 657
Shareholders' Equity 0 0 0 0 0 13,619 13,619
------- -------- -------- ------- ------- -------- --------
Total Source of Funds $13,507 $ 73,758 $ 47,324 $333 $ 103 $ 44,510 $179,535
======= ======== ======== ======= ======= ======== ========
Gap 40,160 (42,710) (13,164) 33,284 17,012 (34,583)
Cumulative Gap 40,160 (2,549) (15,713) 17,571 34,583 0
Cumulative Gap/Avg Earning Assets 23.75% -1.51% -9.29% 10.39% 20.45% 0.00%
</TABLE>
This analysis is based on the assumptions as to the repricing
opportunities of the assets and liabilities. The average prepayments on mortgage
backed securities and fixed rate loans have been calculated and applied across
the maturity timeframes. NOW and Money Market accounts which have no contractual
maturity have been assigned to the 3-12 Month category and savings deposits
which also have no maturity have been assigned to the 1-3 Year category as it is
believed that these categories reflect depositor behavior relative to interest
rate sensitivity.
There are several shortcomings in the Gap analysis that must be recognized
in analyzing and implementing strategies based on the ratios generated by, and
the conclusions drawn from the Gap analysis. First of all, the assumptions noted
above may or may not accurately predict future repricing behavior based on the
actions taken by the Bank's customers (borrowers and depositors). The gap
analysis provided from the rate sensitive balance sheet is a static measure of
future repricing opportunities at a given moment in time. It does not consider
changes in the mix of various assets and liabilities and future growth rate
assumptions. In addition, the repricing characteristics of assets and
liabilities may vary substantially within a given period of time and do not
recognize the fact that the repricing of assets and liabilities is discretionary
and subject to competitive pressures and other internal and external factors
such as the prepayment speeds on mortgage backed securities.
The Bank also utilizes income simulation models as a result of some of
these shortcomings to provide a second analysis of the impact of interest rate
changes on the Bank's net interest income. The income simulation model utilizes
a projection of future balance sheet growth and the related income statement
results in its analysis. Balance sheet growth utilizes the contractual repricing
opportunities of assets and liabilities which include maturities and payments
for fixed rate instruments and repricing opportunities for variable rate
instruments together with future interest rate assumptions. The income
simulation model applies a rate shock of plus and minus 1%, 2% and 3% to the
balance sheet and measures the impact on net interest income. Interest rates are
changed proportionately to the driver rate, which is national prime. The results
are measured at the one-year time frame. Income amounts are
<PAGE> 22
presented as year to date at the one-year time frame. The following table
provides the results of the rate shock in the income simulation model:
Interest Rate Sensitivity Analysis
At December 1999
(thousands of dollars, except percentages)
<TABLE>
<CAPTION>
Interest Rate Net Interest
Change Income $ Change % Change
------ ------ -------- --------
<S> <C> <C> <C>
+3% 9,760 1,005 11.48%
+2% 9,424 669 7.64%
+1% 9,089 334 3.81%
Flat 8,756 0 0.00%
-1% 8,423 (333) -3.80%
-2% 8,092 (664) -7.58%
-3% 7,762 (994) -11.35%
</TABLE>
The results of the rate shock as shown in this table indicate that a plus or
minus 3% interest rate change would result in a plus 11.48% and a minus 11.35%
change in net interest income respectively. The results of this analysis
indicate that the Bank's net interest income and net income, while affected
negatively by a decline in interest rates would continue to be positive. The
Bank could also modify strategies and goals if it was perceived to be necessary.
However, as with Gap analysis, there are limitations to income simulation
modeling. The primary one is that the concept of an interest rate shock which
would result in all interest rates moving in the same direction at a given point
in time is highly unlikely. Factors such as competition and the management of
interest rate changes by the Bank would significantly modify the impact of a
rate shock.
Capital
A significant measure of the strength of a financial institution is its capital
base. The Bank's regulators (primarily the FDIC) have classified and defined
bank capital into the following components: (1) Tier I capital, which includes
tangible shareholders' equity for common stock and qualifying preferred stock,
and (2) Tier II capital, which includes a portion of the allowance for possible
loan and lease losses, certain qualifying long-term debt and preferred stock
which does not qualify for Tier I capital. Minimum capital levels for banks are
regulated by risk-based capital adequacy guidelines which require a bank to
maintain certain capital as a percent of a bank's assets and certain off-balance
sheet items adjusted for predefined credit risk factors (risk-adjusted assets).
A bank is required to maintain, at a minimum, Tier I capital as a percentage of
risk-adjusted assets of 4% and combined Tier I and Tier II capital (Total
Capital) as a percentage of risk-adjusted assets of 8%. As of December 31, 1998,
the Bank's Tier I and Total Capital ratios were 10.84% and 12.10% respectively.
At December 31, 1998, the Bank's shareholders' equity was $13,619,000, an
increase of $1,925,000 over shareholders' equity of $11,694,000 at December 31,
1997. The increase was attributable to net income of $1,831,000, a decrease in
unrealized gains on securities available for sale, net of tax effect, of $5,000,
an addition of $101,000 from the exercise of stock options, investments received
through the Dividend Reinvestment Plan of $143,000 and a decrease of $145,000
resulting from the payment of cash dividends.
In addition to the risk-based guidelines, the Bank's regulators require that a
bank which meets the regulator's highest performance and operating standards
maintain a minimum leverage ratio (Tier I capital as a percentage of tangible
assets) of 4%. For those banks with higher levels of risk or that are
<PAGE> 23
experiencing or anticipating significant growth, the minimum leverage ratio will
be proportionately increased. The minimum leverage ratio for each bank is
evaluated through the ongoing regulatory examination process. The Bank's
leverage ratio was 6.84% as of December 31, 1997, 6.81% as of December 31, 1997,
and 7.02% as of December 31, 1996. Management believes the Bank's leverage ratio
as of December 31, 1998 meets the regulators' minimum ratio requirements.
Dividends
During 1998 the Bank paid two cash dividends of $.03 per share each. They
were paid on May 22, 1998 and November 16, 1998. The future dividend policy of
the Bank is subject to the discretion of the Board of Directors and will depend
upon a number of factors, including future earnings, financial conditions, cash
needs and general business conditions.
The New Jersey Department of Banking and Insurance prohibits the payment
of dividends under certain circumstances as set forth below. No cash dividends
may be paid by the Bank unless, following the payment of each such dividend, the
capital stock of the Bank will be unimpaired and the Bank will have a surplus of
not less than fifty percent of its capital stock, or, if not, the payment of
such dividend will not reduce the surplus of the Bank. The Bank will also be
guided in its cash dividend policy by the FDIC requirements.
Year 2000 Compliance
The Bank is aware of the issues associated with the programming code in
existing computer systems as the "Year 2000" approaches. The Year 2000 problem
is pervasive and complex as virtually every computer operation may be affected
in some way by the rollover of a two-digit year value to 00. The issue is
whether computer systems will properly recognize date sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail.
The Bank has formed a Committee, which has identified the areas that must
be addressed. Those areas include the impact of the Year 2000 on the software
and hardware utilized by the Bank, the impact of the Year 2000 on Bank's
borrowers, the impact of the Year 2000 on the Bank's operating environment and
meeting unusual cash withdrawals by the Bank's depositors. The Committee has
supervised the testing of the computer hardware and software that is utilized by
the Bank to assess its date sensitivity and ability to recognize the Year 2000.
Testing indicates that all software and hardware used by the Bank is Year 2000
compliant. The Committee has drawn up contingency plans to address situations
that could arise if the Bank's systems malfunction as a result of internal or
external causes. The contingency plans also include procedures to provide
additional liquidity in the event of unusual cash withdrawals by depositors. The
Year 2000 activities include programs to raise the awareness of the Bank's
borrowers of the nature of the Year 2000 issue. The Bank expects to incur costs
of less than $10,000 to meet Year 2000 issues. In the opinion of Management, the
impact of Year 2000 compliance on the Bank's earnings will not be material.
ITEM 3 -- PROPERTIES
The Bank's principal offices are located at 24-26 Crossroads Center,
Independence Township, New Jersey. The Bank leases these offices. Pursuant to
the lease, the Bank rents approximately 6,159.15 square feet, which constitutes
19.57% of the rentable space in the center. The term of the lease expires
September 30, 1998. The lease also provides the Bank with an option to extend
the term from October 1, 1998 to September 30, 2002.
<PAGE> 24
The Bank leases the Roxbury Branch pursuant to a lease agreement with Eva
Mandel, the landlord, which provides for the leasing of approximately 2,300
square feet in an office located at 262 Route 10, Roxbury, New Jersey. The lease
has an initial five-year term which ends on September 30, 1999. The lease also
provides the Bank with an option to extend the lease for an additional five-year
term ending September 30, 2004.
In connection with the acquisition of the Netcong Branch, the Bank assumed
the obligations under the existing lease agreement with Ten Properties, L.P.,
the landlord, for the Netcong Branch, which is located at 9 Ledgewood Avenue,
Netcong, New Jersey. This office occupies approximately 1,670 square feet. In
July, 1996, pursuant to an option contained in the lease, the Bank purchased the
branch for a purchase price of $400,000.
The Bank leases the Jefferson Branch pursuant to a lease agreement with 15
South Plaza, A Limited Partnership, the landlord, which provides for the leasing
of approximately 2,500 square feet in an office, located in Suite 101, 664 Route
15 South, Lake Hopatcong, Roxbury, New Jersey. The lease has an initial
five-year term which ends on November 30, 2002. The lease also provides the Bank
with an option to extend the lease for an additional five-year term ending
November 30, 2007.
The Bank leases the Byram Branch pursuant to a lease agreement with
RoNetco Supermarkets, Inc., the landlord, which provides for the leasing of
approximately 450 square feet in the ShopRite supermarket located at 90-80 Route
206, Stanhope, New Jersey. The lease has an initial 5 year term which ends on
June 12, 2003, and provides for two 5-year renewal options.
During 1998, the Bank paid aggregate rentals under the foregoing leases of
approximately $193,000. The average remaining term of these leases is
approximately 2.3 years (without giving effect to any right of the Bank to renew
these leases).
The Bank also owns the property and building located at 157 Route 31
North, Oxford, New Jersey, which the Bank acquired in March 1996. The building
at this location consists of approximately 1,400 square feet. There are no
encumbrances on this property.
The Bank also owns the property and building located at 272 Route 46,
Rockaway, New Jersey, which the Bank acquired on November 10, 1998. The building
at this location consists of approximately 7,900 square feet, of which the Bank
occupies 3,000 square feet, and leases the remainder. There are no encumbrances
on this property.
Management believes the foregoing facilities are suitable for the Bank's
present operations.
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 9, 1999, information with
respect to the Common Stock ownership of each person known by the Bank to own
beneficially more than 5% of the shares of the Bank's Common Stock, and the
beneficial ownership of all directors individually and all officers and
directors as a group:
<PAGE> 25
<TABLE>
<CAPTION>
Name & Address of Amount and Nature of Percent
Beneficial Owner(1) Beneficial Owner of Class
- ------------------- ---------------- --------
<S> <C> <C>
Norman S. Baron 65,475 (2) 2.75%
James L. Cochran 32,036 (3) 1.35%
Daniel M. DiCarlo, Jr. 19,178 (4) *
Michael Halpin 75,686 (5) 3.18%
Ralph C. Knechel 26,632 (6) 1.12%
J. William Noeltner 83,123 (7) 3.50%
Denis H. O'Rourke 35,139 (8) 1.48%
Paul J. Pinizzotto 61,774 (9) 2.60%
Dominick V. Romano 211,836 (10) 8.91%
Mark F. Strauss 15,464 (11) *
Norman Worth 4,256 (12) *
All directors & principal
officers as a group
(13 persons) 669,588 (13) 28.16%
</TABLE>
- ----------
* Ownership of less than 1%.
(1) The address for all persons listed is c/o Skylands Community Bank, P.O.
Box 507, Hackettstown, New Jersey 07840.
(2) Includes 11,312 shares and stock options for 4,859 shares owned directly,
245 shares owned by Mr. Baron's wife, 24,612 shares owned jointly with his
wife, 20,029 shares owned by the Trust Company of America MMP, and 4,020
shares owned by the Trust Company of America Profit Sharing Plan. Also
includes 848 shares held in a trust for his daughter's benefit of which
Mr. Baron's wife is trustee. Mr. Baron disclaims beneficial ownership of
the shares held in trust for his daughter.
(3) Includes 7,842 shares and stock options for 7,064 shares owned directly
and 15,941 shares owned jointly by Mr. Cochran and his wife.
<PAGE> 26
(4) Includes 11,542 shares and stock options for 7,064 shares owned directly,
and 572 shares owned by Mr. DiCarlo's immediate family.
(5) Includes vested stock options for 64,752 shares, but does not include
non-vested options for an additional 87,855 shares.
(6) Includes 9,649 shares and stock options for 7,064 shares owned directly.
Also includes 9,649 shares owned by Mr. Knechel's wife of which Mr.
Knechel disclaims beneficial ownership.
(7) Includes 69,444 shares and stock options for 4,859 shares owned directly,
and 8,820 shares owned by Skylands Investment Corp. (of which Mr. Noeltner
is the sole owner).
(8) Includes 205 shares and stock options for 4,308 shares owned directly, and
30,626 shares owned by Mr. O'Rourke's wife of which Mr. O'Rourke disclaims
beneficial ownership.
(9) Includes 39,705 shares and stock options for 7,064 shares owned directly
and 15,635 shares owned jointly with his wife.
(10) Includes 0 shares owned directly, stock options for 3,026 shares, 49,943
shares over which Mr. Romano shares voting and investment power with his
wife, 144,792 shares owned by RoNetco Supermarkets, Inc., of which Mr.
Romano is one of the owners, and 13,895 shares owned by members of Mr.
Romano's immediate family, for which Mr. Romano disclaims beneficial
ownership.
(11) Includes 10,631 shares and stock options for 4,308 shares owned directly,
and 525 shares owned by Mr. Strauss' parents.
(12) Includes 1,050 shares and stock options for 3,206 shares owned directly.
(13) Includes 6,217 shares and immediately exercisable stock options for 32,772
shares, in addition to shares and stock options described in notes 2-12.
ITEM 5 - DIRECTORS AND EXECUTIVE OFFICERS
Direction of the Bank is vested in the Board of Directors which must consist of
not less than five nor more than twenty five persons who are elected under the
Bank's Certificate of Incorporation. The term of each Director is one year. The
board presently consists of eleven Directors, each of whom has served as a
Director of the Bank since its inception, except for Michael Halpin, who joined
the Board of Directors in 1995, and Norman Worth, who joined in 1997.
The Board of Directors of the Company will initially consist of the members of
the Board of Directors of the Bank. Each Director of the Company is to serve a
three-year term and until his successor is duly elected by the shareholders of
the Company and qualified to serve on the Board of Directors; membership in the
Board of Directors is staggered, as is set forth in the Company's Certificate of
Incorporation.
<PAGE> 27
Set forth below are the names and certain biographical information regarding the
Directors of the Bank:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Positions and Offices
Name Age held with the Bank Principal Occupations for Past Five Years
- ---- --- ------------------ --------------------- -------------------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Norman S. Baron 53 Director and Secretary President and Chief Executive Officer of Baron's
Hallmark Shops.
- ----------------------------------------------------------------------------------------------------------------------------
James L. Cochran 69 Director Owner and President of Cochran Funeral Home, Inc.
(retired).
- ----------------------------------------------------------------------------------------------------------------------------
Daniel M. DiCarlo, Jr. 60 Director President and Chief Executive Officer of Area Lighting
Research Inc.; President and Chief Executive Officer
of East Rock Manufacturing & Technology, Inc. and Bolt
Electric Inc.; Partner in Asbury Leasing Co. and NUJA
Realty Co.; Secretary and Treasurer of WOJO Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Michael Halpin 56 Director, President Currently President and Chief Executive Officer of the
and Chief Executive Bank; August 1990 to May 1995, President and Chief
Officer Executive Officer of Lakeland Savings Bank and
Lakeland First Financial Group, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Ralph C. Knechel 72 Director President of Knechel Ford automobile dealership
(retired).
- ----------------------------------------------------------------------------------------------------------------------------
J. William Noeltner 62 Director and Vice Chairman of Insurance & Risk Managers, Inc. (division
Chairman of Traber and Vreeland, Inc.); President, Skylands
Investment Corp.
- ----------------------------------------------------------------------------------------------------------------------------
Denis H. O'Rourke 58 Director and Chairman President of Skylands Development Group, Inc. (real
estate development); 1984 to 1993, principal of Axial
Investors Group, Inc. (real estate development).
- ----------------------------------------------------------------------------------------------------------------------------
Paul J. Pinizzotto 51 Director Senior Vice President of The Vizzoni Group (real
estate development).
- ----------------------------------------------------------------------------------------------------------------------------
Dominick V. Romano 64 Director Vice President and Chief Executive Officer of RoNetco
Supermarkets, Inc.; Chairman of Readington Farms Inc.;
Director and Treasurer of Wakefern Food Corporation;
Partner in P&D Realty and PECD Realty.
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 28
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Positions and Offices
Name Age held with the Bank Principal Occupations for Past Five Years
- ---- --- ------------------ --------------------- -------------------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mark F. Strauss 47 Director Corporate Counsel for Applied Wastewater Technology,
Inc.; General Counsel to VBCC, Inc. (formerly Vizzoni
Bros. Construction Co.); Of Counsel to Mauro, Savo,
Camerino & Grant (law firm).
- ----------------------------------------------------------------------------------------------------------------------------
Norman Worth 47 Director Partner, Vice President and General Manager of Radio
New Jersey (parent company of WRNJ); Partner in
Tri-Caps (telecommunications).
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
No director of the Bank is also a director of a company having a class of
securities registered under Section 12 of the Securities Exchange Act of 1934 or
subject to the requirements of Section 15(d) of such Act or any company
registered as an investment company under the Investment Company Act of 1940.
PRINCIPAL OFFICERS
Set forth below is the name of and certain biographical information regarding
the additional principal officers of the Bank who do not also serve as a
Director. The term of office for each officer is one year.
Dan E. Marcmann - Mr. Marcmann, 45, is the Senior Vice President and Treasurer
of the Bank, having served as Vice President and Treasurer of the Bank from its
inception to the present. From 1986 to 1989, Mr. Marcmann served as Vice
President - Regional Coordinator of Operations and Sales for Carteret Savings
Bank in Morristown, New Jersey, during which time Mr. Marcmann was responsible,
among other things, for overseeing regulatory compliance, preparing and
administering budgets and reviewing personnel performance. Mr. Marcmann later
served as Carteret's Vice President - Retail Lending Manager and was responsible
for directing promotional efforts and implementing marketing strategies.
Bruce L. Schott - Mr. Schott, 58, is the Senior Vice President and Senior Loan
Officer of the Bank, having served as Vice President and Senior Loan Officer of
the Bank from July 1990 to the present. From 1986 to July 1990, Mr. Schott
served as the Regional Lender of First Fidelity Bank, North Jersey and was
responsible for overseeing commercial lending operations for eight branches.
ITEM 6 -- EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during the last three
fiscal years to the Bank's chief executive officer and to each of the Bank's
four highest paid executive officers earning over $100,000 during fiscal year
1998. The following table does not include directors' fees.
<PAGE> 29
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Annual Compensation Awards
-----------------------------------------------------
Name and Securities All Other
Principal Underlying Compensation
Position Year Salary($) Bonus($) Options(#) ($)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Michael Halpin, 1998 $176,628 $30,000 -0- $8,013(1)
President and Chief 1997 $176,631 $30,000 114,056 7,180(1)
Executive Officer 1996 $153,603 $12,670 551 7,021(1)
</TABLE>
- ----------
(1) Represents $1,560, $1,527, and $1,368 received in 1998, 1997 and 1996,
respectively, pursuant to the Bank's matched savings plan, matching
contributions to the 401(k) plan of $5,600, $4,800 and $4,800 in each of
1998, 1997 and 1996, respectively, and $853, $853, and $853 in insurance
premiums paid in 1998, 1997, and 1996, respectively, by the Bank with
respect to term life insurance maintained for the benefit of Mr. Halpin.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
On December 31, 1998, Michael Halpin exercised options for 4,000 shares of
common stock, at an exercise price of $5.16 per share The following table sets
forth for the named executive officers of the Bank, the number of unexercised
options held at December 31, 1998 and the potential value thereof based on the
closing per share sales price of the Bank's Common Stock of $12.00 on December
31, 1998.
<PAGE> 30
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options at FY-End
at FY-End (#) ($)(1)
Exercisable (E)/ Exercisable (E)/
Name Unexercisable (U) Unexercisable (U)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Michael Halpin, 53,403(E) $281,047(E)
President & 99,204(U) $349,021(U)
Chief Executive Officer
</TABLE>
(1) Value based on actual closing per share sales price of the Bank's Common
Stock of $12.00 on December 31, 1998.
Employment Agreement
In May, 1998, the Bank entered into an Amended and Restated Employment
Agreement ("Employment Agreement") with Michael Halpin pursuant to which Mr.
Halpin serves as the President and Chief Executive Officer of the Bank. From and
after May 23, 1999, and on each May 23rd thereafter until the Employment
Agreement is terminated, the Employment Agreement is automatically extended for
36-month periods at an annual salary of $140,000 (subject to increases in the
discretion of the Bank). The Employment Agreement also provides that Mr. Halpin
may terminate his employment with the Bank upon the happening of certain events
following a "change in control" of the Bank (as defined in the Employment
Agreement). In the event Mr. Halpin is terminated by the Bank without cause, or
Mr. Halpin terminates his employment following a change in control, Mr. Halpin
would be entitled to severance equal to the amount of salary he would have
received under the agreement had it not been terminated or two times his salary
in effect at the time of termination, whichever is greater.
ITEM 7 -- INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
The Bank has had, and expects to have in the future, banking transactions
in the ordinary course of business with its directors and officers (and to
entities associated with such persons). Management believes that these
transactions were on substantially the same terms, including interest rates and
collateral on loans, as those prevailing at the same time for comparable
transactions with other persons of similar creditworthiness, and did not involve
more than a normal risk of collectibility or present other unfavorable features.
ITEM 8 -- DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 10,000,000 shares of
common stock, $2.50 par value, and 1,000,000 shares of preferred stock, par
value $10 per share. The Bank currently has 2,371,432 shares issued and
outstanding. In addition, the Bank has issued options,
<PAGE> 31
as of December 31, 1998, for an aggregate of 320,668 shares of common stock.
Upon consummation of the Acquisition, the Company will issue one share of Common
Stock for each share of Bank Common Stock, and so will have approximately
2,371,432 shares outstanding. In addition, the Company will assume all of the
Bank's current stock option plans, reserving 320,668 shares for issuance
thereunder. No preferred stock will be outstanding upon consummation of the
Acquisition.
Dividends. The Company may pay dividends as declared from time to time by the
Company's Board of Directors out of funds legally available therefor, subject to
certain restrictions. Since dividends from the Bank will be the Company's sole
source of income, any restriction on the Bank's ability to pay dividends will
act as a restriction on the Company's ability to pay dividends. Under the New
Jersey Banking Act of 1948 (the "Banking Act"), no cash dividend may be paid by
the Bank unless, following the payment of such dividend, the capital stock of
the Bank will be unimpaired and the Bank will have a surplus of no less than 50%
of its capital stock or, if not, the payment of such dividend will not reduce
the surplus of the Bank. In addition, the Bank cannot pay dividends in such
amounts as would reduce its capital below the minimums imposed by regulation.
Voting Rights. Each holder of the Common Stock is entitled to one vote for each
share held on all matters voted upon by the shareholders, including the election
of directors. There is no cumulative voting in the election of directors.
Rights in Liquidation. In the event of a liquidation, dissolution or winding up
of the Company, each holder of the Common Stock would be entitled to receive a
pro rata portion of all assets of the Company available for distribution to
holders of the Common Stock after payment of all debts and liabilities of the
Company.
No Preemptive Rights; Redemption. Holders of shares of the Common Stock are not
entitled to preemptive rights with respect to any shares of the Common Stock
that may be issued. The Common Stock is not subject to call or redemption and is
fully paid and non-assessable.
TRANSFER AGENT
The Company's transfer agent for the Common Stock will be American Stock
Transfer & Trust Co., with offices at 40 Wall Street, New York, New York 10005.
<PAGE> 32
Part II
ITEM 1 -- MARKET PRICE OF AND DIVIDENDS ON REGISTRANT'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS
The Bank had 731 shareholders of record as of December 31, 1998. In
connection with the Plan the Holding Company has applied to have its Common
Stock approved for listing on NASDAQ SmallCap Market. Although the Holding
Company Common Stock may be listed on the NASDAQ Small Cap Market, no assurances
can be given that an active and liquid trading market will develop for the
Holding Company common stock or that if such a market develops, that it will be
maintained.
The table below sets forth, for the periods indicated, the reported high and low
bid prices per share of Common Stock as reported by the NASDAQ. The following
quotations represent prices between dealers and do not include retail markup,
markdown or commissions and do not represent actual transactions:
<TABLE>
<CAPTION>
High Low
---------------------------------------------------------
1998
----
<S> <C> <C>
First Quarter $15.00 $13.00
Second Quarter 16.88 13.31
Third Quarter 17.75 12.13
Fourth Quarter 13.63 11.25
1997
----
First Quarter $ 8.50 $ 7.38
Second Quarter 8.25 7.25
Third Quarter 9.38 8.00
Fourth Quarter 15.63 8.88
</TABLE>
During 1998 the Bank paid two cash dividends of $.03 per share each. They
were paid on May 22, 1998 and November 16, 1998. On March 10, 1999, the Bank
declared a 5% stock dividend and a cash dividend of $0.02 per share, payable
April 16, 1999 to shareholders of record on March 31, 1999. The future dividend
policy of the Bank is subject to the discretion of the Board of Directors and
will depend upon a number of factors, including future earnings, financial
conditions, cash needs and general business conditions. Although the amount of
future dividends will be determined by the Board of Directors of the Holding
Company based upon the Holding Company's earnings, capital needs, financial
condition and other relevant factors, the Holding Company currently intends to
adhere to the dividend policy previously established by the Bank.
The New Jersey Department of Banking and Insurance prohibits
the payment of dividends under certain circumstances, as set forth in this
paragraph. No cash dividends may be paid by the Bank unless, following the
payment of each such dividend, the capital stock of the Bank will be unimpaired
and the Bank will have a surplus of not less than fifty percent of its capital
stock, or, if not, the payment of such dividend will not reduce the
<PAGE> 33
surplus of the Bank. The Bank will also be guided in its cash dividend policy by
the FDIC requirements.
ITEM 2 -- LEGAL PROCEEDINGS
The Bank is not a party to any legal proceedings other than routine litigation
incidental to the Bank's business. The Bank believes that none of these
proceedings would, if adversely determined, have a material effect on the bank's
consolidated financial condition or results of operations.
ITEM 3 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Not applicable.
ITEM 4 -- RECENT SALES OF UNREGISTERED SECURITIES
The Company has not sold any securities over the past three years. Other than
for purposes of stock dividends, dividend reinvestment, and stock option plans,
the Bank has not issued any securities over the past three years. Issuance of
the Common Stock in the Acquisition will be exempt from registration pursuant to
Section 3(a)(12) of the Securities Act of 1933, as amended.
ITEM 5 -- INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation of the Company provides that the Company shall
indemnify its present and former officers, directors, employees and agents and
persons serving at its request against expenses, including attorneys' fees,
judgments, fines or amounts paid in settlement incurred in connection with any
pending or threatened civil or criminal proceeding to the fullest extent
permitted by the New Jersey Business Corporation Act. The Certificate of
Incorporation also provides that such indemnification shall not exclude any
other rights to indemnification to which a person may otherwise be entitled, and
authorizes the Company to purchase insurance on behalf of any of the persons
enumerated against any liability whether or not the Company would have the power
to indemnify him under the provisions of the Certificate of Incorporation.
The New Jersey Business Corporation Act empowers a corporation to indemnify a
corporate agent against his expenses and liabilities incurred in connection with
any proceeding (other than a derivative lawsuit) involving the corporate agent
by reason of his being or having been a corporate agent if (a) the agent acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and (b) with respect to any criminal
proceeding, the corporate agent had not reasonable cause to believe his conduct
was unlawful. For purposes of the Act, the term "corporate agent" includes any
present or former director, officer, employee or agent of the corporation, and a
person serving as a "corporate agent" for any other enterprise at the request of
the corporation.
With respect to any derivative action, the corporation is empowered to indemnify
a corporate agent against his expenses (but not his liabilities) incurred in
connection with any proceeding involving the corporate agent by reason of his
being or having been a corporate agent if the agent
<PAGE> 34
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation. However, only the court in
which the proceeding was brought can empower a corporation to indemnify a
corporate agent against expenses with respect to any claim, issue or matter as
to which the agent was adjudged liable for negligence or misconduct.
The corporation may indemnify a corporate agent in a specific case if a
determination is made by any of the following that the applicable standard of
conduct was met: (i) the Board of Directors, or a committee thereof, acting by a
majority vote of a quorum consisting of disinterested directors; (ii) by
independent legal counsel if there is not a quorum of disinterested directors or
if the disinterested quorum empowers counsel to make the determination; or (iii)
by the stockholders.
A corporate agent is entitled to mandatory indemnification to the extent that
the agent is successful on the merits or otherwise in any proceeding, or in
defense of any claim, issue or matter in the proceeding. If a corporation fails
or refuses to indemnify a corporate agent, whether the indemnification is
permissive or mandatory, the agent may apply to a court to grant him the
requested indemnification. In advance of the final disposition of a proceeding,
the corporation may pay an agent's expenses if the agent agrees to repay the
expenses unless it is ultimately determined that he is entitled to
indemnification.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(i) Statements of Condition as of December 31, 1998 and 1997,
respectively.
(ii) Statements of Income for the years ended December 31, 1998, 1997 and
1996, respectively.
(iii) Statements of Changes in Shareholders' Equity for the years ended
December 31, 1998, 1997 and 1996, respectively.
(iv) Statements of Cash Flows for the years ended December 31, 1998, 1997
and 1996, respectively.
<PAGE> 35
<TABLE>
<CAPTION>
SKYLANDS COMMUNITY BANK
CONSOLIDATED STATEMENTS OF CONDITION
ASSETS December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH AND DUE FROM BANKS
Non interest-bearing $4,367,000 $5,446,000
Interest-bearing 592,000 667,000
FEDERAL FUNDS SOLD 2,500,000 100,000
------------ ------------
Total cash and cash equivalents 7,459,000 6,213,000
------------ ------------
SECURITIES
Available for sale, at market value 18,816,000 23,817,000
Held to maturity, at amortized cost (market value of
$31,771,000 in 1998 and $23,321,000 in 1997) 31,566,000 23,105,000
------------ ------------
Total securities 50,382,000 46,922,000
------------ ------------
LOANS 117,323,000 90,441,000
Less-
Unearned income (182,000) (157,000)
Allowance for possible loan and lease losses (1,873,000) (1,374,000)
------------ ------------
Net loans 115,268,000 88,910,000
------------ ------------
PREMISES AND EQUIPMENT, net 2,865,000 1,610,000
ACCRUED INTEREST RECEIVABLE 906,000 876,000
OTHER REAL ESTATE 105,000 266,000
OTHER ASSETS 2,550,000 2,291,000
Total assets $179,535,000 $147,088,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES
DEPOSITS
Demand-
Non interest-bearing $30,234,000 $26,908,000
Interest-bearing 22,357,000 17,067,000
Savings 53,636,000 35,254,000
Time 59,032,000 55,688,000
------------ ------------
Total deposits 165,259,000 134,917,000
------------ ------------
INCOME TAXES PAYABLE 130,000 -
ACCRUED EXPENSES AND OTHER LIABILITIES 527,000 477,000
------------ ------------
Total liabilities 165,916,000 135,394,000
------------ ------------
SHAREHOLDERS' EQUITY
COMMON STOCK, par value $2.50 per share; 10,000,000 shares
authorized; 2,371,432 and 2,237,058 shares issued
and outstanding in 1998 and 1997, respectively 5,929,000 5,593,000
ADDITIONAL PAID-IN CAPITAL 4,998,000 3,514,000
RETAINED EARNINGS 2,562,000 2,452,000
ACCUMULATED OTHER COMPREHENSIVE INCOME 130,000 135,000
------------ ------------
Total shareholders' equity 13,619,000 11,694,000
------------ ------------
Total liabilities and shareholders' equity $179,535,000 $147,088,000
============ ============
</TABLE>
<PAGE> 36
<TABLE>
<CAPTION>
SKYLANDS COMMUNITY BANK
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 9,337,000 $ 7,361,000 $ 5,355,000
Interest on securities 3,070,000 2,838,000 2,663,000
Interest on Federal Funds sold 130,000 164,000 159,000
------------ ------------ ------------
Total interest income 12,537,000 10,363,000 8,177,000
INTEREST EXPENSE 5,170,000 4,325,000 3,652,000
------------ ------------ ------------
Net interest income 7,367,000 6,038,000 4,525,000
PROVISION FOR POSSIBLE LOAN AND LEASE LOSSES 665,000 632,000 488,000
Net interest income after provision
for possible loan and lease losses 6,702,000 5,406,000 4,037,000
OTHER INCOME
Service charges and other fees 647,000 554,000 373,000
Gain (loss) on sale of securities 62,000 (10,000) 31,000
Other 180,000 129,000 104,000
------------ ------------ ------------
Total other income 889,000 673,000 508,000
OTHER EXPENSES
Salaries and employee benefits 2,283,000 1,786,000 1,566,000
Occupancy expense 467,000 348,000 352,000
Equipment expense 149,000 107,000 96,000
Other operating expenses 1,828,000 1,597,000 1,311,000
------------ ------------ ------------
Total other expenses 4,727,000 3,838,000 3,325,000
INCOME BEFORE PROVISION FOR INCOME TAXES 2,864,000 2,241,000 1,220,000
PROVISION FOR INCOME TAXES 1,033,000 817,000 470,000
------------ ------------ ------------
Net income $ 1,831,000 $ 1,424,000 $ 750,000
============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 2,355,839 2,345,052 2,340,356
============ ============ ============
Diluted 2,472,008 2,393,656 2,365,897
============ ============ ============
BASIC EARNINGS PER SHARE $ 0.78 $ 0.61 $ 0.32
============ ============ ============
DILUTED EARNINGS PER SHARE $ 0.74 $ 0.59 $ 0.32
============ ============ ============
</TABLE>
<PAGE> 37
<TABLE>
<CAPTION>
SKYLANDS COMMUNITY BANK
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Accumulated
Additional Other Total
Common Paid-In Retained Comprehensive Comprehensive Shareholders'
Stock Capital Earnings Income (Loss) Income Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 $5,566,000 $3,486,000 $ 390,000 $ 115,000 $ 9,557,000
Exercise of stock options 7,000 4,000 0 0 11,000
Change in unrealized loss
on securities available
for sale, net of income
taxes 0 0 0 (152,000) $(152,000) (152,000)
Net income - 1996 0 0 750,000 0 750,000 750,000
----------------
Comprehensive income 598,000
-------------------------------------------------------------------------------------------
BALANCE, December 31, 1996 5,573,000 3,490,000 1,140,000 (37,000) 10,166,000
Exercise of stock options 20,000 24,000 0 0 44,000
Cash dividend ($.05 per share) 0 0 (112,000) 0 (112,000)
Change in unrealized gain
on securities available
for sale, net of 0 0 0 172,000 172,000 172,000
income taxes
Net income - 1997 0 0 1,424,000 0 1,424,000 1,424,000
----------------
Comprehensive income 1,596,000
-------------------------------------------------------------------------------------------
BALANCE, December 31, 1997 5,593,000 3,514,000 2,452,000 135,000 11,694,000
Exercise of stock options 28,000 73,000 0 0 101,000
5% Stock dividend 279,000 1,297,000 (1,576,000) 0 0
Dividend reinvestment plan 29,000 114,000 0 0 143,000
Cash dividends ($.06 per share)
and payments for fractional
shares 0 0 (145,000) 0 (145,000)
Change in unrealized loss
on securities available
for sale, net of income
taxes 0 0 0 (5,000) (5,000) (5,000)
Net income - 1998 0 0 1,831,000 0 1,831,000 1,831,000
----------------
Comprehensive income $1,826,000
-------------------------------------------------------------------------------------------
BALANCE, December 31, 1998 $5,929,000 $4,998,000 $2,562,000 $130,000 $13,619,000
===========================================================================================
</TABLE>
<PAGE> 38
<TABLE>
<CAPTION>
SKYLANDS COMMUNITY BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,831,000 $ 1,424,000 $ 750,000
Adjustments to reconcile net income to net cash
(used in) provided by operating activities-
Provision for possible loan and lease losses 665,000 632,000 488,000
Provision for other real estate valuation allowance 0 (21,000) 21,000
Depreciation and amortization 359,000 290,000 272,000
(Gain) loss on sale of securities (62,000) 10,000 (31,000)
Premium amortization on securities, net 334,000 250,000 321,000
Deferred tax benefit (122,000) (148,000) (124,000)
Increase in accrued interest receivable (30,000) (138,000) (9,000)
Decrease (increase) in other assets (120,000) (6,000) 17,000
(Decrease) increase in Federal Funds purchased 0 (2,900,000) 1,400,000
(Decrease) increase in taxes payable 130,000 (406,000) 314,000
Increase in accrued expenses and other liabilities 50,000 224,000 58,000
------------ ------------ ------------
Net cash (used in) provided by operating activities 3,035,000 (789,000) 3,477,000
------------ ------------ ------------
INVESTING ACTIVITIES
Purchases of securities-
Available for sale (6,163,000) (5,136,000) (2,406,000)
Held to maturity (18,870,000) (11,035,000) (8,305,000)
Maturities of securities-
Available for sale 5,902,000 5,546,000 3,970,000
Held to maturity 10,179,000 2,780,000 1,802,000
Sales of securities-
Available for sale 5,213,000 3,706,000 4,810,000
Net increase in loans (27,023,000) (23,201,000) (22,213,000)
Capital expenditures (1,468,000) (194,000) (976,000)
------------ ------------ ------------
Net cash used in investing activities (32,230,000) (27,534,000) (23,318,000)
------------ ------------ ------------
FINANCING ACTIVITIES
Increase in deposits 30,342,000 28,726,000 17,948,000
Proceeds from the issuance of common stock, net 244,000 44,000 11,000
Dividends paid (145,000) (112,000) 0
------------ ------------ ------------
Net cash provided by financing activities 30,441,000 28,658,000 17,959,000
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents 1,246,000 335,000 (1,882,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 6,213,000 5,878,000 7,760,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 7,459,000 $ 6,213,000 $ 5,878,000
============ ============ ============
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for-
Interest $ 5,070,000 $ 4,314,000 $ 3,606,000
Income taxes 942,000 1,392,000 359,000
Loans reclassified to other real estate 0 121,000 524,000
============ ============ ============
</TABLE>
<PAGE> 39
PART III
ITEM 1 - INDEX TO EXHIBITS
(a) The following exhibits are filed as part of this Registration Statement:
Exhibit Number Description
- -------------- -----------
3(a) Certificate of Incorporation of the Company
3(b) Bylaws of the Company.
10(a) 1994 Amended and Restated Stock Option Plan.
10(b) 1991 Non-Qualified Stock Option Plan.
10(c) 1997 Incentive Stock Option Plan.
10(d) 1996 Incentive Stock Option Plan.
10(e) Summary Plan Description of 401(k) Plan.
10(f) Amended and Restated Employment Agreement between the Bank and
Michael Halpin, dated May 23, 1998.
21(a) List of Subsidiaries of the Company and the Bank.
<PAGE> 40
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned thereunto duly authorized.
SKYLANDS FINANCIAL CORPORATION
By: /s/ MICHAEL HALPIN
- -----------------------------------
Michael Halpin, President
Dated: May 14, 1999
<PAGE> 41
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
3(a) Certificate of Incorporation of the Company
3(b) Bylaws of the Company.
10(a) 1994 Amended and Restated Stock Option Plan.
10(b) 1991 Non-Qualified Stock Option Plan.
10(c) 1997 Incentive Stock Option Plan.
10(d) 1996 Incentive Stock Option Plan.
10(e) Summary Plan Description of 401(k) Plan.
10(f) Amended and Restated Employment Agreement between the Bank and
Michael Halpin, dated May 23, 1998.
21(a) List of Subsidiaries of the Company and the Bank.
<PAGE> 1
Exhibit 3(a)
CERTIFICATE OF INCORPORATION
OF SKYLANDS FINANCIAL CORPORATION
ARTICLE I
Name
The name of the corporation is Skylands Financial Corporation.
ARTICLE II
Registered Office
The address of the Corporation's registered office in the State of New
Jersey is 24-26 Crossroads Center in the Township of Independence in the County
of Warren, in the State of New Jersey, 07840. The name of the Corporation's
registered agent at such address is Michael Halpin.
ARTICLE III
Powers
The purpose of the Corporation is to engage in any activity within the
purposes for which corporations may be organized under the New Jersey Business
Corporation Act.
ARTICLE IV
Term
The term for which the Corporation is to exist is perpetual.
ARTICLE V
Capital Stock
The aggregate number of shares of all classes of capital stock which the
Corporation has authority to issue is 11,000,000 of which 10,000,000 are to be
shares of common stock, $2.50 par value per share, and of which 1,000,000 are to
be shares of serial preferred stock, $10.00 par value per share. The shares may
be issued by the Corporation without the approval of shareholders except as
otherwise provided in this Article V. The consideration for the issuance of the
shares shall be cash, services rendered, personal property (tangible or
intangible), real property, leases of real property or any combination of the
foregoing. In the absence of actual fraud in the transaction, the judgment of
the Board of Directors as to the value of such consideration, shall be
conclusive. Upon payment of such consideration, such shares shall be deemed to
be fully paid and nonassessable.
A description of the different classes and series (if any) of the
Corporation's capital stock, and a statement of the relative powers,
designations, preferences and rights of the shares of each class and series (if
any) of capital stock, and the qualifications, limitations or restrictions
thereof, are as follows:
A. Common Stock Except as provided in this Certificate, 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 holders.
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 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, but only when and as declared by the Board
of Directors of the Corporation.
In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid, or declared and set aside
for payment, to the holders of the outstanding shares of any class having
preference over the common stock, the full preferential amounts to which
they are respectively entitled, the holders of the common
27
<PAGE> 2
stock and of any class or series of stock entitled to participate
therewith, in whole or in part, as to distribution of assets shall be
entitled, after payment or provision for payment of all debts and
liabilities of the Corporation, to receive the remaining assets of the
Corporation available for distribution, in cash or in kind.
Each share of common stock shall have the same relative powers,
preferences and rights as, and shall be identical in all aspects with, all
other shares of common stock of the Corporation.
B. Serial Preferred Stock. Except as provided in this Certificate, the Board
of Directors is authorized, by resolution or resolutions from time to time
adopted, to provide for the issuance of serial preferred stock in series
and to fix and state the relative rights, preferences and limitations of
the shares of such series, and the qualifications, limitations or
restrictions thereof, including, but not limited to determination of any
of the following:
1. The distinctive serial designation and the number of shares
constituting such series;
2. The dividend rates 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 or dates, the payment date or dates for
dividends, and the participating or other special rights, if any,
with respect to dividends;
3. the voting powers, full or limited, if any, of the shares of such
series;
4. whether the shares of such series shall be redeemable and, if so,
the price or prices at which, and the terms and conditions upon
which, such shares may be redeemed;
5. the amount or amounts payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution or
winding up of the Corporation;
6. whether the shares of such series shall be entitled to the benefits
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 or
prices at which such shares may be redeemed or purchased through the
application of such funds;
7. whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other series of the same or any
other class or classes of stock of the Corporation and, if so
convertible or exchangeable, the conversion price or prices, or the
rate or rates 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; and
8. the subscription or purchase prices and form of consideration for
which the shares of such series shall be issued.
Each share of each series of serial preferred stock shall have the same
relative powers, preferences and rights as, and shall be identical in all
respects with, all the other shares of the Corporation of the same series. Any
shares of any class or series of serial preferred stock that are redeemed,
converted or otherwise acquired by the Corporation shall be canceled and
returned to the status of authorized but unissued serial preferred stock,
without designation as to series.
28
<PAGE> 3
ARTICLE VI
Initial Directors
The number of Directors constituting the first Board of Directors is
eleven and the names and addresses of the Directors, are:
<TABLE>
<S> <C> <C>
Mr. James Cochran Mr. Dominick Romano Mark Strauss, Esq.
P.O. Box 184 c/o RoNetco, Inc. c/o Applied Wastewater Technology, Inc.
Allamuchy, NJ 07820-0184 Morris Canal Plaza 2 Cierico Lane
Ledgewood, NJ 07852 Belle Mead, NJ 08502
Mr. Norman Baron
407 Jefferson Street Mr. Daniel DiCarlo, Jr. Mr. J. William Noeltner
Hackettstown, NJ 07840 c/o Area Lighting Research 9 House Wren Road
Asbury Road Hackettstown, NJ 07840
Mr. Denis O'Rourke Hackettstown, NJ 07840
99 Ridge Road
Allamuchy, NJ 07820-0243 Mr. Paul Pinizzotto
1 Briarwood Road
Mr. Michael Halpin Long Valley, NJ 07853
39 Mallard Drive
Hackettstown, NJ 07840 Mr. Ralph Knechel
17 Hatchery Road
Mr. Norman Worth Hackettstown, NJ 07840
3 House Wren Road
Hackettstown, NJ 07840
</TABLE>
ARTICLE VII
Incorporator
The names and mailing addresses of the Incorporator is Eric 0. Costello,
Esq., McCarter & English, LLP, Gateway Four, 100 Mulberry Street, Newark, NJ
07102.
ARTICLE VIII
Elimination of Directors' and Officers' Liability
A Director or officer of the Corporation shall not, to the fullest extent
permitted by law, be personally liable to the Corporation or to the shareholders
of the Corporation for damages for breach of any duty owed to the Corporation or
to the shareholders of the Corporation, except that this Article VIII shall not
relieve a Director or officer of the Corporation from personal liability to the
Corporation and to the shareholders of the Corporation for damages for any
breach of duty based upon on act or omission:
(a) in breach of such Director's or officer's duty of loyalty to the
Corporation or to the shareholders of the Corporation, or
(b) not in good faith or involving a knowing violation of law, or
(c) resulting in the receipt by such Director or officer of an improper
personal benefit.
Any repeal or modification of the foregoing Article VIII by the
shareholders of the Corporation shall not adversely affect any right or
protection of a Director or officer of the Corporation hereunder or otherwise
with respect to any act or omission occurring before such repeal or modification
is effective and such right or protection shall continue in effect for any
person who has ceased to be an officer or Director. If the New Jersey Business
Corporation Act is amended to authorize corporate action further eliminating or
limiting the personal liability of Directors and officers, then such liability
will be limited to the fullest extent permitted under the law.
29
<PAGE> 4
ARTICLE IX
Meetings of Shareholders; Proxies; Cumulative Voting; Quorum
A. Notwithstanding any other provision of this Certificate or the Bylaws of
the Corporation, any action required to be taken or which may be taken at
any annual or special meeting of shareholders of the Corporation may be
taken without a meeting, if all shareholders entitled to vote thereon
consent thereto in writing. In the case of a merger, consolidation,
acquisition of all capital shares of the Corporation or sale of assets,
such action may be taken without a meeting only if all shareholders
consent in writing, or if all shareholders entitled to vote consent in
writing and all other shareholders are provided the advance notification
required by Section 14A:5-6(2)(b) of the New Jersey Business Corporation
Act. Except as provided in this Article IX.A, the power of shareholders to
take action without a meeting is specifically denied.
B. Unless otherwise required by law, special meetings of the shareholders of
the Corporation for any purpose or purposes may be called at any time by
the Board of Directors of the Corporation or by the President of the
Corporation.
C. The holders of shares of a majority of the outstanding shares of voting
stock shall constitute a quorum at a meeting of shareholders.
ARTICLE X
Notice for Nominations and Proposals
Advance notice of shareholder nominations for the election of Directors
and of business to be brought by shareholders before any meeting of the
shareholders of the Corporations shall be given in the manner provided in the
Bylaws of the Corporation.
ARTICLE XI
Directors
A. Number; Vacancies. The number of Directors of the Corporation shall be
such number as shall be provided from time to time in or in accordance
with the Bylaws, provided that a decrease in the number of Directors shall
not have the effect of shortening the term of any incumbent Director.
Vacancies in the Board of Directors of the Corporation, however caused,
and newly-created Directorships shall be filled by the affirmative vote of
a majority of the Directors then in office, whether or not a quorum, or by
a sole remaining Director, and any Directors so chosen shall hold office
for a term expiring at the next annual meeting of shareholders. Directors
shall own shares of the Corporation's common stock as required by New
Jersey law, but need not be residents of any particular state, country or
other jurisdiction.
B. Classified Board. Commencing with first annual meeting of shareholders of
the Corporation, the Directors 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 2000 annual meeting of
shareholders, the term of office of the second class to expire at the 2001
annual meeting of shareholders, the term of office of the third class to
expire at the 2002 annual meeting of shareholders, with each Director to
hold office until his or her successor shall have been duly elected and
qualified. At each annual meeting of shareholders, commencing with the
2000 annual meeting, 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 shareholders after their election, with
each Director to hold office until his or her successor shall have been
duly elected and qualified.
If the number of Directors of the Corporation is reduced, the
Directorship(s) eliminated shall be allocated among classes as appropriate
so that the number of Directors in each class is as specified in the
immediately preceding paragraph. The Board of Directors shall designate,
by the name of the incumbent(s), the position(s) to be abolished. If the
number of Directors of the Corporation is increased, the additional
Directorships shall be allocated among classes as appropriate so that the
number of Directors in each class is as specified in the immediately
preceding paragraph.
Whenever the holders of any one or more series of preferred stock of the
Corporation shall have the right, voting separately as a class, to elect
one or more Directors of the Corporation, the Board of Directors shall
consist of said Directors so elected in addition to the number of
Directors fixed as provided above in this Article XIII. Notwithstanding
the foregoing, and except as otherwise may be required by law, whenever
the holders of any one or more
30
<PAGE> 5
series of preferred stock of the Corporation shall have the right, voting
separately as a class, to elect one or more Directors of the Corporation,
the terms of the Director or Directors elected by such holders shall
expire at the next succeeding annual meeting of shareholders.
ARTICLE XII
Removal of Directors
Notwithstanding any other provision of this Certificate or the Bylaws of
the Corporation, any Director or the entire Board of Directors of the
Corporation may be removed for cause, at any time, by the affirmative vote of at
least 80% of the outstanding shares of capital stock of the Corporation entitled
to vote generally in the election of Directors (considered for this purpose as
one class). In addition, the Board of Directors shall have the power to suspend
Directors pending a final determination that cause exists for removal.
ARTICLE XIII
Certain Limitations on Voting Rights
A. Notwithstanding any other provision of this Certificate of Incorporation,
in no event shall any record owner (a "Record Owner") of any outstanding
capital stock which is entitled to vote on any matter ("Voting Capital
Stock") which is beneficially owned, directly or indirectly, by a person
(an "Excess Beneficial Owner") who, as of any record date for the
determination of shareholders entitled to vote on any matter, beneficially
owns in excess of ten percent of the Voting Capital Stock (the "Limit"),
be entitled or permitted to any vote in respect of the shares of Voting
Capital Stock so owned of record 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 Voting Capital Stock beneficially owned by an Excess
Beneficial Owner shall be a number equal to the total number of votes
which a single record owner of all Voting Capital Stock beneficially owned
by such Excess Beneficial Owner would be entitled to cast, multiplied by a
fraction, the numerator of which is the number of shares of Voting Capital
Stock which are both beneficially owned by such Excess Beneficial Owner
and owned of record by such Record Owner and the denominator of which is
the total number of shares of Voting Capital Stock beneficially owned by
such Excess Beneficial Owner.
B. The following definitions shall apply to this Article XIII:
1. "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 in effect on the date of filing of this Certificate.
2. "Beneficial Ownership" (including "Beneficially Owned") shall be
determined pursuant to Rule 13d-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934 (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; provided, however, that a Person shall,
in any event, also be deemed the "beneficial owner" of any Common
Stock:
(a) which such Person or any of its Affiliates owns, directly or
indirectly; or
(b) which such Person or any of its Affiliates has (i) the fight
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 Article XV) 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 shareholders, pursuant to a public solicitation of
proxies for such meeting, with respect to shares of which
neither such Person nor any such Affiliate is otherwise deemed
the Beneficial Owner): or
(c) Which are 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
31
<PAGE> 6
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 of computing the
percentage Beneficial Ownership of Common Stock of a Person, the
outstanding Common Stock shall include shares deemed owned by such Person
through application of this subsection but shall not include any other
Common Stock which may be issuable by this Corporation pursuant to any
agreement, or upon exercise of conversion rights, warrants or options, or
otherwise. For all other purposes, the outstanding Common Stock shall
include only Common Stock then outstanding and shall not include any
Common Stock which may be issuable by this Corporation pursuant to any
agreement, or upon the exercise of conversion rights, warrants or options,
or otherwise.
3. A "Person" shall mean any individual. firm, corporation. or other
entity.
C. The Board of Directors shall have the power to construe and apply the
provisions of this Article XIII and to make all determinations necessary
or desirable to implement such provisions, including but not limited to
matters with respect (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 Article XIII.
D. 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 holders of record of 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 of 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 Article XIII as may reasonably be requested of such
Person.
E. The provisions of this Article XIII shall not be applicable to any
tax-qualified defined benefit plan or defined contribution plan of the
Corporation or its subsidiaries or to the acquisition of more than 10% of
any class of equity security of the Corporation if such acquisition has
been approved by a majority of the Board of Directors. Any constructions,
applications, or determinations made by the Board of Directors pursuant to
this Article XIII 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 shareholders.
F. In the event any provision (or portion thereof) of this Article XIII shall
be found to be invalid, prohibited or unenforceable for any reason, the
remaining provisions (or portions thereof) of this Article XIII 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 shareholders that each such remaining provisions (or
portion thereof) of this Article XIII remain, to the fullest extent
permitted by law, applicable and enforceable as to all shareholders,
including shareholders owning an amount of stock over the Limit,
notwithstanding any such finding.
ARTICLE XIV
Response to Abusive Takeovers
In furtherance and not in limitation of the powers conferred by law or in
this Certificate, the Board of Directors (and any committee of the Board of
Directors) is expressly authorized, to the extent permitted by law, to take such
action or actions as the Board or such committee may determine to be reasonably
necessary or desirable to (A) encourage any person to enter into negotiations
with the Board of Directors and management of the Corporation with respect to
any transaction which may result in a change in control of the Corporation which
is proposed or initiated by such person or (B) contest or oppose any such
transaction which the Board of Directors or such committee determines to be
unfair, abusive or otherwise undesirable with respect to the Corporation and its
business, assets or properties or the shareholders of the Corporation and its
business, assets or properties or the shareholders of the Corporation,
including, without limitation, the adoption of such plans or the issuance of
such rights, options, capital stock, notes, debentures or other evidences of
indebtedness or other securities of the Corporation, which rights, options,
capital stock, notes, evidences of indebtedness and other securities (i) may be
exchangeable for or convertible into cash or other securities on such terms and
conditions as may be determined by the Board or such committee and (ii) may
provide for the treatment of any holder or class of holders thereof designated
by the Board of Directors or any such committee in respect of the terms,
conditions, provisions and rights of such securities which is different from,
and unequal to, the terms, conditions, provisions and rights applicable to all
other holders thereof.
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ARTICLE XV
Stockholder Approval of Certain Transactions
A. Stockholder Vote. Any merger, consolidation, liquidation, or dissolution
of the Company or any action that would result in the sale or other
disposition of all or substantially all of the assets of the Corporation
("Transaction") shall require the affirmative vote of the holders of at
least eighty percent (80%) of the outstanding shares of capital stock of
the Corporation eligible to vote at a legal meeting.
B. Board Approval. The provisions of Article XV.A shall not apply to a
particular Transaction, and such Transaction shall require only such
shareholder vote, if any, as would be required by New Jersey law, if such
Transaction is approved by eighty percent (80%) of the entire Board of
Directors of the Corporation.
ARTICLE XVI
Amendment of Bylaws
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors of the Corporation is expressly authorized to make,
repeal, alter, amend and rescind the Bylaws of the Corporation by a majority
vote of members of the Board of Directors present at a legal meeting held in
accordance with the provisions of the Bylaws. Notwithstanding any other
provision of this Certificate or the Bylaws of the Corporation (and
notwithstanding the fact that some lesser percentage may be specified by law),
the Bylaws shall not be made, repealed, altered, amended or rescinded by the
shareholders of the Corporation except by the vote of the holders of not less
than eighty percent (80%) of the outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of Directors (considered
for this purpose as one class) cast at a meeting of the shareholders called for
that purpose (provided that notice of such proposed adoption, repeal,
alteration, amendment or rescission is included in the notice of such meeting),
or, as set forth above, by the Board of Directors. Notwithstanding the
foregoing, the provisions set forth in Article II, Section 12 and Article III,
Section 2 of the Bylaws may not be repealed, altered, amended or rescinded in
any respect unless such action is approved by the affirmative vote of eighty
percent (80%) of the Board of Directors.
ARTICLE XVII
Amendment of Certificate of Incorporation
The Corporation reserves the right to repeal, alter, amend or rescind any
provision contained in this Certificate in the manner now or hereafter
prescribed by law, and all rights conferred on shareholders herein are granted
subject to this reservation. Notwithstanding the foregoing, the provisions set
forth in Articles VIII, IX.A, IX.B, IX.C, X, XI, XII, XIII, XIV, XV, XVI and
this Article XVII of this Certificate may not be repealed, altered, amended or
rescinded in any respect unless such action is approved by the affirmative vote
of the holders of not less than eighty percent (80%) of the outstanding shares
of capital stock of the Corporation entitled to vote generally in the election
of Directors (considered for this purpose as a single class) cast at a meeting
of the shareholders called for that purpose (provided that notice of such
proposed adoption, repeal, alteration, amendment or rescission is properly
included in the notice of such meeting).
IN WITNESS WHEREOF, I, the incorporator of the above named Corporation,
being over eighteen years of age, has signed this Certificate of Incorporation
this 18th day of February, 1999 and affirm the statements made herein as true
under the penalties of perjury.
Eric 0. Costello
33
<PAGE> 1
Exhibit 3(b)
Section 1. LAW, CERTIFICATE OF INCORPORATION AND BY-LAWS. .................... 1
Section 2. SHAREHOLDERS. ..................................................... 1
2.1. Annual Meeting. ..................................................... 1
2.2. Special Meetings. ................................................... 1
2.3. Place of Meeting. ................................................... 1
2.4. Notice of Meetings. ................................................. 2
2.5. Quorum of Shareholders. ............................................. 2
2.6. Action by Vote. ..................................................... 2
2.7. Action without Meetings. ............................................ 3
2.8. Proxy Representation. ............................................... 3
2.9. Inspectors. ......................................................... 3
2.10. List of Shareholders. ............................................... 4
Section 3. BOARD OF DIRECTORS. ............................................... 4
3.1. Number. ............................................................. 4
3.2. Tenure. ............................................................. 4
3.3. Powers. ............................................................. 5
3.4. Vacancies. .......................................................... 5
3.5. Committees. ......................................................... 5
3.6. Regular Meetings. ................................................... 6
3.7. Special Meetings. ................................................... 6
3.8. Notice. ............................................................. 6
3.9. Quorum. ............................................................. 6
3.10. Action by Vote. ..................................................... 6
3.11. Action Without a Meeting. ........................................... 7
3.12. Participation in Meetings by Conference Telephone. .................. 7
3.13. Compensation. ....................................................... 7
3.14. Interested Directors and Officers. .................................. 7
Section 4. OFFICERS AND AGENTS. .............................................. 8
4.1. Enumeration; Qualification. ......................................... 8
4.2. Powers. ............................................................. 8
4.3. Election. ........................................................... 8
4.4. Tenure. ............................................................. 9
4.5. Chairman of the Board of Directors, President and Vice President. ... 9
4.6. Treasurer and Assistant Treasurers. ................................. 9
4.7. Controller and Assistant Controllers. ............................... 9
4.8. Secretary and Assistant Secretaries. ................................10
Section 5. RESIGNATIONS AND REMOVALS. ........................................10
Section 6. VACANCIES. ........................................................10
Section 7. CAPITAL STOCK. ....................................................11
7.1. Stock Certificates. .................................................11
7.2. Loss of Certificates. ...............................................11
Section 8. TRANSFER OF SHARES OF STOCK. ......................................11
8.1. Transfer on Books. ..................................................11
8.2. Record Date and Closing Transfer Books. .............................12
Section 9. CORPORATE SEAL. ...................................................12
Section 10. EXECUTION OF PAPERS. .............................................13
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Section 11. FISCAL YEAR. .....................................................13
Section 12. INDEMNIFICATION. .................................................13
12.1 Indemnification of Directors and Officers. ..........................13
12.2 Indemnification of Others. ..........................................14
12.3 Advances or Reimbursement of Expenses. ..............................14
12.4 Service of Certain Entities Deemed Requested. .......................14
12.5 Interpretation. .....................................................14
12.6 Indemnification Right. ..............................................14
12.7 Indemnification Claims. .............................................15
Section 13. AMENDMENTS. ......................................................15
<PAGE> 3
Exhibit 3(b)
BY-LAWS
OF
SKYLANDS FINANCIAL CORPORATION
(the "Corporation")
Section 1. LAW, CERTIFICATE OF INCORPORATION AND BY-LAWS
These by-laws are subject to the Certificate of Incorporation of the
Corporation. In these by-laws, references to law, the certificate of
incorporation and by-laws mean the law of the state of incorporation of the
Corporation, the provisions of the Corporation's Certificate of Incorporation
and the Corporation's By-Laws as from time to time in effect.
Section 2. SHAREHOLDERS
2.1. Annual Meeting.
The annual meeting of shareholders of the Corporation shall be held at
such date and time as shall be designated from time to time by the Board of
Directors of the Corporation and stated in the notice of the meeting, at which
they shall elect a Board of Directors and transact such other business as may be
required by law or these by-laws or as may properly come before the meeting.
2.2. Special Meetings.
A special meeting of the shareholders may be called at any time by the
Chairman of the Board, if any, the President or the Board of Directors. A
special meeting of the shareholders shall be called by the Secretary, or in the
case of the death, absence, incapacity or refusal of the Secretary, by an
Assistant Secretary or some other officer, upon application of a majority of the
directors. Any such application shall state the purpose or purposes of the
proposed meeting. Any such call shall state the place, date, hour, and purposes
of the meeting.
2.3. Place of Meeting.
All meetings of the shareholders for the election of directors or for any
other purpose shall be held at such place within or without the State of New
Jersey as may be determined from time to time by the Board of Directors. Any
adjourned session of any meeting of the shareholders shall be held at the place
designated in the vote of adjournment.
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2.4. Notice of Meetings.
Except as otherwise provided by law, a written notice of each meeting of
shareholders stating the place, day and hour thereof and, in the case of a
special meeting, the purposes for which the meeting is called, shall be given
not less then ten nor more than sixty days before the meeting, to each
shareholder entitled to vote thereat, and to each shareholder who, by law, by
the certificate of incorporation or by these by-laws, is entitled to notice, by
leaving such notice with him or at his residence or usual place of business, or
by depositing it in the United States mail, postage prepaid, and addressed to
such shareholder at his address as it appears in the records of the Corporation.
Such notice shall be given by the Secretary, or by an officer or person
designated by the Board of Directors, or in the case of a special meeting by the
officer calling the meeting. As to any adjourned session of any meeting of
shareholders, notice of the adjourned meeting need not be given if the time and
place thereof are announced at the meeting at which the adjournment was taken
except that if after the adjournment a new record date is set for the adjourned
session, notice of any such adjourned session of the meeting shall be given in
the manner heretofore described. No notice of any meeting of shareholders or any
adjourned session thereof need be given to a shareholder if a written waiver of
notice, executed before or after the meeting or such adjourned session by such
shareholder, in person or by proxy, is filed with the records of the meeting or
if the shareholder attends such meeting, in person or by proxy, without
objecting at the beginning of the meeting 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 shareholders or any
adjourned session thereof need be specified in any written waiver of notice.
2.5. Quorum of Shareholders.
At any meeting of the shareholders a quorum as to any matter shall consist
of a majority of the votes entitled to be cast on the matter, except where a
larger quorum is required by law, by the certificate of incorporation or by
these by-laws. Any meeting may be adjourned from time to time by a majority of
the votes properly cast upon the question, whether or not a quorum is present.
If a quorum is present at an original meeting, a quorum need not be present at
an adjourned session of that meeting. Shares of its own stock belonging to the
Corporation or to another Corporation, if a majority of the shares entitled to
vote in the election of directors of such other Corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes; provided, however, that the foregoing shall not limit the
right of any Corporation to vote stock, including but not limited to its own
stock, held by it in a fiduciary capacity.
2.6. Action by Vote.
When a quorum is present at any meeting, a plurality of the votes properly
cast for election to any office shall elect to such office and a majority of the
votes properly cast upon any question other than an election to an office shall
decide the question, except when a larger vote is
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required by law, by the certificate of incorporation or by these by-laws. No
ballot shall be required for any election unless requested by a shareholder
present or represented at the meeting and entitled to vote in the election.
2.7. Action without Meetings.
Unless otherwise provided in the certificate of incorporation or by
applicable law, any action required or permitted to be taken by shareholders for
or in connection with any corporate action may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by all of the holders of outstanding stock
entitled to vote thereon. The writing or writings comprising such unanimous
consent shall be filed with the records of the meetings of shareholders.
Unless otherwise provided in the certificate of incorporation or by
applicable law, any action required or permitted to be taken by shareholders for
or in connection with any corporate action may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of that number of shares of
outstanding stock which would have been entitled to cast the minimum number of
votes necessary to approve the action taken at a meeting of shareholders at
which all of the shareholders entitled to vote on the action were present and
voting, and the provisions of N.J.S.A. ss.14A:5-6(2) are complied with.
2.8. Proxy Representation.
Every shareholder may authorize another person or persons to act for him
by proxy in all matters in which a shareholder is entitled to participate,
whether by waiving notice of any meeting, objecting to or voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the shareholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after eleven months from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the Corporation generally.
The authorization of a proxy may but need not be limited to specified action,
provided, however, that if a proxy limits its authorization to a meeting or
meetings of shareholders, unless otherwise specifically provided such proxy
shall entitle the holder thereof to vote at any adjourned session but shall not
be valid after the final adjournment thereof.
2.9. Inspectors.
The directors or the person presiding at the meeting may, but need not,
appoint one or more inspectors of election and any substitute inspectors to act
at the meeting or any adjournment thereof. Each inspector, before entering upon
the discharge of his duties, shall take
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and sign an oath faithfully to execute the duties of inspector at such meeting
with strict impartiality and according to the best of his ability. The
inspectors, if any, shall determine the number of shares of stock outstanding
and the voting power of each, the shares of stock represented at the meeting,
the existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots or consents, determine the result, and do such acts as are proper to
conduct the election or vote with fairness to all shareholders. On request of
the person presiding at the meeting, the inspectors shall make a report in
writing of any challenge, question or matter determined by them and execute a
certificate of any fact found by them.
2.10. List of Shareholders.
The Secretary shall prepare and make, at least ten (10) days before every
meeting of shareholders, a complete list of the shareholders entitled to vote at
such meeting, arranged in alphabetical order and showing the address of each
shareholder and the number of shares registered in his name. The stock ledger
shall be the only evidence as to who are shareholders entitled to examine such
list or to vote in person or by proxy at such meeting.
Section 3. BOARD OF DIRECTORS
3.1. Number.
The number of directors which shall constitute the whole Board of
Directors shall not be less than one (1) nor more than twenty-five (25) in
number. Thereafter, within the foregoing limits, the shareholders at the annual
meeting shall determine the number of directors and shall elect the number of
directors as determined. Within the foregoing limits, the number of directors
may be increased at any time or from time to time by the shareholders or by the
directors by vote of a majority of the directors then in office. The number of
directors may be decreased to any number permitted by the foregoing at any time
either by the shareholders or by the directors by vote of a majority of the
directors then in office, but only to eliminate vacancies existing by reason of
the death, resignation or removal of one or more directors. Directors need not
be shareholders.
3.2. Tenure.
Except as otherwise provided by law, by the certificate of incorporation
or by these by-laws, each director shall hold office until the next annual
meeting and until his successor is elected and qualified, or until he sooner
dies, resigns, is removed or becomes disqualified.
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3.3. Powers.
The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors who shall have and may exercise all the
powers of the Corporation and do all such lawful acts and things as are not by
law, the certificate of incorporation or these by-laws directed or required to
be exercised or done by the shareholders.
3.4. Vacancies.
Vacancies and any newly created directorships resulting from any increase
in the number of directors may be filled by vote of the shareholders at a
meeting called for the purpose, or by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have resigned, shall have power to fill such vacancy or vacancies, the vote or
action by writing thereon to take effect when such resignation or resignations
shall become effective. The directors shall have and may exercise all their
powers notwithstanding the existence of one or more vacancies in their number,
subject to any requirements of law or of the certificate of incorporation or of
these by-laws as to the number of directors required for a quorum or for any
vote or other actions.
3.5. Committees.
The Board of Directors may, by vote of a majority of the whole Board of
Directors, (a) designate, change the membership of or terminate the existence of
any committee or committees, each committee to consist of one or more of the
directors; (b) designate one or more directors as alternate members of any such
committee who may replace any absent or disqualified member at any meeting of
the committee; and (c) determine the extent to which each such committee shall
have and may exercise the powers of the Board of Directors in the management of
the business and affairs of the Corporation, including the power to authorize
the seal of the Corporation to be affixed to all papers which require it and the
power and authority to declare dividends or to authorize the issuance of stock;
excepting, however, such powers which by law, by the certificate of
incorporation or by these by-laws they are prohibited from so delegating. In the
absence or disqualification of any member of such committee and his alternate,
if any, the member or members thereof present at any meeting and not
disqualified from voting, whether or not constituting a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. Except as the Board of
Directors may otherwise determine, any committee may make rules for the conduct
of its business, but unless otherwise provided by the Board of Directors such
rules, its business shall be conducted as nearly as may be in the same manner as
is provided by these by-laws for the conduct of business by the Board of
Directors. Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors upon request.
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3.6. Regular Meetings.
Regular meetings of the Board of Directors may be held without call or
notice at such places within or without the State of New Jersey and at such
times as the Board of Directors may from time to time determine, provided that
notice of the first regular meeting following any such determination shall be
given to absent directors. A regular meeting of the directors may be held
without call or notice immediately after and at the same place as the annual
meeting of shareholders.
3.7. Special Meetings.
Special meetings of the Board of Directors may be held at any time and at
any place within or without the State of New Jersey designated in the notice of
the meeting, when called by the Chairman of the Board, if any, the President, or
by one-third or more in number of the directors, reasonable notice thereof being
given to each director by the Secretary or by the Chairman of the Board, if any,
the President or any one of the directors calling the meeting.
3.8. Notice.
It shall be reasonable and sufficient notice to a director to send notice
by mail at least forty-eight hours or by telegram or facsimile transmission at
least twenty-four hours before the meeting addressed to him at his usual or last
known business or residence address or to give notice to him in person or by
telephone at least twenty-four hours before the meeting. Notice of a meeting
need not be given to any director if a written waiver of notice, executed by him
before or after the meeting, is filed with the records of the meeting, or to any
director who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him. Neither notice of a meeting nor a waiver
of a notice need specify the purposes of the meeting.
3.9. Quorum.
Except as may be otherwise provided by law, by the certificate of
incorporation or by these by-laws, at any meeting of the directors a majority of
the directors then in office shall constitute a quorum; a quorum shall not in
any case be less than one-third of the total number of directors constituting
the whole Board of Directors. Any meeting may be adjourned from time to time by
a majority of the votes cast upon the question, whether or not a quorum is
present, and the meeting may be held as adjourned without further notice.
3.10. Action by Vote.
Except as may be otherwise provided by law, by the certificate of
incorporation or by these by-laws, when a quorum is present at any meeting the
vote of a majority of the directors present shall be the act of the Board of
Directors.
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3.11. Action Without a Meeting.
Any action required or permitted to be taken at any meeting of the Board
of Directors or a committee thereof may be taken without a meeting if all the
members of the Board of Directors of such committee, as the case may be, consent
thereto in writing, and such writing or writings are filed with the records of
the meetings of the Board of Directors of such committee. Such consent shall be
treated for all purposes as the act of the Board of Directors or such committee,
as the case may be.
3.12. Participation in Meetings by Conference Telephone.
Members of the Board of Directors, or any committee designated by such
Board of Directors, may participate in a meeting of such Board of Directors
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other
or by any other means permitted by law. Such participation shall constitute
presence in person at such meeting.
3.13. Compensation.
In the discretion of the Board of Directors, each director may be paid
such fees for his services as director and be reimbursed for his reasonable
expenses incurred in the performance of his duties as director as the Board of
Directors from time to time may determine. Nothing contained in this section
shall be construed to preclude any director from serving the Corporation in any
other capacity and receiving reasonable compensation therefor.
3.14. Interested Directors and Officers.
(a) No contract or transaction between the Corporation and one or more of
its directors or officers, or between the Corporation and any other Corporation,
partnership, association, or other organization in which one or more of the
Corporation's directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the Board of Directors committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose,
if any one of the following is true:
(1) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board of Directors committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
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(2) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the shareholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the shareholders; or
(3) The contract or transaction is fair as to the Corporation as of
the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the shareholders.
(b) Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
Section 4. OFFICERS AND AGENTS
4.1. Enumeration; Qualification.
The officers of the Corporation shall be a President, a Treasurer, a
Secretary and such other officers, if any, as the Board of Directors from time
to time may in its discretion elect or appoint including, without limitation, a
Chairman of the Board of Directors, one or more Vice Presidents and a
Controller. The Corporation may also have such agents, if any, as the Board of
Directors from time to time may in its discretion choose. Any officer may be but
none need be a director or shareholder. Any two or more offices may be held by
the same person. Any officer may be required by the Board of Directors to secure
the faithful performance of his duties to the Corporation by giving bond in such
amount and with sureties or otherwise as the Board of Directors may determine.
4.2. Powers.
Subject to law, to the certificate of incorporation and to the other
provisions of these by-laws, each officer shall have, in addition to the duties
and powers herein set forth, such duties and powers as are commonly incident to
his office and such additional duties and powers as the Board of Directors may
from time to time designate.
4.3. Election.
The officers may be elected by the Board of Directors at their first
meeting following the annual meeting of the shareholders or at any other time.
At any time or from time to time the directors may delegate to any officer their
power to elect or appoint any other officer or any agents.
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4.4. Tenure.
Each officer shall hold office until the first meeting of the Board of
Directors following the next annual meeting of the shareholders and until his
respective successor is chosen and qualified unless a shorter period shall have
been specified by the terms of his election or appointment, or in each case
until he sooner dies, resigns, is removed or becomes disqualified. Each agent
shall retain his authority at the pleasure of the directors, or the officer by
whom he was appointed or by the officer who then holds agent appointive power.
4.5. Chairman of the Board of Directors, President and Vice President.
The Chairman of the Board of Directors, if any, shall have such duties and
powers as shall be designated from time to time by the Board of Directors.
Unless the Board of Directors otherwise specifies, the Chairman of the Board of
Directors, or if there is none the Chief Executive Officer, shall preside, or
designate the person who shall preside, at all meetings of the shareholders and
of the Board of Directors.
Unless the Board of Directors otherwise specifies, the President shall be
the Chief Executive Officer and shall have direct charge of all business
operations of the Corporation and, subject to the control of the directors,
shall have general charge and supervision of the business of the Corporation.
Any Vice Presidents shall have such duties and powers as shall be set
forth in these bylaws or as shall be designated from time to time by the Board
of Directors or by the President.
4.6. Treasurer and Assistant Treasurers.
The Treasurer shall be the Chief Financial Officer of the Corporation and
shall be in charge of its funds and valuable papers, and shall have such other
duties and powers as may be designated from time to time by the Board of
Directors or by the President. If no Controller is elected, the Treasurer shall
also have the duties and powers of the Controller.
Any Assistant Treasurers shall have such duties and powers as shall be
designated from time to time by the Board of Directors, the President or the
Treasurer.
4.7. Controller and Assistant Controllers.
If a Controller is elected, he shall be the chief accounting officer of
the Corporation and shall be in charge of its books of account and accounting
records, and of its accounting procedures. He shall have such other duties and
powers as may be designated from time to time by the Board of Directors, the
President or the Treasurer.
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Any Assistant Controller shall have such duties and powers as shall be
designated from time to time by the Board of Directors, the President, the
Treasurer or the Controller.
4.8. Secretary and Assistant Secretaries.
The Secretary shall record all proceedings of the shareholders, of the
Board of Directors and of committees of the Board of Directors in a book or
series of books to be kept therefor and shall file therein all actions by
written consent of shareholders or directors. In the absence of the Secretary
from any meeting, an Assistant Secretary, or if there be none or he is absent, a
temporary Secretary chosen at the meeting, shall record the proceedings thereof.
Unless a transfer agent has been appointed the Secretary shall keep or cause to
be kept the stock and transfer records of the Corporation, which shall contain
the names and record addresses of all shareholders and the number of shares
registered in the name of each shareholder. He shall have such other duties and
powers as may from time to time be designated by the Board of Directors or the
President.
Any Assistant Secretaries shall have such duties and powers as shall be
designated from time to time by the Board of Directors, the President or the
Secretary.
Section 5. RESIGNATIONS AND REMOVALS
Any director or officer may resign at any time by delivering his
resignation in writing to the Chairman of the Board of Directors, if any, the
President, or the Secretary or to a meeting of the Board of Directors. Such
resignation shall be effective upon receipt unless specified to be effective at
some other time, and without in either case the necessity of its being accepted
unless the resignation shall so state. A director (including persons elected by
directors to fill vacancies in the Board of Directors) may be removed from
office with or without cause by the vote of the holders of a majority of the
shares issued and outstanding and entitled to vote in the election of directors.
The Board of Directors may at any time remove any officer either with or without
cause. The Board of Directors may at any time terminate or modify the authority
of any agent. No director or officer resigning and (except where a right to
receive compensation shall be expressly provided in a duly authorized written
agreement with the Corporation) no director or officer removed shall have any
right to any compensation as such director or officer for any period following
his resignation or removal, or any right to damages on account of such removal,
whether his compensation be by the month or by the year or otherwise; unless, in
the case of a resignation, the directors, or, in the case of removal, the body
acting on the removal, shall in their or its discretion provide for
compensation.
Section 6. VACANCIES
If the office of the President or the Treasurer or the Secretary becomes
vacant, the directors may elect a successor by vote of a majority of the
directors then in office. If the office
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of any other officer becomes vacant, any person or body empowered to elect or
appoint that officer may choose a successor. Each such successor shall hold
office for the unexpired term, and in the case of the President, the Treasurer
and the Secretary until his successor is chosen and qualified or in each case
until he sooner dies, resigns, is removed or becomes disqualified. Any vacancy
of a directorship shall be filled as specified in Section 3.4 of these by-laws.
Section 7. CAPITAL STOCK
7.1. Stock Certificates.
Each shareholder shall be entitled to a certificate stating the number and
the class and the designation of the series, if any, of the shares held by him,
in such form as shall, in conformity to law, the certificate of incorporation
and the by-laws, be prescribed from time to time by the Board of Directors. Such
certificate shall be signed by the Chairman of the Board of Directors, if any,
or the President or a vice president and may be countersigned by the Treasurer
or an Assistant Treasurer or by the Secretary or an Assistant Secretary. Any of
or all the signatures on the certificate may be a facsimile. In case an officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed on such certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent, or
registrar at the time of its issue.
7.2. Loss of Certificates.
In the case of the alleged theft, loss, destruction or mutilation of a
certificate of stock, a duplicate certificate may be issued in place thereof,
upon such terms, including receipt of a bond sufficient to indemnify the
Corporation against any claim on account thereof, as the Board of Directors may
prescribe.
Section 8. TRANSFER OF SHARES OF STOCK
8.1. Transfer on Books.
Subject to the restrictions, if any, stated or noted on the stock
certificate, shares of stock may be transferred on the books of the Corporation
by the surrender to the Corporation or its transfer agent of the certificate
therefor properly endorsed or accompanied by a written assignment and power of
attorney properly executed, with necessary transfer stamps affixed, and with
such proof of the authenticity of signature as the Board of Directors or the
transfer agent of the Corporation may reasonably require. Except as may be
otherwise required by law, by the certificate of incorporation or by these
by-laws, the Corporation shall be entitled to treat the record holder of stock
as shown on its books as the owner of such stock for all purposes,
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<PAGE> 14
including the payment of dividends and the right to receive notice and to vote
or to give any consent with respect thereto and to be held liable for such calls
and assessments, if any, as may lawfully be made thereon, regardless of any
transfer, pledge or other disposition of such stock until the shares have been
properly transferred on the books of the Corporation.
It shall be the duty of each shareholder to notify the Corporation of his
post office address.
8.2. Record Date and Closing Transfer Books.
In order that the Corporation may determine the shareholders entitled to
notice of or to vote at any meeting of shareholders or any adjournment thereof,
or to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled 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, in advance, a record date, which shall not be
more than sixty nor less than ten days (or such longer period as may be required
by law) before the date of such meeting, nor more than sixty days prior to any
other action.
If no record date is fixed:
(a) The record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the
close of business on the day next preceding the day on which notice
is given, or, if notice is waived, at the close of business on the
day next preceding the day on which the meeting is held.
(b) The record date for determining shareholders entitled to
express consent to corporate action in writing without a meeting,
when no prior action by the Board of Directors is necessary, shall
be the day on which the first written consent is expressed.
(c) The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
A determination of shareholders of record entitled to notice of or to vote
at a meeting of shareholders 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 9. CORPORATE SEAL
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Subject to alteration by the directors, the seal of the Corporation shall
consist of a flat-faced circular die with the word "New Jersey" and the name of
the Corporation cut or engraved thereon, together with such other words, dates
or images as may be approved from time to time by the directors.
Section 10. EXECUTION OF PAPERS
Except as the Board of Directors may generally or in particular cases
authorize the execution thereof in some other manner, all deeds, leases,
transfers, contracts, bonds, notes, checks, drafts or other obligations made,
accepted or endorsed by the Corporation shall be signed by the Chairman of the
Board of Directors, if any, the President, a Vice President or the Treasurer.
Section 11. FISCAL YEAR
The fiscal year of the Corporation shall be determined from time to time
by the Board of Directors.
Section 12. INDEMNIFICATION
12.1. Indemnification of Directors and Officers.
The Corporation shall, to the fullest extent permitted by applicable law,
indemnify any person (and the heirs, executors and administrators thereof) who
was or is made, or threatened to be made, a party to an action, suit or
proceeding, whether civil, criminal, administrative or investigative, whether
involving any actual or alleged breach of duty, neglect or error, any
accountability, or any actual or alleged misstatement, misleading statement or
other act or omission and whether brought or threatened in any court or
administrative or legislative body or agency, including an action by or in the
right of the Corporation to procure a judgment in its favor and an action by or
in the right of any other Corporation of any type or kind, domestic or foreign,
or any partnership, joint venture, trust, employee benefit plan or other
enterprise, which any director or officer of the Corporation is serving or has
served in any capacity at the request of the Corporation, by reason of the fact
that he, his testator or intestate is or was a director or officer of the
Corporation, or is serving or has served such other Corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise in any capacity,
against judgments, fines, amounts paid in settlement, and costs, charges and
expenses, including attorneys' fees, incurred therein or in any appeal thereof.
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<PAGE> 16
12.2. Indemnification of Others.
The Corporation shall indemnify other persons and reimburse the expenses
thereof, to the extent required by applicable law, and may indemnify any other
person to whom the Corporation is permitted to provide indemnification or the
advancement of expenses, whether pursuant to rights granted pursuant to, or
provided by, the New Jersey Business Corporation Act or otherwise.
12.3. Advances or Reimbursement of Expenses.
The Corporation shall, from time to time, reimburse or advance to any
person referred to in Section 12.1 the funds necessary for payment of expenses,
including attorneys' fees, incurred in connection with any action, suit or
proceeding referred to in Section 12.1, upon receipt of a written undertaking by
or on behalf of such person to repay such amount(s) if a judgment or other final
adjudication adverse to the director or officer establishes that his acts or
omissions (i) constitute a breach of his duty of loyalty to the Corporation or
its shareholders, (ii) were not in good faith, (iii) involved a knowing
violation of law, (iv) resulted in his receiving an improper personal benefit,
or (v) were otherwise of such a character that New Jersey law would require that
such amount(s) be repaid.
12.4. Service of Certain Entities Deemed Requested.
Any director or officer of the Corporation serving (i) another
Corporation, of which a majority of the shares entitled to vote in the election
of its directors is held by the Corporation, or (ii) any employee benefit plan
of the Corporation or any Corporation referred in clause (i), in any capacity
shall be deemed to be doing so at the request of the Corporation.
12.5. Interpretation.
Any person entitled to be indemnified or to the reimbursement or
advancement of expenses as a matter of right pursuant to this Article may elect
to have the right to indemnification (or advancement of expense) interpreted on
the basis of the applicable law in effect at the time of the occurrence of the
event or events giving rise to the action, suit or proceeding, to the extent
permitted by applicable law, or on the basis of the applicable law in effect at
the time indemnification is sought.
12.6. Indemnification Right.
The right to be indemnified or to the reimbursement or advancement of
expenses pursuant to this Article (i) is a contract right pursuant to which the
person entitled thereto may bring suit as if the provisions hereof were set
forth in a separate written contract between the Corporation and the director or
officer, (ii) is intended to be retroactive and shall be available
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<PAGE> 17
with respect to events occurring prior to the adoption hereof, (iii) shall
continue to exist after any elimination of or amendment to this Article 12
hereof with respect to events occurring prior thereto, and (iv) and shall not be
deemed exclusive of any other rights to which any person claiming
indemnification hereunder may be entitled.
12.7. Indemnification Claims.
If a request to be indemnified or for the reimbursement or advancement of
expenses pursuant hereto is not paid in full by the Corporation within thirty
days after a written claim has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the claimant
shall be entitled also to be paid the expenses of prosecuting such claim.
Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its shareholders) to have made a determination
prior to the commencement of such action that indemnification of or
reimbursement or advancement of expenses to the claimant is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors, independent legal counsel, or its shareholders) that the
claimant is not entitled to indemnification or to the reimbursement or
advancement of expenses, shall be a defense to the action or create a
presumption that the claimant is not so entitled.
Section 13. AMENDMENTS
These by-laws may be adopted, amended or repealed by vote of a majority of
the directors then in office or by vote of a majority of the stock outstanding
and entitled to vote. Any by-law, whether adopted, amended or repealed by the
shareholders or directors, may be amended or reinstated by the shareholders or
the directors.
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<PAGE> 1
Exhibit 10(a)
SKYLANDS COMMUNITY BANK
1994 AMENDED AND RESTATED STOCK OPTION PLAN
(As Amended on 9-10-97)
Section 1. Purpose
The purpose of the Skylands Community Bank 1994 Amended and Restated
Stock Option Plan (the "Plan") is to amend the Skylands Community Bank 1991
Incentive Stock Option Plan to increase the aggregate number of shares for which
options may be granted under the Plan and to permit directors of Skylands
Community Bank ("Bank") to obtain an equity interest in the Bank. The Plan is
intended to attract, retain and motivate the Bank's key employees and directors
to participate in the long term growth of the Bank by providing for or
increasing the proprietary interests of such persons in the Bank, thereby
assisting the Bank to achieve its long-range goals.
Section 2. Definitions
Capitalized terms not specifically defined elsewhere herein shall
have the following meanings:
"Act" shall mean the New Jersey Bank Officers and Employees' Stock
Option Plan Act.
"Bank" shall mean Skylands Community Bank and any present or future
parent or subsidiary corporations (as defined
<PAGE> 2
in Section 424 of the Code) or any successor to the Bank or to such
corporations.
"Board" shall mean the Board of Directors of the Bank.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time and the regulations promulgated thereunder.
"Committee" shall mean the Stock Option Committee of the Board (or
any successor committee of the Board responsible for administering the Plan),
which shall consist of two or more directors, each of whom shall be a
"disinterested person" within the meaning of Rule 16b-3(c) under the Securities
Act, to administer the Plan and perform the functions set forth herein.
"Common Stock" or "Stock" shall mean the common stock, $2.50 par
value per share, of the Bank.
"Director" shall mean a member of the Board.
"Disability" shall mean permanent and total disability, as defined
in Section 22(e) (3) of the Code.
"Employee Option" shall mean an Incentive Stock Option granted to a
Participant who is a Key Employee of the Bank.
"Fair Market Value" shall mean with respect to shares of Common
Stock, the fair market value as determined by the Committee in good faith and in
a manner established by the Committee from time to time using any reasonable
method of valuation; provided, that in the event the shares of Common
2
<PAGE> 3
Stock are listed for trading on a national or regional securities exchange
(including the NASDAQ National Market System), the "fair market value" of such
shares shall be, on any date, the mean between the high and low selling prices
for the Common Stock on such exchange, or if not so listed, the mean between the
high bid and the low asked prices for the Common Stock as reported by the
National Association of Securities Dealers Automated Quotation System, on the
business day immediately preceding such date (or, if no such sales or prices
were made or reported, on the next preceding date on which there were such sales
or quotes on such exchange or market).
"Incentive Stock Option" or "ISO" shall mean an option to purchase
shares of Common Stock granted to a Key Employee under the Plan which is
intended to meet the requirements of Section 422 of the Code as of the date of
grant.
"Key Employees" shall mean an employee (including executive officers
and directors who are also employees of the Bank) of the Bank who, in the
judgment of the Committee are considered important to the future of the Bank.
"Non-Qualified Stock Option" shall mean an option to purchase shares
of Common Stock granted to a Director under the Plan which is not intended to be
an ISO.
"Option" shall mean an ISO or a Non-Qualified Stock Option.
3
<PAGE> 4
"Participant" shall mean a Key Employee selected by the Committee to
receive an Option under the Plan and Directors.
"Plan" shall mean the Skylands Community Bank 1994 Amended and
Restated Stock Option Plan.
"Securities Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and the rules and regulations promulgated thereunder,
and any successor provisions thereto.
Section 3. Administration
(a) The Plan shall be administered by the Committee. Among other
things, the Committee shall have authority, subject to the terms of this Plan,
including, without limitation, the provisions governing participation in this
Plan by Directors, to grant Options, to determine the individuals to whom and
the time or times at which Employee Options may be granted and to determine the
terms and conditions of any Option granted hereunder.
(b) Subject to the provisions of this Plan, the Committee shall have
authority to adopt, alter and repeal such administrative rules, guidelines and
practices governing the operation of this Plan as it shall from time to time
consider advisable, to interpret the provisions of this Plan and any Option and
to decide all disputes arising in connection with this Plan. The Committee's
decision and interpretations shall
4
<PAGE> 5
be final and binding. Any action of the Committee with respect to the
administration of this Plan shall be taken pursuant to a majority vote or by the
unanimous written consent of its members.
(c) Subject to the provisions of this Plan, including, without
limitation, the provisions governing participation in this Plan by Directors,
and the applicable requirements of federal and state law, the Committee shall
have authority, in its discretion, to take the following actions:
(i) to determine the Key Employees to be granted Employee Options
under this Plan;
(ii) to determine the number of shares subject to each Employee
Option;
(iii) to determine the time or times at which Employee Options will
be granted;
(iv) to determine the Option price of the shares subject to each
Option, which price shall be not less than the minimum specified in Section 7 of
this Plan with respect to Employee Options;
(v) to determine or change the time or times when each Employee
Option becomes exercisable and the duration of the exercise period; provided,
however, that no Option, including Non-Qualified Stock Options granted to
Directors pursuant to this Plan, shall be exercisable until (i) two-thirds of
the
5
<PAGE> 6
holders of shares of Common Stock of the Bank entitled to vote at a meeting of
the Bank's stockholders, voting as a single class, shall have approved the Plan;
or (ii) the Bank shall have fully complied with the terms and provisions of the
Act;
(vi) to prescribe the form or forms of the instruments evidencing
any Options granted under this Plan (which forms shall be consistent with this
Plan but need not be identical to one another);
(vii) to adopt, amend and rescind such rules and regulations as it
determines are necessary or advisable in the administration of this Plan;
(viii) to construe and interpret this Plan, the rules and
regulations and the instruments evidencing Options granted under this Plan and
to make all other determinations deemed necessary or advisable for the
administration of this Plan;
(ix) to delegate such administrative functions as it deems
appropriate; and
(x) in general, to exercise full and final authority (consistent
with this Plan) over all matters relating to the Plan, the powers denominated
above being by way of example and not of limitation.
Any interpretation, determination or other action made or taken by
the Committee shall be final, binding and conclusive.
6
<PAGE> 7
(d) No member of the Committee shall be personally liable to the
Bank or its stockholders for damages for any action taken or determination made
in good faith. The members of the Committee shall be indemnified by the Bank for
any acts or omissions in connection with the Plan to the full extent permitted
by the Bank's Certificate of Incorporation and New Jersey law.
Section 4. Shares of Stock Available for Options
(a) The aggregate number of shares of Common Stock for which Options
may be granted under this Plan shall be 75,688 shares of Common Stock, subject
to adjustment as provided in Section 16 of this Plan. Such shares shall be
reserved for Options granted under this Plan.
(b) The shares transferred by the Bank upon the exercise of Options
under this Plan shall consist of authorized but unissued shares of Common Stock.
(c) The aggregate number of shares of Common Stock that may be
issued or purchased under this Plan pursuant to the exercise of Non-Qualified
Stock Options shall not exceed 5% of the outstanding shares of Common Stock of
the Bank at the time of the adoption of the Plan. The aggregate number of shares
of Common Stock that may be issued or purchased under this Plan pursuant to the
exercise of Non-Qualified Stock Options when taken together with the number of
shares of Common Stock which
7
<PAGE> 8
may be issued or purchased under any other plan of the Bank pursuant to the
exercise of Non-Qualified Stock Options shall not exceed 10% of the outstanding
shares of Common Stock of the Bank at the time of adoption of the Plan.
(d) If an Option granted under this Plan shall expire or terminate
for any reason without having been fully exercised, then the unexercised portion
of such Option shall again be available for the grant under this Plan.
(e) All Options granted hereunder shall be clearly identified as
either an ISO or as a Non-Qualified Stock Option.
Section 5. Eligibility and Participation
All Key Employees of the Bank shall be eligible to participate in
this Plan to the extent provided herein, and all Directors, including members of
the Committee, shall participate in this Plan to the extent expressly set forth
herein.
Section 6. Terms and Conditions of Employee Options
(a) Except as herein provided, each Employee Option granted
hereunder shall be exercisable for such period as the Committee shall determine
at the time of grant; provided, however, that (i) such period may not commence
until at least six months following the date of grant, except in the event of
the death, Disability, retirement in accordance with the Bank's retirement plans
or involuntary termination of employment other than for cause of the Key
Employee before the expiration of such
8
<PAGE> 9
period; and (ii) the Bank shall have fully complied with the terms and
provisions of the Act and the Securities Act. Options shall be subject to
earlier termination as hereinafter provided.
(b) An Employee Option shall terminate immediately, and no rights
thereunder may be exercised, if the person to whom it is granted ceases to be
employed by the Bank, except that:
(i) Subject to the limitations on exercisability set forth in
Section 6 of this Plan, if the Key Employee dies while in the employ of the
Bank, the Key Employee's rights under the Employee Option may be exercised as to
all shares of Common Stock covered thereby, by his legal representative or by
the person or persons to whom such rights under the Option shall pass by will or
by the laws of descent and distribution, at any time within twelve (12) months
following his death;
(ii) if the employment of the Key Employee is terminated because of
Disability, the Key Employee's rights under the Employee Option may be exercised
as to all shares of Common Stock covered thereby, by the Key Employee or his
guardian or other legal representative, at any time within twelve (12) months
following termination of his employment because of Disability;
(iii) if the employment of the Key Employee is terminated by reason
of his retirement in accordance with the terms of the Bank's retirement plans or
with the consent of the
9
<PAGE> 10
Committee or is involuntarily terminated other than for cause, the Key
Employee's rights under the Option may be exercised as to all shares of Common
Stock covered thereby, at any time within three (3) months after termination of
employment. Termination for cause shall mean termination of employment by reason
of habitual alcohol or drug abuse, commission of a felony, fraud, willful
misconduct, the unauthorized disclosure of any Bank data, secret or financial,
which has resulted, or is likely to result, in damage to the Bank, all as the
Board in its sole and absolute discretion, shall determine.
(c) Notwithstanding anything contained in this Section 6 to the
contrary, no Employee Option shall be exercisable by anyone after the expiration
of the term of such Option as determined by the Committee at the date of grant
of such Option.
(d) Transfers of employment between the Bank and any subsidiary
thereof or between subsidiaries of the Bank shall not constitute termination of
employment for purposes of any Employee Option granted under the Plan. For
purposes of this Plan, an employee who is on a leave of absence approved by the
Bank shall not be deemed to have terminated his employment.
Section 7. Term and Option Price of Employee Options
(a) The terms and conditions of Incentive Stock Options shall be
subject to and comply with Section 422 of the
10
<PAGE> 11
Code. Anything in this Plan to the contrary notwithstanding, no term of this
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted to the Committee under
this Plan be so exercised, so as to disqualify this Plan or, without the consent
of the Key Employee, any Incentive Stock Option granted under the Plan pursuant
to Section 422 of the Code.
(b) The Option price per share of Common Stock purchasable under an
Incentive Stock Option shall not be less than 100% of the Fair Market Value of
the Common Stock on the date of grant. If the Key Employee owns or is deemed to
own (by reason of the attribution rules applicable under Section 424(d) of the
Code) more than 10% of the combined voting power of all classes of stock of the
Bank and an Incentive Stock Option is granted to such Key Employee, the Option
price shall be not less than 110% of Fair Market Value of the Common Stock on
the date of grant.
(c) No Employee Option shall be exercisable more than ten (10) years
after the date such Option is granted. If a Key Employee owns or is deemed to
own (by reason of the attribution rules of Section 424(d) of the Code) more than
10% of the total combined voting power of all classes of stock of the Bank, and
an Incentive Stock Option is granted to such Key Employee, such Option shall not
be exercisable after the expiration of five (5)
11
<PAGE> 12
years from the date of grant.
Section 8. Nondiscretionary Grants of Options to Directors
(a) Notwithstanding any other provision of this Plan to the
contrary, Directors shall participate in this Plan to the extent, but only to
the extent, set forth in this Section 8.
(b) Each person who is elected or re-elected as a member of the
Bank's Board of Directors at the meeting of shareholders of the Bank at which
this Plan is adopted by the shareholders shall receive, as of the date of such
meeting, the grant of a Non-Qualified Stock Option to purchase two thousand
(2,000) shares of Common Stock. Each person who is elected or re-elected as a
member of the Bank's Board of Directors at any subsequent meeting of
shareholders of the Bank shall receive, as of the date of such subsequent
meeting, the grant of a Non-Qualified Stock Option to purchase five hundred
(500) shares of Common Stock. Any Non-Qualified Stock Option to be granted to
any Director pursuant to this Section 8 shall be subject to a pro rata
adjustment in a year in which the remaining shares of Common Stock available to
be issued and purchased hereunder is less than the number of Shares of Common
Stock subject to the Non-Qualified Stock Options to be granted under the Plan.
Options granted to Directors shall be immediately exercisable.
(c) The term of each Option granted to a Director
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<PAGE> 13
shall be five (5) years from its date of grant, unless sooner terminated in
accordance with this Section 8. In no event shall an Option granted to a
Director be exercised more than five (5) years after the date of the grant of
the Option.
(d) The purchase price of the shares of Common Stock subject to each
Option granted to a Director shall be the Fair Market Value of the Common Stock
on the date the Option is granted. Options granted to Directors may be exercised
by written notice of exercise accompanied by payment of the exercise price in
full for the purchased shares of Common Stock in cash or by certified or
cashier's check payable to the Bank.
(e) No Option shall be transferable by a Director other than by will
or by the laws of descent and distribution and all Options shall be exercisable
during a Director's lifetime only by the Director or his duly appointed guardian
or personal representative. The restrictions set forth in Section 9 of this Plan
shall apply to all Options granted to Directors.
(f) If a Director dies while serving as a Director, such Director's
Options shall be exercisable by either his executor or administrator or, if not
so exercised, by the legatees or the distributees of his estate, only during the
twelve (12) months following his death. If a Director's membership on the Board
terminates for any reason other than death, such Director's Options shall be
exercisable only during
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the three (3) months following the date of termination.
(g) Each Option granted to a Director shall be evidenced by a
writing signed by him specifying the terms and conditions thereof in accordance
with this Section 8.
Section 9. General Provisions Applicable to Options
(a) Notwithstanding any other provision of the Plan, in order to
qualify for the exemption provided by Rule 16b-3 under the Securities Act, any
Common Stock acquired by a Participant subject to Section 16 of the Securities
Act (a "Section 16 Participant") upon exercise of an Option may not be sold for
six (6) months after the date of grant of the Option. The Committee shall have
no authority to take any action if the authority to take such action, or the
taking of such action, would disqualify the Plan from the exemption provided by
Rule 16b-3 under the Securities Act.
(b) Each Option under the Plan shall be evidenced by a writing
delivered to the Participant specifying the terms and conditions thereof and
containing such other terms and conditions not inconsistent with the provisions
of the Plan as the Committee considers necessary or advisable to achieve the
purposes of the Plan or comply with applicable tax and regulatory laws and
accounting principles.
(c) Each Option may be granted alone, in addition to or in relation
to any other Option. The terms of each Option
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need not be identical, and the Committee need not treat Participants uniformly,
except as otherwise provided in Section 8. Except as otherwise provided by the
Plan or a particular Option, any determination with respect to an Option may be
made by the Committee at the time of grant or at any time thereafter.
(d) The Committee may amend, modify or terminate any outstanding
Option held by a Participant other than a Director, including substituting
therefor another Option of the same or a different type, changing the date of
exercise or realization, provided that the Participant's consent to each action
shall be required unless the Committee determines that the action, taking into
account any related action, would not materially and adversely affect the
Participant.
(e) A Key Employee shall notify the Committee in writing in the
event that he disposes of Common Stock acquired upon exercise of an Incentive
Stock Option within the two-year period following the date the Incentive Stock
Option was granted or within the one-year period following the date he received
Common Stock upon the exercise of an Incentive Stock Option and shall comply
with any other requirements imposed by the Bank in order to enable the Bank to
secure the related income tax deduction to which it will be entitled in such
event under the Code.
(f) The aggregate Fair Market Value determined as of
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the date of grant of Common Stock with respect to which an Option under this
Plan (or any other plan of the Bank granting ISOs) is exercisable for the first
time as an Incentive Stock Option by a Key Employee who is an employee during
any given calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000.00) or such other amount as provided by the Code.
Section 10. Non-Transferability of Options
No Option granted under this Plan shall be transferable by the
Participant otherwise than by will or the laws of descent and distribution, and,
except as otherwise provided herein, such Option may only be exercised by the
during a Participant's lifetime only by the Participant or the Participant's
duly appointed guardian or personal representative.
Section 11. Option Agreements
(a) The grant of every Option shall be evidenced by and conditioned
upon the execution of a written Option agreement between the Bank and the
Participant. The Option agreement shall set forth the number of shares subject
to the Option, the Option price, the term during which the Option may be
exercised, and any other provisions not inconsistent with the provisions of this
Plan, which the Committee may deem necessary or appropriate from time to time.
With respect to the grant of ISOs, the
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Option agreement shall not contain any provision which would cause such Option
to fail to qualify as an Incentive Stock Option under Section 422 of the Code as
of the date of grant. The Committee may approve a form or forms of option
agreements which the Committee, in its discretion, may specify as the sole forms
of Option agreement effective to grant Options to Participants under this Plan.
(b) Subject to the provisions of Section 8 of this Plan,
notwithstanding the date upon which an Option agreement may be executed, the
date upon which an Option is deemed to be granted shall be the effective date of
the approval of an Option by the Committee.
Section 12. Option Exercise and Payment
(a) Subject to Sections 5, 6, 7 and 8 of this Plan, each Option
granted under this Plan shall be exercisable on such date or dates and during
such period and for such number of shares as shall be determined pursuant to the
provisions of the Option agreement evidencing such Option.
(b) A Participant electing to exercise an Option shall give written
notice to the Committee of such election and of the number of full shares he
elects to purchase. Options shall be exercisable in such amounts as the
Participant may elect subject to such restrictions as the Committee or this Plan
may provide.
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(c) Subject to the other provisions of this Plan and applicable
state and federal law, payment of the Option price shall be tendered to the Bank
(i) in cash, including certified check, bank draft or money order, or (ii) at
the discretion of the Committee, by delivering Common Stock already owned by the
Participant or a combination, by delivering a promissory note, containing such
terms and conditions acceptable to the Committee, for all or a portion of the
purchase price of the shares purchased, and shall comply with such other
requirements as the Committee shall establish in accordance with this Plan. With
respect to clause (ii) above, the Fair Market Value of Common Stock so delivered
shall be determined as of the date immediately preceding the date the Option is
exercised. To the extent permitted by applicable law, if payment is made in
whole or in part in shares of Common Stock, the Participant shall deliver to the
Bank certificates registered in the name of the Participant representing shares
of Common Stock owned by such Participant, free of all liens, claims and
encumbrances of every kind, accompanied by stock powers duly endorsed in blank
by the Participant.
Section 13. No Rights as Stockholder
Neither the Participant nor the personal representatives, heirs or
legatees of such Participant shall be or have any rights or privileges of a
stockholder of the Bank
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with respect to any shares subject to an Option unless and until certificates
evidencing such shares shall have been issued and delivered to the Participant
or to such personal representatives, heirs or legatees.
Section 14. No Rights to Continued Employment
This Plan and any Option granted under the Plan shall not confer
upon any Participant any right with respect to continuation of employment by the
Bank, nor shall they interfere in any way with the right of the Bank by which a
Participant is employed to terminate his employment at any time.
Section 15. Additional Property
At the time any Option is exercised, the Committee, in its
discretion, may transfer to the Participant such additional property as it may
determine, including, without limitation, cash or stock appreciation rights.
Section 16. Adjustment Upon Changes in Capitalization
Except as otherwise provided herein, the instruments evidencing
Options granted hereunder shall contain such provisions as the Committee shall
deem appropriate to adjust the number and classes of shares covered thereby, or
to adjust the Option prices, or both, in the event of the sale or other
disposition or distribution by the Bank of all or a portion of its assets or any
change in the outstanding Common Stock of the Bank by reason of stock dividends,
stock split-ups,
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recapitalizations, reorganizations, mergers, consolidations, combinations or
exchanges of shares or the like, of or by the Bank. To prevent dilution or
enlargement of rights in the event of any such change, the aggregate number and
classes of shares for which Options thereafter may be granted under this Plan
may be appropriately adjusted as determined by the Committee so as to reflect
such change.
Section 17. Withholding Taxes
(a) The Participant shall pay to the Bank, or make provision
satisfactory to the Committee for payment of, any taxes required by law to be
withheld in respect of Options under the Plan no later than the date of the
event creating the tax liability. In the Committee's sole discretion, and to the
extent permitted under the Act, a Participant (other than a Section 16
Participant, who shall be subject to the following sentence) may elect to have
such tax obligations paid, in whole or in part, in shares of Common Stock,
including shares retained from the Option creating the tax obligation. With
respect to Section 16 Participants, upon the issuance of shares of Common Stock
in respect of an Option, such number of shares issuable shall be reduced, to the
extent permitted under the Act and the Securities Act, by the number of shares
necessary to satisfy such Section 16 Participant's federal, and where
applicable, state withholding tax obligations. For withholding tax purposes,
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<PAGE> 21
the value of the shares of Common Stock shall be the Fair Market Value on the
date the withholding obligation is incurred. The Bank may, to the extent
permitted by law, deduct any such tax obligations from any payment of any kind
otherwise due to the Participant.
(b) Upon the issuance of shares of Common Stock in respect of an
Option exercised by a Director, such number of shares issuable shall be reduced
by the number of shares necessary to satisfy such Director's federal, and where
applicable, state withholding tax obligations. For withholding tax purposes, the
value of the shares of Common Stock shall be the Fair Market Value on the date
the withholding obligation is incurred. To the extent such reduction of the
number of shares of Common Stock is not permitted under the Act or the
Securities Act, such Participant shall pay all applicable taxes. The Bank may,
to the extent permitted by law, deduct any such tax obligations from any payment
of any kind otherwise due to the Director.
Section 18. Necessity of Stockholder Approval
This Plan and any Options granted hereunder shall be null, void and
of no effect unless this Plan has been previously approved by two-thirds of the
holders of Common Stock of the Bank, voting as a single class, within twelve
(12) months after the date of the Plan's adoption by the Board.
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Section 19. Duration and Amendment of the Plan
(a) No Option may be granted under this Plan after the expiration of
ten (10) years from the earlier of: (a) the date this Plan is adopted by the
Board or (b) the date this Plan is approved by the holders of two-thirds (2/3)
of the stock of the Bank entitled to vote.
(b) The Board or if authorized by the Board, any committee of the
Board, may amend, terminate or suspend this Plan at any time; provided, however,
that no such amendment shall, without approval of the Bank's stockholders, (a)
increase the aggregate number of shares as to which Options may be granted under
this Plan except as specified in Section 16 of this Plan; (b) change the number
of shares subject to Options or the date of grant or the exercise price of such
Options; (c) materially modify the requirements as to eligibility for
participation in this Plan; or (d) materially increase the benefits accruing to
Participants in this Plan.
(c) No Option may be granted during any suspension of this Plan or
after this Plan has been terminated; and no amendment, suspension or termination
shall, without the Participant's consent, alter or impair any of the
Participant's rights or obligations under any Option theretofore granted to him
under this Plan except insofar as a merger or consolidation of the Bank or
termination of employment of a Participant or a
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<PAGE> 23
liquidation or dissolution shall affect the cancellation of an Option.
(d) Section 8 of this Plan may not be amended more than once every
six (6) months other than to comport with changes in the Code, the Employee
Retirement Income Security Act of 1974, as amended, or the regulations issued
thereunder.
Section 20. Applicable Law
To the extent that state laws shall not have been preempted by any
laws of the United States, this Plan shall be governed by, and construed in
accordance with, the laws of the State of New Jersey. The Plan is intended to
comply with N.J.A.C. ss.3:4-2 and any successor provision thereto and Rule 16b-3
promulgated under the Securities Act and is further intended to be administered
in the manner specified in paragraph (c) (2) (ii) of that Rule, and the
Committee shall interpret and administer the provisions of the Plan or any Stock
Option in a manner consistent therewith. Any provisions inconsistent with such
provision of N.J.A.C. and such Rule and paragraph shall be inoperative and shall
not affect the validity of the Plan.
Section 21. Binding Effect
The terms of this Plan shall be binding upon its successors and
assigns.
Section 22. Savings Clause
The invalidity or illegality of any provision herein
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shall not be deemed to affect the validity of any other provision.
Section 23. Gender
As used herein, the masculine gender shall include the feminine
gender.
Section 24. No Rights to Continued Directorship
Nothing in this Plan or in any Stock Option granted hereunder shall
confer upon any Director any right to continue to serve as a director of the
Bank or shall interfere with or restrict in any way the right, which right is
hereby expressly reserved, to remove any Director as a director in accordance
with the by-laws and certificate of incorporation of the Bank and applicable
law.
Section 25. Miscellaneous
The terms of this Plan shall be binding upon the Bank, Key
Employees, Directors and their successors and assignees.
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<PAGE> 1
Exhibit 10(b)
SKYLANDS COMMUNITY BANK
1991 NON-QUALIFIED STOCK OPTION PLAN
1. Purpose of the Plan. This 1991 Non-Qualified Stock Option Plan (the
"Plan") is intended as an additional incentive to Key Employees of Skylands
Community Bank (the "Company"), in order that they may enter into or remain in
the employ of the Company and its Subsidiaries and to devote themselves to the
Company's success, by providing them with an opportunity to acquire or increase
their proprietary interest in the Company through receipt of Options to acquire
the Company's Common Stock. Accordingly, the Company shall, from time to time
during the effective period of this Plan, grant to Key Employees Options to
purchase shares of the Company's Common Stock in the manner and subject to the
conditions specified in this Plan.
2.Definitions.
2.1 "Board" shall mean the Company's Board of Directors.
2.2 "Code" shall mean the Internal Revenue Code of 1986, as amended.
References to a section of the Code shall include such section as it is
currently in force, as it may be amended from time to time, and shall include
any substitute section.
2.3 "Common Stock" shall mean the Common Stock, par value $2.50 per share,
of the Company, except as this definition may be modified as provided in Section
14.
2.4 "Department" shall mean the New Jersey Department of Banking.
2.5 "Disability" shall mean permanent and total disability, as defined in
Section 22(e)(3) of the Code.
2.6 "Employee Option" shall mean an Option granted to a Grantee who is a
Key Employee of the Company or any Subsidiary.
2.7 "Fair Market Value" shall mean the good faith determination of the
Committee as to the fair market value of a share using any reasonable method of
valuation.
2.8 "Grantee" shall mean a Key Employee of the Company or any of its
Subsidiaries to whom an Option is granted.
2.9 "Key Employees" shall mean those employees (including executive
officers and directors who are also employees) of the Company and any
Subsidiaries who, in the judgement of the Committee, are considered important to
the future of the Company.
2.10 "Act" shall mean the New Jersey Bank Officers and Employees' Stock
Option Plan Act.
2.11 "Non-Employee Director" shall mean a member of the Board of Directors
of the Company who is neither an employee nor an officer of the Company or any
of its Subsidiaries.
2.12 "Option" shall mean a non-qualified stock option granted pursuant to
this Plan the tax consequences as to which are generally governed by Section 83
of the Code.
2.13 "Plan" shall mean this 1991 Non-Qualified Stock Option Plan of the
Company.
2.14 "Stock Option Committee" or "Committee" shall mean the individuals
designated from time to time by the Board to perform administrative functions
pursuant to Section 3 of this Plan.
2.15 "Subsidiary" shall mean any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if, at the time an
Option is granted hereunder, each of the
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corporations (other than the last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
3. Administration. 3.1 This Plan shall be administered by the Stock Option
Committee. The Committee shall consist of three or more members, all of whom
shall be Non-Employee Directors. The Committee shall be appointed by, and shall
serve at the pleasure of, the Board of Directors. A majority of the members
present at any meeting at which a quorum is present, and any acts approved in
writing by all of the members of the Committee without a meeting, shall
constitute the acts of the Committee.
3.2 Any discretionary authority vested in the Committee shall not be
exercised in contravention of the terms of this Plan.
3.3 Subject to the provisions of this Plan and the applicable requirements
of federal and state law, the Committee shall have authority, in its discretion,
to take the following actions:
(a) to determine the Key Employees to be granted Options under this
Plan;
(b) to determine the number of shares subject to each Option;
(c) to determine the time or times at which Options will be granted;
(d) to determine the option price of the shares subject to each
Option, which price shall be not less than the minimum specified in
Section 7 of this Plan;
(e) to determine or change the time or times when each Option
becomes exercisable and the duration of the exercise period; provided,
however, that no Option shall be exercisable until (i) two-thirds of the
holders of shares of Common Stock of the Company entitled to vote at a
meeting of the Company's stockholders, voting as a single class, shall
have approved the Plan; or (ii) the Company shall have fully complied with
the terms and provisions of the Act;
(f) to prescribe the form or forms of the instruments evidencing any
Options granted under this Plan (which forms shall be consistent with this
Plan but need not be identical to one another);
(g) to adopt, amend and rescind such rules and regulations as it
determines are necessary or advisable in the administration of this Plan;
(h) to construe and interpret this Plan, the rules and regulations
and the instruments evidencing Options granted under this Plan and to make
all other determinations deemed necessary or advisable for the
administration of this Plan;
(i) to delegate such administrative functions as it deems
appropriate; and
(j) in general, to exercise full and final authority (consistent
with this Plan) over all matters relating to the Plan, the powers
denominated above being by way of example and not of limitation.
Any interpretation, determination or other action made or taken by the
Committee shall be final, binding and conclusive.
3.4 No member of the Committee shall be personally liable to the Company
or its stockholders for damages for any action taken or determination made in
good faith. The members of the Committee shall be indemnified by the Company for
any acts or omissions in connection with the Plan to the full extent permitted
by the Company's Certificate of Incorporation and New Jersey law.
4. Shares Available for Options. 4.1 The aggregate number of shares of
Common Stock for which Options may be granted under this Plan shall be 50,006
shares of Common Stock, subject to adjustment as provided in Section 14. Such
shares shall be reserved for Options granted under this Plan.
4.2 The shares transferred by the Company upon the exercise of Options
under this Plan shall consist of authorized but unissued shares of Common Stock.
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<PAGE> 3
4.3 The aggregate number of shares of Common Stock that may be issued or
purchased under this Plan shall not exceed 5% of the outstanding shares of
Common Stock of the Company at the time of the adoption of the Plan. The
aggregate number of shares of Common Stock that may be issued or purchased under
this Plan when taken together with the number of shares of Common Stock which
may be issued or purchased under any other plan providing for options shall not
exceed 10% of the outstanding shares of Common Stock of the Company at the time
of adoption of the Plan.
4.4 If an Option granted under this Plan shall expire or terminate for any
reason without having been fully exercised, then the unexercised portion of such
Option shall again be available for the granting of other Options under this
Plan.
4.5 Options granted under this Plan shall be non-qualified stock options
whose tax consequences are generally governed by section 83 of the Code. All
Options granted hereunder shall be clearly identified as non-qualified stock
options.
5. Eligibility. 5.1 The Committee may, consistent with the purposes and
terms of this Plan, grant options, from time to time, to Key Employees of the
Company and its Subsidiaries, and covering such number of shares of Common Stock
as it may determine. Grantees, including those who have been granted options
under stock option plans heretofore or hereafter adopted by the Company, may
receive more than one Option under the Plan, subject to the limitations of this
Plan.
5.2 No director of the Company or any Subsidiary, who is not also a Key
Employee, shall be entitled to receive options under the Plan.
6.Terms and Conditions of Employee Options. 6.1 Except as herein provided,
each Employee Option granted hereunder shall be exercisable for such period as
the Committee shall determine at the time of grant; provided, however, that (i)
such period may not commence until at least six months following the date of
grant, except in the event of the death, Disability, retirement in accordance
with the Company's retirement plans or involuntary termination of employment
other than for cause of the Grantee before the expiration of such period; (ii)
no Option shall be exercisable until two-thirds of the holders of shares of
Common Stock of the Company entitled to vote at a meeting of the Company's
stockholders, voting as a single class, shall have approved the Plan; (iii) the
Company shall have fully complied with terms and provisions of the Act; (iv) in
no event shall an Option be exercisable more than ten years from the date of
grant thereof. Options shall be subject to earlier termination as hereinafter
provided.
6.2 An Employee Option shall terminate immediately, and no rights
thereunder may be exercised, if the person to whom it is granted ceases to be
employed by the Company or any Subsidiary, except that:
(a) Subject to the limitations on exercisability set forth in
Section 6.1, if the Grantee dies while in the employ of the Company or any
Subsidiary, the Grantee's rights under the Option may be exercised as to
all shares of Common Stock covered thereby, by his legal representative or
by the person or persons to whom such rights under the Option shall pass
by will or by the laws of descent and distribution, at any time within
twelve months following his death;
(b) if the employment of the Grantee is terminated because of
Disability, the Grantee's rights under the Option may be exercised as to
all shares of Common Stock covered thereby, by the Grantee or his guardian
or other legal representative, at any time within twelve months following
termination of his employment because of Disability;
(c) if the employment of the Grantee is terminated by reason of his
retirement in accordance with the terms of the Company's retirement plans
or with the consent of the Committee or is involuntarily terminated other
than for cause, the Grantee's rights under the Option may be exercised as
to all shares of Common Stock covered thereby, at any time within 3 months
after termination of employment. Termination for cause shall mean
termination of employment by
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<PAGE> 4
reason of habitual alcohol or drug abuse, commission of a felony, fraud,
willful misconduct, the unauthorized disclosure of any Company data,
secret or financial, which has resulted, or is likely to result, in damage
to the Company, all as the Board in its sole and absolute discretion,
shall determine.
6.3 Notwithstanding anything contained in Section 6.2 to the contrary, no
Option rights shall be exercisable by anyone after the expiration of the term of
the Option.
6.4 Transfers of employment between the Company and any Subsidiary or
between Subsidiaries shall not constitute termination of employment for purposes
of any Option granted under the Plan. For purposes of this Plan, an employee who
is on a leave of absence approved by the Company or any Subsidiary shall not be
deemed to have terminated his employment.
6.5 In its sole discretion, the Committee may extend the exercise period
provided for in Section 6.2(a), (b) and (c).
7. Option Price. 7.1 The option price shall be not less than 85% of the
Fair Market Value of the shares subject to such Option on the date of grant.
7.2 Notwithstanding any provisions in Section 7.1 to the contrary, in no
event shall the option price of authorized but unissued shares of Common Stock
of the Company be less than the par value of such stock.
8. Non-Transferability of Options. No Option granted under this Plan shall
be transferable by the Grantee otherwise than by will or the laws of descent and
distribution, and, except as otherwise provided in Section 6, such Option may
only be exercised by the Grantee during his lifetime.
9. Option Agreements. 9.1 The grant of every Option shall be evidenced by
and conditioned upon the execution of a written option agreement between the
Company and the Grantee. The option agreement shall set forth the number of
shares subject to the Option, the option price, the term during which the Option
may be exercised, and any other provisions not inconsistent with the provisions
of this Plan, which the Committee may deem necessary or appropriate from time to
time. The Committee may approve a form or forms of option agreements which the
Committee, in its discretion, may specify as the sole forms of option agreement
effective to grant Options to Key Employees under this Plan.
9.2 Notwithstanding the date upon which an option agreement may be
executed, the date upon which an Option is deemed to be granted shall be the
effective date of the approval of an Employee Option by the Committee.
10. Option Exercise and Payment. 10.1 Subject to Sections 5, 6 and 7, each
Option granted under this Plan shall be exercisable on such date or dates and
during such period and for such number of shares as shall be determined pursuant
to the provisions of the option agreement evidencing such Option.
10.2 A Grantee electing to exercise an Option shall give written notice to
the Committee of such election and of the number of full shares he elects to
purchase. Options shall be exercisable in such amounts as the Grantee may elect
subject to such restrictions as the Committee or this Plan may provide.
10.3 Payment of the option price shall be tendered to the Company in cash,
including certified check, bank draft or money order.
11. No Rights as Stockholder. Neither the Grantee nor the personal
representatives, heirs or legatees of such Grantee shall be or have any rights
or privileges of a stockholder of the Company with respect to any shares subject
to an Option unless and until certificates evidencing such shares shall have
been issued and delivered to the Grantee or to such personal representatives,
heirs or legatees.
12. No Rights to Continued Employment. This Plan and any Option granted
under the Plan shall not confer upon any Grantee any right with respect to
continuation of employment by the Company or
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<PAGE> 5
any Subsidiary, nor shall they interfere in any way with the right of the
Company or any Subsidiary by which a Grantee is employed to terminate his
employment at any time.
13. Additional Property. At the time any Option is exercised, the
Committee, in its discretion, may transfer to the Grantee such additional
property as it may determine, including, without limitation, cash or stock
appreciation rights.
14. Adjustment Upon Changes in Capitalization. The instruments evidencing
Options granted hereunder shall contain such provisions as the Committee shall
deem appropriate to adjust the number and classes of shares covered thereby, or
to adjust the option prices, or both, in the event of the sale or other
disposition or distribution by the Company of all or a portion of its assets or
any change in the outstanding Common Stock of the Company by reason of stock
dividends, stock split-ups, recapitalizations, reorganizations, mergers,
consolidations, combinations or exchanges of shares or the like, of or by the
Company. To prevent dilution or enlargement of rights in the event of any such
change, the aggregate number and classes of shares for which Options thereafter
may be granted under this Plan may be appropriately adjusted as determined by
the Committee so as to reflect such change.
15. Withholding Taxes. Whenever under the Plan shares of Common Stock are
to be issued upon exercise of Options, the Company shall have the right to
require the Grantee to remit to the Company an amount sufficient to satisfy any
federal, state and local withholding tax requirements prior to the delivery of
any certificate or certificates for such shares. In the alternative, at the
Grantee's request and at the sole discretion of the Committee, the Company may
withhold that number of shares of Common Stock covered by the Option or allow
the Grantee to deliver already-owned shares of Common Stock (in either case
based on the Fair Market Value of such shares on the date of exercise) which
would satisfy the withholding tax amounts due in connection with the shares to
be issued to the Grantee upon exercise of the Grantee's Option.
16. Necessity of Stockholder Approval. This Plan and any Options granted
hereunder shall be null, void and of no effect unless this Plan has been
previously approved by two-thirds of the holders of Common Stock of the Company,
voting as a single class, within twelve (12) months after the date of the Plan's
adoption by the Board.
17. Duration and Amendment of the Plan. 17.1 No Option may be granted
under this Plan after the expiration of ten (10) years from the earlier of: (a)
the date this Plan is adopted by the Board or (b) the date this Plan is approved
by the stockholders of the Company.
17.2 The Board may amend, terminate or suspend this Plan at any time;
provided, however, that no such amendment shall, without approval of the
Company's stockholders, (a) increase the aggregate number of shares as to which
Options may be granted under this Plan except as specified in Section 14; (b)
change the number of shares subject to Options or the date of grant or the
exercise price of such Options; (c) materially modify the requirements as to
eligibility for participation in this Plan; or (d) materially increase the
benefits accruing to participants in this Plan.
17.3 No Option may be granted during any suspension of this Plan or after
this Plan has been terminated; and no amendment, suspension or termination
shall, without the Grantee's consent, alter or impair any of the Grantee's
rights or obligations under any Option theretofore granted to him under this
Plan except insofar as a merger or consolidation of the Company or termination
of employment of a Grantee or a liquidation or dissolution shall affect the
cancellation of an Option.
18. Applicable Law. This Plan shall be governed by, and construed in
accordance with, the laws of the State of New Jersey.
19. Binding Effect. The terms of this Plan shall be binding upon its
successors and assigns.
20. Savings Clause. The invalidity or illegality of any provision herein
shall not be deemed to affect the validity of any other provision.
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<PAGE> 6
SKYLANDS COMMUNITY BANK
AMENDMENT TO 1991 NON-QUALIFIED STOCK OPTION PLAN
4. Shares Available for Options. 4.1 The aggregate number of shares of
Common Stock for which Options may be granted under this Plan shall be 72,083
shares of Common Stock, subject to adjustment as provided in Section 14. Such
shares shall be reserved for Options granted under this Plan.
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<PAGE> 1
Exhibit 10(c)
SKYLANDS COMMUNITY BANK
1997 INCENTIVE STOCK OPTION PLAN
1. Purpose of the Plan.
This 1997 Incentive Stock Option Plan (the "Plan") is intended as an
additional incentive to Key Employees of Skylands Community Bank (the
"Bank"), in order that they may enter into or remain in the employ of the
Bank and to devote themselves to the Bank's success, by providing them
with an opportunity to acquire or increase their proprietary interest in
the Bank through the receipt of Options to acquire the Bank's Common
Stock. Accordingly, the Bank shall, from time to time during the effective
period of this Plan, grant to Key Employees Options to purchase shares of
the Bank's Common Stock in the manner and subject to the conditions
specified in this Plan.
2. Definitions.
2.1 "Act" shall mean the New Jersey Bank Officers and Employees' Stock
Option Plan Act.
2.2 "Bank" shall mean Skylands Community Bank and any present or future
parent or subsidiary corporations (as defined in Section 424 of the
Code) or any successor to the Bank or to such corporations.
2.3 "Board" shall mean the Bank's Board of Directors.
2.4 "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated thereunder.
2.5 "Committee" shall mean the Stock Option Committee of the Board (or
any successor committee of the Board responsible for administering
this Plan), which shall consist of three or more directors, each of
whom shall be a "disinterested person" within the meaning of Rule
16b-3(c) under the Securities Exchange Act, to administer this Plan
and perform the functions set forth herein.
2.6 "Common Stock" shall mean the Common Stock, par value $2.50 per
share, of the Bank.
2.7 "Director" shall mean a member of the Board.
2.8 "Disability" shall mean permanent and total disability, as defined
in Section 22(e)(3) of the Code.
2.9 "Fair Market Value" shall mean with respect to shares of Common
Stock, the fair market value as determined by the Committee in good
faith and in a manner established by the Committee from time to time
using any reasonable method of valuation; provided, that in the
event the shares of Common Stock are listed for trading on a
national or regional securities exchange (including the NASDAQ
National Market System), the "fair market value" of such shares
shall be, on any date, the mean between the high and low selling
prices for the Common Stock on such exchange, or if not so listed,
the mean between the high bid and the low asked prices for the
Common Stock as reported by the National Association of Securities
Dealers Automated Quotation System, on the business day immediately
preceding such date (or, if no such sales or prices were made or
reported, on the next preceding date on which there were such sales
or quotes on such exchange or market).
2.10 "Grantee" shall mean a Key Employee of the Bank to whom an Option is
granted.
2.11 "Incentive Stock Option" or "ISO" shall mean an option to purchase
shares of Common Stock granted to a Key Employee under this Plan
which is intended to meet the requirements of Section 422 of the
Code as of the date of grant.
2.12 "Key Employees" shall mean those employees (including executive
officers and directors who are also employees) of the Bank who, in
the judgment of the Committee, are considered important to the
future of the Bank.
2.13 "Option" shall mean an ISO granted pursuant to this Plan.
2.14 "Plan" shall mean this 1997 Incentive Stock Option Plan of the Bank.
2.15 "Securities Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time, and the rules and regulations
promulgated thereunder, and any successor provisions thereto.
<PAGE> 2
3. Administration.
3.1 This Plan shall be administered by the Committee. The Committee
shall be appointed by, and shall serve at the pleasure of, the Board
of Directors. Acts taken by a majority of the members present at any
meeting at which a quorum is present, and any acts approved in
writing by all of the members of the Committee without a meeting,
shall constitute the acts of the Committee.
3.2 Any discretionary authority vested in the Committee shall not be
exercised in contravention of the terms of this Plan.
3.3 Subject to the provisions of this Plan and the applicable
requirements of federal and state law, the Committee shall have
authority, in its discretion, to take the following actions:
(a) to determine the Key Employees to be granted Options under
this Plan;
(b) to determine the number of shares subject to each Option;
(c) to determine the time or times at which Options will be
granted;
(d) to determine the option price of the shares subject to each
Option, which price shall be not less than the minimum
specified in Section 7 of this Plan;
(e) to determine or change the time or times when each Option
becomes exercisable and the duration of the exercise period;
provided, however, that no Option shall be exercisable until
(i) the holders of two-thirds of the shares of Common Stock of
the Bank entitled to vote at a meeting of the Bank's
stockholders, voting as a single class, shall have approved
this Plan; and (ii) the Bank shall have fully complied with
the terms and provisions of the Act;
(f) to prescribe the form or forms of the instruments evidencing
any Options granted under this Plan (which forms shall be
consistent with this Plan but need not be identical to one
another);
(g) to adopt, amend and rescind such rules and regulations from
time to time as it determines are necessary or advisable in
the administration of this Plan;
(h) to construe and interpret this Plan, the rules and regulations
and the instruments evidencing Options granted under this
Plan, decide all disputes arising in connection with this Plan
and to make all other determinations deemed necessary or
advisable for the administration of this Plan;
(i) to delegate such administrative functions as it deems
appropriate; and
(j) in general, to exercise full and final authority (consistent
with this Plan) over all matters relating to this Plan, the
powers denominated above being by way of example and not of
limitation.
Any interpretation, determination or other action made or taken by
the Committee shall be final, binding and conclusive.
3.4 No member of the Committee shall be personally liable to the Bank or
its stockholders for damages for any action taken or determination
made in good faith. The members of the Committee shall be
indemnified by the Bank for any acts or omissions in connection with
this Plan to the full extent permitted by the Bank's Certificate of
Incorporation and New Jersey law.
4. Shares Available for Options.
4.1 The aggregate number of shares of Common Stock for which Options may
be granted under this Plan shall be 180,000 shares of Common Stock,
subject to adjustment as provided in Section 14. Such shares shall
be reserved for Options granted under this Plan.
4.2 The shares transferred by the Bank upon the exercise of Options
under this Plan shall consist of authorized but previously unissued
shares of Common Stock.
4.3 [Intentionally omitted]
4.4 If an Option granted under this Plan shall expire or terminate for
any reason without having been fully exercised, then the unexercised
portion of such Option shall again be available for the granting of
other Options under this Plan.
4.5 Options granted under this Plan shall be Incentive Stock Options.
All Options granted hereunder shall be clearly identified as
Incentive Stock Options.
2
<PAGE> 3
5. Eligibility; Grant of Options.
5.1 The Committee may, consistent with the purposes and terms of this
Plan, grant Options, from time to time, to Key Employees of the
Bank, and covering such number of shares of Common Stock as it may
determine. Grantees, including those who have been granted options
under stock option plans heretofore or hereafter adopted by the
Bank, may receive more than one Option under this Plan, subject to
the limitations of this Plan.
5.2 No director of the Bank who is not also a Key Employee shall be
entitled to receive options under this Plan.
5.3 Each Option may be granted alone, in addition to or in relation to
any other Option. The terms of each Option need not be identical,
and the Committee need not treat Grantees uniformly. Except as
otherwise provided by this Plan or a particular Option, any
determination with respect to an Option may be made by the Committee
at the time of grant or at any time thereafter.
5.4 Options granted pursuant to this Plan shall be subject to and comply
with Section 422 of the Code. Anything in this Plan to the contrary
notwithstanding, no term of this Plan relating to Options shall be
interpreted, amended or altered, nor shall any discretion or
authority granted to the Committee under this Plan be so exercised
so as to cause any Option granted hereunder to not comply fully with
the requirements of Section 422 of the Code as of the date of grant.
6. Term of Options.
6.1 Except as herein provided, each Option granted hereunder shall be
exercisable for such period as the Committee shall determine at the
time of grant; provided, however, that (i) the Bank shall have fully
complied with the terms and provisions of the Act and the Securities
Exchange Act; and (ii) in no event shall an Option be exercisable
more than ten years from the date of grant thereof; provided,
however, that if a Key Employee owns or is deemed to own (by reason
of the attribution rules of Section 424(d) of the Code) more than
10% of the total combined voting power of all classes of stock of
the Bank, and an Option is granted to such Key Employee, such Option
shall not be exercisable after the expiration of five (5) years from
the date of grant. Options shall be subject to earlier termination
as hereinafter provided.
6.2 An Option shall terminate immediately, and no rights thereunder may
be exercised, if the person to whom it is granted ceases to be
employed by the Company, except that:
(a) Subject to the limitations on exercisability set forth in
Section 6.1, if the Grantee dies while in the employ of the
Bank, the Grantee's rights under the Option may be exercised
as to all shares of Common Stock covered thereby, by his legal
representative or by the person or persons to whom such rights
under the Option shall pass by will or by the laws of descent
and distribution, at any time within twelve (12) months
following his death;
(b) if the employment of the Grantee is terminated because of
Disability, the Grantee's rights under the Option may be
exercised as to all shares of Common Stock covered thereby, by
the Grantee or his guardian or other legal representative, at
any time within twelve (12) months following termination of
his employment because of Disability; and
(c) if the employment of the Grantee is terminated by reason of
his retirement or involuntary termination other than for
cause, the Grantee's rights under the Option may be exercised
as to all shares of Common Stock covered thereby at any time
within three (3) months after termination of employment.
6.3 Notwithstanding anything contained in Section 6.2 to the contrary,
no Option shall be exercisable by anyone after the expiration of the
term of the Option.
6.4 Transfers of employment between the Bank and any subsidiary or
between subsidiaries shall not constitute termination of employment
for purposes of any Option granted under this Plan. For purposes of
this Plan, an employee who is on a leave of absence approved by the
Bank or any subsidiary shall not be deemed to have terminated his
employment.
7. Option Price.
7.1 The option price per share of Common Stock purchasable under an
Option shall be not less than 100% of the Fair Market Value of the
Common Stock on the date of grant; provided, however, that if the
Key Employee owns or is deemed to own (by reason of the attribution
rules applicable
3
<PAGE> 4
under Section 424(d) of the Code) more than 10% of the combined
voting power of all classes of stock of the Bank and an Option is
granted to such Key Employee, the Option price shall be not less
than 110% of Fair Market Value of the Common Stock on the date of
grant.
7.2 Notwithstanding any provisions in Section 7.1 to the contrary, in no
event shall the option price of authorized but unissued shares of
Common Stock of the Bank be less than the par value of such stock.
8. Non-Transferability of Options.
No Option granted under this Plan shall be transferable by the Grantee
otherwise than by will or the laws of descent and distribution, and,
except as otherwise provided herein, such Option may only be exercised
during a Grantee's lifetime by the Grantee or the Grantee's duly appointed
guardian or personal representative.
9. Option Agreements.
9.1 The grant of every Option shall be evidenced by and conditioned upon
the execution of a written option agreement between the Bank and the
Grantee. The option agreement shall set forth the number of shares
subject to the Option, the option price, the term during which the
Option may be exercised, and any other provisions not inconsistent
with the provisions of this Plan, which the Committee may deem
necessary or appropriate from time to time. The option agreement
shall not contain any provision which would cause such Option
granted thereunder to fail to qualify as an Incentive Stock Option
under Section 422 of the Code as of the date of grant. The Committee
may approve a form or forms of option agreements which the
Committee, in its discretion, may specify as the sole forms of
option agreement effective to grant Options to Key Employees under
this Plan.
9.2 Notwithstanding the date upon which an option agreement may be
executed, the date upon which an Option is deemed to be granted
shall be the effective date of the approval of an Option by the
Committee.
10. Option Exercise and Payment.
10.1 Subject to Sections 5, 6 and 7, each Option granted under this Plan
shall be exercisable on such date or dates and during such period
and for such number of shares as shall be determined pursuant to the
provisions of the option agreement evidencing such Option.
10.2 A Grantee electing to exercise an Option shall give written notice
to the Committee of such election and of the number of full shares
he elects to purchase. Options shall be exercisable in such amounts
as the Grantee may elect subject to such restrictions as the
Committee or this Plan may provide.
10.3 Subject to the other provisions of this Plan and applicable state
and federal law, payment of the option price shall be tendered to
the Bank (i) in cash, or by certified check, bank draft or money
order, or (ii) at the discretion of the Committee, by delivering
Common Stock already owned by the Grantee or a combination of such
Common Stock and cash, or by delivering a promissory note,
containing such terms and conditions acceptable to the Committee,
for all or a portion of the purchase price of the shares purchased,
and shall comply with such other requirements as the Committee shall
establish in accordance with this Plan. With respect to clause (ii)
above, the Fair Market Value of Common Stock so delivered shall be
determined as of the date immediately preceding the date the Option
is exercised. If payment is made in whole or in part in shares of
Common Stock, the Grantee shall deliver to the Bank certificates
registered in the name of the Grantee representing shares of Common
Stock owned by such Grantee, free of all liens, claims and
encumbrances of every kind, accompanied by stock powers duly
endorsed in blank by the Grantee.
10.4 A Key Employee shall notify the Committee in writing in the event
that he disposes of Common Stock acquired upon exercise of an Option
within the two-year period following the date the Option was granted
or within the one-year period following the date he received Common
Stock upon the exercise of the Option and shall comply with any
other requirements imposed by the Bank in order to enable the Bank
to secure the related income tax deduction to which it will be
entitled in such event under the Code.
4
<PAGE> 5
11. No Rights as Stockholder.
Neither the Grantee nor the personal representatives, heirs or legatees of
such Grantee shall be or have any rights or privileges of a stockholder of
the Bank with respect to any shares subject to an Option unless and until
certificates evidencing such shares shall have been issued and delivered
to the Grantee or to such personal representatives, heirs or legatees.
12. No Rights to Continued Employment.
This Plan and any Option granted under this Plan shall not confer upon any
Grantee any right with respect to continuation of employment by the Bank,
nor shall they interfere in any way with the right of the Bank to
terminate his employment at any time.
13. Additional Property.
At the time any Option is exercised, the Committee, in its discretion, may
transfer to the Grantee such additional property as it may determine,
including, without limitation, cash or stock appreciation rights.
14. Adjustment Upon Changes in Capitalization.
The instruments evidencing Options granted hereunder shall contain such
provisions as the Committee shall deem appropriate to adjust the number
and classes of shares covered thereby, or to adjust the option prices, or
both, in the event of the sale or other disposition or distribution by the
Bank of all or a portion of its assets or any change in the outstanding
Common Stock of the Bank by reason of stock dividends, stock splits,
recapitalizations, reorganizations, mergers, consolidations, combinations
or exchanges of shares or the like, of or by the Bank. To prevent dilution
or enlargement of rights in the event of any such change, the aggregate
number and classes of shares for which Options thereafter may be granted
under this Plan may be appropriately adjusted as determined by the
Committee so as to reflect such change.
15. Necessity of Stockholder Approval.
This Plan and any Options granted hereunder shall be null, void and of no
effect unless this Plan has been approved by the holders of two-thirds of
the Common Stock of the Bank, voting as a single class, within twelve (12)
months after the date of this Plan's adoption by the Board.
16. Duration and Amendment of the Plan.
16.1 No Option may be granted under this Plan after the expiration of ten
(10) years from the earlier of: (a) the date this Plan is adopted by
the Board or (b) the date this Plan is approved by the stockholders
of the Bank in accordance with the Act.
16.2 The Board or, if authorized by the Board, any committee of the
Board, may amend, terminate or suspend this Plan at any time;
provided, however, that no such amendment shall, without approval of
the Bank's stockholders, (a) increase the aggregate number of shares
as to which Options may be granted under this Plan except as
specified in Section 14; (b) change the number of shares subject to
Options or the date of grant or the exercise price of such Options
except as specified in Section 14; (c) materially modify the
requirements as to eligibility for participation in this Plan; or
(d) materially increase the benefits accruing to participants in
this Plan.
16.3 No Option may be granted during any suspension of this Plan or after
this Plan has been terminated, and no amendment, suspension or
termination shall, without the Grantee's consent, alter or impair
any of the Grantee's rights or obligations under any Option
theretofore granted to him under this Plan except insofar as a
merger or consolidation of the Bank or termination of employment of
a Grantee or a liquidation or dissolution shall affect the
cancellation of an Option.
17. Applicable Law.
To the extent that state laws shall not have been preempted by any laws of
the United States, this Plan shall be governed by, and construed in
accordance with, the laws of the State of New Jersey.
18. Binding Effect.
The terms of this Plan shall be binding upon the Bank's successors and
assigns.
19. Savings Clause.
The invalidity or illegality of any provision herein shall not be deemed
to affect the validity of any other provision.
5
<PAGE> 1
Exhibit 10(d)
SKYLANDS COMMUNITY BANK
1996 INCENTIVE STOCK OPTION PLAN
1. Purpose of the Plan. This 1996 Incentive Stock Option Plan (the "Plan")
is intended as an additional incentive to Key Employees of Skylands Community
Bank (the "Bank"), in order that they may enter into or remain in the employ of
the Bank and to devote themselves to the Bank's success, by providing them with
an opportunity to acquire or increase their proprietary interest in the Bank
through the receipt of Options to acquire the Bank's Common Stock. Accordingly,
the Bank shall, from time to time during the effective period of this Plan,
grant to Key Employees Options to purchase shares of the Bank's Common Stock in
the manner and subject to the conditions specified in this Plan.
2. Definitions.
2.1 "Act" shall mean the New Jersey Bank Officers and Employees'
Stock Option Plan Act.
2.2 "Bank" shall mean Skylands Community Bank and any present or
future parent or subsidiary corporations (as defined in Section 424 of the Code)
or any successor to the Bank or to such corporations.
2.3 "Board" shall mean the Bank's Board of Directors.
2.4 "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and the regulations promulgated thereunder.
2.5 "Committee" shall mean the Stock Option Committee of the Board
(or any successor committee of the Board responsible for administering this
Plan), which shall consist of three or more directors, each of whom shall be a
"disinterested person" within the meaning of Rule 16b-3(c) under the Securities
Exchange Act, to administer this Plan and perform the functions set forth
herein.
2.6 "Common Stock" shall mean the Common Stock, par value $2.50 per
share, of the Bank.
2.7 "Director" shall mean a member of the Board.
2.8 "Disability" shall mean permanent and total disability, as
defined in Section 22(e)(3) of the Code.
2.9 "Fair Market Value" shall mean with respect to shares of Common
Stock, the fair market value as determined by the Committee in good faith and in
a manner established by the Committee from time to time using any reasonable
method of valuation; provided, that in the event the shares of Common Stack are
listed for trading on a national or regional securities exchange (including the
NASDAQ National Market System), the "fair market value" of such shares shall be,
on any date, the mean between the high and low selling prices for the Common
Stock on such exchange, or if not so listed, the mean between the high bid and
the low asked prices for the Common Stock as reported by the National
Association of Securities Dealers Automated Quotation System, on the business
day immediately preceding such date (or, if no such sales or prices were made or
reported, on the next preceding date on which there were such sales or quotes on
such exchange or market).
2.10 "Grantee" shall mean a Key Employee of the Bank to whom an
Option is granted.
2.11 "Incentive Stock Option" or "ISO" shall mean an option to
purchase shares of Common Stock granted to a Key Employee under this Plan which
is intended to meet the requirements of Section 422 of the Code.
2.12 "Key Employees" shall mean those employees (including executive
officers and directors who are also employees) of the Bank who, in the judgment
of the Committee, are considered important to the future of the Bank.
1
<PAGE> 2
2.13 "Option" shall mean an ISO granted pursuant to this Plan.
2.14 "Plan" shall mean this 1996 Incentive Stock Option Plan of the
Bank.
2.15 "Securities Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended from time to time, and the rules and regulations
promulgated thereunder, and any successor provisions thereto.
3. Administration.
3.1 This Plan shall be administered by the Committee. The Committee
shall be appointed by, and shall serve at the pleasure of, the Board of
Directors. Acts taken by a majority of the members present at any meeting at
which a quorum is present, and any acts approved in writing by all of the
members of the Committee without a meeting, shall constitute the acts of the
Committee.
3.2 Any discretionary authority vested in the Committee shall not be
exercised in contravention of the terms of this Plan.
3.3 Subject to the provisions of this Plan and the applicable
requirements of federal and state law, the Committee shall have authority, in
its discretion, to take the following actions:
(a) to determine the Key Employees to be granted Options under
this Plan;
(b) to determine the number of shares subject to each Option;
(c) to determine the time or times at which Options will be
granted;
(d) to determine the option price of the shares subject to
each Option, which price shall be not less than the minimum specified in Section
7 of this Plan;
(e) to determine or change the time or times when each Option
becomes exercisable and the duration of the exercise period; provided, however,
that no Option shall be exercisable until (i) two-thirds of the holders of
shares of Common Stock of the Bank entitled to vote at a meeting of the Bank's
stockholders, voting as a single class, shall have approved this Plan; and (ii)
the Bank shall have fully complied with the terms and provisions of the Act;
(f) to prescribe the form or forms of the instruments
evidencing any Options granted under this Plan (which forms shall be consistent
with this Plan but need not be identical to one another);
(g) to adopt, amend and rescind such rules and regulations
from time to time as it determines are necessary or advisable in the
administration of this Plan;
(h) to construe and interpret this Plan, the rules and
regulations and the instruments evidencing Options granted under this Plan,
decide all disputes arising in connection with this Plan and to make all other
determinations deemed necessary or advisable for the administration of this
Plan;
(i) to delegate such administrative functions as it deems
appropriate; and
(j) in general, to exercise full and final authority
(consistent with this Plan) over all matters relating to this Plan, the powers
denominated above being by way of example and not of limitation.
Any interpretation, determination or other action made or taken by
the Committee shall be final, binding and conclusive.
3.4 No member of the Committee shall be personally liable to the
Bank or its stockholders for damages for any action taken or determination made
in good faith. The members of the Committee shall be indemnified by the Bank for
any acts or omissions in connection with this Plan to the full extent permitted
by the Bank's Certificate of Incorporation and New Jersey law.
2
<PAGE> 3
4. Shares Available for Options.
4.1 The aggregate number of shares of Common Stock for which Options
may be granted under this Plan shall be 71,280 shares of Common Stock, subject
to adjustment as provided in Section 14. Such shares shall be reserved for
Options granted under this Plan.
4.2 The shares transferred by the Bank upon the exercise of Options
under this Plan shall consist of authorized but previously unissued shares of
Common Stock.
4.3 The aggregate number of shares of Common Stock that may be
issued or purchased under this Plan shall not exceed 5% of the outstanding
shares of Common Stock of the Bank at the time of the adoption of this Plan. The
aggregate number of shares of Common Stock that may be issued or purchased under
this Plan, when taken together with the number of shares of Common Stock which
may be issued or purchased under any other plan providing for options, shall not
exceed 10% of the outstanding shares of Common Stock of the Bank at the time of
adoption of this Plan.
4.4 If an Option granted under this Plan shall expire or terminate
for any reason without having been fully exercised, then the unexercised portion
of such Option shall again be available for the granting of other Options under
this Plan.
4.5 Options granted under this Plan shall be Incentive Stock
Options. All Options granted hereunder shall be clearly identified as Incentive
Stock Options.
5. Eligibility; Grant of Options.
5.1 The Committee may, consistent with the purposes and terms of
this Plan, grant Options, from time to time, to Key Employees of the Bank, and
covering such number of shares of Common Stock as it may determine. Grantees,
including those who have been granted options under stock option plans
heretofore or hereafter adopted by the Bank, may receive more than one Option
under this Plan, subject to the limitations of this Plan.
5.2 No director of the Bank who is not also a Key Employee shall be
entitled to receive options under this Plan.
5.3 Each Option may be granted alone, in addition to or in relation
to any other Option. The terms of each Option need not be identical, and the
Committee need not treat Grantees uniformly. Except as otherwise provided by
this Plan or a particular Option, any determination with respect to an Option
may be made by the Committee at the time of grant or at any time thereafter.
5.4 Options granted pursuant to this Plan shall be subject to and
comply with Section 422 of the Code. Anything in this Plan to the contrary
notwithstanding, no term of this Plan relating to Options shall be interpreted,
amended or altered, nor shall any discretion or authority granted to the
Committee under this Plan be so exercised, so as to cause this Plan not to
comply fully with the requirements of Section 422 of the Code or, without the
consent of the Grantee, cause any Option granted under this Plan not to be
treated as an Incentive Stock Option under Section 422 of the Code.
6. Term of Options.
6.1 Except as herein provided, each Option granted hereunder shall
be exercisable for such period as the Committee shall determine at the time of
grant; provided, however, that (i) such period may not commence until at least
six months following the date of grant, except in the event of the death,
Disability, retirement or involuntary termination of employment other than for
cause of the Grantee before the expiration of such period; (ii) the Bank shall
have fully complied with the terms and provisions of the Act and the Securities
Exchange Act; and (iii) in no event shall an Option be exercisable more than ten
years from the date of grant thereof; provided, however, that if a Key Employee
owns or is deemed to own (by reason of the attribution rules of Section 424(d)
of the Code) more than 10% of the total combined voting power of all classes of
stock of the Bank, and an Option is granted to such Key Employee, such Option
shall not be exercisable after the expiration of five (5) years from the date of
grant. Options shall be subject to earlier termination as hereinafter provided.
3
<PAGE> 4
6.2 An Option shall terminate immediately, and no rights thereunder
may be exercised, if the person to whom it is granted ceases to be employed by
the Company, except that:
(a) Subject to the limitations on exercisability set forth in
Section 6.1, if the Grantee dies while in the employ of the Bank, the Grantee's
rights under the Option may be exercised as to all shares of Common Stock
covered thereby, by his legal representative or by the person or persons to whom
such rights under the Option shall pass by will or by the laws of descent and
distribution, at any time within twelve (12) months following his death;
(b) if the employment of the Grantee is terminated because of
Disability, the Grantee's rights under the Option may be exercised as to all
shares of Common Stock covered thereby, by the Grantee or his guardian or other
legal representative, at any time within twelve (12) months following
termination of his employment because of Disability; and
(c) if the employment of the Grantee is terminated by reason
of his retirement or is involuntary terminated other than for cause, the
Grantee's rights under the Option may be exercised as to all shares of Common
Stock covered thereby at any time within three (3) months after termination of
employment.
6.3 Notwithstanding anything contained in Section 6.2 to the
contrary, no Option shall be exercisable by anyone after the expiration of the
term of the Option.
6.4 Transfers of employment between the Bank and any subsidiary or
between subsidiaries shall not constitute termination of employment for purposes
of any Option granted under this Plan. For purposes of this Plan, an employee
who is on a leave of absence approved by the Bank or any subsidiary shall not be
deemed to have terminated his employment.
7. Option Price.
7.1 The option price per share of Common Stock purchasable under an
Option shall be not less than 100% of the Fair Market Value of the Common Stock
on the date of grant; provided, however, that if the Key Employee owns or is
deemed to own (by reason of the attribution rules applicable under Section
424(d) of the Code) more than 10% of the combined voting power of all classes of
stock of the Bank and an Option is granted to such Key Employee, the Option
price shall be not less than 110% of Fair Market Value of the Common Stock on
the date of grant.
7.2 Notwithstanding any provisions in Section 7.1 to the contrary,
in no event shall the option price of authorized but unissued shares of Common
Stock of the Bank be less than the par value of such stock.
7.3 The aggregate Fair Market Value, determined as of the date of
grant, of Common Stock with respect to which an Option under this Plan (or any
incentive stock options granted pursuant to any other plan of the Bank) is
exercisable for the first time by any Grantee during any calendar year shall not
exceed $100,000 or such other amount as may be prescribed by the Code.
8. Non-Transferability of Options. No Option granted under this Plan shall
be transferable by the Grantee otherwise than by will or the laws of descent and
distribution, and, except as otherwise provided herein, such Option may only be
exercised during a Grantee's lifetime by the Grantee or the Grantee's duly
appointed guardian or personal representative.
9. Option Agreements.
9.1 The grant of every Option shall be evidenced by and conditioned
upon the execution of a written option agreement between the Bank and the
Grantee. The option agreement shall set forth the number of shares subject to
the Option, the option price, the term during which the Option may be exercised,
and any other provisions not inconsistent with the provisions of this Plan,
which the Committee may deem necessary or appropriate from time to time. The
option agreement shall not contain any provision which would cause such Option
granted thereunder to fail to qualify as an Incentive Stock Option under Section
422 of the Code. The Committee may approve a form or forms of option
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agreements which the Committee, in its discretion, may specify as the sole forms
of option agreement effective to grant Options to Key Employees under this Plan.
9.2 Notwithstanding the date upon which an option agreement may be
executed, the date upon which an Option is deemed to be granted shall be the
effective date of the approval of an Option by the Committee.
10. Option Exercise and Payment.
10.1 Subject to Sections 5,6 and 7, each Option granted under this
Plan shall be exercisable on such date or dates and during such period and for
such number of shares as shall be determined pursuant to the provisions of the
option agreement evidencing such Option.
10.2 A Grantee electing to exercise an Option shall give written
notice to the Committee of such election and of the number of full shares he
elects to purchase. Options shall be exercisable in such amounts as the Grantee
may elect subject to such restrictions as the Committee or this Plan may
provide.
10.3 Subject to the other provisions of this Plan and applicable
state and federal law, payment of the option price shall be tendered to the Bank
(i) in cash, including certified check, bank draft or money order, or (ii) at
the discretion of the Committee, by delivering Common Stock already owned by the
Grantee or a combination of such Common Stock and cash, or by delivering a
promissory note, containing such terms and conditions acceptable to the
Committee, for all or a portion of the purchase price of the shares purchased,
and shall comply with such other requirements as the Committee shall establish
in accordance with this Plan. With respect to clause (ii) above, the Fair Market
Value of Common Stock so delivered shall be determined as of the date
immediately preceding the date the Option is exercised. If payment is made in
whole or in part in shares of Common Stock, the Grantee shall deliver to the
Bank certificates registered in the name of the Grantee representing shares of
Common Stock owned by such Grantee, free of all liens, claims and encumbrances
of every kind, accompanied by stock powers duly endorsed in blank by the
Grantee.
10.4 A Key Employee shall notify the Committee in writing in the
event that he disposes of Common Stock acquired upon exercise of an Option
within the two-year period following the date the Option was granted or within
the one-year period following the date he received Common Stock upon the
exercise of the Option and shall comply with any other requirements imposed by
the Bank in order to enable the Bank to secure the related income tax deduction
to which it will be entitled in such event under the Code.
11. No Rights as Stockholder. Neither the Grantee nor the personal
representatives, heirs or legatees of such Grantee shall be or have any rights
or privileges of a stockholder of the Bank with respect to any shares subject to
an Option unless and until certificates evidencing such shares shall have been
issued and delivered to the Grantee or to such personal representatives, heirs
or legatees.
12. No Rights. to Continued Employment. This Plan and any Option granted
under this Plan shall not confer upon any Grantee any right with respect to
continuation of employment by the Bank, nor shall they interfere in any way with
the right of the Bank to terminate his employment at any time.
13. Additional Property. At the time any Option is exercised, the
Committee, in its discretion, may transfer to the Grantee such additional
property as it may determine, including, without limitation, cash or stock
appreciation rights.
14. Adjustment Upon Changes in Capitalization. The instruments evidencing
Options granted hereunder shall contain such provisions as the Committee shall
deem appropriate to adjust the number and classes of shares covered thereby, or
to adjust the option prices, or both, in the event of the sale or other
disposition or distribution by the Bank of all or a portion of its assets or any
change in the outstanding Common Stock of the Bank by reason of stock dividends,
stock splits, recapitalizations, reorganizations, mergers, consolidations,
combinations or exchanges of shares or the like, of or by the Bank. To prevent
dilution or enlargement of rights in the event of any such change, the aggregate
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number and classes of shares for which Options thereafter may be granted under
this Plan may be appropriately adjusted as determined by the Committee so as to
reflect such change.
15. Necessity of Stockholder Approval. This Plan and any Options granted
hereunder shall be null, void and of no effect unless this Plan has been
approved by two-thirds of the holders of Common Stock of the Bank, voting as a
single class, within twelve (12) months after the date of this Plan's adoption
by the Board.
16. Duration and Amendment of the Plan.
16.1 No Option may be granted under this Plan after the expiration
of ten (10) years from the earlier of: (a) the date this Plan is adopted by the
Board or (b) the date this Plan is approved by the stockholders of the Bank in
accordance with the Act.
16.2 The Board may amend, terminate or suspend this Plan at any
time; provided, however, that no such amendment shall, without approval of the
Bank's stockholders, (a) increase the aggregate number of shares as to which
Options may be granted under this Plan except as specified in Section 14; (b)
change the number of shares subject to Options or the date of grant or the
exercise price of such Options except as specified in Section 14; (c) materially
modify the requirements as to eligibility for participation in this Plan; or (d)
materially increase the benefits accruing to participants in this Plan.
16.3 No Option may be granted during any suspension of this Plan or
after this Plan has been terminated, and no amendment, suspension or termination
shall, without the Grantee's consent, alter or impair any of the Grantee's
rights or obligations under any Option theretofore granted to him under this
Plan except insofar as a merger or consolidation of the Bank or termination of
employment of a Grantee or a liquidation or dissolution shall affect the
cancellation of an Option.
17. Applicable Law. To the extent that state laws shall not have been
preempted by any laws of the United States, this Plan shall be governed by, and
construed in accordance with, the laws of the State of New Jersey.
18. Binding Effect. The terms of this Plan shall be binding upon the
Bank's successors and assigns.
19. Savings Clause. The invalidity or illegality of any provision herein
shall not be deemed to affect the validity of any other provision.
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Exhibit 10(e)
Skylands Community Bank 401(k) Plan
Summary Plan Description
INTRODUCTION
Sooner or later, you're going to need savings to supplement your retirement
income. Achieving financial security for your future is not just a matter of how
much you earn, but more importantly, it's how much you save.
By saving regularly through the 401(k) savings plan, even if only a few dollars
each payday, you can accumulate more money in a few years than you'd think
possible. It is one of the surest ways to give you a head start on developing
financial security.
Skylands Community Bank wants to help you meet your financial goals with this
Plan. Your savings grow faster with tax-deferred dollars, Company contributions
(if any), and investment opportunities. Set your goals high and join the Plan.
This booklet describes the major features of the Skylands Community Bank 401(k)
Plan for Plan Years beginning August 1, 1997. Read this booklet carefully and
think about it. The question should not be whether you should join, but how
little or how much you should invest for your financial security.
Copies of the Plan and certain related documents are available for your review
in the offices of the Company. If there are any differences between this
description and the terms of the Plan document, the terms of the Plan document
will govern.
From time to time, application is made to the Internal Revenue Service for a
ruling that the Plan is qualified under the Internal Revenue Code. Changes to
the Plan may be required because of federal law or related regulations or may be
made by the Company. You will be informed of important changes.
<PAGE> 2
WHO IS ELIGIBLE TO PARTICIPATE IN THE PLAN?
All employees of Skylands Community Bank are eligible to participate in the
Plan, upon completing the participation requirements of the Plan.
WHEN DOES PLAN PARTICIPATION BEGIN?
An eligible employee becomes a participant of the Plan on or after reaching age
21 and completing one Year of Eligibility Service. A Year of Eligibility Service
is accomplished after completing 1,000 hours of service during your first twelve
months of employment. If 1,000 hours of service is not completed in the first
twelve months of service, you may complete 1,000 hours of service in any
calendar year.
Participation is entirely voluntary. You may enroll in any month once you become
eligible. To enroll, you must complete an Enrollment Form and return it to the
Company, by the date established by the administrator at your Company. Your
contributions will then begin in the first payroll cycle of the following month.
HOW DOES THE PLAN WORK?
The basic operation of the Plan is simple:
You set aside a percentage of your eligible earnings every pay period for
the purpose of increasing your future financial security. The amount you
set aside is called a "deferral" because you are choosing to defer part of
your salary into the Plan for your retirement instead of receiving it in
cash now. The amount you defer and additional Company contributions, if
any, are invested in the investment options provided in the Plan, as you
direct.
The advantage of deferring income is that the amount you defer is
subtracted from your paycheck before income taxes are calculated. This
means you contribute to the Plan on a before-tax basis and defer the
federal income taxes on your contributions to the Plan. Any additional
Company contributions, if any, or on any accumulated investment earnings
will also be tax-deferred until you withdraw money from the Plan.
The Plan has several features that allow you to tailor it to your own
personal needs. It is voluntary, so you join only if it fits your
financial program. You decide how much you contribute and how your
contributions are to be invested, and you also have the right to change
these decisions.
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WHAT CONTRIBUTIONS ARE MADE TO THE PLAN?
o YOUR CONTRIBUTIONS
Your contributions to the Plan are made from your eligible earnings
before taxes are taken out. You may contribute from 1% to 15% (in
whole percentages) of your eligible earnings. There may be
restrictions on contributions from certain higher paid employees.
For purposes of the Plan, eligible earnings are defined as
compensation as reflected on your Form W-2, including overtime,
bonuses, commissions, severance pay, dependent care, company car
expenses, employee business expenses, moving expenses, nonqualifed
plan distributions and other noncash fringe benefits, but excluding
sick pay payable from a third party, group term life insurance and
tips.
o NONELECTIVE CONTRIBUTIONS
The Company may decide to make an additional contribution to the
Plan, although the Company is not required to make this
contribution. Your share of the nonelective contribution is in
proportion to your eligible earnings compared to the eligible
earnings of the other employees who will also share in the
contribution.
ARE THERE ANY LIMITATIONS TO THE AMOUNT I CAN CONTRIBUTE?
The Internal Revenue Service requires that retirement plans which permit
employees to defer taxes by making elective contributions to satisfy a rather
complex test. In order to pass this test each year, it may be necessary to limit
the elective contributions made by certain owners and/or the higher-paid Company
employees by adjusting these contributions to a level that is considered
nondiscriminatory. The Company will monitor these contributions. If such an
adjustment becomes necessary, the affected employees will be notified.
The annual dollar amount that you can contribute to your account is also limited
by Congress. For 1997 the limit is $9,500. This limit may increase annually to
reflect cost-of-living increases.
If you take a hardship withdrawal, the minimum you can contribute during the
calendar year following your withdrawal is reduced by the amount you contributed
during the year you received the withdrawal.
Congress also limits the annual eligible earnings to be considered for purposes
of plan contributions and testing to $160,000 in 1997. This limit may also be
increased periodically to reflect cost-of-living increases.
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AM I ALWAYS 100% VESTED IN THE MONEY IN MY ACCOUNTS?
You are always 100% vested in your own contributions to the Plan, and any
investment earnings on your contributions. Vested means this portion of your
Account Balance cannot be forfeited. You will also be 100% vested in Nonelective
Contributions, since the Plan provides for immediate vesting for Company
Contributions. If you terminate employment with the Company for any reason
including permanent disability (defined later in this booklet), if you attain
age 65 (the Normal Retirement Age defined in the Plan) and are employed by the
Company, or in the event of your death while employed by the Company, you remain
100% vested.
CAN I FORFEIT ANY PORTION OF MY ACCOUNT?
No, the plan provides for 100% immediate vesting for all Company Contributions.
WHAT HAPPENS IF I BECOME PERMANENTLY DISABLED?
If you become permanently disabled, you become 100% vested in all your accounts.
You are considered permanently disabled if you become eligible for disability
benefits under the Company's long term disability plan.
HOW ARE CONTRIBUTIONS INVESTED?
Amounts contributed to the Plan are held in a trust created under the Plan.
Contributions allocated to your account are invested according to your
direction. Different investment funds are offered, each has different investment
objectives. You have been provided by the Administrative Committee with a
description of each of these investment finds. Contact the Administrative
Committee if you have questions regarding the different investments offered in
the Plan.
WHAT HAPPENS IF I CHANGE MY MIND?
Effective the beginning of any month, you can make a change to:
o increase or decrease the amount of your contribution (change every
30 days);
o the investment of your future contributions (change every 30 days);
or
o reallocate/transfer your current account balance (change every 90
days).
Any of these changes may be made in the time and manner determined by the
Administrative Committee from time to time. However, following your initial
enrollment or after one of the three changes noted above, you cannot make the
same type of change for at least the number of days specified above.
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You may suspend your contributions effective with the first payroll of any month
by changing your contributions to 0%, in the time and manner determined by the
Administrative Committee from time to time. Once you suspend your contributions,
you may not resume contributing for 30 days.
If you choose to reallocate your account balance, certain restrictions apply. If
any monies are invested in the Yield Plus Fund you may not transfer those monies
directly into the Government Money Market Fund.
WILL I RECEIVE A STATEMENT OF MY ACCOUNT?
You will receive a quarterly statement that shows the activity in your account
for the calendar quarter, including contributions and investment earnings.
HOW IS THE VALUE OF MY ACCOUNT DETERMINED?
The value of your account can change depending on several factors which include:
(a) contributions that are made to the account;
(b) increases or decreases in the market value of investments;
(c) cost of investment management expenses and transactional costs
(contact the administrator at the Company for information on these
expenses and transactional costs, if any); and
(d) loans and loan repayments.
All investments involve some risk. Thus, the value of the different investments
may go down as well as up and the value of your account will vary accordingly.
The statement of your account will reflect all transactions affecting the value
of your account.
WHEN CAN I RECEIVE PLAN BENEFITS?
Benefits are payable to you after you leave the Company for any reason
(retirement, termination, disability or death):
o If you leave the Company for any reason, you can receive your vested
benefits in a single lump sum payment or have the payment paid as a
"direct rollover" to your individual retirement arrangement (IRA) or
to another employer's tax qualified plan (if separation is due to
your death, direct rollover is only available if your beneficiary is
your spouse).
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If your account balance is greater than $3,500, you may choose to
receive monthly installments or defer payments until age 70 1/2.
If you choose to defer payments, your account will continue to be
invested the way you direct and will be adjusted for any gains or
losses which occur.
If you elect to have the distribution paid to you in a lump sum, you
will receive only 80% of your vested account balance, because 20% is
required to be withheld by the Company and sent to the IRS as income
tax withholding to be credited against your taxes. The only
exception to this requirement is if your vested benefit is less than
$200.00. Before electing your payment from the Plan, you will
receive a notice describing the elections you may make for your
payment.
o In the event of your death, you are 100% vested and the amount in
your account is payable in a single lump sum to your beneficiary. If
you are not married, you may name anyone as your beneficiary, or
change your beneficiary at any time on a form provided for that
purpose. If you are married, you must name your spouse as
beneficiary unless your spouse agrees to the selection of someone
else. Unless otherwise elected, the beneficiary will be your spouse
or, if you have no surviving spouse, your descendants, or if you
have no surviving descendants, your beneficiary will be your estate.
o If you continue working for the Company after age 70 1/2 and you are
more than a 5% owner, you must begin to receive your benefits by
April 1 following the year in which you reach age 70 1/2, even if
you are still employed at the time.
HOW ARE MY DISTRIBUTIONS FROM THE PLAN TAXED?
Distributions from this Plan that are received by you or your beneficiary are
subject to current income taxes. However, under certain circumstances, such as a
distribution to you or your spouse as your beneficiary, the income taxes on Plan
distributions may be postponed or reduced. You will receive additional
information about distributions from the Plan at the time you or your
beneficiary is entitled to receive a benefit.
Distribution rules provide that any part of the taxable portion of a
distribution from a qualified plan (such as this Plan) can be rolled over to
another tax-qualified plan or individual retirement account. The distribution(s)
that will not be eligible to be rolled over are when the distribution is one of
a series of substantially equal payments made over the life (or joint life
expectancies) of the participant and his or her beneficiary, or over a specified
period of 10 years or more, or a minimum required distribution because a
participant, who is more than a 5% owner, has attained age 70 1/2.
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You are permitted to elect to have any distribution that is eligible for
rollover treatment specified by you as a Direct Transfer and transferred
directly to an eligible transferee plan. Such a distribution will not be subject
to 20% withholding. You will receive a written explanation of your distribution
options within a reasonable period of time before receiving a distribution that
is eligible to be rolled over.
If you elect to have your benefit transferred as a Direct Transfer, then you
must provide the administrator at your Company, in a timely manner, with
information regarding the transferee plan. The administrator at your Company is
entitled to reasonably rely on the information that you provide to him or her,
and will not independently verify it.
Federal income tax withholding at a rate of 20% is required on any distribution
that is eligible to be rolled over but is not transferred directly to an
eligible transferee plan. Unlike distributions under prior law, you cannot elect
to forego withholding on these distributions.
As an alternative to deferring the payment of taxes through a rollover or Direct
Transfer, you (or your beneficiary) may elect to apply five (5) year forward
averaging treatment to any distribution you receive from the Plan. However, five
year averaging can be applied only once and you must have attained age 59 1/2 at
the time of the distribution. You may not elect five (5) year forward averaging
after December 31, 1999. Ten (10) year forward averaging is still available,
provided you attained age 50 before January 1, 1986. However, using ten year
averaging eliminates the ability to elect five year averaging after age 59 1/2.
This averaging may, in most cases, have the effect of reducing the amount of any
income taxes due on your distribution. In order to take advantage of this
special tax treatment, you must have been a Plan participant for part of at
least 5 taxable years (no such requirement applies if the distributee is your
beneficiary).
This section summarizes only the federal (not state or local) tax rules that
might apply to your payment. Therefore, you may want to consult with a
professional tax advisor before you take a payment of your benefits from the
Plan. The rules described above are complex and contain many conditions and
exceptions that are not included in this section. If for example, your
distribution from the plan is not eligible to be rolled over, such as a death
benefit payable to a nonspouse beneficiary, the old elective withholding rules
continue to apply.
MAY I WITHDRAW FUNDS WHILE STILL EMPLOYED?
You may withdraw all or part of your vested account once you reach age 59 1/2.
In the event of a financial hardship you may withdraw your own contributions as
well as any vested Matching and Nonelective Contributions. For purposes of
calculating the amount available for a hardship distribution, elective
contributions will exclude any interest earned after the end of the last plan
year ending before July 1, 1989 (for calendar year plans, earnings on elective
deferrals will be excluded after December 31, 1988).
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To make a hardship withdrawal under current Internal Revenue Service rules, you
must be able to show that you are suffering an immediate and heavy financial
hardship and that the money cannot be obtained from any other source.
Circumstances that qualify as an immediate and heavy financial hardship are:
(a) medical expenses not covered by insurance for you and your family;
(b) the purchase of your principal residence;
(c) post-secondary tuition casts for the next 12 months for you and your
family;
(d) the need to prevent eviction from or foreclosure on your principal
residence.
In addition, the hardship distribution must be no more than the amount necessary
to satisfy your immediate and heavy financial needs including any income taxes
or penalties which are expected to result from the distribution. The minimum
request is $500. You also must first request the maximum amount available to you
as a loan under all plans maintained by the Company.
Your hardship withdrawal may be subject to the requirement that 20% be withheld
for federal income taxes, and may be subject to an additional 10% excise tax
imposed by the IRS. You will be suspended from making elective contributions for
twelve (12) months after you receive the hardship distribution.
HOW DO LOANS WORK?
Loans will be made on a uniform and non-discriminatory basis.
Loans are a way to receive part of your account without paying taxes - by
borrowing from your account. The minimum loan is $500. You can borrow 50% of
your vested account to a maximum of $50,000. However, the $50,000 will be
reduced by the highest outstanding loan balance you had during the previous
twelve month period.
Loans must be fully repaid through payroll deductions within 5 years unless the
loan is used for the purchase of your primary residence. Loans used to purchase
your primary residence may be repaid within 30 years. You have to repay any
outstanding loan before a new loan can be made. The interest rate for a loan
will be the rate in effect in the month your loan is effective. The interest
rate is equal to the current prime rate plus two percentage points. If you
terminate employment, any remaining payments are due immediately unless you are
a party in interest. If you qualify as a party in interest, you may continue to
repay your loan after employment. If you do not repay the loan, the outstanding
loan balance becomes a taxable event.
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IF I RECEIVED A DISTRIBUTION FROM THE PLAN OF ANOTHER EMPLOYER, MAY I CONTRIBUTE
THAT AMOUNT TO THE PLAN?
Yes. You may make a Rollover Contribution of benefits, in cash (exclusive of any
voluntary nondeductible contributions), from a qualified retirement plan of a
former employer to this Plan, either directly or through an individual
retirement account which only contains rollover contributions from another
qualified plan, plus earnings. You may request a Direct Transfer of your account
in a previous employer's qualified plan or you may be able to roll over a
distribution which was tax deferred, but with respect to a rollover you must do
so within 60 days of receiving a distribution from the other plan.
WHAT ARE TOP-HEAVY PROVISIONS?
A top-heavy plan is a plan in which 60%, or more of the account balances held
under the Plan belong to "key employees". Key employees are generally officers,
shareholders, and owners. If the Plan becomes top-heavy, the Plan would be
required to provide for minimum contributions and top heavy vesting. The minimum
contribution is generally a contribution by the Company of 3% of your
compensation unless all key employees receive a contribution of less than 3% of
their compensation. The amount you contribute to the Plan is not included in
calculating the 3% contribution made by the Company.
ADDITIONAL ITEMS
A. BENEFIT CLAIMS PROCEDURE
Under the Plan, you receive your benefit as a matter of course.
Accordingly, there is little need for you to file a claim for benefits
from the Plan. However, at some time you, your Beneficiary or some other
person may not agree with the Company about a benefit. The person who
disagrees about the benefit is called "Claimant". In that case, there is a
claims procedure so that the Claimant can file an application for a review
of the issue.
If the Claimant's application is denied, the Administrative Committee will
so notify the Claimant within 30 days and give reasons for the denial.
This notice will refer to the specific Plan provisions on which the denial
is based, will explain the review procedure and will specify whether
additional information is needed from the Claimant.
Within 60 days after receiving the denial, the Claimant may submit a
written request for reconsideration of the application to the
Administrative Committee. Documents or records relied on by the Claimant
should be filed with the request. The Claimant may review relevant
documents and submit issues and comments in writing.
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The Administrative Committee will review the claim within 60 days (or 120
days if special circumstances exist, in such cases a hearing may be held)
and provide a written response to the appeal. The response will explain
the reasons for the decision and refer to the provisions of the Plan on
which the decision is based. This decision of the Administrative Committee
is the final one under this claims procedure.
B. PENSION BENEFIT GUARANTY CORPORATION
Benefits under the Plan are not insured by the Pension Benefit Guaranty
Corporation. The reason is that plans that provide for individual
accounts, such as the Plan, are excluded under the ERISA provisions which
provide for such insurance coverage.
C. INVESTMENT INFORMATION
The Plan is called "an individual account plan". This means that you and
all other participants have their own account in the Plan. The Plan is
intended to satisfy the requirements of Section 404(c) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). An ERISA
Section 404(c) plan is an individual account plan which is designed to
provide you with the opportunity to exercise control over the assets in
your individual account, and also provides you with the opportunity to
choose, from among a range of investment funds, the manner in which the
assets in your account are invested. This means that you will have the
responsibility for the investment decisions you make and neither ADP nor
State Street Bank nor the Company will have any liability to you under
ERISA for any investment losses that may result from your decision. You
will be provided with the required investment information by the Company
along with the address and telephone number of the Company. The Company
will provide you with the following information at your request:
o a description of the annual operating expenses of each designated
investment which reduces your rate of return, and the aggregate
amount of such expenses expressed as a percentage of average net
assets
o copies of any financial statements and reports and any other
materials relating to investments under the Plan,
o a list of the assets comprising the portfolio of each investment and
the value of each such asset,
o information concerning the unit value of each investment,
o information concerning the unit value of the investments in your
account.
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D. ERISA RIGHTS
As a participant in the Plan, under ERISA you are entitled to the
following rights:
1) to examine without charge all Plan documents and copies of all
documents filed by the Plan with the U.S. Department of Labor, such
as detailed annual reports and Plan descriptions;
2) to obtain copies of all Plan documents and other Plan information
upon written request to the Administrative Committee. A reasonable
charge may be made for the copies;
3) to receive a summary of the financial reports of the Plan. The
Administrative Committee is required by law to furnish each
participant with a copy of these reports; and
4) to obtain a statement telling you whether you have a right to
receive benefits under the Plan and if so, what your benefits would
be if you leave the Company. If you do not have a right to Plan
benefits, the statement will tell you how many more years you must
work to earn a right to benefits. This statement must be requested
in writing; it is not required to be given more than once a year.
The Plan must provide the statement free of charge.
In addition to creating rights for Plan participants, ERISA imposes duties
upon the people who are responsible for the operation of employee benefit
plans. The Administrative Committee who administers your Plan has a duty
to do so prudently and in the interest of you and other Plan participants
and beneficiaries. No one (neither the Company nor any other person) may
fire you or otherwise discriminate against you in any way to prevent you
from obtaining a benefit or exercising your rights under ERISA.
Under ERISA, there are steps you may take to enforce the above rights. For
instance, if you request materials from the Plan and do not receive them
within 30 days, you may file suit in a federal court. In such a case, the
court may require the Administrative Committee to provide the materials
and to pay you up to $100 a day until you receive the materials, unless
the materials were not sent for reasons beyond the control of the
Administrative Committee or Trustees. If you have a claim for benefits
which is denied or ignored, in whole or in part, you may file suit in a
state or federal court.
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If it should happen that fiduciaries misuse the Plan's money, or if you
are discriminated against for asserting your rights, you may seek
assistance from the U.S. Department of Labor, or you may file suit in a
federal court. The court will decide who should pay court costs and legal
fees. If you are successful, the court may order the person you have sued
to pay the costs and fees. If you lose, the court may order you to pay
these costs and fees if, for example, it finds that your claim is
frivolous. If you believe that your rights under the Plan have been
violated, you have the right to bring legal action against the Plan in a
court of law.
If you have any questions about the Plan, you should contact the
Administrative Committee. If you have any questions about your rights
under ERISA, you should contact the nearest Area Office in the U.S.
Labor-Management Services Administration, Department of Labor.
E. NON-ASSIGNMENT OF BENEFITS
You may not assign the benefits provided for you by the Plan, nor are
these benefits subject to the claims of any creditor, unless otherwise
provided by law. One exception to this rule is the "Qualified Domestic
Relations Order". A Qualified Domestic Relations Order is defined as a
judgment, decree or court order, approving property settlement agreements,
and/or relating to child support, alimony or marital property rights of a
spouse, child or other dependent of a participant. To be binding, a
Qualified Domestic Relations Order must specify certain required legal
information and cannot alter the amount or form of Plan benefits.
F. RIGHTS TO EMPLOYMENT
The existence of the Plan does not affect the employment rights of any
employee or the rights of the Company to discharge an employee.
G. FUTURE OF THE PLAN
While the Company hopes and expects to continue the Plan indefinitely, it
reserves the right to terminate, discontinue making contributions to,
amend or modify the Plan at any time, acting trough written resolution of
the controlling entity of the Company. Upon termination of the Plan, you
will become l00% vested in any Nonelective Contributions made prior to the
termination of the Plan. (You are always fully vested in your
contributions.) The Company will make distributions upon Plan termination
as soon as administratively feasible.
12
<PAGE> 13
H. VETERANS' RIGHTS
If you are a returning veteran, special rules apply to your own elective
contributions. In general, reemployed veterans are permitted to make
additional elective contributions with respect to their period of military
service during a period which begins on their date of reemployment and has
the same length as the lesser of (l) the period of their absence due to
uniformed service, multiplied by three or (2) five years. If you are a
returning veteran and believe you may be entitled to contribute under
these special provisions, please contact the Administrative Committee.
13
<PAGE> 14
I. MISCELLANEOUS ITEMS
Plan Name: Skylands Community Bank 401(k) Plan
Plan Sponsor: Skylands Community Bank
24-26 Crossroads Center South, Route 517
Hackettstown, NJ 07840
(908) 850-9010
Effective Date: Effective May 1, 1992 and amended and
restated August 1, 1997
Employer ID. Number: 22-2975774
Plan Number: 001
Type of Plan: Defined Contribution Plan
Plan Year: Calendar Year
Administrative Skylands Community Bank
Committee:
Trustee: State Street Bank
200 Newport Avenue
North Quincy, MA 02171
(617)786-3000
Service of Process: Upon any Administrative Committee Member
Type of Administration: Administrative Committee
A complete list of all locations with eligible employees can be obtained from
the Administrative Committee.
14
<PAGE> 15
SUMMARY OF MATERIAL MODIFICATIONS TO THE
AUTOMATIC DATA PROCESSING 401(K) PLAN
A Summary Plan Description (SPD), a brief explanation of the terms of the 401(k)
plan was provided to all employees who are eligible to participate in the 401(k)
plan.
The plan has recently been amended to make changes to the master prototype plan
document. This Summary of Material Modifications (SMM) modifies the SPD and
provides a brief explanation of the changes that were made to the plan. A copy
of this SMM should be attached to your SPD and kept in a convenient place for
future reference.
The effective date for the changes in this SMM is January 1, 1998, except item I
which is effective May 1, 1999.
I. You can make a change to:
o The investment of your future contributions (change can be daily)*;
o Reallocate/transfer your current account balance (change can be
daily)*; or
o Increase or decrease the amount of your contributions (change every
30 days).
*Previously these changes were permitted every 30 days.
II. If you are a more than 5% owner, and you continue working for the Company
after age 70 1/2, you must begin to receive your benefits by April 1
following the year in which you reach age 70 1/2, even if you are still
employed at the time.
Previously, ANY participant who attained age 70 1/2 was required to begin
receiving distributions from the plan no later than April 1 following the
year in which the person attained age 70 1/2.
III. Any reference to $3,500 throughout the SPD has been changed to $5,000.
IV. The following was added in the section labeled "Additional Items" in the
SPD:
VETERAN'S RIGHTS
If you are a returning veteran, special rules apply to your own elective
contributions and company matching contributions. In general, re-employed
veterans are permitted to make additional elective contributions with
respect to their period of military service during a period which begins
on their date of reemployment and has the same length as the lesser of (1)
the period of their absence due to uniformed service, multiplied by three
or (2) five years. The company will match (if the plan provides for a
matching contribution) any additional elective contributions at the same
rate that would have been required had they actually been made during your
period of uniformed service. If you are a returning veteran and believe
you may be entitled to contribute under these special provision, please
contact the Administrative Committee.
V. Section C. of "How is the Value of My Account Determined?" has been
changed to read as follows:
(c) cost of investment management expenses and transactional costs
(contact the administrator at the Company for information on these
expenses, transactional costs and service charges, if any); and
Please note, some of the above changes may already be contained in your SPD.
<PAGE> 1
Exhibit 10(f)
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"), is made
as of this 23rd day of May, 1998 (the "Effective Date"), between Skylands
Community Bank, a commercial bank formed under the laws of the State of New
Jersey (the "Bank"), and Michael Halpin (the "Executive").
WHEREAS, the Bank and the Executive are parties to an Employment Agreement
dated as of May 23, 1995, as amended by Amendment No. 1 thereto dated December
13, 1995 (such Employment Agreement, as so amended, being herein called the
"Employment Agreement"), pursuant to which the Executive has agreed to serve as
the President and Chief Executive Officer of the Bank; and
WHEREAS, the Executive and the Bank have agreed to extend the term of the
Agreement, and to modify certain features of the Employment Agreement which
modifications shall be applicable during the extended term of the Employment
Agreement; and
WHEREAS, the Bank and the Executive wish to integrate all the features of
the Employment Agreement and the modifications to which the Executive and the
Bank have agreed into a Amended and Restated Employment Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
made herein, the Bank and the Executive, each intending to be legally bound,
hereby agree as follows:
1. Employment. The Bank hereby agrees to employ the Executive, and the
Executive hereby accepts employment with the Bank, upon the terms and conditions
set forth herein.
<PAGE> 2
2. Term of Employment; Automatic Extensions. Subject to the terms hereof,
the term of this Agreement shall commence on May 23, 1995 and shall continue for
a period of three (3) years thereafter (the "Initial Term"). Additionally, as of
the last day of the Initial Term, the term of employment under this Agreement
shall be extended for an additional period of thirty-six (36) months beginning
on the first day after such last day. On May 23, 1999 and on each May 23
thereafter until this Agreement shall be terminated, the term of this Agreement
shall be automatically extended for an additional period of thirty-six (36)
months (all such extensions of the term of this Agreement being herein
collectively called the "Extended Term"). As used herein, the phrase "Term of
Employment" shall mean the Executive's employment with the Bank pursuant to this
Agreement during the "Initial Term" and the "Extended Term".
3. Position. (a) The Executive shall be employed as the President and
Chief Executive Officer of the Bank, and shall perform such duties as may be
assigned to the Executive from time to time by the Board of Directors of the
Bank or as may be set forth in the By-Laws of the Bank (the "Bylaws"), as the
same may be amended from time to time. The Executive's employment will be on a
full-time basis at the Bank's offices located in Independence Township, New
Jersey, subject to such travel as may be required to perform the Executive's
duties. The Executive further agrees to devote his full time and attention to
the business of the Bank and to perform such duties as may be required of him to
the best of his abilities, and will not accept any other employment without the
prior written consent of the Bank.
(b) The Board of Directors of the Bank shall nominate the Executive for
election as director of the Bank at each annual meeting of stockholders of the
Bank during the Term of Employment.
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<PAGE> 3
4. Compensation. The Bank shall pay to the Executive compensation for his
services during the Term of Employment as follows:
(a) The Executive shall be paid a salary of $140,000 per year, which
salary may be increased in the discretion of the Board of Directors of the Bank.
The salary shall be payable in installments in accordance with the usual payroll
policies of the Bank.
(b) The Executive shall be entitled to reimbursement for all proper
business expenses incurred by him with respect to the business of the Bank in
the same manner and to the same extent as such expenses are reimbursed to other
officers of the Bank.
(c) The Executive shall be eligible to receive discretionary annual bonus
payments authorized by the Board of Directors of the Bank pursuant to the Bank's
Key Executive Annual Incentive Plan attached hereto as Exhibit A, or any other
bonus plan maintained by the Bank from time to time for its officers during the
Term of Employment.
(d) The Executive shall be granted a non-qualified stock option (the
"Option") for the purpose of 40,000 shares of common stock, par value $2.50 per
share, of the Bank, which Option shall be granted at such time as may be
determined by the Bank; provided, that the Option shall be granted by the Bank
to the Executive not later than December 31, 1995. The Option shall be evidenced
by an option agreement in the form attached hereto as Exhibit B.
(e) The Executive shall be entitled to a cash allowance of $800 per month
for automobile and related expenses, which allowance shall be paid to the
Executive at the beginning of each month.
5. Benefits. (a) During the Term of Employment, the Executive shall be
entitled to twenty (20) vacation days and six (6) sick days per year in
accordance with the policies of the Bank in effect from time to time, and shall
also be entitled to any hospital, health,
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<PAGE> 4
disability, medical, pension plans and other benefits which may be available,
from time to time, to officers of the Bank.
(b) During the Term of Employment, the Bank shall maintain a life
insurance policy or policies upon the life of the Executive providing for
aggregate death benefits of not less than $250,000; provided, that the Bank
shall have no obligation under this Section 5(b) if the Bank can not obtain such
policy or policies at standard rates or better. The beneficiary of such policy
or policies shall be the estate of the Executive.
6. Termination for Cause. (a) The Bank may terminate the Executive's
employment for Cause, upon written notice to the Executive, which notice shall
specify the reasons for the termination. In the event of termination for Cause,
the Executive shall not be entitled to any further payments or benefits under
this Agreement other than salary accruing up to the date of termination.
(b) For purposes of this Agreement, "Cause" shall mean (i) the willful or
repeated failure by the Executive to perform his duties hereunder after at least
one warning in writing from the Bank identifying any such failure occurring not
less than forty-five (45) days prior to the date notice of termination is given
by the Bank pursuant to Section 6(a); (ii) the willful misconduct of the
Executive in the performance of his duties hereunder; (iii) conviction of a
crime (other than a minor traffic violation); (iv) habitual drunkenness or drug
abuse; (v) excessive absenteeism, other than for illness, after at least one
warning in writing from the Bank; (vi) the unauthorized disclosure or use of any
confidential information or proprietary data of the Bank or its subsidiaries; or
(vii) the happening of any event or existence of any circumstances which would
prevent the Executive from serving as a director of the Bank under Section 104
of the New Jersey Banking Act of 1948 (the "Act"), as the same may be amended or
modified, or
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<PAGE> 5
any successor statutory or regulatory provision. For purposes of this Section
6(b), no act or omission shall be deemed "willful" if made in good faith and
with a reasonable belief that the act or omission was in the best interests of
the Bank.
7. Disability. If during the Term of Employment, the Executive shall
become permanently disabled or is otherwise unable to perform his essential job
functions hereunder with or without reasonable accommodation for six consecutive
months, or for shorter periods aggregating six months, in any twelve month
period, the Bank may terminate the employment of the Executive hereunder upon
written notice to the Executive. In such event, the Executive shall not be
entitled to any further payments or benefits under this Agreement other than
payments under any disability policy which the Bank may obtain for the benefit
of its officers generally and salary accruing up to the date of termination.
8. Death Benefits. Upon the Executive's death during the Term of
Employment, the Executive's estate shall be entitled to the benefits of any life
insurance policy then maintained by the Bank pursuant to Section 5(b), but the
Executive's estate shall not be entitled to any further payments or benefits
under this Agreement other than salary accruing up to the date of death.
9. Termination Without Cause. (a) The Bank may terminate the Executive's
employment without Cause upon ten (10) days prior written notice to the
Executive. If the Bank terminates the Executive's employment without Cause, the
Bank shall, within thirty days following his termination, pay the Executive a
lump sum termination benefit (the "Severance Payment") equal to the greater of
(i) the unpaid salary (at the rate in effect at the time notice of termination
was given) that would otherwise have been paid to Executive pursuant to this
Agreement for the period from the date the Executive ceased to be employed by
the Bank to the
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<PAGE> 6
end of the Initial Term, or if such termination occurs during any Extended Term,
to the end of the Extended Term, and (ii) 2.99 times the annual salary of the
Executive in effect at the time notice of termination was given. The Severance
Payment shall be in addition to any salary accruing up to the date of
termination. During the period from the date the Executive is terminated without
Cause by the Bank to the end of the Initial Term, or if such termination occurs
during any Extended Term, to the end of the Extended Term, the Bank also shall
continue to provide to the Executive the hospital, health, disability, and
medical benefits which may be available from time to time to officers of the
Bank; provided, that such benefits shall be provided to the Executive for a
period of not less than twenty-four (24) months from the date the Executive is
terminated without Cause by the Bank.
(b) In the event the Executive's employment hereunder shall be terminated
by the Bank without Cause, the Executive shall be obligated to promptly inform
the Bank of any new employment. If the Executive's new employment provides the
Executive with hospital, health, disability and medical benefits which are
equivalent to the benefits payable by the Bank hereunder, the Bank may
permanently reduce or terminate the duplicative benefits it is obligated to
provide hereunder.
(c) The Executive shall not have a duty to mitigate the damages suffered
by the Executive in connection with the termination by the Bank of his
employment without Cause.
(d) Except as set forth in this Section 9, the Executive shall be entitled
to no other payments or benefits following a termination without Cause.
10. Resignation. The Executive may resign from his employment with the
Bank hereunder at any time during the Term of Employment for any reason upon ten
(10) days prior written notice. Except as provided in Section 11 of this
Agreement, upon resignation the
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<PAGE> 7
Executive shall not be entitled to any additional compensation for the time
after which he ceases to be employed by the Bank, and shall not be entitled to
any of the other benefits provided hereunder.
11. Resignation Upon Change in Control. (a) For purposes of this Section
11, a "Change in Control" shall mean any of the following:
(i) Any tender offer or merger (including any triangular merger),
consolidation, plan of exchange or other business combination (each of the
following being referred to herein as a "Transaction"), as a result of which
persons who were shareholders of the Bank immediately prior to the Transaction
do not immediately thereafter own, in the aggregate, at least eighty percent of
the outstanding voting securities of the Bank, the acquiring entity, or the
resulting or surviving entity (or of the parent of Bank or such entity in the
case of a triangular merger), as the case may be;
(ii) Any sale or other disposition of all or substantially all of
the assets of the Bank to any entity of which less than eighty percent of its
outstanding voting securities is owned by persons who were shareholders of the
Bank, or of which less than a majority of its board of directors consist of
persons who were directors of the Bank, immediately prior to the disposition.
(b) The Executive may resign from his employment with the Bank (or any
successor to the Bank) if, at any time after a Change in Control, any of the
following shall occur without the prior consent of the Executive:
(i) the assignment to the Executive of any duties inconsistent with,
or the reduction of the powers or functions associated with, the Executive's
position, duties and responsibilities with the Bank immediately prior to the
Change in Control as set forth in the By-
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<PAGE> 8
Laws;
(ii) the assignment to the Executive by the Bank or any successor to
the Bank of a principal office for the performance of his duties hereunder which
is more than twenty (20) miles from the principal office of the Bank immediately
prior to the Change in Control;
(iii) the failure by the Bank or any successor to the Bank to
continue in effect any employee benefit or bonus plan or arrangement in which
the Executive was eligible to participate immediately prior to the Change in
Control (except that the Bank or any successor to the Bank may establish plans
or arrangements providing equivalent benefits), or the taking of any action
which prevents the Executive's participation in or reduces the Executive's
benefits under, any of the foregoing;
(iv) the failure by the Bank or any successor to the Bank to provide
the Executive the same number of paid vacation and sick days to which the
Executive was entitled immediately prior to the Change in Control;
(v) in the event of a Change in Control due to the disposition of
all or substantially all the assets of the Bank, the failure by the Bank to
obtain an assumption of the obligations of the Bank under this Agreement by the
purchaser of such assets; or
(vi) the failure of the Executive to be re-elected as a director of
the Bank.
(c) In the event the Executive shall resign from his employment pursuant
this Section 11, the Executive shall be entitled to salary accruing up to the
date of termination and the Severance Payment as defined in Section 9 of this
Agreement, which Severance Payment shall be paid within thirty business days
after the effective date of the Executive's resignation, and the
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<PAGE> 9
Bank or the successor to the Bank shall continue to provide to the Executive the
hospital, health, disability and medical benefits which may be available from
time to time to officers of the Bank in accordance with and subject to the
limitations set forth in Section 9 hereof
(d) Executive shall have no duty to mitigate the damages suffered by him
in connection with his resignation pursuant to this Section 11. Except as set
forth in this Section 11, Executive shall be entitled to no other payments or
benefits following his resignation.
12. Non-Disclosure; Non-Competition.
(a) Except as may be required in the course of his employment with the
Bank and in the pursuit of the business of the Bank or any of its subsidiaries,
the Executive shall not, at any time during or following the Term of Employment,
disclose to any person or use any confidential information or proprietary data
of the Bank or any of its subsidiaries. The Executive agrees that all
information concerning the Bank's relations with its customers is confidential
information. The obligations of the Executive under this Section 12(a) shall
survive the termination of the Executive's employment hereunder and the
expiration of this Agreement.
(b) The Executive agrees that in the event that this Agreement is
terminated and the Executive shall be entitled to receive the Severance Payment
as a result of such termination, the Executive will not, for a period of two
years or for the period from the date the Executive ceased to be employed by the
Bank to the end of the Initial Term (or if such termination occurs during any
Extended Term, to the end of the Extended Term), which ever is longer, within a
thirty (30) mile radius of the main office of the Bank, engage in, or own,
manage, operate, control, be employed by or participate in the ownership,
management, operation or control of or otherwise be connected in any manner with
any business which engages in, any activity which is competitive with the
business of the Bank or any of its
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<PAGE> 10
subsidiaries as conducted on the date of such termination.
(c) The parties hereto acknowledge and agree that money damages would
constitute an inadequate remedy in the event of a breach of this Section 12, and
that, in addition to any other remedies which may be available, the obligations
of the Executive under this Section 12 shall be specifically enforceable.
Notwithstanding the foregoing, no remedy conferred herein is intended to be
exclusive of any other available remedies, but each and every remedy shall be
cumulative and shall be in addition to every remedy given hereunder or now or
hereafter existing at law, in equity or by statute. If, in any judicial
proceeding, the duration or scope of any covenant or agreement of Executive
contained in this Section 12 shall be adjudicated to be invalid or
unenforceable, the parties agree that this Agreement shall be deemed amended to
reduce such duration or scope to the extent necessary to permit enforcement of
such covenant or agreement, such amendment to apply only with respect to the
operation of such covenant or agreement in the particular jurisdiction in which
such adjudication is made.
13. Waiver of Breach. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate nor be construed as a waiver of
any subsequent breach, nor shall any waiver of any provision of this Agreement
in any instance shall be deemed to be a waiver of any other provision in any
other instance.
14. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Association ("AAA") nearest to the main office of the Bank, and
judgment upon the award rendered may be entered in any court having jurisdiction
thereof, except to the extent that the parties may otherwise reach a mutual
settlement of such issue. Each party shall bear his or its own costs and
expenses, including
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<PAGE> 11
attorneys' fees, incurred in connection with such dispute, proceedings or
actions.
15. Representation by Counsel. The Executive represents and warrants to
the Bank that he has been represented by separate legal counsel in connection
with the preparation, negotiation and execution of this Agreement, and
acknowledges and agrees with the Bank that McCarter & English has acted solely
as counsel to the Bank in connection with the preparation, negotiation and
execution of this Agreement and not as counsel to the Executive.
16. Governing Law. The terms of this Agreement shall be governed by, and
interpreted and construed in accordance with, the laws of New Jersey applicable
to agreements made and fully to be performed in such state.
17. Entire Agreement; Amendment. This Agreement sets forth the entire
understanding of the parties hereto with respect to its subject matter and
supersedes all prior agreements, negotiations and understandings, written or
oral, with respect to the matters covered hereby. The amendment or termination
of this Agreement may be made only in a writing executed by the Bank and the
Executive, and no amendment or termination of this Agreement shall be effective
unless and until made in such a writing.
18. Assignment. This Agreement is personal to the Executive and the
Executive may not assign any of his rights or duties hereunder, but this
Agreement shall be enforceable by the Executive's legal representatives,
executors or administrators. This Agreement may be assigned by the Bank to any
entity which acquires all or substantially all of the assets of the Bank
existing at the time of such acquisition, or with or into which the Bank is
consolidated or merged.
19. Binding Effect. It is the expectation and intent of the parties hereto
that this Agreement shall be binding upon, enforceable against, and inure to the
benefit of, the Bank
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<PAGE> 12
and its permitted successors and assigns, and the Executive. In furtherance
thereof, the Bank and the Executive expect and intend that the Act, including
but not limited to Section 112 of the Act, does not limit or impair the
obligation of the Bank (or any successor or assign of the Bank) to make, or the
right of the Executive to receive, any Severance Payment pursuant to this
Agreement, and that pursuant to Section 24a of the Act, and the regulations
promulgated pursuant thereto, the obligation of the Bank to make any Severance
Payment hereunder shall be binding upon and enforceable against the Bank and its
successors and assigns to the same extent that such obligation would be
enforceable against a national bank under federal law.
20. Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
21. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and together shall
constitute one and the same instrument.
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<PAGE> 13
IN WITNESS WHEREOF, the Bank has caused this Agreement to be signed by its
duly authorized officer, and the Executive has executed this Agreement, as of
the day and year first written above.
ATTEST: SKYLANDS COMMUNITY BANK
______________________________ By: ____________________________________
Norman S. Baron, Secretary Name: Denis H. O'Rourke
Title: Chairman of the Board &
Chief Executive Officer
WITNESS:
______________________________ ________________________________________
Michael Halpin
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<PAGE> 1
Exhibit 21(a)
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Name State of Incorporation
- ---- ----------------------
<S> <C>
Skylands Community Investment Co., Inc. New Jersey
KYSOREO, Inc. New Jersey
</TABLE>
